Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
by and among
SOFTNET SYSTEMS, INC.,
a New York corporation
softnet acquisitions, inc.,
a Delaware corporation
and
INTELLIGENT COMMUNICATIONS, INC.,
a Delaware corporation
November 22, 1998
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made and entered into as of November 22, 1998, by and among SoftNet Systems,
Inc., a New York corporation ("Acquiror"), SoftNet Acquisitions, Inc., a
Delaware corporation ("Acquisition Sub") and Intelligent Communications, Inc., a
Delaware corporation ("Target"). Target, Acquiror and Acquisition Sub are
sometimes collectively referred to herein as the "Parties," or individually as a
"Party".
RECITALS
A. The Boards of Directors of the Parties believe it is in the best interests of
their respective companies and the shareholders of their respective companies
that Target and Acquisition Sub combine into a single company through the
statutory merger of Target with and into Acquisition Sub (the "Merger") so that
Acquisition Sub survives as a wholly-owned subsidiary of Acquiror and, in
furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, each outstanding share of capital
stock of Target shall be converted into the right to receive cash and/or shares
of common stock of Acquiror at the rate set forth herein.
C. Target and Acquiror desire to make certain representations and warranties and
other agreements in connection with the Merger.
D. Concurrent with the execution of this Agreement and as an inducement to
Acquiror to enter into this Agreement, certain shareholders of Target have on
the date hereof entered into an agreement to vote the capital stock of Target
owned by such persons to approve the Merger and against any competing proposals.
NOW, THEREFORE, in consideration of the covenants and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject to
and upon the terms and conditions of this Agreement, the Certificate of Merger
attached hereto as Exhibit A (the "Certificate of Merger") and the applicable
provisions of the Delaware Corporations Code ("Delaware Law"), Target shall be
merged with and into Acquisition Sub, the separate corporate existence of Target
shall cease and Acquisition Sub shall survive as a wholly-owned subsidiary of
Acquiror. Acquisition Sub as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2
Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (the "Closing
Date"). The Closing shall take place at the offices of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇ LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California, or
at such other location as the parties hereto agree. In connection with the
Closing, the parties hereto shall cause the Merger to be consummated by filing
the Certificate of Merger, together with the required officers' certificates and
certified resolutions of the boards of directors of Target and Acquisition Sub,
with the Secretary of State of the State of Delaware, in accordance with the
relevant provisions of Delaware Law (the time of such filing being the
"Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall
be as provided in this Agreement, the Certificate of Merger and the applicable
provisions of Delaware Law. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target and Acquisition Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of Target and
Acquisition Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Acquisition Sub,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by Delaware Law and such Certificate of Incorporation.
(b) The Bylaws of Acquisition Sub, 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. At the Effective Time, the directors of Acquisition
Sub, as in effect immediately prior to the Effective Time, shall be the
directors of the Surviving Corporation, until their respective successors are
duly elected or appointed and qualified. The officers of Acquisition Sub, as in
effect immediately prior to the Effective Time, shall be the officers of the
Surviving Corporation, until their respective successors are duly elected or
appointed and qualified.
1.6 Effect on Capital Stock.
(a) Definitions
"Acquiror Common Stock" shall mean the common stock, par value
$.01 per share, of Acquiror.
"Acquisition Sub Common Stock" shall mean the common stock,
par value $.0001 per share, of Acquisition Sub.
"Additional Stock" shall mean a number of shares of Acquiror
Common Stock to be tendered by Acquiror to the Target Shareholders on the first
anniversary of the Closing Date such that the Stock Compensation Value shall be
as close as possible to $5,000,000; provided, that the number of shares of
Additional Stock shall not exceed 150,000 (as such number may be appropriately
adjusted for stock splits, stock dividends, and other subdivisions and
combinations of Acquiror Common Stock).
"Anniversary Stock" shall mean the First Anniversary Stock,
the Second Anniversary Stock and the Third Anniversary Stock. Shares of
Anniversary Stock shall be valued at the average closing price for Acquiror
Common Stock for the 15 days immediately preceding the anniversary of the
Closing Date on which such stock is payable to the Target Shareholders.
"Cash Escrow Amount" shall mean $6,500,000.
"Cash Option" shall mean the irrevocable option granted by
Target to Acquiror on October 21, 1998 to purchase 100% of Target Capital Stock
for the Cash Option Price according to the terms of the Letter of Intent, as
modified by the Letter of Amendment.
"Cash Option Price" shall mean the purchase price to be paid
to the Target Shareholders upon Closing in immediately available funds if the
Cash Option is exercised by Acquiror, in lieu of all other compensation except
the Demonstration Bonus. The Cash Option Price shall be equal to $12,000,000
minus the Initial Deposit, the Option Deposit and any Purchase Price Adjustment.
"Cash Purchase Price" shall mean the amount to be paid by
Acquiror to the Target Shareholders at the Closing in immediately available
funds as partial consideration for the Target Capital Stock. The Cash Purchase
Price shall be equal to $500,000 less the Option Deposit and the Original
Deposit.
"Closing Stock" shall mean 500,000 shares of Acquiror Common
Stock (as such number may be appropriately adjusted for stock splits, stock
dividends, and other subdivisions and combinations of Acquiror Common Stock) to
be tendered by Acquiror to the Target Shareholders on the Closing Date as
partial consideration for the Target Capital Stock.
"Demonstration Bonus" shall mean the $1,000,000 bonus to be
paid in any combination of cash or Acquiror Common Stock (at the option of
Acquiror) upon the successful demonstration to Acquiror by the Surviving
Corporation of certain cable technology, as described in Section 1.6(j) below.
If paid in Acquiror Common Stock, the stock shall be valued at the average
closing price of Acquiror Common Stock for the 15 days immediately prior to the
grant of the bonus.
"Exchange Percentage" shall mean a fraction, the numerator of
which shall be one and the denominator of which shall be the sum of the number
of shares of Target Common Stock issued and outstanding at the Effective Time
plus the number of shares of Target Common Stock issuable upon conversion of all
issued and outstanding shares of Target Preferred Stock which are automatically
convertible into Target Common Stock upon consummation of the Merger minus any
shares cancelled pursuant to Section 1.6(e), but expressly excluding any
options, warrants and convertible securities, whether vested or unvested, which
have not been exercised or converted, as appropriate, prior to the Effective
Time. The Exchange Percentage for each Target Shareholder shall be rounded down
to four decimal places.
"First Anniversary Stock" shall mean a number of shares of
Anniversary Stock to be tendered by Acquiror to the Target Shareholders on the
first anniversary of the Closing Date such that the aggregate value thereof
shall be as close as possible to $1,500,000.
"First Promissory Note" shall mean the promissory note in the
amount of $1,000,000 in the form attached hereto as Exhibit B to be granted by
Acquiror at the Closing in favor of the Target Shareholders, which note shall be
payable in any combination of cash or Note Stock (at the option of the
Shareholder's Agent).
"Future Compensation" shall mean the Promissory Notes, the
Additional Stock and the Anniversary Stock.
"Initial Deposit" shall mean the $100,000 non-refundable cash
payment made by Acquiror to Target on October 13, 1998 upon the signing of the
Letter of Intent.
"Letter of Amendment" shall mean the Letter of Amendment dated
October 21, 1998 among ▇▇. ▇▇▇▇▇▇▇▇ Brilliant on behalf of Acquiror and ▇▇▇▇▇
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, both individually and on behalf of Target,
pursuant to which Target, Meachim and ▇▇▇▇▇▇ granted Acquiror the Cash Option.
"Letter of Intent" shall mean the Letter of Intent dated
October 13, 1998 between ▇▇. ▇▇▇▇▇▇▇▇ Brilliant on behalf of Acquiror and ▇▇▇▇▇
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ on behalf of Target pursuant to which Target agreed
to be acquired by Acquiror through the exchange of 100% of Target Capital Stock
for a combination of cash, notes and Acquiror Common Stock, according to the
terms set forth therein.
"Net Asset Value" shall mean the sum of Target's net assets
less its liabilities. In determining the Net Asset Value, assets acquired by
Target from Xerox Corporation shall be valued according to generally accepted
accounting principles, or, if such valuation is impractical, according to
reasonable accounting standards developed in good faith which are mutually
agreed upon between Acquiror and Target.
"Note Stock" shall mean any shares of Acquiror Common Stock
issued as payment in whole or in part of the amount due any Target Shareholder
upon the maturity of the First Promissory Note or the Second Promissory Note.
Such shares shall be valued at the average closing price of Acquiror Common
Stock for the 15 days immediately prior to the maturity date of such notes.
"Option Deposit" shall mean the $100,000 paid by Acquiror to
Target on October 21, 1998 to purchase the Cash Option.
"Option Expiration Time" shall mean 6:00 p.m. San Francisco
Time, December 1, 1998.
"Promissory Notes" shall mean the First Promissory Note and
the Second Promissory Note.
"Purchase Price Adjustment" shall mean any shortfall below $0
in the Net Asset Value of Target on the Closing Date.
"Second Anniversary Stock" shall mean a number of shares of
Anniversary Stock to be tendered by Acquiror to the Target Shareholders on the
second anniversary of the Closing Date such that the aggregate value thereof
shall be as close as possible to $1,500,000.
"Second Promissory Note" shall mean the promissory note in the
form attached hereto as Exhibit C in the amount of $2,000,000 minus any Purchase
Price Adjustment, which note shall be payable in any combination of cash or Note
Stock (at Acquiror's option).
"Stock Compensation Value" shall mean the dollar value of the
Closing Stock and the Additional Stock taken together, valuing each share of
Acquiror Common Stock at the average closing price for such stock for the 15
days prior to the first anniversary of the Closing Date.
"Target Capital Stock" shall mean the Target Common Stock and
Target Preferred Stock.
"Target Common Stock" shall mean the common stock, par value
$.01 per share, of Target.
"Target Preferred Stock" shall mean the Preferred Stock of
Target, par value $.01 per share.
"Target Shareholders" shall mean the holders of Target Capital
Stock on the Closing Date.
"Third Anniversary Stock" shall mean a number of shares of
Anniversary Stock to be tendered by Acquiror to the Target Shareholders on the
third anniversary of the Closing Date such that the aggregate value thereof
shall be as close as possible to $500,000.
(b) Exchange Percentage. If the Cash Option is not exercised prior to the Option
Expiration Time, at the Effective Time, by virtue of the Merger and without any
action on the part of Acquiror, Acquisition Sub, Target or the Target
Shareholders, each share of Target Common Stock and each share of Target
Preferred Stock issued and outstanding immediately prior to the Effective Time
which is convertible into one or more shares of Target Common Stock upon
consummation of the Merger (other than shares to be cancelled pursuant to
Section 1.6(e) and shares, if any, held by persons who have not voted such
shares for approval of the Merger and with respect to which such persons shall
become entitled to exercise dissenters' rights in accordance with the provisions
of Delaware Law ("Dissenting Shares")) shall automatically be cancelled and
extinguished and converted into the right to receive the following:
(i) the Cash Purchase Price, multiplied by the Exchange Percentage;
(ii) the amount payable upon maturity of the First Promissory Note multiplied by
the Exchange Percentage;
(iii) the amount payable upon maturity of the Second Promissory Note, multiplied
by the Exchange Percentage;
(iv) a number of whole shares of Acquiror Common Stock equal to the aggregate
number of shares of Closing Stock multiplied by the Exchange Percentage, rounded
down to the nearest share;
(v) a number of whole shares of Acquiror Common Stock equal to the aggregate
number of shares of Additional Stock (if any) multiplied by the Exchange
Percentage, rounded down to the nearest share;
(vi) a number of whole shares of Anniversary Stock equal to the aggregate number
of shares of First Anniversary Stock multiplied by the Exchange Percentage,
rounded down to the nearest share;
(vii) a number of whole shares of Anniversary Stock equal to the aggregate
number of shares of Second Anniversary Stock multiplied by the Exchange
Percentage, rounded down to the nearest share;
(viii) a number of whole shares of Anniversary Stock equal to the aggregate
number of shares of Third Anniversary Stock multiplied by the Exchange
Percentage, rounded down to the nearest share; and
(ix) the Demonstration Bonus (if awarded) multiplied by the Exchange Percentage.
(c) Exercise of Cash Option. If the Cash Option is exercised prior to the Option
Expiration Time, at the Effective Time, by virtue of the Merger and without any
action on the part of Acquiror, Acquisition Sub, Target or the Target
Shareholders, each share of Target Common Stock and any shares of Target
Preferred Stock issued and outstanding immediately prior to the Effective Time
which is convertible into shares of Target Common Stock upon consummation of the
Merger (other than shares to be cancelled pursuant to Section 1.6(e) and
Dissenting Shares) shall automatically be cancelled and extinguished and
converted into the right to receive the following:
(i) an amount equal to the Cash Option Price minus the Cash Escrow Amount
multiplied by the Exchange Percentage; and
(ii) the Demonstration Bonus (if awarded) multiplied by the Exchange Percentage.
(d) Conversion of Acquisition Stock. At the Effective Time, each share of
Acquisition Sub Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of Common Stock of the Surviving
Corporation.
(e) Cancellation of Target Capital Stock Owned by Acquiror or Target. At the
Effective Time, all shares of Target Capital Stock that are owned by Target as
treasury stock, and each share of Target Capital Stock owned by Acquiror or any
direct or indirect wholly owned subsidiary of Acquiror or of Target immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof.
(f) Target Stock Option Plans. At the Effective Time, all unexercised options
and warrants to purchase Target Capital Stock (whether vested or unvested) shall
be terminated, including, without limitation, any employee incentive stock
options which have been granted to any person pursuant to the Target 1998 Stock
Option Plan.
(g) Adjustments to Exchange Percentage. The Exchange Percentage shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Common Stock or Target Capital Stock), reorganization, recapitalization
or other like change with respect to Acquiror Common Stock or Target Capital
Stock occurring after the date hereof and prior to the Effective Time.
(h) Fractional Shares. No fraction of a share of Acquiror Common Stock will be
issued, but in lieu thereof each holder of shares of Target Capital Stock who
would otherwise be entitled on any given date on which consideration is paid to
the Target Shareholders to a fraction of a share of Acquiror Common Stock
pursuant to Sections 1.6(b) or 1.6(c)(ii) shall receive from Acquiror 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 of Acquiror Common Stock
for the 15 days preceding such date. Acquiror shall have the option, at its sole
discretion, of aggregating all fractional shares to be received by any Target
Shareholder on any given date on which consideration is paid to the Target
Shareholders and, if the aggregate of such fractions equals one or more whole
shares, to issue to such Target Shareholder such additional whole shares of
Acquiror Common Stock and to pay the remaining fraction in cash (rounded down to
the nearest whole cent).
(i) Dissenters' Rights. Any Dissenting Shares shall not be converted into
Acquiror Common Stock but shall instead be converted into the right to receive
such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to Delaware Law. Target agrees that, except with the
prior written consent of Acquiror, or as required under Delaware Law, it will
not voluntarily make any payment with respect to, or settle or offer to settle,
any such purchase demand. Each holder of Dissenting Shares ("Dissenting
Shareholder") who, pursuant to the provisions of Delaware Law, becomes entitled
to payment of the fair value for shares of Target Capital Stock shall receive
payment therefor (but only after the value therefor shall have been agreed upon
or finally determined pursuant to such provisions). If, after the Effective
Time, any Dissenting Shares shall lose their status as Dissenting Shares,
Acquiror shall issue and deliver, upon surrender by such shareholder of
certificate or certificates representing shares of Target Capital Stock, the
consideration to which such shareholder would otherwise be entitled under this
Section 1.6 and the Certificate of Merger.
(j) Additional Demonstration Bonus. As partial consideration for the Target
Capital Stock, Acquiror agrees to pay the Target Shareholders the Demonstration
Bonus upon the working demonstration, on or before the one year anniversary of
the Closing Date, satisfactory in terms of quality, speed, and cost to Acquiror
acting in good faith, of a cable system using a combination of T-1Plus VSAT
technology for the downlink and terrestrial wireless service for the uplink,
provided, however, that the cost of the terrestrial wireless uplink is no more
than $175 per customer premise modem and no more than $3,500 per cable head end
for inbound wireless modem and ancillary equipment, that transaction or
communication costs for terrestrial wireless spectrum use are less than $1 per
customer per month and that there are no additional or "hidden" costs in using
such system.
1.7 Surrender of Certificates.
(a) Exchange Agent. Acquiror's transfer agent shall act as exchange agent
(the "Exchange Agent") in the Merger.
(b) Acquiror to Provide Consideration.
(i) If the Cash Option is exercised, promptly after the Effective Time, the
Acquiror shall make available to the Exchange Agent for exchange in accordance
with Article I, through such reasonable procedures as Acquiror may adopt, in
exchange for shares of Target Capital Stock outstanding immediately prior to the
Effective Time, cash sufficient to pay the Cash Option Price minus the Cash
Escrow Amount. As soon as practicable after the Effective Time, and subject to
and in accordance with the provisions of Article VIII, Acquiror shall cause to
be distributed to the Cash Escrow Agent (as defined in Article VIII), cash in
the amount of the Cash Escrow Amount (the "Escrow Cash"), which shall be held in
an escrow account in the name of the Cash Escrow Agent as nominee for the
holders of Certificates cancelled pursuant to this Section 1.7. The Escrow Cash
distributed to the Cash Escrow Agent shall be beneficially owned by such holders
and shall be held in escrow and shall be available to compensate Acquiror for
certain damages as provided in Article VIII. To the extent not used for such
purposes, the Escrow Cash shall be released, as provided in Article VIII hereof.
