Exhibit 2.2
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
NETSCAPE COMMUNICATIONS CORPORATION
DSC ACQUISITION CORPORATION
AND
DIGITALSTYLE CORPORATION
DATED AS OF APRIL 25, 1997
TABLE OF CONTENTS
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ARTICLE I - THE MERGER . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effect of the Merger . . . . . . . . . . . . . . . . . . 2
1.4 Certificate of Incorporation; Bylaws . . . . . . . . . . 2
1.5 Directors and Officers . . . . . . . . . . . . . . . . . 2
1.6 Shares to Be Issued; Effect on Capital Stock . . . . . . 3
1.7 Dissenting Shares. . . . . . . . . . . . . . . . . . . . 6
1.8 Surrender of Certificates. . . . . . . . . . . . . . . . 7
1.9 No Further Ownership Rights in Company Common Stock. . . 8
1.10 Lost, Stolen or Destroyed Certificates . . . . . . . . . 9
1.11 Tax Consequences . . . . . . . . . . . . . . . . . . . . 9
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . 9
2.1 Organization of the Company. . . . . . . . . . . . . . . 9
2.2 Company Capital Structure. . . . . . . . . . . . . . . .10
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . .10
2.4 Authority. . . . . . . . . . . . . . . . . . . . . . . .11
2.5 Company Financial Statements . . . . . . . . . . . . . .11
2.6 No Undisclosed Liabilities . . . . . . . . . . . . . . .12
2.7 No Changes . . . . . . . . . . . . . . . . . . . . . . .12
2.8 Tax and Other Returns and Reports. . . . . . . . . . . .13
2.9 Restrictions on Business Activities. . . . . . . . . . .15
2.10 Title to Properties; Absence of Liens and Encumbrances .15
2.11 Intellectual Property. . . . . . . . . . . . . . . . . .16
2.12 Agreements, Contracts and Commitments. . . . . . . . . .19
2.13 Interested Party Transactions. . . . . . . . . . . . . .20
2.14 Compliance with Laws . . . . . . . . . . . . . . . . . .20
2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . .20
2.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . .21
2.17 Minute Books . . . . . . . . . . . . . . . . . . . . . .21
2.18 Environmental Matters. . . . . . . . . . . . . . . . . .21
2.19 Brokers' and Finders' Fees; Third Party Expenses . . . .22
2.20 Employee Matters and Benefit Plans . . . . . . . . . . .22
2.21 Employees. . . . . . . . . . . . . . . . . . . . . . . .25
2.22 Governmental Authorizations and Licenses . . . . . . . .25
2.23 Representations Complete . . . . . . . . . . . . . . . .26
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TABLE OF CONTENTS
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ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB . . . . . . . . . . . . . . . . . . . . . . .26
3.1 Organization, Standing and Power . . . . . . . . . . . .26
3.2 Authority. . . . . . . . . . . . . . . . . . . . . . . .26
3.3 Capital Structure. . . . . . . . . . . . . . . . . . . .27
3.4 SEC Documents; Parent Financial Statements . . . . . . .27
3.5 No Material Adverse Change . . . . . . . . . . . . . . .28
3.6 Litigation . . . . . . . . . . . . . . . . . . . . . . .28
3.7 Representations Complete . . . . . . . . . . . . . . . .28
3.8 Brokers' and Finders' Fees . . . . . . . . . . . . . . .28
ARTICLE IV - CONDUCT PRIOR TO THE EFFECTIVE TIME . . . . . . . . . . .28
4.1 Conduct of Business of the Company . . . . . . . . . . .28
4.2 No Solicitation. . . . . . . . . . . . . . . . . . . . .31
4.3 Conduct of Parent and Merger Sub . . . . . . . . . . . .32
ARTICLE V - ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . .32
5.1 Registration Statement on Form S-4; Stockholder Matters.32
5.2 Access to Information. . . . . . . . . . . . . . . . . .33
5.3 Confidentiality. . . . . . . . . . . . . . . . . . . . .34
5.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . .34
5.5 Public Disclosure. . . . . . . . . . . . . . . . . . . .34
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . .34
5.7 FIRPTA Compliance. . . . . . . . . . . . . . . . . . . .35
5.8 Reasonable Efforts . . . . . . . . . . . . . . . . . . .35
5.9 Notification of Certain Matters. . . . . . . . . . . . .35
5.10 Certain Benefit Plans. . . . . . . . . . . . . . . . . .35
5.11 Termination Fee. . . . . . . . . . . . . . . . . . . . .35
5.12 Affiliate Agreements . . . . . . . . . . . . . . . . . .36
5.13 Voting Agreements. . . . . . . . . . . . . . . . . . . .36
5.14 Additional Documents and Further Assurances. . . . . . .36
5.15 Registration Statement on Form S-8 . . . . . . . . . . .36
5.16 Nasdaq National Market Listing . . . . . . . . . . . . .36
5.17 Company's Auditors . . . . . . . . . . . . . . . . . . .36
5.18 Non-Competition Agreements . . . . . . . . . . . . . . .37
5.19 Directors' and Officers' Indemnification . . . . . . . .37
5.20 Due Diligence Investigation. . . . . . . . . . . . . . .37
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ARTICLE VI - CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . .37
6.1 Conditions to Obligations of Each Party to Effect the
Merger . . . . . . . . . . . . . . . . . . . . . . . . .37
6.2 Additional Conditions to Obligations of the Company. . .38
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub . . . . . . . . . . . . . . . . . . . . . . .39
ARTICLE VII - ESCROW . . . . . . . . . . . . . . . . . . . . . . . . .40
7.1 Escrow Period. . . . . . . . . . . . . . . . . . . . . .40
7.2 Escrow Arrangements. . . . . . . . . . . . . . . . . . .41
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER. . . . . . . . . . . .47
8.1 Termination. . . . . . . . . . . . . . . . . . . . . . .47
8.2 Effect of Termination. . . . . . . . . . . . . . . . . .48
8.3 Amendment. . . . . . . . . . . . . . . . . . . . . . . .48
8.4 Extension; Waiver. . . . . . . . . . . . . . . . . . . .48
ARTICLE IX - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . .48
9.1 Survival of Representations, Warranties and Agreements .48
9.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . .49
9.3 Interpretation . . . . . . . . . . . . . . . . . . . . .50
9.4 Counterparts . . . . . . . . . . . . . . . . . . . . . .50
9.5 Entire Agreement; Assignment . . . . . . . . . . . . . .50
9.6 Severability . . . . . . . . . . . . . . . . . . . . . .50
9.7 Other Remedies . . . . . . . . . . . . . . . . . . . . .51
9.8 Governing Law. . . . . . . . . . . . . . . . . . . . . .51
9.9 Arbitration. . . . . . . . . . . . . . . . . . . . . . .51
9.10 Rules of Construction. . . . . . . . . . . . . . . . . .52
9.11 Specific Performance . . . . . . . . . . . . . . . . . .52
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INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
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Exhibit A Form of Company Affiliate Agreement
Exhibit B Form of Company Stockholder Voting Agreement
Exhibit C Form of Non-Competition Agreement
Exhibit D Form of Legal Opinion of Counsel to Parent
Exhibit E Form of Legal Opinion of Counsel to the Company
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INDEX OF SCHEDULES
SCHEDULE DESCRIPTION
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2.2(a) Stockholder List
2.2(b) Option List
2.4 Governmental and Third Party Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.9 Restrictive Agreements
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(b) Registered Intellectual Property
2.11(c) Intellectual Property Proceedings
2.11(e) Intellectual Property Licenses
2.11(h) Intellectual Property Grants or Transfers
2.11(i) Intellectual Property Agreements
2.11(j) Contract Rights Not Continuing
2.11(k) Intellectual Property Obligations
2.11(n) Intellectual Property Infringement or Claims
2.11(o) Proprietary Information/Confidentiality Agreement
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches
2.13 Interested Party Transactions
2.15 Litigation
2.16 Insurance
2.19 Brokers/Finders Fees; Expenses of Transaction
2.20(b) Employee Benefit Plans and Employee Agreements
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Obligations
2.20(h) Effect of Transaction
2.20(j) Labor
3.2 Other Required Consents of Parent
3.8 Brokers' and Finders' Fees
4.1(f)(1) Potential Repurchases Outside Standard Agreements
4.1(f)(2) Agreements Regarding Stock Repurchase Rights
4.1(l) Severance Agreements
4.1(m) Scheduled Pay Increases
5.12 Company Affiliate List
5.13 Stockholders Signing Voting Agreements
5.18 Employees Signing Non-Competition Agreement
6.2(c) Third Party Consents Required of Parent
6.3(c) Third Party Consents Required of the Company
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this
"AGREEMENT") is made and entered into as of April 25, 1997 by and
among Netscape Communications Corporation, a Delaware corporation
("PARENT"), DSC Acquisition Corporation, a Delaware corporation and
a wholly-owned subsidiary of Parent ("MERGER SUB"), and
DigitalStyle Corporation, a Delaware corporation (the "COMPANY").
RECITALS
A. The Boards of Directors of each of the Company,
Parent and Merger Sub believe it is in the best interests of each
company and their respective stockholders that Parent acquire the
Company through the statutory merger of Merger Sub with and into
the Company (the "MERGER") and, in furtherance thereof, have
approved the Merger.
B. Pursuant to the Merger, among other things, and
subject to the terms and conditions of this Agreement, all of the
issued and outstanding shares of capital stock of the Company
("COMPANY CAPITAL STOCK") and all outstanding options, warrants or
other rights to acquire or receive shares of Company Capital Stock
shall be converted into voting Common Stock, $0.0001 par value of
Parent ("PARENT COMMON STOCK") or the right to receive Parent
Common Stock.
C. A portion of the shares of Parent Common Stock
otherwise issuable by Parent in connection with the Merger shall be
placed in escrow by Parent, the release of which amount shall be
contingent upon certain events and conditions, all as set forth in
Article VII hereof.
D. The Company, Parent and Merger Sub desire to
make certain representations and warranties and other agreements in
connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby 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 Delaware
General Corporation Law ("DELAWARE LAW"), Merger Sub shall be
merged with and into the Company, the separate corporate existence
of Merger Sub shall cease, and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent.
The Company as
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 no later than five (5) business days, following satisfaction or
waiver of the conditions set forth in Article VI, at the offices of
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx,
Xxxxxxxxxx, unless another place or time is agreed to by Parent and
the Company. The date upon which the Closing actually 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 or Certificate of Merger (or like instrument) with the
Secretary of State of the State of Delaware (the "MERGER
AGREEMENT"), in accordance with the relevant provisions of
applicable law (the time of confirmation by the Secretary of State
of Delaware of such filing or such later time as may be provided in
the Merger Agreement 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 Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of the Company
and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall
become the debts, liabilities and duties of the Surviving
Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to
the Effective Time, at the Effective Time, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law
and such Certificate of Incorporation; provided, however, that
Article I of the Certificate of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the
corporation is DigitalStyle Corporation."
(b) Unless otherwise determined by Parent, the
Bylaws of Merger 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 director(s) of
Merger Sub immediately prior to the Effective Time shall be the
initial director(s) of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation. The officers of Merger Sub
immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, each to hold office in
accordance with the Bylaws of the Surviving Corporation.
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1.6 SHARES TO BE ISSUED; EFFECT ON CAPITAL STOCK.
The number of shares of Parent Common Stock to be issued (including
Parent Common Stock to be reserved for issuance upon exercise of
any of the Company's options and warrants to be assumed by Parent)
in exchange for the acquisition by Parent of all outstanding
Company Capital Stock and all unexpired and unexercised options,
warrants or other rights to acquire Company Capital Stock shall be
determined immediately prior to the Effective Time and shall be
equal to the Aggregate Share Number (as defined in
Section 1.6(i)(vii)). No adjustment shall be made in the number of
shares of Parent Common Stock issued in the Merger as a result of
any cash proceeds received by the Company from the date hereof to
the Effective Time pursuant to the exercise of options, warrants or
other rights to acquire Company Capital Stock. Subject to the
terms and conditions of this Agreement, as of the Effective Time,
by virtue of the Merger and without any action on the part of
Merger Sub, the Company or the holder of any shares of the Company
Capital Stock, the following shall occur:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share
of Common Stock, $0.001 par value per share, of the Company issued
and outstanding immediately prior to the Closing (the "COMPANY
COMMON STOCK") (other than any shares of Company Stock to be
canceled pursuant to Section 1.6(d) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a))) will be
canceled and extinguished and be converted automatically into the
right to receive that number of shares of Parent Common Stock equal
to the Exchange Ratio (as defined in Section 1.6(i)(ix) below),
upon surrender of the certificate representing such share of
Company Common Stock in the manner provided in Section 1.8.
