AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
COMMERCE ONE, INC.,
GAVEL ACQUISITION CORPORATION,
MERGENT SYSTEMS, INC.
AND
THE SHAREHOLDERS NAMED HEREIN
DATED AS OF DECEMBER 23, 1999
TABLE OF CONTENTS
PAGE
----
TABLE OF CONTENTS............................................................i
ARTICLE I THE MERGER.........................................................1
1.1 THE MERGER.........................................................1
1.2 EFFECTIVE TIME.....................................................2
1.3 EFFECT OF THE MERGER...............................................2
1.4 ARTICLES OF INCORPORATION; BYLAWS..................................2
1.5 DIRECTORS AND OFFICERS.............................................2
1.6 EFFECT OF MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS.......................................................2
1.7 DISSENTING SHARES..................................................6
1.8 SURRENDER OF CERTIFICATES..........................................7
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK...............8
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES.............................9
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION.........................9
1.12 TAX AND ACCOUNTING CONSEQUENCES....................................9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
SHAREHOLDERS............................................................9
2.1 ORGANIZATION OF THE COMPANY........................................9
2.2 SUBSIDIARIES......................................................10
2.3 COMPANY CAPITAL STRUCTURE.........................................10
2.4 AUTHORITY.........................................................11
2.5 NO CONFLICT.......................................................11
2.6 CONSENTS..........................................................12
2.7 COMPANY FINANCIAL STATEMENTS......................................12
2.8 NO UNDISCLOSED LIABILITIES........................................12
2.9 NO CHANGES........................................................13
2.10 TAX MATTERS.......................................................14
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES...............................16
2.12 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION
OF EQUIPMENT......................................................16
2.13 INTELLECTUAL PROPERTY.............................................17
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS.............................21
2.15 INTERESTED PARTY TRANSACTIONS.....................................23
2.16 GOVERNMENTAL AUTHORIZATION........................................23
2.17 LITIGATION........................................................24
2.18 ACCOUNTS RECEIVABLE...............................................24
2.19 MINUTE BOOKS......................................................24
2.20 ENVIRONMENTAL MATTERS.............................................24
2.21 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES..................25
2.22 EMPLOYEE BENEFIT PLANS AND COMPENSATION...........................25
2.23 INSURANCE.........................................................29
2.24 COMPLIANCE WITH LAWS..............................................29
2.25 WARRANTIES; INDEMNITIES...........................................29
2.26 COMPLETE COPIES OF MATERIALS......................................29
2.27 REPRESENTATIONS COMPLETE..........................................29
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB................30
3.1 ORGANIZATION, STANDING AND POWER..................................30
3.2 AUTHORITY.........................................................30
3.3 NO CONFLICT.......................................................30
3.4 CONSENTS..........................................................31
3.5 CAPITAL STRUCTURE.................................................31
3.6 SEC FILINGS; FINANCIAL STATEMENTS.................................31
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..............................32
4.1 CONDUCT OF BUSINESS OF THE COMPANY................................32
4.2 NO SOLICITATION...................................................34
ARTICLE V ADDITIONAL AGREEMENTS.............................................35
5.1 SALE OF SHARES....................................................35
5.2 COMPANY SHAREHOLDER APPROVAL......................................36
5.3 ACCESS TO INFORMATION.............................................36
5.4 CONFIDENTIALITY; PUBLIC DISCLOSURE................................36
5.5 CONSENTS..........................................................36
5.6 REASONABLE EFFORTS................................................36
5.7 NOTIFICATION OF CERTAIN MATTERS...................................37
5.8 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES.......................37
5.9 FIRPTA COMPLIANCE.................................................37
5.10 EXPENSES..........................................................37
5.11 TERMINATION OF 401(k) PLAN........................................38
5.12 BONUS POOL........................................................38
5.13 EMPLOYEE BENEFITS.................................................38
5.14 RULE 145 AFFILIATE AGREEMENTS.....................................38
5.15 VOTING AGREEMENTS.................................................38
5.16 NASDAQ LISTING....................................................38
5.17 FORM S-8..........................................................39
5.18 STATEMENT OF EXPENSES.............................................39
5.19 SPECIAL BONUS.....................................................39
5.20 NO ACTIONS INCONSISTENT WITH TAX-FREE REORGANIZATION..............39
ARTICLE VI CONDITIONS TO THE MERGER.........................................39
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER......39
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY...................40
-ii-
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB........40
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.....43
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................43
7.2 INDEMNIFICATION...................................................43
7.3 ESCROW ARRANGEMENTS...............................................43
7.4 MAXIMUM PAYMENTS; REMEDY..........................................49
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER..............................50
8.1 TERMINATION.......................................................50
8.2 EFFECT OF TERMINATION.............................................51
8.3 AMENDMENT.........................................................51
8.4 EXTENSION; WAIVER.................................................51
ARTICLE IX GENERAL PROVISIONS...............................................51
9.1 NOTICES...........................................................51
9.2 INTERPRETATION....................................................53
9.3 COUNTERPARTS; FACSIMILE...........................................53
9.4 ENTIRE AGREEMENT; ASSIGNMENT......................................53
9.5 SEVERABILITY......................................................53
9.6 OTHER REMEDIES; SPECIFIC PERFORMANCE..............................53
9.7 GOVERNING LAW.....................................................54
9.8 RULES OF CONSTRUCTION.............................................54
9.9 ATTORNEYS FEES....................................................54
-iii-
INDEX OF EXHIBITS
EXHIBITS DESCRIPTION
-------- -----------
Exhibit A Agreement of Merger
Exhibit B Key Employees
Exhibit C Form of Shareholder Certificate
Exhibit D Form of Rule 145 Affiliate Agreement
Exhibit E Form of Voting Agreement
Exhibit F Form of Legal Opinion of Counsel to Parent
Exhibit G Form of Registration Rights Agreement
Exhibit H Form of Legal Opinion of Counsel to the Company
Exhibit I-1 Form of Employment and Non-Competition Agreement
(Principal Shareholders)
Exhibit I-2 Form of Employment and Non-Competition Agreement
(Key Employees)
-iv-
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of December 23, 1999 among Commerce One, Inc., a Delaware
corporation ("PARENT"), Gavel Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of Parent ("SUB"), Mergent Systems,
Inc., a California corporation (the "COMPANY") and ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ (collectively the "PRINCIPAL SHAREHOLDERS") and, with
respect to Article VII only, ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇ as Securityholder Agent and
U.S. Bank Trust, N.A. as Escrow Agent.
RECITALS
WHEREAS, the Boards of Directors of each of the Company, Parent and Sub
believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of
Sub with and into the Company (the "MERGER") and, in furtherance thereof,
have approved the Merger.
WHEREAS, pursuant to the Merger, among other things, all of the issued
and outstanding shares of capital stock of the Company shall be converted
into the right to receive a combination of shares of common stock of Parent,
and cash as set forth herein, and all outstanding options to acquire shares
of common stock of the Company shall be converted into options to acquire
shares of common stock of Parent.
WHEREAS, the Company and the Principal Shareholders, on the one hand,
and Parent and Sub, on the other hand, desire to make certain
representations, warranties, covenants and other agreements in connection
with the Merger.
WHEREAS, the parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California Corporations Code ("CALIFORNIA LAW"),
Sub shall be merged with and into the Company, the separate corporate
existence of Sub shall cease and Company shall continue as the surviving
corporation and as a wholly-owned subsidiary of Parent. The surviving
corporation after the Merger is hereinafter sometimes referred to as the
"SURVIVING CORPORATION".
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but not later than five (5) business days
following satisfaction or waiver of the conditions set forth in Article VI,
at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation,
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, unless another place or time
is agreed to in writing by Parent and the Company. The date upon which the
Closing occurs is herein referred to as the "Closing Date." On the Closing
Date, the parties hereto shall cause the Merger to be consummated by filing
an Agreement of Merger (or like instrument), together with the officers'
certificates of the Company and Sub required by California Law, in the form
attached hereto as Exhibit A (the "Merger Agreement") with the Secretary of
State of the State of California, in accordance with the applicable
provisions of California Law (the time of acceptance by the Secretary of
State of the State of California of such filing being referred to herein as
the "Effective Time").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of California Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises
of the Company and Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Articles of Incorporation of Sub shall be
the Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Articles of Incorporation; PROVIDED,
HOWEVER that Section I of the Articles of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation
is Mergent Systems, Inc."
(b) The Bylaws of Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 DIRECTORS AND OFFICERS. The directors of the Surviving Corporation
immediately after the Effective Time shall be the directors of Sub
immediately prior to the Effective Time, each to hold the office of director
of the Surviving Corporation in accordance with the provisions of California
Law and the Articles of Incorporation and Bylaws of the Surviving Corporation
until his or her successor is duly qualified and elected. The officers of the
Surviving Corporation immediately after the Effective Time shall be the
officers of Sub immediately prior to the Effective Time, each to hold office
in accordance with the provisions of the Bylaws of the Surviving Corporation.
1.6 EFFECT OF MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS.
(a) CERTAIN DEFINITIONS. For all purposes of this Agreement, the
following terms shall have the following meanings:
-2-
"CASH CONSIDERATION" shall mean $10,000,000 minus the
Estimated Expense Adjustment and minus the Employee Closing Bonus.
"COMPANY CAPITAL STOCK" shall mean shares of Company Common
Stock and Company Series A Preferred Stock.
"COMPANY COMMON STOCK" shall mean shares of common stock of
the Company.
"COMPANY SERIES A PREFERRED STOCK" shall mean shares of Series
A preferred stock of the Company.
"COMPANY OPTION" shall mean an option to acquire shares of
Company Common Stock (whether vested or unvested).
"EMPLOYEE CLOSING BONUSES" will mean a total of $843,416 in
cash bonuses to be paid immediately after Closing to the employees of the
Company as of immediately prior to the Closing, to be paid in proportion to
Company Options (whether vested or unvested) held thereby immediately prior
to Closing, as provided in Section 5.19, below.
"ESCROW SHARES" means fifteen percent (15%) of the Parent
Common Stock Consideration.
"ESTIMATED EXPENSE ADJUSTMENT" will mean the amount (if any)
by which the Estimated Third Party Expenses exceed $50,000.
"ESTIMATED THIRD PARTY EXPENSES" shall mean Third Party
Expenses (as defined in Section 5.10) of the Company and the Principal
Shareholders on the Closing Date as estimated by the Company in good faith
and based on reasonable assumptions and as reflected on the Statement of
Expenses (as defined in Section 5.18).
"GAAP" shall mean U.S. generally accepted accounting
principles as currently applied in the books, records and financial
statements of the Company.
"KEY EMPLOYEES" shall mean those employees of the Company
listed on EXHIBIT B hereto.
"KNOWLEDGE" shall mean the actual knowledge of the applicable
person.
"OPTION EXCHANGE RATIO" shall mean the quotient obtained by
dividing the Parent Common Stock Consideration by the Total Participating,
Shares, rounded to the fourth decimal place.
"PARENT COMMON STOCK" shall mean shares of the common stock,
par value $0.0001 per share, of Parent.
-3-
"PARENT COMMON STOCK CONSIDERATION" shall mean the number of
shares of Parent Common Stock equal to 88.83% of the quotient obtained by
dividing (x) $138,000,000 by (y) the Trading Price, rounded to the nearest
whole number of shares of Parent Common Stock.
"PARTICIPATING CASH CONSIDERATION" shall mean the Cash
Consideration minus $2,448,968.40.
"PARTICIPATING CONSIDERATION" shall mean the aggregate of the
Participating Cash Consideration and the Parent Common Stock Consideration.
"PARTICIPATING CASH EXCHANGE RATIO" shall mean an amount of
cash equal to the quotient obtained by dividing (x) the Participating Cash
Consideration by (y) the number of Total Participating Shares, rounded to the
fourth decimal place.
"PARTICIPATING STOCK EXCHANGE RATIO" shall mean a number equal
to the quotient obtained by dividing (x) the Parent Common Stock
Consideration by (y) the number of Total Participating Shares, rounded to the
fourth decimal place.
"SHAREHOLDER" shall mean each holder of any Company Capital
Stock immediately prior to the Effective Time.
"TOTAL CONSIDERATION" shall mean the aggregate of the Cash
Consideration and the value of the Parent Common Stock Consideration based on
the Trading Price.
"TOTAL OUTSTANDING COMMON SHARES" shall mean the aggregate
number of shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time.
"TOTAL PARTICIPATING SHARES" shall mean the number equal to
the Total Outstanding Common Shares plus the total number of shares of
Company Common Stock issuable upon conversion of the shares of Company Series
A Preferred Stock issued and outstanding immediately prior to the Effective
Time pursuant to the Company's Restated Articles of Incorporation as in
effect immediately prior to the Effective Time.
"TRADING PRICE" shall mean $422.18.
