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EXHIBIT 2.2
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 8, 2000
BY AND AMONG
SIMPLEX SOLUTIONS, INC.
ATLAS ACQUISITION CORP.
ALTIUS SOLUTIONS, INC.
▇▇▇▇▇▇▇▇▇ ▇▇▇▇ AS SECURITYHOLDER AGENT
AND
U.S. BANK TRUST, NORTH AMERICA AS ESCROW AGENT
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TABLE OF CONTENTS
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I. ADDITIONAL AGREEMENTS............................................................................................. 2
1.1 Defined Terms...................................................................................... 2
II. THE MERGER....................................................................................................... 4
2.1 Approval of Merger................................................................................. 4
2.2 The Merger......................................................................................... 5
2.3 Effect of the Merger............................................................................... 5
2.4 Effect on Capital Stock............................................................................ 5
2.5 Assumption of Target Options and Target Warrants................................................... 6
2.6 Charter Documents, Directors, Officers............................................................. 7
2.7 Capital Stock of Merger Sub........................................................................ 7
2.8 Surrender of Certificates.......................................................................... 7
2.9 No Further Ownership Rights in Target Stock........................................................ 8
2.10 Intentionally Deleted.............................................................................. 8
2.11 Lost, Stolen or Destroyed Certificates............................................................. 8
2.12 Intentionally Deleted.............................................................................. 8
2.13 Tax Consequences................................................................................... 8
III. THE CLOSING..................................................................................................... 9
3.1 The Closing........................................................................................ 9
3.2 Deliveries at the Closing.......................................................................... 9
IV. Representations and Warranties of target......................................................................... 9
4.1 Organization, Qualification and Corporate Power.................................................... 9
4.2 Authorization of Transaction....................................................................... 10
4.3 Subsidiaries and Affiliates........................................................................ 10
4.4 No Conflicts....................................................................................... 10
4.5 Brokers' Fees...................................................................................... 11
4.6 Capitalization..................................................................................... 11
4.7 Vote Required...................................................................................... 12
4.8 Books and Records; Organizational Documents........................................................ 12
4.9 Title to Assets.................................................................................... 13
4.10 Financial Statements............................................................................... 13
4.11 Events Subsequent to Target's Most Recent Balance Sheet............................................ 13
4.12 Legal Proceedings.................................................................................. 14
4.13 Compliance with Laws and Orders.................................................................... 14
4.14 Tax Matters........................................................................................ 15
4.15 Intellectual Property.............................................................................. 17
4.16 Contracts.......................................................................................... 21
4.17 Real Property...................................................................................... 22
4.18 Undisclosed Liabilities............................................................................ 23
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4.19 Notes and Accounts Receivable...................................................................... 23
4.20 Powers of Attorney................................................................................. 23
4.21 Insurance.......................................................................................... 23
4.22 Guaranties......................................................................................... 24
4.23 Employees.......................................................................................... 24
4.24 Employee Benefits.................................................................................. 24
4.25 Assets............................................................................................. 26
4.26 Transactions With Target........................................................................... 26
4.27 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇.................................................................................. 26
V. representations and warranties of the acquiror and merger sub..................................................... 26
5.1 Organization, Qualification and Corporate Power.................................................... 26
5.2 Authorization of Transaction....................................................................... 26
5.3 Subsidiaries and Affiliates........................................................................ 27
5.4 No Conflicts....................................................................................... 27
5.5 Brokers' Fees...................................................................................... 28
5.6 Capital Structure.................................................................................. 28
5.7 Books and Records; Organizational Documents........................................................ 29
5.8 Title to Assets.................................................................................... 29
5.9 Financial Statements............................................................................... 29
5.10 Events Subsequent to Acquiror's Most Recent Balance Sheet.......................................... 30
5.11 Legal Proceedings.................................................................................. 30
5.12 Compliance with Laws and Orders.................................................................... 31
5.13 Tax Matters........................................................................................ 31
5.14 Intellectual Property; Proprietary Information of Third Parties.................................... 32
5.15 Contracts.......................................................................................... 32
5.16 Undisclosed Liabilities............................................................................ 33
5.17 Employees.......................................................................................... 33
5.18 Notes and Accounts Receivable...................................................................... 33
5.19 Powers of Attorney................................................................................. 33
5.20 Transactions With Acquiror......................................................................... 33
VI. CONDUCT PRIOR TO THE EFFECTIVE TIME.............................................................................. 33
6.1 Conduct of Business of Target...................................................................... 33
6.2 No Solicitation.................................................................................... 36
6.3 Target Option Grants............................................................................... 37
VII. ADDITIONAL AGREEMENTS........................................................................................... 37
7.1 General............................................................................................ 37
7.2 Fairness Hearing; Private Placement; Shareholder Approval.......................................... 37
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7.3 Conversion of Target Preferred Stock............................................................... 38
7.4 Notices and Consents............................................................................... 38
7.5 Full Access........................................................................................ 38
7.6 General............................................................................................ 38
7.7 New Employment Arrangements........................................................................ 39
7.8 Expenses........................................................................................... 39
7.9 Public Disclosure.................................................................................. 39
7.10 Termination of Rights Agreement and Stock Purchase Agreement....................................... 39
7.11 FIRPTA Compliance.................................................................................. 39
7.12 Reasonable Efforts................................................................................. 39
7.13 Notification of Certain Matters.................................................................... 39
7.14 Affiliate Agreements............................................................................... 40
7.15 Intentionally Deleted.............................................................................. 40
7.16 Confidentiality.................................................................................... 40
7.17 Intentionally Deleted.............................................................................. 40
7.18 Tax Matters........................................................................................ 40
7.19 New Employment Arrangements........................................................................ 41
VIII...41
CONDITIONS TO THE MERGER............................................................................................. 41
8.1 Conditions to Obligations of Each Party to Effect the Merger....................................... 41
8.2 Additional Conditions to Obligations of Target..................................................... 41
8.3 Additional Conditions to the Obligations of Acquiror and Merger Sub................................ 42
IX. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW............................................................... 44
9.1 Survival of Representations and Warranties......................................................... 44
9.2 Indemnification.................................................................................... 44
9.3 Escrow Arrangements................................................................................ 45
9.4 Limitations; Maximum Payments; Remedies............................................................ 52
X. TERMINATION, AMENDMENT AND WAIVER................................................................................. 52
10.1 Termination........................................................................................ 52
10.2 Effect of Termination.............................................................................. 53
10.3 Amendment.......................................................................................... 53
10.4 Extension; Waiver.................................................................................. 53
XI. Miscellaneous.................................................................................................... 53
11.1 No Third-Party Beneficiaries....................................................................... 53
11.2 Entire Agreement................................................................................... 53
11.3 Succession and Assignment.......................................................................... 53
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11.4 Counterparts....................................................................................... 54
11.5 Headings........................................................................................... 54
11.6 Notices............................................................................................ 54
11.7 Governing Law...................................................................................... 54
11.8 Severability....................................................................................... 54
11.9 Construction....................................................................................... 55
11.10 Incorporation of Exhibits and Schedules............................................................ 55
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement (the "Agreement") is entered into on September 8, 2000,
by and among Simplex Solutions, Inc., a Delaware corporation ("Acquiror"),
Atlas Acquisition Corp., a California corporation and wholly owned subsidiary of
Acquiror ("Merger Sub"), Altius Solutions, Inc., a California corporation
("Target"), ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ as Securityholder Agent and U.S. Bank Trust, North
America as Escrow Agent (the "Escrow Agent").
WHEREAS, the respective boards of directors of Acquiror, Merger Sub and
Target have approved the combination of the businesses of Acquiror and Target
pursuant to this Agreement;
WHEREAS, in furtherance of such combination, the respective boards of
directors of Acquiror, Merger Sub and Target have approved the merger of Merger
Sub with and into Target with Target being the surviving corporation (the
"Merger") pursuant to the terms of this Agreement and in accordance with the
applicable provisions of the California Corporations Code;
WHEREAS, a portion of shares of Acquiror Common Stock otherwise issuable
by Acquiror in connection with the Merger shall be placed in escrow by Acquiror,
the release of which amount shall be contingent upon certain events and
conditions, all as set forth in Article IX hereof.
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to each of Acquiror's and Merger Sub's
willingness to enter into this Agreement, certain shareholders of Target have
entered into Shareholder Support Agreements with Acquiror, dated as of the date
of this Agreement, in the forms attached hereto as Exhibit A (the "Shareholder
Support Agreements"), pursuant to which such shareholders have agreed, among
other things, to vote all voting securities of Target beneficially owned by them
in favor of approval of the transactions contemplated by this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization described in Section 368(a) of the
Code (as defined below) and the regulations promulgated thereunder; and
WHEREAS, in connection with the Merger, the parties desire to set forth
certain representations, warranties and covenants made by each to the other or
others as an inducement to the consummation of the Merger, upon the terms and
subject to the conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the parties agree as follows.
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I.
ADDITIONAL AGREEMENTS
1.1 Defined Terms. As used herein, the terms below have the
following meanings:
"Acquiror Common Price Per Share" means (i) at any time prior to
Acquiror's initial public offering, the Third Party Valuation Price Per Share
and (ii) following completion of Acquiror's initial public offering, the average
closing price of Acquiror Common Stock over the five (5) trading day period
ending on the trading day immediately preceding the date on which a claim is
made.
"Acquiror Common Stock" means the common stock of Acquiror, par value
$0.001 per share.
"Acquiror Fully-Diluted Closing Equity" means the total number of shares
of Acquiror Common Stock outstanding as of the Effective Time, assuming the
exercise or conversion of all options, warrants, convertible securities or other
rights to acquire shares of Acquiror Common Stock outstanding as of the
Effective Time, without giving effect to the transactions contemplated by this
Agreement including the issuance of Acquiror Common Stock or the assumption of
Target Options and Target Warrants pursuant to Article 2 hereof.
"Adverse Effects" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, net Taxes (after taking
into account any Tax savings), liens, losses, expenses, and fees, including
court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
Section 1504(a).
"Blue Sky Laws" means the statutes, rules and regulations of individual
states and countries (other than the United States) applicable to offers and
sales of securities within such individual states or countries.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of California are authorized or obligated to
close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" has the meaning attributed to it in that
certain Confidentiality Agreement by and between Acquiror and Target dated June
19, 2000.
"Controlled Group of Corporations" has the meaning set forth in Code
Section 1563.
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"Dissenting Shares" mean any shares of Target Stock held by a holder who
has demanded and perfected dissenters' rights for such shares in accordance with
the California Corporations Code and who, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Amount" means that number of shares of Acquiror Common Stock
equal to the Total Merger Shares multiplied by .10.
"Exchange Ratio" means the number equal to the number of shares of
Acquiror Common Stock that is the Merger Consideration.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Entity" means any national, federal, state, municipal or
local government, or any subdivision, court, administrative agency, commission,
gaming authority or other governmental authority or instrumentality thereof.
"Knowledge" of a Person means actual knowledge of the officers or
directors of such Person or such individual, as the case may be, provided that
such individuals have not intentionally avoided such knowledge.
"License" means any contract that grants a Person the right to use or
otherwise enjoy the benefits of any Intellectual Property (including, without
limitation, any covenants not to ▇▇▇ with respect to any Intellectual Property).
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"PBGC" means the Pension Benefit Guaranty Corporation.
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"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (i) mechanic's, materialmen's,
and similar liens, (ii) liens for Taxes not yet due and payable, (iii) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (iv) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"Target Common Stock" shall mean the common stock, par value $.001 per
share, of Target.
"Target Preferred Stock" shall mean the Series A Preferred Stock, par
value $.001 per share, of Target.
"Target Stock" shall mean Target Common Stock and Target Preferred
Stock.
"Target's Most Recent Balance Sheet" means the balance sheet of Target
dated June 30, 2000.
"Third Party Expenses" shall mean legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties incurred by a party
hereto in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
"Third Party Valuation Price Per Share" means the value per share of
Acquiror Common Stock as determined pursuant to an independent third party
valuation conducted for the purpose of enabling Acquiror to properly account for
the transactions contemplated by this Agreement.
II.
THE MERGER
2.1 Approval of Merger. The Merger shall be submitted for adoption
and approval to all of the shareholders of Target (each, a "Shareholder", and
collectively the "Shareholders") in a manner allowed under the California
Corporations Code (the "Shareholders' Consent"). Acquiror, Merger Sub and
Target shall coordinate and cooperate with respect to the timing of the
Shareholders' Consent.
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2.2 The Merger. As soon as is practicable, but not later than two
business days, after the satisfaction or waiver of the conditions contained in
Article VIII herein, the parties hereto will cause the Merger to be consummated
by filing with the Secretary of State of the State of California an Agreement of
Merger, the officer's certificates of Acquiror, Merger Sub and Target, and any
required related documents, in such form or forms as are required by, and
executed in accordance with, the relevant provisions of the California
Corporations Code (the time of such filing being the "Effective Time" and the
date upon which the Effective Time occurs, being the "Effective Date"). At the
Effective Time, in accordance with this Agreement and the California
Corporations Code, Merger Sub shall be merged with and into Target, the separate
existence of Merger Sub shall cease and Target shall continue as the surviving
corporation as a wholly owned subsidiary of Acquiror. Target, as the surviving
corporation after the Merger, is sometimes referred to herein as the "Surviving
Corporation."
2.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, and the applicable provisions of
the California Corporations Code. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchise of Merger Sub and Target shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Merger Sub and
Target shall become the debts, liabilities and duties of the Surviving
Corporation. As of the Effective Time, the Surviving Corporation will be a
wholly owned subsidiary of Acquiror.
2.4 Effect on Capital Stock.
(a) As of the Effective Time, each issued and outstanding share of
Target Common Stock (other than Dissenting Shares and shares to be cancelled
pursuant to Section 2.4(b)) shall, by virtue of the Merger and without any
action on the part of Acquiror, Merger Sub, Target or the holder thereof, be
converted into the right to receive a number of validly issued, fully paid and
nonassessable shares of Acquiror Common Stock, and an amount of cash as
determined pursuant to Section 2.4(c) below (the "Merger Consideration"),
assuming the conversion of all Target Preferred Stock into Target Common Stock
in accordance with the terms of this Agreement, such that the maximum number of
shares of Acquiror Common Stock to be issued (including Acquiror Common Stock to
be reserved for issuance upon exercise of any Target Options and Target Warrants
to be assumed by Acquiror pursuant to the terms of this Agreement)
(collectively, the "Total Merger Shares") in exchange for the acquisition by
Acquiror of all outstanding Target Stock and all unexpired and unexercised
equity warrants and other convertible or exchangeable securities shall be equal
to 29.2825% of Acquiror Fully-Diluted Closing Equity. As of the Effective Time,
all shares of Target Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of Target Stock shall cease to
have any rights with respect thereto, except the right to receive, upon
surrender of such certificate in accordance with Section 2.8, the Merger
Consideration.
(b) Canceled Shares. As of the Effective Time, each share of
capital stock of Target held by Acquiror shall automatically cease to be
outstanding, be canceled and retired and no payment or conversion into Acquiror
Common Stock will be made with respect thereto.
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(c) Fractional Shares. No certificates representing fractional
shares of Acquiror shall be issued in connection with the Merger, and such
fractional share interests will be canceled and thereafter will not entitle the
owner thereof to vote or to any rights as a stockholder of Acquiror. In lieu of
any such fractional shares, each Shareholder upon surrender of a Certificate (as
hereinafter defined) for exchange shall be paid an amount in cash, without
interest, rounded up to the nearest cent, determined by multiplying the Acquiror
Common Price Per Share by the fractional interest to which such Shareholder
would otherwise be entitled (after taking into account all shares of Target
Stock then held by such Shareholder).
