EXHIBIT 2.01
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MARCH 27, 2000
AMONG
CREDENCE SYSTEMS CORPORATION
CHAMPAGNE ACQUISITION CORP.,
AND
TMT, INC.
TABLE OF CONTENTS
PAGE
Article I THE MERGER........................................................1
1.1 Merger; Effective Time of the Merger......................1
1.2 Closing...................................................1
1.3 Effects of the Merger.....................................1
Article II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; SUPPLEMENTARY ACTION..............................2
2.1 Effect on Capital Stock...................................2
2.2 Payment...................................................5
2.3 Supplementary Action......................................6
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS....................................................6
3.1 Organization, Standing and Power..........................7
3.2 Capital Structure.........................................7
3.3 Subsidiaries..............................................8
3.4 Authority.................................................8
3.5 Financial Statements.....................................10
3.6 Absence of Undisclosed Liabilities.......................10
3.7 Inventory................................................10
3.8 Payables; Receivables....................................10
3.9 Compliance with Laws.....................................12
3.10 No Defaults..............................................12
3.11 Litigation...............................................12
3.12 Conduct in the Ordinary Course...........................12
3.13 Certain Agreements.......................................14
3.14 Employee Plans...........................................14
3.15 Major Contracts..........................................16
3.16 Taxes....................................................18
3.17 Intellectual Property....................................19
3.18 Employee Agreements......................................20
3.19 Restrictions on Business Activities......................20
3.20 Title to Properties; Absence of Liens and Encumbrances;
Condition of Equipment...................................21
3.21 Governmental Authorizations and Licenses.................21
3.22 Environmental Matters....................................22
3.23 Insurance................................................25
3.24 Labor Matters............................................25
3.25 Customers; Backlog; Returns and Complaints...............25
3.26 Personnel................................................25
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TABLE OF CONTENTS
(cont'd)
PAGE
3.27 Questionable Payments....................................26
3.28 Third-Party Consents.....................................26
3.29 Related Party Transactions...............................26
3.30 Customers and Suppliers..................................26
3.31 Products.................................................26
3.32 Customer Commitments.....................................27
3.33 Bank Accounts and Powers of Attorney.....................27
3.34 Books and Records........................................27
3.35 Material Misstatement or Omission........................27
3.36 MissionCtrl Contract.....................................27
Article IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.........27
4.1 Organization; Standing and Power.........................28
4.2 Authority................................................28
4.3 Capital Resources........................................29
Article V CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; ADDITIONAL
AGREEMENTS.....................................................29
5.1 Conduct of Business of the Company.......................29
5.2 Access to Information; Provision of Interim Financial
Statements...............................................32
5.3 Company Shareholders' Consent............................32
5.4 Exclusivity; Acquisition Proposals.......................32
5.5 Consents.................................................34
5.6 HSR Act Filings..........................................34
5.7 Form S-8.................................................34
5.8 Best Efforts.............................................34
5.9 Legal Conditions to the Merger...........................34
5.10 Brokers or Finders; Professional Fees....................35
5.11 Public Announcements.....................................35
5.12 Expenses.................................................35
5.13 Termination Fee..........................................35
5.14 Termination of 401(K) Plan...............................36
Article VI CONDITIONS PRECEDENT............................................36
6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................36
6.2 Conditions of Obligations of Parent and Merger Sub.......37
6.3 Conditions of Obligation of the Company..................38
6.4 Effect of Closing........................................39
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TABLE OF CONTENTS
(cont'd)
PAGE
Article VII RECOUPMENT, HOLDBACK AND RELATED MATTERS.......................39
7.1 Survival of Representations, Warranties, Covenants and
Agreements; Recoupment, Etc..............................39
7.2 Recoupment...............................................40
7.3 Holdback.................................................41
7.4 Holdback Period..........................................41
7.5 Claims Upon the Holdback.................................41
7.6 Resolution of Conflicts; Arbitration.....................42
7.7 Shareholders' Agent......................................42
7.8 Actions of the Shareholders' Agent.......................43
7.9 Procedure with Respect to Third-Party Claims.............43
7.10 Threshold................................................44
7.11 Claims Under Shareholder Agreements......................44
Article VIII TERMINATION...................................................44
8.1 Termination..............................................44
Article IX GENERAL PROVISIONS..............................................46
9.1 Survival of Representations, Warranties, Covenants and
Agreements...............................................46
9.2 Amendment................................................46
9.3 Extension; Waiver........................................46
9.4 Notices..................................................46
9.5 Interpretation...........................................48
9.6 Counterparts.............................................48
9.7 Entire Agreement.........................................48
9.8 No Transfer..............................................48
9.9 Severability.............................................48
9.10 Other Remedies...........................................48
9.11 Further Assurances.......................................48
9.12 Absence of Third-Party Beneficiary Rights................48
9.13 Governing Law............................................49
9.14 Waiver of Jury Trial.....................................49
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EXHIBITS
A Agreement of Merger
B Certificate of Merger
C1 FIRPTA Certificate
C2 IRS Notice
D Employment Agreement
E Waiver Agreement
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SCHEDULES
2.1(d) Holders of Company Options
2.1(e) Company Warrant Holders
3.2 Holders of Company Capital Stock
3.3 Subsidiaries
3.6 Undisclosed Liabilities
3.7 Inventory
3.8 Payables; Receivables
3.9 Compliance with Laws
3.10 Defaults
3.11 Litigation
3.12 Conduct in Ordinary Course
3.13 Certain Agreements
3.14 Plans
3.14(g) Disqualified Individuals
3.15 Major Contracts
3.17 Intellectual Property Rights
3.19 Restrictions on Business Activities
3.20 Title to Properties; Absence of Liens and Encumbrances;
Condition of Equipment
3.21 Governmental Authorizations and Licenses
3.22 Environmental Matters
3.23 Insurance
3.24 Labor Matters
3.25(a) Customers; Backlog
3.25(b) Returns and Complaints
3.26 Personnel
3.28 Third Party Consents
3.29 Related Party Transactions
3.30 Customers and Suppliers
3.31 Products in Development
3.32 Customer Commitments
3.33 Bank Accounts and Powers of Attorney
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AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT"), dated as of
March 27, 2000, among Credence Systems Corporation, a Delaware corporation
("PARENT"), Champagne Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Parent ("MERGER SUB"), and TMT, Inc., a California corporation
(the "COMPANY").
INTENDING TO BE LEGALLY BOUND, and in consideration of the premises
and mutual covenants and agreements contained herein, Parent, Merger Sub and the
Company hereby agree as follows:
ARTICLE I
THE MERGER
1.1 MERGER; EFFECTIVE TIME OF THE MERGER. Subject to the terms and
conditions of this Agreement and as contemplated by the Agreement of Merger
attached hereto as EXHIBIT A (the "AGREEMENT OF MERGER") and Certificate of
Merger attached hereto as EXHIBIT B (the "CERTIFICATE OF MERGER"), Merger Sub
will be merged with and into the Company (the "MERGER") in accordance with the
applicable provisions of the Delaware Corporation Law (the "DCL") and the
California General Corporation Law ("CCL"). The Agreement of Merger and
Certificate of Merger provide, among other things, the manner of effecting the
Merger. The Agreement of Merger and Certificate of Merger shall be executed by
the Company and Merger Sub prior to the Effective Date of the Merger (as defined
in this SECTION 1.1).
Subject to the provisions of this Agreement, the Agreement of Merger
and Certificate of Merger shall be filed in accordance with the DCL and CCL on
the Closing Date (as defined in SECTION 1.2). The Merger shall become effective
upon the later of the filing and acceptance (the date of such filing being
hereinafter referred to as the "EFFECTIVE DATE OF THE Merger" and the time of
such filing being hereinafter referred to as the "EFFECTIVE TIME OF THE MERGER")
of the Agreement of Merger in the State of California and Certificate of Merger
in the State of Delaware.
1.2 CLOSING. The closing of the Merger (the "CLOSING") will take place as
soon as practicable on the first business day after satisfaction or waiver of
the conditions set forth in this Agreement (the "CLOSING DATE"), at the offices
of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, Two Embarcadero Place, 2200 Geng Road, Palo
Alto, California, unless a different date or place is agreed to in writing by
the parties hereto.
1.3 EFFECTS OF THE MERGER. At the Effective Time of the Merger, (a) the
separate existence of Merger Sub shall cease and Merger Sub shall be merged with
and into the Company (Merger Sub and the Company are sometimes referred to
herein as the "CONSTITUENT CORPORATIONS" and the Company after the Merger is
sometimes referred to herein as the "SURVIVING CORPORATION"), (b) the Articles
of Incorporation of the Company shall be the Articles of Incorporation of the
Surviving Corporation, except that such Articles of Incorporation shall be
amended to provide, among other things, that the authorized capital stock of the
Surviving Corporation shall be 1,000 shares of common stock, (c) the Bylaws of
the Company shall be the Bylaws of the Surviving Corporation, except that the
number of directors shall be five, (d) the directors of the Surviving
Corporation shall be ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇,
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇, (e) the officers of the Surviving Corporation
shall be ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (President and Chief Executive Officer), ▇▇▇▇▇▇ ▇▇▇▇
(Executive Vice President and Chief Financial Officer), ▇▇▇▇▇ ▇▇▇▇▇▇▇ (Executive
Vice President and Chief Operating Officer), ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (Senior Vice
President and General Manager) and ▇▇▇▇▇▇ ▇▇▇▇ (Chief Technology Officer), and
(f) the Merger shall, from and after the Effective Time of the Merger, have all
the effects provided by applicable law.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; SUPPLEMENTARY ACTION
2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time of the Merger, by
virtue of the Merger and without any action on the part of the holder of any
shares of capital stock of the Company or Merger Sub:
(a) CAPITAL STOCK OF MERGER SUB. All issued and outstanding shares of
capital stock of Merger Sub shall be converted into 1,000 shares of common stock
of the Surviving Corporation.
(b) CANCELLATION OF CAPITAL STOCK OF THE COMPANY.
(i) All shares of capital stock of the Company that are owned
directly or indirectly by the Company or by any entity controlled by the Company
shall be canceled and no stock of Parent or other consideration shall be
delivered in exchange therefor. For this purpose, a controlled entity shall mean
a corporation or other entity whose voting securities are owned or are otherwise
controlled directly or indirectly by a parent corporation or other intermediary
entity in an amount sufficient to elect at least a majority of the Board of
Directors or other managers of such corporation or other entity.
(ii) Each holder of a certificate representing shares of Company
capital stock after the Effective Time of the Merger shall cease to have any
rights with respect to such shares, except the right either to receive the
Merger Consideration Per Share (as defined below) upon surrender of such
certificate, or to exercise such holder's dissenters' rights as provided in
SECTION 2.1(F) hereof and the CCL.
(c) CONVERSION OF CAPITAL STOCK OF THE COMPANY. Each share of Company
common stock ("COMPANY COMMON STOCK") and Company Preferred Stock ("COMPANY
PREFERRED STOCK" and together with Company Common Stock the "COMPANY CAPITAL
STOCK") outstanding immediately prior to the Effective Time of the Merger shall
automatically be canceled and extinguished and converted, without any action on
the part of the holder thereof, into the right (subject to SECTION 2.2) to
receive an amount in cash (the "MERGER CONSIDERATION PER SHARE") equal to the
aggregate merger consideration of (A) the Adjusted Aggregate Merger
Consideration (as defined below) divided by (B) the sum of (i) the aggregate
number of shares of Company Capital Stock outstanding immediately prior to the
Effective Time of the Merger, and (ii) the aggregate number of shares of Company
Common Stock issuable upon exercise of the Company Warrants (as defined in
SECTION 2.1(E) below) outstanding immediately prior to the
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Effective Time of the Merger ((i) and (ii) collectively the "CONVERTED SHARE
RIGHTS"). For the purpose of this SECTION 2.1(C) the "ADJUSTED AGGREGATE MERGER
CONSIDERATION" means the Aggregate Merger Consideration as reduced by the amount
of any reduction on account of, or recoupment of, Damages pursuant to ARTICLE
VII. The "AGGREGATE MERGER CONSIDERATION" means an amount equal to (A)
$80,000,000 LESS (B) an amount equal to the product of (i) the number of Parent
Common Stock into which Assumed Company Options are exercisable in accordance
with SECTION 2.1(D) and (ii) the Parent's Fair Market Value (as defined in
SECTION 2.1(D)) MINUS the exercise price of the Assumed Company Options (as
adjusted pursuant to SECTION 2.1 (D)).
(d) ASSUMPTION OF COMPANY OPTIONS.
(i) At the Effective Time of the Merger, each unexpired option
to purchase shares of Company Common Stock whether vested or unvested (a
"COMPANY OPTION") granted under the stock option plans and agreements of the
Company outstanding immediately prior to the Effective Time of the Merger shall,
together with those stock option plans and agreements, be assumed by Parent (an
"ASSUMED COMPANY OPTION"). SCHEDULE 2.1(D) hereto sets forth a true and complete
list as of the date hereof of all holders of Company Options, including the
number of shares of Company Common Stock subject to such options, a breakdown as
between vested and unvested options, the exercise price per share and the term
of such options. On the Closing Date, the Company shall deliver to Parent an
updated SCHEDULE 2.1(D) hereto current as of the Closing Date. The terms of such
stock option plan and agreements and the outstanding Company Options outstanding
thereunder permit the assumption of those options by the Parent as provided in
this SECTION 2.1(D), without the consent or approval of the holders of those
options, the Company's shareholders or otherwise. Each Company Option so assumed
by Parent will continue to have, and be subject to, the same terms and
conditions set forth in the documents governing such Company Option immediately
prior to the Effective Time of the Merger, except that: (A) such Assumed Company
Option will be exercisable for that number of whole shares of Common Stock of
the Parent ("PARENT COMMON STOCK"), rounded down to the nearest share, equal to
the product of (x) the number of whole shares of Company Stock that were
purchasable under such Assumed Company Option immediately prior to the Effective
Time of the Merger and (y) the quotient obtained by dividing (I) the Total
Merger Consideration Per Share by (II) the Parent Fair Market Value (such
quotient being referred as the "EXCHANGE RATIO"), where "TOTAL MERGER
CONSIDERATION PER SHARE" means an amount equal to (i) $80,000,000 divided by
(ii) the sum of (1) the Converted Share Rights and (2) the number of shares of
Company Common Stock issuable upon exercise of all Company Options outstanding
immediately prior to the Effective Time of the Merger, and where "PARENT FAIR
MARKET VALUE" means the average daily trading price of the Parent Common Stock
as quoted on the Nasdaq National Market for the ten (10) trading days preceding
the Closing Date; and (B) the per share exercise price for the shares of Parent
Common Stock issuable upon exercise of such Assumed Company Options will be
equal to the quotient obtained by dividing (x) the exercise price per share for
the shares of Company Common Stock under such Assumed Company Option immediately
prior to the Effective Time of the Merger by (y) the Exchange Ratio and rounding
up to the next whole cent. Consistent with the terms of the Company Options and
the documents governing the Company Options, the Merger will not terminate or
accelerate any Company Option or any right of exercise, vesting or repurchase
relating thereto with respect to shares of Parent Common Stock or Company Common
Stock acquired upon
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exercise of such the Company Option. Holders of Company Options will not be
entitled to acquire Company Capital Stock following the Merger. The parties
recognize that the Parent has announced a 2 for 1 stock split of its common
stock which is expected to be effected around the time of the expected Closing
Date. The parties acknowledge and agree that the Parent Fair Market Value is
intended to be determined on a consistent basis notwithstanding any such split.