(b) EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Sub, the Company or
the Shareholders, upon the terms and conditions set forth below in this
Section 1.6(b) and elsewhere in this Agreement, each share of Company Common
Stock and Company Series A Preferred Stock issued and outstanding immediately
prior to the Effective Time (other than any Dissenting Shares (as defined in
Section 1.7 hereof)) shall be canceled and extinguished and automatically
converted into the right to receive, upon surrender of the certificate
representing such share of Company Capital Stock in the manner set forth in
Section 1.8(c) hereof, an amount of cash (without interest) and/or shares of
Parent Common Stock, as follows:
-4-
(i) Each share of Company Series A Preferred Stock
issued and outstanding immediately prior to the Effective Time shall be
entitled to receive an amount of cash (without interest) equal to $.5714.
(ii) The Participating Consideration shall be distributed
as follows:
(A) Each share of Company Capital Stock issued and
outstanding immediately prior to the Effective Time shall be entitled to
receive an amount of cash, without interest, equal to the Participating Cash
Exchange Ratio and, subject to Section 7.3, a number of shares of Parent
Common Stock equal to the Participating Stock Exchange Ratio.
(iii) All shares of Parent Common Stock issued in exchange
for shares of Company Capital Stock subject to Company repurchase rights or
vesting schedules shall be subject to the same repurchase rights and/or
vesting schedules and other terms as applicable to such shares of Company
Capital Stock (except as amended as contemplated hereby, including the
exhibits hereto), with Parent succeeding to the rights of the Company
thereunder and with a proportionate adjustment to any per share repurchase
price applicable to such shares to reflect the exchange ratio in the Merger.
(c) ASSUMPTION OF COMPANY STOCK OPTIONS.
(i) At the Effective Time, under this Agreement, each
Company Option will be assumed by Parent, and will continue to have, and be
subject to, the same terms and conditions governing such Company Option
immediately prior to the Effective Time (including, without limitation, any
vesting schedule or repurchase rights), except that (i) each Company Option
will be exercisable (or will become exercisable in accordance with its terms)
for that number of whole shares of Parent Common Stock equal to the product
of the number of shares of Company Common Stock that were issuable upon
exercise of such Company Option immediately prior to the Effective Time
multiplied by the Option Exchange Ratio, rounded to the nearest whole number
of shares of Parent Common Stock, (ii) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed Company
Option will be equal to the quotient determined by dividing the exercise
price per share of Company Common Stock at which such Company Option was
exercisable immediately prior to the Effective Time by the Option Exchange
Ratio, rounded up to the nearest whole cent, and (iii) twenty-five percent
(25%) of the Parent Common Stock issuable upon exercise of each assumed
Company Option shall vest on the six (6) month anniversary of the
commencement of optionee's employment with Company. After the Effective
Time, Parent will issue to each holder of an outstanding Company Option a
notice describing the foregoing assumption of such Company Options by Parent.
(ii) Prior to the Effective Time, the Company shall take
all action necessary to effect the transactions anticipated by this Section
1.6(c) under all Company Option agreements and any other plan or arrangement
of the Company.
-5-
(d) CAPITAL STOCK OF SUB. At the Effective Time, each share of
common stock of Sub issued and outstanding immediately prior to the Effective
Time will be cancelled and extinguished and converted automatically into the
right to receive one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation.
(e) WITHHOLDING TAXES. Any cash amount (and, if cash is
inadequate, then also Parent Common Stock valued for this purpose at the
Trading Price) payable pursuant to Section 1.6 shall be subject to, and
reduced by, the amount of any state, federal and foreign taxes required by
applicable law to be withheld incurred by or applicable to a Shareholder (and
not previously paid by or on behalf of such Shareholder or the Company) in
connection with the Merger, the acquisition of Company Capital Stock upon the
exercise of Company Options, the acceleration of the vesting of any Company
Option or any Company Capital Stock or the payment of a bonus in the form of
Company Capital Stock.
(f) SHAREHOLDER LOANS. In the event that any Shareholder has
outstanding loans from the Company as of the Effective Time, the cash amounts
(and, if cash is inadequate, then also Parent Common Stock valued for this
purpose at the Trading Price) payable to such Shareholder pursuant to Section
1.6(b) hereof shall be reduced by an amount equal to the outstanding
principal plus accrued interest of such Shareholder's loans as of the
Effective Time.
(g) ADJUSTMENTS TO PARENT COMMON STOCK. The number of shares of
Parent Common Stock issuable hereunder shall be adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any
dividend or distribution of securities convertible into Parent Common Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock occurring after the date hereof.
(h) NO FRACTIONAL SHARES. No fractional share of Parent Common
Stock shall be issued in the Merger. In lieu thereof, any fractional share,
after aggregating all shares held by a Shareholder, shall be rounded up to
the nearest whole share of Parent Common Stock.
1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has
exercised and perfected appraisal rights for such shares in accordance with
California Law and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal rights ("DISSENTING SHARES"), shall not be
converted into or represent a right to receive the consideration for Company
Capital Stock pursuant to Section 1.6, but the holder thereof shall only be
entitled to such rights as are granted by California Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) his or her appraisal rights, then, as of the
later of Effective Time and the occurrence of such event, such holder's
shares shall automatically be converted into and represent only the right to
receive the consideration for
-6-
Company Capital Stock as provided in Section 1.6, without interest thereon,
upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demand for appraisal received by the Company pursuant to the applicable
provisions of California Law and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any such demands or offer to settle or settle any
such demands.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. The Corporate Secretary of Parent or an
institution selected by Parent and reasonably satisfactory to the Company
shall serve as exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) PARENT TO PROVIDE CASH AND SHARES. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for
exchange in accordance with this Article I, certificates representing the
shares of Parent Common Stock issuable and cash payable pursuant to Section
1.6(b), less the Escrow Shares, which Escrow Shares, on behalf of the
Shareholders, pursuant to Section 7.3 hereof, Parent shall deposit into an
escrow account. The number of Escrow Shares contributed on behalf of each
Shareholder shall be in proportion to the aggregate number of shares of
Parent Common Stock which such Shareholder would otherwise be entitled to
receive in the Merger by virtue of ownership of outstanding shares of Company
Capital Stock.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "CERTIFICATES") which
immediately prior to the Effective Time represented outstanding shares of
Company Capital Stock whose shares were converted into the right to receive
shares of Parent Common Stock and cash pursuant to Section 1.6, (i) a letter
of transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Parent may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for
certificates representing shares of Parent Common Stock and cash. Upon
surrender of Certificates for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such
letter of transmittal, duly completed and validly executed in accordance with
the instructions thereto, the holders of such Certificates shall be entitled
to receive in exchange therefor certificates representing the number of whole
shares of Parent Common Stock (less the number of Escrow Shares to be
deposited into the Escrow Fund on such holder's behalf pursuant to Article
VII) and cash payable to such Shareholder pursuant to Section 1.6(b), and the
Certificates so surrendered shall forthwith be canceled. Until so
surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.8(e) as to
the payment of dividends, to evidence the ownership of the number of full
shares of Parent Common Stock and cash into which such shares of
-7-
Company Capital Stock shall have been so converted and the right to receive
any dividends or distributions payable pursuant to Section 1.8(e).
(d) COMPANY RESTRICTED STOCK. Notwithstanding the foregoing, to
the extent there are any shares of Company Capital Stock outstanding
immediately prior to the Effective Time that are subject to Company
repurchase rights or vesting schedules, upon the surrender of a Certificate
representing such shares of Company Capital Stock in accordance with the
foregoing terms of this Section 1.8, the holder of such shares of Company
Capital Stock shall be entitled to receive the full amount of the cash
payable for such shares notwithstanding whether or not any right of
repurchase to which such shares of Company Capital Stock are subject has
expired and the Exchange Agent shall pay such cash amounts promptly and such
cash shall not be subject to vesting or forfeiture.
(e) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES; NO INTEREST
ON CASH CONSIDERATION. No dividends or other distributions declared or made
after the date of this Agreement with respect to Parent Common Stock with a
record date after the Effective Time will be paid to the holders of any
unsurrendered Certificates with respect to the shares of Parent Common Stock
represented thereby until the holders of record of such Certificates shall
surrender such Certificates. Subject to applicable law, following surrender
of any such Certificates, the Exchange Agent shall deliver to the record
holders thereof, without interest, certificates representing whole shares of
Parent Common Stock and cash, as applicable, issued in exchange therefor and
the amount of any such dividends or other distributions with a record date
after the Effective Time payable with respect to such whole shares of Parent
Common Stock. No interest shall accrue or be owed to a Shareholder with
respect to any Cash Consideration or other amounts which the Shareholder has
the right to receive.
(f) TRANSFERS OF OWNERSHIP. If certificates for shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the
issuance of certificates for shares of Parent Common Stock in any name other
than that of the registered holder of the Certificates surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(g) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.8, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to a holder of shares of Company Capital Stock
for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. All
consideration paid in respect of the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof, shall be deemed to
be full satisfaction of all rights pertaining to such shares of Company
Capital Stock, and there shall be no further registration of transfers on the
records of the
-8-
Surviving Corporation of shares of Company Capital Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such
lost, stolen or destroyed certificates, upon the making of an affidavit of
that fact by the holder thereof, such shares of Parent Common Stock and cash,
if any, as may be required pursuant to Section 1.8; PROVIDED, HOWEVER, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to
deliver an indemnity against any claim that may be made against Parent or the
Exchange Agent with respect to the certificates alleged to have been lost,
stolen or destroyed.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Sub, the officers and directors of
the Company, Parent and Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful
and necessary action.
1.12 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1986, as amended (the "CODE").
It is intended by the parties hereto that the Merger be treated as a purchase
for financial accounting purposes. Each party has consulted with its own tax
advisors and accountants with respect to the tax and accounting consequences,
respectively, of the Merger.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
Subject to the limitations contained herein, each of the Company and, to
each of his respective Knowledge, the Principal Shareholders (subject to the
limitations in Section 7.4) hereby, severally (in proportion to his ownership
percentage of Company Common Stock) but not jointly, and only as to his
respective actual, personal knowledge represents and warrants to Parent and
Sub, subject to such exceptions as are specifically disclosed in the
disclosure schedule supplied by the Company and the Principal Shareholders to
Parent and dated as of the date of this Agreement (the "DISCLOSURE
SCHEDULE"), that on the date hereof and as of the Effective Time as though
made at the Effective Time as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California. The Company has the corporate power to own its properties and
to carry on its business as now being conducted. The
-9-
Company is duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified
could have a Company Material Adverse Effect. For all purposes of this
Agreement, the term "COMPANY MATERIAL ADVERSE EFFECT" means any change, event
or effect that is materially adverse to the business, assets (including
intangible assets), financial condition or results of operations of the
Company. The Company has delivered a true and correct copy of its Articles of
Incorporation and Bylaws, each as amended to date, to Parent. The Disclosure
Schedule lists the directors and officers of the Company. The operations now
being conducted by the Company have not been conducted under any other name.
2.2 SUBSIDIARIES. The Company does not have, and has never had, any
subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any corporation, partnership, association, joint
venture or other business entity.
2.3 COMPANY CAPITAL STRUCTURE.
(a) The authorized Company Capital Stock consists of fifteen
million (15,000,000) shares of authorized Company Common Stock, with a par
value of $0.001 per share, of which five million three hundred thirty-six
thousand five hundred and two (5,336,502) shares are issued and outstanding
as of the date hereof, and four million two hundred eighty seven thousand
five hundred (4,287,500) shares of Preferred Stock, with a par value of
$0.001 per share, all of which shares are designated Series A Preferred
Stock, of which four million two hundred eighty five thousand nine hundred
and nine (4,285,909) shares are issued and outstanding as of the date hereof.
Each share of Company Series A Preferred Stock is currently convertible into
1.0 shares of Company Common Stock. The Company Capital Stock is held by the
persons, with the domicile addresses and in the amounts set forth in the
Disclosure Schedule. All outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws
of the Company or any agreement to which the Company is a party or by which
it is bound and have been issued in compliance with federal and state
securities laws. There are no declared or accrued unpaid dividends with
respect to any shares of the Company's Capital Stock. The Company has no
other capital stock authorized, issued or outstanding.