2.5 Assumption of Target Options and Target Warrants. As of the
Effective Time, each unexpired and unexercised outstanding option, whether
vested or unvested or exercisable in accordance with its terms, to purchase a
share of Target Common Stock (the "Target Options") previously granted by Target
under any stock option or other stock-based incentive plan, program or
arrangement of Target, including, without limitation, Target's 1999 Stock Plan
(collectively, the "Target Stock Option Plans"), shall be deemed assumed by
Acquiror automatically and without any action or investment decision on the part
of the holder thereof (an "Assumed Option"). After the Effective Time, each
Assumed Option shall be exercisable upon the same terms and conditions as were
applicable to the related Target Option immediately prior to the Effective Time,
except as contemplated by this Agreement and except that (i) each Assumed Option
will be exercisable for that number of whole shares of Acquiror Common Stock
equal to the product of the number of shares of Target Common Stock that were
issuable upon exercise of such Assumed Option immediately prior to the Effective
Time multiplied by the Exchange Ratio, rounded down to the nearest whole number
of shares of Acquiror Common Stock, and (ii) the per share exercise price for
the shares of Acquiror Common Stock issuable upon exercise of such Assumed
Option will be equal to the quotient determined by dividing the exercise price
per share of Target Common Stock at which such Assumed Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent. Acquiror shall take all corporate actions necessary to
reserve for issuance a sufficient number of shares of Acquiror Common Stock for
delivery under the Target Stock Option Plans, which Acquiror shall assume in
accordance with this Section 2.5(a).
(a) Acquiror shall treat warrants to purchase capital stock of
Target or other convertible or exchangeable securities granted by the Company
(the "Target Warrants") as granting the holder thereof an equivalent right to
purchase or receive for each share of Target Stock subject to the Target
Warrants immediately prior to the Effective Time, subject to the provisions of
Section 2.8, the Merger Consideration, as adjusted (the "Assumed Warrants").
After the Effective Time, the Assumed Warrants shall be exercisable upon the
same terms and conditions as were applicable to the Target Warrants immediately
prior to the Effective Time, except that (i) each Assumed Warrant will be
exercisable for that number of whole shares of Acquiror Common Stock equal to
the product of the number of shares of Target Stock that were issuable upon
exercise of such Assumed Warrant immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded down to the nearest whole number of
shares of Acquiror Common Stock, and (ii) the per share exercise price for the
shares of Acquiror Common Stock issuable upon exercise of such Assumed Warrant
will be equal to the quotient determined by dividing the exercise price per
share of Target Common Stock at which such Assumed Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent. Acquiror shall take all corporate actions
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necessary to reserve for issuance a sufficient number of shares of Acquiror
Common Stock for delivery following the exercise of the Assumed Warrants.
2.6 Charter Documents, Directors, Officers. At and as of the
Effective Time, (i) the Articles of Incorporation and the Bylaws of Merger Sub
shall be the Articles of Incorporation and Bylaws of the Surviving Corporation
until thereafter amended as provided by the California Corporations Code, (ii)
the directors of Merger Sub immediately prior to the Effective Time will be the
initial directors of the Surviving Corporation, until their successors are
elected and qualified and (iii) the officers of Merger Sub immediately prior to
the Effective Time will be the initial officers of the Surviving Corporation,
until their successors are elected and qualified.
2.7 Capital Stock of Merger Sub. At the Effective Time, each share
of common stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive one (1) validly
issued, fully paid and nonassessable share of common stock of Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
2.8 Surrender of Certificates. As soon as practicable after the
Effective Time (but no later than the third business day following the Closing),
Acquiror shall send or cause to be sent a notice and letter of transmittal form
to each holder of a certificate or certificates, representing Target Stock (the
"Certificates") (other than those representing Dissenting Shares), advising such
holder of the effectiveness of the Merger and the procedure for surrendering of
such Certificate for exchange into the Merger Consideration payable in respect
of the Target Stock represented thereby. Each Shareholder, upon surrender of
each of his or her Certificates, together with a duly executed copy of a letter
of transmittal together with any reasonable supporting documentation requested
by Acquiror (including tax identification number), shall be entitled to receive
the Merger Consideration with respect to the Target Stock represented by such
Certificate or Certificates in accordance with the provisions of this Article II
net of any applicable withholding less the pro rata amount of the Escrow Amount.
The portion of the Escrow Amount contributed on behalf of each Shareholder shall
be in proportion to the aggregate number of shares of Acquiror Common Stock each
such Shareholder would otherwise be entitled to receive in the Merger as
compared to the total number of shares of Acquiror Common Stock to be issued to
Shareholders pursuant to Section 2.4 above by virtue of ownership of outstanding
shares of Target Stock immediately prior to the Effective Time. Until so
surrendered, each Certificate shall be deemed for all corporate purposes to
evidence only the right to receive upon such surrender that number of shares of
Acquiror Common Stock equal to the number of shares of Target Common Stock
represented by such Certificate (assuming conversion of Target Preferred Stock)
multiplied by the Exchange Ratio.
(a) If the Merger Consideration (or any portion thereof) is to be
paid to a Person other than the Person in whose name the Certificate surrendered
in exchange therefor is registered, it shall be a condition to the payment of
the Merger Consideration that the Certificate so surrendered shall be properly
endorsed or accompanied by appropriate stock powers and otherwise be in proper
form for transfer, that such transfer otherwise be proper and that the Person
requesting such transfer pay to Acquiror (or its agent appointed as the
disbursing agent (the "Disbursing Agent")) any transfer or other taxes payable
by reason of the foregoing or establish to the
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satisfaction of Acquiror that such taxes have been paid or are not required to
be paid.
(b) No interest or dividends shall be paid or accrue on any portion
of the Merger Consideration or any Acquiror Common Stock to be issued pursuant
to the terms of this Agreement.
2.9 No Further Ownership Rights in Target Stock. All shares of
Acquiror Common Stock issued and delivered upon the surrender for exchange of
Certificates in accordance with the terms of this Article II shall be deemed to
have been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Target Stock theretofore represented by such Certificates, and there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Target Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article II, except as
otherwise provided by law.
2.10 Intentionally Deleted.
2.11 Lost, Stolen or Destroyed Certificates. In the event that any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if reasonably required by Acquiror, the posting by such
Person of a bond in such reasonable amount as Acquiror may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
Acquiror or the Disbursing Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration as provided in Section 2.4 and
any unpaid dividends or distributions with respect to Acquiror Common Stock
received as Merger Consideration, to which they are entitled pursuant hereto.
2.12 Intentionally Deleted.
2.13 Tax Consequences. The parties hereby intend that the Merger
shall constitute a reorganization within the meaning of Section 368(a) of the
Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
U.S. Treasury Regulation.
2.14 Dissenting Shares.
(a) Notwithstanding any other provisions of this Agreement to the
contrary, any shares of Target Stock held by a Shareholder who has exercised and
perfected appraisal rights for such shares in accordance with the applicable
provisions of the California Corporations Code and who, as of the Effective
Time, has not effectively withdrawn or lost such appraisal rights, shall not be
converted into or represent a right to receive the consideration for Target
Stock set forth in Section 2.4 hereof, but the holder thereof shall only be
entitled to such rights as are provided by the applicable provisions of the
California Corporations Code.
(b) Notwithstanding the provisions of Section 2.13(a) hereof, if
any holder of Dissenting Shares shall withdraw or lose (through failure to
perfect or otherwise) such holder's appraisal rights under the applicable
provisions of the California Corporations Code, after the
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Effective Time, such holder's shares shall automatically be converted into and
represent only the right to receive the Merger Consideration in accordance with
the terms of this Agreement, without interest thereon, upon surrender of the
certificate representing such shares.
Target shall give Acquiror (i) prompt notice of any written demand for
appraisal received by Target pursuant to the applicable provisions of the
California Corporations Code, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. Target shall not,
except with the prior written consent of Acquiror, make any payment with respect
to any such demands or offer to settle or settle any such demands. To the extent
that Acquiror or Target makes any payment or payments in respect of any
Dissenting Shares, Acquiror shall be entitled to recover as Losses under the
terms of Article IX hereof the aggregate amount by which such payment or
payments exceed the aggregate consideration (based on the Third Party Valuation
Price Per Share) that otherwise would have been payable in respect of such
Dissenting Shares pursuant to Section 2.4 hereof if such Dissenting Shares were
not the subject of an appraisal demand ("Excess Dissenters Amount").
III.
THE CLOSING
3.1 The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, commencing at 9:00
a.m. local time, on the second business day following the satisfaction or waiver
of the conditions contained herein (other than conditions with respect to
actions the respective parties will take at the Closing itself) or upon another
date as is mutually agreed by Acquiror and Target (the "Closing Date").
3.2 Deliveries at the Closing. At the Closing, (i) Target will
deliver to Acquiror the various certificates, instruments, and documents
referred to in Section 8.3 below, and (ii) Acquiror will deliver to Target the
various certificates, instruments, and documents referred to in Section 8.2
below.
IV.
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to Acquiror and Merger Sub as of the date
hereof and as of the Closing Date, except for representations and warranties
that are limited to a specific date and as expressly set forth in the disclosure
schedules attached hereto (the "Target Disclosure Schedules"), as follows:
4.1 Organization, Qualification and Corporate Power. Target is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not have a material adverse effect on the business, assets
(including intangible assets), condition (financial or otherwise),
capitalization, operations or results of operations of Target ("Target Material
Adverse Effect"). Target has all necessary corporate power and corporate
authority to carry
15
on its business as presently conducted and to own and use the properties owned
and used by it. Schedule 4.1 of the Target Disclosure Schedules lists the
directors and officers of Target.
4.2 Authorization of Transaction. Subject only to the requisite
approval of the Merger and this Agreement by the Shareholders, Target has all
necessary corporate power and corporate authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Target, subject only to the approval of the Merger by the Shareholders. The
Target Board of Directors has unanimously approved the Merger and this
Agreement. Assuming the due authorization, execution and delivery by Acquiror
and Merger Sub, this Agreement constitutes the valid and legally binding
obligation of Target, enforceable against Target in accordance with its terms
and conditions, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally,
and (ii) rights of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability.
4.3 Subsidiaries and Affiliates. As of the date of this Agreement,
Target does not have any subsidiary or any equity or ownership interest, whether
direct or indirect, in any corporation, partnership, limited liability company,
joint venture or other business entity. As of the Effective Time, Target will
own no equity or ownership interest, whether direct or indirect, in any
corporation, partnership, limited liability company, joint venture or other
business entity. Target has not agreed and is not obligated to make, nor is
bound by, any contract as in effect as of the date of this Agreement or that
will be in effect as of the Closing Date under which it may become obligated to
make any future investment in or capital contribution to any other entity.
Target has never been a general partner of any general partnership or limited
partnership.
4.4 No Conflicts.
(a) The execution, delivery and performance of this
Agreement by Target, and the consummation of the transactions contemplated
hereby will not:
(i) constitute a material violation (with or without
the giving of notice or lapse of time, or both) of any provision of law or any
judgment, decree, order, regulation or rule of any court or other governmental
authority applicable to Target;
(ii) result in a default under (with or without the
giving of notice or lapse of time, or both) , or acceleration or termination of,
or the creation in any party of the right to accelerate, terminate, modify or
cancel, any material agreement, lease, note or other material restriction,
encumbrance, obligation or liability to which Target is a party or by which
Target is bound or to which its assets are subject;
(iii) result in the creation of any liens, mortgages,
pledges, deeds of trust, security interests, charges, encumbrances or any other
adverse claims of interest (each, an "Encumbrance") upon any assets of Target or
Target Stock;
16
(iv) conflict with or result in a breach or default
under any provision of the Articles of Incorporation or Bylaws of Target; or
(v) invalidate or adversely affect any material permit,
license or authorization used in the conduct of Target's business.
(b) No consent, waiver, permit, approval, order or authorization
of, or registration, declaration or filing with any Person or Governmental
Entity is required by or with respect to Target in connection with the execution
and delivery of this Agreement by Target or the consummation by Target of the
transactions contemplated hereby, except for (i) those required under or in
relation to (A) Blue Sky Laws, (B) the Securities Act, and (C) the California
Corporations Code with respect to the filing of appropriate documents to effect
the Merger, and (ii) such consents, waivers, permits, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
make or obtain, excluding those which, prior to the Effective Time, have been
made or obtained, could not reasonably be expected to have a Target Material
Adverse Effect.
4.5 Brokers' Fees. Target does not have any liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement, for which Acquiror could become
liable or obligated after the Effective Time.
4.6 Capitalization.
(a) The authorized capital stock of Target consists of shares of
Target Common Stock and shares of Target Preferred Stock;
(b) As of the date hereof, the authorized capital stock of Target
consists of 26,000,000 shares of Target Common Stock of which 8,690,000 are
issued and outstanding, and of 9,000,000 shares of Target Preferred Stock of
which 8,812,500 shares are issued and outstanding (shares of outstanding Target
capital stock hereby collectively referred to as the "Outstanding Shares").
Schedule 4.6(b) of the Target Disclosure Schedules sets forth a list, which list
shall be true and correct as of the date hereof and as of the Closing Date
(except for any shares of Target Stock which may be issued after the date of
this Agreement upon the exercise of any Target Options disclosed on Schedule
4.6(c) of the Target Disclosure Schedules), of (i) the names of all
Shareholders of Target, (ii) the number of shares owned by each Shareholder, and
(iii) the address of such Shareholder as it appears on Target's records as of
the date hereof. The Outstanding Shares are duly authorized and validly issued,
fully paid and nonassessable, and issued in compliance with all applicable
federal and state securities laws. To the Knowledge of Target, no Person other
than the Shareholders holds any interest in any of the Outstanding Shares that
are held of record by those Shareholders. True and correct copies of the stock
records of Target, showing all issuances and transfers of shares of capital
stock of Target since inception, have been delivered to Acquiror or its counsel.
(c) As of the date of this Agreement and as of the Closing Date,
other than (i) Target Options to purchase up to 843,750 shares of Target Common
Stock that have been granted and not yet exercised under the Target Stock Option
Plans, (ii) 8,812,500 shares of Target Preferred Stock which are convertible
into 8,812,500 shares of Target Common Stock and (iii) Target
17
Warrants to purchase up to 15,000 shares of Target Common Stock and Target
Preferred Stock that have been issued and not yet exercised, there are no
outstanding rights of first refusal or offer, preemptive rights, stock purchase
rights or other agreements, either directly or indirectly, for the purchase or
acquisition from Target or any Shareholder of any shares of Target Capital Stock
or any securities convertible into or exchangeable for shares of Target Capital
Stock. Set forth on Schedule 4.6(c) of the Target Disclosure Schedules is a
spreadsheet which accurately reflects (i) the number of Target Options and other
stock purchase rights outstanding, (ii) the grant or issue dates, and (iii) the
exercise or conversion prices thereof and, for each Option holder (A) which of
their Options is vested, (B) the number of shares to which each such holder has
the vested right to acquire as of the date hereof and as of the Closing Date,
and (C) the address of such Option holder as it appears on Target's records as
of the date hereof. Target has delivered to Acquiror or its counsel true and
correct copies of the Target Stock Option Plans, all stock option agreements and
exercise documentation relating to Target Options granted thereunder and all
agreements with respect to stock purchase rights. Schedule 4.6(c) of the Target
Disclosure Schedules also identifies all options, warrants or other stock
purchase rights that have been offered in connection with any employee or
consulting agreement but that, as of the date hereof, have not been issued or
granted. The Target Options were issued in compliance with all applicable
federal and state securities laws.
(d) Other than as contemplated by this Agreement, Target is not a
party or subject to any agreement or understanding and, to the Knowledge of
Target, there is no agreement or understanding between any Persons that affects
or relates to the voting or giving of written consents with respect to any
securities of Target or the voting by any director of Target. No Shareholder, or
to Target's Knowledge, any affiliate thereof, is indebted to Target, and Target
is not indebted to any Shareholder, or to Target's Knowledge, any affiliate
thereof. Target is not under any contractual or other obligation to register any
of its presently outstanding securities or any of its securities that may
hereafter be issued.
(e) All rights of refusal, co-sale rights and registration rights
granted by Target with respect to Target Capital Stock or stock purchase rights
of Target are set forth on Schedule 4.6(e) of the Target Disclosure Schedules.
4.7 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Target Common Stock voting as a separate
class, and the holders of a majority of the outstanding Target Preferred Stock
voting as a separate class, is the only vote of the holders of any class or
series of the Target capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
4.8 Books and Records; Organizational Documents.
(a) The books, records and accounts of Target (i) are true,
complete and correct in all material respects, (ii) are stated in reasonable
detail and accurately and fairly reflect the transactions and dispositions of
the assets of Target, and (iii) accurately and fairly reflect the basis for
Target's Financial Statements.