(b) CONVERSION OF SERIES A PREFERRED STOCK. Each
share of Series A Preferred Stock, $0.001 par value per share, of
the Company issued and outstanding immediately prior to the
Closing (the "SERIES A PREFERRED STOCK") (other than any shares of
Series A Preferred Stock to be canceled pursuant to Section 1.6(d)
and any Dissenting Shares (as defined and to the extent provided in
Section 1.7(a))) will be canceled and extinguished and be converted
automatically into the right to receive that number of shares of
Parent Common Stock equal to (i) the Series A Preference Shares (as
defined in Section 1.6(i)(i) below) divided by the Aggregate
Series A Number (as defined in Section 1.6(i)(iv) below), plus (ii)
the Exchange Ratio, upon surrender of the certificate representing
such share of Series A Preferred Stock in the manner provided in
Section 1.8.
(c) CONVERSION OF SERIES B PREFERRED STOCK. Each
share of Series B Preferred Stock, $0.001 par value per share, of
the Company issued and outstanding immediately prior to the
Closing (the "SERIES B PREFERRED STOCK") (other than any shares of
Series B Preferred Stock to be canceled pursuant to Section 1.6(d)
and any Dissenting Shares (as defined and to the extent provided in
Section 1.7(a))) will be canceled and extinguished and be converted
automatically into the right to receive that number of shares of
Parent Common Stock equal to (i) other than with respect to shares
of Series B Preferred Stock held by Parent, the Series B Preference
Shares (as defined in Section 1.6(i)(ii) below) divided by the
amount by which the Aggregate Series B Number (as defined in
Section 1.6(i)(v) below) exceeds the number of shares of Series B
Preferred Stock held by Parent, plus (ii) the Exchange Ratio, upon
surrender of the certificate representing such share of Series B
Preferred Stock in the manner provided in Section 1.8.
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(d) CANCELLATION OF COMPANY-OWNED STOCK. Each
share of Company Capital Stock owned by the Company or any direct
or indirect wholly-owned subsidiary of the Company immediately
prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(e) STOCK OPTIONS. At the Effective Time, all
options to purchase Company Common Stock then outstanding under the
Company's 1995 Stock Option/Stock Issuance Plan (the "OPTION PLAN")
or otherwise shall be assumed by Parent in accordance with
provisions described below.
(i) At the Effective Time, each outstanding option
to purchase shares of Company Common Stock (each a "COMPANY
OPTION") under the Option Plan or otherwise, whether vested or
unvested, shall be, in connection with the Merger, assumed by
Parent. Each Company Option so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms
and conditions set forth in the Option Plan and/or as provided in
the respective option agreements governing such Company Option
immediately prior to the Effective Time, except that (A) such
Company Option shall be exercisable for that number of whole shares
of Parent Common Stock equal to the product of the number of shares
of Company Common Stock that were issuable upon exercise of such
Company Option immediately prior to the Effective Time multiplied
by the Exchange Ratio, rounded (in the case of Company Options
granted under the Option Plan) to the nearest whole number of
shares of Parent Common Stock and (B) the per share exercise price
for the shares of Parent Common Stock issuable upon exercise of
such assumed Company Option shall 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 Exchange Ratio,
rounded to the nearest whole cent, PROVIDED, HOWEVER, that the
vesting of any Company Option and any terms regarding the
repurchase rights contained in the Option Plan or an agreement
governing a Company Option shall remain the same.
(ii) It is the intention of the parties that the
Company Options assumed by Parent qualify following the Effective
Time as incentive stock options as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "CODE"), to the
extent the Company Options qualified as incentive stock options
immediately prior to the Effective Time.
(iii) Promptly following the Effective Time, Parent
will issue to each holder of an outstanding Company Option a
document evidencing the foregoing assumption of such Company Option
by Parent.
(f) CAPITAL STOCK OF MERGER SUB. Each share of Common
Stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of Common Stock
of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares of Common Stock of the
Merger Sub shall, as of the Effective Time, evidence ownership of
such shares of Common Stock of the Surviving Corporation.
4
(g) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio
shall be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or
distribution of securities convertible into Company Capital Stock),
reorganization, recapitalization or other like change with respect
to Company Capital Stock occurring after the date hereof and prior
to the Effective Time.
(h) FRACTIONAL SHARES. No fraction of a share of Parent
Common Stock will be issued, but in lieu thereof, each holder of
shares of Company Capital Stock who would otherwise be entitled to
a fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock to be received by such
holder) shall be entitled to receive, without any interest, from
Parent an amount of cash (rounded to the nearest whole cent) equal
to the product of (i) such fraction, multiplied by (ii) the average
closing price of a share of Parent Common Stock for the twenty (20)
consecutive trading days ending on the trading day immediately
prior to the Closing Date, on the Nasdaq National Market, as
reported in The Wall Street Journal (the "PARENT STOCK PRICE").
(i) DEFINITIONS.
(i) SERIES A PREFERENCE SHARES. The "SERIES A
PREFERENCE SHARES" shall mean the quotient obtained by dividing (x)
the product of $1.00 multiplied by the Aggregate Series A Number,
by (y) the Parent Stock Price (as defined in Section 1.6(h)).
(ii) SERIES B PREFERENCE SHARES. The "SERIES B
PREFERENCE SHARES" shall mean the quotient obtained by dividing
(x) the product of $2.34 multiplied by the Aggregate Series B
Number (excluding shares of Series B Preferred Stock owned by
Parent), by (y) the Parent Stock Price.
(iii) AGGREGATE COMMON NUMBER. The "AGGREGATE COMMON
NUMBER" shall mean the aggregate number of shares of Company Common
Stock outstanding immediately prior to the Effective Time.
(iv) AGGREGATE SERIES A NUMBER. The "AGGREGATE
SERIES A NUMBER" shall mean the aggregate number of shares of
Series A Preferred Stock outstanding immediately prior to the
Effective Time (including all shares of Series A Preferred Stock
issued or issuable upon exercise of warrants ("Preferred
Warrants")).
(v) AGGREGATE SERIES B NUMBER. The "AGGREGATE
SERIES B NUMBER" shall mean the aggregate number of shares of
Series B Preferred Stock outstanding immediately prior to the
Effective Time (including Company Preferred Stock beneficially
owned by Parent).
(vi) AGGREGATE OPTION NUMBER. The "AGGREGATE OPTION
NUMBER" shall mean the aggregate number of shares of Company Common
Stock issuable upon the exercise of all outstanding Company options
(vested and unvested) and other rights to acquire shares of Company
Common Stock immediately prior to the Effective Time (other than
5
the right to acquire shares of Company Common Stock issuable upon
conversion of Series A Preferred Stock and Series B Preferred
Stock).
(vii) AGGREGATE SHARE NUMBER. The "AGGREGATE SHARE
NUMBER" shall be 930,232 shares of Parent Common Stock (as
appropriately adjusted to reflect 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 the Parent Common Stock occurring after the date hereof and
prior to the Effective Time); provided, however, that to the extent
that the Parent Stock Price
(A) exceeds $45.69, the "AGGREGATE SHARE
NUMBER" shall equal $42,500,000 DIVIDED BY the Parent Stock Price;
or
(B) is less than $21.50, the "AGGREGATE SHARE
NUMBER" shall equal $20,000,000 DIVIDED BY the Parent Stock Price.
(viii) ESCROW AMOUNT. The "ESCROW AMOUNT" shall be a
number of shares of Parent Common Stock equal to the sum of (x) .10
multiplied by the sum of the Aggregate Common Number, the Aggregate
Series A Number and the Aggregate Series B Number, multiplied by
the Exchange Ratio, plus (y) .10 multiplied by the sum of the
Series A Preference Shares and the Series B Preference Shares.
(ix) EXCHANGE RATIO. The "EXCHANGE RATIO" shall
mean the quotient obtained by dividing (x) the sum of (A) the
Aggregate Share Number less (B) the Series A Preference Shares,
less (C) the Series B Preference Shares by (y) the sum of (A) the
Aggregate Common Number, plus (B) the Aggregate Series A Number,
plus (C) the Aggregate Series B Number, plus (D) the Aggregate
Option Number.
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 demanded and perfected appraisal or dissenters' rights for
such shares in accordance with Delaware Law and who, as of the
Effective Time, has not effectively withdrawn or lost such
appraisal or dissenters' rights ("DISSENTING SHARES") shall not be
converted into or represent a right to receive Parent Common Stock
pursuant to Section 1.6, but the holder thereof shall only be
entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if
any holder of shares of Company Capital Stock who demands appraisal
of such shares under Delaware Law shall effectively withdraw or
lose (through failure to perfect or otherwise) the right to
appraisal, then, as of the later of the Effective Time and the
occurrence of such event, such holder's shares shall automatically
be converted into and represent only the right to receive Parent
Common Stock and payment for any fractional share as provided in
Section 1.6, without interest thereon, upon surrender of the
certificate representing such shares.
6
(c) The Company shall give Parent (i) prompt notice of
any written demands for appraisal of any shares of Company Capital
Stock, withdrawals of such demands, and any other instruments
concerning appraisal or dissenters' rights served pursuant to
Delaware Law and received by the Company and (ii) the opportunity
to participate in all negotiations and proceedings with respect to
demands for appraisal under Delaware Law. The Company shall not,
except with the prior written consent of Parent, voluntarily make
any payment with respect to any demands for appraisal of capital
stock of the Company or offer to settle or settle any such demands.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent
shall designate a bank or trust company with assets of not less
than $500 million to act as exchange agent (the "EXCHANGE AGENT")
in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent
for exchange in accordance with this Article I, (i) the aggregate
number of shares of Parent Common Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of Company Capital
Stock; and (ii) cash for fractional shares in the amount described
in Section 1.6(h) provided that, on behalf of the holders of
Company Capital Stock, Parent shall deposit into an escrow account
a number of shares of Parent Common Stock equal to the Escrow
Amount out of the aggregate number of shares of Parent Common Stock
otherwise issuable pursuant to Section 1.6. The portion of the
Escrow Amount contributed on behalf of each holder of Company
Capital Stock shall be in proportion to the aggregate number of
shares of Parent Common Stock which such holder would otherwise be
entitled to receive under Section 1.6 by virtue of ownership of
outstanding shares of Company Capital Stock.
(c) EXCHANGE PROCEDURES. Promptly after the Effective
Time, the Surviving Corporation shall cause to be mailed to each
holder of record of a certificate or certificates (the
"CERTIFICATES") which immediately prior to the Effective Time
represented outstanding shares of Company Capital Stock and which
shares were converted into the right to receive shares of Parent
Common Stock 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. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents
as may be appointed by Parent with the consent of the Company
(which consent shall not be unreasonably withheld or delayed),
together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, the
holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing the number of whole shares of
Parent Common Stock (less the number of shares of Parent Common
Stock, if any, to be deposited in the Escrow Fund on such holder's
behalf pursuant to Article VII hereof), plus cash in lieu of
fractional shares in accordance with Section 1.6, to which such
7
holder is entitled pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the
provisions of Article VII hereof, Parent shall cause to be
distributed to the Escrow Agent (as defined in Article VII) a
certificate or certificates representing that number of shares of
Parent Common Stock equal to the Escrow Amount, which certificate
shall be registered in the name of the Escrow Agent. Such shares
shall be beneficially owned by the holders on whose behalf such
shares were deposited in the Escrow Fund and shall be available to
compensate Parent or be released to holders of Company Capital
Stock as provided in Article VII. Notwithstanding the provisions
of Sections 1.6(a), (b) and (c), from the Closing and until so
surrendered, each outstanding Certificate that, prior to the
Effective Time, represented shares of Company Capital Stock will be
deemed from and after the Effective Time, for all corporate
purposes, other than the payment of dividends (subject to Section
1.8(d)), to evidence the ownership of the number of full shares of
Parent Common Stock into which such shares of Company Capital Stock
shall have been so converted and the right to receive an amount in
cash in lieu of the issuance of any fractional shares in accordance
with Section 1.6.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES.