(b) Except for the Company's 1999 Stock Option Plan, the Company
has never adopted or maintained any stock option plan or other plan providing
for equity compensation of any person. The Company has reserved two million
eight hundred and seventy-six thousand five hundred (2,876,500) shares of
Company Common Stock for issuance to employees, Directors and consultants
pursuant to the Stock Option Plan, and one million two hundred ten thousand
(1,210,000) shares are subject to outstanding unexercised options as of the
date hereof. SECTION 2.3(b) of the Disclosure Schedule sets forth for each
outstanding Company Option, the name and the domicile address of the holder,
the number of shares of Company Common Stock subject to such Company Option,
the exercise price of such Company Option, the vesting schedule of such
Company Option including the extent to which such Company Option has vested
to the date hereof and whether the vesting of such
-10-
Company Option will be accelerated by reason of the transactions contemplated
by this Agreement, and whether such Company Option is intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code. The
Disclosure Schedule also sets forth the name of the holder of any Company
Capital Stock subject to vesting, the number of shares of Company Capital
Stock subject to vesting and the vesting schedule for such Company Capital
Stock, including the extent vested to date. Except as set forth the
Disclosure Schedule, there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, change
the price of, otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights
with respect to the Company. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting stock of the Company.
As a result of the Merger, Parent will be the record and sole beneficial
owner of all outstanding Company Capital Stock and all rights to acquire or
receive any Company Capital Stock, whether or not such Company Capital Stock
is outstanding.
2.4 AUTHORITY. The Company and each of the Principal Shareholders have
all requisite power and authority to enter into this Agreement and any
Related Agreements (as hereinafter defined) to which such person is a party
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and any Related Agreements to which
such person is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate
action on the part of the Company, and no further action is required on the
part of the Company or the Principal Shareholders to authorize the Agreement,
any Related Agreements to which such person is a party and the transactions
contemplated hereby and thereby, subject only to the approval of this
Agreement by the Shareholders. This Agreement and the Merger have been
unanimously approved by the Board of Directors of the Company. This Agreement
and any Related Agreements to which the Company or the Principal Shareholders
is a party have been duly executed and delivered by the Company or the
Principal Shareholders, as the case may be, and, assuming the due
authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligation of the Company and the
Principal Shareholders, as the case may be, enforceable in accordance with
their respective terms, subject to the laws of general application relating
to bankruptcy, insolvency and the relief of debtors and to rules of law
governing specific performance, injunctive relief or other equitable
remedies. The "RELATED AGREEMENTS" shall mean all such ancillary agreements
required in this Agreement to be executed and delivered in connection with
the transactions contemplated hereby, including, without limitation, the
Employment Agreements, the Voting Agreements and the Rule 145 Affiliate
Agreements.
2.5 NO CONFLICT. The execution and delivery of this Agreement and any
Related Agreements to which the Company or the Principal Shareholders are a
party by either the Company or the Principal Shareholders do not, and, the
consummation of the transactions contemplated hereby
-11-
and thereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give
rise to a right of termination, cancellation, modification or acceleration of
any obligation or loss of any benefit under (any such event, a "CONFLICT")
(i) any provision of the Articles of Incorporation and Bylaws of the Company,
(ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise or license to which the Company or
the Principal Shareholders or any of their respective properties or assets
(including intangible assets) are subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company
or the Principal Shareholders or their respective properties or assets
except, only as to (ii) and (iii) above, where such conflict would not have a
Company Material Adverse Effect.
2.6 CONSENTS. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency
or commission or other federal, state, county, local or other foreign
governmental authority, instrumentality, agency or commission ("GOVERNMENTAL
ENTITY") is required by or with respect to the Company or the Principal
Shareholder in connection with the execution and delivery of this Agreement
and any Related Agreements to which the Company or the Principal Shareholders
is a party or the consummation of the transactions contemplated hereby and
thereby, except for (i) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable securities laws, and (ii) the filing of the Merger Agreement
with the Secretary of State of the State of California or (iii) failure to
obtain such would not have a Company Material Adverse Effect.
2.7 COMPANY FINANCIAL STATEMENTS. The Disclosure Schedule contains (i)
the Company's audited balance sheet as of December 31, 1997, and the related
audited statements of income, cash flow and shareholders' equity for the
twelve-month period ended December 31, 1997 and the Company's audited balance
sheet as of December 31, 1998, and the related audited statements of income,
cash flow and shareholders' equity for the twelve-month period ended December
31, 1998 (collectively, the "YEAR-END FINANCIALS"), and (ii) the Company's
unaudited balance sheet as of October 31, 1999 (the "CURRENT BALANCE SHEET"),
and the related unaudited statements of income, cash flow and shareholders'
equity for the ten-month period ended October 31, 1999 (the "INTERIM
FINANCIALS"). The Year-End Financials and the Interim Financials are correct
in all material respects and have been prepared in accordance with GAAP
applied on a basis consistent throughout the periods indicated and consistent
with each other (except that the Interim Financials do not contain all the
notes that may be required by GAAP and may be subject to year-end
adjustment). The Year-End Financials and the Interim Financials present
fairly the financial condition, operating results and cash flows of the
Company as of the dates and during the periods indicated therein.
2.8 NO UNDISCLOSED LIABILITIES. The Company has no liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement
of any type, whether accrued, absolute, contingent, matured, unmatured or
other, which individually or in the aggregate (i) has not been reflected in
the Current Balance Sheet, or (ii) has not arisen in the ordinary course of
business consistent with past practices since October 31, 1999, none of which
is material to the business, results of operations or condition (financial or
otherwise) of the Company.
-12-
2.9 NO CHANGES. Since October 31, 1999, there has not been, occurred
or arisen any:
(a) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(b) capital expenditure or commitment by the Company, exceeding
$100,000 individually or $200,000 in the aggregate;
(c) destruction of, damage to or loss of any asset with a value of
$100,000 or greater, business or customer of the Company (whether or not
covered by insurance);
(d) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its assets;
(g) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company or any direct
or indirect redemption, purchase or other acquisition by the Company of its
capital stock;
(h) material increase in the salary or other compensation payable
or to become payable by the Company to any of its officers, directors,
employees or advisors, or the declaration, payment or commitment or
obligation of any kind for the payment, by the Company of a bonus or other
additional salary or compensation to any such person not in the ordinary
course of business consistent with past practices;
(i) agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it or any of its
assets (including intangible assets) are bound or any termination, extension,
amendment or modification the terms of any agreement, contract, covenant,
instrument, lease, license or commitment to which the Company is a party or
by which it or any of its assets are bound other than those entered into in
the ordinary course of business consistent with past practices;
(j) sale, lease, license or other disposition of any of the assets
or properties of the Company or any creation of any security interest in such
assets or properties;
(k) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practice;
-13-
(l) waiver or release of any right or claim of the Company
including any write-off or other compromise of any account receivable of the
Company;
(m) the commencement or notice of any lawsuit or, to the Company's
or the Principal Shareholders' Knowledge, proceeding, investigation or threat
of any lawsuit against the Company or its affairs;
(n) knowledge of any claim or potential claim of ownership by any
person other than the Company of the Company Intellectual Property (as
defined in Section 2.13) or of infringement by the Company of any other
person's Intellectual Property (as defined in Section 2.13);
(o) issuance or sale, or contract to issue or sell, by the Company
of any shares of its capital stock or securities exchangeable, convertible or
exercisable therefor, or any securities, warrants, options or rights to
purchase any of the foregoing, except for options to purchase common stock of
the Company granted to employees or consultants of the Company in the
ordinary course of business consistent with past practices;
(p) (i) sale or license of any Company Intellectual Property or
entering into of any agreement with respect to the Company Intellectual
Property with any person or entity or with respect to the Intellectual
Property of any person or entity or (ii) purchase or license of any
Intellectual Property or entering into of any agreement with respect to the
Intellectual Property of any person or entity or (iii) change in pricing or
royalties set or charged by the Company to its customers or licensees or in
pricing or royalties set or charged by persons who have licensed Intellectual
Property to the Company;
(q) event or condition of any character that has had a Company
Material Adverse Effect.
2.10 TAX MATTERS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX"
or, collectively, "TAXES", means (i) 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; (ii) any liability for the
payment of any amounts of the type described in clause (i) as a result of
being a member of an affiliated, consolidated, combined or unitary group for
any period; and (iii) any liability for the payment of any amounts of the
type described in clause (i) or (ii) as a result of any express or implied
obligation to indemnify any other person or as a result of 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.
-14-
(b) TAX RETURNS AND AUDITS.
(i) As of the Effective Time, the Company will have
prepared and timely filed all required federal, state, local and foreign
returns, estimates, information statements and reports required to have been
filed by such date (giving effect to any extensions) ("RETURNS") required to
be filed as of such date (giving effect to any extensions) relating to any
and all Taxes concerning or attributable to the Company or its operations and
such Returns are true and correct and have been completed in accordance with
applicable law.
(ii) As of the Effective Time, the Company (A) will have
paid all Taxes required to paid by the Company on or before the Effective
Time and will have withheld with respect to its employees all federal and
state income taxes, FICA, FUTA and other Taxes required to be withheld, and
(B) will have accrued on the Current Balance Sheet all Taxes attributable to
the periods covered by the Current Balance Sheet and will not have incurred
any liability for Taxes for the period prior to the Effective Time other than
in the ordinary course of business.
(iii) The Company is not currently delinquent in the
payment of any Tax nor is there any Tax deficiency outstanding, assessed or
proposed against the Company, nor has the Company 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 any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) Company has no liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved
against on the Current Balance Sheet, whether asserted or unasserted,
contingent or otherwise.
(vi) The Company has made available to Parent or its
legal counsel, copies of all foreign, federal and state income and all state
sales and use Returns for the Company filed for all periods since January 1,
1996.
(vii) There are (and immediately following the Effective
Time there will be) no liens, pledges, charges, claims, restrictions on
transfer, mortgages, security interests or other encumbrances of any sort
(collectively, "LIENS") on the assets of the Company relating to or
attributable to Taxes other than Liens for Taxes not yet due and payable.
(viii) Neither the Company nor the Principal Shareholders
have Knowledge of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as
"tax-exempt use property", within the meaning of Section 168(h) of the Code.
-15-
(x) The Company has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(4) of the
Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
(xi) The Company is not a party to any tax sharing,
indemnification or allocation agreement nor does the Company owe any amount
under any such agreement, other than this Agreement.
(xii) The Company is not and has never been at any time, a
"United States Real Property Holding Corporation" within the meaning of
Section 897(c)(2) of the Code.
(xiii) No adjustment relating to any Return filed by the
Company has been proposed formally or, to the knowledge of the Company,
informally by any tax authority to the Company or any representative thereof.
(c) EXECUTIVE COMPENSATION TAX. There is no contract, agreement,
plan or arrangement to which the Company is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of Company, individually or
collectively, that could give rise to the payment of any amount that would
not be deductible pursuant to Sections 280G or 162(m) of the Code.
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree
to which the Company is a party or otherwise binding upon the Company which
has, or would reasonably be expected to have, the effect of prohibiting or
impairing any business practice of the Company, any acquisition of property
(tangible or intangible) by the Company or the conduct of business by the
Company. Without limiting the foregoing, the Company has not entered into any
agreement under which it is restricted from selling, licensing or otherwise
distributing any technology or products to or providing services to,
customers or potential customers or any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.12 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION
OF EQUIPMENT.
(a) The Company does not own any real property, nor has the
Company ever owned any real property. The Disclosure Schedule sets forth a
list of all real property currently leased by the Company, the name of the
lessor, the date of the lease and each amendment thereto and the aggregate
annual rental and/or other fees payable under any such lease. All such
current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice
or lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Liens, except as reflected in the
-16-
Current Balance Sheet and except for Liens for Taxes not yet due and payable
and materialmen's, mechanics and contractors liens and encumbrances and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby.
(c) The Company has sole and exclusive ownership, free and clear
of any Liens, of all customer files and other customer information relating
to its customers (the "Customer Information"). No person other than the
Company possesses any claims or rights with respect to use of the Customer
Information.
2.13 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following terms have
the following definitions:
"INTELLECTUAL PROPERTY" shall mean 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, records, data and mask works, (ii)
inventions (whether or not patentable), improvements, and technology, (iii)
proprietary and confidential information, trade secrets and know how, (iv)
databases, data compilations and collections and technical data, (v) logos,
trade names, trade dress, trademarks and service marks, (vi) domain names,
web addresses and sites, (vii) tools, methods and processes, and (viii) all
instantiations of the foregoing in any form and embodied in any media.
"INTELLECTUAL PROPERTY RIGHTS" shall mean worldwide common law
and statutory rights resulting from or constituting (i) patents and patent
applications, (ii) copyrights, copyrights registrations and copyrights
applications, (iii) the protection of trade and industrial secrets and
confidential information, (iv) other proprietary rights relating to
intangible intellectual property, (v) trademarks, trade names and service
marks, (vi) analogous rights to those set forth above, and (vii) divisions,
continuations, renewals, reissuances and extensions of the foregoing (as
applicable) now existing.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that is owned by the Company.
"COMPANY INTELLECTUAL PROPERTY RIGHTS" shall mean any
Intellectual Property Rights that are owned by the Company.
"REGISTERED INTELLECTUAL PROPERTY RIGHTS" shall mean
Intellectual Property Rights that have been registered, filed, certified or
otherwise perfected by recordation with any state, government or other public
legal authority.