(b) Target has devised and maintains a system of internal
accounting controls sufficient for companies at an applicable stage of
development to provide reasonable assurances that:
18
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary (A) to
permit preparation of financial statements in conformity with GAAP or any other
criteria applicable to such statements, and (B) to maintain accountability for
assets; and (iii) the amount recorded for assets on the books and records of
Target are recorded in accordance with GAAP.
(c) Target has written records of its proceedings, consents,
actions and meetings of its shareholders and directors or any committee thereof,
where such proceedings, consents, actions and meetings were related to corporate
matters material to Target's business, financial condition, operations or
results of operations. Target has made available to Acquiror or its counsel for
examination all documents and information listed in Target Disclosure Schedules
or in any other exhibit or schedule called for by this Agreement including,
without limitation, the following: (a) copies of Target's Articles of
Incorporation and Bylaws as currently in effect; (b) all written records of all
proceedings, consents, actions, and, to the extent available in writing,
meetings of Target's stockholders, board of directors and any committees
thereof; (c) Target's stock ledger and journal reflecting all stock issuances
and transfers and (d) all Governmental Permits issued by, and filings by Target
with, any regulatory agency with respect to Target or any securities of Target,
and all applications for such permits, orders, and consents.
4.9 Title to Assets. Target has good and marketable title to, or a
valid leasehold interest in, the properties and assets owned or leased by it, or
shown on Target's Most Recent Balance Sheet or acquired after the date thereof,
free and clear of all Security Interests, except for properties and assets
disposed of in the Ordinary Course of Business since the date of Target's Most
Recent Balance Sheet.
4.10 Financial Statements. Schedule 4.10 of the Disclosure
Schedules includes the following financial statements (collectively the
"Target's Financial Statements"): audited consolidated balance sheets and
statements of income as of and for the year ended December 31, 1999 (the
"Target's Most Recent Fiscal Year End") for Target and the unaudited
consolidated balance sheets and statements of income as of and for the six-month
period ended June 30, 2000 for Target (the "Target Interim Statements").
Target's Financial Statements (including the notes thereto) are correct and
complete in all material respects and have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby and present
fairly the financial condition of Target as of such dates and the results of
operations of Target for such periods, except that the Target Interim Statements
do not contain footnotes and are subject to normal year-end audit adjustments
which shall not be material in amount.
4.11 Events Subsequent to Target's Most Recent Balance Sheet. Since
the date of Target's Most Recent Balance Sheet, there has been no change in the
assets, liabilities or financial condition of Target, except for changes in the
Ordinary Course of Business or which individually or in the aggregate are not
material, and there has not been a Target Material Adverse Effect by any
occurrence, state of facts or development, individually or in the aggregate,
whether or not insured against. Without limiting the generality of the foregoing
since that date Target has not: (i) issued any stock, bond or other security
(except shares issued in connection with the exercise of employee stock
options), (ii) borrowed any amount or incurred or become subject to any
liability (absolute, accrued or contingent), except current liabilities incurred
in the Ordinary Course of Business and
19
liabilities under contracts entered into in the Ordinary Course of Business,
(iii) declared or made any payment or distribution to equity holders or
purchased or redeemed any share of its capital stock or other security, (iv)
mortgaged, pledged or subjected to lien any of its assets, tangible or
intangible, other than liens for current Taxes not yet due and payable, except
for mortgages, pledges or liens that do not exceed $10,000 in the aggregate, (v)
sold, assigned or transferred any of its assets except in the Ordinary Course of
Business, or canceled any debt or claim, (vi) suffered any material loss of
property or waived any right of substantial value whether or not in the Ordinary
Course of Business, (vii) made any change to Target's employee benefit plans,
(viii) made any change in Target's accounting principles and practices, (ix)
made any material change in the manner of business or operations, (x) entered
into any material transaction except in the Ordinary Course of Business or as
otherwise contemplated hereby, or (xi) entered into any commitment (contingent
or otherwise) to do any of the foregoing.
4.12 Legal Proceedings. There is no action, suit, arbitration,
mediation, proceeding, claim or investigation pending against Target (or, to
Target's Knowledge, against any officer, director, employee or agent of Target
in his or her capacity as such), or to Target's Knowledge affecting Target's
business before any court, administrative agency or arbitrator, and to Target's
Knowledge, no such action, suit, proceeding, arbitration, mediation, claim or
investigation has been threatened. There is no judgment, decree, injunction,
rule or order of any governmental entity or agency, court or arbitrator
outstanding against Target. To Target's Knowledge without acknowledging that any
such potential claim has merit, there is no basis for any person, firm,
corporation or other entity to assert a claim against Target based upon: (i)
Target's entering into this Agreement or the Merger or any of the transactions
contemplated by this Agreement, or (ii) a claim of ownership to options,
warrants or other rights, commitments or agreements of any character to acquire
ownership of, any shares of the capital stock of Target or any rights as a
Shareholder, including any option, warrant or preemptive rights or rights to
notice or to vote, other than for the normal rights of Shareholders with respect
to Target Stock. No Governmental Entity has at any time challenged or questioned
in a writing delivered to Target the legal right of Target to design, offer or
sell any of its products or services in connection with Target's business in the
present manner or style thereof. To Target's Knowledge, as of the date of this
Agreement, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that would reasonably be expected to, cause
or provide a bona fide basis for a director or executive officer of Target to
seek indemnification from Target.
4.13 Compliance with Laws and Orders. Target holds all permits,
licenses, exemptions, orders and approvals from, and has made all filings with,
Governmental Entities, that are necessary for Target to continue to conduct
Target's business as presently conducted without any violation of applicable law
("Governmental Permits") and all such Governmental Permits are in full force and
effect. Target has not received any notice or other communication from any
Governmental Entity regarding (i) any actual or possible violation of law or any
Governmental Permit or any failure to comply with any term or requirement of any
Governmental Permit, or (ii) any actual or possible revocation, withdrawal,
suspension, cancellation, termination or modification of any Governmental
Permit. Target is not subject to any reporting or filing requirement with or to
any Governmental Entity, or under applicable law, or pursuant to any
Governmental Permit other than such requirements which are applicable to
companies similarly situated to Target. Neither Target nor, to Target's
Knowledge, any director, officer, agent or employee of Target has, for or on
behalf
20
of Target, (i) used any funds for unlawful contributions, gifts, entertainment
or other unlawful expenses relating to political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns or violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
payment in violation of applicable law.
4.14 Tax Matters.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes," means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) EXECUTIVE COMPENSATION TAX. There is no contract, agreement,
plan or arrangement to which Target is a party, including, without limitation,
the provisions of this Agreement, covering any employee or former employee of
Target, which, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m)
of the Code, and the transactions contemplated by this Agreement will not give
rise to the payment of any amount that would not be deductible under the
aforementioned sections of the Code.
(c) TAX RETURNS AND AUDITS.
(i) Target as of the Effective Time will have prepared
and filed or caused to be prepared and filed all required federal, state, local
and foreign returns, estimates, information statements and reports for periods
ending prior to the Effective Time ("Returns") relating to any and all Taxes
concerning or attributable to Target or its operations and such Returns are true
and correct and have been completed in accordance with applicable law.
(ii) Target as of the Effective Time: (A) will have
paid or accrued all Taxes it is required to pay or accrue prior to the Effective
Time, and (B) will have withheld with respect to its employees all federal and
state income taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) Target has not been delinquent in the payment of
any Tax nor is there any material Tax deficiency outstanding, proposed or
assessed against Target, nor has Target executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of Target is
currently in progress, nor has Target been notified of any request for such an
audit or other examination.
21
(v) Target does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against in accordance with GAAP in the Target Financial Statements, whether
asserted or unasserted, contingent or otherwise, and Target has no Knowledge of
any basis for the assertion of any such liability attributable to Target, its
assets or operations.
(vi) Target has provided to Acquiror copies of all
federal and state income and all state sales and use Tax Returns for all periods
since the date of Target's incorporation.
(vii) There are (and as of immediately following the
Effective Date there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("Liens") on the assets of Target
relating to or attributable to Taxes, other than Liens for Taxes not yet due.
(viii) Target has no Knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of Target, other than Liens
for Taxes not yet due.
(ix) None of Target's assets are treated as "tax-exempt
use property" within the meaning of Section 168(h) of the Code.
(x) Target has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by Target.
(xi) Target is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xii) Target is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c) (2) of the Code.
(xiii) Target has (A) never been a member of an
affiliated group (within the meaning of Section 1504(a) of the Code) filing a
consolidated federal income Tax Return (other than a group the common parent of
which was Target), (B) no liability for the Taxes of any person (other than
Target or any of its Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or
successor, by contract, or otherwise, and (c) never been a party to any joint
venture, partnership or other agreement that could be treated as a partnership
for Tax purposes.
(xiv) No adjustment relating to any Return filed by
Target has been proposed formally or, to the Knowledge of Target, informally by
any tax authority to Target or any representative thereof.
(xv) Target has not constituted either a "distributing
corporation" or a "controlled corporation" in a distribution of stock qualifying
for tax-free treatment under Section 355 of the Code (A) in the two years prior
to the date of this Agreement or (B) in a
22
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
4.15 Intellectual Property.
(a) "Intellectual Property" means any or all of the following and
all rights in, arising out of, or associated therewith: (i) all United States
and foreign patents and utility models and applications therefor and all
reissues, divisions, re-examinations, renewals, extensions, provisionals,
continuations and continuations-in-part thereof, and equivalent or similar
rights anywhere in the world in inventions and discoveries including without
limitation invention disclosures ("Patents"); (ii) all trade secrets and other
rights in know-how and confidential or proprietary information; (iii) all
copyrights, copyrights registrations and applications therefor and all other
rights corresponding thereto throughout the world ("Copyrights"); (iv) all mask
works, maskwork registrations and applications therefor, and any equivalent or
similar rights in semiconductor masks, layouts, architectures or topology
("Maskworks"); (v) all industrial designs and any registrations and
applications therefor throughout the world; (vi) all rights in World Wide Web
addresses and domain names and applications and registrations therefor; (vii)
all trade names, logos, common law trademarks and service marks, trademark and
service ▇▇▇▇ registrations and applications therefor and all goodwill associated
therewith throughout the world ("Trademarks"); and (viii) any similar,
corresponding or equivalent rights to any of the foregoing anywhere in the
world, including, without limitation, moral rights.
(b) "Target Intellectual Property" means any and all Technology and
any and all Intellectual Property, including the Target Registered Intellectual
Property (as defined below), that is or are owned by or exclusively licensed to
the Company.
(c) "Target Registered Intellectual Property" means all United
States, international and foreign: (i) Patents, including applications therefor;
(ii) registered Trademarks, applications to register Trademarks, including
intent-to-use applications, or other registrations or applications related to
Trademarks; (iii) Copyrights registrations and applications to register
Copyrights; (iv) Maskwork registrations and applications to register Maskworks;
and (v) any other Technology that is the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded by,
any state, government or other public or private legal authority at any time.
(d) "Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (i) mechanic's,
materialmen's, and similar liens, (ii) liens for taxes not yet due and payable,
(iii) purchase money liens and liens securing rental payments under capital
lease arrangements, and (iv) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of money.
(e) "Technology" means any or all of the following: (i) works of
authorship including, without limitation, computer programs, source code and
executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, net lists, records, data and mask works; (ii)
inventions (whether or not patentable), improvements, and technology; (iii)
proprietary and confidential information, including technical data and customer
and supplier
23
lists, trade secrets and know how; (iv) databases, data compilations and
collections and technical data; (v) logos, trade names, trade dress, trademarks,
service marks; (vi) World Wide Web addresses, domain names and sites; (vii)
tools, methods and processes; and (viii) all instantiations of the foregoing in
any form and embodied in any media.
(f) Schedule 4.15(f) of the Target Disclosure Schedules lists all
Target Intellectual Property and lists any proceedings or actions before any
court, tribunal (including the United States Patent and Trademark Office (the
"PTO") or equivalent authority anywhere in the world) related to (excluding
third party Intellectual Property licensed to Target) any of Target Registered
Intellectual Property or Target Intellectual Property.
(g) Each item of Target Registered Intellectual Property is valid
and subsisting, and all necessary registration, maintenance and renewal fees in
connection with such Target Registered Intellectual Property have been paid and
all necessary documents and certificates in connection with such Target
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property. There are no actions that must be taken by
Target within one hundred twenty (120) days of the Closing Date, including the
payment of any registration, maintenance or renewal fees or the filing of any
responses to PTO office actions, documents, applications or certificates for the
purposes of obtaining, maintaining, perfecting or preserving or renewing any
Registered Intellectual Property. In each case in which Target has acquired any
Technology or Intellectual Property from any person, Target has obtained a valid
and enforceable assignment sufficient to irrevocably transfer all rights in such
Technology and the associated Intellectual Property (including the right to seek
past and future damages with respect thereto) to Target. Target has recorded
each such assignment of Registered Intellectual Property assigned to Target with
the relevant Governmental Entity, including the PTO, the U.S. Copyright Office,
or their respective equivalents in any relevant foreign jurisdiction, as the
case may be. Target has not claimed a particular status, including "Small
Business Status," in the application for any Intellectual Property, which claim
of status was at the time made, or which has since become, or as a result of the
transactions contemplated hereby will become, inaccurate or false.
(h) Target has no Knowledge of any facts or circumstances that
would render Target Intellectual Property invalid or unenforceable. Without
limiting the foregoing, Target knows of no information, materials, facts, or
circumstances, including any information or fact that would constitute prior
art, that would render any of the Target Registered Intellectual Property
invalid or unenforceable, or would adversely effect any pending application for
any Target Registered Intellectual Property and Target has not misrepresented,
or failed to disclose, and have no Knowledge of any misrepresentation or failure
to disclose, any fact or circumstances in any application for any Target
Registered Intellectual Property that would constitute fraud or a
misrepresentation with respect to such application or that would otherwise
affect the validity or enforceability of any Target Registered Intellectual
Property.
(i) Each item of Company Intellectual Property is free and clear of
any Security Interests except for non-exclusive licenses granted to end-user
customers in the Ordinary Course of Business, and Target is the exclusive owner
or exclusive licensee of all Target Intellectual Property. Without limiting the
foregoing: (i) to Target's Knowledge, Target is the exclusive owner
24
of all Trademarks used in connection with the operation or conduct of the
business of Target, including the sale, licensing, distribution or provision of
any products or services by Target; (ii) Target owns exclusively, and has good
title to, all Copyrighted works that are products of Target or which Target
otherwise purports to own; and (iii) to the extent that any Patents would
otherwise be infringed by any product or services of Target, such Patents
constitute Target Intellectual Property.
(j) All Target Intellectual Property will be fully transferable,
alienable or licensable by the Surviving Corporation and/or Acquiror without
restriction and without payment of any kind to any third party.
(k) To the extent that any material Target Technology has been
developed or created by a third party for Target, Target has a written agreement
with such third party with respect thereto and the Company thereby either (i)
has obtained ownership of, and is the exclusive owner of, or (ii) has obtained a
license (sufficient for the conduct of its business as currently conducted and
as proposed to be conducted) to all such third party's Intellectual Property
with respect to such Technology by operation of law or by valid assignment.
(l) With the exception of software which is the subject of a
"shrink-wrap" or similar widely-available commercial end-user license, all
Technology used in or necessary to the conduct of Target's business as presently
conducted or currently contemplated to be conducted by Target was written and
created solely by either (i) employees of Target acting within the scope of
their employment, or (ii) by third parties who have agreed to assign or have
validly and irrevocably assigned all of their rights, including Intellectual
Property therein, to Target, and no third party owns or has any rights to any of
Target Intellectual Property.
(m) No product of Target, either complete or under development,
incorporates or includes any third party software, including freeware and
shareware.
(n) Target has taken all steps that are reasonably required to
protect Target's rights in confidential information and trade secrets of Target
or provided by any other person to Target. Without limiting the foregoing,
Target has, and enforces, a policy requiring each employee, consultant and
contractor to execute a proprietary information, confidentiality and assignment
agreement (an "Assignment Agreement"), substantially in the form set forth in
Schedule 4.15(n) of the Target Disclosure Schedules, and all current and former
employees, consultants and contractors of Target have executed such an
Assignment Agreement. Pursuant to such Assignment Agreements, Target has full
and valid title in all Technology, including all accompanying Intellectual
Property, created by such employees, consultant and contractors in the scope of
his or her services or employment for Target.