No dividends or other distributions with respect to Parent Common
Stock declared or made after the Effective Time and with a record
date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Subject to
applicable law, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing
whole shares of Parent Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole
shares of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for
shares of Parent Common Stock is to be issued in a name other than
that in which the Certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof that the
Certificate so surrendered will be properly endorsed and otherwise
in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any
transfer or other taxes required by reason of the issuance of a
certificate for shares of Parent Common Stock in any name other
than that of the registered holder of the Certificate surrendered,
or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the
contrary in this Section 1.8, none of the Exchange Agent, the
Surviving Corporation or any party hereto shall be liable to a
holder of shares of Parent Common Stock or 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 COMMON STOCK. All
shares of Parent Common Stock issued upon the surrender for
exchange of shares of Company Capital Stock in accordance with the
terms hereof (including any cash paid in respect thereof) shall be
deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Capital Stock, and there shall
be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock which were
outstanding immediately prior to the Effective Time. If, after the
8
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 for fractional share, if
any, as may be required pursuant to Section 1.6; provided, however,
that Parent may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made
against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.11 TAX CONSEQUENCES. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the
meaning of Section 368 of the Code.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in a document dated as of the date
hereof referring specifically to the representations, warranties or
covenants in this Agreement which reasonably identifies the basis
for an exception to a representation, warranty or covenant in this
Agreement and which is delivered by the Company to Parent prior to
the execution of this Agreement (the "COMPANY SCHEDULES"), the
Company represents and warrants to Parent and Merger Sub as set
forth below. Any disclosure included in the Company Schedules with
respect to a particular representation and warranty shall be deemed
to be a disclosure with respect to all of the Company
representations and warranties to which it applies.
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 Delaware. The Company has the
corporate power to own its properties and to carry on its business
as now being conducted. The Company is duly qualified to do
business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a
Company Material Adverse Effect. "COMPANY MATERIAL ADVERSE EFFECT"
means a material adverse effect on the business, financial
condition, results of operations, assets (including intangible
assets) or liabilities of the Company; provided, however, that a
Company Material Adverse Effect shall not be deemed to exist solely
as a result of circumstances that have resulted from the
announcement of the Merger or the performance by the Company of its
obligations hereunder, or circumstances that have resulted from a
material national economic downturn. The Company has delivered a
true and correct copy of its Certificate of Incorporation and
Bylaws, each as amended to date, to Parent.
9
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
6,210,000 shares of Common Stock, $0.001 par value per share, and 3,011,000
shares of Preferred Stock, $0.001 par value per share, of which 2,350,000
shares are designated Series A Preferred Stock and 661,000 shares are
designated Series B Preferred Stock. There are issued and outstanding as of
the date of this Agreement 1,562,000 shares of Common Stock, 2,125,000 shares
of Series A Preferred Stock and 652,454 shares of Series B Preferred Stock.
The Company Capital Stock is held of record by the persons, with the
addresses of record and in the amounts set forth on Schedule 2.2(a). 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 Certificate of Incorporation or Bylaws of the Company
or any agreement to which the Company is a party or by which it is bound.
(b) The Company has reserved 770,000 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plan, of which
574,785 shares are subject to outstanding, unexercised options, 195,215
shares remain available for future grant and no shares have been issued
pursuant to the exercise of options issued under the Option Plan. The
Company has reserved 25,000 shares of Common Stock for issuance upon exercise
of outstanding Company Options granted outside the Option Plan and 15,000
shares of Series A Preferred Stock and 15,000 shares of Common Stock for
issuance upon exercise of the Preferred Warrants and conversion of the Series
A Preferred Stock underlying the Preferred Warrants, respectively. Schedule
2.2(b) sets forth for each outstanding Company Option or warrant, the name of
the holder of such option or warrant, the domicile address of such holder,
the number of shares of Common Stock or Preferred Stock subject to such
option or warrant, the exercise price of such option or warrant and the
vesting schedule for such option or warrant, including the extent vested to
date and whether the exercisability of such option or warrant will be
accelerated and become exercisable by reason of the transactions contemplated
by this Agreement. Except for (i) the conversion privileges of the Series A
Preferred Stock and the Series B Preferred Stock, (ii) the rights provided in
Section 2.4 of that certain Investors' Rights Agreement dated September 26,
1996 (the "RIGHTS AGREEMENT"), and (iii) the Company Options and warrants
described in Schedule 2.2(b), 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. The holders of Company Options and warrants
have been or will be given, or shall have properly waived, any required
notice prior to the Merger, and all such notice rights will be terminated at
or prior to the Effective Time. As a result of the Merger, Parent will be
the record and sole beneficial owner of all capital stock of the Company and
rights to acquire or receive such capital stock.
2.3 SUBSIDIARIES. The Company does not have and has never had any
subsidiaries and does not otherwise own and has never otherwise owned any
shares of capital stock or any interest in, or control, directly or
indirectly, any other corporation, partnership, association, joint venture or
other business entity.
10
2.4 AUTHORITY. Subject only to the requisite approval of the Merger
and this Agreement by the Company's stockholders, the Company has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The vote required of the
Company's stockholders to duly approve the Merger and this Agreement is a
majority of the outstanding shares of the Series A Preferred Stock and Series
B Preferred Stock voting together as a class and a majority of the shares of
Company Capital Stock. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
subject only to the approval of the Merger and this Agreement by the
Company's stockholders. The Company's Board of Directors has unanimously
approved the Merger and this Agreement. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Except as set forth on Company Schedule 2.4, subject only to the
approval of the Merger and this Agreement by the Company's stockholders, the
execution and delivery of this Agreement by the Company does not, and, as of
the Effective Time, the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right
of termination, cancellation or acceleration of any obligation or loss of any
benefit under (any such event, a "CONFLICT") (i) any provision of the
Certificate of Incorporation or Bylaws of the Company or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument to which the
Company is a party, or any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or its properties or assets. 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
foreign governmental authority, instrumentality, agency or commission
("GOVERNMENTAL ENTITY") or any third party (so as not to trigger any
Conflict) is required by or with respect to the Company in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Merger
Agreement with the Delaware Secretary of State, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and (iii)
such other consents, waivers, authorizations, filings, approvals and
registrations which are set forth on Company Schedule 2.4.
2.5 COMPANY FINANCIAL STATEMENTS. Company Schedule 2.5 sets forth the
Company's unaudited balance sheet as of December 31, 1996 (the "BALANCE
SHEET") and the related unaudited statements of operations, stockholders
equity and cash flows for the twelve-month period then ended and the
footnotes thereto (collectively, the "COMPANY FINANCIALS"). The Company
Financials are correct in all material respects and have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on
a basis consistent throughout the periods indicated and consistent with each
other. The Company Financials present fairly the financial condition and
11
operating results of the Company as of the dates and during the periods
indicated therein, subject to normal year-end adjustments, which such
adjustments will not be material in amount or significance.
2.6 NO UNDISCLOSED LIABILITIES. To the Company's knowledge, except as
set forth in Company Schedule 2.6, the Company does not have any material
liability, indebtedness, claim, guaranty or endorsement of any type, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with GAAP),
which individually or in the aggregate, has not been reflected in the Balance
Sheet.
2.7 NO CHANGES. Except as set forth in Company Schedule 2.7, since the
date of the Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted by the Company during the twelve months ending on the
date of the Balance Sheet and consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment to make a capital
expenditure by the Company, either individually or in the aggregate,
exceeding $75,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct
or indirect redemption, purchase or other acquisition by the Company of any
Company Capital Stock other than repurchases of Company Capital Stock at cost
pursuant to the Option Plan;
(i) increase in the salary or other compensation payable or to
become payable to any of its officers, directors, employees or advisors, or
the declaration, payment or commitment or obligation of any kind for the
payment of a bonus or other additional salary or compensation to any such
person except as otherwise contemplated by this Agreement;
12
(j) sale, lease, license or other disposition of any of the assets
or properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement
or license to which the Company is a party or by which it is bound;
(l) 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
practices;
(m) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(n) commencement or notice or threat of commencement of any
lawsuit or other legal proceeding against or governmental investigation or
other investigation involving illegal activities of the Company or its
affairs;
(o) issuance or sale by the Company of any of its shares of
Company Capital Stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
(p) 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 Company Intellectual Property to the Company;
(q) to the Company's knowledge, any event or condition relating
specifically to the business or operations of the Company that has or could
be reasonably expected to have a Company Material Adverse Effect; or
(r) agreement (oral or written) by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses
(a) through (r) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
"TAX" or, collectively, "TAXES", means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any obligations under any
13
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in Company
Schedule 2.8:
(i) The Company as of the Effective Time will have prepared
and filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") relating to any and all Taxes
concerning or attributable to the Company or its operations and such Returns
are true and correct in all material respects and have been completed in
accordance with applicable law.
(ii) The Company as of the Effective Time: (A) will have paid
or accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all federal and state income taxes,
FICA, FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed 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) To the Company's knowledge, no audit or other examination
by any governmental taxing authority of any Return of the Company is
currently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes which are not disclosed on the
Balance Sheet and are required to be accrued or reserved against in
accordance with GAAP on the Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and the Company has no knowledge of any basis for
the assertion of any such liability attributable to the Company, its assets
or operations.
(vi) The Company will provide to Parent during the due
diligence period described in Section 5.20 copies of all federal and state
income and all state sales and use Tax Returns filed by the Company for all
periods since the date of the Company's incorporation.
(vii) There are (and as of immediately following the Effective
Date there will be) no liens, pledges, security interests or other
encumbrances of any sort ("LIENS") on the assets of the Company relating to
or attributable to Taxes.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of 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.
14
(x) There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G or 162 of the Code.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
(xiii) The Company is not, and has not been at any time, a
"UNITED STATES REAL PROPERTY HOLDING CORPORATION" within the meaning of
Section 897(c)(2) of the Code.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(non-compete or otherwise), commitment, judgment, injunction, order or decree
to which the Company is a party or otherwise specifically binding upon the
Company which has or reasonably could be expected to have the effect of
prohibiting or materially restricting any business practice of the Company,
or any acquisition of property (tangible or intangible) by the Company.
Except as set forth in Company Schedule 2.9, the Company has not entered into
any agreement under which the Company is restricted from selling, licensing
or otherwise distributing any of its products to any class of customers, in
any geographic area, during any period of time or in any segment of the
market.
2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company owns no real property, nor has it ever owned any
real property. Company Schedule 2.10(a) sets forth a list of all real
property currently, or at any time in the past, leased by the Company, the
name of the lessor, the date of the lease and each amendment thereto and,
with respect to any current lease, 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 by the Company, or to the knowledge of the Company, any
landlord thereunder (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 (as defined in Section
2.8(b)(vii)), except as reflected in the Company Financials or in Company
Schedule 2.10(b) and except for liens for taxes not yet due and payable and
such imperfections of title and encumbrances, if any, which are not material
in character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use, of the property subject
thereto or affected thereby.
15
2.11 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following terms have
the following definitions:
(i) "INTELLECTUAL PROPERTY" shall mean any or all of the
following and all rights in, arising out of, or associated
therewith: (i) all United States, international and foreign
patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (ii) all
inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and
customer lists, and all documentation relating to any of
the foregoing; (iii) all copyrights, copyrights
registrations and applications therefor, and all other
rights corresponding thereto throughout the world; (iv) all
industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos,
common law trademarks and service marks, trademark and
service xxxx registrations and applications therefor
throughout the world; (vi) all databases and data
collections and all rights therein throughout the world;
and (vii) any similar or equivalent rights to any of the
foregoing anywhere in the world.
(ii) "COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, the
Company.
(iii) "REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents and patent
applications (including provisional applications); (ii)
registered trademarks, applications to register trademarks,
intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered
copyrights and applications for copyright registration; and
(iv) any other Intellectual Property that is the subject of
an application, certificate, filing, registration or other
document issued, filed with, or recorded by any state,
government or other public legal authority.