-17-
(b) The Disclosure Schedule lists all Registered Intellectual
Property Rights owned by, or filed in the name of, the Company or owned by,
or filed in the name of, one of the Principal Shareholders, in which the
Company has any right or interest (the "COMPANY REGISTERED INTELLECTUAL
PROPERTY RIGHTS") and lists any proceedings or actions before any court,
tribunal (including the United States Patent and Trademark Office (the "PTO")
or equivalent authority anywhere in the world) related to any of the Company
Registered Intellectual Property Rights, or Company Intellectual Property,
and Company Intellectual Property Rights.
(c) The Company and the Principal Shareholders have no Knowledge
of any facts or circumstances that would render any Company Intellectual
Property or Company Intellectual Property Rights invalid or unenforceable.
Without limiting the foregoing, the Company and the Principal Shareholders
have no knowledge of any potential invalidity, unenforceability, or adverse
effect on any pending application of the for any Company Registered
Intellectual Property Rights due to any information, materials, facts, or
circumstances, including but not limited to any information or fact that
would constitute prior art. The Company has not knowingly misrepresented, or
failed to disclose, any facts or circumstances in any application for any
Company Registered Intellectual Property Rights that would constitute fraud
or a misrepresentation with respect to such application or that would
otherwise affect the validity or enforceability of any Company Registered
Intellectual Property Rights.
(d) Each item of Company Intellectual Property or Company
Intellectual Property Rights, including all Company Registered Intellectual
Property Rights listed in the Disclosure Schedule, is free and clear of any
Liens or other encumbrances. The Company is the exclusive owner of all
Company Intellectual Property and Company Intellectual Property Rights.
(e) To the extent that any Intellectual Property has been
developed or created independently or jointly by any person other than the
Company for which the Company has paid, the Company has a written agreement
with such person with respect thereto, and the Company thereby has obtained
ownership of, and is the exclusive owner of, all such Intellectual Property
and associated Intellectual Property Rights by operation of law or by valid
assignment.
(f) The Company has not transferred ownership of or granted any
exclusive license of or right to use or joint ownership of any Intellectual
Property or Intellectual Property Rights that is or was Company Intellectual
Property or Company Intellectual Property Rights, to any other person.
Similarly, the Principal Shareholders have not transferred ownership of or
granted any exclusive license of or right to use any Intellectual Property or
Intellectual Property Rights that such Principal Shareholders have licensed
to the Company.
(g) The Company Intellectual Property or Company Intellectual
Property Rights constitutes all the Intellectual Property and Intellectual
Property Rights used in and/or necessary to the conduct of the business of
the Company as it currently is conducted, including, without limitation, the
design, development, manufacture, use, import and sale of products,
technology and services (including products, technology or services currently
under development).
-18-
(h) Other than "shrink-wrap" and similar generally available
commercial binary code end-user licenses, the contracts, licenses and
agreements listed in the Disclosure Schedule include all contracts, licenses
and agreements to which the Company is a party with respect to any
Intellectual Property and Intellectual Property Rights. The Company is not
in breach of nor has the Company failed to perform under, any of the
foregoing contracts, licenses or agreements and, to the Company's and the
Principal Shareholders' Knowledge, no other party to any such contract,
license or agreement is in breach thereof or has failed to perform
thereunder. No person who has licensed Intellectual Property or Intellectual
Property Rights to the Company has ownership rights or license rights to
improvements made by the Company in such Intellectual Property which has been
licensed to the Company.
(i) Except for "shrink-wrap" and generally available commercial
binary code end-user or enterprise licenses and except for technology in the
public domain, all Intellectual Property used in or necessary to the conduct
of the Company's business as presently conducted or currently contemplated to
be conducted by the Company was written and created solely by either (i)
employees of the Company acting within the scope of their employment, or (ii)
by third parties who have validly and irrevocably assigned all of their
rights, including Intellectual Property Rights therein, to the Company, or
(iii) by third parties who have granted to the Company a license (sufficient
for the conduct of the Company's business as presently conducted and
currently contemplated to be conducted by the Company) to all such third
party's Intellectual Property Rights in such Intellectual Property, and no
third party owns or has any rights to any of the Company Intellectual
Property or Company Intellectual Property Rights owned by the Company.
(j) The Disclosure Schedule lists all contracts, licenses and
agreements between the Company and any other person wherein or whereby the
Company has agreed to, or assumed, any obligation or duty to warrant,
indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur
any obligation or liability or provide a right of rescission with respect to
the infringement or misappropriation by the Company or such other person of
the Intellectual Property Rights of any person other than the Company.
(k) The operation of the business of the Company as it currently
is conducted, including but not limited to the design, development, use,
import, manufacture and sale of the products, technology or services
(including products, technology or services currently under development) of
the Company does not, and will not when conducted by Parent and/or 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 the Company has not received notice from any person
claiming that such operation or any act, product, technology or service
(including products, technology or services currently under development) of
the Company infringes or misappropriates any Intellectual Property Right of
any person or constitutes unfair competition or trade practices under the
laws of any jurisdiction (nor do the Company or the Principal Shareholders
have Knowledge of any such infringement or misappropriation).
-19-
(l) Each item of Company Registered Intellectual Property Rights
is valid and subsisting, and all necessary registration, maintenance and
renewal fees in connection with such Company Registered Intellectual Property
Rights have been paid and all necessary documents and certificates in
connection with such Company Registered Intellectual Property Rights 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 Company Registered Intellectual
Property Rights. There are no actions that must be taken by the Company
within sixty (60) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting or
preserving or renewing any Company Registered Intellectual Property Rights.
In each case in which the Company has acquired ownership of any Intellectual
Property from any person, the Company has obtained a valid and enforceable
assignment sufficient to irrevocably transfer all rights in such Intellectual
Property and the associated Intellectual Property Rights to the Company and,
to the maximum extent provided for by, and in accordance with, applicable
laws and regulations related to patents and trademarks, the Company has
recorded each such assignment with the U.S. PTO and its respective
equivalents in any relevant jurisdiction. The Company has not claimed a
particular status, including "Small Business Status," in the application for
any Intellectual Property Rights, which claim of status was at the time made
inaccurate or false.
(m) There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property or
Company Intellectual Property Rights under which there is any dispute
regarding the rights and obligations specified in such agreement, or
performance under such agreement including with respect to any payments to be
made or received by the Company thereunder.
(n) To the Knowledge of the Company and the Principal
Shareholders, no person is infringing or misappropriating any Company
Intellectual Property for Company Intellectual Property Rights.
(o) The Company has taken all commercially reasonable steps to
protect the Company's rights in confidential information and trade secrets of
the Company or as required by any other person who has provided its
confidential information or trade secrets to the Company. Without limiting
the foregoing, the Company has, and enforces, a policy requiring each
employee, consultant and contractor to execute proprietary information,
confidentiality and assignment agreements substantially in the form attached
hereto as and all current and former employees, consultants and contractors
of the Company have executed such an agreement. All employees of the Company
have entered into a valid and binding written agreement with the Company
sufficient to vest title in the Company of all Intellectual Property,
including all accompanying Intellectual Property Rights, created by such
employee in the scope of his or her employment with the Company.
(p) No Company Intellectual Property or Company Intellectual
Property Rights are subject to any proceeding or outstanding decree, order,
judgment, agreement or stipulation that
-20-
restricts in any manner the use, transfer or licensing thereof by the Company
or may affect the validity or enforceability of such Company Intellectual
Property.
(q) No (i) product, technology, service or publication of the
Company, (ii) material published or distributed by the Company or (iii)
conduct or statement of Company constitutes obscene material, a defamatory
statement or material, false advertising or otherwise violates any law or
regulation.
(r) All of the Company's products will record, store, process,
calculate and present calendar dates falling on and after (and if applicable,
spans of time including) January 1, 2000, and will calculate any information
dependent on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the products record, store,
process, calculate and present calendar dates on or before December 31, 1999,
or calculate any information dependent on or relating to such dates
(collectively, "YEAR 2000 COMPLIANT"). All of the Company's products will
lose no functionality with respect to the introduction of records containing
dates falling on or after January 1, 2000. All of the Information Technology
(as defined below) that the Company has created is Year 2000 Compliant, and
will not cause an interruption in the ongoing operations of the Company's
business on or after January 1, 2000. For purposes of the foregoing,
"INFORMATION TECHNOLOGY" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services (other than general utility
services including gas, electric, telephone and postal) that are owned or
used by the Company in the conduct of its business, or purchased by the
Company from third party suppliers, and that are material to the development
of the Company's products, technology or services.
(s) All Company Intellectual Property and Company Intellectual
Property Rights and any contracts or agreements listed in the Disclosure
Schedule will be fully (subject only to non-exclusive licenses granted by the
Company with respect thereto) transferable, alienable or licensable by
Surviving Corporation and/or Parent without restriction and without payment
of any kind to any third party. In addition, with respect to any contracts
or agreements listed in the Disclosure Schedule, such contracts or agreements
are in full force and effect.
(t) Neither this Agreement nor the transactions contemplated by
this Agreement, including the assignment to Parent or Surviving Corporation,
by operation of law or otherwise, of any contracts or agreements to which the
Company is a party, will result in (i) Parent's or the Surviving
Corporation's granting to any third party any right to or with respect to any
Intellectual Property or Intellectual Property Right owned by, or licensed
to, either of them, (ii) either Parent's or the Surviving Corporation's being
bound by, or subject to, any non-compete or other restriction on the
operation or scope of their respective businesses, or (iii) either Parent's
or the Surviving Corporation's being contractually obligated to pay any
royalties or other amounts to any third party in excess of those payable by
Parent or Surviving Corporation, respectively, prior to the Closing.
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS.
-21-
(a) Except as set forth in the Disclosure Schedule, the Company is
not a party to nor is it bound by:
(i) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(ii) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting
of benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement,
(iii) any fidelity or surety bond or completion bond,
(iv) any lease of personal property having a value
individually in excess of $100,000 individually or $250,000 in the aggregate,
(v) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of
business or to compete with any person,
(vi) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $100,000
individually or $250,000 in the aggregate,
(vii) any agreement, contract or commitment relating to
the disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Company's business,
(viii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating
to the borrowing of money or extension of credit,
(ix) any purchase order or contract for the purchase of
materials involving in excess of $100,000 individually or $250,000 in the
aggregate,
(x) any construction contracts,
(xi) any dealer, distribution, joint marketing or
development agreement,
(xii) any sales representative, original equipment
manufacturer, value added, remarketer, reseller or independent software
vendor or other agreement for use or distribution of the Company's products,
technology or services, or
-22-
(xiii) any other agreement, contract or commitment that
involves $100,000 individually or $250,000 in the aggregate or more or is not
cancelable without penalty within thirty (30) days.
(b) The Company is in compliance with and has not breached,
violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any material
agreement, contract, covenant, instrument, lease, license or commitment to
which it is a party or by which it is bound (collectively a "CONTRACT"), nor
do the Company or the Principal Shareholders have Knowledge of any event that
would constitute such a breach, violation or default with the lapse of time,
giving of notice or both. Each Contract, to the Company's knowledge, is in
full force and effect and is not subject to any default thereunder by any
party obligated to the Company pursuant thereto. The Company has obtained, or
will obtain prior to the Closing Date, all necessary consents, waivers and
approvals of parties to any Contract as are required thereunder in connection
with the Merger or for such Contracts to remain in effect without
modification after the Closing. Following the Effective Time, the Company
will be permitted to exercise all of its rights under the Contracts without
the payment of any additional amounts or consideration other than ongoing
fees, royalties or payments which the Company would otherwise be required to
pay had the transactions contemplated by this Agreement not occurred.
(c) Any and all consents, waivers, assignments and approvals under
any of the Contracts as may be required in connection with the Merger (all
such consents, waivers and approvals are set forth in the Disclosure
Schedule) so as to preserve all rights of, and benefits to, the Company
thereunder have been obtained.
2.15 INTERESTED PARTY TRANSACTIONS. To the Company's knowledge, no
officer, director or employee Shareholder (nor any ancestor, sibling,
descendant or spouse of any of such persons, or any trust, partnership or
corporation in which any of such persons has an interest), has directly or
indirectly, (i) a material interest in any entity which furnishes or sells,
services, products or technology that the Company furnishes or sells, or
proposes to furnish or sell, or (ii) any material interest in any entity that
purchases from or sells or furnishes to the Company any goods or services or
(iii) a beneficial interest in any Contract; PROVIDED, that ownership of no
more than one percent (1%) of the outstanding voting stock of a publicly
traded corporation shall not be deemed an "interest in any entity" for
purposes of this Section 2.15.