(o) No person who has licensed Technology or Intellectual Property
to Target has ownership rights or license rights to improvements made by Target
in such Technology or Intellectual Property.
(p) The Company has not transferred ownership of, or granted any
exclusive license of or right to use, or authorized the retention of any
exclusive rights to use or joint ownership
25
of, any Technology or Intellectual Property that is or was Target Intellectual
Property, to any other person.
(q) Other than inbound "shrink-wrap" and similar publicly available
commercial binary code end-user licenses and outbound "shrink-wrap" and
"click-wrap" licenses in the form set forth in Schedule 4.15(q) of the Target
Disclosure Schedules, the contracts, licenses and agreements listed in Schedule
4.15(q) of the Target Disclosure Schedules, include all material contracts,
licenses and agreements to which Target is a party with respect to any
Technology or Intellectual Property. Target is not in breach of nor has Target
failed to perform under, any of the foregoing contracts, licenses or agreements
and, to Target's' Knowledge, no other party to any such contract, license or
agreement is in breach thereof or has failed to perform thereunder.
(r) Schedule 4.15(r) of the Target Disclosure Schedules lists all
material contracts, licenses and agreements between Target and any other person
wherein or whereby Target has agreed to, or assumed, any obligation or duty to
warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by Target or such other person of the
Intellectual Property of any person other than Target.
(s) To the Knowledge of Target, there are no contracts, licenses or
agreements between Target and any other person with respect to Target
Intellectual Property under which there is any dispute regarding the scope of
such agreement, or performance under such agreement, including with respect to
any payments to be made or received by Target thereunder.
(t) The operation of the business of Target as it currently is
conducted or is contemplated to be conducted by Target, including but not
limited to the design, development, use, import, branding, advertising,
promotion, marketing, manufacture and sale of the products, technology or
services (including products, technology or services currently under
development) of Target does not and will not and will not when conducted by
Acquiror and/or the Surviving Corporation in substantially the same manner
following the Closing, infringe or misappropriate any Intellectual Property
Right of any person, violate any right of any person (including any right to
privacy or publicity) or constitute unfair competition or trade practices under
the laws of any jurisdiction, and Target has not received notice from any person
claiming that such operation or any act, product, technology or service
(including products, technology or services currently under development) of
Target infringes or misappropriates any Intellectual Property Right of any
person or constitutes unfair competition or trade practices under the laws of
any jurisdiction.
(u) To Target's Knowledge, no person is infringing or
misappropriating any Target Intellectual Property Right.
(v) No Target Intellectual Property or service of Target is subject
to any proceeding or outstanding decree, order, judgment or settlement agreement
or stipulation that restricts in any manner the use, transfer or licensing
thereof by Target or may affect the validity, use or enforceability of such
Target Intellectual Property.
26
(w) No (i) product, technology, service or publication of Target,
(ii) material published or distributed by Target, or (iii) conduct or statement
of Target constitutes obscene material, a defamatory statement or material,
false advertising or otherwise violates in any material respect any law or
regulation.
(x) The Target Intellectual Property constitutes all the Technology
and Intellectual Property used in and/or necessary to the conduct of the
business of Target as it currently is conducted, and, to the Knowledge of Target
and the Principal Stockholders, as it is currently planned or contemplated to be
conducted by Target, including, without limitation, the design, development,
manufacture, use, import and sale of products, technology and performance of
services (including products, technology or services currently under
development).
(y) Neither this Agreement nor the transactions contemplated by
this Agreement, including the assignment to Acquiror or Surviving Corporation,
by operation of law or otherwise, of any contracts or agreements to which Target
is a party, will result in (i) either Acquiror or the Surviving Corporation
granting to any third party any right to or with respect to any Technology or
Intellectual Property owned by, or licensed to, either of them, (ii) either the
Acquiror or the Surviving Corporation being bound by, or subject to, any
noncompete or other restriction on the operation or scope of their respective
businesses, or (iii) either the Acquiror or the Surviving Corporation being
obligated to pay any royalties or other amounts to any third party in excess of
those payable by Acquiror or the Surviving Corporation, respectively, prior to
the Closing.
(z) There are no royalties, fees, honoraria or other payments
payable by Target to any person or entity by reason of the ownership,
development, use, license, sale or disposition of the Target Intellectual
Property, other than salaries, sales commissions and other forms of compensation
paid to employees and sales agents in the Ordinary Course of Business.
4.16 Contracts. Schedule 4.16 of the Target Disclosure Schedules
lists the following contracts and other agreements to which Target is a party:
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in excess
of $10,000 per year;
(b) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of which
will extend over a period of more than one year or involve consideration in
excess of $10,000;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $10,000 or under which
it has imposed a Security Interest on any of its assets, tangible or intangible;
(e) any agreement concerning confidentiality not entered into in
the Ordinary Course of Business, or any noncompetition or similar agreement;
27
(f) any agreement with any of Target's officers, directors or
Shareholders and their Affiliates (other than Target);
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis or providing severance
benefits;
(j) any agreement under which the consequences of a default or
termination could have a Target Material Adverse Effect; or
(k) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000, other than
agreements entered into after the date hereof for which Target has obtained oral
approval from Acquiror.
Target has delivered to Acquiror a correct and complete copy of each
written agreement listed in Schedule 4.16 of the Target Disclosure Schedules.
With respect to each such agreement: (i) the agreement is valid and legally
binding obligation of Target, enforceable against Target in accordance with its
terms and conditions, except as (A) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(B) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability, and is in full force
and effect in all material respects; (ii) Target is not in material breach or
default, and to Target's Knowledge, no other party is in material breach or
default, and no event has occurred which with notice or lapse of time would
constitute a material breach or default, or permit termination, modification, or
acceleration, under the agreement; and (iii) to Target's Knowledge no party has
repudiated any provision of the agreement.
4.17 Real Property. Schedule 4.17 of the Target Disclosure
Schedules lists and describes briefly all real property leased or subleased to
Target. Target has delivered to Acquiror correct and complete copies of the
leases and subleases listed in Schedule 4.17 of the Target Disclosure Schedules.
With respect to each material lease and sublease listed in Schedule 4.17 of the
Target Disclosure Schedules:
(a) the lease or sublease is legal, valid and legally binding
obligation of Target, enforceable against Target in accordance with its terms
and conditions, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally,
and (ii) rights of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability, and is in full
force and effect in all respects;
(b) Target is not in material breach or default, and to Target's
Knowledge, no other party to the lease or sublease is in material breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a material breach or default or permit termination, modification, or
acceleration thereunder;
28
(c) to Target's Knowledge, no party to the lease or sublease has
repudiated any provision thereof;
(d) to Target's Knowledge there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or sublease;
(e) Target has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or subleasehold;
and
(f) all facilities leased or subleased thereunder have received, to
the Knowledge of Target, all approvals of governmental authorities (including
material licenses and permits) required in connection with the operation
thereof, and have been operated and maintained in accordance with applicable
laws, rules, and regulations in all material respects.
4.18 Undisclosed Liabilities. Target has no liability that would be
required to be disclosed on a balance sheet prepared in accordance with GAAP
(whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due, including any liability for Taxes), except for (i) liabilities set forth
on the face of Target's Most Recent Balance Sheet or in any notes thereto, and
(ii) liabilities which have arisen after Target's Most Recent Balance Sheet in
the Ordinary Course of Business.
4.19 Notes and Accounts Receivable. All of the accounts receivable
of Target reflected on Target's Recent Balance Sheet (other than those collected
in full in the Ordinary Course of Business) arose from bona fide transactions in
the Ordinary Course of Business and are valid receivables subject to no setoffs
or counterclaims, subject to any reserves relating thereto reflected on Target's
Most Recent Balance Sheet. The reserve for bad debts set forth on the face of
Target's Most Recent Balance Sheet has been determined in accordance with GAAP
on a basis consistent with past custom and practice of Target.
4.20 Powers of Attorney. Except for powers of attorney entered into
in connection with trademark filings or otherwise in the Ordinary Course of
Business, there are no outstanding powers of attorney executed on behalf of
Target.
4.21 Insurance. Schedule 4.21 of the Target Disclosure Schedules
identifies each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) with respect to which Target is a party, a named insured, or
otherwise the beneficiary of coverage. With respect to each such insurance
policy: (i) the policy is valid, binding, enforceable, and in full force and
effect in all respects except as (A) the enforceability thereof may be limited
by bankruptcy, insolvency or similar laws affecting creditors' rights generally
and (B) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability; (ii) neither Target
nor to Target's Knowledge any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy; and (iii) to Target's Knowledge, no party to the
policy has repudiated any provision thereof. Target does not participate in any
self-insurance arrangements.
29
4.22 Guaranties. Target is not a guarantor or otherwise is
responsible for any liability or obligation (including indebtedness) of any
other Person.
4.23 Employees. To the Knowledge of Target, as of the date of this
Agreement Target is not aware that any executive, key employee, or significant
group of employees plans to terminate employment with Target prior to the
Closing Date. Target is not a party to or bound by any collective bargaining
agreement, nor has any of them experienced any strike or material grievance,
claim of unfair labor practices, or other collective bargaining dispute. Target
has not committed any unfair labor practice, which, individually or in the
aggregate would have a Target Material Adverse Effect. None of the directors and
officers of Target has any Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of Target. Target has complied in all respects with all applicable
laws relating to the employment of labor, including provisions relating to
wages, hours, equal opportunity and collective bargaining, except for such
failures to comply which, individually and in the aggregate, would not have a
Target Material Adverse Effect.
4.24 Employee Benefits.
(a) Schedule 4.24(a) of the Target Disclosure Schedules lists each
Employee Benefit Plan that Target maintains or to which Target contributes.
(i) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code, and other
applicable laws.
(ii) All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-l's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
such Employee Benefit Plan. The requirements of Part 6 of subtitle B of Title I
of ERISA and of Code Section 4980B have been met in all material respects with
respect to each such Employee Benefit Plan which is an Employee Welfare Benefit
Plan.
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before the
Closing Date which are not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and practice of
Target. All premiums or other payments for all periods ending on or before the
Closing Date have been paid or have been accrued in accordance with past custom
with respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(iv) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan has received, within the last two years, a
favorable determination, notification, advisory and/or opinion letter from the
Internal Revenue Service or has a remaining period of time under applicable law
in which to apply for such letter or to make any amendment necessary to obtain a
favorable determination.
30
(v) If applicable, the market value of assets under
each such Employee Benefit Plan which is an Employee Pension Benefit Plan (other
than any Multiemployer Plan) equals or exceeds the present value of all vested
and nonvested liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
(vi) Target has delivered to or made available to
Acquiror correct and complete copies of the plan documents and summary plan
descriptions, the most recent determination, notification, advisory and/or
opinion letter received from the Internal Revenue Service, the most recent Form
5500 Annual Report, and all related trust agreements, insurance contracts, and
other funding agreements which implement each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that Target and the
Controlled Group of Corporations which includes Target maintains or ever has
maintained or to which any of them contributes, ever has contributed, or ever
has been required to contribute:
(i) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been subject of a Reportable Event as to which notices
would be required to be filed with the PBGC. No proceeding by the PBGC to
terminate any such Employee Pension Benefit Plan (other than any Multiemployer
Plan) has been instituted or, to the Knowledge of Target, threatened.
(ii) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan which is not otherwise exempt under
applicable law. No Fiduciary has any liability for material breach of fiduciary
duty or any other material failure to act or comply in connection with the
administration or investment of the assets of any such Employee Benefit Plan. No
action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit Plan
(other than routine claims for benefits) is pending or, to the Knowledge of
Target, threatened.
(iii) Target has not incurred any liability (whether
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) to the PBGC (other than PBGC premium payments)
or otherwise under Title IV of ERISA (including any withdrawal liability) or
under the Code with respect to any such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
(c) None of Target and the other members of the Controlled Group of
Corporations that includes Target contributes to, ever has contributed to, or
ever has been required to contribute to any Multiemployer Plan or has any
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due) , including any withdrawal
liability, under any Multiemployer Plan.
(d) Target does not maintain or ever has maintained or contributes,
ever has contributed, or ever has been required to contribute to any Employee
Welfare Benefit Plan providing
31
medical, health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B or any similar provisions of
state law).
4.25 Assets. All assets of Target are in good operating condition
and sufficient for Target's use thereof, normal wear and tear excepted, except
where such failure to be in good operating condition could not reasonably be
expected to result in a Target Material Adverse Effect. Target owns or has
rights to use all assets necessary for the conduct of its business and
operations as presently conducted or reflected on Target's Most Recent Balance
Sheet, except where the lack of such ownership or rights could not reasonably be
expected, individually or in the aggregate, to have a Target Material Adverse
Effect.
4.26 Transactions With Target. None of the Shareholders and, to
Target's Knowledge, their Affiliates own any material asset, tangible or
intangible, which is used in the business of Target.
4.27 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. Target does not meet the criteria listed in
Section 201 of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (the "HSR Act").
V.
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR AND MERGER SUB
Acquiror represents and warrants to Target, as of the date hereof and as
of the Closing Date, except for representations and warranties that are limited
to a specific date and as expressly set forth in the disclosure schedules
attached hereto on the date hereof (the "Acquiror Disclosure Schedules"), as
follows:
5.1 Organization, Qualification and Corporate Power. Each of
Acquiror and Merger Sub is a corporation duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation. Each
of Acquiror and Merger Sub is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a material
adverse effect on the business, assets (including intangible assets), condition
(financial or otherwise), capitalization, operations or results of operations
of Acquiror and its subsidiaries taken as a whole ("Acquiror Material Adverse
Effect"). Each of Acquiror and Merger Sub has all necessary corporate power and
corporate authority to carry on its business as presently conducted and to own
and use the properties owned and used by it. Schedule 5.1 of the Acquiror
Disclosure Schedules lists the directors and officers of Acquiror and Merger
Sub.
5.2 Authorization of Transaction. Each of Acquiror and Merger Sub
has all necessary corporate power and corporate authority to execute and deliver
this Agreement and to perform its obligations hereunder and to issue, sell and
deliver the Merger Shares. Assuming the due authorization, execution and
delivery by Target, this Agreement constitutes the valid and legally binding
obligation of Acquiror and Merger Sub, enforceable against Acquiror or Merger
Sub in accordance with its terms and conditions, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally, and (ii) rights of
32
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. Other than filings with respect
to the Merger, neither Acquiror nor Merger Sub need give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated by
this Agreement.
5.3 Subsidiaries and Affiliates. Except as set forth on Schedule
5.3 of the Acquiror Disclosure Schedules, as of the date of this Agreement,
Acquiror does not have any subsidiary or any equity or ownership interest,
whether direct or indirect, in any corporation, partnership, limited liability
company, joint venture or other business entity. Except as set forth on Schedule
5.3 of the Acquiror Disclosure Schedules, Acquiror has not agreed and is not
obligated to make, nor is bound by, any contract as in effect as of the date of
this Agreement or that will be in effect as of the Closing Date under which it
may become obligated to make any future investment in or capital contribution to
any entity. Except as set forth on Schedule 5.3 of the Acquiror Disclosure
Schedules, Acquiror has never been a general partner of any general partnership
or limited partnership.
5.4 No Conflicts.
(a) The execution, delivery and performance of this Agreement by
Acquiror, and the consummation of the transactions contemplated hereby will not:
(i) constitute a material violation (with or without
the giving of notice or lapse of time, or both) of any provision of law or any
judgment, decree, order, regulation or rule of any court or other governmental
authority applicable to Acquiror;
(ii) result in a material default under (with or
without the giving of notice or lapse of time, or both), or acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any material agreement, lease, note or other
restriction, encumbrance, obligation or liability to which Acquiror is a party
or by which Acquiror is bound or to which its assets are subject;
(iii) result in the creation of any material
Encumbrances upon any assets of Acquiror or Acquiror Common Stock;
(iv) conflict with or result in a breach of or
constitute a default under any provision of Acquiror's Certificate of
Incorporation or Bylaws; or
(v) invalidate or adversely affect any material permit,
license or authorization or status used in the conduct of Acquiror's business.