(b) Company Schedule 2.11(b) lists all of the Registered
Intellectual Property owned by, or filed in the name of, the Company (the
"COMPANY REGISTERED INTELLECTUAL PROPERTY").
(c) Company Schedule 2.11(c) lists all proceedings or actions
before any court, tribunal (including the United States Patent and Trademark
Office ("PTO") or equivalent authority anywhere in the world) related to any
Company Intellectual Property. Except as set forth in Company Schedule
2.11(c), no Company Intellectual Property or product or service of the
Company is subject to any proceeding or outstanding decree, order, judgment,
agreement, or stipulation
16
restricting in any manner the use, transfer, or licensing thereof by the
Company, or which may affect the validity, use or enforceability of such
Company Intellectual Property.
(d) Each item of Company Registered Intellectual Property is valid
and subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been made and all
necessary documents and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions,
as the case may be, for the purposes of maintaining such Registered
Intellectual Property.
(e) Except as set forth in Company Schedule 2.11(e): (i) the
Company owns and has good and exclusive title to each item of Intellectual
Property used in connection with the operation or conduct of the business of
the Company, including all Company Registered Intellectual Property listed on
Company Schedule 2.11(b), free and clear of any lien or encumbrance; and (ii)
the Company is the exclusive owner of all trademarks and trade names used in
connection with the operation or conduct of the business of the Company,
including the sale of any products or the provision of any services by the
Company.
(f) the Company owns exclusively, and has good title to, all
copyrighted works that are Company products or which the Company otherwise
purports to own.
(g) To the extent that any work, invention, or material has been
developed or created by a third party for the Company, the Company has a
written agreement with such third party with respect thereto and the Company
thereby has obtained ownership of, and is the exclusive owner of, all
Intellectual Property in such work, material or invention by operation of law
or by valid assignment.
(h) Except as set forth in Company Schedule 2.11(h), the Company
has not transferred ownership of, or granted any exclusive license with
respect to, any Intellectual Property that is or was Company Intellectual
Property, to any third party.
(i) Company Schedule 2.11(i) lists all material contracts,
licenses and agreements to which the Company is a party (i) with respect to
Company Intellectual Property licensed or transferred to any third party; or
(ii) pursuant to which a third party has licensed or transferred any
Intellectual Property to the Company, with a potential value or cost in
excess of $10,000. EXHIBIT 2.11(i) is the form of agreement pursuant to which
the Company licenses Company Intellectual Property or products to third
parties and Company Schedule 2.11(i) list any agreements pursuant to which
the Company has licensed any Company Intellectual Property or products to any
third party that differs in any material respect from such agreement.
(j) The contracts, licenses and agreements listed on Company
Schedule 2.11(i) are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result
in the breach, modification, cancellation, termination, or suspension of such
contracts, licenses and agreements. The Company is in compliance with, and
has not breached
17
any term any of such contracts, licenses and agreements and, to the knowledge
of the Company, all other parties to such contracts, licenses and agreements
are in compliance with, and have not breached any term of, such contracts,
licenses and agreements. To the knowledge of the Company, except as set
forth in Company Schedule 2.11(j), following the Closing Date, Parent will be
permitted to exercise all of the Company's rights under the contracts,
licenses and agreements listed on Company Schedule 2.11(i) to the same extent
the Company would have been able to had the transactions contemplated by this
Agreement not occurred and 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.
(k) Company Schedule 2.11(k) lists all contracts, licenses and
agreements between the Company and any third party wherein or whereby the
Company has agreed to, or assumed, any obligation or duty to warrant,
indemnify, hold harmless or otherwise assume or incur any obligation or
liability with respect to the infringement or misappropriation by the Company
or such third party of the Intellectual Property of any third party.
(l) The operation of the business of the Company as such business
currently is conducted including the Company's design, development,
manufacture, marketing and sale of the products or services of the Company
(including with respect to products currently under development) has not,
does not and will not infringe or misappropriate the Intellectual Property of
any third party or constitute unfair competition or trade practices under the
laws of any jurisdiction.
(m) The Company (including its officers, directors and employees)
has not received notice from any third party that the operation of the
business of the Company or any act, product or service of the Company,
infringes or misappropriates the Intellectual Property of any third party or
constitutes unfair competition or trade practices under the laws of any
jurisdiction.
(n) Except as set forth in Company Schedule 2.11(n), to the
knowledge of the Company, (i) no Person has or is infringing or
misappropriating any Company Intellectual Property and (ii) there have been,
and are, no claims asserted against the Company or against any customer of
the Company, related to any product or service of the Company.
(o) The Company has taken reasonable steps to protect the
Company's rights in the Company's confidential information and trade secrets
or any trade secrets or confidential information of third parties provided to
the Company, and, without limiting the foregoing, the Company has and
enforces a policy requiring each employee and contractor with access to
Company Intellectual Property to execute a proprietary information/
confidentiality agreement substantially in the Company's standard form and
all current and former employees and contractors of the Company have executed
such an agreement. EXHIBIT 2.11(o) is the Company's standard form of
proprietary information/confidentiality agreement.
18
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Company Schedule 2.12(a), the Company does not have, is not a party to nor is
it bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or any consulting or
sales agreement, contract or commitment under which any firm or other
organization provides services to the Company,
(v) 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,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually in
excess of $25,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000,
(x) 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,
(xi) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xii) any executory purchase order or contract for the purchase of
raw materials involving $25,000 or more,
(xiii) any construction contracts,
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(xiv) any distribution, joint marketing or development agreement,
(xv) any agreement pursuant to which the Company has granted or may
grant in the future, to any party, a source-code license or option or other
right to use or acquire source-code, or
(xvi) any other agreement, contract or commitment that requires
future payments by the Company of $25,000 or more and is not cancelable
without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events that
would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, as are all noted in Company Schedule 2.12(b), the
Company 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 agreement, contract or commitment required to be set forth
on Company Schedule 2.12(a) or Company Schedule 2.11(b) (any such agreement,
contract or commitment, a "CONTRACT"). Each Contract is in full force and
effect and, except as otherwise disclosed in Company Schedule 2.12(b), is not
subject to any default thereunder of which the Company has knowledge by any
party obligated to the Company pursuant thereto.
2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Company
Schedule 2.13, no officer, director or stockholder of the Company (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 or has had an
interest), has or has had, directly or indirectly, (i) to the Company's
knowledge, an economic interest in any entity which furnished or sold, or
furnishes or sells, services or products that the Company furnishes or sells,
or proposes to furnish or sell, (ii) an economic interest in any entity
(other than Parent) that purchases from or sells or furnishes to, the
Company, any goods or services or (iii) a beneficial interest (other than a
beneficial interest in the Company) in any contract or agreement set forth in
Company Schedule 2.12(a) or Company Schedule 2.11(b); 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 "ECONOMIC INTEREST IN
ANY ENTITY" for purposes of this Section 2.13.
2.14 COMPLIANCE WITH LAWS. The Company has complied in all material
respects with, is not in material violation of, and has not received any
notices of violation with respect to, any foreign, federal, state or local
statute, law or regulation.
2.15 LITIGATION. Except as set forth in Company Schedule 2.15, there is
no action, suit or proceeding of any nature pending or to the Company's
knowledge threatened against the Company, its properties or any of its
officers or directors, in their respective capacities as such. Except as set
forth in Company Schedule 2.15, to the Company's knowledge, there is no
investigation pending or threatened against the Company, its properties or
any of its officers or directors by or before any governmental entity.
Company Schedule 2.15 sets forth, with respect to any pending or threatened
action, suit, proceeding or investigation, the forum, the parties thereto,
the subject matter thereof and the amount of damages claimed or other remedy
requested. To the Company's knowledge, no
-20-
governmental entity has at any time challenged or questioned the legal right
of the Company to manufacture, offer or sell any of its products in the
present manner or style thereof.
2.16 INSURANCE. The Company maintains valid and enforceable insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company, and
such insurance policies and fidelity bonds, as specified in Company Schedule
2.16, and 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 material
premium increase with respect to, any of such policies.
2.17 MINUTE BOOKS. The minute books of the Company to be made available
to counsel for Parent during the due diligence period described in Section
5.20 are the only minute books of the Company and contain a reasonably
accurate summary of all meetings of directors (or committees thereof) and
stockholders or actions by written consent since the time of incorporation of
the Company.
2.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not operated any
underground storage tanks, and has no knowledge of the existence, at any
time, of any underground storage tank (or related piping or pumps), at any
property that the Company has at any time owned, operated, occupied or
leased. The Company has not released in violation of applicable law at the
time of any such release or which would be in violation of current applicable
law if released on the date hereof, any 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, oil and
petroleum products, urea-formaldehyde and all substances listed as a
"HAZARDOUS SUBSTANCE," "HAZARDOUS WASTE," "HAZARDOUS MATERIAL" or "TOXIC
SUBSTANCE" or words of similar import, under any law, including but not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended; the Resource Conservation and Recovery Act
of 1976, as amended; the Federal Water Pollution Control Act, as amended; the
Clean Air Act, as amended, and the regulations promulgated pursuant to said
laws, (a "HAZARDOUS MATERIAL"). No Hazardous Materials are present in
amounts that violate current applicable law as a result of the actions or
omissions of the Company, or, to the Company's knowledge, as a result of any
actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water
thereof, that the Company has at any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect
on or before the Effective Time, nor has the Company disposed of,
-21-
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 and other businesses of the Company as such activities and
businesses are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. To the Company's knowledge, no
action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending or threatened against the Company concerning
any Environmental Permit, Hazardous Material or any Hazardous Materials
Activity of the Company. The Company is not aware of any fact or
circumstance which could involve the Company in any environmental litigation
or impose upon the Company any environmental liability.
2.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set
forth on Company Schedule 2.19, the Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby. Company Schedule 2.19 sets
forth the principal terms and conditions of any agreement, written or oral,
with respect to such fees. Company Schedule 2.19 sets forth the Company's
current reasonable estimate of all Third Party Expenses (as defined in
Section 5.4) expected to be incurred by the Company in connection with the
negotiation and effectuation of the terms and conditions of this Agreement
and the transactions contemplated hereby.
2.20 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of
"AFFILIATE" set forth in Section 2.20(a)(i) below (which definition shall
apply only to this Section 2.20), for purposes of this Agreement, 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 thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement with the Company's
employees or consultants providing for non-cash compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or
-22-
informal, funded or unfunded and whether or not legally binding, including
without limitation, each "EMPLOYEE BENEFIT PLAN", within the meaning of
Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Affiliate, and pursuant
to which the Company or any Affiliate has or may have any material liability
contingent or otherwise;
(iv) "EMPLOYEE" shall mean any current, former, or retired employee,
officer, or director of the Company or any Affiliate;
(v) "EMPLOYEE AGREEMENT" shall refer to each management,
employment, stock purchase, severance, separation, consulting, relocation,
loan, repatriation, expatriation, visas, work permit or similar agreement,
contract or arrangement between the Company or any Affiliate and any Employee
or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "PENSION PLAN" (as defined
below) which is a "MULTIEMPLOYER PLAN", as defined in Section 3(37) of ERISA;
and
(viii) "PENSION PLAN" shall refer to each Company Employee Plan which
is an "EMPLOYEE PENSION BENEFIT PLAN", within the meaning of Section 3(2) of
ERISA.
(b) SCHEDULE. Except as set forth on Company Schedule 2.20(b), all
liabilities under each Company Employee Plan or Employee Agreement have been
properly and accurately accrued on the Balance Sheet. Except as set forth on
Company Schedule 2.20(b), the Company does not have any plan or commitment,
whether legally binding or not, to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company 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 Company Employee Plan or Employee Agreement,
nor does it have any intention to do any of the foregoing.