2.16 GOVERNMENTAL AUTHORIZATION. SECTION 2.16 of the Disclosure
Schedule accurately lists each consent, license, permit, grant or other
authorization issued to the Company by a Governmental Entity (i) pursuant to
which the Company currently operates or holds any interest in any of their
properties or (ii) which is required for the operation of its business or the
holding of any such interest (herein collectively called "COMPANY
AUTHORIZATIONS"). The Company Authorizations are in full force and effect and
constitute all Company Authorizations required to permit the Company to
operate or conduct its business or hold any interest in its properties or
assets.
-23-
2.17 LITIGATION. There is no action, suit, claim or proceeding of any
nature pending, or, to the Company's or the Principal Shareholders'
Knowledge, threatened, against the Company, its properties (tangible or
intangible) or any of their officers or directors in their official capacity
as such, nor, to the Knowledge of the Company or the Principal Shareholders,
is there any reasonable basis therefor. To the Company's or Principal
Shareholders' Knowledge, there is no investigation pending or threatened
against the Company, its properties or any of their officers or directors
(nor, to the Knowledge of the Company or the Principal Shareholders, is there
any reasonable basis therefor) by or before any Governmental Entity. No
Governmental Entity has at any time challenged or questioned the legal right
of the Company to conduct its operations as presently or previously conducted.
2.18 ACCOUNTS RECEIVABLE.
(a) The Company has made available to Parent a list of all
accounts receivable of the Company ("ACCOUNTS RECEIVABLE") as of October 31,
1999 along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company arose in the ordinary
course of business and are collectible except to the extent of reserves
therefor set forth in the Current Balance Sheet. No person has any Lien on
any of such Accounts Receivable and no request or agreement for deduction or
discount has been made with respect to any of such Accounts Receivable.
2.19 MINUTE BOOKS. The minutes of the Company made available to counsel
for Parent are the only minutes of the Company and contain a reasonably
accurate summary of all meetings of the Board of Directors (or committees
thereof) of the Company and its respective shareholders or actions by written
consent since the time of incorporation of the Company.
2.20 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity
or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including,
without limitation, PCBs, asbestos, petroleum, and urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended,
or defined as a hazardous waste pursuant to the United States Resource
Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws (a "HAZARDOUS MATERIAL"), but excluding
office and janitorial supplies properly and safely maintained. No Hazardous
Materials are present as a result of the deliberate actions of the Company
or, to the Company's or the Principal Shareholders' Knowledge, as a result of
any actions of any other person or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water
thereof, that the Company has at any time owned, operated, occupied or leased.
-24-
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect
on or before the Effective Time, nor has either of them disposed of,
transported, sold, or manufactured any product containing a Hazardous
Material (any or all of the foregoing being collectively referred to as
"HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to
or as of the date hereof to prohibit, regulate or control Hazardous Materials
or any Hazardous Material Activity.
(c) PERMITS. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of the Company's Hazardous Material
Activities, respectively, and other businesses of the Company as such
activities and businesses are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending or, to
the Company's or the Principal Shareholders' Knowledge, threatened concerning
any Environmental Permit, Hazardous Material or any Hazardous Materials
Activity of the Company. Neither the Company nor the Principal Shareholders
has Knowledge of any fact or circumstance which could involve the Company in
any environmental litigation or impose upon the Company any environmental
liability.
2.21 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set
forth in the Disclosure Schedule, the Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with the
Agreement or any transaction contemplated hereby. The Disclosure Schedule
sets forth the principal terms and conditions of any agreement, written or
oral, with respect to such fees. The Disclosure Schedule sets forth the
Company's current reasonable estimate of all Third Party Expenses (the
"ESTIMATED THIRD PARTY EXPENSES") expected to be incurred by the Company and
the Principal Shareholders in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby.
2.22 EMPLOYEE BENEFIT PLANS AND COMPENSATION.
(a) The following terms shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity
under common control with the Company within the meaning of Section 414(b),
(c), (m) or (o) of the Code and the regulations issued thereunder;
(ii) "EMPLOYEE PLAN" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or
otherwise, funded or unfunded, including without limitation, each "employee
benefit plan," within the meaning of Section 3(3) of ERISA which is or has
been maintained, contributed to, or required to be contributed
-25-
to, by the Company or any Affiliate for the benefit of any Employee, or with
respect to which the Company or any Affiliate has or may have any liability
or obligation;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "EMPLOYEE" shall mean any current or former
employee, consultant or director of the Company or any Affiliate;
(vi) "EMPLOYEE AGREEMENT" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visa, work permit or other agreement, contract or understanding between the
Company or any Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of
1993, as amended;
(ix) "IRS" shall mean the Internal Revenue Service;
(x) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xi) "PENSION PLAN" shall mean each Employee Plan which
is an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) SCHEDULE. The Disclosure Schedule contains an accurate and
complete list of each Employee Plan and each Employee Agreement under each
Employee Plan or Employee Agreement. The Company does not have any plan or
commitment to establish any new Employee Plan or Employee Agreement, to
modify any Employee Plan or Employee Agreement (except to the extent required
by law or to conform any such Employee Plan or Employee Agreement to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any
Employee Plan or Employee Agreement.
(c) DOCUMENTS. The Company has provided to Parent: (i) correct
and complete copies of all documents embodying each Employee Plan and each
Employee Agreement including (without limitation) all amendments thereto and
all related trust documents; (ii) the three (3) most recent annual reports
(Form Series 5500 and all schedules and financial statements attached
thereto), if any, required under ERISA or the Code in connection with each
Employee Plan; (iii) if the Employee Plan is funded, the most recent annual
and periodic accounting of Employee Plan assets; (iv) the most recent summary
plan description together with the summary(ies) of material modifications
thereto, if any, required under ERISA with respect to each Employee Plan; (v)
all
-26-
material written agreements and contracts relating to each Employee Plan,
including, but not limited to, administrative service agreements and group
insurance contracts; (vi) all communications material to any Employee or
Employees relating to any Employee Plan and any proposed Employee Plans, in
each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any liability to the Company;
(vii) all correspondence to or from any governmental agency relating to any
Employee Plan; (viii) all COBRA forms and related notices; (ix) all policies
pertaining to fiduciary liability insurance covering the fiduciaries for each
Employee Plan; (x) all discrimination tests for each Employee Plan for the
most recent plan year; and (xi) all registration statements, annual reports
(Form 11-K and all attachments thereto) and prospectuses prepared in
connection with each Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. (i) To the Company's knowledge, the
Company has performed all obligations required to be performed by it under,
is not in default or violation of, and has no Knowledge of any default or
violation by any other party to each Employee Plan, and each Employee Plan
has been established and maintained in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406
and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has
occurred with respect to any Employee Plan; (iii) there are no actions, suits
or claims pending, or, to the Knowledge of the Company or the Principal
Shareholders, threatened or reasonably anticipated (other than routine claims
for benefits) against any Employee Plan or against the assets of any Employee
Plan; (iv) each Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to Parent, the Company or any Affiliate (other than ordinary
administration expenses); (v) there are no audits, inquiries or proceedings
pending or, to the Knowledge of the Company or the Principal Shareholders or
any Affiliates, threatened by the IRS or DOL with respect to any Employee
Plan; and (vi) neither the Company nor any Affiliate is subject to any
penalty or tax with respect to any Employee Plan under Section 502(i) of
ERISA or Sections 4975 through 4980 of the Code.
(e) NO PENSION PLANS. Neither the Company nor any Affiliate has
ever maintained, established, sponsored, participated in, or contributed to,
any Pension Plan.
(f) NO POST-EMPLOYMENT OBLIGATIONS. No Employee Plan provides, or
reflects or represents any liability to provide, retiree life insurance,
retiree health or other retiree employee welfare benefits to any person for
any reason, except as may be required by COBRA or other applicable statute,
and the Company has never represented, promised or contracted (whether in
oral or written form) to any Employee (either individually or to Employees as
a group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree
employee welfare benefit, except to the extent required by statute.
-27-
(g) COBRA. Neither the Company nor any Affiliate has, prior to
the Effective Time, violated any of the health care continuation requirements
of COBRA, the requirements of FMLA or any similar provisions of state law
applicable to its Employees.
(h) EFFECT OF TRANSACTION. Except as contemplated by the Agreement
and the Related Agreements, the execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone
or upon the occurrence of any additional or subsequent events) constitute an
event under any Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(i) PARACHUTE PAYMENTS. Prior to the Effective Time, the
Shareholders will have approved by the requisite vote any amounts of the
Total Consideration 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 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 of the Code.
(j) EMPLOYMENT MATTERS. The Company: (i) is in material
compliance with all applicable foreign, federal, state and local laws, rules
and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and
other payments to Employees; (iii) is not liable for any arrears of wages or
any taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any governmental authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice). There are no
pending or, to the Knowledge of the Company or the Principal Shareholders,
threatened or reasonably anticipated claims or actions against the Company
under any worker's compensation policy or long-term disability policy.
(k) LABOR. No work stoppage or labor strike against the Company
is pending, or to the Knowledge of the Company or Principal Shareholders,
threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending, or, to
the Knowledge of the Company or Principal Shareholders, threatened or
reasonably anticipated relating to any labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of
unfair labor practices or discrimination complaints. The Company has not
engaged in any unfair labor practices within the meaning of the National
Labor Relations Act. The Company is not presently, nor has it been in the
past, a party to, or bound by, any collective bargaining agreement or
-28-
union contract with respect to Employees and no collective bargaining
agreement is being negotiated by the Company.
(l) NO INTERFERENCE OR CONFLICT. To the Knowledge of the Company
or the Principal Shareholders, no shareholder, officer, or employee of the
Company is obligated under any contract or agreement subject to any judgment,
decree or order of any court or administrative agency that would interfere
with such person's efforts to promote the interests of the Company or that
would interfere with the Company's business. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business as
presently conducted or presently proposed to be conducted nor any activity of
such officers, directors, employees or consultants in connection with the
carrying on of the Company's business as presently conducted or currently
proposed to be conducted, will, to the Knowledge of the Company and the
Principal Shareholders, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract or
agreement under which any of such officers, directors, employees or
consultants is now bound.
2.23 INSURANCE. The Disclosure Schedule lists all insurance policies
and fidelity bonds covering the assets, business, equipment, properties,
operations, employees, officers and directors of the Company. There is no
claim by the Company pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid, and the Company is otherwise in material compliance
with the terms of such policies and bonds (or other policies and bonds
providing substantially similar insurance coverage). The Company has no
Knowledge of any threatened termination of, or premium increase with respect
to, any of such policies.
2.24 COMPLIANCE WITH LAWS. The Company has complied with, is not in
material violation of, and has not received any written notices of violation
with respect to, any foreign, federal, state or local statute, law or
regulation.
2.25 WARRANTIES; INDEMNITIES. Except for the warranties and indemnities
contained in those contracts and agreements set forth in the Disclosure
Schedule, the Company has not given any warranties or indemnities relating to
products or technology sold or licensed or services rendered by the Company.
2.26 COMPLETE COPIES OF MATERIALS. The Company has delivered or made
available true and complete copies of each document (or summaries of same)
that has been requested by Parent or its counsel.
2.27 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company or the Principal Shareholders (as modified by
the Disclosure Schedule), nor any statement made in any Schedule or
certificate furnished by the Company or the Principal Shareholders pursuant
to this Agreement or furnished in or in connection with documents mailed or
delivered to the Shareholders for use in soliciting their consent to this
Agreement and the Merger contains or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the
-29-
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances
under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company and the Principal
Shareholders that on the date hereof, and as of the Effective Time as though
made on the date hereof, as follows:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of Parent and
Sub has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would have a Parent Material Adverse Effect on the ability of Parent and Sub
to consummate the transactions contemplated hereby. For all purposes of this
Agreement, the term "PARENT MATERIAL ADVERSE EFFECT" means any change, event
or effect that is materially adverse to the business, assets (including
intangible assets), financial condition, or results of operations of Parent
and its subsidiaries, taken as a whole.
3.2 AUTHORITY. Each of Parent and Sub has all requisite corporate
power and authority to enter into this Agreement and any Related Agreements
to which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and any Related
Agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Parent and Sub. This Agreement and any
Related Agreements to which Parent and Sub are parties have been duly
executed and delivered by Parent and Sub and constitutes the valid and
binding obligations of Parent and Sub, enforceable in accordance with their
terms, except as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
3.3 NO CONFLICT. The execution and delivery of this Agreement and any
Related Agreements to which the Parent and/or the Sub is a party do not, and
the consummation of the transactions contemplated hereby and thereby will
not, conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a Conflict under
(i) any provision of the Certificate of Incorporation, and Bylaws of Parent
or the Articles of Incorporation and Bylaws of Sub, (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit,
concession, franchise or license to which Parent or any of its respective
properties or assets are subject and which has been filed as an exhibit to
Parent's filings under the Securities Act or the Exchange Act or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or Sub, except where such Conflict would not have a
Parent Material Adverse Effect.