(b) No consent, waiver, permit, approval, order or authorization
of, or registration, declaration or filing with any Governmental Entity is
required by or with respect to Acquiror or Merger Sub in connection with the
execution and delivery of this Agreement by Acquiror or Merger Sub or the
consummation by Acquiror and Merger Sub of the transactions contemplated hereby,
except for (i) those required under or in relation to (A) Blue Sky Laws, (B) the
Securities Act, and (C) the California Corporations Code with respect to the
filing of appropriate documents to effect the Merger, and (ii) such consents,
waivers, permits, approvals, orders, authori-
33
zations, registrations, declarations and filings the failure of which to make or
obtain, excluding those which, prior to the Effective Time, have been made or
obtained, could not reasonably be expected to have an Acquiror Material Adverse
Effect.
5.5 Brokers' Fees. Neither Acquiror nor Merger Sub has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
Acquiror or the Surviving Corporation could become liable or obligated after the
Effective Time.
5.6 Capital Structure. The authorized stock of Acquiror consists of
34,000,000 shares of Common Stock, $0.001 par value, of which 10,753,863 shares
were issued and outstanding as of September 7, 2000, and 13,354,778 shares of
Preferred Stock, $0.001 par value; of which 4,278,854 shares have been
designated Series A Preferred Stock, all of which have been issued and
outstanding as of September 7, 2000; of which 1,625,924 shares have been
designated Series B Preferred Stock; 1,600,284 shares of which have been issued
and outstanding as of September 7, 2000; of which 1,200,000 shares have been
designated Series C Preferred Stock, of which 1,180,000 shares have been issued
and outstanding as of September 7, 2000; of which 2,250,000 shares have been
designated Series D Preferred Stock, of which 2,213,781 shares have been issued
and outstanding as of September 7, 2000; of which 4,000,000 shares have been
designated Series E Preferred Stock, of which 3,253,336 shares have been issued
and outstanding as of September 7, 2000. All such shares of Acquiror have been
duly authorized, and all such issued and outstanding shares have been validly
issued, are fully paid and nonassessable, are free of any liens or encumbrances
other than any liens or encumbrances created by or imposed upon the holders
thereof, are not subject to preemptive rights created by statute, the charter
documents or Bylaws of Acquiror as currently in effect or any agreement to which
Acquiror is a party or by which it is bound, and have been issued in compliance
with federal and state securities laws. Acquiror has reserved an aggregate of
11,756,205 shares of Acquiror Common Stock for issuance to employees, directors
and consultants upon the exercise of stock options pursuant to the Acquiror's
1995 Stock Plan, of which (i) 4,062,307 shares of Acquiror Common Stock were
outstanding as a result of the exercise of vested options or the issuance of
restricted stock as of September 7, 2000, (ii) 6,505,334 shares were issuable,
as of September 7, 2000, upon the exercise of outstanding stock options and
(iii) 1,188,564 shares remained available for future grant under the Acquiror's
1995 Stock Plan as of September 7, 2000. As of the date hereof, there are no
approved but unissued options to purchase Acquiror Common Stock. As of the date
hereof, Acquiror has issued and outstanding the following warrants: (i) warrants
to purchase an aggregate of 25,640 shares of Series B Preferred Stock; (ii)
warrants to purchase an aggregate of 20,000 shares of Series C Preferred Stock;
(iii) warrants to purchase an aggregate of 20,000 shares of Series D Preferred
Stock; and warrants to purchase an aggregate of 66,667 shares of Series E
Preferred Stock. Other than as described above and as set forth in (i)
Acquiror's Fourth Amended and Restated Rights Agreement dated April 6, 1998
between Acquiror and the entities listed on Exhibit A thereto (the "Acquiror
Rights Agreement") and (ii) Acquiror's Series E Preferred Stock Agreement dated
April 6, 1998 between Acquiror and the entities listed on Exhibit A thereto (the
"Series E Agreement") there are no outstanding rights of first refusal or offer,
preemptive rights, stock purchase rights or other agreements, either directly or
indirectly, for the purchase or acquisition from Target or any Shareholder of
any shares of Target Capital Stock or any securities convertible into or
exchangeable for shares of Target Capital Stock.
34
5.7 Books and Records; Organizational Documents.
(a) The books, records and accounts of Acquiror and Merger Sub (i)
are true, complete and correct, (ii) are stated in reasonable detail and , to
the Acquiror's knowledge, accurately and fairly reflect the transactions and
dispositions of the assets of Acquiror and Merger Sub, and (iii) to the
Acquiror's knowledge, accurately and fairly reflect the basis for Acquiror's
Financial Statements.
(b) Acquiror has devised and maintains a system of internal
accounting controls sufficient for companies at an applicable stage of
development to provide reasonable assurances that: (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary (A) to permit preparation of financial
statements in conformity with GAAP or any other criteria applicable to such
statements, and (B) to maintain accountability for assets; and (iii) the amount
recorded for assets on the books and records of Target are recorded in
accordance with GAAP.
(c) Acquiror and Merger Sub have written records of their
respective proceedings, consents, actions and meetings of their respective
shareholders and directors or any committee thereof, where such proceedings,
consents, actions and meetings were related to corporate matters material to
Acquiror's business, financial condition, operations or results of operations.
Acquiror and Merger Sub have made available to Target or its counsel for
examination all documents and information listed in Acquiror Disclosure
Schedules or in any other exhibit or schedule called for by this Agreement
including, without limitation, the following: (i) copies of Acquiror's and
Merger Sub's Certificate of Incorporation and Bylaws as currently in effect;
(ii) all written records of all proceedings, consents, actions and, to the
extent available in writing, meetings of Acquiror's and Merger Sub's
stockholders, board of directors and any committees thereof; (iii) Acquiror's
and Merger Sub's stock ledger and journal reflecting all stock issuances and
transfers; and (iv) all permits, orders, and consents issued by, and filings by
Acquiror and Merger Sub with, any Government Entity, and all applications for
such permits, orders, and consents.
5.8 Title to Assets. Acquiror and Merger Sub have good and
marketable title to, or a valid leasehold interest in, the properties and assets
owned or leased by them, located on their premises, or shown on Acquiror's
balance sheet for the quarter ended June 30, 2000 ("Acquiror's Most Recent
Balance Sheet") or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the Ordinary
Course of Business since the date of Acquiror's Most Recent Balance Sheet.
5.9 Financial Statements. Attached hereto as Schedule 5.9 to the
Acquiror Disclosure Schedules are the following financial statements
(collectively the "Acquiror's Financial Statements"): audited consolidated
balance sheets and statements of income as of and for the year ended September
30, 1999 (the "Acquiror's Most Recent Fiscal Year End") for Acquiror and the
unaudited consolidated balance sheets and statements of income as of and for the
nine-month period ending June 30, 2000 for Acquiror (the "Acquiror Interim
Statements") . Acquiror's Financial Statements (including the notes thereto) are
correct and complete in all material respects and have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby and present fairly the financial condition of Acquiror as of
such dates and the results
35
of operations of Acquiror for such periods, except that the Acquiror Interim
Statements do not contain footnotes and are subject to normal year-end audit
adjustments which shall not be material in amount.
5.10 Events Subsequent to Acquiror's Most Recent Balance Sheet.
Since the date of Acquiror's Most Recent Balance Sheet, there has been no change
in the business, assets, liabilities or financial condition of Acquiror, except
for changes in the Ordinary Course of Business which individually or in the
aggregate have not had an Acquiror Material Adverse Effect and there has not
been an Acquiror Material Adverse Effect by any occurrence, state of facts or
development, individually or in the aggregate, whether or not insured against.
Without limiting the generality of the foregoing, since the date of Acquiror's
Most Recent Balance Sheet, Acquiror has not: (i) issued any stock, bond or other
security (except shares issued in connection with the exercise of employee stock
options), (ii) borrowed any amount or incurred or become subject to any
liability (absolute, accrued or contingent), except current liabilities
incurred in the Ordinary Course of Business and liabilities under contracts
entered into in the Ordinary Course of Business, (iii) declared or made any
payment or distribution to equity holders or purchased or redeemed any share of
its capital stock or other security, (iv) mortgaged, pledged or subjected to
lien any of its assets, tangible or intangible, other than liens for current
Taxes not yet due and payable, except for mortgages, pledges or liens that do
not exceed $100,000 in the aggregate, (v) sold, assigned or transferred any of
its assets except in the Ordinary Course of Business, or canceled any debt or
claim, (vi) suffered any material loss of property or waived any right of
substantial value whether or not in the Ordinary Course of Business, (vii) made
any material change to Acquiror's employee benefit plans, (viii) made any change
in Acquiror's accounting principles and practices, (ix) made any material change
in the manner of business or operations, (x) entered into any material
transaction except in the Ordinary Course of Business or as otherwise
contemplated hereby, or (xi) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
5.11 Legal Proceedings. Except as would not have an Acquiror
Material Adverse Effect, there is no action, suit, arbitration, mediation,
proceeding, claim or investigation pending against Acquiror (or to Acquiror's
knowledge against any officer, director, employee or agent of Acquiror in his or
her capacity as such) or affecting Acquiror's business before any court,
administrative agency or arbitrator, and to Acquiror's Knowledge, no such
action, suit, proceeding, arbitration, mediation, claim or investigation has
been threatened. Except as would not have an Acquiror Material Adverse Effect,
there is no judgment, decree, injunction, rule or order of any governmental
entity or agency, court or arbitrator outstanding against Acquiror. Except as
set forth in Schedule 5.11 of the Acquiror Disclosure Schedules, to Acquiror's
Knowledge, there is no basis for any person, firm, corporation or other entity
to assert a claim against Acquiror based upon: (i) Acquiror's entering into this
Agreement or the Merger or any of the transactions contemplated by this
Agreement, or (ii) a claim of ownership to options, warrants or other rights,
commitments or agreements of any character to acquire ownership of, any shares
of the capital stock of Acquiror or any rights as a shareholder of Acquiror,
including any option, warrant or preemptive rights or rights to notice or to
vote, other than for the normal rights of shareholders with respect to Acquiror
Stock. No Governmental Entity has at any time challenged or questioned in a
writing delivered to Acquiror the legal right of Acquiror to design, offer or
sell any of its products or services in connection with Acquiror's business in
the present manner or style thereof. To Acquiror's Knowledge, as of the date of
this Agreement, no event has occurred, and no claim, dispute or other condition
or circumstance
36
exists, that will, or that would reasonably be expected to, cause or provide a
bona fide basis for a director or executive officer of Acquiror to seek
indemnification from Acquiror.
5.12 Compliance with Laws and Orders. Acquiror has complied, and is
now and at the Closing Date will be in compliance with, to Acquiror's Knowledge,
all applicable law except for such noncompliance which, individually or in the
aggregate, would not be material to Acquiror's business. Acquiror holds all
permits, licenses, exemptions, orders and approvals from and has made all
filings with Governmental Entities that are necessary for Acquiror to continue
to conduct Acquiror's business as presently conducted without violation of
applicable law ("Acquiror Governmental Permits") that are necessary for Acquiror
to continue to conduct Acquiror's business substantially as presently conducted
without any violation of applicable law and all such Acquiror Governmental
Permits are in full force and effect. Acquiror has not received any notice or
other communication from any Governmental Entity regarding (i) any actual or
possible violation of law or any Acquiror Governmental Permit or any failure to
comply with any term or requirement of any Acquiror Governmental Permit, or (ii)
any actual or possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Acquiror Governmental Permit. Acquiror is not
subject to any reporting or filing requirement with or to any Governmental
Entity, or under applicable law, or pursuant to any Acquiror Governmental Permit
other than such requirements which are applicable to companies similarly
situated to Acquiror. Neither Acquiror nor any director, officer, agent or
employee of Acquiror has, for or on behalf of Acquiror, (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other payment in violation of applicable
law, which violation for the purposes of clause (iii) only, is not materially
adverse to Acquiror's business.
5.13 Tax Matters. (i) Acquiror has timely filed all federal, state,
county, local and foreign Returns required to be filed by it except where
failures to file such Returns would not, individually or in the aggregate,
reasonably be expected to have an Acquiror Material Adverse Effect; (ii) all
such Returns are complete and accurate except where failures of such Returns to
be complete and accurate would not, individually or in the aggregate, reasonably
be expected to have an Acquiror Material Adverse Effect; (iii) Acquiror has paid
all Taxes (whether or not shown to be due by such returns) as well as all other
Taxes, assessments and governmental charges that have become due or payable
except where failures to pay such Taxes would not, individually or in the
aggregate, reasonably be expected to have an Acquiror Material Adverse Effect;
(iv) Acquiror has withheld and collected all amounts required to be withheld
from amounts owing to employees, creditors and third parties except where
failures to withhold and collect such Taxes would not, individually or in the
aggregate, reasonably be expected to have an Acquiror Material Adverse Effect;
(v) adequate reserves have been established for all Taxes accrued but not yet
payable except where failures to establish such reserves would not, individually
or in the aggregate, reasonably be expected to have an Acquiror Material Adverse
Effect; (vi) no deficiency or adjustment of Acquiror's federal, state, county,
local or foreign Taxes has been asserted or proposed, or is pending or
threatened except where such deficiencies or adjustments did not or would not
reasonably be expected to, individually or in the aggregate, have an Acquiror
Material Adverse Effect; and (vii) there are no Tax liens outstanding against
the assets, properties or business of Acquiror other than liens for current
Taxes
37
not yet due and payable except where such liens would not, individually or in
the aggregate, reasonably be expected to have an Acquiror Material Adverse
Effect.
5.14 Intellectual Property; Proprietary Information of Third
Parties.
(a) INTELLECTUAL PROPERTY. Acquiror owns or possesses all valid
licenses or other rights to use all Intellectual Property necessary to the
conduct of its business as currently conducted and no claim is pending or, to
the Knowledge of Acquiror, threatened to the effect that the operations of
Acquiror infringe upon, misappropriate, violate or conflict with the asserted
rights of any other Person under any Intellectual Property. To the Knowledge of
Acquiror there is no valid basis for any such claim (whether or not pending or
threatened) . All of the Intellectual Property that Acquiror licenses from third
parties is licensed pursuant to the agreements listed on Schedule 5.14 of the
Acquiror's Disclosure Schedules, all of which are valid and in full force and
effect. No claim is pending or, to the Knowledge of Acquiror, threatened to the
effect that any such Intellectual Property owned or licensed by Acquiror, or
which Acquiror otherwise has the right to use, is invalid or unenforceable by
Acquiror, and, to the Knowledge of Acquiror, there is no basis for any such
claim (whether or not pending or threatened). Acquiror has not granted or
assigned to any other Person any right to license or sell the Intellectual
Property of Acquiror. Except as set forth in Schedule 5.14(a) of the Acquiror
Disclosure Schedules, Acquiror has not granted or assigned to any other Person
any right to license to others or sell its Intellectual Property.
(b) PROPRIETARY INFORMATION OF THIRD PARTIES. No third party has
claimed in writing or, to the Knowledge of Acquiror, has a valid basis to claim
that any Person employed by or affiliated with Acquiror has (i) violated or is
violating any of the terms or conditions of such Person's employment,
noncompetition or nondisclosure agreement with such third party, (ii) disclosed
or is disclosing or utilized or is utilizing any trade secret or proprietary
information or documentation of such third party, or (iii) interfered or is
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested in writing
information from Acquiror which could reasonably be interpreted to suggest that
such a claim might be contemplated. To the Knowledge of Acquiror, no Person
employed by or affiliated with Acquiror has employed or proposes to employ, any
trade secret or any information or documentation in violation of the proprietary
rights of any former employer, and, to the Knowledge of Acquiror, no Person
employed by Acquiror has violated any confidential relationship which such
Person may have had with any third party, in connection with the development,
manufacture or sale of any product or proposed product or the development or
sale of any service or proposed service of Acquiror and there is no reason to
believe there will be any such employment or violation.
5.15 Contracts. With respect to any material lease, agreement or
contract now in effect to which Acquiror is a party or by which it or its
property may be bound, (i) the agreement is valid, binding, enforceable, and in
full force and effect in all material respects except as (A) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (B) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability; (ii) Acquiror is not in material breach, and to Acquiror's
knowledge, no other party is in material breach or default, and no event has
occurred which with notice or lapse of time would constitute a material breach
or default, or permit
38
termination, modification, or acceleration, under the agreement; and (iii) no
party has repudiated any material provision of the agreement.