(ii) If the Cash Option is not exercised, promptly after the Effective Time,
Acquiror shall make available to the Exchange Agent for exchange in accordance
with this Article I, through such reasonable procedures as Acquiror may adopt,
in exchange for shares of Target Capital Stock outstanding immediately prior to
the Effective Time: (i) the shares of Closing Stock issuable at Closing, (ii)
cash in an amount sufficient to permit payment of the Cash Purchase Price, (iii)
an executed original of each of the Promissory Notes, with a schedule showing
the percentage of the amount payable at maturity thereon to each Target
Shareholder; and (iv) cash in an amount sufficient to permit payment of cash in
lieu of fractional shares of Closing Stock which might otherwise be issued to
individual Target Shareholders, but for Section 1.6(h).
(iii) If the Cash Option is exercised, Acquiror shall make available to the
Exchange Agent, promptly on the date on which such consideration is due, cash
and/or shares of Acquiror Common Stock in an amount sufficient to pay the
Demonstration Bonus, if awarded, and cash sufficient to permit payment in lieu
of fractional shares which would otherwise be issued to individual Target
Shareholders as payment of the Demonstration Bonus, but for Section 1.6(h).
(iv) If the Cash Option is not exercised, Acquiror shall make available to the
Exchange Agent, promptly on the date on which such consideration is due
(pursuant to the provisions of Section 1.6), for exchange in accordance with
Article I, through such reasonable procedures as Acquiror may adopt, in exchange
for shares of Target Capital Stock outstanding immediately prior to the
Effective Time, (i) cash and/or shares of Note Stock in an amount sufficient to
pay the amounts payable upon maturity of the Promissory Notes, (ii) the shares
of Additional Stock, if any, (iii) the shares of Anniversary Stock, (iv) cash
and/or shares of Acquiror Common Stock in an amount sufficient to pay the
Demonstration Bonus, if awarded, and (v) cash in an amount sufficient to permit
payment of cash in lieu of fractional shares which might otherwise be issued to
individual Target Shareholders pursuant to Section 1.6(b), but for Section
1.6(h). Notwithstanding the foregoing, Acquiror shall have no obligation to make
available to the Exchange Agent any amount of Future Compensation as to which
Acquiror has exercised its right of offset pursuant to the provisions of Article
VIII.
(c) Exchange Procedures. 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") which immediately prior to the Effective
Time represented outstanding shares of Target Capital Stock, whose shares were
converted into the right to receive the consideration set forth in Section 1.6,
(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
receipt of the Certificates by the Exchange Agent, and shall be in such form and
have such other provisions as Acquiror may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the consideration payable therefor.
(d) Upon surrender of a Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by Acquiror, 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 (subject to the provisions of Article VIII):
(i) if the Cash Option was exercised, within 15 days of surrender, a payment
representing the portion of the Cash Option Price for which such Certificates
are exchangeable pursuant to Section 1.6(c), or
(ii) if the Cash Option was not exercised:
(A) within 15 days of surrender: (w) a certificate representing the number of
whole shares of Closing Stock due such holder pursuant to Section 1.6(b)(iv);
(x) payment representing the amount of the Cash Purchase Price due such holder
pursuant to Section 1.6(b)(i); (y) copies of the Promissory Notes which set
forth the payments due such holder at maturity of such notes pursuant to Section
1.6(b)(ii) and (iii); and (z) payment in lieu of fractional shares of Closing
Stock which such holder has the right to receive pursuant to Section 1.6(h);
(B) within 15 days of the maturity of the First Promissory Note, payment of cash
and/or a certificate representing the number of whole shares of Note Stock due
such holder under the First Promissory Note pursuant to Section 1.6(b)(ii) and
payment in lieu of fractional shares of Note Stock which such holder has the
right to receive pursuant to Section 1.6(h);
(C) within 15 days of the first anniversary of Closing, a certificate
representing the sum of the number of whole shares of Additional Stock due such
holder pursuant to Section 1.6(b)(v) and the number of whole shares of First
Anniversary Stock due such holder pursuant to Section 1.6(vi) and payment in
lieu of fractional shares of Additional Stock and/or First Anniversary Stock
which such holder has the right to receive pursuant to Section 1.6(h);
(D) within 15 days of the maturity of the Second Promissory Note, payment of
cash and/or a certificate representing the number of whole shares of Note Stock
due such holder under the Second Promissory Note pursuant to Section 1.6(b)(iii)
and payment in lieu of fractional shares of Note Stock which such holder has the
right to receive pursuant to Section 1.6(h);
(E) within 15 days of the second anniversary of Closing, a certificate
representing the sum of the number of whole shares of Second Anniversary Stock
due such holder pursuant to Section 1.6(vii) and payment in lieu of fractional
shares of Second Anniversary Stock which such holder has the right to receive
pursuant to Section 1.6(h);
(F) within 15 days of the third anniversary of Closing, a certificate
representing the sum of the number of whole shares of Third Anniversary Stock
due such holder pursuant to Section 1.6(viii) and payment in lieu of fractional
shares of Third Anniversary Stock which such holder has the right to receive
pursuant to Section 1.6(h); and
(iii) regardless of whether the Cash Option was exercised, within 15 days of the
grant of the Demonstration Bonus (if awarded), payment of cash and/or a
certificate representing the number of whole shares of Acquiror Common Stock
representing the part of the Demonstration Bonus due such holder pursuant to
Section 1.6(b)(ix) or 1.6(c)(ii) and payment in lieu of fractional shares of
Acquiror Common Stock which such holder has the right to receive pursuant to
Section 1.6(h).
(e) Until so surrendered, each outstanding Certificate that, prior to the
Effective Time represented shares of Target Capital Stock, will be deemed from
and after the Effective Time, for all corporate purposes other than the payment
of dividends, to evidence a right to receive the consideration in cash and whole
shares of Acquiror Common Stock into which such shares of Target Capital Stock
shall have been so converted in accordance with Section 1.7(d) above or the
payment owing pursuant to Section 1.6(i), as the case may be.
(f) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions with respect to Acquiror Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of Acquiror 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
Acquiror Common Stock issued in exchange therefor, without interest, at the time
of such surrender, the amount of any such dividends or other distributions with
a record date after the Effective Time theretofore payable (but for the
provisions of this Section 1.7(d)) with respect to such shares of Acquiror
Common Stock.
(g) Transfers of Ownership. If any certificate for shares of Acquiror 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 Acquiror or any agent designated by it any transfer
or other taxes required by reason of the issuance of a certificate for shares of
Acquiror Common Stock in any name other than that of the registered holder of
the Certificate surrendered, or established to the satisfaction of Acquiror or
any agent designated by it that such tax has been paid or is not payable.
(h) No Liability. Notwithstanding anything to the contrary in this Section 1.7,
none of the Exchange Agent, the Surviving Corporation or any party hereto shall
be liable to any person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(i) Dissenting Shares. The provisions of this Section 1.7 shall also apply to
Dissenting Shares that lose their status as such, except that the obligations of
Acquiror under this Section 1.7 shall commence on the date of loss of such
status and the holder of such shares shall be entitled to receive in exchange
for such shares the consideration to which such holder is entitled pursuant to
Section 1.6 hereof.
(j) Conditions to Receiving Acquiror Common Stock.. Notwithstanding the
foregoing provisions 1.7(b)(ii), (iii) or (iv) or any other provision of this
Agreement or any agreement executed in connection herewith, neither Acquiror,
Acquisition Sub nor the Exchange Agent shall have any obligation to make
available shares of Acquiror Common Stock to any Target Shareholder who has not
either first (x) executed a Voting Agreement (as defined below), (y) executed a
Shareholder Agreement (as defined below) or (z) executed a letter of transmittal
or certificate from Acquiror or the Exchange Agent provided therewith
acknowledging such facts as are necessary to establish ownership of the Target
Capital Stock and to permit such shares to be issued exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and other applicable securities laws.
1.8 No Further Ownership Rights in Target Capital Stock. All consideration paid
upon the surrender of shares of Target Capital Stock in accordance with the
terms hereof (including the right to receive pro rata payments of Future
Compensation) shall be deemed to have been paid in full satisfaction of all
rights pertaining to such shares of Target Capital Stock. At the Effective Time,
the stock transfer books of Target shall be closed and there shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Target Capital Stock which were outstanding immediately prior to the
Effective Time. 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.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates shall
have been lost, stolen or destroyed, the Exchange Agent shall deliver in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such consideration as may be
required pursuant to Section 1.6 (including the right to receive a pro rata
share of Future Compensation); provided, however, that Acquiror 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 Acquiror, the Surviving Corporation or the Exchange Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.
1.10 Exemption from Registration; Restricted Stock; Certificate Legends. If the
Cash Option is not exercised, the shares of Acquiror Common Stock to be issued
in connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act by reason of Section 4(2) thereof and the
shares of Acquiror Common Stock issued shall be characterized as "restricted
securities" under the federal securities laws, and under such laws such shares
may be resold without registration under the Securities Act only in limited
circumstances. Each certificate evidencing shares of Acquiror Common Stock to be
issued pursuant to Article I shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SHARES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN
EXEMPTION UNDER THE SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL
REASONABLY ACCEPTABLE TO SOFTNET SYSTEMS, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.
1.11 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 Target, the officers and directors of Target 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
not inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
In this Agreement, any reference to any event, change,
condition or effect being "material" with respect to any entity or group of
entities means any material event, change, condition or effect related to the
condition (financial or otherwise), properties, assets (including intangible
assets), liabilities, business, operations or results of operations of such
entity or group of entities. In this Agreement, any reference to a "Material
Adverse Effect" with respect to any entity or group of entities means any event,
change or effect that is materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, business, operations or results of
operations of such entity and its subsidiaries, taken as a whole.
In this Agreement, any reference to a party's "knowledge"
means actual knowledge after due and diligent inquiry of such party's officers,
directors and other employees of such party reasonably believed to have
knowledge of such matters.
Except as disclosed in a document of even date herewith and
delivered by Target to Acquiror and Acquisition Sub prior to the execution and
delivery of this Agreement and referring to the representations and warranties
in this Agreement (the "Target Disclosure Schedule") and except with respect to
the representations and warranties in Sections 2.11 and 2.36 as disclosed in a
document to be dated and delivered by Target to Acquiror and Acquisition Sub no
later than November 24, 1998, Target represents and warrants to Acquiror and
Acquisition Sub as follows:
2.1 Organization, Standing and Power. Each of Target and its Subsidiaries (as
such term is defined below) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization. Each of
Target and its Subsidiaries has the corporate power to own its properties and to
carry on its business as now being conducted and as proposed to be conducted and
is duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a Material
Adverse Effect on Target. Target has delivered to Acquiror a true and correct
copy of the Certificate of Incorporation and Bylaws or other charter documents,
as applicable, as amended to date, of Target and each of its Subsidiaries.
Neither Target nor any of its Subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents. Except as set forth in Section 2.1 of the Target
Disclosure Schedule, Target does not own and never has owned directly or
indirectly any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
Target is the owner of all outstanding shares of capital stock of each of the
persons set forth in Section 2.1 of the Target Disclosure Schedule (each a
"Subsidiary" and collectively the "Subsidiaries") and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such Subsidiary are owned by Target free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements or any
character relating to the issued or unissued capital stock or other securities
or any such Subsidiary, or otherwise obligating Target or any such Subsidiary to
issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities.
2.2 Capital Structure. The authorized capital stock of Target consists of
10,000,000 shares of Common Stock, par value $.01 per share, of which there were
issued and outstanding as of the close of business on the date hereof, 6,101,929
shares and 10,000,000 shares of Preferred Stock, par value $.01 per share,
2,000,000 of which have been designated as Series A Preferred Stock and none of
which are issued or outstanding as of the date hereof. There are no other
outstanding shares of capital stock or voting securities and no outstanding
commitments to issue any shares of capital stock or voting securities after the
date hereof other than pursuant to the exercise of options outstanding as of
such date under the Target Stock Option Plan. All outstanding shares of Target
Capital Stock are duly authorized, validly issued, fully paid and non-assessable
and are free of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof, and are not subject to
preemptive rights or rights of first refusal created by statute, the Certificate
of Incorporation or Bylaws of Target or any agreement to which Target is a party
or by which it is bound. Section 2.2 of the Target Disclosure Schedule sets
forth all of Target's security holders and the number of Target Capital Stock
held by each of them. As of the close of business on the date hereof, Target has
reserved (i) 1,000,000 shares of Common Stock for issuance to employees and
consultants pursuant to the Target Stock Option Plan, of which 715,000 shares
are subject to outstanding, unexercised options (511,000 of which are vested, or
will become vested as a result of the Merger), no shares have been issued upon
exercise of options and no shares are subject to outstanding stock purchase
rights. Target will not issue or grant additional options under the Target Stock
Option Plan. Except for (i) the rights created pursuant to this Agreement, (ii)
the outstanding options under the Target Stock Option Plan and (iii) Target's
right to repurchase any unvested shares under the Target Stock Option Plan,
there are no other options, warrants, calls, rights, commitments or agreements
of any character to which Target is a party or by which it is bound obligating
Target to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of capital stock of Target
or obligating Target to grant, extend, accelerate the vesting of, change the
price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except for the agreements contemplated by this
Agreement, there are no contracts, commitments or agreements relating to voting,
purchase or sale of Target's capital stock (i) between or among Target and any
of its securityholders and (ii) to the Target's knowledge, between or among any
of Target's securityholders. The terms of the Target Stock Option Plan and the
applicable stock option agreements permit the assumption or substitution of
options to purchase Acquiror Common Stock as provided in this Agreement, without
the consent or approval of the holders of such options, the Target shareholders
or otherwise. True and complete copies of all agreements and instruments
relating to or issued under the Target Stock Option Plan have been provided to
Acquiror and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form provided to Acquiror. All
outstanding shares of Common Stock were issued in compliance with all applicable
federal and state securities laws.
2.3 Authority. Target has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Target, subject only to the approval of the
Merger by Target's shareholders as contemplated by Section 6.1(a). This
Agreement has been duly executed and delivered by Target and constitutes the
valid and binding obligation of Target enforceable against Target in accordance
with its terms, except that such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to creditors'
rights generally, and is subject to general principles of equity. The execution
and delivery of this Agreement by Target 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 Certificate
of Incorporation or Bylaws of Target as amended, or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Target or any of its Subsidiaries or any of their
respective properties or assets. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality
("Governmental Entity") is required by or with respect to Target or any of its
Subsidiaries 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 Certificate of Merger, together with the required officers'
certificates, as provided in Section 1.2; (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
and (iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Target and would not prevent, alter or materially delay any of the
transactions contemplated by this Agreement.
2.4 Financial Statements. Target has delivered to Acquiror its audited financial
statements on a consolidated basis as at and for the fiscal years ended December
31, 1996 and 1997, and its unaudited financial statements (balance sheet,
statement of operations and statement of cash flows) on a consolidated basis as
at, and for the [nine]-month period ended September 30, 1998 (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles (except that the
unaudited financial statements do not have notes thereto) applied on a
consistent basis throughout the periods indicated and with each other. The
Financial Statements fairly present the financial condition and operating
results of Target as of the dates, and for the periods, indicated therein,
subject to normal year-end audit adjustments. Target maintains and will continue
to maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles. There has been no
change in Target's accounting policies except as described in the notes to the
Financial Statements.
2.5 Absence of Certain Changes. Since September 30, 1998 (the "Target Balance
Sheet Date"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to Target;
(ii) any acquisition, sale or transfer of any material asset of Target or any of
its Subsidiaries; (iii) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by Target or any
revaluation by Target of any of its or its Subsidiaries' assets; (iv) any
declaration, setting aside, or payment of a dividend or other distribution with
respect to the shares of Target, or any direct or indirect redemption, purchase
or other acquisition by Target of any of its shares of capital stock; (v) any
material contract entered into by Target or any of its Subsidiaries, or any
material amendment or termination of, or default under, any material contract to
which Target or any of its Subsidiaries is a party or by which it is bound; (vi)
any amendment or change to the Certificate of Incorporation or Bylaws, or
equivalent organizational documents, of Target or any of its Subsidiaries; (vii)
any increase in or modification of the compensation or benefits payable or to
become payable by Target or any of its Subsidiaries to any of its directors or
employees or (viii) any negotiation or agreement by Target or any of its
Subsidiaries to do any of the things described in the preceding clauses (i)
through (vii) (other than negotiations with Acquiror and its representatives
regarding the transactions contemplated by this Agreement).
2.6 Absence of Undisclosed Liabilities. Target has no material obligations or
liabilities of any nature (matured or unmatured, fixed or contingent),
including, without limitation, obligations under capital leases, accounts
payable, accrued liabilities and income tax obligations, other than (i) those
set forth or adequately provided for in the Balance Sheet included in the
Financial Statements as of the Target Balance Sheet Date (the "Target Balance
Sheet"), (ii) those set forth in Section 2.6 of the Target Disclosure Schedule
which are incurred in the ordinary course of business and not required to be set
forth in the Target Balance Sheet under generally accepted accounting
principles, (iii) those set forth in Section 2.6 of the Target Disclosure
Schedule and incurred in the ordinary course of business since the Target
Balance Sheet Date and consistent with past practice; and (iv) those incurred in
connection with the execution of this Agreement.