(c) DOCUMENTS. The Company will provide to Parent during the due
diligence period described in Section 5.20 (i) correct and complete copies of
all documents embodying or relating to each Company Employee Plan and each
Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the most recent annual
report (Series 5500 and all schedules thereto), if any, required under ERISA
or the Code in connection with each Company Employee Plan or related trust;
(iv) if the Company Employee Plan is funded, the most recent annual and
periodic accounting of Company Employee Plan assets; (v) the most recent
summary plan description together with the most recent summary of material
modifications, if any, required under ERISA with respect to each Company
Employee Plan; (vi) all IRS determination letters and rulings relating to
Company Employee Plans and copies of all applications and correspondence to
or from the IRS or the Department of Labor ("DOL") with respect to any
Company Employee Plan; and
-23-
(vii) all communications material to any Employee or Employees relating to
any Company Employee Plan and any proposed Company 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 material liability to the Company.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Company
Schedule 2.20(d), (i) the Company has performed in all material respects all
obligations required to be performed by it under each Company Employee Plan,
and each Company Employee Plan has been established and maintained in all
material respects 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 Section 406 of ERISA, has occurred
with respect to any Company Employee Plan; (iii) there are no actions, suits
or claims pending, or, to the knowledge of the Company, threatened or
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; and (iv)
each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to the Company, Parent or any of its Affiliates (other than accrued
benefits and ordinary administration expenses typically incurred in a
termination event); (v) there are no inquiries or proceedings pending or, to
the knowledge of the Company or any affiliates, threatened by the IRS or DOL
with respect to any Company Employee Plan; and (vi) neither the Company nor
any Affiliate is subject to any penalty or tax with respect to any Company
Employee Plan under Section 402(i) of ERISA or Section 4975 through 4980 of
the Code.
(e) PENSION PLANS. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA,
Title IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has the Company contributed to
or been requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Company
Schedule 2.20(g), no Company Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee welfare benefits to any
Employee upon his or her retirement or termination of employment for any
reason, except as may be required by 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) that such
Employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment, except
to the extent required by statute.
(h) EFFECT OF TRANSACTION. Except as set forth on Company Schedule
2.20(h), 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 Company Employee Plan, Employee Agreement, trust or loan that will or may
result in
-24-
any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(i) EMPLOYMENT MATTERS. The Company (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to
be withheld from the 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 or to any governmental or administrative
authority, with respect to unemployment compensation benefits, social
security or other benefits or obligations for Employees (other than routine
payments to be made in the normal course of business and consistent with past
practice).
(j) LABOR. No work stoppage or labor strike against the Company is
pending or, to the best knowledge of the Company, threatened. Except as set
forth in Company Schedule 2.20(j), the Company is not involved in or, to the
knowledge of the Company, threatened with, any labor dispute, grievance, or
litigation relating to labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in liability to the Company.
Neither the Company nor any of its subsidiaries has engaged in any unfair
labor practices within the meaning of the National Labor Relations Act which
would, individually or in the aggregate, directly or indirectly result in a
liability to the Company. Except as set forth in Company Schedule 2.20(j),
the Company is not presently, nor has it been in the past, a party to, or
bound by, any collective bargaining agreement or union contract with respect
to Employees and no collective bargaining agreement is being negotiated by
the Company.
2.21 EMPLOYEES. To the best of the Company's knowledge, no employee of
the Company (i) is in violation of any term of any employment contract,
patent disclosure agreement, non-competition agreement, or any restrictive
covenant to a former employer relating to the right of any such employee to
be employed by the Company because of the nature of the business conducted or
presently proposed to be conducted by the Company or to the use of trade
secrets or proprietary information of others or (ii) has given notice to the
Company, nor is the Company otherwise aware, that any employee who is a
member of the Company's product development team intends to terminate his or
her employment with the Company.
2.22 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. The Company possesses all
material consents, licenses, permits, grants or other authorizations issued
to the Company by a governmental entity (i) pursuant to which the Company
currently operates or holds any interest in any of its properties or (ii)
which is required for the operation of its business or the holding of any
such interest therein (collectively called "COMPANY AUTHORIZATIONS"), which
Company Authorizations are in full force and effect and constitute all
Company Authorizations required to permit the Company to operate or conduct
its business or hold any interest in its properties or assets.
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2.23 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company (as modified by the Company Schedules), nor
any statement made in the Company Schedules or any officer's certificate
furnished by the Company pursuant to this Agreement, or furnished in or in
connection with documents mailed or delivered to the stockholders of the
Company (other than statements pertaining to Parent) in connection with
soliciting their consent to this Agreement and the Merger, contains or will
contain, at the time such representations, warranties or statements were made
or will be made, any untrue statement of a material fact, or omits or will
omit, at the time such representations, warranties or statements were made or
will be made, 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 MERGER SUB
Parent and Merger Sub represent and warrant to the Company 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. Merger Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Each of Parent
and Merger Sub has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on the
business, financial conditions, results of operators, assets or liabilities
of Parent and its subsidiaries, taken as a whole. Parent will, prior to the
Closing, deliver to the Company a true and correct copy of its and Merger
Sub's Certificate of Incorporation and Bylaws, respectively, each as amended
to date.
3.2 AUTHORITY. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Parent
and Merger Sub. This Agreement has been duly executed and delivered by
Parent and Merger Sub and constitutes the valid and binding obligations of
Parent and Merger Sub, enforceable in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies. The
execution and delivery of this Agreement by the Company does not, and, as of
the Effective Time, the consummation of the transactions contemplated hereby
will not result in a Conflict with (i) any provision of the Certificate of
Incorporation or Bylaws of the Company or (ii) any mortgage, indenture,
lease, contract or other agreement or instrument to which the Company is a
party, or any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company
or its properties or assets. No consent, waiver, approval, order or
26
authorization of, or registration, declaration or filing with any Government
Entity or any third party (so as not to trigger any Conflict) is required by
or with respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Merger Agreement with
the Delaware Secretary of State, (ii) such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and (iii) such
other consents, waivers, authorizations, filings, approvals and registrations
which are set forth on Schedule 3.2.
3.3 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 200,000,000 shares
of Common Stock, of which 88,218,678 shares were issued and outstanding as of
March 31, 1997, and 5,000,000 shares of Preferred Stock, none of which is
issued or outstanding. The authorized capital stock of Merger Sub consists
of 1,000 shares of Common Stock, all of which, as of the date hereof, are
issued and outstanding and are held by Parent. All such shares have been
duly authorized, and all such issued and outstanding shares have been validly
issued, are fully paid and nonassessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon
the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger, when issued, will be duly authorized, validly issued, fully paid and
non-assessable.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished
or made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT") for all periods since January 1, 1996, all in the form
so filed (all of the foregoing being collectively referred to as the "SEC
DOCUMENTS"). As of their respective filing dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act of 1933,
as amended (the "SECURITIES ACT"), or the Exchange Act, as the case may be,
and none of the SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading, except to the extent corrected by a
document subsequently filed with the SEC. The financial statements of
Parent, including the notes thereto, included in the SEC Documents (the
"PARENT FINANCIAL STATEMENTS") comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP consistently applied (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) and present fairly the consolidated financial position of Parent at
the dates thereof and the consolidated results of its operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal audit adjustments). There has been no change in Parent
accounting policies except as described in the notes to the Parent Financial
Statements.
27
3.5 NO MATERIAL ADVERSE CHANGE. Since the date of the balance sheet
included in Parent's most recently filed report on Form 10-K, Parent has
conducted its business in the ordinary course and there has not occurred:
(a) any material adverse change in the financial condition, liabilities,
assets or business of Parent; (b) any amendment or change in the Certificate
of Incorporation or Bylaws of Parent, or (c) any damage to, destruction or
loss of any assets of Parent (whether or not covered by insurance) that
materially and adversely affects the financial condition or business of
Parent.
3.6 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which Parent has received any
notice of assertion against Parent, which in any manner challenges or seeks
to prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement.
3.7 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Parent or Merger Sub, nor any statement made by Parent or
Merger Sub in any Schedule or officers' certificate furnished by Parent or
Merger Sub pursuant to this Agreement, contains or will contain, or contained
in any prospectus which is part of the Registration Statement delivered to
the stockholders of the Company, at the time such representations, warranties
or statements were made or will be made, any untrue statement of a material
fact, or omits or will omit, at the time such representations, warranties or
statements were made or will be made, to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
3.8 BROKERS' AND FINDERS' FEES. Except as set forth on Schedule 3.8,
Parent has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby. Schedule 3.8 sets forth the principal terms and
conditions of any agreement, written or oral, with respect to such fees.
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 and the Effective Time, the Company agrees (except to the
extent that Parent shall otherwise consent in writing which consent shall not
be unreasonably withheld or delayed if Parent reasonably believes that any
such action will not impair the value of the transactions contemplated
hereby) to carry on its business in the ordinary course in substantially the
same manner as heretofore conducted, to pay its debts and Taxes when due, to
pay or perform other obligations when due, and, to the extent consistent with
such business, to use all reasonable efforts consistent with past practice
and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees and preserve
its relationships with customers, suppliers, distributors, licensors,
licensees,
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and others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. The
parties hereto acknowledge that certain of such relationships may be impaired
simply due to the announcement of the Merger, but the Company shall use
reasonable efforts to maintain such relationships in circumstances where the
Company reasonably believes the continuation of such relationship would be
beneficial to the mutual business interests of Parent and the Company. The
Company shall promptly notify Parent of any event or occurrence or emergency
not in the ordinary course of its business (excluding activities taken in
furtherance of this Agreement and the transactions contemplated hereto), and
any material event involving or adversely affecting the Company or its
business. Except as expressly contemplated by this Agreement or as set forth
on the Company Disclosure Schedules, the Company shall not, without the prior
written consent of Parent:
(a) Enter into any commitment, activity or transaction not in the
ordinary course of business and not specifically allowed by any other
subsection of this Section 4.1.
(b) Transfer to any person or entity any rights to any Company
Intellectual Property other than nonexclusive licenses in the ordinary course
of business consistent with past practices;
(c) Enter into or amend any agreements pursuant to which any other
party is granted manufacturing, marketing, distribution or similar rights of
any type or scope with respect to any products of the Company (other than
manufacturing agreements entered into in the ordinary course of business);
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements
set forth or described in the Company Schedules;
(e) Commence any litigation or any dispute resolution process
other than (i) for a breach of this Agreement, (ii) for a breach of the Joint
Development Agreement between the Company and Parent dated as of September
26, 1996 or (iii) with respect to routine xxxx collection activities;
(f) Except as set forth in the Company Schedule 4.1(f) and for (i)
the issuance of shares of Company Capital Stock upon exercise or conversion
of presently outstanding Company Options or Preferred Warrants, (ii) the
issuance of options granted consistent with past practice to employees hired
after the date hereof, or (iii) the repurchase of shares of Company Capital
Stock at cost pursuant to the agreements listed on Company Schedule 4.1(f)
declare, set aside or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any Company Capital Stock,
or split, combine or reclassify any of Company Capital Stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of Company Capital Stock, or repurchase, redeem or
otherwise acquire, directly or indirectly, any shares of Company Capital
Stock (or options, warrants or other rights exercisable therefor);
29
(g) Except for the issuance of shares of Company Capital Stock
upon exercise or conversion of presently outstanding Company Options,
Preferred Warrants, and the issuance of options granted consistent with past
practice to employees hired after 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 Company Capital Stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities;
(h) Cause or permit any amendments to its Certificate of
Incorporation or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets which are material, individually or in the aggregate, to the
business of the Company;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and
consistent with past practice;
(k) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others;
(l) Grant any severance or termination pay to any director,
officer, employee or consultant, except payments made pursuant to standard
written agreements outstanding on the date hereof (which such agreements are
disclosed on Company Schedule 4.1(l));
(m) Adopt or amend any employee benefit plan, program, policy or
arrangement, or enter into any employment contract, extend any employment
offer, pay or agree to pay any special bonus or special remuneration to any
director, employee or consultant, or increase the salaries or wage rates of
its employees except for scheduled increases, as set forth on Company
Schedule 4.1(m), in salary or wages of employees of the Company and the
extension of employment offers to up to two engineers, each in accordance
with past practice;
(n) 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 and consistent with
past practice;
(o) Take any action, that would be reasonably likely to jeopardize
the tax-free reorganization hereunder;
(p) Pay, discharge or satisfy, in an amount in excess of $25,000,
in any one case, or $100,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
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course of business or liabilities reflected or reserved against in the
Company Financial Statements or payments in compliance with Section 4.1(s) or
4.1(w); provided that to the extent payments in accordance with Section
4.1(s) or 4.1(w) exceed the levels set forth in this Section 4.1(p), the
Company shall give prompt written notice of such payment to Parent;
(q) Make or change any material election in respect of Taxes,
adopt or change any material accounting method in respect of Taxes, enter
into any closing agreement, settle any material 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;
(r) Enter into any strategic alliance, joint development or joint
marketing arrangement or agreement;
(s) Fail to pay or otherwise satisfy its monetary obligations as
they become due, except such as are being contested in good faith;
(t) Waive or commit to waive any rights with a value in excess of
$10,000, in any one case, or $25,000, in the aggregate;
(u) Cancel, materially amend or renew any insurance policy other
than in the ordinary course of business;
(v) Alter, or enter into any commitment to alter, its interest in
any corporation, association, joint venture, partnership or business entity
in which the Company directly or indirectly holds any interest on the date
hereof;
(w) Pay, discharge or satisfy any Third Party Expense (as defined
in Section 5.4) in excess of the amount set forth on Company Schedule 2.19 as
of the date hereof; or
(x) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (w) above, or any other action
that would prevent the Company from performing or cause the Company not to
perform its covenants hereunder in any material respect.