5.16 Undisclosed Liabilities. Acquiror and Merger Sub have no
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due, including any liability for
Taxes), except for (i) liabilities set forth on the face of Acquiror's Most
Recent Balance Sheet (or in any notes thereto), and (ii) liabilities which have
arisen after Acquiror's Most Recent Fiscal Year End in the Ordinary Course of
Business.
5.17 Employees. To the Knowledge of Acquiror, no executive, key
employee, or significant group of employees plans to terminate employment with
Acquiror prior to the Closing Date. Acquiror has complied in all material
respects with all applicable laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity and collective
bargaining, except for such failures to comply which, individually and in the
aggregate, would not have a Material Adverse Effect on Acquiror. Schedule 5.17
of the Acquiror Disclosure Schedules lists each Employee Benefit Plan and other
benefit plans that Acquiror maintains or to which Acquiror contributes.
5.18 Notes and Accounts Receivable. All of the accounts receivable
of Acquiror reflected on Acquiror's Most Recent Balance Sheet (other than those
collected in full in the Ordinary Course of Business) arose from bona fide
transactions in the Ordinary Course of Business and are valid receivables
subject to no setoffs or counterclaims, subject to any reserves relating thereto
reflected on Acquiror's Most Recent Balance Sheet. The reserve for bad debts set
forth on the face of Acquiror's Most Recent Balance Sheet has been determined in
accordance with GAAP on a basis consistent with past custom and practice of
Acquiror.
5.19 Powers of Attorney. Except for powers of attorney entered into
in connection with trademark filings or otherwise in the Ordinary Course of
Business, there are no outstanding powers of attorney executed on behalf of
Acquiror.
5.20 Transactions With Acquiror. None of the stockholders of
Acquiror and their Affiliates owns any material asset, tangible or intangible,
which is used in the business of Acquiror.
VI.
CONDUCT PRIOR TO THE EFFECTIVE TIME
6.1 Conduct of Business of Target. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, Target agrees (except to the extent that
Acquiror shall otherwise consent in writing) to carry on its business and
operations in the Ordinary Course of Business in the same manner as heretofore
conducted, to pay its debts and Taxes when due, to pay or perform other
obligations when due, and, to the extent consistent with such business, to use
all reasonable efforts consistent with past practice and policies to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, all with the goal of preserving
39
unimpaired its goodwill and ongoing businesses at the Effective Time. Target
shall promptly notify Acquiror of any event or occurrence or emergency not in
the Ordinary Course of Business, and any material event adversely affecting
Target or its business. Except as expressly contemplated by this Agreement,
Target shall not, without the prior written consent of Acquiror:
(a) Enter into any commitment, activity or transaction not in the
Ordinary Course of Business;
(b) Except as set forth in Schedule 6.1(b) of the Target Disclosure
Schedules, transfer to any person or entity any rights to any Target
Intellectual Property (other than pursuant to end-user licenses in the Ordinary
Course of Business) or enter into any agreement with respect to Target
Intellectual Property (including the license thereof) with any person or entity;
(c) Hire (or make any offer therefor) or terminate any employees or
consultants (other than terminations for cause) or encourage any employees to
resign, provided that with respect to the hiring of new employees, Acquiror's
consent will not be unreasonably withheld;
(d) Amend or otherwise modify (or agree to do so), except in the
Ordinary Course of Business, or violate the terms of, any of the agreements set
forth or described in Schedule 4.16 of the Target Disclosure Schedules;
(e) Commence or settle any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any outstanding shares of capital stock of Target, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares of
its capital stock (or options, warrants or other rights exercisable therefor)
except for (i) repurchases of Target capital stock upon the termination of
service of any service providers of Target in accordance with the standard terms
set forth in the agreements governing such repurchases, all of which agreements
have been provided or made available to Acquiror, (ii) conversion of Target
Preferred Stock, and (iii) exercises or conversion of Target convertible
securities;
(g) Except for (i) the issuance of shares of Target capital stock
upon exercise or conversion of presently outstanding Target Preferred Stock or
Target convertible securities, (ii) the granting of options to purchase shares
of Target Common Stock to Target employees employed as of the date hereof as
contemplated by Section 6.3 below, and (iii) as set forth in Schedule 6.1(g) of
the Target Disclosure Schedules, issue, sell, grant, contract to issue, grant or
sell, or authorize the issuance, delivery, sale or purchase of any shares of
Target capital stock or securities convertible into, or exercisable or
exchangeable for, shares of Target capital stock, or any securities, warrants,
options or rights to purchase any of the foregoing;
(h) Cause or permit any amendments to its Articles of Incorporation
or Bylaws;
40
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
Target;
(j) Sell, lease, license or otherwise dispose of any of the assets
or properties of Target which are not Target Intellectual Property other than in
the Ordinary Course of Business, or create any security interest in such assets
or properties;
(k) Grant any loan to any person or entity, incur any indebtedness
or guarantee any indebtedness, issue or sell any debt securities, guarantee any
debt securities of others, purchase any debt securities of others or amend the
terms of any outstanding agreements related to borrowed money, except for
advances to employees for travel and business expenses in the Ordinary Course of
Business, or otherwise incur any financial obligation other than in the Ordinary
Course of Business;
(l) Except as set forth in Schedule 6.1(l) of the Target Disclosure
Schedules, grant any severance or termination pay (i) to any director or
officer, or (ii) to any employee or consultant or increase in the salary or
other compensation payable or to become payable by Target to any of its
officers, directors, employees or advisors, or declare, pay or make any
commitment or obligation of any kind for the payment by Target of a bonus or
other additional salary or compensation to any such person, regardless of
whether recorded in the financial statements of Target, or adopt or amend any
employee benefit plan (including the increase or amendment of any vacation
periods) or enter into any employment contract;
(m) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the Ordinary Course of Business;
(n) Accelerate the collection of notes or accounts receivable other
than in the Ordinary Course of Business;
(o) Take any action to accelerate the vesting schedule of any of
the outstanding Target Options or Target capital stock;
(p) Except for the payment of Third Party Expenses, pay, incur,
discharge or satisfy, in an amount in excess of $25,000 (in any one case) or
$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 of
liabilities reflected or reserved against in Target's Most Recent Balance Sheet;
(q) Except for Third Party Expenses, incur any liabilities or
commit to make any payments to any third party other than in the Ordinary Course
of Business;
(r) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or
41
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(s) Enter into any strategic alliance or joint development
arrangement or agreement;
(t) Fail to pay or otherwise satisfy its monetary obligations as
they become due, except such as are being contested in good faith;
(u) Waive or commit to waive any rights with a value in excess of
$10,000 (in any one case) or $30,000 (in the aggregate);
(v) Cancel, materially amend or renew any insurance policy other
than in the Ordinary Course of Business;
(w) Alter, or enter into any commitment to alter, its interest in
any corporation, association, joint venture, partnership or business entity in
which Target directly or indirectly holds any interest on the date hereof; or
(x) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 6.1(a) through (w) above, or any other action that
would prevent Target from performing or cause Target not to perform its
covenants hereunder or to be in breach of its representations hereunder.
6.2 No Solicitation. Until the earlier of the Effective Time and
the date of termination of this Agreement pursuant to the provisions of Article
X hereof, Target will not (nor will Target permit any of Target's officers,
directors, stockholders, agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any party other than Acquiror
and its designees: (i) solicit, initiate, entertain or encourage any proposals
or offers from, or conduct discussions with or engage in negotiations with, any
person relating to any possible acquisition of Target or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets,
material license of Target Intellectual Property or otherwise), any material
portion of its capital stock or assets or any equity interest in Target or any
of its subsidiaries, (ii) provide information with respect to it to any person,
other than Acquiror, relating to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any such person with regard to, any possible
acquisition of Target (whether by way of merger, purchase of capital stock,
purchase of assets, material license of Target Intellectual Property or
otherwise), any material portion of its capital stock or assets or any equity
interest in Target or any of its subsidiaries, (iii) enter into an agreement
with any person, other than Acquiror, providing for the acquisition of Target
(whether by way of merger, purchase of capital stock, purchase of assets,
material license of Target Intellectual Property or otherwise), any material
portion of its capital stock or assets or any equity interest in Target or any
of its subsidiaries, or (iv) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of Target or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets, material license of Target Intellectual Property or otherwise), any
material portion of its capital stock or assets or any equity interest in Target
or any of its subsidiaries by any person, other than by
42
Acquiror. Target shall immediately cease and cause to be terminated any such
contacts or negotiations with third parties relating to any such transaction or
proposed transaction. In addition to the foregoing, if Target receives prior to
the Effective Time or the termination of this Agreement any offer or proposal
relating to any of the above, Target shall immediately notify Acquiror thereof,
including information as to the identity of the offeror or the party making any
such offer or proposal and the specific terms of such offer or proposal, as the
case may be, and such other information related thereto as Acquiror may
reasonably request. Except as contemplated by this Agreement, disclosure by
Target of the terms hereof (other than the prohibition of this Section 6.2)
shall be deemed to be a violation of this Section 6.2.
6.3 Target Option Grants. Target will issue that number of options
to purchase Target Common Stock, prior to the Effective Time, to existing Target
employees in the aggregate amount equal to .25 multiplied by the number of
Target Options and Target Common Stock held by Target employees as of the date
of this Agreement. Such options shall have an exercise price of not less than
$4.00 multiplied by the Exchange Ratio and shall vest ratably (monthly) over the
five year period from the date of grant and shall be granted in proportion to
the employees' existing equity holdings in Target (except as reasonably
necessary to bring recently-hired Target employees to levels consistent with the
Acquiror's compensation guidelines and except for other deviations from such
proportion to be reasonably agreed upon by Target and Acquiror), and shall be
included in any Form S-8 registration statement filed by Acquiror after the
completion (if any) of its initial public offering.
VII.
ADDITIONAL AGREEMENTS
7.1 General. Each of the parties will use its commercially
reasonable efforts to take all action and to do all things necessary in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Article VIII below).
7.2 Fairness Hearing; Private Placement; Shareholder Approval.
(a) As soon as reasonably practicable following the execution of
this Agreement, Acquiror and Target shall prepare the necessary documents and
Acquiror shall apply to obtain a permit (a "California Permit") from the
Commissioner of Corporations of the State of California (after a hearing before
such Commissioner) pursuant to Section 25121 of the California Corporate
Securities Law of 1968, so that the issuance of Acquiror Common Stock in the
Merger shall be exempt from registration under Section 3(a)(10) of the
Securities Act. Target and Acquiror will respond to any comments from the
California Department of Corporations and use their commercially reasonable
efforts to have the California Permit granted as soon as practicable after such
filing. As promptly as practical after the date of this Agreement, Acquiror
shall prepare and make such filings as are required under applicable Blue Sky
laws relating to the transactions contemplated by this Agreement. Target shall
use reasonable and good faith efforts to assist Acquiror as may be necessary to
comply with the securities and blue sky laws relating to the transactions
contemplated by this Agreement.
43
(b) As promptly as practicable after the receipt of a California
Permit, Target shall submit this Agreement and the transactions contemplated
hereby to its Shareholders for approval and adoption as provided by the
California Corporations Code and its Articles of Incorporation and Bylaws.
Target shall use its commercially reasonable efforts to solicit and obtain the
consent of its Shareholders sufficient to approve the Merger and this Agreement
(and the other matters set forth in Section 1.1(ii) of the Support Agreements)
and to enable the Closing to occur as promptly as practicable following the date
hereof. The materials submitted to Target's Shareholders shall be subject to
reasonable review and approval by Acquiror and include information regarding
Target, the terms of the Merger and this Agreement and the unanimous
recommendation of the Board of Directors of Target in favor of the Merger and
this Agreement, and the transactions contemplated hereby. Notwithstanding the
foregoing, Acquiror, upon the written consent of Target may issue the Total
Merger Shares in a private placement in accordance with applicable federal and
state securities laws, and, in such event, may require the Shareholders and
option holders of Target to make such representations as are reasonable and
customary in such transactions including those set forth in the Investor
Representation Statement attached hereto as Exhibit B and, for foreign
residents, those set forth in Regulation S Agreement attached hereto as Exhibit
C.
7.3 Conversion of Target Preferred Stock. Target shall use
commercially reasonable efforts to cause the conversion of all outstanding
Target Preferred Stock into Target Common Stock in accordance with the Target's
Articles of Incorporation.
7.4 Notices and Consents. Target shall give any notices to third
parties, and shall use its commercially reasonable efforts to obtain any third
party consents, that Acquiror reasonably may request in connection with the
matters referred to in Section 4.4 above. Each of the parties will give any
notices to, make any filings with, and use its commercially reasonable efforts
to obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in Section 4.4
above.
7.5 Full Access. Each of the parties will permit representatives of
the other party to have full access at all reasonable times, and in a manner so
as not to interfere with such parties' normal business operations, to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to Acquiror or Target, as appropriate.
The parties will treat and hold as such any Confidential Information it receives
from any of the other party in the course of the reviews contemplated by this
Section 7.5, will not use any of the Confidential Information except in
connection with this Agreement, and, if this Agreement is terminated for any
reason whatsoever, will return to the appropriate party all tangible embodiments
(and all copies) of the Confidential Information which are in its possession.
7.6 General. In case at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other party reasonably may
request, all at the sole cost and expense of the requesting party (unless the
requesting party is entitled to indemnification therefor under Article IX
below). Target acknowledges and agrees that from and after the Closing Acquiror
and/or Merger Sub will be entitled to possession of all documents, books,
records (including Tax records), agreements, and financial data of any sort
owned or controlled by Target.
44
7.7 New Employment Arrangements. Acquiror shall agree to be bound
by the employment agreements attached hereto, as Exhibits D(i)-(vii), subject
to the other parties thereto agreeing to employment with Acquiror following the
Closing.
7.8 Expenses. Whether or not the Merger is consummated, all fees
and expenses incurred in connection with the Merger including, without
limitation, all Third Party Expenses, shall be the obligation of the respective
party incurring such fees and expenses. Not less than three (3) business days
prior to the Closing Date, Target shall provide Acquiror a statement (the
"Company Statement of Expenses") setting forth (i) Target's estimated Third
Party Expenses, and (ii) the amount, if any, by which such estimated Third Party
Expenses of Target exceed $800,000.
7.9 Public Disclosure. Unless otherwise required by law or by this
Agreement (including, without limitation, federal and state securities laws),
prior to the Effective Time, no disclosure (whether or not in response to an
inquiry) of the subject matter of this Agreement shall be made by any party
hereto unless approved by Acquiror and Target prior to release, provided that
such approval shall not be unreasonably withheld.
7.10 Termination of Rights Agreement and Stock Purchase Agreement.
Target shall employ commercially reasonable efforts to cause the Investor Rights
Agreement, dated May 3, 1999, between Target and the parties listed on Exhibit A
thereto (the "Target Rights Agreement") to terminate or to be amended such that
it shall be of no further force or effect prior to the Closing.
7.11 FIRPTA Compliance. On or prior to the Closing Date, Target
shall deliver to Acquiror a properly executed statement in a form reasonably
acceptable to Acquiror for purposes of satisfying Acquiror's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
7.12 Reasonable Efforts. Subject to the terms and conditions
provided in this Agreement, each of the parties hereto shall use its
commercially reasonable efforts to ensure that its representations and
warranties remain true and correct in all material respects, and to take
promptly, or cause to be taken, all actions, and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals, to effect all
necessary registrations and filings, and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Acquiror shall not be required to agree to any divestiture by
Acquiror or Target or any of Acquiror's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Acquiror or its
subsidiaries or affiliates or Target or its affiliates, or the imposition of any
material limitation on the ability of any of them to conduct their businesses or
to own or exercise control of such assets, properties and stock.
7.13 Notification of Certain Matters. Target shall give prompt
notice to Acquiror, and Acquiror shall give prompt notice to Target, of (i) the
occurrence or nonoccurrence of any event, the occurrence or nonoccurrence of
which is likely to cause any representation or warranty of Target and Acquiror,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time, and (ii) any failure of
Target or Acquiror, as the case may
45
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder, such that the conditions set forth
in Section 8.3(a) or Section 8.2(a) would not be satisfied; provided, however,
that the delivery of any notice pursuant to this Section 7.13 shall not limit or
otherwise affect any remedies available to the party receiving such notice.