2.7 Litigation. Except as set forth in Section 2.7 of the Target Disclosure
Schedule, there is no private or governmental action, suit, proceeding, claim,
arbitration or investigation pending before any agency, court or tribunal,
foreign or domestic, or, to the knowledge of Target, threatened against Target
or any of its Subsidiaries or any of their respective properties or any of their
respective officers or directors (in their capacities as such). There is no
judgment, decree or order against Target or any of its Subsidiaries, or, to the
knowledge of Target, any of its or its Subsidiaries, directors or officers (in
their capacities as such), that could prevent, enjoin, alter or materially delay
any of the transactions contemplated by this Agreement, or that could reasonably
be expected to have a Material Adverse Effect on Target. The Target Disclosure
Schedule also lists all litigation that Target has pending against other
parties.
2.8 Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon Target or any of its Subsidiaries which
has or could reasonably be expected to have the effect of prohibiting or
impairing any current or future business practice of Target, any acquisition of
property by Target or any of its Subsidiaries or the conduct of business by
Target or any of its Subsidiaries as currently conducted or as currently
proposed to be conducted.
2.9 Governmental Authorization. Target and each of its Subsidiaries have
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Target or any of its Subsidiaries currently operates or holds
any interest in any of its properties or (ii) that is required for the operation
of their businesses or the holding of any such interest ((i) and (ii) herein
collectively called "Target Authorizations"), and all of such Target
Authorizations are in full force and effect, except where the failure to obtain
or have any such Target Authorizations could not reasonably be expected to have
a Material Adverse Effect on Target.
2.10 Title to Property. Target and its Subsidiaries have good and marketable
title to all of their respective properties, interests in properties and assets,
real and personal, reflected in the Target Balance Sheet or acquired after the
Target Balance Sheet Date (except properties, interests in properties and assets
sold or otherwise disposed of since the Target Balance Sheet Date in the
ordinary course of business), or with respect to leased properties and assets,
valid leasehold interests in, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien of current
taxes not yet due and payable, (ii) such imperfections of title, liens and
easements as do not and will not materially detract from or interfere with the
use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the Target Balance Sheet, and such
properties and assets (real and personal), whether owned or leased, constitute
all of the assets and properties necessary for the conduct of the businesses of
Target and its Subsidiaries, as presently conducted and as presently proposed to
be conducted. The plants, property and equipment of Target and its Subsidiaries
that are used in the operations of their respective businesses are in good
operating condition and repair, subject to normal wear and tear. All properties
used in the operations of Target and its Subsidiaries are reflected in the
Target Balance Sheet to the extent generally accepted accounting principles
require the same to be reflected. Section 2.10 of the Target Disclosure Schedule
identifies each parcel of real property owned or leased by Target or any of its
Subsidiaries.
2.11 Intellectual Property.
(a) Target and its subsidiaries own unencumbered, or are licensed or otherwise
possess legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, maskworks, net lists,
schematics, technology, know-how, trade secrets, inventory, ideas, algorithms,
processes, computer software programs or applications (in source code and/or
object code form), and tangible or intangible proprietary information or
material ("Intellectual Property") that are used or currently proposed to be
used in the businesses of Target and its Subsidiaries. Neither Target nor any of
its Subsidiaries has (i) licensed any of its Intellectual Property in source
code form to any party or (ii) entered into any exclusive agreements relating to
its Intellectual Property.
(b) Section 2.11 of the Target Disclosure Schedule lists (i) all patents and
patent applications and all trademarks, trade names and service marks,
registered copyrights, and maskworks, included in the Intellectual Property,
including the jurisdictions in which each such Intellectual Property right has
been issued or registered or in which any application for such issuance and
registration has been filed, (ii) all licenses, sublicenses and other agreements
as to which Target or any of its Subsidiaries is a party and pursuant to which
any person is authorized to use any Intellectual Property, and (iii) all
licenses, sublicenses and other agreements as to which Target or any of its
Subsidiaries is a party and pursuant to which Target or any of its Subsidiaries
is authorized to use any third party patents, trademarks, trade secrets or
copyrights, including software ("Third Party Intellectual Property Rights")
which are incorporated in, are, or form a part of any Target product or used in
the performance of any Target services.
(c) To the knowledge of Target, there is no unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of Target
or any of its Subsidiaries or any Intellectual Property right of any third party
to the extent licensed by or through Target or any of its Subsidiaries by any
third party, including any employee or former employee of Target or any of its
Subsidiaries.
(d) Neither Target nor any of its Subsidiaries entered into any agreement to
indemnify any other person against any charge of infringement of any
Intellectual Property, other than indemnification provisions contained in
purchase orders issued to Target or any of its Subsidiaries by its customers
arising in the ordinary course of business.
(e) Neither Target nor any of its Subsidiaries is, nor will it be as a result of
the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or other
agreement relating to the Intellectual Property or Third Party Intellectual
Property Rights.
(f) All patents, trademarks, service marks and copyrights held by Target or any
of its Subsidiaries are valid and subsisting.
(g) Neither Target nor any of its Subsidiaries (i) has been sued in any suit,
action or proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or other
proprietary right of any third party; (ii) has knowledge that the manufacturing,
marketing, licensing or sale of its products infringes, or is alleged to
infringe, any patent, trademark, service ▇▇▇▇, copyright, trade secret or other
proprietary right of any third party and (iii) has brought any action, suit or
proceeding for infringement of Intellectual Property or breach of any license or
agreement involving Intellectual Property against any third party.
(h) Target has secured valid written assignments from all consultants and
employees who contributed to the creation or development of Intellectual
Property of the rights to such contributions that Target does not already own by
operation of law.
(i) Target has taken all necessary steps to protect and preserve the
confidentiality of all Intellectual Property not otherwise protected by patents,
patent applications or copyright ("Confidential Information"). All use,
disclosure or appropriation of Confidential Information of Target and/or its
Subsidiaries ("Target Confidential Information") by or to a third party has been
pursuant to the terms of a written agreement between Target and such third party
pursuant to which the third party undertakes to protect and not disclose Target
Confidential Information. All use, disclosure or appropriation of Confidential
Information not owned by Target has been pursuant to the terms of a written
agreement between Target and the owner of such Confidential Information pursuant
to which the third party undertakes to protect and not disclose Target
Confidential Information, or is otherwise lawful.
2.12 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal, state or local laws,
ordinances, codes, regulations, rules, policies and orders that are intended to
assure the protection of the environment, or that classify, regulate, call for
the remediation of, require reporting with respect to, or list or define air,
water, groundwater, solid waste, hazardous or toxic substances, materials,
wastes, pollutants or contaminants, or which are intended to assure the safety
of employees, workers or other persons, including the public.
(ii) "Hazardous Materials" shall mean any toxic or hazardous substance, material
or waste or any pollutant or contaminant, or infectious or radioactive substance
or material, including without limitation, those substances, materials and
wastes defined in or regulated under any Environmental and Safety Laws.
(iii) "Property" shall mean all real property leased or owned by Target either
currently or in the past.
(iv) "Facilities" shall mean all buildings and improvements of Target on the
Property of Target and its Subsidiaries.
(b) Target represents and warrants as follows: (i) to the knowledge of Target,
all Hazardous Materials and wastes have been disposed of in accordance with all
Environmental and Safety Laws; (ii) Target and its Subsidiaries have received no
notice (verbal or written) of any noncompliance of the Facilities or its past or
present operations with Environmental and Safety Laws; (iii) no notices,
administrative actions or suits are pending or, to the knowledge of Target,
threatened against Target or any of its Subsidiaries relating to a violation of
any Environmental and Safety Laws; (iv) Target has not been notified that it or
any of its Subsidiaries is potentially responsible party under the federal
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
or state analog statute, arising out of events occurring prior to the Closing
Date; (v) there have not been in the past, and are not now, any Hazardous
Materials on, under or migrating to or from the Facilities or Property the
presence of which could reasonably be expected to result in a Material Adverse
Effect on Target; (vi) there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the Property
including without limitation, treatment or storage tanks, sumps, or water, gas
or oil ▇▇▇▇▇ the presence of which could reasonably be expected to result in a
Material Adverse Effect on Target; (vii) there are no polychlorinated biphenyls
(PCBs) deposited, stored, disposed of or located on the Property or Facilities
or any equipment on the Property containing PCBs at levels in excess of 50 parts
per million the presence of which could reasonably be expected to result in a
Material Adverse Effect on Target; (viii) there is no formaldehyde on the
Property or in the Facilities, nor any insulating material containing urea
formaldehyde in the Facilities the presence of which could reasonably be
expected to result in a Material Adverse Effect to Target; (ix) Target's and the
Subsidiaries uses and activities therein have at all times complied with all
Environmental and Safety Laws; and (x) Target and its Subsidiaries have all the
permits and licenses required to be issued to it under Federal, State or local
laws regarding Environmental and Safety Laws and is in full compliance with the
terms and conditions of those permits.
2.13 Taxes. Target and its Subsidiaries and any consolidated, combined, unitary
or aggregate group for Tax (as defined below) purposes of which Target is or has
been a member, have timely filed all Tax Returns required to be filed by them
and have paid all Taxes shown thereon to be due. Target has provided adequate
accruals in accordance with generally accepted accounting principles in its
Financial Statements for any Taxes that have not been paid, whether or not shown
as being due on any Tax Returns. There is (i) no material claim for Taxes that
is a lien against the property of Target or its Subsidiaries is currently being
asserted against Target or any of its Subsidiaries other than liens for Taxes
not yet due and payable, (ii) no audit of any Tax Return of Target or any of its
Subsidiaries being conducted by a Tax authority, and (iii) no extension of the
statute of limitations on the assessment of any Taxes or any of its Subsidiaries
granted by Target and currently in effect. Target 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 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
Merger. Neither Target nor any of its Subsidiaries is a party to any tax sharing
or tax allocation agreement nor does Target or any of its Subsidiaries owe any
amount under any such agreement. For purposes of this Agreement, the following
terms have the following meanings: "Tax" (and, with correlative meaning, "Taxes"
and "Taxable") means (i) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Entity (a "Tax authority")
responsible for the imposition of any such tax (domestic or foreign), (ii) any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any Taxable period and (iii) any liability for the payment of any
amounts of the type described in (i) or (ii) as a result of any express or
implied obligation to indemnify any other person. As used herein, "Tax Return"
shall mean any return, statement, report or form (including, without
limitation,) estimated Tax Returns and reports, withholding Tax Returns and
reports and information reports and Returns required to be filed with respect to
Taxes. Target and its Subsidiaries are in full compliance with all terms and
conditions of any Tax exemptions or other Tax-sparing agreement or order of a
foreign government and the consummation of the Merger shall not have any adverse
effect on the continued validity and effectiveness of any such Tax exemptions or
other Tax-sparing agreement or order.
2.14 Employee Benefit Plans.
(a) Section 2.14 of the Target Disclosure Schedule lists, with respect to
Target, any Subsidiary and any trade or business (whether or not incorporated)
which is treated as a single employer with Target (an "ERISA Affiliate") within
the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all material
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), (ii) each loan to a
non-officer employee in excess of $10,000, loans to officers and directors and
any stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, cafeteria benefit (Code Section 125) or
dependent care (Code Section 129), life insurance or accident insurance plans,
programs or arrangements, (iii) all bonus, pension, profit sharing, savings,
deferred compensation or incentive plans, programs or arrangements, (iv) other
fringe or employee benefit plans, programs or arrangements that apply to senior
management of Target and that do not generally apply to all employees, and (v)
any current or former employment or executive compensation or severance
agreements, written or otherwise, as to which unsatisfied obligations of Target
of greater than $10,000 remain for the benefit of, or relating to, any present
or former employee, consultant or director of Target (together, the "Target
Employee Plans").
(b) Target has furnished to Acquiror a copy of each of the Target Employee Plans
and related plan documents (including trust documents, insurance policies or
contracts, employee booklets, summary plan descriptions and other authorizing
documents, and any material employee communications relating thereto) and has,
with respect to each Target Employee Plan which is subject to ERISA reporting
requirements, provided copies of the Form 5500 reports filed for the last three
plan years. Any Target Employee Plan intended to be qualified under Section
401(a) of the Code has either obtained from the Internal Revenue Service a
favorable determination letter, opinion, advisory or notification as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or has applied to the
Internal Revenue Service for such a determination letter, opinion, advisory or
notification prior to the expiration of the requisite period under applicable
Treasury Regulations or Internal Revenue Service pronouncements in which to
apply for such determination letter, opinion, advisory or notification and to
make any amendments necessary to obtain a favorable determination. Target has
also furnished Acquiror with the most recent Internal Revenue Service
determination letter, opinion, advisory or notification issued with respect to
each such Target Employee Plan, and nothing has occurred since the issuance of
each such letter which could reasonably be expected to cause the loss of the
tax-qualified status of any Target Employee Plan subject to Code Section 401(a).
Target has also furnished Acquiror with all registration statements and
prospectuses prepared in connection with each Target Employee Plan.
(c) (i) None of the Target Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Target Employee Plan, which could
reasonably be expected to have, in the aggregate, a Material Adverse Effect;
(iii) each Target Employee Plan has been administered in accordance with its
terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect on Target, and Target and
each Subsidiary and ERISA Affiliate have performed all obligations required to
be performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any material default or violation by any
other party to, any of the Target Employee Plans; (iv) neither Target nor any
Subsidiary ERISA Affiliate is subject to any liability or penalty under Sections
4976 through 4980 of the Code or Title I of ERISA with respect to any of the
Target Employee Plans; (v) all material contributions required to be made by
Target, any Subsidiary, or ERISA Affiliate to any Target Employee Plan have been
made on or before their due dates and a reasonable amount has been accrued for
contributions to each Target Employee Plan for the current plan years; (vi) with
respect to each Target Employee Plan, no "reportable event" within the meaning
of Section 4043 of ERISA (excluding any such event for which the thirty (30) day
notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA has
occurred; (vii) no Target Employee Plan is covered by, and neither Target nor
any Subsidiary or ERISA Affiliate has incurred or expects to incur any liability
under Title IV of ERISA or Section 412 of the Code; and (viii) each Target
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Acquiror
(other than ordinary administrative expenses typically incurred in a termination
event). With respect to each Target Employee Plan subject to ERISA as either an
employee pension plan within the meaning of Section 3(2) of ERISA or an employee
welfare benefit plan within the meaning of Section 3(1) of ERISA, Target has
prepared in good faith and timely filed all requisite governmental reports
(which were true and correct as of the date filed) and has properly and timely
filed and distributed or posted all notices and reports to employees required to
be filed, distributed or posted with respect to each such Target Employee Plan
except as would not have in the aggregate a Material Adverse Effect on Target.
No suit, administrative proceeding, action or other litigation has been brought,
or to the knowledge of Target is threatened, against or with respect to any such
Target Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor (other than routine benefits claims).
(d) With respect to each Target Employee Plan, Target and each of its
Subsidiaries have complied with (i) the applicable health care continuation and
notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") and the regulations (including proposed regulations) thereunder, (ii)
the applicable requirements of the Family Medical and Leave Act of 1993 and the
regulations thereunder and (iii) the applicable requirements of the Health
Insurance Portability and Accountability Act of 1996 and the regulations
(including proposed regulations) thereunder, except to the extent that any such
failure to comply would not, in the aggregate, have a Material Adverse Effect on
Target.
(e) The consummation of the transactions contemplated by this Agreement will not
(i) entitle any current or former employee or other service provider of Target,
any Subsidiary or any ERISA Affiliate to severance benefits or any other
payment, except as expressly provided in this Agreement, or (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due any such
employee or service provider.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by Target, any Subsidiary or any other ERISA Affiliate
relating to, or change in participation or coverage under, any Target Employee
Plan which would materially increase the expense of maintaining such Plan above
the level of expense incurred with respect to that Plan for the most recent
fiscal year included in Target's financial statements.
(g) Pension Plans. Neither Target nor any Subsidiary currently maintains,
sponsors, participates in or contributes to, nor has it ever maintained,
established, sponsored, participated in, or contributed to, any pension plan
(within the meaning of Section 3(2) of ERISA) which is subject to Part 3 of
Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
(h) Multiemployer Plans. Neither Target nor any Subsidiary or ERISA Affiliate is
a party to, or has made any contribution to or otherwise incurred any obligation
under, any "multiemployer plan" as defined in Section 3(37) of ERISA.