4.2 NO SOLICITATION.
(a) From and after the date of this Agreement until the earlier of
the Effective Time and termination of this Agreement pursuant to Section 8.1,
the Company will not, directly or indirectly through any of its directors,
officers, employees, representatives, investment bankers, agents or
affiliates (i) solicit or encourage submission of any inquiries, proposals or
offers by any person, entity or group (other than Parent, Merger Sub and
their affiliates, agents and representatives), or (ii) participate in any
discussions or negotiations with, or disclose any information concerning the
Company to, or afford any access to the properties, books or records of the
Company to, or otherwise assist, facilitate or encourage, or enter into any
agreement or understanding with, any person, entity or group (other than
Parent, Merger Sub and their affiliates, agents and representa-
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tives), in connection with any Acquisition Proposal. For the purposes of
this Agreement, an "ACQUISITION PROPOSAL" shall mean any inquiry or proposal
relating to (i) any merger, consolidation, sale of substantial assets or
similar transactions involving the Company (other than sales of assets or
inventory in the ordinary course of business), or (ii) any sale of equity
interests in the Company (including without limitation by way of a tender
offer or an exchange offer) other than pursuant to exercise of outstanding
options and warrants. In addition, subject to the other provisions of this
Section 4.2, from and after the date of this Agreement until the Effective
Time, the Company will not, directly or indirectly, through any of its
directors, officers, employees, representatives, investment bankers, agents
or affiliates, make or authorize any statement, recommendation or
solicitation in support of any Acquisition Proposal made by any person,
entity or group (other than Parent and/or Merger Sub). Upon execution of this
Agreement, the Company does not have, or will immediately cease any and all,
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
(b) The Company will (i) notify Parent promptly (and in any event
within 24 hours) if any inquiry or proposal is made or any information or
access is requested in connection with an Acquisition Proposal or potential
Acquisition Proposal and (ii) promptly (and in any event within 24 hours)
communicate to Parent in reasonable detail the terms and conditions of any
such Acquisition Proposal or potential Acquisition Proposal or inquiry and
the identity of the offeror or potential offeror.
4.3 CONDUCT OF PARENT AND MERGER SUB. Except as expressly contemplated
by this Agreement, Parent shall not, without the prior written consent of the
Company:
(a) Take any action that would be reasonably likely to jeopardize
the tax-free reorganization hereunder.
(b) Take or agree in writing to take any action that would prevent
Parent from performing or cause Parent not to perform its covenants hereunder
in any material respect.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 REGISTRATION STATEMENT ON FORM S-4; STOCKHOLDER MATTERS.
(a) REGISTRATION STATEMENT ON FORM S-4. As promptly as
practicable after the execution of this Agreement, Parent and the Company
shall prepare a registration statement on Form S-4 (the "REGISTRATION
STATEMENT") pertaining to the offer and sale of shares of Parent Common Stock
to be issued by virtue of the Merger. The Registration Statement shall
include therein a Proxy Statement or Consent Solicitation Statement (the
"PROXY STATEMENT") relating to the solicitation of the consent of the
stockholders of the Company to the Merger. Parent shall file with the SEC
the Registration Statement as soon as is reasonably practicable following
preparation thereof. As
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promptly as practicable after the date of this Agreement, Parent will file
any other filings required under the Exchange Act, the Securities Act or any
other Federal or Blue Sky laws related to the Merger and the transactions
contemplated by this Agreement (collectively, the "OTHER FILINGS"). The
Company shall provide to Parent and its counsel for inclusion in the Proxy
Statement and Other Filings, in form and substance reasonably satisfactory to
Parent and its counsel, such information concerning the Company, its
operations, capitalization, technology, share ownership and other material
information as Parent or its counsel may reasonably request in connection
with any action contemplated by this Section 5.1(a). Each of Parent and the
Company shall use its commercially reasonable efforts to respond to any
comments of the SEC, to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing and to
cause the Proxy Statement to be mailed to the Company's stockholders at the
earliest practicable time. Each party will notify the other parties hereto
promptly of the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Proxy Statement
or any Other Filing or for additional information and will supply the other
party with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement or any Other Filing. Whenever any event
occurs which should be set forth in an amendment or supplement to the Proxy
Statement, Registration Statement or any Other Filing, Parent or the Company,
as the case may be, shall promptly inform the other company of such
occurrence and cooperate in filing with the SEC or its staff or any other
government officials, such amendment or supplement.
(b) COMPANY STOCKHOLDER APPROVAL. As promptly as practicable
after the SEC has declared the Registration Statement effective under the
Securities Act, the Company with the cooperation of Parent shall submit this
Agreement and the transactions contemplated hereby to its stockholders for
approval and adoption as provided by applicable law and the Company's
Certificate of Incorporation and Bylaws by causing, among other things, the
Proxy Statement to be mailed to the Company stockholders. The Company shall
use its commercially reasonable efforts to solicit and obtain the consent of
its stockholders 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 stockholders shall be subject to review and
approval by Parent, which approval shall not be unreasonably withheld or
delayed.
(c) ADDITIONAL ASSURANCES. At the request of Parent, the Company
shall use its commercially reasonable efforts to cause the Company's
stockholders to execute and deliver to Parent such instruments and do and
perform such acts and things as may be necessary or desirable for complying
with all applicable securities laws and state corporate law.
5.2 ACCESS TO INFORMATION. (a) Each party shall afford the others and
their accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Effective Time
and (b) the Company shall afford Parent access at any time requested by
Parent during the fourteen (14) days following the date hereof, (i) to all of
its properties, books, contracts, commitments and records, and (ii) to all
other information concerning its business,
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properties and personnel (subject to restrictions imposed by applicable law)
as the others may reasonably request, subject, in the case of Parent, to
reasonable limits on access to its technical and other nonpublic information.
No information or knowledge obtained in any investigation pursuant to this
Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions of the parties to consummate the
Merger.
5.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation pursuant to
Section 5.2, or pursuant to the negotiation and execution of this Agreement
or the effectuation of the transactions contemplated hereby, confidential and
also, agree not to use such knowledge or information; provided, however, that
the foregoing shall not apply to information or knowledge which (a) a party
can demonstrate was already lawfully in its possession on a non-confidential
basis prior to the disclosure thereof by the other party, (b) is generally
known to the public and did not become so known through any violation of law
(c) is later lawfully acquired by such party on a nonconfidential basis from
a person that is not under an obligation to the other party not to transmit
such information or knowledge to such party, (d) is required to be disclosed
by order of court or government agency with subpoena powers or (e) which is
disclosed in the course of any litigation between any of the parties hereto.
5.4 EXPENSES. If the Merger is not 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 ("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. If the
Merger is consummated, Parent shall pay all reasonable Third Party Expenses
incurred by the Company and all reasonable fees and expenses payable to any
legal advisor, financial advisor or investment bank retained by the Company
on behalf of the stockholders, which expenses were incurred prior to the
Effective Time.
5.5 PUBLIC DISCLOSURE. Unless otherwise required by law (including,
without limitation, federal and state securities laws) or, as to Parent, by
the rules and regulations of The Nasdaq Stock Market, Inc. prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of
the subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such
approval shall not be unreasonably withheld, provided further that in any
event (including in the event of required disclosure) the disclosing party
shall notify and provide a copy of such disclosure prior to its release by
the disclosing party.
5.6 CONSENTS. The Company shall use its commercially reasonable
efforts to obtain the consents, waivers 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 Company Schedules) so as to
preserve all rights of and benefits to the Company thereunder. Parent shall
use its commercially reasonable efforts to obtain all consents, waivers or
approvals required in connection with the Merger so as to preserve all rights
and benefits of the Parent thereunder.
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5.7 FIRPTA COMPLIANCE. On or prior to 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).
5.8 REASONABLE EFFORTS. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use its reasonable
efforts to ensure that its representations and warranties remain true and
correct in all material respects, and to take promptly, or cause to be taken,
all actions, and to do promptly, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated hereby, to obtain all necessary
waivers, consents and approvals, to effect all necessary registrations and
filings, and to remove any injunctions or other impediments or delays, legal
or otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties
hereto the benefits contemplated by this Agreement; provided that Parent
shall not be required to agree to any divestiture by Parent or the Company or
any of Parent's subsidiaries or affiliates of shares of capital stock or of
any business, assets or property of Parent or its subsidiaries or affiliates
or the Company or its affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to
own or exercise control of such assets, properties and stock.
5.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, 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 and Parent, respectively, contained in this Agreement to be
untrue or inaccurate at or prior to the Effective Time and (ii) any failure
of the Company or Parent, 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 5.9 shall not limit or otherwise affect any remedies available
to the party receiving such notice.
5.10 CERTAIN BENEFIT PLANS. Parent shall take such reasonable actions
as are necessary to allow eligible employees of the Company to participate in
the benefit programs of Parent, or alternative benefits programs
substantially comparable to those applicable to employees of Parent on
similar terms, as soon as practicable after the Effective Time.
5.11 TERMINATION FEE. In the event this Agreement is terminated at any
time pursuant to Section 8.1(e), or, except as provided below, Section 8.1(b)
(i); then Parent shall, within three (3) business days after termination of
this Agreement, pay the Company, by cashier's check or wire transfer, at the
option of the Company, a termination fee of Five Million Dollars ($5,000,000)
less the aggregate of any amounts borrowed by the Company from Parent
together with all accrued interest on such amounts (to the extent the terms
of such loan provide that such a reduction shall extinguish such obligation)
("Termination Fee") as liquidated damages. In addition, if Parent does not
pay some or all such Termination Fee within three (3) business days after the
termination of this Agreement, Parent agrees to pay the Company interest on
any portion of the Termination Fee not so paid at the rate of 8% per annum
compounded semiannually (or the highest provided by applicable law, whichever
is lower) from the date the Termination Fee was required to be paid until
such
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portion is paid by Parent. Parent shall not be obligated to pay the
Termination Fee on account of a termination under Section 8.1(b) (i) if the
termination results solely from the failure of one or more of the conditions
identified below to be satisfied at the time of termination under Section
8.1(b) (i): 6.1(a), (b), (c), 6.1(d), 6.1(e) (solely as it related to the
opinion to be delivered by Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP) and 6.3.
5.12 AFFILIATE AGREEMENTS. Company Schedule 5.12 sets forth those
stockholders or optionholders of the Company who, in the Company's reasonable
judgment, are or may be "AFFILIATES" of the Company within the meaning of
Rule 145 (each such person an "AFFILIATE") promulgated under the Securities
Act ("RULE 145"). The Company shall provide Parent such information and
documents in the Company's possession as Parent shall reasonably request for
purposes of reviewing such list. The Company has delivered or shall have
used reasonable efforts to be caused to be delivered to Parent, within twenty
(20) days of the date of this Agreement from each of its Affiliates, an
executed Affiliate Agreement in the form attached hereto as EXHIBIT A.
Parent shall be entitled to place appropriate legends on the certificates
evidencing any Parent Common Stock to be received by such 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 Affiliate Agreements.