-30-
3.4 CONSENTS. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity, or any
third party is required by or with respect to Parent or Sub in connection
with the execution and delivery of this Agreement and any Related Agreements
to which it is a party or the consummation of the transactions contemplated
hereby and thereby, except for such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable securities laws, the filing of the Merger Agreement with the
Secretary of State of the State of California, and such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings
which, if not obtained or made, would not have a Parent Material Adverse
Effect.
3.5 CAPITAL STRUCTURE. The authorized stock of Parent consists of
250,000,000 shares of Common Stock, $0.0001 par value, of which 24,052,150
shares were issued and outstanding as of September 30, 1999, and 10,000,000
shares of undesignated Preferred Stock, $0.0001 par value. No shares of
Preferred Stock are issued or outstanding. The authorized capital stock of
Sub consists of 100 shares of Common Stock, no par value, 100 shares of
which, as of the date hereof, are issued and outstanding and are held by
Parent. All such shares of Parent and Sub have been duly authorized, and all
such issued and outstanding shares have been validly issued, are fully paid
and nonassessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof. Parent
has also reserved an aggregate of 4,631,013 shares of Common Stock for
issuance pursuant to its employee and director stock and option and stock
purchase plans. The shares of Parent Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid and
non-assessable.
3.6 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has timely filed all forms, reports and documents
required to be filed by Parent with the SEC (collectively, the "Parent SEC
Reports"). The Parent SEC Reports (i) at the time they were filed, complied
as to form in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and (ii) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact require to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Parent and Sub
make no representation or warranty whatsoever concerning the Parent SEC
Reports as of any time other than the time they were filed. None of the
Parent's subsidiaries is required to file any forms, reports or other
documents with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) (the "Parent Financial Statements")
contained in the Parent SEC Reports has been prepared in accordance with GAAP
applied on a consistent basis throughout the period involved (except as may
be indicated in the notes thereto) and each fairly presents in all material
respects the consolidated financial position of Parent and its subsidiaries
as at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except
-31-
that the unaudited interim financial statements were or are subject to normal
and recurring year-end adjustments which were not or are not expected to be,
individually or in the aggregate, materially adverse to Parent and its
subsidiaries taken as a whole.
(c) Since the date of the latest Parent SEC Report referred to in
(a), above, and through both the date hereof, there has not been and will not
be, any material adverse change in the financial results or business of the
Parent.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, the Company agrees (except to the
extent that Parent shall otherwise consent in writing), to carry on the
Company's business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted, to pay the debts and Taxes of the
Company when due, to pay or perform other obligations when due, and, to the
extent consistent with such business, use their reasonable best efforts
consistent with past practice and policies to preserve intact the Company's
present business organizations, keep available the services of the Company's
present officers and key employees and preserve the Company's relationships
with customers, suppliers, distributors, licensors, licensees, and others
having business dealings with it, all with the goal of preserving unimpaired
the Company's goodwill and ongoing businesses at the Effective Time. The
Company shall promptly notify Parent of any event or occurrence or emergency
not in the ordinary course of business of the Company and any material event
involving the Company.
Except as expressly contemplated by this Agreement as set forth in the
Disclosure Schedule, the Company shall not, without the prior written consent
of Parent:
(a) Make any expenditures or enter into any commitment or
transaction exceeding $100,000 individually or $250,000 in the aggregate or
any commitment or transaction of the type described in Section 2.9 hereof;
(b) (i) Sell any Company Intellectual Property or enter into any
agreement with respect to the Company Intellectual Property with any person
or entity, (ii) buy any Intellectual Property or enter into any agreement
with respect to the Intellectual Property of any person or entity, (iii)
enter into any agreement with respect to development of any Intellectual
Property with a third party;
(c) Transfer to any person or entity any rights to any Company
Intellectual Property;
(d) Enter into or amend any Contract pursuant to which any other
party is granted marketing, distribution, development or similar rights of
any type or scope with respect to any products or technology of the Company;
-32-
(e) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the Contracts
set forth or described in the Disclosure Schedule;
(f) Commence or settle any litigation;
(g) 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 shares of capital stock of the Company, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of the capital stock of the Company (or options, warrants or other rights
exercisable therefor);
(h) Except for the issuance of shares of Company Capital Stock
upon the exercise or conversion of options outstanding on the date hereof,
issue, grant, deliver or sell or authorize or propose the issuance, grant,
delivery or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue or purchase any such shares or other
convertible securities.
(i) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(j) 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
Company's business;
(k) Sell, lease, license or otherwise dispose of any of its
properties or assets, except properties or assets which are not Intellectual
Property in the ordinary course of business and consistent with past
practices;
(l) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(m) Grant any loans to others or purchase debt securities of
others or amend the terms of any outstanding loan agreement;
(n) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof and disclosed in
the Disclosure Schedule;
-33-
(o) Adopt any employee benefit plan, or enter into any employment
contract, pay or agree to pay any special bonus or special remuneration to
any director or employee, or increase the salaries or wage rates of its
employees;
(p) 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;
(q) Pay, discharge or satisfy, in an amount in excess of $50,000
in any one case or $100,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the
Current Balance Sheet;
(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 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 marketing
arrangement or agreement;
(t) Except as set forth in the Disclosure Schedule, amend or
modify the terms of any of the outstanding Company Options or Company Capital
Stock to accelerate the vesting thereof;
(u) Terminate employees or encourage employees to resign; or
(v) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (u) above, or any other action
that would prevent the Company from performing or cause the Company not to
perform its covenants hereunder, or any other action not in the ordinary
course of the Company's business and consistent with past practice.
4.2 NO SOLICITATION. Until the earlier of the Effective Time or the
date or termination of this Agreement pursuant to the terms and provisions of
Section 8.1 hereof, Company shall not (nor will it permit any of its
officers, directors, employees, stockholders, agents, representatives or
affiliates to), directly or indirectly, take any of the following actions
with any party other than Parent and its designees:
(i) solicit, encourage, initiate or participate in any
negotiations or discussions with respect to any offer or proposal to acquire
or license all or any material part of the business of Company (the
"BUSINESS"), whether by merger, purchase of assets, tender offer, license or
otherwise, or effect any such transaction,
(ii) disclose any information not customarily disclosed
to any person concerning the Business or afford to any person or entity
access to its properties, books or records except in the ordinary course of
business or as required by applicable law,
-34-
(iii) assist or cooperate with any person to make any
proposal to purchase or license all or a material portion of the Business
(including, without limitation any technology or proprietary information
related to the Business) except for commercial licenses entered into in the
ordinary course of business as currently conducted, or
(iv) enter into any agreement or arrangement with any
person providing for the acquisition or licensing (other than in the ordinary
course of business as currently conducted) of all or any material portion of
the Business (whether by way of merger, purchase of assets (including,
without limitation any technology or proprietary information of Company),
tender offer, license or otherwise).
(v) In the event Company shall receive any offer or
proposal, directly or indirectly, of the type referred to in clause (i) or
(iii) above, or any request for disclosure or access pursuant to clause (ii)
above, it shall immediately inform Parent that it has received same and, to
the extent not constituting a breach of an agreement to which the Company is
a party provide Parent with a complete copy of any written offer, request or
proposal and any related correspondence, and will cooperate with Parent by
furnishing any other information Parent may reasonably request (including
without limitation the identity of the party making the offer, request or
proposal and all terms and conditions of the offer, request or proposal).
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth above by any officer, director, employee, stockholder,
agent, representative or affiliate of Company shall be deemed to be a breach
of this paragraph by Company.
(vi) Company agrees that irreparable damage would occur
in the event that the provisions of this Section 4.2 are not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed by Company that Parent shall be entitled to seek an
injunction or injunctions to prevent breaches of the provisions of this
Section 4.2 and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which Parent may be entitled at law or in
equity.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 SALE OF SHARES. The parties hereto acknowledge and agree that the
shares of Parent Common Stock issuable to the Shareholders pursuant to
Section 1.6 shall constitute "restricted securities" within the meaning of
Rule 144 under the Securities Act. The certificates for the shares of Parent
Common Stock to be issued in the Merger shall bear appropriate legends to
identify such privately placed shares as being restricted under the
Securities Act, to comply with applicable state securities laws and, if
applicable, to notice the restrictions on transfer of such shares. It is
acknowledged and understood that Parent is relying upon certain
representations made by the Shareholders in the Shareholder Certificates in
substantially the form attached hereto as EXHIBIT C.
-35-
5.2 COMPANY SHAREHOLDER APPROVAL. As promptly as practicable after the
execution and delivery of this Agreement by each of the parties hereto, the
Company shall submit this Agreement and the transactions contemplated hereby
and thereby to its Shareholders for approval and adoption as provided by
California Law and its Articles of Incorporation and Bylaws and each
Shareholder shall make the appropriate and customary private placement
investment representations. The Company shall use its best efforts to
solicit and obtain the consent of its Shareholders sufficient to approve the
Merger and this Agreement and to enable the Closing to occur as promptly as
practicable. The materials submitted to the Company's Shareholders shall be
subject to review and approval by Parent and include information regarding
the Company; the terms of the Merger; the Agreement and the Related
Agreements; and the unanimous recommendation of the Board of Directors of the
Company in favor of the Merger, this Agreement and Related Agreements.
5.3 ACCESS TO INFORMATION. The Company shall afford Parent and its
accountants, counsel and other representatives reasonable access during
normal business hours during the period prior to the Effective Time to (a)
all of the Company's properties, books, contracts, commitments and records,
(b) all other information concerning the business, properties and personnel
of the Company as Parent may reasonably request and (c) all key employees of
the Company as identified by Parent. The Company agrees to provide to Parent
and its accountants, counsel and other representatives copies of internal
financial statements (including Tax returns and supporting documentation)
promptly upon request. No information or knowledge obtained in any
investigation pursuant to this Section 5.3 shall affect or be deemed to
modify any representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the Merger.
5.4 CONFIDENTIALITY; PUBLIC DISCLOSURE.
(a) Each of the Parent, Sub, Company and each of the Principal
Shareholders hereby agrees that the information obtained in any investigation
pursuant to Section 5.3, or pursuant to the negotiation and execution of this
Agreement or the effectuation of the transaction contemplated hereby shall be
governed by the terms of the Confidentiality Agreement effective November 9,
1999 by and between the Company and Parent.
(b) Unless otherwise required by law, no public 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 Parent and the
Company prior to release.
5.5 CONSENTS. The Company and the Principal Shareholders shall use
their reasonable efforts to obtain the consents, waivers, assignments and
approvals under any of the Contracts as may be required in connection with
the Merger (all of such consents, waivers and approvals are set forth in the
Disclosure Schedule) so as to preserve all rights of, and benefits to, the
Company thereunder.
5.6 REASONABLE EFFORTS. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use commercially
reasonable efforts 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
-36-
contemplated hereby, to obtain all necessary waivers, consents and approvals
and to effect all necessary registrations and filings, including but not
limited to, any filings required by the ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Act, 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.
5.7 NOTIFICATION OF CERTAIN MATTERS. The Company and the Principal
Shareholders shall give prompt notice to Parent of (i) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is
likely to cause any representation or warranty of the Company or the
Principal Shareholders, respectively, contained in this Agreement to be
untrue or inaccurate and (ii) any failure of the Company or the Principal
Shareholders, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section
5.7 shall not limit or otherwise affect any remedies available to Parent.
Further, disclosure by the Company or the Principal Shareholders pursuant to
this Section 5.7 shall not be deemed to amend or supplement the Disclosure
Schedule or prevent or cure any misrepresentations, breach of warranty or
breach of covenant.
5.8 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of this Agreement and
the transactions contemplated hereby.
5.9 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver
to Parent a properly executed statement in a form reasonably acceptable to
Parent for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3) (the "FIRPTA CERTIFICATE").
5.10 EXPENSES.
(a) Except as set forth in Section 5.10(b), whether or not the
Merger is consummated, all fees and expenses incurred in connection with the
Merger including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties
including, in the case of the Company, any amounts payable to third parties
to obtain the consents, waivers, assignments and approvals in the Disclosure
Schedule ("THIRD PARTY EXPENSES") incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement
and the transactions contemplated hereby, shall be the obligation of the
respective party incurring such fees and expenses.
(b) In the event that the Merger is consummated, Parent agrees to
pay up to $50,000 of those Third Party Expenses incurred by the Company, and
the Company agrees that Parent shall have full recourse to the Escrow Fund
(as defined herein) for payment of all Third Party Expenses of the Company
that exceed the greater of Estimated Third Party Expenses or $50,000.
-37-
5.11 TERMINATION OF 401(k) PLAN. The Company agrees to terminate its
401(k) plan immediately prior to the Closing, unless Parent, in its sole and
absolute discretion, agrees to sponsor and maintain such plan by providing
the Company with notice of such election at least two days before the
Effective Time.