2.15 Certain Agreements Affected by the Merger. Neither the execution and
delivery of this Agreement nor the consummation of the transaction contemplated
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of Target, or (ii) materially increase any benefits
otherwise payable by Target or any Subsidiary or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
2.16 Employee Matters. Target and its Subsidiaries are in compliance in all
material respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and
are not engaged in any material respect in any unfair labor practice. Target and
its Subsidiaries have withheld all amounts required by law or by agreement to be
withheld from the wages, salaries, and other payments to employees; and are not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing. Target and its Subsidiaries are not liable for
any payment to any trust or other fund or to any governmental or administrative
authority, with respect to unemployment compensation benefits, social security
or other benefits or obligations for employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
There are no pending claims against Target or any of its Subsidiaries under any
workers compensation plan or policy or for long term disability. There are no
controversies pending or, to the knowledge of Target, threatened, between Target
or its Subsidiaries and any of their respective employees, which controversies
have or could reasonably be expected to result in an action, suit, proceeding,
claim, arbitration or investigation before any agency, court or tribunal,
foreign or domestic. Target and its Subsidiaries are not parties to any
collective bargaining agreement or other labor unions contract nor does Target
know of any activities or proceedings of any labor union or organize any such
employees. To Target's knowledge, no employees of Target or any of its
Subsidiaries are in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, or any restrictive covenant to a
former employer relating to the right of any such employee to be employed by
Target or any of its Subsidiaries because of the nature of the business conduced
or presently proposed to be conducted by Target or any of its Subsidiaries or to
the use of trade secrets or proprietary information of others. No employees of
Target or any of its Subsidiaries have given notice to Target or any of its
Subsidiaries, nor is Target otherwise aware, that any such employee intends to
terminate his or her employment with Target or any of its Subsidiaries.
2.17 Interested Party Transactions. Target and its Subsidiaries are not indebted
to any of their respective directors, officers, employees or agents (except for
amounts due as normal salaries and bonuses and in reimbursement of ordinary
expenses), and no such person is indebted to Target or any of its Subsidiaries.
2.18 Insurance. Target has policies of insurance and bonds of the type and in
amounts which Target believes are adequate given the business or assets of
Target and its Subsidiaries. There is no material claim pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and Target is otherwise
in compliance with the terms of such policies and bonds. Target has no knowledge
of any threatened termination of, or material premium increase with respect to,
any of such policies.
2.19 Compliance With Laws. Target and its Subsidiaries have complied with, are
not in violation of, and have not received any notices of violation with respect
to, any federal, state, local or foreign statute, law or regulation with respect
to the conduct of its business, or the ownership or operation of its business,
except for such violations or failures to comply as could not be reasonably
expected to have a Material Adverse Effect on Target.
2.20 Minute Books. The minute books of Target made available to Acquiror and
Acquisition Sub contain a complete and accurate summary of all meetings of
directors and shareholders or actions by written consent since the time of
incorporation of Target through the date of this Agreement, and reflect all
transactions referred to in such minutes accurately in all material respects.
2.21 Complete Copies of Materials. Target has delivered or made available true
and complete copies of each document which has been requested by Acquiror or
Acquisition Sub or their respective legal counsel in connection with their legal
and accounting review of Target.
2.22 Brokers' and Finders' Fees. Except as set forth in Section 2.22 of the
Target Disclosure Schedule, Target has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
2.23 Vote Required; Voting Agreements The affirmative vote of the holders of at
least a majority of the shares of Target Capital Stock outstanding on the record
date set for approval of the Merger is the only vote of the holders of any of
Target's Capital Stock necessary to approve this Agreement and the transactions
contemplated hereby. Holders of the requisite number of shares necessary to
approve the Merger have entered into Voting Agreements in the form attached
hereto as Exhibit G (each, a "Voting Agreement") and have executed irrevocable
proxies in the form of Exhibit A thereto (each, an "Irrevocable Proxy") to vote
for approval of the Merger.
2.24 Board Approval. The Board of Directors of Target has unanimously (i)
approved this Agreement and the Merger, (ii) determined that in its opinion the
Merger is in the best interests of the shareholders of Target and is on terms
that are fair to such shareholders and (iii) recommended that the shareholders
of Target approve this Agreement and the Merger.
2.25 Inventory. The inventories shown on the Financial Statements or thereafter
acquired by Target, consisted of items of a quantity and quality usable or
salable in the ordinary course of business. Since September 30, 1998, Target has
continued to replenish inventories in a normal and customary manner consistent
with past practices. Target has not received written or oral notice that it will
experience in the foreseeable future any difficulty in obtaining, in the desired
quantity and quality and at a reasonable price and upon reasonable terms and
conditions, the raw materials, supplies or component products required for the
manufacture, assembly or production of its products. The values at which
inventories are carried reflect the inventory valuation policy of Target, which
is consistent with its past practice and in accordance with generally accepted
accounting principles applied on a consistent basis. Since the Balance Sheet
Date, due provision was made on the books of Target in the ordinary course of
business consistent with past practices to provide for all slow-moving,
obsolete, or unusable inventories to their estimated useful or scrap values and
such inventory reserves are adequate to provide for such slow-moving, obsolete
or unusable inventory and inventory shrinkage. As of September 30, 1998, the
inventory of Target in the distribution channel does not exceed an aggregate of
$50,000 and Target has no commitments to purchase inventory in an amount that
exceeds $50,000.
2.26 Accounts Receivable. Subject to any reserves set forth in the Financial
Statements, the accounts receivable shown on the Financial Statements represent
and will represent bona fide claims against debtors for sales and other charges,
and are not subject to discount except for normal cash and immaterial trade
discounts. The amount carried for doubtful accounts and allowances disclosed in
the Financial Statements is sufficient to provide for any losses which may be
sustained on realization of the receivables.
2.27 Customers and Suppliers. No customer which individually accounted for more
than 1% of Target's gross revenues during the 12-month period preceding the date
hereof, and no supplier of Target, has canceled or otherwise terminated, or made
any written threat to Target to cancel or otherwise terminate its relationship
with Target, or has decreased materially its services or supplies to Target in
the case of any such supplier, or its usage of the services or products of
Target in the case of such customer, and to Target's knowledge, no such supplier
or customer intends to cancel or otherwise terminate its relationship with
Target or to decrease materially its services or supplies to Target or its usage
of the services or products of Target, as the case may be. Target has not
knowingly breached, so as to provide a benefit to Target that was not intended
by the parties, any agreement with, or engaged in any fraudulent conduct with
respect to, any customer or supplier of Target.
2.28 Material Contracts. Except for the material contracts described in Section
2.28 of the Target Disclosure Schedule (collectively, the "Material Contracts"),
Target and its Subsidiaries are not parties to or bound by any material
contract, including without limitation:
(a) any distributor, sales, advertising, agency or manufacturer's representative
contract;
(b) any continuing contract for the purchase of materials, supplies, equipment
or services involving in the case of any such contact more than $50,000 over the
life of the contract;
(c) any contract that expires or may be renewed at the option of any person
other than the Target so as to expire more than one year after the date of this
Agreement;
(d) any trust indenture, mortgage, promissory note, loan agreement or other
contract for the borrowing of money, any currency exchange, commodities or other
hedging arrangement or any leasing transaction of the type required to be
capitalized in accordance with generally accepted accounting principles;
(e) any contract for capital expenditures in excess of $50,000 in the aggregate;
(f) any contract limiting the freedom of the Target or any of the Subsidiaries
to engage in any line of business or to compete with any other Person as that
term is defined in the Exchange Act, as defined herein, or requires Target or
any of the Subsidiaries to maintain the confidentiality of any proprietary
information of any third party or any other material confidentiality, secrecy or
non-disclosure contract;
(g) any contract pursuant to which the Target are any of the Subsidiaries is a
lessor of any machinery, equipment, motor vehicles, office furniture, fixtures
or other personal property involving in the case of any such contract more than
$50,000 over the life of the contract;
(h) any contract with any person with whom the Target does not deal at arm's
length within the meaning of the Internal Revenue Code; or
(i) any agreement of guarantee, support, indemnification, assumption or
endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness
of any other Person.
2.29 No Breach of Material Contracts. Target and its Subsidiaries have performed
all of the obligations required to be performed by them and are entitled to all
benefits under, and are not alleged to be in default in respect of any Material
Contract. Each of the Material Contracts is in full force and effect, unamended,
and there exists no default or event of default or event, occurrence, condition
or act, with respect to Target or its Subsidiaries or, to Target's knowledge,
with respect to the other contracting party, which, with the giving of notice,
the lapse of the time or the happening of any other event or conditions, would
become a default or event of default under any Material Contract. True, correct
and complete copies of all Material Contracts have been delivered to Acquiror
and Acquisition Sub.
2.30 Material Third Party Consents. Section 2.30 of the Target Disclosure
Schedule includes every contract, agreement or purchase order which, if no
novation occurs to make Acquiror a party thereto or if no consent to assignment
is obtained, would have a material adverse effect on Acquiror's ability to
operate Target's business in the same manner as the business was operated by
Target prior to the Effective Time.
2.31 Export Control Laws. Target represents and warrants that it has conducted
its export transactions in accordance with applicable provisions of United
States export control laws and regulations, including but not limited to the
Export Administration Act and implementing Export Administration Regulations.
Without limiting the foregoing, Target represents and warrants that:
(a) Target has obtained all export licenses and other approvals required for its
exports of products, software and technologies from the United States;
(b) Target is in compliance with the terms of all applicable export licenses or
other approvals;
(c) There are no pending or threatened claims against Target with respect to
such export licenses or other approvals;
(d) There are no actions, conditions or circumstances pertaining to Target's
export transactions that may give rise to any future claims; and
(e) No consents or approvals for the transfer of export licenses to Acquiror or
Acquisition Sub are required, or such consents and approvals can be obtained
expeditiously without material cost.
2.32 Products. There are no known defects in the design or technology embodied
in any product which Target or an of its subsidiaries markets or has marketed in
the past that impair or are likely to impair the intended use of the product or
injure any consumer of the product or third party, except that warranty claims
may arise in the normal course of business for products shipped prior to the
Effective Time in an aggregate amount of no more than the warranty reserves
established on the Target Balance Sheet Date. Target and each of its
subsidiaries have delivered to Acquiror and Acquisition Sub copies of their
warranty policies and all outstanding warranties or guarantees relating to any
of Target's or each of its Subsidiaries' product other than warranties or
guarantees implied by law. Target is not aware of any claim asserting (a) any
damage, loss or injury caused by any product, or (b) any breach of any express
or implied product warranty or any other similar claim with respect to any
product of Target or any of its subsidiaries other than standard warranty
obligations (to replace, repair or refund) made by Target or any of its
Subsidiaries in the ordinary course of business, except for those claims that,
if adversely determined against Target or any of its Subsidiaries, would not
have a material and adverse effect on Target's or any of its Subsidiaries'
business.
(b) None of the products and services sold, licensed, rendered, or otherwise
provided by Target (or by any of its subsidiaries) in the conduct of their
respective businesses will malfunction, will cease to function, will generate
materially incorrect data or will produce materially incorrect results and will
not cause any of the above with respect to the property or business of third
parties using such products or services when processing, providing or receiving
(i) date-related data from, into and between the Twentieth (20th) and
Twenty-First (21st) centuries, or (ii) date-related data in connection with any
valid date in the Twentieth (20th) and Twenty-First (21st) centuries, causing a
Material Adverse Effect on Target, its business or the property or business of
any third parties using such products or services.
(c) Neither Target nor any subsidiary has made any other representations or
warranties specifically relating to the ability of any product or service sold,
licensed, rendered, or otherwise provided by Target (or by any of its
subsidiaries) in the conduct of their respective businesses to operate without
malfunction, to operate without ceasing to function, to generate correct data or
to product correct results when processing, providing or receiving (i)
date-related data from, into and between the Twentieth (20th) and Twenty-First
(21st) centuries, and (ii) date-related data in connection with any valid date
in the Twentieth (20th) and Twenty-First (21st) centuries.
2.33 Product Releases. Target has provided Acquiror and Acquisition Sub a
schedule of product releases, which schedule is attached hereto as Section 2.33
of the Target Disclosure Schedule. Target believes there is a reasonable basis
for achieving the release of products on the schedule described in Section 2.33
of the Target Disclosure Schedule and is not aware of any change in its
circumstances or other fact that has occurred that would cause it to believe
that it will be unable to meet such release schedule.
2.34 Representations Complete. None of the representations or warranties made by
Target herein or in any Schedule hereto, including the Target Disclosure
Schedule, or certificate furnished by Target pursuant to this Agreement, when
all such documents are read together in their entirety, contains or will contain
at the Effective Time any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading.
2.35 Securities Exempt from Registration. All of the outstanding shares of
Target Capital Stock have been issued in transactions which are exempt from
registration under the Securities Act.
2.36 Deposit Accounts. The location of each of Target's or its Subsidiaries'
Deposit Accounts is set forth in Section 2.36 to the Target Disclosure Schedule.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUISITION SUB
Except as disclosed in a document of even date herewith and
delivered by Acquiror and Acquisition Sub to Target prior to the execution and
delivery of this Agreement and referring to the representations and warranties
in this Agreement (the "Acquiror Disclosure Schedule"), and except with respect
to the representations and warranties in Sections 3.2 and 3.9 as disclosed in a
document to be dated and delivered by Acquiror and Acquisition Sub to Target no
later than November 24, 1998, each of Acquiror and Acquisition Sub represents
and warrants to Target as follows:
3.1 Organization, Standing and Power. Each of Acquiror and Acquisition Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Each of Acquiror and Acquisition Sub has
the corporate power to own its properties and to carry on its business as now
being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on
Acquiror. Each of Acquiror and Acquisition Sub is not in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents.
3.2 Capital Structure.
(a) The authorized capital stock of Acquiror consists of 25,000,000 shares of
Common Stock, $0.01 par value per share, and 4,000,000 shares of Preferred
Stock, $.10 par value per share ("Acquiror Preferred Stock"). As of the close of
business on November 6, 1998, (a) 8,198,779 shares of Common Stock were issued
and outstanding, 1,370,865 shares were reserved for issuance pursuant to
Acquiror's employee and director stock option plans (the "Acquiror Plans"),
2,474,226 shares were reserved for issuance upon conversion of shares of
Acquiror Preferred Stock and exercise of outstanding warrants (the "Acquiror
Warrants"), 1,513,885 shares were reserved for issuance under Acquiror's cable
affiliates inventive program (the "Cable Incentive Program") and 1,217,322
shares were reserved for issuance pursuant to securities exercisable for, or
convertible into or exchangeable for shares of Common Stock (other than
securities reserved for issuance pursuant to the Acquiror Plans or the Cable
Incentive Program or upon conversion of the Acquiror Preferred Stock or exercise
of the Acquiror Warrants). As of the Close of business on October 30, 1998, (a)
Acquiror had designated 5,000 shares of Acquiror Preferred Stock as Series A
Convertible Preferred Stock, of which 3,100.78 shares were issued and
outstanding; (b) Acquiror had designated 10,000 shares of Acquiror Preferred
Stock as Series B Convertible Preferred Stock, of which 10,125 shares were
issued and outstanding; (c) Acquiror had designated 7,500 shares of Acquiror
Preferred Stock as Series C Convertible Preferred Stock, of which 7,531.25
shares were issued and outstanding; and Acquiror had designated 7,500 shares of
Acquiror Preferred Stock as Series D Convertible Preferred Stock, of which no
shares were issued and outstanding. Acquiror has agreed, pursuant to an
agreement dated August 31, 1998, to issue 7,500 shares of Series D Convertible
Preferred Stock (subject to certain conditions which may be waived by the
purchasers) to RGC International Investors, LDC, an existing investor of the
Company. All issued and outstanding shares have been duly authorized, validly
issued, fully paid and are non-assessable and free of any liens or encumbrances
other than any liens or encumbrances created by or imposed upon the holders
thereof. The shares of Acquiror Common Stock to be issued pursuant to the
Merger, including shares issuable on exercise of the options assumed by Acquiror
under the Target Stock Option Plan, will be duly authorized, validly issued,
fully paid, and non-assessable.
(b) The authorized capital stock of Acquisition Sub consists of 1,000 shares of
Common Stock, $.0001 par value per share, all of which have been issued and are
outstanding and owned by Acquiror as of the Effective Time, and no shares of
preferred stock. There are no warrants or options or other securities
outstanding which are exercisable or convertible into capital stock of
Acquisition Sub. The outstanding shares of capital stock of Acquisition Sub are
duly authorized, validly issued, fully paid and non-assessable.
3.3 Authority. Each of Acquiror and Acquisition Sub 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 Acquiror and
Acquisition Sub. This Agreement has been duly executed and delivered by Acquiror
and Acquisition Sub and constitutes the valid and binding obligation of Acquiror
and Acquisition Sub. The execution and delivery of this Agreement 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 a benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of Acquiror or Acquisition Sub, as
amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or Acquisition Sub or their properties or assets, except where such
conflict, violation or default would not have a Material Adverse Effect on
Acquiror or Acquisition Sub. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Acquiror or Acquisition Sub in connection with the
execution and delivery of this Agreement by Acquiror or Acquisition Sub or the
consummation by Acquiror or Acquisition Sub of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger, together with
the required officers' certificates and board resolutions, as provided in
Section 1.2, (ii) the filing of a Form 8-K with the SEC and National Association
of Securities Dealers ("NASD") within 15 days after the Closing Date, (iii) any
filings as may be required under applicable state securities laws and the
securities laws of any foreign country, and (iv) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Acquiror and would not
prevent, materially alter or delay any of the transactions contemplated by this
Agreement.