Consequently, should the Closing occur on or after the effective date of the
stock split (being the date upon which the distribution of additional shares of
common stock is made to the stockholders of Parent) and the look back period for
the purposes of determining the Parent Fair Market Value would include one or
more trading days prior to such date, the average daily trading prices for those
days shall be adjusted to take account of the stock split by dividing the
average daily trading price for each of those days by two.
(ii) Holders of vested Company Options may elect to exercise such
options prior to the Effective Time of the Merger and receive the Merger
Consideration Per Share by providing notice of such exercise and payment of the
exercise price thereof to the Company at any time prior to the Effective Time of
the Merger.
(iii) Promptly following the Effective Time of the Merger, Parent
shall issue to each holder of an Assumed Company Option a document evidencing
the stock options assumption by Parent. The right to receive an Assumed Company
Option may not be assigned or transferred. Any attempted assignment contrary to
this SECTION 2.1(D) shall be null and void.
(iv) All outstanding rights of Company which it may hold
immediately prior to the Effective Time of the Merger to repurchase shares of
Company Common Stock, to the extent such rights survive the Merger (the
"REPURCHASE Options"), shall be assigned to the Parent at the Effective Time of
the Merger and shall continue in effect following the Merger and shall be
exercisable by Parent upon the same terms and conditions in effect immediately
prior to the Effective Time of the Merger, except that the shares purchasable
pursuant to the Repurchase Options and the purchase price per share shall be
adjusted to reflect the assumption of the Company Options by Parent and the
Exchange Ratio.
(e) COMPANY WARRANTS.
(i) At the Effective Time of the Merger, each unexpired and
unexercised warrant to purchase shares of the Company Common Stock (a "COMPANY
WARRANT") outstanding immediately prior to the Effective Time of the Merger
shall be canceled as provided in this SECTION 2.1(E). SCHEDULE 2.1(E) hereto
sets forth a true and complete list as of the date hereof of all holders of the
Company Warrants, including the number of shares of the Company Capital Stock
subject to such warrants, the exercise price per share and the term of such
Company Warrants. On the Closing Date, the Company shall deliver to Parent an
updated SCHEDULE 2.1(E) hereto current as of the Closing Date. The Company
represents that the Company Warrants are not subject to any vesting or other
restriction. Consistent with the terms of the Company Warrants and the other
documents governing the Company Warrants, the Merger will not terminate or
accelerate any Company Warrant or any right of exercise or repurchase relating
thereto with respect to shares of Company Capital Stock acquired upon exercise
of such Company Warrant. Holders of the Company Warrants will not be entitled to
acquire Company Capital Stock following the Merger.
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(ii) Holders of Company Warrants may elect to exercise such
warrants prior to the Effective Time of the Merger and receive the Merger
Consideration Per Share by providing notice of such exercise and payment of the
exercise price thereof to the Company at any time prior to the Effective Time of
the Merger. In the event that any holder of Company Warrants does not exercise
such Company Warrants prior to the Effective Time of the Merger, at the
Effective Time of the Merger such Company Warrants shall be converted into the
right to receive in cash the difference between the Merger Consideration Per
Share and the exercise price per share of Company Common Stock of such Company
Warrant.
(f) DISSENTERS' RIGHTS. If, as of the Effective Time of the Merger,
holders of Company Capital Stock have properly exercised and not lost
dissenters' rights in connection with the Merger under Chapter 13 of the CCL,
shares of Company Capital Stock owned by them ("DISSENTING SHARES") shall not be
converted into the right to receive the Merger Consideration Per Share but shall
be converted into the right to receive such consideration as may be determined
to be due with respect to such Dissenting Shares pursuant to the CCL. The
Company shall give Parent prompt notice of any demand received by the Company to
require the Company to purchase shares of the Company, and Parent shall have the
right to participate in all negotiations and proceedings with respect to such
demand. The Company agrees that, except with the prior written consent of
Parent, it will not make any payment with respect to, or settle or offer to
settle, any such purchase demand. Each holder of Dissenting Shares (a
"DISSENTING SHAREHOLDER") who, pursuant to the provisions of the CCL, becomes
entitled to payment of the value of shares of Company Capital Stock shall
receive payment therefor (but only after the value therefor shall have been
agreed upon or finally determined pursuant to such provisions). In the event of
a legal obligation, after the Effective Time of the Merger, to deliver the
Merger Consideration Per Share to any holder of shares of capital stock of the
Company who shall have failed to make an effective purchase demand or shall have
lost his status as a Dissenting Shareholder, Parent shall issue and deliver,
upon surrender by such Dissenting Shareholder of his certificate or certificates
representing shares of capital stock of the Company, the Merger Consideration
Per Share to which such Dissenting Shareholder is then entitled under this
SECTION 2.1.
2.2 PAYMENT.
(a) PAYMENT. The Adjusted Aggregate Merger Consideration shall be
payable in up to three tranches. At Closing the Parent will pay to the
shareholders an amount equal to the Aggregate Merger Consideration LESS the
$8,000,000 holdback to be held by Parent pursuant to ARTICLE VII. The second
tranche shall be payable upon the first anniversary of the Closing and shall be
in an amount equal to the Holdback as reduced by any Damages recouped pursuant
to ARTICLE VII and LESS any amount withheld in respect of unresolved claims in
respect of Damages in accordance with ARTICLE VII. The third tranche (if
necessary) shall be payable upon the final determination and resolution of all
such unresolved claims and shall be in an amount equal to the balance of the
Holdback LESS the finally determined amount of the Damages related to such
unresolved claims. Payments by Parent at Closing shall be by certified check,
(i) to the holders of Company Capital Stock, for each share of Company Capital
Stock for which a certificate is delivered to Parent together with a W-9 or W-8
form (as applicable) duly completed and (ii) to the holders of Company Warrants,
in the amounts provided for in this Agreement; PROVIDED, HOWEVER, that Parent
shall pay via wire transfer upon the Closing any funds so payable to any
5
shareholder entitled to receive $100,000 or more who shall deliver to Parent,
not less than 48 hours prior to the Closing, a written request and wire transfer
instructions for any such payment; PROVIDED FURTHER that Parent shall not be
required to accept any certificate in respect of Company Capital Stock for
surrender or make payments in respect thereof pursuant to this SECTION 2.2 more
than 90 days after Closing. Nothing in this SECTION 2.2 is intended to or shall
restrict the right of a shareholder who has lost their share certificate to seek
a replacement certificate in accordance with the Company's articles of
association or bylaws (as at the date hereof) and the CCL upon the provision of
appropriate affidavit of loss and indemnity agreement. Any such replacement
certificate issued by the Company may be surrendered in accordance with this
SECTION 2.2. Nothing in this SECTION 2.2 or elsewhere in this Agreement is
intended to prohibit or restrict the ability of the Company or Parent to
withhold from any payments hereunder any amount on account of Taxes or otherwise
to the extent such withholding is required by applicable federal, state or local
laws and regulations.
(b) NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. The
consideration delivered upon the surrender of shares of Company Capital Stock in
accordance with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such shares of Company Capital Stock.
There shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of shares of Company Capital Stock which were
outstanding immediately prior to the Effective Time of the Merger. If, after the
Effective Time of the Merger, certificates are presented to the Surviving
Corporation for any reason, they shall be canceled as provided in this ARTICLE
II.
2.3 SUPPLEMENTARY ACTION. If at any time after the Effective Time of the
Merger, any further assignments or assurances in law or any other things are
necessary or desirable to vest or to perfect or confirm of record in the
Surviving Corporation the title to any property or rights of either the Company
or Merger Sub or otherwise to carry out the provisions of this Agreement, the
officers and directors of the Surviving Corporation are hereby authorized and
empowered, in the name of and on behalf of the Company and Merger Sub, to
execute and deliver any and all things necessary or proper to vest or to perfect
or confirm title to such property or rights in the Surviving Corporation, and
otherwise to carry out the purposes and provisions of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDERS
Except as set forth in the schedules attached hereto and made a part
hereof (the "COMPANY SCHEDULES"), the Company represents and warrants to Parent
and Merger Sub that the representations and warranties set forth below shall be
true and correct as of the date hereof and as of the Closing. As used in this
Agreement, (a) "BUSINESS CONDITION" with respect to the Company shall refer to
the Company's financial or other condition, business, prospects, property,
results of operations and assets (on a consolidated basis) as presently
conducted and as presently proposed to be conducted by Company, (b) "MATERIAL
ADVERSE EFFECT" with respect to the Company and its subsidiaries shall mean a
material adverse effect on the Business Condition of the Company resulting or
derived from a cause, condition or circumstance specific to the
6
Company or its subsidiaries rather than general economic or industry wide
conditions (provided that a condition or circumstance of the Company or its
subsidiaries which makes the Company or its subsidiaries particularly sensitive
to general economic or market or industry wide changes shall be considered as
involving a cause, condition or circumstance specific to the Company or its
subsidiaries). Unless otherwise specifically indicated, all references to the
"COMPANY" in this Article III shall refer to and include the Company and all of
its subsidiaries and (c) losses, claims, liabilities or other expenses incurred
by the Company or its subsidiaries shall, without limitation, be deemed material
if they exceed $25,000 individually or $300,000 in the aggregate.
3.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as now being conducted.
The Company is duly qualified as a foreign corporation and is in good standing
in each jurisdiction in which the failure to so qualify would have a Material
Adverse Effect. The Company has delivered to Parent complete up to date and
correct copies of its Articles of Incorporation and Bylaws, and has delivered
minutes of all of directors', Board committee and shareholders' meetings
(including in each case any written resolutions in lieu thereof), complete and
accurate as of the date hereof, and stock certificate books of the Company,
which correctly set forth the record ownership of all outstanding shares of
Company Capital Stock. No actions have been taken by the Board, any committee of
the Board or the shareholders of the Company which are not reflected in such
minutes and the Company is in compliance with such resolutions.
3.2 CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
10,000,000 shares of Company Common Stock, without par value, and 5,000,000
shares of Company Preferred Stock, without par value, of which 1,781,598 are
designated as Series A Preferred Stock ("COMPANY SERIES A PREFERRED STOCK"). As
of the date of this Agreement, there were issued and outstanding 4,523,957
shares of the Company Common Stock and 1,398,837 shares of Company Series A
Preferred Stock. As of the date of this Agreement, there were an aggregate of
1,206,621 shares of Company Common Stock reserved for issuance upon the exercise
of outstanding options (vested or unvested) to purchase shares of Company Common
Stock ("COMPANY OPTIONS") and 606,000 shares of Company Common Stock reserved
for issuance upon exercise of Company Warrants.
(b) All outstanding shares of the Company Capital Stock are, and any
shares of Company Capital Stock issued upon exercise of any Company Option or
Company Warrant will be, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, the
Company's Articles of Incorporation or Bylaws or any agreement to which the
Company is a party or by which the Company may be bound. The Company's records
do not reflect and the Company has received no written notice of any liens or
encumbrances over any shares of Capital Stock owned by the Company or its
Affiliates. All outstanding Company securities (including Company Options) have
been issued in compliance in all respects with applicable federal and state
securities laws. Except as set forth in SCHEDULES 2.1(D) AND (E), there are no
options, warrants, calls, conversion rights, commitments or agreements of any
character to which the Company is a party or by which the Company may be
7
bound that do or may obligate the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of Company Capital Stock or that
do or may obligate the Company to grant, extend or enter into any such option,
warrant, call, conversion right, commitment or agreement.
(c) SCHEDULE 3.2 contains a complete and accurate list of, and the
number of shares owned of record by, the holders of outstanding Company Capital
Stock and their state or country of residence. There are no outstanding shares
of the Company Capital Stock or any other equity securities or rights to
purchase equity securities of the Company, other than shares of the Company
Common Stock, Company Series A Preferred Stock, Company Options or the Company
Warrants as described herein. Except for issued Company Capital Stock and as
described in SCHEDULES 2.1(D), 2.1(E), no person (including but not limited to
former shareholders in the Company and former partners of the shareholders with
respect to other entities) has any valid claim to an equity interest in the
Company.
(d) The Company stock option plan and all amendments thereto have
been approved by all requisite Company shareholder action. The Company does not
have in effect any stock appreciation rights plan and no stock appreciation
rights are currently outstanding.
(e) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, co-sale right,
right of participation, right of first offer, option or other restriction on
transfer applicable to any shares of the Company Capital Stock other than such
rights as may exist in favor of the Company.
(f) The Company is not a party or subject to any agreement or
understanding, and to the knowledge of the Company and Shareholders there is no
agreement or understanding between or among any persons that affects or relates
to the voting or giving of written consent with respect to any outstanding
security of the Company excluding consent and/or proxies of certain shareholders
of the Company given in connection with this Agreement and the transactions
contemplated hereby.
3.3 SUBSIDIARIES. Except as set forth in SCHEDULE 3.3, the Company does
not own or control, directly or indirectly, any corporation, partnership,
business, trust or other entity and is not committed to make an investment in
any such entity. SCHEDULE 3.3 also sets forth a true and complete list of all
states and foreign countries where the Company is qualified to do business or is
doing business. All of the shares of capital stock of each such subsidiary are
owned by the Company free and clear of all liens or encumbrances.
3.4 AUTHORITY.
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and the Agreement of Merger and the Certificate of
Merger (the "COMPANY AGREEMENTS") and subject to approval of the Company
Agreements by the shareholders of the Company, to execute, deliver and perform
its obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of the Company
Agreements, the performance by the Company of its obligations thereunder and the
consummation of the transactions contemplated thereby have been duly and validly
authorized
8
by all necessary corporate action on the part of the Company, including approval
by its Board of Directors, other than approval of the Company shareholders
(which will be obtained prior to the Effective Time of the Merger). The Company
Agreements, Shareholder Agreements (the "SHAREHOLDER AGREEMENTS") between Parent
and each of ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ (the
"PRINCIPAL SHAREHOLDERS") and the Irrevocable Proxies (the "IRREVOCABLE
PROXIES") entered into by the Principal Shareholders in connection with this
Agreement (the Company Agreements, Shareholder Agreements and Irrevocable
Proxies collectively the "TRANSACTION AGREEMENTS") are legal, valid and binding
obligations of the Company or such shareholders party thereto (as applicable)
enforceable against the Company and such shareholders (as applicable) in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies is subject to the discretion of the court before which any proceeding
therefor may be brought.
(b) The execution and delivery of the Company Agreements do not and
the performance and consummation of the transactions contemplated thereby will
not, conflict with or result in any conflict with, breach or violation of any
statute, law, rule, regulation, judgment, order, decree, or ordinance applicable
to the Company or its properties or assets, or conflict with or result in any
conflict with, breach or violation of or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation, forfeiture or acceleration of any obligation or the loss of a
benefit under, or result in the creation of a lien or encumbrance on any of the
properties or assets of the Company pursuant to (i) any provision of the
Articles of Incorporation or Bylaws of the Company or (ii) any agreement,
contract, note, mortgage, indenture, lease, instrument, permit, concession,
judgment order, franchise or license to which the Company is a party or by which
the Company or any of its property or assets may be bound or affected.