5.13 VOTING AGREEMENTS. The Company shall deliver or cause to be
delivered to Parent, concurrently with the execution of this Agreement, from
each person listed on Schedule 5.13, an executed Stockholder Voting Agreement
in the form attached hereto as EXHIBIT B (the "VOTING AGREEMENTS"), agreeing,
among other things, to vote in favor of the Merger.
5.14 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of the other 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.
5.15 REGISTRATION STATEMENT ON FORM S-8. Parent shall file a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Options promptly after the Effective
Time and in any event within ten (10) business days after the Effective Time.
5.16 NASDAQ NATIONAL MARKET LISTING. Prior to Closing, Parent shall
authorize for listing 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.
5.17 COMPANY'S AUDITORS. The Company will use its commercially
reasonable efforts to cause its management and its independent auditors to
facilitate on a timely basis (i) the preparation of financial statements
(including pro forma financial statements if required) as required by Parent
to comply with applicable SEC regulations, and (ii) the review of the
Company's audit work papers for up to the past three years , including the
examination of selected interim financial statements and data.
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5.18 NON-COMPETITION AGREEMENTS. The Company shall deliver or use
reasonable efforts to cause to be delivered to Parent an executed
Non-Competition Agreement in substantially the form attached hereto as
EXHIBIT C (a) concurrently with the execution of this Agreement from each of
the persons listed on Schedule 5.18 and (b) prior to Closing from other
employees of the Company as mutually agreed upon by the Company and Parent
and from any engineers of the Company requested by Parent.
5.19 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) The Company shall, to the fullest extent permitted under
applicable law and regardless of whether the Merger becomes effective,
indemnify and hold harmless, and, after the Effective Time, Parent and the
Surviving Corporation shall, to the fullest extent permitted under applicable
law, indemnify and holder harmless, each present and former director or
officer of the Company and each such person who served at the request of the
Company as a director, officer, trustee, partner, fiduciary, employee or
agent of any other corporation, partnership, joint venture, trust, pension or
other employee benefit plan or enterprise (collectively, the "INDEMNIFIED
PARTIES") against all costs and expenses (including reasonable attorney
fees), judgments, fines, losses, claims, damages, liabilities and settlement
amounts paid in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to any action or omission in their
capacity as an officer or director, in each case occurring before the
Effective Time.
(b) This Section 5.19 shall survive any termination of this
Agreement and the consummation of the Merger at the Effective Time, is
intended to benefit the Company, the Surviving Corporation and the
Indemnified Parties, and will be binding on all successors and assigns of the
Surviving Corporation and Parent.
5.20 DUE DILIGENCE INVESTIGATION. The Company will give Parent access
to any and all requested documents in its possession or in the possession of
its officers, directors, employees, agents or representatives and perform
such other acts as may be reasonably necessary for Parent to complete its due
diligence investigation within fourteen (14) days of the date hereof,
provided that no information or knowledge obtained in such investigation
shall affect or be deemed to modify any representation or warranty of the
Company contained herein.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
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(a) APPROVAL OF STOCKHOLDERS. This Agreement and the Merger shall
have been approved and adopted by the stockholders of the Company by the
requisite vote under applicable law and the Company's Certificate of
Incorporation.
(b) GOVERNMENT APPROVALS. All approvals of governments and
governmental agencies necessary to consummate the transactions hereunder
shall have been received.
(c) REGISTRATION STATEMENT EFFECTIVE. The SEC shall have declared
the Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding in
respect of the Proxy Statement, shall have been initiated or threatened in
writing by the SEC.
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal or regulatory restraint
or prohibition preventing the consummation of the Merger shall be in effect.
(e) TAX OPINIONS. Parent and the Company shall each have received
substantially identical written opinions from their counsel, Xxxxxx Xxxxxxx
Xxxxxxxx & Xxxxxx and Xxxxxxx Xxxxxxx & Xxxxxxxx LLP, respectively, in form
and substance reasonably satisfactory to them, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code. The parties to this Agreement agree to make reasonable representations
as requested by such counsel for the purpose of rendering such opinions.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or
prior to the Closing of each of the following conditions, any of which may be
waived, in writing, exclusively by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, except
for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same
force and effect as if made on and as of the Closing Date, except, in all
such cases, for such breaches, inaccuracies or omissions of such
representations and warranties which have neither had nor reasonably would be
expected to have a material adverse effect on Parent; and the Company shall
have received a certificate to such effect signed on behalf of Parent by a
duly authorized officer of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them
on or prior to the Effective Time, and the Company shall have received a
certificate to such effect signed by a duly authorized officer of Parent.
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(c) THIRD PARTY CONSENTS. The Company shall have been
furnished with evidence satisfactory to it that Parent has obtained the
consents, approvals and waivers set forth in Schedule 6.2(c).
(d) LEGAL OPINION. The Company shall have received a
legal opinion from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, counsel to Parent, in
substantially the form attached hereto as EXHIBIT D.
(e) NASDAQ LISTING. The shares of Parent Common Stock
issuable to stockholders 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.
(f) MATERIAL ADVERSE CHANGE. There shall not have
occurred any material adverse change in the business, assets (including
intangible assets), liabilities, financial condition or results of operations
of Parent and its subsidiaries, taken as a whole, since the date hereof,
("PARENT MATERIAL ADVERSE CHANGE"), provided that a Parent Material Adverse
Change shall not be deemed to exist solely as a result of (i) any change in
the value of Parent's Common Stock, (ii) any change in the recommendation or
opinion of any securities analyst, broker, investment manager or advisor,
(iii) any reduction in Parent's earnings as a result of any acquisition of,
or merger into Parent, of any corporation, partnership or other business
entity and such acquisition or merger is accounted for using purchase
accounting principles, (iv) circumstances that have resulted from the
announcement of the Merger or the performance by the Parent or Merger Sub of
its obligations hereunder, or (v) circumstances that have resulted from a
material economic downturn in the national economy.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations
and warranties which address matters only as of a particular date (which
shall remain true and correct as of such date), with the same force and
effect as if made on and as of the Closing Date, except, in all such cases,
for such breaches, inaccuracies or omissions of such representations and
warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on the Company or Parent; and Parent and Merger Sub
shall have received a certificate to such effect signed on behalf of the
Company by the chief executive officer and chief financial officer of the
Company.
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(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate
to such effect signed by a duly authorized officer of the Company.
(c) THIRD PARTY CONSENTS. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
(d) LEGAL OPINION. Parent shall have received a legal opinion
from Xxxxxxx Phleger & Xxxxxxxx LLP, legal counsel to the Company, in
substantially the form attached hereto as EXHIBIT E.
(e) AFFILIATE AGREEMENTS. Each of the parties identified by the
Company as being an Affiliate of the Company shall have delivered to Parent
an executed Affiliate Agreement which shall be in full force and effect.
(f) MATERIAL ADVERSE CHANGE. There shall not have occurred a
Company Material Adverse Effect since the date hereof.
(g) EXERCISE OF PREFERRED WARRANTS. All Preferred Warrants shall
have been exercised in full for Series A Preferred Stock.
(h) RESIGNATION OF DIRECTORS. The directors of the Company in
office immediately prior to the Effective Time shall have resigned as
directors of the Surviving Corporation effective immediately following the
Effective Time.
(i) NON-COMPETITION AGREEMENTS. Each of the persons listed on
Schedule 5.18 and at least three additional engineers on the Company's
product development team (the "Required Employees") shall have executed and
delivered to Parent a Non-Competition Agreement pursuant to Section 5.18
herein and each of the Required Employees shall be employees of Mozart
immediately prior to the Effective Time and the Non-Competition Agreements
executed by the Required Employees shall have not been terminated or
repudiated by the Required Employees.
ARTICLE VII
ESCROW
7.1 ESCROW PERIOD. Subject to the following requirements, the Escrow
Fund (as defined in Section 7.2(a) below) shall be in existence immediately
following the Effective Time and shall terminate at 5:00 p.m., California
time, on the date which is one (1) year following the Closing Date (the
"ESCROW PERIOD"); provided that the Escrow Period shall not terminate with
respect to such amount (or some portion thereof), that is necessary in the
reasonable judgment of Parent, subject to
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the objection of the Securityholder Agent (as defined in Section 7.2(g)
below) and the subsequent arbitration of the matter in the manner provided in
Section 7.2(f) hereof, to satisfy any unsatisfied claims concerning facts and
circumstances existing prior to the termination of such Escrow Period
specified in any Officer's Certificate (as defined in Section 7.2(d) below)
delivered to the Escrow Agent prior to termination of such Escrow Period;
provided further that the Escrow Fund will terminate in full upon final and
complete resolution of all disputed matters.
7.2 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. At the Effective Time, the Company's
stockholders will be deemed to have received and deposited with the Escrow
Agent (as defined below) the Escrow Amount (plus any additional shares as may
be issued upon any stock split, stock dividend or recapitalization effected
by Parent after the Effective Time) without any act of any stockholder. As
soon as practicable after the Effective Time, the Escrow Amount, without any
act of any stockholder, will be deposited with an institution acceptable to
Parent and the Securityholder Agent as Escrow Agent (the "ESCROW AGENT"),
such deposit to constitute an escrow fund (the "ESCROW FUND") to be governed
by the terms set forth herein and at Parent's cost and expense. The portion
of the Escrow Amount contributed on behalf of each stockholder of the Company
shall be in proportion to the aggregate Parent Common Stock which such holder
would otherwise be entitled under Sections 1.6(a), (b) and (c). No portion
of the Escrow Amount shall be contributed in respect of any Company Options
or warrants. The Escrow Fund shall be available to compensate Parent and its
affiliates for any claims, losses, liabilities, damages, reasonable costs and
expenses, including reasonable attorneys' fees and expenses, and reasonable
expenses of investigation and defense incurred by Parent, its officers,
directors, or affiliates (including the Surviving Corporation) directly or
indirectly as a result of any inaccuracy or breach of a representation or
warranty of the Company contained in Article II herein (as modified by the
Company Schedules), or any failure by the Company to perform or comply with
any covenant contained in Sections 4.1(a) to 4.1(w) or the first clause of
Section 4.1(x) herein (hereinafter individually a "LOSS" and collectively
"LOSSES"); provided, however, that the Escrow Fund shall only be available to
compensate Parent, its officers, directors or affiliates to extent that the
aggregate amount of Losses is in excess of $150,000, in which event the full
amount of the Escrow Fund shall be available to so compensate Parent for any
Losses. Parent and the Company each acknowledge that such Losses, if any,
would relate to unresolved contingencies existing at the Effective Time,
which if resolved at the Effective Time would have led to a reduction in the
aggregate Merger consideration. The Escrow Fund shall be the sole source of
damages to Parent arising from any claim hereunder (other than for damages
due to fraud or willful misrepresentation). Nothing herein shall limit the
liability of the Company for any breach of any representation, warranty or
covenant if the Merger does not close.
(b) DISTRIBUTION UPON TERMINATION OF ESCROW PERIOD. Upon
termination of the Escrow Period, the Escrow Agent shall deliver to the
stockholders of the Company that portion of the Escrow Fund that is not
required to satisfy any claims made by Parent pursuant to Section 7.1 hereof.
Deliveries of Escrow Amounts to the stockholders of the Company pursuant to
this Section 7.2(b) shall be made in proportion to their respective original
contributions to the Escrow Fund.
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(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 or the Company's stockholders 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
recordholders thereof. Cash dividends on Parent Common Stock shall not be
added to the Escrow Fund but shall be distributed to the recordholders
thereof.
(iii) Each stockholder shall have voting rights with
respect to the shares of Parent Common Stock contributed to the Escrow Fund
by such stockholder (and on any New Shares added to the Escrow Fund in
respect of such shares of Parent Common Stock).
(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, and (B) specifying in reasonable detail the individual
items of Losses included in the amount so stated, the date each such item was
paid or properly accrued, or the basis for such anticipated liability, and
the nature of the misrepresentation, breach of warranty or covenant to which
such item is related, the Escrow Agent shall, subject to the provisions of
Section 7.2(e) hereof, 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 any Losses incurred or accrued by Parent.