3.4 SEC Documents; Financial Statements. Acquiror has made available to Target
each statement, report, registration statement (with the prospectus in the form
filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement, and other filings filed with the SEC by Acquiror since December 31,
1995, (collectively, the "Acquiror's SEC Documents"). In addition, Acquiror has
made available to Target all exhibits to the Acquiror's SEC Documents filed
prior to the date hereof, and will promptly make available to Target all
exhibits to any additional Acquiror's SEC Documents filed prior to the Effective
Time. As of their respective filing dates, the Acquiror's SEC Documents complied
in all material respects with the requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the Securities Act, and none of the
Acquiror's SEC Documents as of their respective dates 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 Acquiror's SEC Document. The financial
statements of Acquiror, including the notes thereto, included in the Acquiror's
SEC Documents (the "Acquiror Financial Statements") were complete and correct in
all material respects as of their respective dates, complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto as of their respective
dates, and have been prepared in accordance with 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 included in Quarterly Reports on Form 10-Qs,
as permitted by Form 10-Q of the SEC). The Acquiror Financial Statements fairly
present the consolidated financial condition and operating results of Acquiror
and its subsidiaries at the dates and during the periods indicated therein
(subject, in the case of unaudited statements, to normal, recurring year-end
adjustments).
3.5 Absence of Undisclosed Liabilities. Acquiror has no material obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other than
(i) those set forth or adequately provided for in the Balance Sheet included in
Acquiror's Quarterly Report on Form 10-Q for the period ended June 30, 1998 (the
"Acquiror Balance Sheet"), (ii) those incurred in the ordinary course of
business and not required to be set forth in the Acquiror Balance Sheet under
generally accepted accounting principles, and (iii) those incurred in the
ordinary course of business since the Acquiror Balance Sheet Date and consistent
with past practice.
Acquisition Sub has not conducted any business to date and has no liabilities of
any kind.
3.6 Broker's and Finders' Fees. Neither Acquiror nor Acquisition Sub has
incurred, nor will incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or investment bankers' fees or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.7 Board Approval. The Board of Directors of each of Acquiror and Acquisition
Sub has approved this Agreement and the Merger. The approval of the shareholders
of Acquiror for this Agreement and the Merger is not required. Acquiror, as the
sole shareholder of Acquisition Sub, has approved this Agreement and the Merger.
3.8 Representations Complete. None of the representations or warranties made by
Acquiror or Acquisition Sub herein or in any Schedule hereto, including the
Acquiror Disclosure Schedule, or certificate furnished by Acquiror or
Acquisition Sub pursuant to this Agreement, when all such documents are read
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
3.9 Absence of Certain Changes. Since June 30, 1998 (the "Acquiror Balance Sheet
Date"), Acquiror has conducted its business in the ordinary course consistent
with past practice and there has not occurred: (i) any change, event or
condition (whether or not covered by insurance) that has resulted in, or might
reasonably be expected to result in, a Material Adverse Effect to Acquiror; (ii)
any acquisition, sale or transfer of any material asset of Acquiror or any of
its subsidiaries; (iii) any material contract entered into by Acquiror or any of
its subsidiaries, or any material amendment or termination of, or default under,
any material contract to which Acquiror or any of its subsidiaries is a party or
by which it is bound; or (iv) any agreement by Acquiror or any of its
subsidiaries to do any of the things described in the preceding clauses (i)
through (iii).
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Target. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Target agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by Acquiror), to
carry on its business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted. Target further agrees to pay debts and
Taxes when due subject (i) to good faith disputes over such debts or Taxes and
(ii) to Acquiror's consent to the filing of material Tax Returns if applicable,
to pay or perform other obligations when due, and to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organizations, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it
to the end that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Target agrees to promptly notify Acquiror of any event or
occurrence not in the ordinary course of business, and of any event which could
have a Material Adverse Effect on Target.
Without limiting the foregoing, during the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, except as set forth in the Target
Disclosure Schedule or as expressly contemplated by this Agreement, Target and
its Subsidiaries shall not do, cause or permit any of the following, without the
prior written consent of Acquiror:
(a) Charter Documents. Cause or permit any amendments to its Certificate of
Incorporation or Bylaws or equivalent
organizational documents;
(b) Dividends; Changes in Capital Stock. Declare or pay any dividends on or make
any other distributions (whether in cash, stock or property) in respect of any
of its capital stock, or split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to it;
(c) Stock Option Plans, Etc. Accelerate, amend (except for the amendment
required pursuant to Section 5.17) or change the period of exercisability or
vesting of options or other rights granted under its stock plans or authorize
cash payments in exchange for any options or other rights granted under any of
such plans;
(d) Material Contracts. Enter into any material contract or commitment, or
violate, amend or otherwise modify or waive any of the terms of any of its
material contracts, other than in the ordinary course of business consistent
with past practice and in no event shall such contract commitment, amendment,
modification or waiver be in excess of $50,000;
(e) Issuance of Securities. Issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than the issuance of shares of its
Common Stock pursuant to the exercise of stock options, warrants or other rights
therefor outstanding as of the date of this Agreement;
(f) Intellectual Property. Transfer to any person or entity any rights to its
Intellectual Property other than in the ordinary course of business consistent
with past practice;
(g) Exclusive Rights. Enter into or amend any agreements pursuant to which any
other party is granted exclusive marketing or other exclusive rights of any type
or scope with respect to any of its products or technology;
(h) Dispositions. Sell, lease, license or otherwise dispose of or encumber any
of its properties or assets which are material, individually or in the
aggregate, to its business, except for sales of products in the ordinary course;
(i) Indebtedness. Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(j) Leases. Enter into any operating lease in excess of $20,000;
(k) Payment of Obligations. Pay, discharge or satisfy in an amount in excess of
$50,000 in any one case or $100,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the payment,
discharge or satisfaction of liabilities reflected or reserved against in the
Target Financial Statements;
(l) Capital Expenditures. Make any capital expenditures, capital additions or
capital improvements except in the ordinary course of business and consistent
with past practice;
(m) Insurance. Materially reduce the amount of any material insurance coverage
provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of substantial value,
other than in the ordinary course of business;
(o) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend any
employee benefit or stock purchase or option plan, or hire any new director
level or officer level employee, pay any special bonus or special remuneration
to any employee or director or increase the salaries or wage rates of its
employees;
(p) Severance Arrangements. Grant any severance or termination pay (i) to any
director or officer or (ii) to any other employee except payments made pursuant
to standard written agreements outstanding on the date hereof;
(q) Lawsuits. Commence a lawsuit other than (i) for the routine collection of
bills, (ii) in such cases where it in good faith determines that failure to
commence suit would result in the material impairment of a valuable aspect of
its business, provided that it consults with Acquiror prior to the filing of
such a suit, or (iii) for a breach of this Agreement;
(r) Acquisitions. Acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to its business,
taken as a whole;
(s) Taxes. Other than in the ordinary course of business, make or change any
material election in respect of Taxes, adopt or change any accounting method in
respect of Taxes, file any material Tax Return or any amendment to a material
Tax Return, enter into any closing agreement, settle any claim or assessment in
respect of Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(t) Notices. Target shall give all notices and other information required to be
given to the employees of Target, any collective bargaining unit representing
any group of employees of Target, and any applicable government authority under
the WARN Act, the National Labor Relations Act, the Internal Revenue Code, the
Consolidated Omnibus Budget Reconciliation Act, and other applicable law in
connection with the transactions provided for in this Agreement;
(u) Revaluation. Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business; or
(v) Other. Take or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (u) above, or any action which would make
any of its representations or warranties contained in this Agreement untrue or
incorrect in any material respect or prevent it from performing or cause it not
to perform its covenants hereunder in any material respect.
Notwithstanding the foregoing subsections (a) through (v), Acquiror acknowledges
that Target is currently negotiating to acquire Web Presence Providers, Inc., a
California corporation. Acquiror expressly consents hereby to such acquisition
and to certain other actions undertaken with respect thereto and waives any
violation of clauses (d), (e), (j), (k), (o) and (r) of this Section 4.1 which
would be caused thereby.
4.2 No Solicitation. Target and its Subsidiaries and the officers, directors,
employees or other agents of Target and its Subsidiaries will not, directly or
indirectly, (i) take any action to solicit, initiate or encourage any Takeover
Proposal (as defined in Section 7.3(f)) or (ii) engage in negotiations with, or
disclose any nonpublic information relating to Target or any of its Subsidiaries
to, or afford access to the properties, books or records of Target or any of its
Subsidiaries to, any person that has advised Target or any of its Subsidiaries
that it may be considering making, or that has made, a Takeover Proposal. Target
and its Subsidiaries shall not, and shall not permit any of their officers,
directors, employees or other representatives to agree to or endorse any
Takeover Proposal. Target will promptly notify Acquiror after receipt of any
Takeover Proposal or any notice that any person is considering making a Takeover
Proposal or any request for nonpublic information relating to Target or any of
its Subsidiaries or for access to the properties, books or records of Target or
any of its Subsidiaries by any person that has advised Target or any of its
Subsidiaries that it may be considering making, or that has made, a Takeover
Proposal and will keep Acquiror fully informed of the status and details of any
such Takeover Proposal notice, request or any correspondence or communications
related thereto and shall provide Acquiror with a true and complete copy of such
Takeover Proposal notice or request or correspondence or communications related
thereto, if it is in writing, or a written summary thereof, if it is not in
writing.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Information Statement. As soon as practicable after the
execution of this Agreement, Acquiror shall prepare, with the cooperation of
Target, an Information Statement for the shareholders of Target to approve this
Agreement, the Certificate of Merger and the transactions contemplated hereby
and thereby. The Information Statement shall constitute a disclosure document
for the offer and issuance of the shares of Acquiror Common Stock to be received
by the holders of Target Capital Stock in the Merger. Acquiror and Target shall
each use its reasonable commercial efforts to cause the Information Statement to
comply with applicable federal and state securities laws requirements. Each of
the Parties agrees to provide promptly to the other Parties such information
concerning its respective business and financial statements and affairs as, in
the reasonable judgment of the providing party or its counsel, may be required
or appropriate for inclusion in the Information Statement, or in any amendments
or supplements thereto, and to cause its counsel and auditors to cooperate with
the other's counsel and auditors in the preparation of the Information
Statement. Target will promptly advise Acquiror and Acquisition Sub, and
Acquiror and Acquisition Sub will promptly advise Target, in writing if at any
time prior to the Effective Time either Target, Acquiror or Acquisition Sub
shall obtain knowledge of any facts that might make it necessary or appropriate
to amend or supplement the Information Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. The Information Statement shall contain the recommendation of
the Board of Directors of Target that the Target shareholders approve the Merger
and this Agreement and the conclusion of the Board of Directors that the terms
and conditions of the Merger are fair and reasonable to the shareholders of
Target. Anything to the contrary contained herein notwithstanding, Target shall
not include in the Information Statement any information with respect to
Acquiror, Acquisition Sub or their affiliates or associates, the form and
content of which information shall not have been approved by Acquiror prior to
such inclusion.
5.2 Meeting of Shareholders. Target shall promptly after the date hereof take
all action necessary in accordance with Delaware Law and its Certificate of
Incorporation and Bylaws to secure the written consent of a majority of its
shareholders no later than December 18, 1998, including, if necessary, calling a
special meeting of the Target shareholders for that purpose. Target shall use
its best efforts to solicit from shareholders of Target consents in favor of the
Merger and shall take all other action necessary or advisable to secure the
consent of shareholders required to effect the Merger.
5.3 Access to Information.
(a) In accordance with Section 6.3(m), Target shall afford Acquiror and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (i) all of
Target's and its Subsidiaries' properties, books, contracts, commitments and
records and personnel (as reasonably necessary) for the purpose of conducting a
legal review and, if necessary, an environmental and real estate audit, (ii)
senior management of Target for the purpose of preparing a business plan, and
(iii) all other information concerning the business, properties and personnel of
Target and its Subsidiaries as Acquiror may reasonably request. Target agrees to
provide to Acquiror and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request. Notwithstanding
the foregoing, Acquiror agrees not to contact any customer of Target without the
prior consent of Target. At any time prior to Closing, Acquiror and Acquisition
Sub shall afford Target access rights to conduct legal and financial due
diligence on Acquiror and Acquisition Sub on a basis similar to Acquiror's
rights as stated above.
(b) Subject to compliance with applicable law, from the date hereof until the
Effective Time, each of Acquiror and Target shall confer on a regular and
frequent basis with one or more representatives of the other party to report
operational matters of materiality and the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation pursuant to this
Section 5.3 shall affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.4 Confidentiality. The parties acknowledge that Acquiror and Target have
previously executed the Letter of Intent and the Letter of Amendment, each of
which includes certain non-disclosure provisions (the "Confidentiality
Provisions"), which Confidentiality Provisions shall continue in full force and
effect in accordance with their terms after the date hereof.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement, Acquiror
and Target shall consult with each other before issuing any press release or
otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD.
5.6 Consents; Cooperation.
(a) Each of the Parties 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 shall use commercially reasonable
efforts to obtain all necessary consents, waivers and approvals under any of its
material contracts in connection with the Merger for the assignment thereof or
otherwise. The Parties will consult and cooperate with one another, and consider
in good faith the views of one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and proposals
made or submitted by or on behalf of any party hereto in connection with all
proceedings under or relating to any federal or state antitrust or fair trade
law.
(b) Each of the Parties shall use all commercially reasonable efforts to resolve
such objections, if any, as may be asserted by any Governmental Entity with
respect to the transactions contemplated by this Agreement under any Federal,
state or foreign statutes, rules, regulations, orders or decrees that are
designed to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade (collectively, "Antitrust Laws" and
individually, an "Antitrust Law"). In connection therewith, if any
administrative or judicial action or proceeding is instituted (or threatened to
be instituted) challenging any transaction contemplated by this Agreement as
violative of any Antitrust Law, each of the Parties shall cooperate and use all
commercially reasonable efforts vigorously to contest and resist any such action
or proceeding and to have vacated, lifted, reversed, or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or permanent
(each an "Order"), that is in effect and that prohibits, prevents, or restricts
consummation of the Merger or any such other transactions, unless by mutual
agreement the Parties decide that litigation is not in their respective best
interests. Notwithstanding the provisions of the immediately preceding sentence,
it is expressly understood and agreed that Acquiror and Acquisition Sub shall
have no obligation to litigate or contest any administrative or judicial action
or proceeding or any Order beyond the earlier of (i) December 15,1998 or (ii)
the date of a ruling preliminarily enjoining the Merger issued by a court of
competent jurisdiction.
(c) Notwithstanding anything to the contrary in Section 5.6(a) or (b), (i)
neither Acquiror nor any of it subsidiaries shall be required to divest any of
their respective businesses, product lines or assets, or to take or agree to
take any other action or agree to any limitation that could reasonably be
expected to have a Material Adverse Effect on Acquiror or the Surviving
Corporation, after the Effective Time, or (ii) Target shall not be required to
divest any of its businesses, product lines or assets, or to take or agree to
take any other action or agree to any limitation that could reasonably be
expected to have a Material Adverse Effect on Target.
5.7 Shareholder Agreements; Accredited Investors. Target shall use its best
efforts to deliver or cause to be delivered to Acquiror, from each of the Target
Shareholders who has not executed a Voting Agreement (and in each case at least
three (3) days prior to the Effective Time), an executed Shareholder Agreement
in the form attached hereto as Exhibit H (each, a "Shareholder Agreement").
Target shall take such actions as are necessary to ensure that no more than 35
Target Shareholders are unaccredited investors within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act, including, without
limitation, if necessary, purchasing for cash or other consideration any options
to purchase Target Capital Stock held by unaccredited Target Shareholders which
are currently vested or will become vested as a result of the Merger such that
the holders of such options would not be entitled to receive shares of Acquiror
Common Stock as a result of the Merger.
5.8 Legal Requirements. Each of the Parties will, and will cause their
respective subsidiaries to, 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 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.
5.9 Blue Sky Laws. Acquiror shall take such steps as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
to the issuance of the Acquiror Common Stock in connection with the Merger.
Target shall use its best efforts to assist Acquiror as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
5.10 Escrow Agreement. If the Cash Option is exercised prior to the Option
Expiration Time, on or before the Effective Time, the Cash Escrow Agent and the
Shareholders' Agent (as defined in Article VIII hereto) will execute the Cash
Escrow Agreement contemplated by Article VIII in substantially the form attached
hereto as Exhibit E (the "Cash Escrow Agreement").
5.11 Registration Rights. The Target Stockholders shall have the right to become
a party to a Registration Agreement in the form attached hereto as Exhibit F.
5.12 Employees. Acquiror shall have no obligation to make an offer of employment
to any employee of Target except ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇.
5.13 Expenses. Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement, the Certificate of Merger and the
transactions contemplated hereby and thereby shall be paid by the party
incurring such expense; provided, however, that any out-of-pocket expenses
incurred by Target in excess of $100,000 for fees and expenses of legal counsel
plus any other expenses, including, without limitation, fees and expenses of
financial advisors, accountants, purchaser representatives, and any person
acting in the capacity of Shareholders Agent, if any, shall remain an obligation
of the Target Shareholders. If Acquiror or Target receives any invoices for
amounts in excess of said amounts, it may, with Acquiror's written approval, pay
such fees; provided, however, that such payment shall, if not promptly
reimbursed by the Target Shareholders at Acquiror's request, constitute
"Acquiror Damages" recoverable under the Escrow Agreement and such Acquiror
Damages shall not be subject to the Escrow Basket.
5.14 Security Agreement. If the Cash Option is not exercised prior to the Option
Expiration Time, on or before the Effective Time, Acquiror shall cause the
Surviving Corporation to execute the Security Agreement in form and substance
substantially similar to Exhibit D, provided that such agreement be subject to
further negotiation by the parties regarding provisions respecting guarantor
waivers, remedies upon default, loss payee status under insurance policies,
other non-material provisions and such other provisions (material or otherwise)
as may be proposed by and run in favor of Acquiror or the Surviving Corporation
and be consented to by Target, which consent shall not be unreasonably withheld
(the "Security Agreement") immediately following the Effective Time.