(c) No consent, approval, order or authorization of, or registration,
declaration of, or qualification or notice to or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign (a
"GOVERNMENTAL ENTITY"), or any other person or entity (except for approval of
the terms of the Company Agreements by the shareholders of the Company) is
required by or with respect to the Company or any shareholder in connection with
the execution and delivery of the Transaction Agreements by the Company or the
shareholders party thereto or the consummation by the Company or the
shareholders party thereto of the transactions contemplated thereby, except for
(i) the filing of the Agreement of Merger with the California Secretary of State
and Certificate of Merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business (all of which states are set forth in writing in an
exhibit attached hereto), (ii) the filing of a Registration Statement on Form
S-8 (the "FORM S-8") with the Securities and Exchange Commission (the "SEC")
with respect to the assumption of exercisable securities pursuant to this
Agreement, (iii) such other consents, approvals, authorizations, registrations
or qualifications as may be required under state securities or Blue Sky laws in
connection with the Merger, (iv) filings required to be made by, each of Parent,
Merger Sub and the Company under the HSR Act (as defined in SECTION 5.6 below)
and any approvals required pursuant thereto.
9
3.5 FINANCIAL STATEMENTS. The Company has furnished to Parent a complete
and accurate copy of its audited balance sheets as of October 31, 1997, October
31, 1998 and October 31, 1999 and its audited statements of operations, cash
flow and shareholders' equity for each of its fiscal years ended October 31,
1997, 1998, and 1999 (collectively, the "THE COMPANY AUDITED FINANCIAL
STATEMENTS"). The Company Audited Financial Statements have been prepared in
accordance with United States generally accepted accounting principles ("GAAP")
consistently applied and fairly present the consolidated financial position of
the Company as and at the dates thereof and the Company's consolidated results
of operations and cash flows for the periods then ended. The notes to the
Audited Financial Statements as at and for each such period set forth in
reasonable detail the Company's accounting policies, principles and methods with
respect to the calculation of its accounts receivable (including policies for
its warranty and bad debt reserves, revenue recognition and capitalized software
development costs). The Company has furnished to Parent a complete and accurate
copy of its unaudited balance sheet as of January 31, 2000 and its unaudited
statement of operations, cash flow and shareholders' equity for its three -month
period ended January 31, 2000 (collectively, the "COMPANY UNAUDITED FINANCIAL
STATEMENTS," together with the Company Audited Financial Statements, the
"COMPANY FINANCIAL STATEMENTS.") The Company Unaudited Financial Statements have
been prepared in accordance with GAAP consistently applied, except for the
absence of footnotes, and fairly present the consolidated financial position of
the Company as and at the date thereof and the Company's consolidated results of
operations and cash flows for the period then ended. The projections of the
Company provided to Parent were prepared in good faith and are based on
reasonable assumptions in light of current and reasonably foreseeable business
conditions at the time they were made, but actual results will vary and such
results may be material and adverse.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in SCHEDULE
3.6, neither the Company nor any of its subsidiaries has an obligation or
liability of any nature (either matured or unmatured and whether due or to
become due) except (a) those specifically set forth or adequately provided for
in the Company Unaudited Financial Statements and (b) accounts payable or
accrued salaries that have been incurred since January 31, 2000 in the ordinary
course of business and consistent with past practice and which individually do
not exceed $25,000 and in the aggregate do not exceed $100,000 and (c)
liabilities incurred in connection with the negotiation, documentation of the
transactions contemplated by this Agreement.
3.7 INVENTORY. All of the Company's inventories (the "INVENTORIES") are
valued at cost (determined on a first-in first-out basis) or market, whichever
is lower, with allowances (including in respect of slow moving inventory) in
accordance with GAAP consistently applied. The Company has good and marketable
title, to all items included in such Inventories free of any lien or
encumbrance. Except as disclosed in SCHEDULE 3.7, the Company holds no material
amounts of Inventories manufactured to customer specifications effectively
rendering the Inventories saleable only to that customer. The Inventories were
acquired in the ordinary course of business and are of a quantity and quality
usable or saleable in the ordinary course of business (except to the extent
reflected on the Company Unaudited Financial Statements in accordance with
GAAP). Company has no knowledge that it will in the foreseeable future
experience any undue difficulty in obtaining the desired quantity and quality of
raw materials, supplies and components, upon reasonable terms.
3.8 PAYABLES; RECEIVABLES.
10
(a) All accounts payable or notes payable have arisen in the ordinary
course of business. There is no account payable or note payable by the Company
in excess of $20,000 that is delinquent in its payment.
(b) All accounts receivable and notes receivable of the Company
(collectively "ACCOUNTS") have arisen in the ordinary course of business and
represent valid obligations of customers and are not subject to any contingent
or asserted claims, refusals to pay, rights of return, or other rights of
set-off against any thereof. The Company holds no deposits from customers and
has received no prepaid service contract revenue or other prepaid revenue in
excess of $200,000 individually or $2,000,000 in the aggregate. All Accounts are
current and will be collected in full when due (net of an allowance for doubtful
Accounts not to exceed $1,000,000 in the aggregate). All Accounts are owned by
the Company free and clear of any lien or encumbrance (except for the lien of
▇▇▇▇▇▇▇ ▇▇▇▇▇ in connection with the Reducing Revolver Loan and Security
Agreement dated as of July 22, 1998) and, except as set forth in SCHEDULE 3.8,
no account debtor is delinquent by more than 45 days. SCHEDULE 3.8 sets forth an
accurate and complete breakdown and aging of all Accounts as of January 31, 2000
and April 30, 2000.
(c) The Company's revenue recognition policies with respect to the
Company Financial Statements have been made in accordance with GAAP. The Company
maintains a standard system of accounting in accordance with GAAP. All of the
Company's general ledgers, books and records are located at the Company's
principal place of business.
11
3.9 COMPLIANCE WITH LAWS. Except as set forth in SCHEDULE 3.9 and except
with respect to environmental matters, representations and warranties as to
which are solely governed by SECTION 3.22 hereof, the Company is in compliance
and has conducted its business and operations so as to comply with all laws,
ordinances, rules and regulations, judgments, decrees or orders of any
Governmental Entity. There are no judgments or orders, injunctions, decrees,
stipulations or awards whether rendered by a court or administrative agency or
by arbitration against or pending against the Company or any of its properties
or businesses, and to the best of Company's knowledge, none are threatened. The
Company has not during the past four (4) years received any governmental notice
from any Governmental Entity for any violation of any applicable laws or
regulations, other than routine municipal building code, fire department and
other municipal inspections in respect of which the recommendations or actions
required thereby have been made, fulfilled or otherwise complied with. The
Company has all valid and current permits, licenses, orders, authorizations,
registrations, consents, approvals and other instruments (each of which is in
full force and effect) and the Company has made all filings and registrations
and the like necessary or required by law, regulation or court order or decree
to conduct its business or own or operate is properties and assets.
3.10 NO DEFAULTS. Except as set forth in SCHEDULE 3.10, the Company is not,
and it has not received notice that it is or would be with the passage of time
(x) in violation of any provision of its current Articles of Incorporation or
Bylaws or (y) in default or violation of any term, condition or provision of (a)
any judgment, decree, order, injunction or stipulation applicable to the
Company, or (b) any material agreement, note, mortgage, indenture, contract,
lease, instrument, permit, concession, franchise or license.
3.11 LITIGATION. Except as set forth in SCHEDULE 3.11, there is no action,
suit, proceeding, claim, arbitration or investigation pending against the
Company or any of its properties or assets or any of its officers or directors,
nor to its knowledge, is any threatened nor is there any reasonable basis
therefor. There is no action, suit, proceeding or investigation by the Company
currently pending or threatened or which it intends to initiate. The Company
prior to Closing will have delivered to Parent correct and complete copies of
all correspondence prepared by its counsel for the Company's independent public
accountants in connection with the last three completed audits of the Company's
financial statements and any such correspondence since the date of the last such
audit.
3.12 CONDUCT IN THE ORDINARY COURSE. Except as set forth in SCHEDULE 3.12,
and except for the negotiation or documentation of this Agreement and the
transactions contemplated hereby and for the relocation of the Company's offices
to ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, since January 31, 2000, the
Company has conducted its business in the ordinary course consistent with past
practice and there has not occurred:
(a) Any change event or condition which has had or to the knowledge
of Company could reasonably be expected to have a Material Adverse Effect;
(b) Any amendments or changes in the Articles of Incorporation or
Bylaws of the Company;
12
(c) Any material loss, damage or destruction to or interruption in
the use of any of the Company's assets and properties;
(d) Any issuance, redemption, repurchase or other acquisition of
shares of Company capital stock (other than issuances pursuant to exercise of
the Company Options or Company Warrants or repurchases of Common Stock at cost
in the ordinary course under the terms of agreements provided to Parent), or any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the Company capital stock;
or any authorization of any of the foregoing.
(e) Any increase in or modification of any compensation, bonus,
pension, insurance or other benefit plan, payment or arrangement (including,
without limitation, the granting of stock options, restricted stock awards or
stock appreciation rights) made to, for or with any of its service providers, or
changes pursuant to employment agreements currently in effect or changes in
position except to the extent permitted by SECTION 5.1(N);
(f) Any sale of the property or assets of the Company individually in
excess of $50,000 or in the aggregate in excess of $150,000 other than inventory
sales in the ordinary course of business consistent with past practice and
disposals of obsolete or surplus office furniture and equipment;
(g) Except as expressly contemplated in this Agreement with respect
to the Company Options, any alteration in any term of any outstanding security
of the Company;
(h) Any (A) incurrence, assumption or guarantee by the Company of any
debt for borrowed money; (B) waiver or compromise by it of a valuable right or
of a debt owed to it; (C) satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by it material to its Business
Condition; (D) issuance or sale of any securities convertible into or
exchangeable for debt securities of the Company; or (E) issuance or sale of
options or other rights to acquire from the Company, directly or indirectly,
debt securities of the Company or any securities convertible into or
exchangeable for any such debt securities;
(i) Any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any of its assets or
properties (other than liens or encumbrances arising under existing lease
financing arrangements, purchase money security interests arising in the
ordinary course of the Company's business and liens for Taxes not yet due and
payable);
(j) Any making of any loan, advance or capital contribution to, or
investment in, any person other than advances to employees in the ordinary
course of business of the Company and extensions of trade credit in connection
with the sale of Inventory in the ordinary course of business and consistent
with past practice and not exceeding the value of such Inventory;
(k) Any entry into, amendment of, relinquishment, termination or
nonrenewal by the Company of any contract, lease, commitment or other right or
obligation other than in the ordinary course of business consistent with past
practice and except for the entry of the lease relating to the Company's
premises at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇;
13
(l) Any transfer or grant of a right under the Company Intellectual
Property Rights (as defined in SECTION 3.17) other than those transferred or
granted in the ordinary course of business consistent with past practice;
(m) Any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof to
organize any employees of the Company;
(n) Any resignation or termination of employment of any of its
employees; and the Company has not been notified by any employee of the
impending resignation or termination of employment of any such, or any other,
employee; or
(o) Any change to the methods of accounting or accounting practice
of, or any Tax election by, the Company.
(p) Any capital expenditures which would exceed $ 200,000 in the
aggregate.
(q) Any agreement or arrangement made by the Company to take any
action which, if taken prior to the date hereof, would have made any
representation or warranty set forth in this SECTION 3.12 untrue or incorrect as
of the date when made.
3.13 CERTAIN AGREEMENTS. Except as set forth in SCHEDULE 3.13, neither the
execution and delivery of the Company Agreements nor the consummation of the
transactions contemplated hereby or thereby will (a) result in any payment
(including, without limitation, severance, unemployment compensation, golden
parachute, bonus or otherwise) becoming due to any service provider of the
Company under any Plan (as defined in SECTION 3.14 below) or otherwise, (b)
materially increase any benefits otherwise payable under any Plan, or (c) result
in the acceleration of the time of payment or vesting of any such benefits.
3.14 EMPLOYEE PLANS.
(a) All plans, programs, policies, commitments or other arrangements
(whether or not set forth in a written document) maintained by or on behalf of
the Company, any subsidiary or any trade or business which is treated as a
single employer with the Company (an "ERISA AFFILIATE") within the meaning of
Section 414(b), (c), (m) or (o) of the Code, that provide deferred or incentive
compensation, stock options or other stock purchase rights, severance or
termination pay, medical, dental, life, disability or accident benefits (whether
or not insured), collective bargaining agreements, benefits described in
Sections 125 or 129 of the Internal Revenue Code (as amended, the "CODE") or
pension, profit sharing or retirement benefits to, or for the benefit of, any
active, former or retired service provider of the Company or their spouses or
dependents are set forth in SCHEDULE 3.14 (collectively, the "PLANS"). Any Plan
intended to be qualified under Section 401(a) of the Code has either obtained a
favorable determination, opinion, notification or advisory letter as to its
qualified status from the Internal Revenue Service ("IRS") or still has a
remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such letter and to make any amendments
necessary to obtain a favorable determination.
14
(b) The Company has furnished to Parent copies of the Plans and
related Plan documents (including trust documents, insurance policies or
contracts, employee booklets, summary plan descriptions and other authorizing
documents, and to the extent still in its possession any material employee
communications relating thereto) and copies of the most recent IRS
determination, opinion, notification or advisory letters and Forms 5500 (for the
last three (3) years) with respect to any such Plan. 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 Plan subject to Section 401(a) of the
Code.
(c) No Plan is covered by Title IV of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 412 of the Code. Neither
the Company or any subsidiary or ERISA Affiliate is 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. None of the Plans promises or
provides retiree medical or other retiree welfare benefits to any person.
Neither the Company nor, to the best knowledge of the Company, any officer or
director of the Company or trustee or administrator of the Company Plan is
subject to any liability or penalty under Sections 4975 through 4980 of the Code
or Title I of ERISA in connection with any Plan. There has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section 4975
of the Code. Each Plan has been maintained and administered in all respects in
compliance with its terms and with the requirements prescribed by all statutes,
orders, rules and regulations, including but not limited to ERISA and the Code,
which are applicable to such Plan, except to the extent noncompliance would not
have a material and adverse effect on Parent, the Company or an ERISA Affiliate
of any of them. With respect to each 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, the Company has
prepared in good faith and timely filed all requisite governmental reports
(which were true and correct as of the date filed), and Company 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 Plan. No
suit, administrative proceeding, action or other litigation has been brought, or
to the best knowledge of the Company is threatened, against or with respect to
any such Plan, including any audit or inquiry by the IRS or United States
Department of Labor. All contributions, reserves or premium payments required to
be made or accrued as of the date hereof to the Plans have been made or accrued.
(d) The Company has complied with (i) the applicable health care
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the regulations thereunder (including
proposed regulations), (ii) the applicable requirements of the Family and
Medical 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 thereunder (including proposed regulations)
applicable to its employees, except as would not result in a material and
adverse effect on Parent, the Company or an ERISA Affiliate of either of them.