7.14 Affiliate Agreements. Schedule 7.14 of Target Disclosure
Schedules sets forth those persons who, in Target's reasonable judgment, are or
may be "affiliates" of Target within the meaning of Rule 145 (each such person a
"Company Affiliate") promulgated under the Securities Act ("Rule 145"). Target
shall provide Acquiror such information and documents as Acquiror shall
reasonably request for purposes of reviewing such list. Target shall deliver or
cause to be delivered to Acquiror, concurrently with the execution of this
Agreement (and in any case prior to the Closing) from each of Target Affiliates,
an executed Affiliate Agreement in the form attached hereto as Exhibit E.
Acquiror shall be entitled to place appropriate legends on the certificates
evidencing any Acquiror Common Stock to be received by such Company Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for Acquiror Common Stock, consistent with
the terms of such Affiliate Agreements.
7.15 Intentionally Deleted
7.16 Confidentiality. The parties will treat and hold as such all
of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the party whose Confidential Information is at issue or destroy, at the request
and option of such party, all tangible embodiments (and all copies) of the
Confidential Information which are in his or its possession. In the event that
any party is requested or required (by oral question or request for information
or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information of another party, such party will notify the other party promptly of
the request or requirement so that the party whose Confidential Information is
at issue may seek an appropriate protective order or waive compliance with the
provisions of this Section 7.16. If, in the absence of a protective order or the
receipt of a waiver hereunder, any party is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or else stand liable
for contempt, such party may disclose the Confidential Information to the
tribunal; provided, however, that the disclosing party shall use his or its
reasonable efforts to obtain, at the reasonable request of party whose
Confidential Information is at issue, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as such party shall designate.
Notwithstanding the foregoing, Acquiror shall be entitled to disclose such
information about Target as shall be reasonably necessary in conjunction with
Acquiror's initial public offering.
7.17 Intentionally Deleted
7.18 Tax Matters. Each of Target, Acquiror and Merger Sub shall use
their commercially reasonable efforts to cause the Merger to qualify, and shall
not take any action and shall not fail to take any action which action or
failure to act could reasonably expected to prevent the Merger from qualifying,
as a reorganization within the meaning of Section 368(a) of the Code.
46
7.19 New Employment Arrangements. All persons who are employees of
Target immediately prior to the Effective Time shall be offered continued
"at-will" employment by Acquiror and/or the Surviving Corporation, to be
effective as of the Effective Time, upon proof (if applicable) of appropriate
employment authorization from the U.S. Immigration and Naturalization Service or
the U.S. Department of State reflecting a right to work in the United States.
Such "at-will" employment arrangements will (i) be subject to and in compliance
with Acquiror's standard human resources policies and procedures, and (ii) have
terms, including the position, salary and responsibilities of all such
employees, which will be determined in Acquiror's sole discretion, subject to
Section 8.2(e) below, after consultation with the management of Target. Each
employee of Target who remains an employee of Acquiror and/or the Surviving
Corporation after the Effective Time shall be referred to hereafter as a
"Continuing Employee". Continuing Employees shall be eligible to receive
benefits consistent with Acquiror's standard human resources policies with
respect to employees of similar rank and status, which are subject to change.
VIII.
CONDITIONS TO THE MERGER
8.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the shareholders of Target and the shareholders of
Acquiror by at least the requisite vote under applicable law and Target's
Articles of Incorporation and Acquiror's Certificate of Incorporation,
respectively.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(c) TAX OPINIONS. Acquiror and Target shall each have received
written opinions from their respective tax counsel (▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, Professional Corporation, and ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, respectively), in form
and substance reasonably satisfactory to them, to the effect that the Merger
will constitute a tax-free reorganization within the meaning of Section 368(a)
of the Code and such opinions shall not have been withdrawn; provided, however,
that if either Acquiror or Target shall fail to use all commercially reasonable
efforts to facilitate the rendering of the opinion of their respective tax
counsel as referred herein, such failure shall be a willful and material failure
to fulfill the failing party's obligation under this Agreement and such failing
party shall not have the right to terminate this Agreement pursuant to Section
10.1(b). The parties to this Agreement agree to make such reasonable
representations as requested by such counsel for the purpose of rendering such
opinions.
8.2 Additional Conditions to Obligations of Target. The obligations
of Target to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the
47
satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, exclusively by Target:
(a) AGREEMENTS AND COVENANTS. Acquiror and Merger Sub shall have
performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Effective
Time, except where such failure to perform or comply has not materially and
adversely affected the consummation of the transactions contemplated by this
Agreement, and Target shall have received a certificate to such effect signed on
behalf of Acquiror and Merger Sub by an authorized officer of Acquiror and
Merger Sub.
(b) LEGAL OPINION. Target shall have received a legal opinion from
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, legal counsel to Acquiror, in substantially
the form attached hereto as Exhibit F.
(c) APPOINTMENT OF BOARD MEMBER. ▇▇▇▇▇ ▇▇▇▇▇▇▇ shall be appointed
to the Board of Directors of Acquiror to be effective following the Closing to
serve for not less than one year, subject to applicable law.
(d) NO ACQUIROR MATERIAL ADVERSE EFFECT. There shall not have
occurred any event that has had an Acquiror Material Adverse Effect since the
date of this Agreement provided, however, that for purposes of this Section
8.2(d) , Acquiror Material Adverse Effect shall not include changes in general
economic conditions, changes in capital markets or changes affecting the
industries in which Target operates.
(e) EMPLOYMENT AGREEMENTS. Acquiror shall have entered into
employment agreements, the forms of which is attached hereto as Exhibits D(i)-
(vii), with each of the individuals set forth on Schedule 8.1(e).
(f) REGISTRATION RIGHTS AGREEMENT. In the event that Acquiror shall
have issued the Acquiror Common Stock in a private placement so contemplated by
Section 7.2, Acquiror shall have executed and delivered the Registration Rights
Agreement attached hereto as Exhibit G and such Registration Rights Agreement
shall be enforceable against Acquiror.
8.3 Additional Conditions to the Obligations of Acquiror and Merger
Sub. The obligations of Acquiror and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Acquiror:
(a) AGREEMENTS AND COVENANTS. Target shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, except where such failure to perform or comply has not
materially and adversely affected the consummation of the transactions
contemplated by this Agreement, and Acquiror shall have received a certificate
to such effect signed on behalf of Target, by the chief executive officer of
Target.
48
(b) THIRD PARTY CONSENTS. Acquiror shall have been furnished with
evidence satisfactory to it that Target has obtained the consents, approvals and
waivers set forth in Schedule 8.3(b) of the Target Disclosure Schedules.
(c) LEGAL OPINION. Acquiror shall have received a legal opinion
from ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, legal counsel to Target, in substantially the form
attached hereto as Exhibit H.
(d) KEY EMPLOYEES. Each of the employees of Target listed on
Schedule 8.3(d) of the Acquiror Disclosure Schedules (each, a "Key Employee" and
collectively, the "Key Employees") shall have agreed to become an employee of
Acquiror following the Effective Time, shall have executed an employment
agreement from Acquiror in the forms attached hereto as Exhibits D(i)-(vii) and
shall be an employee of Target as of the Closing Date.
(e) SHAREHOLDER APPROVAL. Holders of at least a majority of Target
Stock, including not less than a majority of Target Common Stock and not less
than a majority of Target Preferred Stock, shall have approved this Agreement,
the Merger and the transactions contemplated hereby and thereby in accordance
with California Law, and holders of not more than 5% of Target Stock shall
continue to have a right to exercise appraisal, dissenters or similar rights
under applicable law with respect to their Target Stock by virtue of the Merger.
The Shareholders shall have approved by the requisite vote any payments of cash
or stock contemplated by this Agreement or any other agreements that may be
deemed to constitute "parachute payments" pursuant to Section 280G of the Code,
such that all such payments, sales and purchases resulting from the transactions
contemplated hereby or thereby shall not be deemed to be "parachute payments"
pursuant to Section 280G of the Code or shall be exempt from such treatment
under such Section 280G.
(f) RESIGNATION OF OFFICERS AND DIRECTORS. Acquiror shall have
received a written resignation from each of the officers and directors of Target
effective as of the Effective Time.
(g) PROPRIETARY INFORMATION AGREEMENTS. Each Target employee shall
have entered into a proprietary information and invention assignment agreement
in a form acceptable to Target and Acquiror.
(h) NONCOMPETITION AGREEMENTS. Each of the Key Employees shall have
executed and delivered to Acquiror a Noncompetition Agreement in the form
attached hereto as Exhibit I, and all of such Noncompetition Agreements shall be
in full force and effect.
(i) CONVERSION OF PREFERRED STOCK. As of immediately prior to the
Effective Time of the Merger, all shares of Target Preferred Stock shall have
been converted into an equal number of shares of Target Common Stock, and the
holders of Target Preferred Stock shall have waived any and all rights to
receive preferred stock of Acquiror instead of Acquiror Common Stock pursuant to
the terms of the Agreement pursuant to any rights that may exist under Target's
Articles of Incorporation or otherwise.
(j) WAIVER OF ACCELERATION. Each of the employees listed on
Schedule 8.3(j) of the Acquiror's Disclosure Schedules shall have executed a
waiver of the rights to acceleration of
49
vesting of such employee's Target Options or Target Stock as a result of the
Merger, and such waiver shall be in full force and effect.
(k) NO TARGET MATERIAL ADVERSE EFFECT. There shall not have
occurred any event that has had a Target Material Adverse Effect since the date
of this Agreement provided, however, that for purposes of this Section 8.3(k),
Target Material Adverse Effect shall not include changes in general economic
conditions, changes in capital markets or changes affecting the industries in
which Target operates.
(l) LOCK-UP AGREEMENT. All Optionholders (other than optionholders,
whether together or separate, holding options to purchase an aggregate of
200,000 shares of Target Stock) of Target and all Shareholders holding one (1%)
percent or more of the outstanding Target Stock, and Shareholders holding not
less than ninety-five (95%) percent of the total outstanding Target Stock in the
aggregate shall have executed the form of Lock-Up Agreement attached hereto as
Exhibit J and the terms of such Lock-Up Agreement shall be binding upon all
shares of Acquiror Common Stock received by such Shareholders pursuant to the
terms of this Agreement.
(m) TERMINATION OR AMENDMENT OF TARGET RIGHTS AGREEMENT. As of
prior to the Closing, the Target Rights Agreement shall have been terminated or
amended to eliminate any substantive obligation of Acquiror.
IX.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
9.1 Survival of Representations and Warranties. The representations
and warranties of Target and Acquiror set forth in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger and
continue until 5:00 p.m., California time, on the date which is one year
following the Closing Date (the "Expiration Date").
9.2 Indemnification.
(a) INDEMNIFICATION BY SHAREHOLDERS. By virtue of approval of their
approval of this Agreement and the transactions contemplated hereby, the
Shareholders shall be deemed to have agreed to indemnify and hold Acquiror and
its officers, directors and affiliates, including the Surviving Corporation (the
"Acquiror Indemnified Parties") harmless against all claims, losses,
liabilities, deficiencies, costs and expenses, including reasonable attorneys'
fees and expenses and expenses of investigation and defense, net of any benefits
or proceeds of insurance (hereinafter individually a "Loss" and collectively
"Losses") incurred directly or indirectly by Acquiror, its officers, directors,
or affiliates as a result of (i) any inaccuracy or breach of any representation
or warranty of Target contained herein, (ii) any failure by Target to perform or
comply with any covenant contained herein, (iii) the payment by Acquiror of
Excess Dissenters Amounts, or (iv) the amount by which Third Party Expenses
incurred by Target exceeds $800,000. No Shareholder shall have any right of
contribution from Acquiror or Target with respect to any Loss claimed by
Acquiror. Solely for purposes of breaches of the representations made in Section
4.15 hereof, the Deductible Amount shall be $500,000.
50
Notwithstanding the foregoing, Acquiror shall have no right to
indemnification pursuant to this Article IX unless and until Officer's
Certificates (as defined in Section 9.3(d)(i) below) identifying aggregate
Losses in excess of $250,000 (the "Deductible Amount") have been delivered to
the Securityholder Agent, in which event Acquiror shall be entitled to recover
all amounts in excess of the Deductible Amount. Provided that, notwithstanding
the foregoing, Acquiror shall be entitled to indemnification on a first dollar
basis, without regard to whether the Deductible Amount has been exceeded for (i)
the payment by Acquiror of Excess Dissenters Amounts, (ii) any breach of the
Target representations and warranties contained in Section 4.6, (iii) the amount
by which Third Party Expenses incurred by Target exceeds $800,000, or (iv) any
fraudulent breaches of the representations, warranties or covenants made by
Target in connection with this Agreement or the Merger.
(b) INDEMNIFICATION BY ACQUIROR. Acquiror hereby agrees to
indemnify and hold each of the Shareholders and any of their respective
officers, directors and affiliates (the "Target Indemnified Parties", and
together with the Acquiror Indemnified Parties, the "Indemnified Parties")
harmless against all Losses incurred directly or indirectly by such Shareholders
and any of their respective officers, directors and affiliates as a result of
(i) any inaccuracy or breach of any representation or warranty of Acquiror
contained herein, or (ii) any failure by Acquiror or Merger Sub to perform or
comply with any covenant contained herein.
Notwithstanding the foregoing, Target shall have no right to
indemnification pursuant to this Article IX unless and until Securityholder
Certificates (as defined in Section 9.3(d)(ii) below) identifying aggregate
Losses in excess of the Deductible Amount have been delivered to Acquiror, in
which event Target shall be entitled to recover all such amounts in excess of
the Deductible Amount; provided that, notwithstanding the foregoing, Target
shall be entitled to indemnification on a first dollar basis, without regard to
whether the Deductible Amount has been exceeded (i) any breach by Acquiror of
the representations and warranties contained in Section 5.6 or (ii) any
fraudulent breaches of the representations, warranties or covenants made by
Acquiror in connection with this Agreement or the Merger.
9.3 Escrow Arrangements.
(a) ESCROW FUND. As security for the indemnity provided by the
Shareholders as set forth in Section 9.2(a) hereof and by virtue of this
Agreement and the Shareholders' approval thereof, at the Effective Time, the
Shareholders will be deemed to have received and deposited with the Escrow Agent
(as defined below) the Escrow Amount (plus any additional shares as may be
issued upon any stock split, stock dividend or recapitalization effected by
Acquiror after the Effective Time) without any act of any Shareholder. As soon
as practicable after the Effective Time, the Escrow Amount, without any act of
any Shareholder, will be deposited with U.S. Bank Trust, National Association
(or other institution acceptable to Acquiror and the Securityholder Agent (as
defined in Section 9.3(g) below)), as Escrow Agent (the "Escrow Agent"), such
deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the
terms set forth herein and at Acquiror's cost and expense. The Escrow Fund shall
be available to compensate Acquiror and its affiliates for any Losses incurred
by Acquiror, its officers, directors, or affiliates (including the Surviving
Corporation) which are subject to indemnification under Section 9.2(a).
51
(b) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW PERIODS.
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
California time, on the Expiration Date (the "Escrow Period"); provided that
the Escrow Period shall not terminate with respect to such amount (or some
portion thereof), not to exceed the aggregate amount remaining in the Escrow
Fund, necessary in the reasonable judgment of Acquiror, subject to the objection
of the Securityholder Agent and the subsequent arbitration of the matter in the
manner provided in Section 9.3(f) hereof, to satisfy any unsatisfied claims
concerning facts and circumstances existing prior to the termination of such
Escrow Period specified in any Officer's Certificate (as defined below)
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as all such claims have been resolved, the Escrow Agent shall deliver to
the Shareholders the remaining portion of the Escrow Fund. Deliveries of Escrow
Amounts to the Shareholders pursuant to this Section 9.3(b) shall be made in
proportion to their respective original contributions to the Escrow Fund as
determined pursuant to Section 2.8.