5.15 Reasonable Efforts and Further Assurances. Each of the Parties shall use
its reasonable 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, at the reasonable request of another Party, shall execute
and deliver such other instruments and do and perform such other acts and things
as may be necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby.
5.16 Assumption of Certain Personal Guarantees. Acquiror shall take such steps
as shall be necessary to guarantee payment of certain debt (both principal and
accrued interest) incurred by Target pursuant to the instruments set forth on
Schedule 5.16 hereto (the "Guaranteed Debt"), including, without limitation,
executing written guarantees containing commercially reasonable terms in favor
of the holders of such debt evidencing the same, and shall use its reasonable
best efforts to obtain a novation for ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ with
respect to any personal guarantees they have previously signed guaranteeing the
Guaranteed Debt.
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 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, by agreement of all the parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable efforts to have such injunction or other order lifted.
(b) Governmental Approval. Each of the Parties and their respective subsidiaries
shall have timely obtained from each Governmental Entity all approvals, waivers
and consents, if any, necessary for consummation of or in connection with the
Merger and the several transactions contemplated hereby, including such
approvals, waivers and consents as may be required under the Securities Act and
under state Blue Sky laws.
6.2 Additional Conditions to Obligations of Target. The obligations of Target 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, by Target:
(a) Representations, Warranties and Covenants. Except as disclosed in the
Acquiror Disclosure Schedule dated the date of this Agreement, (i) the
representations and warranties of Acquiror and Acquisition Sub in this Agreement
shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall be
true and correct in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time, other than the
representations of Acquiror set forth in Section 3.2 with respect to outstanding
capital stock and rights to acquire capital stock, which is subject to change
after the date hereof, and (ii) Acquiror and Acquisition Sub shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
them as of the Effective Time.
(b) Certificates of Acquiror and Acquisition Sub. Target shall have been
provided with a certificate executed on behalf of Acquiror by its President and
its Chief Financial Officer and a certificate executed on behalf of Acquisition
Sub by its President certifying that the conditions set forth in Section 6.2(a)
shall have been fulfilled.
(c) Certificates of Good Standing. Acquiror shall, immediately prior to the
closing date, provide Target with a Certificate of Good Standing from the
Secretary of State of New York as to Acquiror's corporate good standing.
Acquisition Sub shall, immediately prior to the Closing Date, provide Target
with a certificate of the Secretary of State of Delaware as to Acquisition Sub's
corporate good standing and payment of all applicable taxes.
(d) Legal Opinion. Target shall have received a legal opinion from Acquiror's
legal counsel substantially in the form of Exhibit I hereto, subject to further
negotiation with respect to the opinions regarding the establishment of a
security interest in the assets of the Surviving Corporation in favor of the
Target Shareholders and regarding further qualifications and exceptions
customary in legal opinions of counsel to the acquiring company in similar
transactions.
(e) Guaranteed Debt. Acquiror shall have guaranteed payment of the Guaranteed
Debt.
(f) No Material Adverse Changes. Since the date hereof, there shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Acquiror.
(g) Employment and Non-Competition Agreements. Acquiror shall have executed an
Employment and Non-Competition Agreement with each of ▇▇▇▇▇ ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, which provides for each to receive a salary of at least
$125,000 per year and a bonus and severance terms commensurate with other
employees of Acquiror with similar positions and responsibilities and contains
additional terms that are mutually agreeable between such persons and Acquiror
(each, an "Employment Agreement").
(h) Cash Escrow Agreement. If the Cash Option is exercised prior to the Option
Expiration Time, Acquiror and the Cash Escrow Agent shall have entered into the
Cash Escrow Agreement.
6.3 Additional Conditions to the Obligations of Acquiror. The obligation of
Acquiror and Acquisition 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, by Acquiror:
(a) Representations, Warranties and Covenants. Except as disclosed in the Target
Disclosure Schedule dated the date of this Agreement (i) the representations and
warranties of Target in this Agreement shall be true and correct in all material
respects (except for such representations and warranties that are qualified by
their terms by a reference to materiality which representations and warranties
as so qualified shall be true in all respects) on and as of the Effective Time
as though such representations and warranties were made on and as of such time,
without giving effect to any supplement or amendment to the Target Disclosure
Schedule, and (ii) Target 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 Target. Acquiror and Acquisition Sub shall have been provided
with a certificate executed on behalf of Target by its President and Chief
Financial Officer certifying that the conditions set forth in Sections 6.3(a)
have been fulfilled and certifying to the Net Asset Value of Target on the
Closing Date.
(c) Third Party Consents. Acquiror and Acquisition Sub shall have been furnished
with evidence satisfactory to them of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
the contracts of Target set forth in Section 2.31 of the Target Disclosure
Schedule hereto.
(d) Legal Opinion. Acquiror and Acquisition Sub shall have received a legal
opinion from Target's legal counsel, in substantially the form of Exhibit J,
subject to further negotiation regarding opinions concerning subsidiaries of
Target and regarding qualifications and exceptions customary in legal opinions
of counsel to the target company in similar transactions.
(e) No Material Adverse Changes. Since the date hereof there shall not have
occurred any material adverse change in the condition, (financial or otherwise)
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Target.
(f) Voting Agreements. Acquiror shall have received from holders representing
the minimum number of shares of Target Capital Stock necessary to approve the
Merger executed Voting Agreements dated concurrently herewith.
(g) Accredited Investors; Registration Exemption. Not more than 35 Target
Shareholders shall be unaccredited investors within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act. The issuance of Acquiror
Common Stock under any provision of this Agreement shall be exempt under Section
4(2) of the Securities Act from the registration requirements thereof.
(h) Resignation of Directors and Officers. The directors and officers of Target
in office immediately prior to the Effective Time shall have resigned as
directors and officers, as applicable, of Target effective as of the Effective
Time.
(i) Employment and Non-Competition Agreements. Each of ▇▇▇▇▇ ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have accepted employment with Acquiror and shall have
entered into an Employment Agreement with Acquiror.
(j) Cash Escrow Agreement. If the Cash Option is exercised prior to the Option
Expiration Time, the Cash Escrow Agent and the Shareholders' Agent (as defined
in Article VIII hereto) shall have entered into the Cash Escrow Agreement.
(k) Certificates of Good Standing. Target shall provide Acquiror and Acquisition
Sub a certificate from the Secretary of State of Delaware and the Franchise Tax
Board of Delaware as to Target's corporate good standing and payment of all
applicable taxes.
(l) Termination of Pension Plan. If required by Acquiror in writing, Target
shall, immediately prior to the Closing Date, terminate the Target 401(k) Plan
(the "Plan") and no further contributions shall be made to the Plan. Target
shall provide to Acquiror (i) executed resolutions by the Board of Directors of
Target authorizing the termination and (ii) an executed amendment to the Plan
sufficient to assure compliance with all applicable requirements of the Internal
Revenue Code and regulations thereunder so that the tax-qualified status of the
Plan will be maintained at the time of termination.
(m) Due Diligence. Acquiror shall have completed to its satisfaction a due
diligence review of the financial and legal information delivered to Acquiror by
Target and such review shall not have disclosed a material item which has not
previously been disclosed to Acquiror. Such due diligence review shall be
conducted entirely at Acquiror's expense.
(n) Dissenting Shares. The number of Dissenting Shares shall not exceed 5% of
Target Common Stock, as determined on a fully-diluted basis.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Effective Time, whether before or
after approval of the matters presented in connection with the Merger by the
shareholders of Target, this Agreement may be terminated:
(a) by mutual consent of the Parties;
(b) by any Party, if the Closing shall not have occurred on or before 6:00 p.m.
San Francisco Time December 18, 1998 (provided, a later date may be agreed upon
in writing by the parties hereto, and provided further that the right to
terminate this Agreement under this Section 7.1(b) shall not be available to any
party whose action or failure to act has been the cause or resulted in the
failure of the Merger to occur on or before such date and such action or failure
to act constitutes a breach of this Agreement);
(c) by Acquiror, if (i) Target shall breach any of its representations,
warranties, obligations or agreements hereunder and such breach shall not have
been cured within ten (10) business days of receipt by Target of written notice
of such breach, provided that the right to terminate this Agreement by Acquiror
under this Section 7.1(c)(i) shall not be available to Acquiror where Acquiror
or Acquisition Sub is at that time in breach of this Agreement, (ii) the Board
of Directors of Target shall have withdrawn or modified its recommendation of
this Agreement or the Merger in a manner adverse to Acquiror or shall have
resolved to do any of the foregoing, or (iii) for any reason Target fails to
call and hold a shareholders meeting or secure the requisite shareholder consent
to approve the Merger and this Agreement by December 18, 1998;
(d) by Target, if either Acquiror or Acquisition Sub shall breach any of its
representations, warranties, obligations or agreements hereunder and such breach
shall not have been cured within ten (10) business days following receipt by
Acquiror and Acquisition Sub of written notice of such breach, provided that the
right to terminate this Agreement by Target under this Section 7.1(d) shall not
be available to Target where Target is at that time in breach of this Agreement;
(e) by Acquiror, if a Trigger Event (as defined in Section 7.3(e)) or Takeover
Proposal shall have occurred and the Board of Directors of Target in connection
therewith, does not within five (5) business days of such occurrence (i)
reconfirm its approval and recommendation of this Agreement and the transactions
contemplated hereby and (ii) reject such Takeover Proposal or Trigger Event; or
(f) by any Party, if (i) any permanent injunction or other order of a court or
other competent authority preventing the consummation of the Merger shall have
become final and nonappealable or (ii) if any required approval of the
shareholders of Target shall not have been obtained by reason of the failure to
obtain the required vote or consent.
7.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any Party or its respective
officers, directors, shareholders or affiliates, except to the extent that such
termination results from the breach by a Party of any of its representations,
warranties or covenants set forth in this Agreement; provided that the
provisions of Section 5.4 (Confidentiality), Section 7.3 (Expenses and
Termination Fees) and this Section 7.2 shall remain in full force and effect and
survive any termination of this Agreement.
7.3 Expenses and Termination Fees.
(a) Subject to Sections 5.13, 7.3(b), 7.3(c) and 7.3(d), whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the reasonable fees and expenses of its advisers, accountants and
legal counsel) shall be paid by the party incurring such expense.
(b) In the event that (i) Acquiror shall terminate this Agreement pursuant to
Section 7.1(e), (ii) Acquiror shall terminate this Agreement pursuant to Section
7.1(c)(ii), (iii) any Party shall terminate this Agreement pursuant to Section
7.1(f)(ii) following a failure of the shareholders of Target to approve this
Agreement and, prior to the time of the meeting or written consent of Target's
shareholders, there shall have been (A) a Trigger Event with respect to Target
or (B) a Takeover Proposal which at the time of the meeting or written consent
of Target's shareholders shall not have been rejected by Target, or (iv)
Acquiror shall terminate this Agreement pursuant to Section 7.1(c)(i) or (iii),
due in whole or in part to any failure by Target to use its best efforts to
perform and comply with all agreements and conditions required by this Agreement
to be performed or complied with by Target prior to or on the Closing Date or
any failure by Target's affiliates to take any actions required to be taken
hereby, and prior thereto there shall have been (A) a Trigger Event with respect
to Target or (B) a Takeover Proposal with respect to Target which shall not have
been rejected by Target, then Target shall reimburse Acquiror for all of the
out-of-pocket costs and expenses incurred by Acquiror in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the reasonable fees and expenses of its advisors, accountants and
legal counsel), and, in addition to any other remedies Acquiror may have, Target
shall promptly pay to Acquiror the sum of $5,000,000.
(c) In the event that (i) Acquiror shall terminate this Agreement pursuant to
Section 7.1(c)(i) or (iii) under circumstances not described in Section
7.3(b)(iv) or (ii) Acquiror shall terminate this Agreement pursuant to Section
7.1(f)(ii) under circumstances not described in Section 7.3(b)(iii), Target
shall promptly reimburse Acquiror for all of the out-of-pocket costs and
expenses incurred by Acquiror in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the reasonable
fees and expenses of its advisors, accountants and legal counsel); and, in the
event any Takeover Proposal or Trigger Event is consummated (as defined in
Section 7.3(g)) within twelve months of the later of (x) the termination of this
Agreement pursuant to Sections 7.1(c), 7.1(e) or Section 7.1(f)(ii) and (y) the
payment of the above-described expenses, Target shall promptly pay to Acquiror
the additional sum of $5,000,000.
(d) In the event that Target shall terminate this Agreement pursuant to Section
7.1(d) Acquiror shall promptly reimburse Target for all of the out-of-pocket
costs and expenses incurred by Target in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the reasonable
fees and expenses of its advisors, accountants and legal counsel).
(e) As used herein, a "Trigger Event" shall occur if any Person (as that term is
defined in Section 13(d) of the Exchange Act and the regulations promulgated
thereunder, but excluding Acquiror) acquires securities representing 10% or
more, or commences a tender or exchange offer following the successful
consummation of which the offeror and its affiliate would beneficially own
securities representing 10% or more, of the voting power of Target; provided,
however, a Trigger Event shall not be deemed to include the acquisition by any
Person of securities representing 10% or more of Target if such Person has
acquired such securities not with the purpose nor with the effect of changing or
influencing the control of Target, nor in connection with or as a participant in
any transaction having such purpose or effect, including without limitation not
in connection with such Person (i) making any public announcement with respect
to the voting of such shares at any meeting to consider any merger,
consolidation, sale of substantial assets or other business combination or
extraordinary transaction involving Target, (ii) making, or in any way
participating in, any "solicitation" of "proxies" (as such terms are defined or
used in Regulation 14A under the Exchange Act) to vote any voting securities of
Target (including, without limitation, any such solicitation subject to Rule
14a-11 under the Exchange Act) or seeking to advise or influence any Person with
respect to the voting of any voting securities of Target, directly or
indirectly, relating to a merger or other business combination involving Target
or the sale or transfer of a significant portion of assets (excluding the sale
or disposition of assets in the ordinary course of business) of Target, (iii)
forming, joining or in any way participating in any "group" within the meaning
of Section 13(d)(3) of the Exchange Act with respect to any voting securities of
Target, directly or indirectly, relating to a merger or other business
combination involving Target or the sale or transfer of a significant portion of
assets (excluding the sale or disposition of assets in the ordinary course of
business) of Target, or (iv) otherwise acting, alone or in concert with others,
to seek control of Target or to seek to control or influence the management or
policies of Target.
(f) For purposes of this Agreement, "Takeover Proposal" means any offer or
proposal for, a merger or other business combination involving Target or the
acquisition of 20% or more of the outstanding shares of Target Capital Stock
(excluding shares held by Acquiror), or a significant portion of the assets of,
Target other than the transactions contemplated by this Agreement.
(g) For purposes of Section 7.3(c) above, (A) "consummation" of a Takeover
Proposal shall occur on the date a written agreement is entered into with
respect to a merger or other business combination involving Target or the
acquisition of 20% or more of the outstanding shares of capital stock of Target
(excluding shares held by Acquiror), or sale or transfer of any material assets
(excluding the sale or disposition of assets in the ordinary course of business)
of Target and (B) "consummation" of a Trigger Event shall occur on the date any
Person (other than any shareholder which currently owns 10% or more of the
outstanding shares of Target Capital Stock including Acquiror) or any of its
affiliates or associates would beneficially own securities representing 10% or
more of the voting power of Target, following a tender or exchange offer.
7.4 Amendment. The boards of directors of the Parties may cause this Agreement
to be amended at any time by execution of an instrument in writing signed on
behalf of each of the parties hereto; provided that an amendment made subsequent
to adoption of the Agreement by the shareholders of Target shall not (i) alter
or change the amount or kind of consideration to be received in exchange for the
Target Capital Stock, (ii) alter or change any term of the Certificate of
Incorporation of the Surviving Corporation to be effected by the Merger, or
(iii) alter or change any of the terms and conditions of the Agreement if such
alteration or change would materially adversely affect the holders of Target
Capital Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any Party 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, (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 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 VIII
INDEMNIFICATION
8.1 Indemnification.
(a) Subject to the limitations set forth in this Article VIII, the Target
Shareholders will indemnify and hold harmless Acquiror and the Surviving
Corporation and their respective officers, directors, agents and employees, and
each person, if any, who controls or may control Acquiror or the Surviving
Corporation within the meaning of the Securities Act (hereinafter referred to
individually as an "Acquiror Indemnified Person" and collectively as "Acquiror
Indemnified Persons") from and against any and all losses, costs, damages,
liabilities and expenses arising from claims, demands, actions and causes of
action, including, without limitation, reasonable legal fees ("Legal Fees"), net
of any tax benefit received by Acquiror as a result of such damages, recoveries
by Acquiror or the Surviving Corporation under existing insurance policies or
indemnities from third parties or, in the case of third party claims, by any
amount actually recovered by Acquiror or the Surviving Corporation pursuant to
counterclaims made by Acquiror or the Surviving Corporation directly relating to
the facts giving rise to such third party claims (collectively, "Acquiror
Damages") arising out of any misrepresentation or breach of or default in
connection with any of the representations, warranties, covenants and agreements
given or made by Target in this Agreement, the Target Disclosure Schedules or
any Exhibit or schedule to this Agreement. Acquiror and Target each acknowledge
that Acquiror Damages, if any, would relate to unresolved contingencies existing
at the Effective Time, which if resolved at the Effective Time would have led to
a reduction in the total consideration Acquiror would have agreed to pay in
connection with the Merger. Nothing in this Agreement shall limit the liability
of any Target Shareholder in connection with any breach by such shareholder of a
Shareholder Agreement, Voting Agreement or Irrevocable Proxy.