(e) The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or other service provider of
the Company, any subsidiary or any other 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
15
increase the amount of compensation due any such employee or service provider.
No payment or benefit which will or may be made by Company to any Employee will
be characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company, any subsidiary or other
ERISA Affiliate relating to, or change in participation or coverage under, any
Plan which would materially increase the expense of maintaining such Plan above
the per capita level of expense incurred with respect to that Plan for the most
recent fiscal year included in the Company's financial statements.
(g) Within five (5) business days following the date of this
Agreement, the Company shall set forth on SCHEDULE 3.14(G) a list of all persons
who the Company reasonably believes are, with respect to Company and as of the
date of this Agreement, "disqualified individuals" (within the meaning of
Section 280G of the Code and the regulations promulgated thereunder). Within a
reasonable period of time after the last business day of each month after the
date of this Agreement (other than March 2000) and on or about the date which is
five (5) business days prior to the expected Closing Date, the Company shall
revise SCHEDULE 3.14(G) to reflect any additional information which the Company
reasonably believes would impact the determination of persons who are, with
respect to the Company and as of each such date, "disqualified individuals"
(within the meaning of Section 280G of the Code and the regulations promulgated
thereunder).
3.15 MAJOR CONTRACTS. Except as set forth in SCHEDULE 3.15, the Company is
not party to or subject to:
(a) Any union contract or any employment or consulting contract or
arrangement other than stock option or stock purchase agreements or proprietary
information and invention assignment agreements, written or oral, with any
director, officer or affiliate;
(b) Any original equipment manufacturer agreement, distribution
agreement, volume or quantity purchase agreement or other similar agreement, or
joint venture contract or arrangement or any other agreement which has involved
or is expected to involve a sharing of profits with other persons or provides
for payments of more than $100,000 per annum;
(c) Any lease for real or personal property resulting in aggregate
payments in any one year exceeding $10,000;
(d) Any outstanding instrument evidencing or related in any way to
outstanding indebtedness incurred in the acquisition of companies or other
entities or indebtedness for borrowed money by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, guarantee, leasehold
obligations or otherwise;
(e) Any license agreement, either as licensor or licensee, resulting
in aggregate payments exceeding $10,000;
(f) Any material contract containing covenants purporting to limit
the freedom of the Company to compete in any line of business in any geographic
area or use any of the Company's assets or properties;
16
(g) Any agreement of indemnification, except indemnification provided
in the ordinary course of business for officers and directors pursuant to state
law;
(h) Any agreement, contract or commitment relating to capital
expenditures in excess of $10,000 individually and $50,000 in the aggregate;
(i) Any agreement, contract or commitment relating to the disposition
or acquisition by the Company of (i) any assets in excess of $50,000
individually and $125,000 in the aggregate (other than Inventory) or (ii) any
Company Intellectual Property Rights (as defined in SECTION 3.19 below);
(j) Any agreement providing for minimum payment or resale
obligations, ongoing support or research and development obligations, or
warranty obligations on the part of the Company, except for standard warranties
entered into the ordinary course of business;
(k) Any agreement for the provision of products or securities to any
Governmental Entity, except customer agreements entered into in the ordinary
course of business;
(l) Any agreement requiring a commitment of the Company resources or
personnel to market, distribute or license products or technology, whether on a
best-efforts basis or otherwise;
(m) Any other agreement, contract, letter of intent, memorandum of
understanding or commitment which is material to the Company Business Condition;
(n) Any service contracts for products, products under contracts, and
contracts relating to deferred revenues that are material to the Company
Business Condition; or
(o) Any sole or limited source supplier agreements (written or oral).
The Company has delivered complete and accurate copies of each
contract listed on SCHEDULE 3.15 to the Parent. Except as listed on SCHEDULE
3.15, each agreement, contract, mortgage, indenture, plan, lease, instrument,
permit, concession, franchise, arrangement, license and commitment to which the
Company is a party or by which it is bound as set forth in SCHEDULE 3.15 (or
required to be set forth in SCHEDULE 3.15) (i) is valid and binding on the
Company (as applicable), (ii) is in full force and effect and is enforceable in
accordance with its terms (subject to laws of general application relating to
bankruptcy, insolvency and relief of debtor and rules governing the amount of
equitable remedies) and, (iii) no material provision thereof has been breached
by the Company (except to the extent already cured) or, to the Company's
knowledge after due inquiry, any other party thereto. No party to any such
contract, agreement or instrument intends to cancel, withdraw, modify or amend
such contract, agreement or arrangement. The Company has performed all
obligations required to be performed by it under each contract, obligation,
commitment, agreement, undertaking, arrangement or lease referred to in SCHEDULE
3.15, and it is not in default, breach or violation thereunder, or under any
other agreements, and is not aware of any facts from which it should reasonably
conclude that it will not be able to perform all obligations required to be
performed by it subsequent to the date
17
hereof under each such agreement except to the extent that the same could not
reasonably be expected to have a Material Adverse Effect.
3.16 TAXES.
(a) Company and any consolidated, combined, unitary or aggregate
group for Tax (as defined below) purposes of which Company is or has been a
member, have properly completed and timely filed all Tax Returns required to be
filed by them and have paid all Taxes shown thereon to be due other than any
Taxes for which adequate reserves in accordance with GAAP have been reflected in
the Company Financial Statements. Company has provided adequate accruals in
accordance with GAAP in its Company Financial Statements for any Taxes that have
not been paid, whether or not shown as being due on any Tax Returns. Company has
no material liability for unpaid Taxes accruing after the date of its latest
Company Financial Statements except for Taxes incurred in the ordinary course
subsequent to October 31, 1999. There is (i) no material claim for Taxes that is
a lien against the property of Company or is being asserted against Company
other than liens for Taxes not yet due and payable, (ii) no audit of any Tax
Return of Company being conducted by a Tax Authority, (iii) no extension of the
statute of limitations on the assessment of any Taxes granted by Company and
currently in effect, and (iv) no agreement, contract or arrangement to which
Company is a party that may result in the payment of any amount that would not
be deductible by reason of Section 280G or Section 404 of the Code. Company has
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. Company has not filed or will file any consent to have the provisions of
paragraph 341(f)(2) of the Code (or comparable provisions of any state Tax laws)
apply to Company. Company is not a party to any Tax sharing or Tax allocation
agreement nor does Company have any liability or potential liability to another
party under any such agreement. Company has not filed any disclosures under
Section 6662 or comparable provisions of state, local or foreign law to prevent
the imposition of penalties with respect to any Tax reporting position taken on
any Tax Return. Company has never been a member of a consolidated, combined or
unitary group of which Company was not the ultimate parent corporation. 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 being a transferee of or successor to any person or 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.
18
3.17 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed or otherwise entitled to
exercise, without restriction, all rights to, all patents (to the knowledge of
the Company), trademarks, trade names, service marks, copyrights, mask work
rights, trade secret rights and other intellectual property rights, and any
applications or registrations therefor, and all mask works, net lists,
schematics, technology, source code, know-how, computer software programs and
all other tangible and intangible information or material used in the business
of the Company as currently conducted (collectively, the "COMPANY INTELLECTUAL
PROPERTY RIGHTS") without any conflict or infringement of the rights of others.
To the best of the knowledge of the Company none of the principal products of
the Company in development (consisting of the DV12000, PMU, DDDv2, DSP, ASL2000,
Remote Status and CPx), will infringe or conflict with the intellectual property
rights of others. All of such the Company Intellectual Property Rights are
listed on SCHEDULE 3.17 (except for "off the shelf" or other software widely
available through regular commercial distribution channels at a cost not
exceeding $100,000 in the aggregate).
(b) SCHEDULE 3.17 also lists (except for "off the shelf" or other
software widely available through regular commercial distribution channels at a
cost not exceeding $100,000 in the aggregate) (i) all patents and all registered
copyrights, trade dress, trade names, trademarks, service marks and other
company, product or service identifiers and mask work rights included in the
Company Intellectual Property Rights, and specifies the jurisdictions in which
each such Company Intellectual Property Right has been registered, including the
respective registration numbers; (ii) all licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
or any other person is authorized to use any Company Intellectual Property
Right; and (iii) all parties to whom the Company has delivered copies of the
Company source code, whether pursuant to an escrow arrangement or otherwise, or
parties who have the right to receive such source code. Copies of all licenses,
sublicenses, and other agreements identified pursuant to clause above have been
delivered by the Company to Parent.
(c) The Company is not, and will not as a result of the execution and
delivery of this Agreement or the performance of the Company's obligations
hereunder be, in violation of, or lose or in any way impair any rights pursuant
to any license, sublicense or agreement described in (or required to be
described in) SCHEDULE 3.17 which could reasonably be expected to result in a
Material Adverse Effect.
(d) No claims with respect to the Company Intellectual Property
Rights have been asserted against the Company or, to the best knowledge of the
Company, are threatened by any person, (i) to the effect that the manufacture,
marketing, license, sale or use of any product as now used or offered or
proposed for use or sale by the Company infringes any copyright, patent, trade
secret, or other intellectual property right of any third party or violates any
license or agreement with any third party, (ii) contesting the right of the
Company to use, sell, license or dispose of any the Company Intellectual
Property Rights, or (iii) challenging the ownership, validity or effectiveness
of any of the Company Intellectual Property Rights.
19
(e) All patents and registered trademarks, service marks, and other
registrations of company, product or service identifiers and copyrights held by
the Company are valid and subsisting.
(f) There has not been and there is not to the Company's knowledge
now any unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including, without limitation,
any service provider of the Company. The Company has not been sued or charged as
a defendant in any claim, suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or other
intellectual property rights and which has not been finally terminated prior to
the date hereof and there are no such charges or claims outstanding.
(g) No Company Intellectual Property Right is subject to any
outstanding order, judgment, decree or stipulation to which the Company is bound
or agreement to which the Company is a party, restricting in any manner the
licensing thereof by the Company. Except as listed on SCHEDULE 3.17 or any
statutorily imputed warranties, the Company has not entered into any agreement
to indemnify any other person against any charge of infringement of any Company
Intellectual Property Right. The Company has not entered into any agreement
granting any third party the right to bring infringement actions with respect
to, or otherwise to enforce rights with respect to, any the Company Intellectual
Property Right. The Company has the exclusive right to file, prosecute and
maintain all applications and registrations with respect to the Company
Intellectual Property Rights.
3.18 EMPLOYEE AGREEMENTS. As of the Closing Date, all technical and
management personnel listed on SCHEDULE 3.26, including employees, consultants
and independent contractors employed or retained by the Company, will have
executed agreements regarding confidentiality and proprietary information. Each
such employee, consultant and independent contractor has validly and properly
assigned his or her rights to the Company on all inventions, pending patent
applications and all patents issued and has validly and properly assigned to the
Company his or her rights in and to all copyrights and works of authorship
developed by him or her in the course of his or her employment with the Company.
The Company has no knowledge that any of its service providers are in violation
thereof and will use its best efforts to prevent any such violation. The Company
has no knowledge that any of its service providers is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere in any respect with the use of his
or her best efforts to promote the interests of the Company or that would
conflict with the business of the Company as conducted or as proposed to be
conducted or that would prevent any such service provider from assigning
inventions and works of authorship to the Company. The Company has no knowledge
that any of its assets will include any inventions or works of authorship of any
of its service providers (or people it currently intends to hire) made prior to
employment by the Company or relationship with the Company not otherwise
properly assigned to the Company.
3.19 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth in SCHEDULE
3.19, there is no agreement, judgment, injunction, order or decree binding upon
the Company or which has or could reasonably be expected to have the effect of
prohibiting or significantly impairing any business practice of the Company, any
acquisition of property by the Company, or the
20
continuation of the business of the Company as currently conducted or as
currently proposed to be conducted.
3.20 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
EQUIPMENT.
(a) The Company does not own any real property.
(b) All of the existing Company real property leases have been
delivered previously to Parent. SCHEDULE 3.20 sets forth a complete and accurate
list of all real property leased by the Company.
(c) The Company has good title in all of its tangible properties and
assets, real, personal and mixed, used in its business, free and clear of any
liens (other than purchase money liens and liens for Taxes that are not yet
delinquent), charges, pledges, security interests or other encumbrances, except
as reflected in the Company Unaudited Financial Statements and except for such
imperfections of title in respect of real property leased by the Company, if
any, which are not substantial in character, amount or extent, and which do not
and are not reasonably likely to materially detract from the value, or interfere
with the present use, of the property subject thereto or affected thereby.
(d) Each item of machinery and equipment having an initial
acquisition cost in excess of $100,000 (the "EQUIPMENT") owned or leased by the
Company is listed in SCHEDULE 3.20. The machinery, equipment and other tangible
assets of the Company and its subsidiaries is (i) adequate for the conduct of
the business of the Company consistent with its past practice, (ii) suitable for
the uses to which it is currently employed, (iii) in good operating condition
subject to normal wear and tear, (iv) regularly and properly maintained, and (v)
not obsolete, dangerous or in need of renewal or replacement, except for renewal
or replacement in the ordinary course of business.
(e) Since January 31, 2000, there has not occurred any transfer of
title other than in the ordinary course of business, any abandonment, or any
pilferage or any other material loss with respect to, any of its property, plant
or equipment.
(f) SCHEDULE 3.20 also contains a true and correct list of all of the
physical assets (including fixed assets) having an initial acquisition cost in
excess of $100,000 owned or leased by the Company or on consignment. All
improvements on leased property used in the business of the Company and the
present use thereof are performed in accordance with all applicable laws. The
net book value of any fixed assets used in the Company's business has not been
written up or down, other than pursuant to depreciation or amortization expense
in accordance with GAAP and consistent with past practice.
3.21 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. SCHEDULE 3.21 sets forth all
of the Company's licenses, authorizations, permits, concessions, certificates
and other franchises of any Governmental Entity required or reasonably advisable
to operate its business (collectively, the "GOVERNMENT LICENSES"). The Company
is in compliance respects with the terms, conditions, limitations, restrictions,
standards, prohibitions, requirements and obligations of such Government
Licenses except to the extent such non-compliance could not reasonably be
21
expected to result in a Material Adverse Effect. The Government Licenses are in
full force and effect. There is not now pending, nor, to the Company's
knowledge, is there threatened, any action, suit, investigation or proceeding
against the Company before any Governmental Entity with respect to the
Government Licenses, nor is there any issued or outstanding notice, order or
complaint with respect to the violation by the Company of the terms of any
Government License or any rule or regulation applicable thereto.
3.22 ENVIRONMENTAL MATTERS.
(a) For purposes of this SECTION 3.22, the following terms shall have
the following meanings:
"COURT ORDER" shall mean any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal, or any Governmental
Entity, and any award in any arbitration proceeding.
"DISPOSAL SITE" shall mean landfill, disposal agent, waste hauler or
recycler of Hazardous Materials.
"ENVIRONMENTAL ENCUMBRANCE" shall mean any lien, claim, charge,
security interest, mortgage, pledge, easement, conditional sale or other title
retention agreement, defect in title, covenant or other restrictions of any kind
in existence on the date of this Agreement or the Closing Date in favor of any
Governmental Entity for (i) any liability under any Environmental Laws, or (ii)
damages arising from, or costs incurred by such Governmental Entity in response
to, a Release or threatened Release of a Hazardous Material into the
environment.