5.12 BONUS POOL. Parent shall make available for the employees of the
Company a $2,000,000 bonus pool (gross amount, prior to payment of taxes) to
employees of the Company who remain employees of the Company or Parent on a
continuous basis from the Effective Time through and until the first
regularly scheduled salary payment date occurring after the one year
anniversary of the Closing Date in the respective amounts set forth opposite
such employee's name under the caption "Bonus Pool Amounts" in the Disclosure
Schedule.
5.13 EMPLOYEE BENEFITS. Each employee of the Company or Parent who
remains an employee of the Company or Parent after the Effective Time shall
be eligible, upon completion of Parent's standard employee background and
reference check, upon proof 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, to receive salary and
benefits (such as medical benefits, bonuses and 401(k) plan participation)
consistent with Parent's standard human resource policies, but in no event
materially different than the employee's current compensation package.
5.14 RULE 145 AFFILIATE AGREEMENTS. The Disclosure Schedule sets forth
those persons who, in the Company's reasonable judgment, are or may be
"affiliates" of the Company within the meaning of Rule 145 (each such person
a "RULE 145 AFFILIATE") promulgated under the Securities Act ("RULE 145").
The Company shall provide Parent such information and documents as Parent
shall reasonably request for purposes of reviewing such list. The Company
shall deliver or cause to be delivered to Parent, concurrently with the
execution of this Agreement from each of the Rule 145 Affiliates of the
Company, an executed agreement ("RULE 145 AFFILIATE AGREEMENT") in the form
attached hereto as EXHIBIT D. Parent and Sub shall be entitled to place
appropriate legends on the certificates evidencing any Parent Common Stock to
be received by such Rule 145 Affiliates pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for Parent Common Stock, consistent with the terms of such
Rule 145 Affiliate Agreements.
5.15 VOTING AGREEMENTS. The Company shall deliver or cause to be
delivered to Parent, concurrently with the execution of this Agreement, from
each of the Principal Shareholders and the other shareholders of the Company
who hold in the aggregate a majority of the outstanding Company capital stock
(and a majority of the shares of any class required to approve this Agreement
and the Merger), an executed Voting Agreement with Parent substantially in
the form attached hereto as EXHIBIT E.
5.16 NASDAQ LISTING. Parent shall file an application to list on the
Nasdaq National Market the shares of Parent Common Stock issuable, and those
required to be reserved for issuance, in connection with the Merger, upon
official notice of issuance.
-38-
5.17 FORM S-8. Within 30 days after the Closing Date, Parent shall file
a registration statement on Form S-8 to register shares of Parent Common
Stock issuable upon exercise of Company Options assumed by Parent to the
extent the shares of Parent Common Stock issuable upon exercise of such
Company Options qualify for registration on Form S-8.
5.18 STATEMENT OF EXPENSES. Three (3) business days prior to the
Closing Date, the Company shall provide Parent with a statement (the
"STATEMENT OF EXPENSES") of its Estimated Third Party Expenses.
5.19 SPECIAL BONUS. On the Closing Date, Parent will pay, or cause the
Company to pay, special bonuses totaling $843,416 pro rata among the
employees of the Company immediately prior to the Closing Date, such bonuses
to be paid pro rata to the number of options (whether vested or unvested) on
Company shares held by such employees as of immediately prior to the Closing
Date.
5.20 NO ACTIONS INCONSISTENT WITH TAX-FREE REORGANIZATION. The Company,
Parent and Sub shall (and, following the Effective Time, Parent shall cause
the Company to) take no action with respect to the capital stock, assets or
liabilities of the Company that could reasonably be expected to cause the
Merger to fail to qualify as a "reorganization" within the meaning of Section
368(a) of the Code.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of the Parent, Sub and Company to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal
or otherwise prohibits consummation of the Merger.
(b) GOVERNMENTAL APPROVALS. All authorizations, consents, orders,
declarations or approvals of, or filings with, or terminations or expirations
of waiting periods imposed by, any Governmental Entity which the failure to
obtain, make or occur would have a Material Adverse Effect on Parent or the
Surviving Corporation shall have been obtained, made or occurred.
(c) All waiting periods under the HSR Act (if any) relating to the
transactions hereby will have expired or terminated early.
-39-
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligations
of the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be
waived, in writing, exclusively by the Company:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of Parent and Sub in this Agreement shall be true and correct
in all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time except for
changes contemplated by this Agreement and except for representations and
warranties which address matters as of a particular date which shall remain
true and correct as of such particular date.
(b) PERFORMANCE. Each of Parent and Sub shall have performed and
complied in all material respects with all covenants and obligations of this
Agreement required to be so performed and complied with by Parent or Sub at
or before the Effective Time.
(c) CERTIFICATE OF THE PARENT. Company shall have been provided
with a certificate executed on behalf of Parent by a Vice President
certifying that the conditions set forth in Section 6.2(a) and Section 6.2(b)
above have been satisfied in full.
(d) LEGAL OPINION. The Company shall have received a legal
opinion from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C., counsel to Parent, in
substantially the form attached hereto as EXHIBIT F.
(e) REGISTRATION RIGHTS AGREEMENT. Parent shall have delivered a
duly executed Registration Rights Agreement in the form attached hereto as
EXHIBIT G.
(f) NASDAQ NATIONAL MARKET LISTING. The shares of Parent Common
Stock issuable to shareholders of the Company pursuant to this Agreement and
such other shares required to be reserved for issuance in connection with the
Merger shall have been authorized for listing on the Nasdaq National Market
upon official notice of issuance.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB. The
obligations of Parent and Sub to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of the Company and the Principal Shareholders in this
Agreement shall be true and correct in all material respects on and as of the
Effective Time as though such representations and warranties were made on and
as of such time except for changes contemplated by this Agreement and except
for representations and warranties which address matters as of a particular
date which shall remain true and correct as of such particular date.
-40-
(b) PERFORMANCE. The Company and the Principal Shareholders shall
have performed and complied in all material respects with all covenants and
obligations of this Agreement required to be so performed and complied with
by the Company or the Principal Shareholders at or before the Effective Time.
(c) CLAIMS. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or is reasonably likely
to have a Company Material Adverse Effect. There shall be no BONA FIDE
action, suit, claim or proceeding of any nature pending, or overtly
threatened, against Parent, Sub or the Company, their respective properties
or any of their officers or directors, arising out of, or in any way
connected with, the Merger or the other transactions contemplated by the
terms of this Agreement.
(d) COMPANY SHAREHOLDER APPROVAL. The Shareholders representing
at least ninety percent (90%) of the Company Capital Stock shall have
approved and adopted this Agreement and the Merger by the requisite vote
under applicable law and the Company's Restated Articles of Incorporation.
(e) LIMITATION ON DISSENT. Holders of no more than five percent
(5%) of the outstanding shares of Company Capital Stock shall have exercised,
nor shall they have any continued rights to exercise, appraisal, dissenters'
or similar rights under applicable law with respect to their shares by virtue
of the Merger.
(f) THIRD PARTY CONSENTS. The Company shall have obtained the
consents, waivers, assignments and approvals (the form and substance of which
shall have been subject to review and approval by Parent) set forth in the
Disclosure Schedule.
(g) LEGAL OPINION. Parent shall have received a legal opinion
from Howard, Rice, Nemerovski, Canady, ▇▇▇▇ & Rabkin, a Professional
Corporation, legal counsel to the Company, in substantially the form attached
hereto as EXHIBIT H.
(h) EMPLOYMENT AGREEMENTS. Each of the Principal Shareholders
shall have entered into an Employment and Non-Competition Agreement with
Parent substantially in the form attached hereto as EXHIBIT I-1, each of the
Key Employees shall have entered into an Employment and Non-Competition
Agreement with Parent substantially in the form attached hereto as EXHIBIT
I-2, and each of such Employment and Non-Competition Agreements shall be in
full force and effect at the Effective Time and no party to any such
agreement shall be in breach of the agreement, threatening to breach such
agreement or taking any action materially inconsistent with the party's
obligations under the agreement.
(i) AFFILIATE AGREEMENTS. Each Rule 145 Affiliate of the Company
shall have entered into a Rule 145 Affiliate Agreement and each of such
agreements shall be in full force and effect at the Effective Time and no
party to any such agreement shall be in breach of the agreement,
-41-
are threatening to breach such agreement or taking any action materially
inconsistent with the party's obligations under the agreement.
(j) VOTING AGREEMENTS. Each of the Principal Shareholders shall
have entered into a Voting Agreement with Parent and each of such agreements
shall be in full force and effect on the Effective Time and no party to any
such agreement shall be in breach of the agreement, are threatening to breach
such agreement or taking any action materially inconsistent with the party's
obligations under the agreement.
(k) SHAREHOLDER CERTIFICATE. Each Shareholder shall have executed
and delivered to Parent a Shareholder Certificate in substantially the form
attached hereto as EXHIBIT C.
(l) STATEMENT OF EXPENSES. Parent shall have received from the
Company the Estimated Statement of Expenses, validly executed and certified
by a duly authorized officer of the Company, no later than three (3) business
days prior to the Closing Date.
(m) TERMINATION OF 401(k) PLAN. The Board of Directors of the
Company shall have adopted resolutions (the form and substance of which shall
have been provided to the Company by Parent) terminating the Company's 401(k)
Plan as of immediately prior to the Closing.
(n) FIRPTA CERTIFICATE. Parent shall have received from the
Company the FIRPTA Certificate, validly executed and certified by a duly
authorized officer of the Company.
(o) SECRETARY'S CERTIFICATE. Parent shall have received from the
Company a certificate, validly executed by the Secretary of the Company,
certifying as to (i) the terms and effectiveness of the Articles of
Incorporation and Bylaws of the Company, in each case as amended, and (ii)
the accuracy and completeness of the resolutions of the Board of Directors of
the Company and the Shareholders approving this Agreement, the Merger and the
other transactions contemplated hereby.
(p) CERTIFICATE OF GOOD STANDING. Parent shall have received a
long form certificate of good standing of the Company from the Secretary of
State of the State of California, dated within a reasonable period prior to
the Closing Date.
(q) CERTIFIED ARTICLES OF INCORPORATION. Parent shall have
received a copy of the Articles of Incorporation of the Company, as amended,
certified by the Secretary of State of the State of California within a
reasonable period prior to the Closing.
(r) CERTIFICATE OF THE COMPANY. Parent shall have been provided
with a certificate executed on behalf of the Company by its Chief Executive
Officer and its Chief Financial Officer certifying that the conditions set
forth in Section 6.3 (a), (b), (c), (d), (e) and (l) above have been
satisfied in full.
-42-
(s) THIRD PARTY CONSENTS. Parent shall have received from the
Company, in form and substance reasonably acceptable to Parent, consents to
the assignment of those contracts listed at items (vi) and (vii) of Section
2.5 of the Disclosure Schedule; provided however, that no such consent or
assignment shall be required with respect to any agreement or contract as to
which the Company has provided a substantially comparable alternative product
reasonably satisfactory to Parent.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Principal Shareholders' representations and warranties in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the
Merger and shall continue until the date that is twelve (12) months after the
Closing Date. All of Parent's and Sub's representations and warranties in
this Agreement or in any instrument delivered pursuant to this Agreement
shall terminate upon the one year anniversary of the Closing.
7.2 INDEMNIFICATION. The Shareholders (including the Principal
Shareholders) agree to indemnify and hold Parent and its officers, directors
and affiliates harmless against all claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of investigation and defense (hereinafter individually a "LOSS" and
collectively "LOSSES") incurred by Parent, its officers, directors, or
affiliates (including the Surviving Corporation) directly or indirectly as a
result of (i) any inaccuracy or breach of a representation or warranty of the
Company or the Principal Shareholders contained in this Agreement or any
Related Agreements, (ii) any failure by the Company or the Principal
Shareholders to perform or comply with any covenant contained in this
Agreement or any Related Agreements, (iii) the Third Party Expenses incurred
by the Company exceeding the greater of the Estimated Third Party Expenses or
$50,000. The Shareholders shall not have any right of indemnification or
contribution from the Company with respect to any Loss claimed by an
indemnified party after the Effective Time. Notwithstanding the foregoing,
the Shareholders shall not have any liability under this Section 7.2, unless
and until the aggregate Losses for which indemnification is sought exceed
$150,000, in which case the full amount of such Losses (including the
$150,000) shall be subject to indemnification. Except as set forth in
Section 7.4, the Escrow Fund (as defined below) shall be the sole right and
remedy of Parent and Sub for the indemnification set forth in this Section
7.2.