(b) If the Cash Option is exercised, the Cash Escrow Fund shall act as security
for the indemnification obligations of the Target Shareholders pursuant to
Section 8.1(a). If the Cash Option is not exercised, the Future Compensation
shall act as security for the indemnification obligations of the Target
Shareholders pursuant to Section 8.1(a). The liability of the Target
Shareholders to the Acquiror Indemnified Persons for the indemnification
obligations of Section 8.1(a) shall terminate at the end of the Indemnification
Period, provided, that notwithstanding the foregoing limitation, such liability
shall extend to claims made during the indemnification period which are
unresolved at the expiration thereof and to Legal Fees arising therefrom,
including those Legal Fees incurred after the expiration of the Indemnification
Period. (c) Subject to the limitations set forth in this Article VIII, Acquiror
will indemnify and hold harmless the Target Shareholders from and against any
and all losses, costs, damages, liabilities and expenses arising from claims,
demands, actions and causes of action, including, without limitation, reasonable
legal fees, net of any tax benefit received by the Target Shareholders as a
result of such damages ("Target Damages"), arising out of any misrepresentation
or breach of or default in connection with any of the representations,
warranties, covenants and agreements given or made by Acquiror or Acquisition
Sub in this Agreement, the Acquiror Disclosure Schedule or any exhibit or
schedule to this Agreement.
(d) The liability of Acquiror to the Target Shareholders for the indemnification
obligations of Section 8.2(c) shall terminate at the end of the Indemnification
Period, provided, that notwithstanding the foregoing limitation, such liability
shall extend to claims made during the Indemnification Period which are
unresolved at the expiration thereof and to Legal Fees arising therefrom,
including those Legal Fees incurred after the expiration of the Indemnification
Period.
(e) Claims for indemnity made by an Acquiror Indemnified Person pursuant to this
Article VIII or otherwise pursuant to this Agreement, other than claims for
compensation for Acquiror Damages which are caused by a breach of the
representations of Target made in Section 2.11(a), (b), (c), (d), (e), (g), (h)
or (i) (collectively, the "Key Intellectual Property Representations"), shall be
limited to $1,000,000. Claims for compensation for Acquiror Damages which are
caused by a breach of the Key Intellectual Property Representations shall be
limited to (i) if the Cash Option is exercised, the amount of the Cash Escrow
Fund, and (ii) if the Cash Option is not exercised, offsets against payment of
the Future Compensation. All claims for indemnification pursuant to this Article
VIII or otherwise shall be brought and recovered by Acquiror Indemnified Persons
solely by delivery of cash from the Cash Escrow Fund or by offset from the
Future Compensation, as the case may be. Acquiror and the Surviving Corporation
acknowledge and agree that any delivery of cash from the Cash Escrow Fund or
offset from the Future Compensation to satisfy a claim for indemnification
pursuant to this Article VIII shall be done so as to reduce each Target
Shareholder's interest in the Cash Escrow Fund or the Future Compensation in a
pro rata manner based on the Target Shareholder's respective ownership interests
in the Cash Escrow Fund or the Future Compensation.
(f) The consideration by Acquiror to be paid to Target Shareholders to acquire
the capital stock of Target has been established by the parties hereto based on
the allocation of risk and rights of recovery hereunder.
(g) Acquiror has had an opportunity to do due diligence of Target and,
accordingly, has agreed to limit its right to recourse as set forth in this
Article VIII. Except for claims based upon breaches of a Shareholder Agreement,
a Voting Agreement or an Irrevocable Proxy, no Acquiror Indemnified Person shall
have a claim or cause of action, whether in contract, tort, under statute or
otherwise, for monetary damages arising out of, or relating to, this Agreement,
the representations and warranties herein or any of the transactions
contemplated hereby apart from the right to indemnification pursuant to Article
VIII hereof. Without limiting the generality of the foregoing, Acquiror
Indemnified Persons shall not have any recourse against any Target Shareholder
individually, or any Target Shareholder assets or property, for claims for
indemnification pursuant to this Article VIII, except for offset against the
Cash Escrow Fund or the Future Compensation, as the case may be.
(h) Target has had an opportunity to do due diligence of Acquiror and
Acquisition Sub and, accordingly, has agreed to limit its right to recourse as
set forth in this Article VIII. Except for claims based upon breaches of the
Promissory Notes, the Security Agreement, the Cash Escrow Agreement or the
Registration Rights Agreement, no Target Shareholder shall have a claim or cause
of action, whether in contract, tort, under statute or otherwise, for monetary
damages arising out of, or relating to, this Agreement, the representations and
warranties herein or any of the transactions contemplated hereby apart from the
right to indemnification pursuant to Article VIII hereof.
8.2 Damage Threshold. Notwithstanding the foregoing, Acquiror may not offset
payment of any Future Compensation or receive any distribution from the Cash
Escrow Fund unless and until an Acquiror Officer's Certificate or Certificates
(as defined in Section 8.6 below) identifying Acquiror Damages the aggregate
amount of which exceeds $50,000 have been delivered to the Shareholders Agent
and/or the Cash Escrow Agent as provided in Section 8.6 below and such amount is
determined pursuant to this Article VIII to be payable, in which case Acquiror
shall offset payment of Future Compensation or receive a distribution of Escrow
Cash equal in value to the full amount of Acquiror Damages; provided, that (a)
in no event shall an the Acquiror Indemnified Persons receive more than
$1,000,000 in Escrow Cash or in offsets to Future Compensation for claims which
are not related, directly or indirectly, to the Key Intellectual Property
Representations, and (b) in no event shall the Acquiror Indemnified Persons
receive more than the amount of Escrow Cash originally placed in the Cash Escrow
Fund. In determining the amount of any Damage attributable to a breach, any
materiality standard contained in a representation, warranty or covenant shall
be disregarded.
(b) Notwithstanding the foregoing, the Shareholder's Agent may not make any
claim of Target Damages against Acquiror unless and until a Target Officer's
Certificate or Certificates (as defined in Section 8.6 below) identifying Target
Damages the aggregate amount of which exceeds $50,000 have been delivered to
Acquiror as provided in Section 8.6 below and such amount is determined pursuant
to this Article VIII to be payable.
8.3 Right of Offset. If the Cash Option is not exercised, notwithstanding any
other provision of this Agreement, the Letter of Intent or any collateral
agreement to the contrary, Acquiror shall have the right to offset any portion
of Future Compensation which has not yet been paid as compensation for the
indemnification obligations of Target. In exercising this right, Acquiror may
offset claims against any combination of the Promissory Notes, the Additional
Stock and the Anniversary Stock, the choice of which shall be at Acquiror's sole
discretion so long as the aggregate amount so offset does not exceed the amount
for which Target is liable in indemnification. If Acquiror chooses to offset
amounts owing under the Promissory Notes, Acquiror shall have the additional
right to direct the Exchange Agent to make offsetting notations thereto as
evidence of such offset, and any such notations shall be prima facie evidence of
the amounts still owing thereunder. Notwithstanding the previous sentence,
Acquiror's records with respect to any offsets made to the Promissory Notes
shall be prima facie evidence of the amount still owing thereunder. If Acquiror
chooses to offset any shares of Additional Stock or Anniversary Stock otherwise
issuable, such shares shall be valued at the average closing price for Acquiror
Common Stock for the 15 days immediately preceding the first anniversary of the
Closing Date.
(b) If a claim of Target Damages is upheld pursuant to the provisions of this
Article VIII, the Target Shareholders shall have the right to offset any Target
Damages payable therefrom against any Acquiror Damages payable by the Target
Shareholders and shall have the right to direct Acquiror to direct the Exchange
Agent to remove any offsetting notations to the Promissory Notes previously made
equal in amount to the amount of Target Damages owed by Acquiror or Acquisition
Sub, provided, that under no circumstances may the total amount owing under the
Promissory Notes be increased beyond the original principal amount thereof, plus
accrued interest.
8.4 Cash Escrow Fund. If the Cash Option is exercised, as soon as practicable
after the Effective Time, Acquiror shall deposit the Escrow Cash with State
Street Bank and Trust Company of California, N.A. (or other institution selected
by Acquiror with the reasonable consent of Target) as escrow agent (the "Cash
Escrow Agent"), such deposit (together with interest and other income thereon)
to constitute the cash escrow fund (the "Cash Escrow Fund") and to be governed
by the terms set forth herein and in the Cash Escrow Agreement.
8.5 Indemnification Period. The indemnification period shall terminate at the
one year anniversary of the Effective Time (the "Indemnification Period");
provided, that, as applicable, a portion of Escrow Cash shall remain in the Cash
Escrow Fund or a portion of Future Compensation shall remain unpaid, which in
the reasonable judgment of Acquiror, subject to the objection of the
Shareholders' Agent and any subsequent arbitration of the matter in the manner
provided in Section 8.8 hereof, is necessary to satisfy any unsatisfied claims
specified in any Acquiror Officer's Certificate theretofore delivered to the
Cash Escrow Agent and/or the Shareholders Agent (as defined in Section 8.9
below) prior to termination of the Indemnification Period with respect to facts
and circumstances existing prior to expiration of the Indemnification Period,
until such claims have been resolved.
8.6 Damage Claims.
(a) Acquiror Damages
(A) If the Cash Option was exercised, Acquiror shall make a claim of Acquiror
Damages by submitting a certificate to the Cash Escrow Agent, on or before the
last day of the Indemnification Period, signed by any officer of Acquiror (an
"Acquiror Officer's Certificate"):
(i) stating that, Acquiror Damages exist in an aggregate amount greater than
$50,000, and
(ii) specifying in reasonable detail the individual items of such Acquiror
Damages included in the amount so stated, the date each such item was paid, or
properly accrued or arose, the nature of the misrepresentation, breach of
warranty or claim to which such item is related.
At the time of delivery of any Acquiror Officer's Certificate to the Cash Escrow
Agent, a duplicate copy of such Acquiror Officer's Certificate shall be
delivered to the Shareholders' Agent. Upon receipt of an Acquiror Officer's
Certificate, the Cash Escrow Agent shall, subject to the provisions of Section
8.7 and 8.8 below, deliver to Acquiror out of the Cash Escrow Fund, as promptly
as practicable, Escrow Cash or other assets held in the Cash Escrow Fund having
a value equal to such Acquiror Damages.
(B) If the Cash Option was not exercised, Acquiror shall make a claim of
Acquiror Damages by submitting an Acquiror Officer's Certificate, in the form
specified above, on or before the last day of the Indemnification Period,
directly to the Shareholders' Agent. Subject to the provisions of Section 8.7
and 8.8 below, following the delivery of such Acquiror Officer's Certificate,
Acquiror shall have the right to offset any payment of Future Compensation
having a value equal to such Acquiror Damages and, if such offset is made
against the amounts payable under either or both of the Promissory Notes, to
direct the Exchange Agent to make a notation thereto evidencing such offset.
(b) Target Damages. The Shareholders' Agent shall make a claim of Target Damages
on behalf of the Target Shareholders by submitting a certificate to the Cash
Escrow Agent, on or before the last day of the Indemnification Period, signed by
any officer of Acquiror (a "Target Officer's Certificate"):
(i) stating that, Target Damages exist in an aggregate amount greater than
$50,000, and
(ii) specifying in reasonable detail the individual items of such Target Damages
included in the amount so stated, the date each such item was paid, or properly
accrued or arose, the nature of the misrepresentation, breach of warranty or
claim to which such item is related.
Only the Shareholders' Agent may make a claim of
Target Damages on behalf of the Target Shareholders.
Subject to the provisions of Sections 8.7 and 8.8 below, following the delivery
of such Target Officer's Certificate, the Target Shareholders shall have the
right to reverse any previous or subsequent offset by Acquiror resulting from
Acquiror Damages having a value equal to such Target Damages and, if such
reversal is made to an offset of the amount payable under either or both of the
Promissory Notes, to direct Acquiror to direct the Exchange Agent to make a
notation thereto evidencing such reversal.
8.7 Objections to Claims. For a period of forty-five (45) days after delivery of
any Acquiror Officer's Certificate to the Shareholders' Agent, the Cash Escrow
Agent shall make no delivery of Escrow Cash and Acquiror shall not withhold any
payment of Future Compensation or direct the Exchange Agent to make any
offsetting notation to the Promissory Notes unless the Cash Escrow Agent or
Acquiror shall have received written authorization from the Shareholders' Agent
to make such delivery or notation. After the expiration of such forty-five (45)
day period, the Cash Escrow Agent shall make delivery of Escrow Cash or Acquiror
shall receive an offset to the Future Compensation not yet paid and, if
appropriate, direct the Exchange Agent to make any appropriate offsetting
notations to the Promissory Notes, provided, that no such delivery, offset or
notation may be made if the Shareholders' Agent shall object in a written
statement to the claim made in the Acquiror Officer's Certificate, and such
statement shall have been delivered to the Cash Escrow Agent (if any) or to
Acquiror prior to the expiration of such forty-five (45) day period.
(b) If Acquiror does not dispute a Target Officers' Certificate delivered by the
Shareholder's Agent, Acquiror shall direct the Exchange Agent to immediately
reverse any offsetting notations made to the Promissory Notes equal in amount to
the amount of Target Damages claimed in such Target Officer's Certificate or
shall deduct from a pending offset of Future Compensation or delivery of Escrow
Cash the amount of such Target Damages.
8.8 Resolution of Conflicts; Arbitration.
(a) In case the Shareholders' Agent shall so object in writing to any claim or
claims by Acquiror made in any Acquiror Officer's Certificate, Acquiror shall
have forty-five (45) days after receipt by the Cash Escrow Agent (if any) or
Acquiror of an objection by the Shareholders' Agent to respond in a written
statement to the objection of the Shareholders' Agent. In case Acquiror shall so
object in writing to any claim or claims by the Shareholders' Agent made in any
Target Officer's Certificate, the Shareholders' Agent shall have forty-five (45)
days after receipt by the Shareholders' Agent of an objection by Acquiror to
respond in a written statement to the objection of Acquiror.
(b) If after such forty-five (45) day period there remains a dispute as to any
claims, the Shareholders' Agent and Acquiror shall attempt in good faith for
sixty (60) days to agree upon the rights of the respective parties with respect
to each of such claims. If the Shareholders' Agent and Acquiror should so agree,
a memorandum setting forth such agreement shall be prepared and signed by both
parties. The Cash Escrow Agent or Acquiror shall be entitled to rely on any such
memorandum and shall deliver the Escrow Cash, offset payments of Future
Compensation or direct the Exchange Agent to make or reverse offsetting
notations to the Promissory Notes in accordance with the terms thereof. With
respect to the making of notations to the Promissory Notes, the Exchange Agent
shall also be entitled to rely on any such memorandum.
(c) If no such agreement can be reached after good faith negotiation, either
Acquiror or the Shareholders' Agent may, by written notice to the other, demand
arbitration of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration conducted by
three arbitrators. Within fifteen (15) days after such written notice is sent,
Acquiror and the Shareholders' Agent shall each select one arbitrator, and the
two arbitrators so selected shall select a third arbitrator. The decision of the
arbitrators as to the validity and amount of any claim in an Acquiror Officer's
Certificate or a Target Officer's Certificate shall be binding and conclusive
upon the parties to this Agreement, and notwithstanding anything in Sections 8.6
or 8.7 hereof, the Cash Escrow Agent and Acquiror shall be entitled to act in
accordance with such decision and (as applicable) make or withhold payments out
of the Cash Escrow Fund, payments of Future Compensation or direct the Exchange
Agent to make offsetting notations to the Promissory Notes in accordance
therewith. With respect to the making of notations to the Promissory Notes, the
Exchange Agent shall also be entitled to rely on any such decision.
(d) Judgment upon any award rendered by the arbitrators may be entered in any
court having jurisdiction. Any such arbitration shall be held in Santa ▇▇▇▇▇ or
San Mateo County, California under the commercial rules then in effect of the
American Arbitration Association. For purposes of this Section 8.8(d), in any
arbitration hereunder in which any claim or the amount thereof stated in an
Acquiror Officer's Certificate is at issue, Acquiror shall be deemed to be the
Non-Prevailing Party unless the arbitrators award Acquiror more than one-half
(1/2) of the amount in dispute, plus any amounts not in dispute; otherwise, the
Target Shareholders shall be deemed to be the Non-Prevailing Party. For purposes
of this Section 8.8(d), in any arbitration hereunder in which any claim or the
amount thereof stated in a Target Officer's Certificate is at issue, the Target
Shareholders shall be deemed to be the Non-Prevailing Party unless the
arbitrators award the Target Shareholders more than one-half (1/2) of the amount
in dispute, plus any amounts not in dispute; otherwise, the Acquiror shall be
deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including without limitation, attorneys' fees and costs, reasonably incurred by
the other party to the arbitration.