"ENVIRONMENTAL LAWS" shall mean all Requirements of Laws in effect
on the date of this Agreement or the Closing Date which relate to any Hazardous
Material or the use, handling, transportation, production, spill, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, Release, threatened
Release, migration, emission, sale or storage of, or the exposure of any person
to, a Hazardous Material.
"GOVERNMENTAL PERMITS" shall mean all licenses, franchises, permits,
privileges, immunities, approvals and other authorizations, pending or final,
from a Governmental Entity.
"HAZARDOUS MATERIAL" shall mean any material or substance that, as
of the date of this Agreement or the Closing Date, is prohibited or regulated by
any Requirement of Law or that is designated by any Governmental Entity to be
radioactive, toxic, hazardous or otherwise a danger to health, reproduction or
the environment.
"HAZARDOUS MATERIALS ACTIVITIES" shall mean the use, handling,
transportation, distribution, sale, Release or threatened Release of, or
Remedial Action concerning any Hazardous Material, performed in connection with
the Real Property.
"REAL PROPERTY" shall mean real property now or at any time in the
past owned or leased by the Company or any of its predecessors or corporate or
partnership affiliates.
22
"RELEASE" shall mean release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Hazardous Material in, on, under or through the Real Property or the air, soil,
surface water, ground water or improvements thereof.
"REMEDIAL ACTION" shall mean any reporting, investigation,
characterization, feasibility study, health assessment, risk assessment,
remediation, treatment, recycling, removal, transport, monitoring, maintenance
or any other activity incident to the Release, threatened Release,
investigation, remediation or removal of a Hazardous Material existing on the
Real Property or in, on, under or through the air, soil, ground water, surface
water or improvements thereof.
"REQUIREMENTS OF LAWS" shall mean any foreign, federal, state and
local laws, statutes, regulations, rules, guidelines, codes, ordinances,
judgments, injunctions, decrees, orders, permits, approvals, treaties or
protocols enacted, adopted, issued or promulgated by any Governmental Entity
(including, without limitation, those pertaining to electrical, building,
zoning, environmental and occupational safety and health requirements) or common
law.
(b) Except as set forth in SCHEDULE 3.22:
(i) the Company complies in all material respects with all\
applicable Environmental Laws;
(ii) the Company has obtained all environmental, health and
safety Governmental Permits necessary for its operation or required by any
Environmental Laws, all such Governmental Permits are in good standing, and the
Company is in compliance with all terms and conditions of such permits;
(iii) to the knowledge of the Company, none of the Company nor
any of the Real Property or present or past Company operations is subject to any
pending or ongoing investigation by, notice or order from or agreement with any
person (including, without limitation, any prior owner or operator of the Real
Property) with respect to (A) any claim of Environmental Law, (B) any Remedial
Action, or (C) any claim of losses and expenses arising from the Release or
threatened Release of a Hazardous Material;
(iv) the Company is not subject to any pending or existing
judicial or administrative proceeding, Court Order or settlement alleging or
addressing a violation of or liability under any Environmental Law;
(v) the Company has not filed, and the Company does not intend
to file any notice or report under any Environmental Law reporting a violation
of any Environmental Law;
(vi) to the knowledge of the Company, there is not and there has
never been on any Real Property. (A) any underground storage tank or surface
impoundment; (B) any landfill or waste pile which either is or was used in the
frequent manner to dispose or store any Hazardous Material or contains or
contained a substantial volume of Hazardous Material; or (C) any polychlorinated
biphenyls;
23
(vii) the Company has not received any notice of claim to the
effect that it is or may be liable to any person as a result of the Release or
threatened Release of a Hazardous Material into the environment from or on any
Real Property;
(viii)to the knowledge of the Company, there is no Environmental
Encumbrance on any Real Property;
(ix) to the knowledge of the Company, any asbestos-containing
material which is on or part of any Real Property is in good repair according to
the current standards and practices governing such material, and its presence or
condition does not violate any currently applicable Environmental Law;
(x) to the knowledge of the Company, none of the products the
Company manufactures, distributes or sells or has manufactured, distributed or
sold in the past, contains substantial amounts of asbestos-containing material;
(xi) other than Hazardous Materials reasonably necessary for the
conduct of the Company's operations which are properly stored in accordance with
applicable Environmental Laws, to the best of the Company's knowledge no
Hazardous Material is present on Real Property, and no reasonable likelihood
exists that any Hazardous Material present on other property will come to be
present on the Real Property;
(xii) Hazardous Materials Activities (A) have been conducted in
compliance with applicable Environmental Laws, and (B) have not resulted in the
exposure of any person to a Hazardous Material in a manner which has, will or is
reasonably likely to cause an adverse health effect to such person;
(xiii)no Court Order, action, proceeding, liability or claim
exists or, to the knowledge of the Company is threatened, against any Disposal
Site or against the Company with respect to any transfer or release of Hazardous
Materials by the Company to a Disposal Site, and there is no valid basis for
such claim; and
(xiv) except as identified in SCHEDULE 3.22, the Company has no
records pertaining to environmental audits or environmental assessments of any
Real Property.
24
3.23 INSURANCE. SCHEDULE 3.23 lists all insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company, the amounts of coverage under
each such policy and bond of the Company. Within the last five years the Company
has not been refused any requested coverage and no material claim made by the
Company has been denied or disputed by the underwriters of such policies or
bonds. All premiums payable under all such policies and bonds have been paid,
and the Company is otherwise in full compliance with the terms of such policies
and bonds. Such policies of insurance and bonds are of the type and in amounts
customarily carried by persons conducting businesses similar to those of the
Company and its subsidiaries. The Company does not know of any threatened
termination of, the invalidation of any coverage of or material premium increase
with respect to, any of such policies.
3.24 LABOR MATTERS. Except as set forth in SCHEDULE 3.24, the Company is in
compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, immigration
laws, terms and conditions of employment and wages and hours and occupational
safety and health and employment practices, and the Company is not engaged in
any unfair labor practice. The Company has not received any notice from any
Governmental Entity, and there has not been asserted before any Governmental
Entity, any claim, action or proceeding to which the Company is a party or
involving the Company, and there is neither pending nor, to the Company's
knowledge , threatened any investigation or hearing concerning the Company
arising out of or based upon any such laws, regulations or practices. There are
no strikes or labor disputes pending or threatened by or any attempts at union
organization of any Company employees. No employee or group of employees whose
continued services are material to the Company business as presently conducted
and as intended to be conducted by the Company has terminated employment since
January 31, 2000 and the Company has no knowledge that any intends to do so. The
Company has no material unsatisfied obligations to any employees, former
employees or qualified beneficiaries pursuant to any federal or state law
governing health care coverage.
3.25 CUSTOMERS; BACKLOG; RETURNS AND COMPLAINTS.
(a) SCHEDULE 3.25(A) sets forth a complete list of customers on
backlog (orders scheduled for shipment within twelve (12) months of receipt of a
hard copy purchase order) and their respective orders.
(b) Except as set forth in SCHEDULE 3.25(B), the Company has not had
any of its products returned by a purchaser thereof except for normal warranty
returns consistent with past history. The Company maintains adequate warranty
reserves in accordance with GAAP.
3.26 PERSONNEL. Set forth on SCHEDULE 3.26 is a true and complete list
identifying all current directors, officers, employees, independent contractors
and consultants of the Company, including, without limitation, all officers of
the Company, setting forth the job title of, and salary (including bonuses and
commissions) payable to each such person. The employment of each of the
Company's employees is "at will" employment. Except as described in SCHEDULE
3.26, the Company does not have any obligation (i) to provide any particular
form or period of notice prior to termination, or (ii) to pay any of such
employees any severance benefits in connection with their termination of
employment or service. In addition, no severance pay will become due to
25
any the Company employees or other service providers in connection with the
Merger, as a result of any the Company agreement, plan or program. Except as
expressly disclosed in the Financial Statements, the Company has not entered
into any consulting agreements with any service provider who owes services to or
are owed compensation by the Company for services provided.
3.27 QUESTIONABLE PAYMENTS. Neither the Company nor, any director, officer
or other employee, agent or representative of the Company has (a) made any
payments or provided services or other favors in the United States of America or
in any foreign country in order to obtain preferential treatment or
consideration by any Governmental Entity with respect to any aspect of the
business of the Company; or (b) to the knowledge of the Company, made any
political contributions which, would not be lawful under the laws of the United
States or the foreign country in which such payments were made. Neither the
Company nor to the Company's knowledge any director, officer or other employee,
agent or representative of the Company or any customer or supplier of any of
them has been the subject of any inquiry or investigation by any Governmental
Entity in connection with payments or benefits or other favors to or for the
benefit of any governmental or armed services official, agent, representative or
employee with respect to any aspect of the business of the Company or with
respect to any political contribution.
3.28 THIRD-PARTY CONSENTS. Except as set forth in SCHEDULE 3.28, no consent
or approval is needed from any third party in order to effect the Merger or any
of the transactions contemplated hereby, nor to assign or permit the continued
use of any contractual rights in favor of the Company or the Surviving
Corporation, nor to permit the Surviving Company to exclusively use the Company
Intellectual Property Rights.
3.29 RELATED PARTY TRANSACTIONS. Except as set forth in SCHEDULE 3.29, no
employee, officer or director of the Company or member of his or her immediate
family is indebted to the Company, nor is the Company indebted or committed to
make loans or extend or guarantee credit to any of them. To the Company's
knowledge, no member of the immediate family of any officer or director of the
Company is directly interested in any contract with the Company.
3.30 CUSTOMERS AND SUPPLIERS. SCHEDULE 3.30 sets forth a list of the names
of the ten largest customers and the ten largest suppliers of the Company during
the past twelve (12) months (determined on the basis of revenues and expenses,
respectively, during such period). Except as set forth in SCHEDULE 3.30, the
Company has not been informed by any of such customers or suppliers that such
customer or supplier has terminated, or intends to reduce or terminate during
the next twelve (12) months, the amount of business conducted with the Company
and, to the best of the Company's knowledge, no such customer or supplier
intends to cancel or otherwise terminate its relationship with or projected
business with the Company or to decrease materially its projected services or
supplies to the Company or its projected usage of the services or products of
the Company, as the case may be. Except as set forth in SCHEDULE 3.30, no
customer of the Company has any rights to return product (except with respect to
warranty returns in the ordinary course of business) or any rights with respect
to price protection, and no customer or supplier has any rights to preferential
treatment in pricing, supply or otherwise.
3.31 PRODUCTS. SCHEDULE 3.31 sets forth the Company's warranty policies and
all outstanding warranties or guarantees relating to any of the Company's
products other than
26
warranties or guarantees implied by law. The products the Company has delivered
to customers substantially comply with published specifications, if any, for
such products. The Company is not aware of any claim asserting (a) any damage,
loss or injury caused by any product in excess of $25,000, or (b) any breach of
any express or implied product warranty or any other similar claim in excess of
$25,000 with respect to any product other than standard warranty obligations (to
replace, repair or refund) of the Company in the ordinary course of business.
SCHEDULE 3.31 contains an accurate and complete list of the Company's products
in development (exclusive of mere enhancements to and additional features for
existing products).
3.32 CUSTOMER COMMITMENTS. SCHEDULE 3.32 contains a true, accurate and
complete list of all of the Company's material (a) obligations and commitments
owed to customers and rights of customers with respect to the Company's products
whether or not sold or delivered to such third parties and (b) obligations or
commitments owed to prospective customers and rights of prospective customers
with respect to the Company's products whether or not sold or delivered to such
third parties. Except as set forth on SCHEDULE 3.32, the Company has made no
sales to customers that are contingent upon providing future enhancements of
existing products, to add features not presently available on existing products
or to otherwise enhance the performance of its existing products (other than
beta testing or similar arrangements pursuant to which the Company's customers
from time to time test or evaluate products).
3.33 BANK ACCOUNTS AND POWERS OF ATTORNEY. Set forth in SCHEDULE 3.33 is an
accurate and complete list showing (a) the name and address of each bank in
which the Company has an account or safe deposit box, the number of any such
account or any such box and the names of all persons authorized to draw thereon
or to have access thereto and (b) the names of all persons, if any, holding
powers of attorney from the Company and a summary statement of the terms
thereof.
3.34 BOOKS AND RECORDS. The books and records of the Company to which
Parent and its accountants and attorneys have been given access are the true
books and records of the Company and truly and fairly reflect the underlying
facts and transactions in all material respects.
3.35 MATERIAL MISSTATEMENT OR OMISSION. No representations or warranties or
other statements made or provided in this Agreement or in any written statement
furnished in connection herewith or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make the statements contained
therein, in light of the circumstances under which it is made, not misleading.
3.36 MISSIONCTRL CONTRACT. The Company has no obligation to offer or grant
any board representation, employment or consulting arrangements or stock,
options or warrants to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or MissionCtrl Systems, Inc.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
27
Parent and Merger Sub represent and warrant to the Company that the
representations and warranties set forth below shall be true and correct as of
the date hereof and as of the Closing. For the purposes of this ARTICLE IV, (a)
"Business Condition" with respect to Parent shall refer to Parent and all of its
subsidiaries taken as a whole and shall mean the financial condition, results of
operations and assets of Parent and all of its subsidiaries taken as a whole;
and (b) "Material Adverse Effect" means a material adverse effect on the
Business Condition of the Parent.
4.1 ORGANIZATION; STANDING AND POWER. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its respective state of incorporation and has all requisite corporate power
and authority to own, operate and lease its properties and to carry on its
business as now being conducted. Each of Parent and Merger Sub is duly qualified
as a foreign corporation and is in good standing in each jurisdiction in which
the failure to so qualify would have a Material Adverse Effect.
4.2 AUTHORITY. Parent and Merger Sub have all requisite corporate power
and authority to enter into this the Company Agreements, to execute, deliver and
perform their respective obligations hereunder and thereunder, and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
the Company Agreements, the performance by Parent and Merger Sub of their
respective obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of each of Parent and
Merger Sub. The Company Agreements are legal, valid and binding obligations of
Parent and Merger Sub enforceable against Parent and Merger Sub in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
or other similar laws affecting the enforcement of creditors' rights generally
and except that the availability of equitable remedies is subject to the
discretion of the court before which any proceeding therefor may be brought.
(b) The execution and delivery of the Company Agreements do not and
the performance and consummation of the transactions contemplated hereby and
thereby will not conflict with or result in any violation of any statute, law,
rule, regulation, judgment, order, decree, or ordinance applicable to Parent or
Merger Sub or their respective properties or assets, or conflict with or result
in any conflict with, breach or violation or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation, forfeiture or acceleration of any obligation or the loss of a
benefit under, or result in the creation of a lien or encumbrance on any of the
properties or assets of Parent or Merger Sub pursuant to (i) any provision of
their respective Certificates of Incorporation or Bylaws, or (ii) any agreement,
contract, note, mortgage, indenture, lease, instrument, permit, concession,
franchise or license to which Parent or Merger Sub is a party or by which Parent
or Merger Sub or any of their respective property or assets may be bound or
affected.