7.3 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. As security for the indemnity provided for in
Section 7.2 hereof and by virtue of this Agreement and the Merger Agreement,
the Shareholders will be deemed to have received and deposited with the
Escrow Agent (as defined below) the Escrow Shares (plus any additional shares
as may be issued upon any stock split, stock dividend or recapitalization
effected by Parent after the Effective Time with respect to the Escrow
Shares) without any act of the Company or any Shareholders. As soon as
practicable after the Effective Time, the Escrow Shares,
-43-
without any act of any Shareholders, will be deposited with U.S. Bank Trust
N.A. (or other institution acceptable to Parent and the Securityholder Agent
(as defined in Section 7.3(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. The Escrow Agent may execute this Agreement
following the date hereof and prior to the Effective Time, and such latter
execution shall not affect the binding nature of this Agreement as of the
date hereof among the signatories hereto. Nothing herein shall limit the
liability of the Company for any breach of any representation, warranty, or
covenant contained in this Agreement if the Merger does not close.
(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., Pacific time, on the twentieth business day following the twelve
(12) month anniversary of the Closing Date (the "ESCROW PERIOD"); PROVIDED
THAT the Escrow Period shall not terminate with respect to such remaining
portion of the Escrow Fund (or some portion thereof) that in the reasonable
judgement of Parent, subject to the objection of the Securityholder Agent (as
defined below) and the subsequent arbitration of the matter in the manner
provided in Section 7.3(f) hereof, is necessary to satisfy any then pending
unsatisfied claims specified in any Officer's Certificate delivered to the
Escrow Agent prior to the termination of the Escrow Period. The Escrow Agent
shall deliver to the Shareholders the remaining portion of the Escrow Fund
not required to satisfy such claims and Third Party Expenses. Deliveries of
Escrow Shares to the Shareholders pursuant to this Section 7.3(b) shall be
made in proportion to their respective original contributions to the Escrow
Fund.
(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 Parent
and shall hold and dispose of the Escrow Fund only in accordance with the
terms hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a
stock split) ("NEW SHARES") in respect of Parent 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 Parent 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 Parent Common Stock, if any, shall not be
added to the Escrow Fund but shall be distributed to the record holders
thereof.
(iii) Each Shareholder shall have voting rights and the
right to distributions of dividends with respect to the shares of Parent
Common Stock contributed to the Escrow Fund by such Shareholders (and on any
voting securities added to the Escrow Fund in respect of such shares of
Parent Common Stock).
-44-
(d) CLAIMS UPON ESCROW FUND.
(i) 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 Parent (an "OFFICER'S CERTIFICATE"): (A) stating that Parent has
paid or properly accrued or reasonably anticipates that it will have to pay
or accrue Losses, (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 misrepresentations, breach of warranty or covenant to which such items
is related, and (C) specifying the number of Escrow Shares necessary to
satisfy such claim, the Escrow Agent shall, subject to the provisions of
Section 7.3(e), deliver to Parent out of the Escrow Fund as promptly as
practicable, shares of Parent Common Stock held in the Escrow Fund in an
amount equal to such Losses.
(ii) For the purposes of determining the number of shares
of Parent Common Stock to be delivered to Parent out of the Escrow Fund as
indemnity pursuant to Section 7.3(b) and 7.3(d)(i) hereof, the shares of
Parent Common Stock shall be valued at the Trading Price.
(e) OBJECTIONS TO CLAIMS. 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 and for a period of thirty (30) days
after such delivery, the Escrow Agent shall make no delivery to Parent of any
Escrow Amounts pursuant to Section 7.3(d) 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 Parent Common Stock from the
Escrow Fund in accordance with Section 7.3(d) 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.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Securityholder Agent shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and Parent 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 Parent should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and distribute shares of Parent 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 Parent 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 one arbitrator mutually agreeable
-45-
to Parent and the Securityholder Agent. In the event that within forty-five
(45) days after submission of any dispute to arbitration, Parent and the
Securityholder Agent cannot mutually agree on one arbitrator, the American
Arbitration Association shall select an arbitrator. The arbitrator 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 judgement of the arbitrator to discover relevant information from
the opposing parties about the subject matter of the dispute. The arbitrator
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 arbitrator determine
that discovery was sought without substantial justification or that discovery
was refused or objected to without substantial justification. The decision of
the arbitrator as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this
Agreement, and notwithstanding anything in Section 7.3(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 arbitrator.
(iii) Judgment upon any award rendered by the
arbitrator(s) 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. All expenses relating
to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association, by the losing
party.
(g) SECURITYHOLDER AGENT OF THE SHAREHOLDERS; POWER OF ATTORNEY.
(i) In the event that the Merger is approved, effective
upon such vote, and without further act of any Shareholders, ▇▇. ▇▇▇▇
▇▇▇▇▇▇▇▇ shall be appointed as agent and attorney-in-fact (the
"SECURITYHOLDER AGENT") for each Shareholder of the Company, for and on
behalf of Shareholders, to give and receive notices and communications, to
authorize delivery to Parent of shares of Parent Common Stock from the Escrow
Fund in satisfaction of claims by Parent, 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 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 Parent; provided that the
Securityholder Agent may not be removed unless holders of a majority interest
of the Escrow Fund agree to such removal and to the identity of the
substituted agent. No bond shall be required of the Securityholder Agent, and
the Securityholder Agent shall not receive compensation for his or her
services. Notices or communications to or from the Securityholder Agent shall
constitute notice to or from each of the Shareholders.
-46-
(ii) The Securityholder Agent shall not be liable for any
act done or omitted hereunder as Securityholder Agent while acting in good
faith and in the exercise of reasonable judgment. 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 negligence or 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 reasonable 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 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 of such Shareholders, and the Escrow Agent and Parent
may rely upon any such decision, act, consent or instruction of the
Securityholder Agent as being the decision, act, consent or instruction of
each and every such Shareholder. The Escrow Agent and Parent 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.
(i) THIRD-PARTY CLAIMS. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall 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 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 VII to the amount of any claim by
Parent against the Escrow Fund 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 Parent 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
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is
hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case the Escrow Agent obeys or complies with any
such order,
-47-
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 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
of 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 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 Parent 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 damages.
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 Parent 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) Parent agrees to indemnify and hold Escrow Agent
harmless against any and all losses, claims, damages, liabilities, and
expenses, including reasonable costs of
-48-
investigation, counsel fees, including allocated costs of in-house counsel
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 other than arising out of its
negligence or willful misconduct.
(viii) The Escrow Agent may resign at any time upon giving
at least thirty (30) days written notice to Parent and the Securityholder
Agent; 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 Delaware. 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. Upon appointment of a successor 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 Parent in accordance with the standard fee
schedule of the Escrow Agent. 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 the Escrow Fund or its subject matter, the
Escrow Agent shall be reasonably compensated for such extraordinary services
and reimbursed for all costs, attorney's fees, including allocated costs of
in-house counsel, and expenses occasioned by such default, delay, controversy
or litigation. The Parent promises to pay these sums upon demand.
7.4 MAXIMUM PAYMENTS; REMEDY. Except as set forth below, the maximum
amount Parent may recover from the Shareholders for Losses pursuant to the
indemnity set forth in Section 7.2 or otherwise pursuant to this Agreement
shall be limited to the Escrow Fund. Notwithstanding the foregoing, the
maximum amount that Parent may recover from each Principal Shareholder
(severally and not jointly) pursuant to the indemnity set forth in Section
7.2 shall not be so limited but shall instead be limited to fifteen percent
(15%) of the aggregate consideration that such Principal Shareholder received
for his shares of Company Capital Stock in the Merger (valuing the shares of
Parent Common Stock so received by such Principal Shareholder at the average
price at which such Principal Shareholder sold such shares as to shares sold,
and at the market price as of the time of payment to Parent as to shares
still held); provided, that no such claim shall be made against either of the
Principal Shareholders until the Escrow Fund is exhausted, provided further,
however, that Parent or the Surviving Corporation may only make such a claim
against a Principal Shareholder in cases of such Principal Shareholder's
actual, knowing breach of a representation or warranty
-49-
herein. Notwithstanding anything to the contrary herein, the existence of
this Article VII and of the rights and restrictions set forth herein do not
limit any other potential remedies of Parent with respect to any act of fraud
by the Company or the Principal Shareholders.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2, this Agreement may
be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent, as evidenced in a
written agreement executed by both parties;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred as soon as practicable after, and in no event later than five (5)
business days after, the occurrence of Company shareholder approval, pursuant
to Section 5.2 hereof, PROVIDED, HOWEVER, that the right to terminate this
Agreement under this Section 8.1(b)(i) shall not be available to any party
whose action or failure to act has been a principal cause of or resulted in
the failure of the Merger to occur on or before such date and such action or
failure to act constitutes a breach of this Agreement; (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 Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable
to the Merger by any Governmental Entity, which would: (i) prohibit or
materially restrict the Parent's or the Surviving Corporation's ownership or
operation of any portion of the business of the Company or (ii) compel Parent
or the Company to dispose of or hold separate all or a portion of the
business or assets of the Company or Parent as a result of the Merger;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement
or any Related Agreements on the part of the Company and such breach has not
been cured within ten (10) calendar days after written notice to the Company;
PROVIDED, HOWEVER, that no cure period shall be required for a breach which
by its nature cannot be cured; or
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement
or any Related Agreement on the part of Parent and such breach has not been
cured within ten (10) calendar days after written notice to Parent; provided,
however, that no cure period shall be required for a breach which by its
nature cannot be cured; or
-50-
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent,
Sub, the Principal Shareholders or the Company, or their respective officers,
directors or Stockholders, provided that each party shall remain liable for
any breaches of this Agreement prior to its termination; provided further
that, the provisions of Section 5.4, Section 5.10(a), Article IX and this
Section 8.2 shall remain in full force and effect and survive any termination
of this Agreement.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of Parent,
Sub, the Company and the Principal Shareholders.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
and Sub, on the one hand, and the Company and the Principal Shareholders, on
the other hand, may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations of the other party hereto, (b)
waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail
(return receipt requested) or sent via facsimile (with acknowledgment of
complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice), PROVIDED,
HOWEVER, that notices sent by mail will not be deemed given until received:
(a) if to Parent or Sub, to:
Commerce One, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice hereunder):
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
-51-
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company, to
Mergent Systems, Inc.
▇▇▇ ▇. ▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Howard, Rice, Nemerovski, Canady, ▇▇▇▇ & ▇▇▇▇▇▇,
a Professional Corporation
Three ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ Star, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) If to the Principal Shareholders, to:
▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
and to:
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
(d) If to the Escrow Agent, to:
U.S. Bank Trust N.A.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
-52-
(e) If to the Securityholder Agent, to:
▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
9.2 INTERPRETATION. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 COUNTERPARTS; FACSIMILE. This Agreement may be executed by
facsimile and in one or more counterparts, all of which shall be considered
one and the same agreement and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the
other party, it being understood that all parties need not sign the same
counterpart.
9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Related
Agreements, the Exhibits and Schedules hereto, the Confidentiality Agreement,
dated November 9 1999, between the Company and Parent and the documents and
instruments and other agreements among the parties hereto referenced herein:
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned (other than by operation of
law), except that Parent and Sub may assign their respective rights and
delegate their respective obligations hereunder to their respective
affiliates.
9.5 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
9.6 OTHER REMEDIES; SPECIFIC PERFORMANCE. Any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to seek
an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
United States or any
-53-
state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof. Each of the parties hereto irrevocably consents to the
exclusive jurisdiction and venue of any court within Santa ▇▇▇▇▇ County,
State of California, in connection with any matter based upon or arising out
of this Agreement or the matters contemplated herein, agrees that process may
be served upon them in any manner authorized by the laws of the State of
California for such persons and waives and covenants not to assert or plead
any objection which they might otherwise have to such jurisdiction, venue and
such process. Each of Parent, Company and Sub hereby irrevocably waives all
right to trial by jury in any action, proceeding or counterclaim (whether
based on contract, tort or otherwise) arising out of or relating to this
agreement or the actions of Parent, Company or Sub in the negotiation,
administration, performance and enforcement hereof.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefor, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.9 ATTORNEYS FEES. If any action or other proceeding relating to the
enforcement of any provision of this Agreement is brought by any party
hereto, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements (in addition to any other relief to
which the prevailing party may be entitled).
-54-
IN WITNESS WHEREOF, Parent, Sub, the Company, the Principal
Shareholders, the Escrow Agent and the Securityholder Agent have caused this
Agreement to be signed, all as of the date first written above.
COMMERCE ONE, INC. ▇▇▇▇ ▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------- ----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President and Chief
Financial Officer
GAVEL ACQUISITION CORPORATION ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
----------------------------------- ----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President and Secretary
MERGENT SYSTEMS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
ESCROW AGENT:
U.S. BANK TRUST N.A.
(for purposes of Article VII only)
By: /s/ ▇▇▇ ▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇ ▇▇▇▇▇▇
Title: Vice President
SECURITYHOLDER AGENT:
(for purposes of Article VII only)
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]