8.9 Shareholders' Agent.
(a) Prior to the Closing, the holders of a majority of shares of Target Capital
Stock (as determined on a fully-diluted basis) shall constitute and appoint an
agent ("Shareholders' Agent") for and on behalf of the Target shareholders to
give and receive notices and communications, to authorize delivery to Acquiror
of Escrow Cash from the Cash Escrow Fund in satisfaction of claims made by
Acquiror, to object to such deliveries, to authorize Acquiror to withhold
payment of Future Compensation or to direct the Exchange Agent to make
offsetting notations to the Promissory Notes in satisfaction of claims made by
Acquiror, to object to such withholding or notations, to agree to, negotiate,
enter into settlements and compromises of, and demand arbitration and comply
with orders of courts and awards of arbitrators with respect to such claims, to
make claims against Acquiror or Acquisition Sub on behalf of the Target
Shareholders of Target Damages, to agree to, negotiate, enter into settlements
and compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims and to take all actions
necessary or appropriate in the judgment of the Shareholders' Agent for the
accomplishment of the foregoing. In addition to the foregoing, the Shareholders'
Agent shall exercise such powers and perform such duties under the Cash Escrow
Agreement, the Promissory Notes and the Security Agreement (to the extent that
such instruments or agreements are executed or entered into) (collectively, the
"Agency Agreements" and individually, an "Agency Agreement") as are delegated to
the Shareholders' Agent by the terms thereof, together with such powers as are
reasonably incidental thereto. The rights of each Target Shareholder under the
Agency Agreements shall be exercised only through and by the Shareholders' Agent
and may not be exercised by a Target Shareholder in his, her or its individual
capacity.
(b) The Shareholders' Agent may be replaced by the holders of a majority in
interest of Target Common Stock as of the Effective Time from time to time upon
not less than 10 days' prior written notice to Acquiror; provided, however, that
the Shareholders' Agent may not be replaced by a person or entity who is not a
Target Shareholder without the prior written consent of Maker. No bond shall be
required of the Shareholders' Agent. Notices or communications to or from the
Shareholders' Agent shall constitute notice to or from each of the Target
Shareholders.
(c) The Shareholders' Agent shall not be liable for any act done or omitted
hereunder or under any Agency Agreement as Shareholders' Agent while acting in
good faith and in the exercise of reasonable judgment, and any act done or
omitted pursuant to the advice of counsel shall be conclusive evidence of such
good faith. The Target Shareholders shall severally indemnify the Shareholders'
Agent and hold him harmless against any loss, liability or expense incurred
without gross negligence or bad faith on the part of the Shareholders' Agent and
arising out of or in connection with the acceptance or administration of his
duties hereunder or under any Agency Agreement. The duties and obligations of
the Shareholders' Agent hereunder or under the Agency Agreements shall be
strictly limited to those expressly provided for hereunder or in an applicable
Agency Agreement, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Article VIII or into an
Agency Agreement or otherwise exist against the Shareholders' Agent. As to any
matters not expressly provided for by an applicable Agency Agreement (including
enforcement or collection hereunder or under an Agency Agreement), the
Shareholders' Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the holders of a majority in interest of Target Capital Stock, and such
instructions shall be binding upon all Target Shareholders; provided, however,
that the Shareholders' Agent shall not in any event be required to take any
action which exposes the Shareholders' Agent to liability or which is contrary
to this Article VIII, an applicable Agency Agreement or applicable law. Nothing
in Article VIII or any Agency Agreement shall, or shall be construed to,
constitute the Shareholders' Agent a trustee or fiduciary for any Target
Shareholder. In performing its functions and duties under Article VIII or an
Agency Agreement, the Shareholders' Agent shall act solely as the agent of the
Target Shareholders and does not assume and shall not be deemed to have assumed
any obligation towards or relationship of agency or trust with or for Acquiror
or Acquisition Sub. Without limiting the generality of the foregoing, the use of
the term "agent" in this Article VIII and the Agency Agreements with reference
to the Shareholders' Agent is not intended to connote any fiduciary or other
implied (or express) obligations arising under agency doctrine of any applicable
law. Instead, such term is used merely as a matter of market custom, and is
intended to create or reflect only an administrative relationship between
independent contracting parties. The Shareholders' Agent shall not be held
individually liable to any of the Shareholders, the Acquiror or the Surviving
Corporation, or their respective affiliates, or any other person with respect to
any action taken or omitted to be taken by the Shareholders' Agent under or in
connection with the Acquisition Agreement or any of the Agency Agreements unless
such action or omission results from or arises out of gross negligence, fraud or
willful misconduct on the part of the Shareholders' Agent."
(d) The Shareholders' Agent shall have reasonable access to information about
Target and the reasonable assistance of Target's officers and employees for
purposes of performing its duties and exercising its rights hereunder or under
any Agency Agreement, provided that the Shareholders' Agent shall treat
confidentially and not disclose any nonpublic information from or about Target
to anyone (except on a need to know basis to individuals who agree to treat such
information confidentially).
8.10 Actions of the Shareholders' Agent. A decision, act, consent or instruction
of the Shareholders' Agent shall constitute a decision of all Target
Shareholders and shall be final, binding and conclusive upon each such Target
Shareholder, and Acquiror, the Cash Escrow Agent (if any) and the Exchange Agent
may rely upon any decision, act, consent or instruction of the Shareholders'
Agent as being the decision, act, consent or instruction of each and every such
Target Shareholder. Acquiror, the Cash Escrow Agent (if any) and the Exchange
Agent are hereby relieved from any liability to any person for any acts done by
them in accordance with such decision, act, consent or instruction of the
Shareholders' Agent. Without limitation of the generality of the foregoing,
Acquiror, the Cash Escrow Agent (if any) and the Exchange Agent (i) may treat
the Shareholders' Agent as the agent for the Target Shareholders for all
purposes hereof and the Agency Agreements and (ii) shall incur no liability to
any Target Shareholder under or in respect of this Article VIII or any Agency
Agreement by acting upon any notice, consent, certificate, telegram, facsimile,
telex or teletype message, statement or other instrument or writing believed by
it to be genuine and signed or sent by the Shareholders' Agent or by acting upon
any representation or warranty made or deemed to be made hereunder or under any
Agency Agreement.
8.11 Third-Party Claims. In the event Acquiror becomes aware of a third-party
claim which Acquiror believes may result in a demand against the Future
Compensation or the Cash Escrow Fund, Acquiror shall promptly notify the
Shareholders' Agent (and the Cash Escrow Agent, if any) of such claim, and the
Shareholders' Agent and the Target Shareholders shall be entitled, at their
expense, to participate in any defense of such claim. Acquiror shall have the
right in its sole discretion to settle any such claim; provided, however, that
Acquiror may not effect the settlement of any such claim without the consent of
the Shareholders' Agent, which consent shall not be unreasonably withheld.
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival at Effective Time. The representations and warranties set forth
in Articles II and III will survive until the expiration of the Indemnification
Period. The agreements set forth in this Agreement shall terminate at the
Effective Time, except that the agreements set forth in Article I, Section 5.4
(Confidentiality), 5.7 (Shareholder Agreements), 5.11 (Registration Rights),
5.15 (Reasonable Efforts and Further Assurances), 7.3 (Expenses and Termination
Fees), 7.4 (Amendment), Article VIII and this Article IX shall survive the
Effective Date and the Closing.
9.2 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given the same day if delivered personally or one business
day after being sent by a reputable overnight courier service (by overnight
delivery) or via facsimile (with confirmation of receipt), or three business
days after being sent by registered or certified mail (return receipt requested
postage prepaid) to the Parties at the following address (or at such other
address for a Party as shall be specified by like notice):
(a) if to Acquiror, to:
SoftNet Systems, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Vice President, General
Counsel and Secretary
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Acquisition Sub, to:
SoftNet Acquisitions, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Vice President, General
Counsel and Secretary
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to Target, to:
Intelligent Communications, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
Chief Executive Officer
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.3 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 words "without limitation." The phrase "made
available" in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is to be
made available. The phrases "the date of this Agreement", "the date hereof", and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to November 22, 1998. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
9.4 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
9.5 Entire Agreement; Nonassignability; Parties in Interest. This Agreement and
the documents and instruments and other agreements specifically referred to
herein or delivered pursuant hereto, including the Exhibits, the Schedules,
including the Target Disclosure Schedule and the Acquiror Disclosure Schedule
(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 (including, without limitation, the Letter of Intent and the Letter of
Amendment), except for (i) the Confidentiality Provisions, which shall continue
in full force and effect, and shall survive any termination of this Agreement or
the Closing, in accordance with their terms and (ii) the Cash Option, which
shall continue in full force and effect until the Option Expiration Time, (b)
are not intended to confer upon any other person any rights or remedies
hereunder, except as set forth in Sections 1.6, 1.7, 1.9-1.11, 5.13 and 5.16;
and (2) shall not be assigned by operation of law or otherwise except as
otherwise specifically provided.
9.6 Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The Parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
9.7 Remedies Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a Party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such Party, and the exercise by a Party of any one remedy will not preclude the
exercise of any other remedy.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of California without reference to such state's
principles of conflicts of law. Except for the application of the arbitration
provisions set forth in Section 8.8, each of the Parties irrevocably consents to
the exclusive jurisdiction of any court located within the County of Santa
▇▇▇▇▇, State of California, or with respect to causes of action arising under
the federal laws of the United States of America, to the exclusive jurisdiction
of the United States District Court for the Northern District of California (the
"Northern District") in connection with any matter based upon or arising out of
this Agreement or the matters contemplated herein, and further agrees that
process may be served upon them in any manner authorized by the laws of the
State of California (or the local rules of the Northern District, as applicable)
for such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction and such process.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, Target, Acquiror and Acquisition Sub have
caused this Agreement and Plan of Reorganization to be executed and delivered by
their respective officers thereunto duly authorized, all as of the date first
written above.
INTELLIGENT COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
SOFTNET SYSTEMS, INC.
By: /s/ ▇▇. ▇▇▇▇▇▇▇▇ ▇. Brilliant
-----------------------------
▇▇. ▇▇▇▇▇▇▇▇ ▇. Brilliant
President and Chief Executive Officer
SOFTNET ACQUISITIONS, INC.
By: /s/ ▇▇. ▇▇▇▇▇▇▇▇ ▇. Brilliant
-----------------------------
▇▇. ▇▇▇▇▇▇▇▇ ▇. Brilliant
President
TABLE OF CONTENTS
(continued)
TABLE OF CONTENTS
(continued)
SCHEDULES
Acquiror Disclosure Schedule
Section 3.2 Capital Structure
Section 3.4 SEC Documents; Financial Statements
Section 3.9 Absence of Certain Changes
Acquiror Addendum to Disclosure Schedule
Section 3.2 Capital Structure
Section 3.9 Absence of Certain Changes
Target Disclosure Schedule
Section 2.1 Subsidiaries
Section 2.2 Capital Structure
Section 2.6 Absence of Undisclosed Liabilities
Section 2.7 Litigation
Section 2.10 Title to Real Property
Section 2.11 Intellectual Property
Section 2.14 Employee Plans
Section 2.16 Employee Matters
Section 2.17 Interested Party Transactions
Section 2.21 Complete Copies of Materials
Section 2.22 Brokers' and Finders' Fees
Section 2.27 Customers and Suppliers
Section 2.28 Material Contracts
Section 2.29 No Breach of Material Contracts
Section 2.31 Material Third Party Consents
Section 2.33 Product Releases
Target Addendum to Disclosure Schedule
Section 2.11 Intellectual Property
Section 2.17 Interested Party Transactions
Section 2.36 Deposit Accounts
Schedule 5.16 Guaranteed Debt
EXHIBITS
Exhibit A Certificate of Merger
Exhibit B Form of First Promissory Note
Exhibit C Form of Second Promissory Note
Exhibit D Security Agreement
Exhibit E Cash Escrow Agreement
Exhibit F Registration Rights Agreement
Exhibit G Voting Agreement and form of Irrevocable Proxy
Exhibit H Shareholder Agreement
Exhibit I Acquiror's Legal opinion
Exhibit J Target's Legal opinion
TABLE OF CONTENTS
(continued)
Page
TABLE OF CONTENTS
Page
ARTICLE ITHE MERGER..........................................................1
1.1 The Merger..........................................................1
1.2 Closing; Effective Time.............................................2
1.3 Effect of the Merger................................................2
1.4 Certificate of Incorporation; Bylaws................................2
1.5 Directors and Officers..............................................2
1.6 Effect on Capital Stock.............................................2
1.7 Surrender of Certificates...........................................8
1.8 No Further Ownership Rights in Target Capital Stock................12
1.9 Lost, Stolen or Destroyed Certificates.............................12
1.10 Exemption from Registration; Restricted Stock;
Certificate Legends................................................12
1.11 Taking of Necessary Action; Further Action.........................12
ARTICLE IIREPRESENTATIONS AND WARRANTIES OF TARGET..........................13
2.1 Organization, Standing and Power...................................13
2.2 Capital Structure..................................................14
2.3 Authority..........................................................15
2.4 Financial Statements...............................................15
2.5 Absence of Certain Changes.........................................16
2.6 Absence of Undisclosed Liabilities.................................16
2.7 Litigation.........................................................16
2.8 Restrictions on Business Activities................................17
2.9 Governmental Authorization.........................................17
2.10 Title to Property..................................................17
2.11 Intellectual Property..............................................17
2.12 Environmental Matters..............................................19
2.13 Taxes. ..........................................................20
2.14 Employee Benefit Plans.............................................21
2.15 Certain Agreements Affected by the Merger..........................23
2.16 Employee Matters...................................................23
2.17 Interested Party Transactions......................................24
2.18 Insurance..........................................................24
2.19 Compliance With Laws...............................................24
2.20 Minute Books.......................................................24
2.21 Complete Copies of Materials.......................................24
2.22 Brokers'and Finders'Fees...........................................25
2.23 Vote Required; Voting Agreements...................................25
2.24 Board Approval.....................................................25
2.25 Inventory..........................................................25
2.26 Accounts Receivable................................................25
2.27 Customers and Suppliers............................................26
2.28 Material Contracts.................................................26
2.29 No Breach of Material Contracts....................................27
2.30 Material Third Party Consents......................................27
2.31 Export Control Laws................................................27
2.32 Products...........................................................28
2.33 Product Releases...................................................29
2.34 Representations Complete...........................................29
2.35 Securities Exempt from Registration................................29
2.36 Deposit Accounts...................................................29
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND ACQUISITION SUB....................................29
3.1 Organization, Standing and Power...................................29
3.2 Capital Structure..................................................30
3.3 Authority..........................................................30
3.4 SEC Documents; Financial Statements................................31
3.5 Absence of Undisclosed Liabilities.................................32
3.6 Broker's and Finders'Fees..........................................32
3.7 Board Approval.....................................................32
3.8 Representations Complete...........................................32
3.9 Absence of Certain Changes.........................................32
ARTICLE IVCONDUCT PRIOR TO THE EFFECTIVE TIME...............................33
4.1 Conduct of Business of Target......................................33
4.2 No Solicitation....................................................35
ARTICLE VADDITIONAL AGREEMENTS..............................................36
5.1 Preparation of Information Statement...............................36
5.2 Meeting of Shareholders............................................37
5.3 Access to Information..............................................37
5.4 Confidentiality....................................................37
5.5 Public Disclosure..................................................37
5.6 Consents; Cooperation..............................................38
5.7 Shareholder Agreements; Accredited Investors.......................39
5.8 Legal Requirements.................................................39
5.9 Blue Sky Laws......................................................39
5.10 Escrow Agreement...................................................39
5.11 Registration Rights................................................39
5.12 Employees..........................................................39
5.13 Expenses...........................................................40
5.14 Security Agreement.................................................40
5.15 Reasonable Efforts and Further Assurances..........................40
5.16 Assumption of Certain Personal Guarantees..........................40
ARTICLE VICONDITIONS TO THE MERGER..........................................41
6.1 Conditions to Obligations of Each Party to Effect the Merger.......41
6.2 Additional Conditions to Obligations of Target.....................41
6.3 Additional Conditions to the Obligations of Acquiror...............42
ARTICLE VIITERMINATION, AMENDMENT AND WAIVER................................44
7.1 Termination........................................................44
7.2 Effect of Termination..............................................45
7.3 Expenses and Termination Fees......................................45
7.4 Amendment..........................................................47
7.5 Extension; Waiver..................................................47
ARTICLE VIIIINDEMNIFICATION.................................................48
8.1 Indemnification....................................................48
8.2 Damage Threshold...................................................50
8.3 Right of Offset....................................................50
8.4 Cash Escrow Fund...................................................51
8.5 Indemnification Period.............................................51
8.6 Damage Claims......................................................51
8.7 Objections to Claims...............................................52
8.8 Resolution of Conflicts; Arbitration...............................53
8.9 Shareholders'Agent.................................................54
8.10 Actions of the Shareholders'Agent..................................56
8.11 Third-Party Claims.................................................56
ARTICLE IXGENERAL PROVISIONS................................................56
9.1 Non-Survival at Effective Time.....................................56
9.2 Notices............................................................56
9.3 Interpretation.....................................................58
9.4 Counterparts.......................................................58
9.5 Entire Agreement; Nonassignability; Parties in Interest............58
9.6 Severability.......................................................59
9.7 Remedies Cumulative................................................59
9.8 Governing Law......................................................59
9.9 Rules of Construction..............................................59