(c) No consent, approval, order or authorization of, or registration,
declaration, qualification, or filing of or with, any Governmental Entity is
required by or with respect to Parent or Merger Sub in connection with the
execution and delivery of this Agreement or the consummation by Parent and
Merger Sub of the transactions contemplated hereby, except for (i) the filing of
documents with, and the obtaining of orders from, the various state securities
or "blue sky" authorities, (ii) the making of such reports under the Securities
Exchange Act of
28
1934, as amended (the "EXCHANGE ACT") or pursuant to the Nasdaq National Market,
as are required in connection with the transactions contemplated by this
Agreement, (iii) the filing of the Agreement of Merger with the California
Secretary of State and appropriate documents with the relevant authorities of
other states in which Parent is qualified to do business, and (iv) filings
required to be made by each of Parent and the Company under the HSR Act.
4.3 CAPITAL RESOURCES. Parent has sufficient capital resources to pay the
Aggregate Merger Consideration.
ARTICLE V
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE
TIME; ADDITIONAL AGREEMENTS
5.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time of the Merger, the Company shall carry on its
business in the ordinary course in substantially the same manner as conducted
prior to the date of this Agreement and, to the extent consistent with such
business, use its best efforts to preserve intact its present business
organizations, keep available the services of its present material service
providers and preserve its relationships with material customers, suppliers,
distributors, landlords, creditors, licensors, licensees, and others having
material business relationships with it. The Company shall promptly notify
Parent of any event or occurrence not in the ordinary course of business of the
Company, and any event, circumstance or condition which to the Company's
knowledge could reasonably be expected to have a Material Adverse Effect. Except
as expressly contemplated by this Agreement, the Company, without the prior
written consent of Parent or Merger Sub, shall not and shall not permit any of
its subsidiaries to:
(a) amend or waive any of its rights under or permit the acceleration
of vesting or change the exercisability of any options, warrants, stock or
purchase right, or change the eligibility for participation in the Company's and
its subsidiaries stock option plans, or permit or authorize cash payments in
exchange for such options, warrants, stock or purchase rights (except in the
case of net exercise provisions included in any warrants as of the date hereof
invoked by the holder thereof);
(b) make any capital expenditure, except as in accordance with its
existing capital budget, previously disclosed to Parent, and for an aggregate
purchase price not exceeding $50,000 individually or $300,000 in the aggregate.
(c) Grant any severance or termination pay to any service provider,
except mandatory payments made pursuant to standard written agreements
outstanding on the date hereof or not exceeding two weeks of such service
provider's salary (with any such agreement or arrangement to be disclosed in
SCHEDULE 3.18);
(d) Transfer to any person or entity any rights to the Company
Intellectual Property Rights, except non-exclusive licenses of Intellectual
Property Rights in connection with the sale of Company products in the ordinary
course of business consistent with past practice;
29
(e) Enter into or amend any agreements pursuant to which any other
party is granted marketing or other similar rights of any type or scope with
respect to any products of the Company outside the ordinary course of business
and consistent with past practice;
(f) Amend, waive any rights in respect of, or terminate or otherwise
modify the terms of any contract listed in SCHEDULE 3.15 or enter into any
contract which would be required to be listed on SCHEDULE 3.15;
(g) Except with prior consent of Parent, commence a lawsuit other
than for the routine collection of bills;
(h) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any the Company or its
subsidiaries' capital stock, or split, combine or reclassify any of its or its
subsidiaries' capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of the
Company or its subsidiaries' capital stock, or repurchase or otherwise acquire,
directly or indirectly, any shares of the Company or its subsidiaries' capital
stock except repurchases of Company Common Stock at cost from former service
providers in accordance with the terms of agreements providing for the
repurchase of shares in connection with any termination of service to the
Company;
(i) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of or authorization of, the purchase of any shares of the
Company's or its subsidiaries' capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating the Company or its subsidiaries' capital
stock to issue any such shares or other convertible securities, other than the
issuance of shares of the Company Common Stock upon the exercise of the Company
Options or the Company Warrants;
(j) Cause or permit any amendments to the Company's Articles of
Incorporation or Bylaws;
(k) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Business
Condition of the Company;
(l) Sell, lease, license or otherwise dispose of any of its
properties or assets except in the ordinary course of business or lend to or
invest in any person or entity (except routine advances to employees in the
ordinary course of business not exceeding $5,000 in respect of any employee and
$50,000 in the aggregate, or its acquisition of Company Common Stock for
promissory notes in accordance with the Company's stock option plans and
consistent with past practice or investments and loans to the Company's wholly
owned subsidiaries).
(m) 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, except
30
for the incurrence of indebtedness in an aggregate amount not to exceed an
additional $100,000 under the Company's existing line of credit with ▇▇▇▇▇▇▇
▇▇▇▇▇ in accordance with past practice.
(n) (i) Adopt or amend any Plan, or (ii) enter into any employment
contract, (iii) pay or grant any special bonus or special remuneration to any
service provider, or increase the salaries or wage rates of its employees other
than pursuant to scheduled employee reviews under the Company's normal employee
review cycle or pursuant to the Company's existing bonus plans, as the case may
be, in all cases consistent with past practice, or (iv) otherwise increase or
modify the compensation or benefits payable or to become payable by the Company
to any of its service providers, except for changes pursuant to employment
agreements in effect as of the date hereof or changes in position or (v) hire
any new employees whose aggregate compensation is expected to exceed $125,000
individually or $1,000,000 in the aggregate;
(o) Revalue any of its assets, including, without limitation, writing
down the value of inventory or accounts receivable;
(p) Pay, discharge or satisfy in an amount in excess of $100,000 in
the aggregate any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practice,
of liabilities reflected or reserved against in the Company's Unaudited
Financial Statements;
(q) Make or change any Tax election, other than in the ordinary
course of business and consistent with past practice, or adopt any material Tax
accounting method other than in the ordinary course of business and consistent
with past practice, or change any material Tax accounting method, or file any
material Tax return (other than any estimated tax returns, payroll tax returns
or sales tax returns) or any amendment to a material Tax return, enter into any
closing agreement, settle any Tax claim or assessment or consent to any Tax
claim or assessment;
(r) Engage in any activities or transactions that are outside the
ordinary course of its business consistent with past practice;
(s) Fail to pay or otherwise satisfy its material monetary
obligations as they become due or consistent with past practice, except such as
are being contested in good faith;
(t) Terminate, waive or commit to waive or terminate any rights of
value in excess of $25,000.
(u) Cancel, reduce the coverage under or otherwise amend or, other
than in the ordinary course upon expiration of a policy term, renew any material
insurance policy;
(v) Alter, or enter into any commitment to materially alter, its
interest in any corporation, association, joint venture, partnership or business
entity in which the Company directly or indirectly holds any interest on the
date hereof; or
(w) Take, or agree (in writing or otherwise) to take, any of the
actions described in this Section 5.1.
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5.2 ACCESS TO INFORMATION; PROVISION OF INTERIM FINANCIAL STATEMENTS.
(a) The Company shall, and shall ensure that its subsidiaries shall,
afford Parent and its accountants, counsel and other representatives, reasonable
access during normal business hours during the period from the date of this
Agreement until the earlier of the Effective Time of the Merger or the
termination of this Agreement to (i) all properties, books, contracts,
commitments and records, including all Tax Returns and all other papers and
other documentation relating to Taxes, and (ii) all other information concerning
the business, properties and personnel as may reasonably be requested, provided
that any information furnished pursuant hereto or any investigation by each
party hereto shall not affect such party's right to rely on and shall not be
deemed to modify any representations, warranties, agreements and covenants made
by the other party herein. The Company shall cause the Company's accountants to
cooperate with Parent in auditing the financial statements of the Company's
business, including but not limited to, executing any and all representation or
other letters or agreements required by Parent's accountants. The Company shall
use its best efforts to cause the Company's accountants to consent in writing or
agree to consent in writing on a timely basis to the inclusion of the Company's
financial statements in any registration statement or in any report to be filed
by Parent with the SEC.
(b) The Company shall provide Parent with an unaudited monthly
balance sheet, income statement and statement of cash flows within twenty-five
(25) days of each month-end prior to the Effective Time of the Merger as well as
copies of such other internal financial statements as may be reasonably
requested by Parent.
(c) The Company shall provide Parent with all information necessary
for the preparation of any documents or filings prepared by Parent to be filed
with the SEC and any applicable state securities or blue sky commissions.
(d) The Company shall promptly notify the Parent of the occurrence of
any event, circumstance or condition which could reasonably be expected to
result in a Material Adverse Effect.
5.3 COMPANY SHAREHOLDERS' CONSENT. The Company shall solicit the consent
of its shareholders as promptly as practicable after the date hereof for the
purpose of obtaining the shareholder approval required in connection with the
transactions contemplated hereby, and shall use its best efforts to obtain such
approval.
5.4 EXCLUSIVITY; ACQUISITION PROPOSALS. Until the later of (i) the Closing
or (ii) 120 days after the termination of this Agreement or (iii) an event
pursuant to which Parent is required to pay the termination fee in accordance
with SECTION 5.13:
(a) The Company shall not knowingly, and shall not knowingly cause
or permit, directly or indirectly, through any officer, director, employee,
agent or representative (including, without limitation, investment bankers,
attorneys, accountants and consultants), or otherwise:
(i) to solicit, initiate or further the submission of proposals
or offers from, or enter into any agreement with, any firm, corporation,
partnership, association, group (as
32
defined in Section 13(d)(3) of the Exchange Act) or other person or entity,
individually or collectively (including, without limitation, any managers or
other employees of the Company or any affiliates), other than Parent and Merger
Sub (a "THIRD PARTY"), relating to any acquisition or purchase of all or any
substantial portion of the assets of the Company or any stock acquisition
merger, consolidation or business combination with the Company;
(ii) to participate in any discussions or negotiations
regarding, or furnish to any Third Party any confidential information with
respect to the Company or Parent in connection with any acquisition or
purchase of all or any substantial portion of the assets of the Company or any
stock acquisition, merger, consolidation or business combination with the
Company; or
(iii) otherwise knowingly to cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any Third
Party to undertake or seek to undertake any acquisition or purchase of all or
any substantial portion of the assets of the Company or any stock acquisition,
merger, consolidation or business combination with the Company.
(b) In the event the Company receives prior to termination of this
Agreement any offer or indication of interest from any Third Party relating to
any acquisition or purchase of all or any substantial portion of the assets of
the Company or any stock acquisition, merger, consolidation or business
combination with the Company, the Company shall promptly, and in any event
within 24 hours, notify Parent and Merger Sub in writing, and shall in any such
notice, set forth in reasonable detail the identity of the Third Party, the
terms and conditions of any proposal and any other information requested of it
by the Third Party or in connection therewith.
(c) The Company shall immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any Third Party
conducted prior to the date of this Agreement with respect to any of the
foregoing.
33
5.5 CONSENTS. Each of Parent and the Company shall promptly apply for, or
otherwise seek and obtain all consents and approvals required to be obtained by
it for the consummation of the Merger, and the Company shall obtain all
necessary consents, waivers and approvals under any of the Company's agreements,
contracts, licenses or leases in connection with the Merger, except such
consents and approvals as Parent and the Company agree in writing that the
Company shall not seek to obtain.
5.6 HSR ACT FILINGS. Each of Parent and the Company shall promptly make
its respective filings under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), and thereafter shall make any required
submissions under the HSR Act with respect to the Merger, and shall cooperate
with each other with respect to the foregoing. The Company and Parent shall give
each other prior notice and consult with each other prior to any meeting with
the United States Federal Trade Commission or Department of Justice with respect
to their respective filings under the HSR Act or any review by either of the
foregoing agencies. Each of Parent and the Company shall use commercially
reasonable efforts to cause the expiration of the waiting periods under the HSR
Act as promptly as possible.
5.7 FORM S-8. Parent agrees to file no later than 30 days after the Closing
a registration statement on Form S-8 covering the shares of Parent Common Stock
issuable in respect of Assumed Company Options. The Company shall cooperate with
and assist Parent in the preparation of such registration statement.
5.8 BEST EFFORTS. If applicable, each of Parent and the Company shall use
best efforts to effectuate the transactions contemplated hereby and to fulfill
and cause to be fulfilled the conditions to Closing under this Agreement.
5.9 LEGAL CONDITIONS TO THE MERGER.
(a) The Company shall take, and shall cause its subsidiaries to take,
all reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on the Company with respect to the Merger and will promptly
cooperate with and furnish information to Parent in connection with any such
requirements imposed upon Parent or Merger Sub in connection with the Merger.
The Company shall take, and shall cause its subsidiaries to take, all reasonable
actions to obtain (and to cooperate with Parent and Merger Sub in obtaining) any
consent, authorization, order or approval of, or any exemption by, any
Governmental Entity required to be obtained or made by the Company (or by Parent
or Merger Sub) in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement, and to defend such lawsuits or other
legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby as the Company deems advisable in good faith,
to lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions contemplated
hereby as the Company deems advisable in good faith, and to effect all necessary
registrations and filings and submissions of information as the Company deems
advisable in good faith required by any Governmental Entity, and to fulfill all
conditions to this Agreement.
(b) Each of Parent and Merger Sub shall take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to
34
the Merger and will promptly cooperate with and furnish information to the
Company in connection with any such requirement imposed upon the Company or any
subsidiary of the Company in connection with the Merger. Parent and Merger Sub
shall take, and shall cause to take, all reasonable actions to obtain (and to
cooperate with the Company in obtaining) any consent, authorization, order or
approval of, or exemption by, any Governmental Entity required to be obtained or
made by Parent or Merger Sub (or by the Company or any of its subsidiaries) in
connection with the Merger or the taking of any action contemplated thereby or
by this Agreement, and to defend such lawsuits or other legal proceedings
challenging this Agreement or the consummation of the transactions contemplated
hereby as Parent deems advisable in good faith, to lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby as Parent
deems advisable in good faith, and to effect all necessary registrations and
filings and submissions of information as Parent deems advisable in good faith,
required by any Governmental Entity, and to fulfill all conditions to this
Agreement.
5.10 BROKERS OR FINDERS; PROFESSIONAL FEES. Each of Parent and the Company
represents to the other that no agent, broker, investment banker or other firm
or person is, or will be, entitled to any broker's or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement.
5.11 PUBLIC ANNOUNCEMENTS. Parent and the Company will make joint
announcements to employees and the public after the execution of this Agreement.
Each party will consult in advance with the other concerning the timing and
content of any announcements, press releases or public statements concerning the
Merger and will not make any such announcement, release or statement without the
other's prior consent; provided, however, that Parent may make any public
statement concerning the Merger without the Company's consent if, after
reasonable efforts to notify the Company of its intent to make such release and
consult with Company as to any reasonable suggestions Company may make in
connection with such statement, such statement or announcement is required or
advisable to comply with applicable law or obligations pursuant to any listing
agreement with any national securities exchange or with the NASD.
5.12 EXPENSES. All costs and expenses incurred in connection with this
Transaction Agreements and the transactions contemplated thereby, including fees
of any finders or brokers or investment bankers, attorneys and accountants
retained by such party, shall be paid by the party incurring such expense.