(c) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard the
Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Acquiror
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of Acquiror Common Stock or other
equity securities issued or distributed by Acquiror (including shares issued
upon a stock split) ("New Shares") in respect of Acquiror Common Stock in the
Escrow Fund which have not been released from the Escrow Fund shall be added to
the Escrow Fund and become a part thereof. New Shares issued in respect of
shares of Acquiror Common Stock which have been released from the Escrow Fund
shall not be added to the Escrow Fund but shall be distributed to the record
holders thereof. Cash dividends on Acquiror Common Stock shall not be added to
the Escrow Fund but shall be distributed to the record holders thereof.
(iii) Each Shareholder shall have voting rights with
respect to the shares of Acquiror Common Stock contributed to the Escrow Fund by
such Shareholder (and on any voting securities added to the Escrow Fund in
respect of such shares of Acquiror Common Stock).
(d) CLAIMS FOR INDEMNIFICATION.
(i) Claims Upon Escrow Fund. Upon receipt by the Escrow
Agent at any time on or before the last day of the Escrow Period of a
certificate signed by any officer of Acquiror (an "Officer's Certificate"): (A)
stating that Acquiror has paid or properly accrued or reasonably anticipates
that it will have to pay or accrue Losses, and (B) specifying in reasonable
detail the individual items of Losses included in the amount so stated, the date
each such item was paid or properly accrued, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty or
covenant to which such item is related, the Escrow Agent shall, subject to the
provisions of Section 9.3(e) hereof, deliver to Acquiror out of the Escrow Fund,
52
as promptly as practicable, shares of Acquiror Common Stock held in the Escrow
Fund in an amount equal to such Losses. For the purposes of determining the
number of shares of Acquiror Common Stock to be delivered to Acquiror out of the
Escrow Fund pursuant to this Section 9.3(d)(i), each share of Acquiror Common
Stock shall have a value equal to the Acquiror Common Price Per Share.
(ii) Claims Upon Acquiror. Upon receipt by Acquiror at
any time before the Expiration Date of a certificate signed by the
Securityholder Agent (as defined below) (a "Securityholder Certificate", and
together with an Officer's Certificate, a "Claim Certificate"): (A) stating
that the Shareholders have paid or properly accrued or reasonably anticipate
that they will have to pay or accrue Losses, and (B) specifying in reasonable
detail for each Shareholder the individual items of Losses included in the
amount so stated, the date each such item was paid or properly accrued, or the
basis for such anticipated liability, and the nature of the misrepresentation,
breach of warranty or covenant to which such item is related, Acquiror shall,
subject to the provisions of Section 9.3(e) hereof, deliver to the
Securityholder Agent for distribution to the Shareholders, as promptly as
practicable, an amount of cash (by check or wire transfer) equal to such Losses.
(e) OBJECTIONS TO CLAIMS.
(i) At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent (as defined in Section 9.3(g)) and for a
period of thirty (30) days after such delivery, the Escrow Agent shall make no
delivery to Acquiror of any shares of Acquiror Common Stock pursuant to Section
9.3(d)(i) hereof unless the Escrow Agent shall have received written
authorization from the Securityholder Agent to make such delivery. After the
expiration of such thirty (30)-day period, the Escrow Agent shall make delivery
of shares of Acquiror Common Stock from the Escrow Fund in accordance with
Section 9.3(d)(i) hereof, provided that no such payment or delivery may be made
if the Securityholder Agent shall object in a written statement to the claim
made in the Officer's Certificate, and such statement shall have been delivered
to the Escrow Agent prior to the expiration of such thirty (30) day period.
(ii) At the time of delivery of any Securityholder
Certificate and for a period of thirty (30) days after such delivery, Acquiror
shall make no delivery to the Securityholder Agent of any cash pursuant to
Section 9.3(d)(ii) hereof. After the expiration of such thirty (30)-day
period, Acquiror shall make delivery of cash in accordance with Section
9.3(d)(ii) hereof, provided that no such payment or delivery may be made if
Acquiror shall object in a written statement to the claim made in the
Securityholder Certificate, and such statement shall have been delivered to
Securityholder prior to the expiration of such thirty (30) day period.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Securityholder Agent or Acquiror, as
the case may be, objects in writing to any claim or claims made in any Claim
Certificate, the Securityholder Agent and Acquiror shall attempt in good faith
to agree upon the rights of the respective parties with respect to each of such
claims. If the Securityholder Agent and Acquiror should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both
53
parties and, in the event of a claim against the Escrow Fund, shall be furnished
to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such
memorandum and distribute shares of Acquiror Common Stock from the Escrow Fund
in accordance with the terms thereof.
(ii) If no such agreement can be reached after good
faith negotiation, either Acquiror or the Securityholder Agent may demand
arbitration of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration conducted by
three arbitrators. Acquiror and the Securityholder Agent shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator;
provided that if the arbitration concerns Intellectual Property matters, the
arbitrators selected shall have a relevant background and experience in the
field. The arbitrators shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrators, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel or limit discovery
and shall have the authority to impose sanctions, including attorneys' fees and
costs, to the extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Claim Certificate shall be binding and
conclusive upon the parties to this Agreement, and notwithstanding anything in
Section 9.3(e) hereof, the Escrow Agent shall be entitled to act in accordance
with such decision and make or withhold payments out of the Escrow Fund in
accordance therewith. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Santa ▇▇▇▇▇ County, California under the rules then
in effect of the American Arbitration Association. For purposes of this Section
9.3(f), in any arbitration hereunder in which any claim or the amount thereof
stated in the Claim Certificate is at issue, the claiming party shall be deemed
to be the Nonprevailing Party in the event that the arbitrators award less than
the sum of one-half (1/2) of the disputed amount plus any amounts not in
dispute. The Nonprevailing Party to an arbitration shall pay its own expenses,
the fees of each arbitrator, the administrative costs of the arbitration and the
expenses, including without limitation, reasonable attorneys' fees and costs,
incurred by the other party to the arbitration.
(g) SECURITYHOLDER AGENT; POWER OF ATTORNEY.
(i) In the event that the Merger is approved, effective
upon such vote, and without further act of any Shareholder, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ shall
be appointed as agent and attorney-in-fact (the "Securityholder Agent") for each
Shareholder (except such shareholders, if any, as shall have perfected their
appraisal or dissenters' rights under the California Corporations Code), for
and on behalf of the Shareholders, to give and receive notices and
communications, to authorize delivery to Acquiror of shares of Acquiror Common
Stock from the Escrow Fund in satis-
54
faction of claims by Acquiror, to object to such deliveries, 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
Securityholder Agent for the accomplishment of the foregoing. Such agency may be
changed by the Shareholders from time to time upon not less than thirty (30)
days prior written notice to Acquiror; provided that the Securityholder Agent
may not be removed unless holders of a two-thirds interest of the Escrow Fund
agree to such removal and to the identity of the substituted agent. Any vacancy
in the position of Securityholder Agent may be filled by approval of the holders
of a majority in interest of the Escrow Fund. No bond shall be required of the
Securityholder Agent, and the Securityholder Agent shall not receive
compensation for his services. Notices or communications to or from the
Securityholder Agent shall constitute notice to or from each of the
Shareholders.
(ii) The Securityholder Agent shall not be liable for
any act done or omitted hereunder as Securityholder Agent while acting in good
faith. The Shareholders on whose behalf the Escrow Amount was contributed to the
Escrow Fund shall severally indemnify the Securityholder Agent and hold the
Securityholder Agent harmless against any loss, liability or expense incurred
without bad faith on the part of the Securityholder Agent and arising out of or
in connection with the acceptance or administration of the Securityholder
Agent's duties hereunder, including the fees and expenses of any legal counsel
retained by the Securityholder Agent.
(h) ACTIONS OF THE SECURITYHOLDER AGENT. A decision, act, consent
or instruction of the Securityholder Agent, consistent with this Section 9.3,
shall constitute a decision of all the Shareholders for whom a portion of the
Escrow Amount otherwise issuable to them are deposited in the Escrow Fund and
shall be final, binding and conclusive upon each such Shareholder, and the
Escrow Agent and Acquiror may rely upon any such decision, act, consent or
instruction of the Securityholder Agent, consistent with this Section 9.3, as
being the decision, act, consent or instruction of each every such Shareholder.
The Escrow Agent and Acquiror are hereby relieved from any liability to any
person for any acts done by them in accordance with such decision, act, consent
or instruction of the Securityholder Agent, consistent with this Section 9.3.
(i) THIRD-PARTY CLAIMS.
(i) In the event Acquiror becomes aware of a
third-party claim which Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall promptly notify the Securityholder Agent of such
claim, and the Securityholder Agent, as representative for the Shareholders,
shall be entitled, at their expense, to participate in any defense of such
claim. Acquiror shall have the right in its sole discretion to settle any such
claim; provided, however, that except with the consent of the Securityholder
Agent, no settlement of any such claim with third-party claimants shall alone be
determinative of the amount of any claim against the Escrow Fund. In the event
that the Securityholder Agent has consented to any such settlement, the
Securityholder Agent shall have no power or authority to object under any
provision of this Article IX to the amount of any claim by Acquiror against the
Escrow Fund with respect to such settlement.
55
(ii) In the event any Shareholder becomes aware of a
third-party claim which such Shareholder believes may result in a demand against
the Acquiror, such Shareholder shall notify Acquiror of such claim, and Acquiror
shall be entitled, at its expense, to participate in any defense of such claim.
Any such Shareholder shall have the right in its sole discretion to settle any
such claim; provided, however, that except with the consent of Acquiror, no
settlement of any such claim with third-party claimants shall alone be
determinative of the amount of any claim against the Acquiror. In the event that
Acquiror has consented to any such settlement, Acquiror shall have no power or
authority to object under any provision of this Article IX to the amount of any
claim by the Securityholder Agent against Acquiror with respect to such
settlement.
(j) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Acquiror and the Securityholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
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.
(ii) The Escrow Agent is hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court of law,
notwithstanding any notices, warnings or other communications from any party or
any other person to the contrary. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any court, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties executing
or delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent. The Escrow Agent shall not incur any such liability for (A) any act or
failure to act made or omitted in good faith, or (B) any action taken or omitted
in reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal
56
counsel in connection with Escrow Agent's duties under this Agreement and shall
be fully protected in any act taken, suffered, or permitted by him/her in good
faith in accordance with the advice of counsel. The Escrow Agent is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement.
(vi) If any controversy arises between the parties to
this Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Acquiror Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Acquiror Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon initiating
such action, the Escrow Agent shall be fully released and discharged of and from
all obligations and liability imposed by the terms of this Agreement.
(vii) The parties and their respective successors and
assigns agree jointly and severally to indemnify and hold Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, and disbursements
that may be imposed on Escrow Agent or incurred by Escrow Agent in connection
with the performance of his/her duties under this Agreement, including but not
limited to any litigation arising from this Agreement or involving its subject
matter.
(viii) The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice to the parties; provided,
however, that no such resignation shall become effective until the appointment
of a successor escrow agent which shall be accomplished as follows: the parties
shall use their best efforts to mutually agree on a successor escrow agent
within thirty (30) days after receiving such notice. If the parties fail to
agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent authorized to do business in
the State of California. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of the
predecessor escrow agent as if originally named as escrow agent. The Escrow
Agent shall be discharged from any further duties and liability under this
Agreement.
(k) FEES. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Acquiror. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its
57
subject matter, the Escrow Agent shall be reasonably compensated for such
extraordinary services and reimbursed for all costs, attorney's fees, and
expenses occasioned by such default, delay, controversy or litigation. Acquiror
promises to pay these sums upon demand.
9.4 Limitations; Maximum Payments; Remedies. The maximum liability
of each Shareholder for their indemnification obligations pursuant to this
Article IX if the Closing occurs shall be limited to the their pro-rata portion
of the Escrow Amount; provided that, notwithstanding anything in this Agreement
to the contrary, nothing contained herein shall limit the liability of the
Company or Shareholders (i) for any fraudulent breaches of the representations,
warranties or covenants made in connection with this Agreement, or (ii) for any
breaches of the representations, warranties or covenants contained in this
Agreement if this Agreement is terminated prior to the Closing. The maximum
liability of Acquiror for their indemnification obligations pursuant to this
Article IX if the Closing occurs shall be limited to an amount equal to the
Total Merger Shares multiplied by .10, multiplied by the Third Party Valuation
Price Per Share; provided that, notwithstanding anything in this Agreement to
the contrary, nothing contained herein shall limit the liability of Acquiror (i)
for any fraudulent breaches of the representations, warranties or covenants made
in connection with this Agreement, or (ii) for any breaches of the
representations, warranties or covenants contained in this Agreement if this
Agreement is terminated prior to the Closing. Other than the commission of fraud
which shall be governed by applicable law, the indemnification obligations of
the respective parties as set forth under this Article IX shall be the sole and
exclusive recourse for claims of breaching this Agreement.
X.
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. Except as provided in Section 10.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual consent of the Target and Acquiror;
(b) by Acquiror or Target if: (i) the Effective Time has not
occurred before 5:00 p.m. (Pacific time) on November 30, 2000 (the "End Date")
(provided that the right to terminate this Agreement under this Section
10.1(b)(i) shall not be available to any party whose willful failure to fulfill
any obligation hereunder has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date); (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity that would make consummation of the Merger
illegal;
(c) by Acquiror if there shall be any final nonappealable order of
a federal of State court in effect, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Merger, by any
Governmental Entity or other third party, which would: (i) prohibit Acquiror's
or Target's ownership or operation of all or any portion of the business of
Target, or (ii) compel Acquiror or Target to dispose of or hold separate all or
a portion of the business or assets of Target or Acquiror as a result of the
Merger;
58
(d) by Acquiror, if an event or change having a Target Material
Adverse Effect shall have occurred after the date of this Agreement; and
(e) by Target, if an event or change having an Acquiror Material
Adverse Effect shall have occurred after the date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this
Section 10.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
10.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 10.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Acquiror,
Merger Sub or Target, or their respective officers, directors or stockholders,
provided that each party shall remain liable for any willful breaches of this
Agreement prior to its termination; and provided further that, the provisions of
Section 7.16 and Article XI of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.
10.3 Amendment. Except as is otherwise required by applicable law
after the Shareholders approve this Agreement, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
10.4 Extension; Waiver. At any time prior to the Effective Time,
Acquiror and Merger Sub, on the one hand, and Target, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
XI.
MISCELLANEOUS
11.1 No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the parties and their
respective successors and permitted assigns.
11.2 Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the parties and
supersedes any prior understandings, agreements, or representations by or among
the parties, written or oral, to the extent they related in any way to the
subject matter hereof.
11.3 Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties named herein and their respective
successors and permitted assigns. No party may assign either this Agreement or
any of his or its rights, interests, or obligations hereunder without the prior
written approval of Acquiror and Target.
59
11.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
11.5 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.6 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to Target: With a copy to:
Altius Solutions, Inc. ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to Acquiror: With a copy to:
Simplex Solutions, Inc. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇ Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other parties notice in the manner herein set forth.
11.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of California
without giving effect to any choice or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
11.8 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the
60
remaining terms and provisions hereof or the validity or enforceability of the
offending term or provision in any other situation or in any other jurisdiction.
11.9 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including, without limitation.
11.10 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
*****
61
IN WITNESS WHEREOF, Acquiror, Merger Sub, Target and, with respect
to Article IX only, the Escrow Agent and the Securityholder Agent, have caused
this Agreement to be signed by their duly authorized respective officers, all as
of the date first written above.
SIMPLEX SOLUTIONS, INC. ALTIUS SOLUTIONS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
--------------------------------- ----------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
------------------------------- --------------------------------
Title: Title: President & CEO
------------------------------ -------------------------------
SECURITYHOLDER AGENT ATLAS ACQUISITION CORP.
(WITH RESPECT TO ARTICLE IX):
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------- ----------------------------------
Name: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------- --------------------------------
Title: President & CEO Title:
------------------------------ -------------------------------
ESCROW AGENT
(WITH RESPECT TO ARTICLE IX):
By: /s/ ▇▇▇ ▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇ ▇▇▇▇▇▇
-------------------------------
Title: Vice President
------------------------------
62
EXHIBIT B
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
DATED AS OF SEPTEMBER 8, 2000
BY AND AMONG
SIMPLEX SOLUTIONS, INC.
ATLAS ACQUISITION CORP.
AND
ALTIUS SOLUTIONS, INC.