(ii) For the purposes of determining the number of
shares of Parent Common Stock to be delivered to Parent out of the Escrow
Fund pursuant to Section 7.2(d)(i) hereof, each share of Parent Common Stock
shall be valued at the Parent Stock Price. Parent and the Securityholder
Agent shall certify such fair market value in a certificate signed by both
Parent and the Securityholder Agent, and shall deliver such certificate to
the Escrow Agent.
(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 7.2(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
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Common Stock from the Escrow Fund in accordance with Section 7.2(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. Parent and the Securityholder Agent
shall agree on one arbitrator; provided that if Parent and the Securityholder
Agent cannot agree on one arbitrator, either Parent or the Securityholder
Agent can request that the Judicial Arbitration and Mediation Services
("JAMS") select the arbitrator. The arbitrator selected by JAMS shall
determine the dispute in accordance with Article 7 of this Agreement. The
arbitrators shall set a limited time period and establish procedures designed
to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrators, to discover
relevant information from the opposing parties about the subject matter of
the dispute. The arbitrators shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including
attorneys' fees and costs, to the same extent as a court of competent law or
equity, should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to
without substantial justification. The decision of a majority of the three
arbitrators as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this
Agreement, and notwithstanding anything in Section 7.2(e) hereof, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance therewith. Such
decision shall be written and shall be supported by written findings of fact
and conclusions which shall set forth the award, judgment, decree or order
awarded by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Santa Xxxxx County, California under the rules
then in effect of the American Arbitration Association. For purposes of this
Section 7.2(f), in any arbitration hereunder in which any claim or the amount
thereof stated in the Officer's Certificate is at issue, Parent shall be
deemed to be the Non-Prevailing Party in the event that the arbitrators award
Parent less than the sum of one-half (1/2) of the disputed amount plus any
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amounts not in dispute; otherwise, the stockholders of the Company as
represented by the Securityholder Agent shall be deemed to be the
Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall pay
its own expenses, the fees of each arbitrator, the administrative costs of
the arbitration and the expenses, including without limitation, reasonable
attorneys' fees and costs, incurred by the other party to the arbitration.
(g) SECURITYHOLDER AGENT OF THE STOCKHOLDERS; POWER OF
ATTORNEY.
(i) In the event that the Merger is approved,
effective upon such vote, and without further act of any stockholder, Xxxxx
Xxxxxxxx shall be appointed as agent and attorney-in-fact (the
"SECURITYHOLDER AGENT)" for each stockholder of the Company (except such
stockholders, if any, as shall have perfected their appraisal or dissenters'
rights under Delaware Law), for and on behalf of stockholders of the Company,
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 stockholders of the Company 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 in
interest of the Escrow Fund agree to such removal and to the identity of the
substituted agent. Any vacancy in the position of Securityholder Agent may
be filled by the approval of the former stockholders of the Company holding a
majority in interest of the Escrow Fund. No bond shall be required of the
Securityholder Agent, and the Securityholder Agent shall not receive
compensation for his or her services. Notices or communications to or from
the Securityholder Agent shall constitute notice to or from each of the
stockholders of the Company.
(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 stockholders of
the Company 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 stockholders 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 stockholders, 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 such stockholder of the Company. 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.
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(i) THIRD-PARTY CLAIMS. In the event Parent becomes aware of a
third-party claim which Parent intends to assert for a demand against the
Escrow Fund, Parent shall notify the Securityholder Agent of such claim.
Parent shall have the right in its sole discretion to settle any such claim;
provided, however, that except with the consent of the Securityholder Agent,
no settlement of any such claim with third-party claimants shall alone be
determinative of the amount of any claim against the Escrow Fund.
(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 taken, suffered, or permitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court of law,
notwithstanding any notices, warnings or other communications from any of the
parties hereto or any other person to the contrary. In case the Escrow Agent
obeys or complies with any such order, judgment or decree of any court, the
Escrow Agent shall not be liable to any of the parties hereto or to any other
person by reason of such compliance, notwithstanding any such order, judgment
or decree being subsequently reversed, modified, annulled, set aside, vacated
or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to this Agreement
or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or
expenses, except for gross negligence or willful misconduct on the part of
the Escrow Agent. The Escrow Agent shall not incur any such liability for
(A) any act or failure to act made or omitted in good faith, or (B) any
action taken or omitted in reliance upon any instrument, including any
written statement or affidavit provided for in this Agreement that the Escrow
Agent shall in good faith believe to be genuine, nor will the Escrow Agent be
liable or responsible for forgeries, fraud, impersonations, or determining
the scope of any representative authority. In addition, the Escrow Agent may
consult with legal counsel in connection with Escrow Agent's duties under
this Agreement. The Escrow Agent is not responsible for
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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 xxxxx
xxx be required, despite what may be set forth elsewhere in this Agreement.
In such event, the Escrow Agent will not be liable for damages.
(vii) The parties and their respective successors and assigns
agree jointly and severally to indemnify and hold Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, and disbursements
that may be imposed on Escrow Agent or incurred by Escrow Agent in connection
with the performance of his/her duties under this Agreement, including but
not limited to any litigation arising from this Agreement or involving its
subject matter.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; provided, however, that
no such resignation shall become effective until the appointment of a
successor escrow agent which shall be accomplished as follows: the parties
shall use their best efforts to mutually agree on a successor escrow agent
within thirty (30) days after receiving such notice. If the parties fail to
agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent authorized to do business
in the State of California. The successor escrow agent shall execute and
deliver an instrument accepting such appointment in form and substance
acceptable to Parent and Securityholder Agent and it shall, without further
acts, be vested with all the estates, properties, rights, powers, and duties
of the predecessor escrow agent as if originally named as escrow agent. The
predecessor escrow agent shall be discharged from any further duties and
liability under this Agreement upon the execution by such successor of such
agreement.
(k) FEES. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be
considered compensation for ordinary services as contemplated by this
Agreement. In the event that the conditions of this Agreement are not
promptly fulfilled, or if the Escrow Agent renders any service not provided
for in this Agreement, or if the parties request a substantial modification
of its terms, or if any controversy arises, or if the Escrow Agent is made a
party to, or intervenes in, any litigation pertaining to this escrow or its
subject matter, the Escrow Agent shall be reasonably compensated for such
extraordinary services and reimbursed for all costs, attorney's fees, and
expenses occasioned by such default, delay, controversy or litigation.
Parent promises to pay these sums upon demand.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred before 5:00 p.m. (Pacific time) on September 30, 1997 (provided that
the right to terminate this Agreement under this clause 8.1(b)(i) shall not
be available to any party whose willful failure to fulfill any obligation
hereunder has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date); (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any governmental entity that would make consummation of the
Merger illegal;
(c) by 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
Parent's or the Company's ownership or operation of all or 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 breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
the Company and (i) such breach has not been cured within thirty (30) days
after written notice to the Company (provided that, no cure period shall be
required for a breach which by its nature cannot be cured), and (ii) as a
result of such breach the conditions set forth in Section 6.3(a) or 6.3(b),
as the case may be, would not then be satisfied;
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement
on the part of Parent or Merger Sub and (i) such breach has not been cured
within thirty (30) days after written notice to Parent (provided that, no
cure period shall be required for a breach which by its nature cannot be
cured), and (ii) as a result of such breach the conditions set forth in
Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied.
(f) by Parent if Parent shall have not completed its due diligence
investigation of the Company to Parent's reasonable satisfaction within
fourteen (14) days of the date of this Agreement. Parent's right to
terminate this Agreement under this Section 8.1(f) shall lapse and this
Section 8.1(f) shall automatically terminate if the Company has not received
from Parent a written termination notice on or before the fifteenth day after
the date of this Agreement.
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Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
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,
Merger Sub 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; and provided further that, the
provisions of Sections 5.3, 5.4 and 5.11 and Articles VIII and IX (other than
Section 9.1) of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
8.3 AMENDMENT. Except as is otherwise required by applicable law after
the stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided, however,
that Parent may in its sole discretion amend this Agreement and all related
agreements to the extent necessary to provide for the consummation of the
acquisition of the Company contemplated hereby through the statutory merger
of the Company with and into Parent; provided that Parent may not make any
such amendment which is likely to result in a material delay in the
consummation of the Merger or jeopardize the qualification of the Merger as a
tax-free reorganization.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of
the agreements or conditions for the benefit of such party contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and shall (except to the extent that survival is
necessary to effectuate the intent of such provisions) terminate twelve (12)
months after the Closing Date.
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9.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via 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):
(a) if to Parent or Merger Sub, to:
Netscape Communications Corporation
000 X. Xxxxxxxxxxx Xxxx
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
Xxxxx X. Xxxxxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
DigitalStyle Corporation
00000 Xxxxxx Xxxxxxxx Xxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Attention: Xxx Xxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxx Phleger & Xxxxxxxx LLP
000 Xxxx X Xxxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
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(c) if to the Securityholder Agent:
Xxxxx Xxxxxxxx
c/o Enterprise Partners III L.P.
0000 Xxxxxxx Xxxxxx
Xx Xxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
9.3 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.
9.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.5 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Schedules and
Exhibits hereto, 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, provided that none of the Joint
Development Agreement, the Series B Preferred Stock Purchase Agreement or the
Investors' Rights Agreement, each dated September 26, 1996, (collectively the
"Preexisting Agreements") shall be superseded or modified by this Agreement;
(b) are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned by operation of law or otherwise
except as otherwise specifically provided, except that Parent and Merger Sub
may assign their respective rights and delegate their respective obligations
hereunder to their respective affiliates provided that Parent and Merger Sub
shall also remain liable for all of their respective obligations hereunder.
The parties agree that no action required to be taken hereunder should
constitute a breach of any provision of the Preexisting Agreements.
9.6 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
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9.7 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will
not preclude the exercise of any other remedy.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto agrees that process may be served upon
them in any manner authorized by the laws of the State of Delaware for such
persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction and such process.
9.9 ARBITRATION.
(a) The parties shall attempt in good faith to agree upon the
rights of the respective parties with respect to any dispute or controversy
arising out of, relating to, or in connection with this Agreement or the
interpretation, validity, construction, performance, breach or complete
termination thereof.
(b) If no such agreement can be reached after good faith
negotiation, either of the parties may demand arbitration of the matter
(except any such dispute or controversy related to Article VII or Section
2.11 or 2.15 of this Agreement) and the matter shall be settled by
arbitration conducted by one arbitrator. Parent and the Company shall agree
on the arbitrator; provided that if Parent and the Company cannot agree on
one arbitrator, either Parent or the Company can request that the JAMS select
the arbitrator. The arbitrator selected by the JAMS shall determine the
dispute in accordance with Section 9.9. 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
judgment 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
same 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 shall be final, conclusive and binding upon the
parties to this Agreement. 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.
(c) Judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction. Any such arbitration shall be held
in Santa Xxxxx County, California under the rules then in effect of JAMS.
For purposes of this Section 9.9, in any arbitration hereunder, the
non-prevailing Party to an arbitration shall pay its own expenses, the fees
of the arbitrator, the administrative costs of the arbitration and the
expenses, including without limitation, reasonable attorneys' fees and costs,
incurred by the other party to the arbitration.
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9.10 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.11 SPECIFIC PERFORMANCE. 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 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 state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company and the
Securityholder Agent (but only as to Articles VII and IX for the
Securityholder Agent) have caused this Agreement to be signed by their duly
authorized respective officers, all as of the date first written above.
NETSCAPE COMMUNICATIONS DIGITALSTYLE CORPORATION
CORPORATION
By /s/ Xxxxx X.X. Xxxxxx By /s/ Xxxxx X. Xxxxxxx
---------------------------- -----------------------------
Name: Xxxxx X.X. Xxxxxx Name: Xxxxx X. Xxxxxxx
Title: Senior Vice President and Title: President and
Chief Financial Officer Chief Executive Officer
SECURITYHOLDER AGENT: DSC ACQUISITION CORPORATION
/s/ Xxxxx Xxxxxxxx By /s/ Xxxxx X.X. Xxxxxx
------------------------------ -----------------------------
Name: Xxxxx Xxxxxxxx Name: Xxxxx X.X. Xxxxxx
Title: President and
Chief Financial Officer
***REORGANIZATION AGREEMENT***