5.13 TERMINATION FEE. In the event that (i) Parent shall have terminated
this Agreement other that in respect of a Substantial Event, or (ii) the Company
shall have terminated this Agreement pursuant to Section 8.1(a)(iii), or (iii)
Parent shall have failed or refused to close the Merger before June 2, 2000
despite the Company being ready, willing and able to so close this Transaction,
unless the refusal or failure of the Parent relates to a Substantial Event, then
the Parent shall pay to the Company a break-up fee equal to $5,000,000, provided
that no amount shall be payable pursuant to subsection (ii) or (iii) above if
the Parent or Company is prevented from closing the Merger by virtue of a delay
occasioned by the need for regulatory approval from a Governmental Entity or
because of some other event beyond the reasonable control of the Parent (each a
"FORCE MAJEURE EVENT"). For the purposes of this SECTION 5.13(A): (A)
35
"SUBSTANTIAL EVENT" shall mean, (i) a fraud by or the willful and material
breach of this Agreement by the Company or the other Transaction Agreements by
the shareholders party thereto; (ii) the termination or resignation or loss or
threatened resignation of the Key Employees; (iii) the termination, resignation
or loss since March 13, 2000 of 15% or more of the employees of the Company,
(iv) the cancellation, termination, non-renewal, material reduction in, or other
loss of any contract or other agreement with a Material Customer or Material
Supplier of Company and its subsidiaries for the supply of products and
services; or (v) any loss, cost, liability, expense or other claim against the
Company and its subsidiaries (including a breach of the representation and
warranties hereunder) that could reasonably be expected to exceed $12,000,000;
(vi) a Force Majeure Event preventing closing shall continue for more than 30
days after June 1, 2000 or; (vii) termination of this Agreement pursuant to
SECTION 8.1(A)(1)(V) OR (VI) or (viii) the condition in SECTION 6.02(F) shall
not have been fulfilled and (B) a "MATERIAL CUSTOMER" or "MATERIAL SUPPLIER" is
a customer or supplier whose aggregate purchases or sales exceed 35% of the
total purchases or sales of Company.
5.14 TERMINATION OF 401(K) PLAN. If requested by Parent Company will use
its best efforts to terminate its 401(k) plan or other employee benefit plans
prior to Closing.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing of the following conditions:
(a) APPROVALS. All authorizations, consents, blue sky or state
securities filings, orders or approvals of, or declarations or filings with, or
expiration of waiting periods imposed by, any Governmental Entity necessary for
the consummation of the transactions contemplated by this Agreement shall have
been filed, occurred or been obtained.
(b) LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any Governmental Entity and remain in
effect, and no litigation shall be pending the ultimate resolution of which is
reasonably likely to (i) result in the issuance of such an order or injunction,
or the imposition against the Company or Parent of substantial damages if the
Merger is consummated, or (ii) render Parent, Merger Sub or the Company unable
to consummate the Merger.
(c) STATUTES. No action shall have been taken, and no statute, rule,
regulation or order shall have been enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity which would (i) make the
consummation of the Merger illegal or (ii) render Parent, Merger Sub or the
Company unable to consummate the Merger, except for any waiting period
provisions.
36
6.2 CONDITIONS OF OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of
Parent and Merger Sub to effect the Merger are also subject to the satisfaction
of the following conditions, unless waived by Parent and Merger Sub:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in the Transaction Agreements that are qualified as to
Material Adverse Effect shall be true and correct, and those that are not so
qualified shall be true and correct except where the failure to be so true and
correct would not have a Material Adverse Effect, in each case both as of the
date of this Agreement and as of the Closing Date (except to the extent such
representations and warranties expressly relate to another date, in which case
of such other date) as though made on the Closing Date (or such other date).
(b) NO MATERIAL ADVERSE CHANGE. There shall have been no Material
Adverse Effect (either actual or as such condition has been represented pursuant
to ARTICLE III hereof) taken as a whole on or before the Closing Date that shall
not have been cured by the Closing Date, and Parent shall have received a
certificate signed by the chief executive officer and the chief financial
officer of the Company to such effect.
(c) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company and
Principal Shareholders shall have performed all obligations and covenants
required to be performed by them under the Transaction Agreements prior to the
Closing Date, and Parent shall have received a certificate signed by the chief
executive officer and the chief financial officer of the Company to such effect.
(d) OPINION OF THE COUNSEL. Parent shall have received an opinion
dated the Closing Date of Pillsbury Madison & Sutro LLP, counsel to the Company,
in form and substance reasonably satisfactory to Parent.
(e) TAX CERTIFICATES. Company shall, prior to the Closing Date, have
provided Parent with a properly executed FIRPTA Certificate, substantially in
the form of EXHIBIT C-1, which states that shares of capital stock of Company do
not constitute "United States real property interests" under Section 897 (c) of
the Code, for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3). In addition, simultaneously with delivery of
such certificate, Company shall have provided to Parent, as agent for Company, a
form of notice to the Internal Revenue Service in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2) and substantially in
the form of EXHIBIT C-2 along with written authorization for Parent to deliver
such notice form to the Internal Revenue Service on behalf of Company upon the
Closing of the Merger.
(f) SHAREHOLDER APPROVAL. This Agreement and the other Company
Agreements shall have been approved and adopted by the affirmative vote of the
holders of at least Seventy-five percent (75%) of each class of the then
outstanding shares of the Company's Capital Stock. Any agreements or
arrangements that may result in the payment of any amount or the provision of
any benefit that would not be deductible by reason of Section 280G of the Code
shall have been approved by such number of shareholders of the Company as is
required by the terms of Code Section 280G(b)(5)(B) and shall be obtained in a
manner which satisfies all applicable requirements of such Code Section
280(G)(b)(5)(B) and the proposed Treasury
37
Regulations thereunder, including (without limitation) Q-7 of Section 1.280G-1
of such proposed regulations.
(g) CONSENTS. Parent shall have received duly executed copies of all
necessary third-party consents and approvals contemplated by this Agreement or
the Company Schedules in form and substance reasonably satisfactory to Parent.
(h) PROPRIETARY AGREEMENTS. All the Company service providers shall
have entered into Parent's standard proprietary information and inventions
agreement provided by Parent's counsel.
(i) EMPLOYMENT DOCUMENTS. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and the Company shall have
executed an amendment to the contract of employment of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, in
substantially the form attached as EXHIBIT D and shall have executed a waiver
agreement in respect of any "excess parachute" payments for the purposes of
Section 280G of the Code, in substantially the form of EXHIBIT E.
(j) NON-COMPETE. Each of ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (the "KEY EMPLOYEES")
shall have executed and delivered to Parent a Non-Competition Agreement in form
and substance satisfactory to Parent.
(k) SUCCESSOR BOARD AND OFFICERS. The composition of the Board of
Directors of the Surviving Corporation and the officers of the Surviving
Corporation (each as set forth in the Agreement of Merger) shall have been
expressly approved by the requisite majority of the shareholders and Board of
Directors of the Company.
(l) EMPLOYEES. (i) None of the Key Employees and (ii) no more than
15% of the employees employed by the Company and its subsidiaries as of March
13, 2000, shall have ceased to be employed or expressed an intention to
terminate their employment with the Company.
(m) CONVERSION OF SERIES A PREFERRED STOCK AND COMPANY WARRANTS. All
Series A Preferred Stock shall have been converted to Company Common Stock and
all Company Warrants shall have been fully exercised.
6.3 CONDITIONS OF OBLIGATION OF THE COMPANY. The obligation of the Company
to effect the Merger is also subject to the satisfaction of the following
conditions unless waived by the Company:
(a) Representations and Warranties. The representations and
warranties of the Constituent Corporations set forth in this Agreement that are
qualified as to Material Adverse Effect shall be true and correct, and those
that are not so qualified shall be true and correct except where the failure to
be so true and correct would not have a Material Adverse Effect (as defined in
ARTICLE IV), in each case both as of the date of this Agreement and as of the
Closing Date (except to the extent such representations and warranties expressly
relate to another date, in which case of such other date) as though made on the
Closing Date (or such other date).
38
(b) Performance of Obligations of Parent and Merger Sub. Parent and
Merger Sub shall have performed all obligations and covenants required to be
performed by them under this Agreement and the Agreement of Merger prior to the
Closing Date.
6.4 EFFECT OF CLOSING The Agreement of the Parent to effect the Merger not
withstanding the failure of the Company or any other person to satisfy all of
the condition set forth in this ARTICLE VI or any breach of the Transaction
Agreements shall not be treated as a waiver of or as otherwise impairing any
rights or remedies of Parent pursuant to this Agreement (including ARTICLE VII)
or any other Transaction Agreement or otherwise in any way relating to such
condition or non-performance or breach.
ARTICLE VII
RECOUPMENT, HOLDBACK AND RELATED MATTERS
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS;
RECOUPMENT, ETC.
(a) By their approval of this Agreement and their acceptance of any
portion of the Merger Consideration Per Share, each of the shareholders of the
Company as of immediately prior to the Effective Time of Merger (each a
"SHAREHOLDER") acknowledges and agrees that the Merger Consideration Per Share
into which Shareholders' shares in the Company are converted upon the
consummation of the Merger is intended to be an amount net of any Damages (as
defined below) recoverable by the Protected Parties (as defined below)
hereunder. Accordingly the right of any Shareholder to receive any portion of
the Aggregate Merger Consideration is subject to the right of the Parent to
recoup such Damages. By accepting any portion of the Merger Consideration Per
Share, each Shareholder is accepting the provisions of this Agreement (including
this ARTICLE VII) that reduce the net amount that is ultimately payable as
consideration for the Merger, and acceptance by any Shareholder of benefits
pursuant to this Agreement binds that Shareholder to this unilateral contract
and entitles the Protected Parties to recovery (described here as "recoupment")
on account of any Damages as provided herein. The acceptance of the provisions
of this Agreement (including this ARTICLE VII) is a condition to the right of
any Shareholder to receive any Merger Consideration Per Share. The parties
hereto and the Shareholders further acknowledge and agree that, in determining
the amount of any Damages suffered by the Parent, the Company or Merger Sub and
each of their respective affiliates (other than the Shareholders or
Shareholders' Agent) (each a "PROTECTED PARTY"), the amount of any Damages (as
defined below), and the amount of any recoupment hereunder, shall be determined,
and the arbitrator shall review such questions on, the same basis as if the
Shareholders had agreed to indemnify, reimburse, defend and hold harmless the
Protected Parties against such Damages. Nothing herein permits the Protected
Parties as a group to receive a double or multiple recovery on account of the
same item of loss included in any Damages from the Shareholders.
(b) Notwithstanding any investigation conducted at any time witH
regard thereto by or on behalf of any Protected Party, all representations and
warranties (as modified by the Company Schedules) and covenants and agreements
of the Company and the Shareholders, shall survive the execution, delivery, and
performance of the Transaction Agreements. No
39
investigation made by or on behalf of and no information supplied to or
knowledge of any Protected Party with respect to the Company and its
subsidiaries or any Shareholder shall be deemed to affect Parent's or Merger
Sub's reliance on the representations and warranties (as modified by the Company
Schedules) and covenants and agreements made by the Company and any Shareholder
contained in this Agreement or any other Transaction Agreement and shall not be
a waiver of any Protected Party's rights to any recoupment as herein provided
for the breach or inaccuracy of, or failure to perform or comply with any of the
Company's or any Shareholder's representations and warranties (as modified by
the Company Schedules) or covenants or agreements in this Agreement or the other
Transaction Agreements.
(c) As used in this ARTICLE VII, any reference to a representation,
warranty, agreement or covenant contained in any section of this Agreement shall
include the schedules attached hereto.
(d) For the purposes of this Agreement, the right to recoup against
and reduce the Holdback (as defined in SECTION 7.3) in accordance with this
ARTICLE VII in respect of Damages shall be the sole remedy available to any
Protected Party against a Shareholder, except; (i) in the case of actions for
specific performance of any agreement, or (ii) to the extent provided in any
Shareholder Agreement, or (iii) in the case of any Damages based on a breach of
or inaccuracy in the representations in Section 3.2(c) resulting in an over or
under-payment to any Shareholder of Adjusted Aggregate Merger Consideration.
(e) Each of the Shareholders waives and acknowledges and agrees that
it shall not have and shall not exercise or assert, any right of contribution,
indemnity or other right or remedy against Surviving Corporation in connection
with any recoupment or other liability to which it may become subject, pursuant
to this ARTICLE VII, or under any officer's closing certificates, all of which
claims and rights of the Shareholders against Surviving Corporation shall be
waived and released by those Shareholders accepting any portion of the Adjusted
Aggregate Merger Consideration.
7.2 RECOUPMENT. Subject to SECTION 7.1(D) and the Holdback provisions
herein, the Aggregate Merger Consideration shall be reduced by, and the
Protected Parties shall be entitled to recoup therefrom, an amount equal to any
and all losses, liabilities, damages, demands, claims, suits, actions,
judgments, and causes of action, assessments, costs, and expenses, including,
without limitation, interest, penalties, attorneys' fees, any and all expenses
incurred in investigating, preparing, and defending against any litigation,
commenced or threatened, and any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation, asserted against, resulting from,
imposed upon, or incurred or suffered, directly or indirectly, by any Protected
Party, directly or indirectly, as a result of or arising from or in connection
with any inaccuracy in or breach or nonfulfillment of or noncompliance with any
of the representations and warranties (as modified by the Company Schedules),
covenants, or agreements made by the Company or any Shareholders (as applicable)
in the Transaction Agreements (collectively, "DAMAGES"). The term "Damages" is
not limited to matters asserted by third parties against any Protected Party,
but also includes Damages incurred or sustained in the absence of such third
party claims. By accepting the benefits of this Agreement, the Shareholders
acknowledge and agree that, if the Surviving Corporation suffers, incurs or
otherwise becomes subject to any Damages, then (without limiting any rights of
the Surviving Corporation) Parent shall also, by
40
virtue of its ownership of the stock of the Surviving Corporation, have incurred
Damages (provided that the Damages of Parent shall not include any Damages also
suffered by Surviving Corporation to the extent that Surviving Corporation has
been made whole in respect thereof pursuant to this SECTION 7.2). Nothing herein
permits the Protected Parties as a group to receive a double or multiple
recovery on account of the same item of loss included in any Damages from the
Shareholders.
7.3 HOLDBACK. At Closing the Parent will holdback from the Aggregate
Merger Consideration an amount equal to $8,000,000 (the "Holdback"). The
Holdback will be maintained by Parent as a restricted reserve in its accounts,
but shall not be deemed paid or payable as Merger Consideration Per Share unless
and until released in accordance with the terms of this Article VII and shall
remain an inchoate right subject to recoupment by the Protected Parties in
respect of Damages in accordance with this Agreement. Only the Adjusted
Aggregate Merger Consideration is ultimately the purchase price payable under
this Agreement. The Holdback shall be deemed to accrue interest on the
outstanding balance thereof from the Closing until distributed in accordance
with this Article VII at a rate equal to the rate of interest per annum payable
on a one year U.S. Treasury ▇▇▇▇ as of the Closing Date. However, the Holdback
is not earned or payable as a purchase price prior to the ultimate calculation
of the Adjusted Aggregate Merger Consideration through recoupment of the Damages
in accordance with this Agreement, and this reference to interest on the
Holdback is merely for convenience of the parties.
7.4 HOLDBACK PERIOD The Holdback will be maintained for a period of one
year after the Closing (the "HOLDBACK PERIOD"). Upon termination of the Holdback
Period the Parent shall pay to the Shareholders, ratably in accordance with
their interest, the balance of the Holdback (including any interest deemed to
have accrued thereon in accordance with SECTION 7.3) less the amount of any
Damages (determined in accordance with the claims procedure set forth in this
ARTICLE VII) provided, however, that if upon expiration of the Holdback Period
any Claims (as defined below) are pending or unresolved at the time of such
expiration (each an "UNRESOLVED CLAIM"), the Parent shall be entitled to
withhold from any payment otherwise due to the Shareholders, and retain as a
Holdback, a portion of the Holdback equal to 125% of each Unresolved Claim until
such time as the amount of such Unresolved Claims is finally resolved in
accordance with this ARTICLE VII. The right to receive any portion of the
Holdback is a part of the consideration in the Merger and shall be transferable
or assignable only upon submission of evidence of such transfer or assignment
reasonably satisfactory to Parent.
7.5 CLAIMS UPON THE HOLDBACK. In the event that a Protected Party shall
assert a claim to recover, and recoup against the Holdback, on account of any
Damages (a "CLAIM"), the Parent shall deliver a notice of such claim (a "CLAIM
NOTICE") to the Shareholder Representative (as defined below). The Claim Notice
shall set forth (i) a brief description of the material circumstances supporting
such Claim and (ii) to the extent possible a non-binding preliminary estimate of
the dollar amount of such Claim (the "CLAIM AMOUNT"). Within 15 days after
delivery of a Claim Notice the Shareholder Representative shall deliver to
Parent a notice (a "RESPONSE NOTICE") specifying if and to what extent the Claim
referenced in such Claim Notice is disputed. If a Response Notice is not
delivered within such 15 days then such Claim will be deemed to have been
accepted by the Shareholders and Shareholders' Agent and the Parent will
41
be entitled to reduce and recoup against the Holdback (and retain for itself) an
amount equal to the relevant Claim Amount.
7.6 RESOLUTION OF CONFLICTS; ARBITRATION.
(a) In case the Shareholders' Agent shall object in a Response Notice
to any Claim or Claims, the Shareholders' Agent and Parent shall attempt in good
faith for ten (10) days to agree upon the rights of the respective parties with
respect to each of such Claims. If the Shareholders' Agent and Parent should so
agree, a memorandum setting forth such agreement shall be prepared and signed by
both parties and Parent shall be entitled to reduce the Holdback and recoup on
account of such Claim(s) to the extent provided therein.
(b) If no such agreement can be reached after good faith negotiation,
either Parent 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 one arbitrator, PROVIDED, that, if the amount in dispute exceeds
$500,000 the arbitration shall be conducted by three arbitrators (one appointed
by each of the Parent and the Shareholders' Agent and the third appointed by the
other two arbitrators). The decision of the arbitrator(s) as to the validity and
amount of any claim in a Claim Notice shall be binding and conclusive upon the
parties to this Agreement, the Shareholder's Representative and the
Shareholders. Parent shall be entitled to act in accordance with such decision
and make payments out of or reduce and recoup against the Holdback in accordance
therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa ▇▇▇▇▇, Alameda or San Francisco County, California under the commercial
rules then in effect of the American Arbitration Association. For purposes of
this SECTION 7.6(C), in any arbitration hereunder in which any claim or the
amount thereof stated in the Claim Notice is at issue, Parent shall be deemed to
be the Non-Prevailing Party unless the arbitrators award Protected Parties more
than one-half (1/2) of the amount in dispute plus any amounts not in dispute;
otherwise, the Shareholders 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.
7.7 SHAREHOLDERS' AGENT.
(a) ▇▇▇▇▇▇ ▇▇▇▇ shall be constituted and appointed as agent
("SHAREHOLDERS' AGENT") for and on behalf of the Shareholders to give and
receive notices and communications, to authorize the Parent to reduce the
Holdback in satisfaction of claims for Damages by Protected Parties, to object
to such claims, 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. Such agent may be changed by the holders of a majority in
interest of the Holdback from time to time upon not
42
less than ten (10) days' prior written notice to Parent. No bond in favor of the
Shareholders shall be required of the Shareholders' Agent, and the Shareholders'
Agent shall receive no compensation for his services. Notices or communications
to or from the Shareholders' Agent shall constitute notice to or from each of
the Shareholders.
(b) The Shareholders' Agent shall not be liable to the Shareholders
for any act done or omitted hereunder 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 Shareholders shall jointly and 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.
7.8 ACTIONS OF THE SHAREHOLDERS' AGENT. A decision, act, consent or
instruction of the Shareholders' Agent (with respect to a matter within the
Shareholders' Agent's scope of authority pursuant to SECTION 7.7(A))shall
constitute a decision of all Shareholders and shall be final, binding and
conclusive upon each such Shareholder, and the Parent 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 Shareholder. The
Parent is hereby relieved and released from any liability to any person for any
acts done by it in accordance with such decision, act, consent or instruction of
the Shareholders' Agent.
7.9 PROCEDURE WITH RESPECT TO THIRD-PARTY CLAIMS.
In the event Parent becomes aware of a third-party claim which
Parent believes may result in a Claim, Parent shall promptly notify the
Shareholders' Agent of such claim, and the Shareholders' Agent shall be
entitled, at its expense, subject to reimbursement by the Shareholders as
described below, to participate in any defense of such claim. Parent shall have
the right in its sole discretion to settle any such claim; provided, however,
that Parent may not effect the settlement of any such claim without the consent
of the Shareholders' Agent, which consent shall not be unreasonably withheld or
delayed. Shareholders' Agent shall be entitled to assume the defense of such
claim; provided, that, (a) such claim does not relate to intellectual property
rights or employees of Parent or its affiliates, (b) Shareholders' Agent shall
not, in whole or in part, settle such claim without the prior written consent of
Parent (not to be unreasonably withheld or delayed) and (c) any such assumption
of the defense shall be deemed to be an acceptance of the Claim (subject only to
the quantification of the amount of the Damages). The Shareholders' Agent shall
have the right to engage legal counsel to advise and represent him and the
Shareholders in connection with any such disputed third party claim and shall be
entitled to recover fees and expenses of such counsel as a claim against the
Holdback hereunder to the extent of any remaining amount otherwise available for
distribution to the Shareholders after the recoupment and satisfaction in full
of all Damages and before distribution to the Shareholders. In the event that
the Shareholders' Agent has consented to any settlement, neither the
Shareholders' Agent nor any Shareholder shall have the power or authority to
object under SECTION 7.6 or any other provision of this Agreement to the amount
of any claim by Parent against the Holdback for recoupment with respect to such
settlement. Notwithstanding the foregoing, none of the Protected Parties shall
have any obligation to give any notice of any assertion of liability by a third
party unless such assertion is in writing, and (ii) the rights of the
43
Protected Parties under this Agreement (including this ARTICLE VII) and to
recoupment against the Holdback in respect of Damages resulting from the
assertion of liability by third parties shall not be adversely affected by
Protected Parties' failure to give timely notice pursuant to the foregoing
unless, and, if so, only to the extent that, such Shareholders or the
Shareholders' Agent, respectively, are actually and materially prejudiced
thereby.
7.10 THRESHOLD.
No recoupment against the Holdback shall be made until the aggregate
amount of Damages (when aggregated with any Damages subject to the indemnity
pursuant to SECTION 3 of the Shareholders' Agreements) exceeds $300,000,
whereupon such Protected Parties shall be entitled to recoupment for and the
Holdback may be reduced (in accordance with this ARTICLE VII) in respect of, all
such Damages (including the initial $300,000).
7.11 CLAIMS UNDER SHAREHOLDER AGREEMENTS. The provisions of this ARTICLE
VII are without prejudice to any rights or remedies under the Shareholder
Agreements. Any determination or decision expressed in Sections 7.5, 7.6 and 7.8
to be a decision of, or binding on, the "Shareholders" shall not be treated as a
decision of, or as binding on, any Shareholder in his individual capacity as a
party to a Shareholder Agreement (in such capacity an "INDIVIDUAL SHAREHOLDER")
to the extent that any determination relates to the fraudulent nature or
willfulness of any misrepresentation or breach or other action by such
Individual Shareholder.
ARTICLE VIII
TERMINATION
8.1 TERMINATION.
(a) Subject to SECTION 5.13, this Agreement may be terminated at any
time prior to the Effective Time of the Merger, whether before or after approval
of the Merger by the Shareholders of the Company and Merger Sub:
(i) by mutual agreement of the Boards of Directors of Parent
and the Company;
(ii) by Parent, if there has been a breach by the Company or any
of the relevant Principal Shareholders of any representation, warranty, covenant
or agreement set forth in this Transaction Agreements that would cause the
condition set forth in SECTIONS 6.2(A) or 6.2(C) not to be satisfied, and the
Company or relevant Principal Shareholder fails to cure within ten (10) business
days after notice thereof is given by Parent (except that no cure period shall
be provided for a breach by the Company or the relevant Principal Shareholders
which by its nature cannot be cured);
(iii) by Parent or the Company, if the Closing has not occurred
by June 1, 2000 provided that such failure is not the result of the failure by
the terminating party (or the relevant Principal Shareholders in the case of
termination by the Company) to comply with any covenant or obligation set forth
in the Transaction Agreements;
44
(iv) by the Company, if there has been a breach by Parent or
Merger Sub of any representation, warranty, covenant or agreement set forth in
this Agreement that would cause the conditions set forth in SECTIONS 6.3(A) or
6.3(B) not to be satisfied, and which Parent or Merger Sub, as the case may be,
fails to cure within ten (10) business days after notice thereof is given by the
Company (except that no cure period shall be provided for a breach by Parent
which by its nature cannot be cured);
(v) by the Company or Parent, if any permanent injunction or
other order of a court preventing the Merger shall have become final and
nonappealable or any statute, rule, regulation or order shall have made the
consummation of the Merger illegal or otherwise render the Parent, Merger Sub or
Company unable to consummate the Merger (excluding any waiting periods); or
(vi) by the Company or Parent, if any Governmental Entity shall
have issued a temporary restraining order, preliminary injunction or permanent
injunction or other order preventing the consummation of the Merger or any
litigation shall be pending, the ultimate resolution of which is likely in
Parent's opinion to (i) result in the issuance of such an order or injunction,
or the imposition against the Surviving Corporation or Parent of substantial
damages if the Merger is consummated, or (ii) render Parent, Merger Sub or the
Company unable to consummate the Merger.
(vii) by Parent, if a Material Adverse Effect shall have occurred
since the date of this Agreement.
(b) Where action is taken to terminate this Agreement pursuant to
this SECTION 8.1, it shall be sufficient authorization for such action to be
authorized by the Board of Directors of the party taking such action.
(c) In the event of termination of this Agreement as provided in this
SECTION 8.1 or a failure to meet all of the closing conditions, this Agreement
shall forthwith become null and void; provided, however, that the agreements
contained or referred to in SECTIONS 5.4, 5.11, 5.12, AND 5.13 shall survive.
45
ARTICLE IX
GENERAL PROVISIONS
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
Without prejudice to the provisions of ARTICLE VII and except as set forth in
this Agreement, all representations, warranties, covenants and agreements made
by the parties in this Agreement (each as modified by the Company Schedules)
shall terminate at the time of Closing.
9.2 AMENDMENT. This Agreement may be amended by the parties hereto at any
time before or after approval of the Merger by the shareholders of the Company
and Merger Sub; provided, however, that following approval of the Merger by the
shareholders of the Company and Merger Sub, no amendment shall be made which by
law requires the further approval of such shareholders without obtaining such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.3 EXTENSION; WAIVER. At any time prior to the Effective Time of the
Merger, each of the Company and Parent, to the extent legally allowed, (a) may
extend the time for the performance of any of the obligations or other acts of
the other, (b) may waive any inaccuracies in the representations and warranties
made to it contained herein or in any document delivered pursuant hereto, and
(c) may waive compliance with any of the agreements or conditions for the
benefit of it contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
9.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given (a) on the same day if delivered personally,
(b) three (3) business days after being mailed by registered or certified mail
(return receipt requested), or (c) on the same day if sent by telecopy,
confirmation received, to the parties at the following addresses and telecopy
numbers (or at such other address or number for a party as shall be specified by
like notice):
If to Parent or Merger Sub, to:
Credence Systems Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Credence Systems Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
46
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
and to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
Spear Street Tower
▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: G. ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
Two Embarcadero Place
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company, to:
TMT, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇ ▇▇▇▇▇▇▇, Esq.
Pillsbury Madison & Sutro LLP
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to any Shareholder or to the Shareholders' Agent, to:
▇▇▇▇▇▇ ▇▇▇▇
c/o TMT, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
47
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such references shall be to a Section, Exhibit
or Schedule 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."
9.6 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 party.
9.7 ENTIRE AGREEMENT. This Agreement, the Transaction Agreements and the
documents and instruments and other agreements among the parties delivered
pursuant hereto constitute the entire agreement among the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings (including the Letter of Intent dated March 12, 2000), both
written and oral, among the parties with respect to the subject matter hereof
and are not intended to confer upon any other person any rights or remedies
hereunder except as otherwise expressly provided herein.
9.8 NO TRANSFER. This Agreement and the rights and obligations set forth
herein may not be transferred or assigned by operation of law or otherwise
without the consent of each party hereto. This Agreement is binding upon and
will inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
9.9 SEVERABILITY. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances 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 the void or unenforceable provision.
9.10 OTHER REMEDIES. Any and all remedies set forth in this Agreement and
the other Transaction Agreements expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
or equity on such party; and the exercise of any one remedy will not preclude
the exercise of any other.
9.11 FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement and the other Transaction Agreements.
9.12 ABSENCE OF THIRD-PARTY BENEFICIARY RIGHTS. No provision of this
Agreement is intended, or will be interpreted, to provide to or create for any
third-party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, employee, partner or
48
any party hereto or any other person or entity, and all provisions hereof will
be personal solely between the parties to this Agreement.
9.13 GOVERNING LAW. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
California (without giving effect to its choice of law principles).
9.14 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER COMPANY AGREEMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR
OTHERWISE. THE PARTIES HEREBY AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL
BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT IN ANY WAY LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHTS TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM, OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER COMPANY AGREEMENTS OR ANY
PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER COMPANY
AGREEMENTS. A COPY OF THIS SECTION MAY BE FILED WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER OF THE RIGHT TOT TRIAL BY JURY AND CONSENT TO TRIAL BY
COURT.
[Signature pages follow]
49
IN WITNESS WHEREOF, Parent, Merger Sub, the Company and the
Shareholders have caused this Agreement to be signed all as of the date first
written above.
CREDENCE SYSTEMS CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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CHAMPAGNE ACQUISITION CORP.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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TMT, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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[Signature page to Agreement and Plan of Reorganization]