Exhibit 2.1
SHARE EXCHANGE AGREEMENT
AND
AGREEMENT AND PLAN OF MERGER
AMONG
INSO CORPORATION, TABASCO CORP.,
SHERPA SYSTEMS CORPORATION
AND
The Selling Stockholders named herein
November 11, 1998
TABLE OF CONTENTS
Page
ANNEXES:
Annex 1 - List of Selling Stockholders
SCHEDULES:
Disclosure Schedule
Schedule 6.2(g) - List of Company employees
required to sign non-competition/non-solicitation
agreements
Schedule 6.2(h) - List of Company properties
for which estoppel certificates are required to be
delivered at the Closing
EXHIBITS:
Exhibit 1.3: Form of Escrow Agreement
Exhibit 1.5: Form of Warrant
Exhibit 6.2(e): Form of opinion of counsel to the Company
Exhibit 6.2(g): Form of Non-competition and Non-solicitation
Agreement
Exhibit 6.3(d)-1: Form of opinion of outside counsel to the Buyer
and the Transitory Subsidiary
Exhibit 6.3(d)-2:Form of opinion of general counsel to the Buyer
SHARE EXCHANGE AGREEMENT
AND
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of November 11, 1998 by and
among Inso Corporation, a Delaware corporation (the "Parent"),
Tabasco Corp., a Delaware corporation and a wholly-owned
subsidiary of the Parent (the "Buyer"), Sherpa Systems
Corporation, a California corporation (the "Company"), and the
stockholders of the Company and Accredited Investors (as defined
below) who hold Options of the Company listed on Annex 1
hereto, as it may be amended from time to time prior to the Share
Exchange Closing to add additional stockholders and Option
Holders of the Company who are Accredited Investors (all such
persons on Annex 1 hereto as amended from time to time, the
"Selling Stockholders"). The Parent, the Buyer, the Company and
the Selling Stockholders are referred to collectively herein as the
"Parties."
This Agreement contemplates the acquisition of the
Company by the Parent. The Agreement provides for the Buyer
and the Parent to acquire the issued and outstanding shares of
capital stock of the Company from the Selling Stockholders for
cash or cash and warrants (the "Share Exchange"). Following the
Share Exchange, the Parent will contribute its ownership in any of
the Company Shares so acquired to the Buyer, and the Buyer will
merge with and into the Company on the terms and conditions of
this Agreement (the "Merger"), and as a result of the Merger, the
stockholders of the Company (other than the Buyer) (the "Other
Stockholders") will receive cash in exchange for their Company
Shares. For purposes of this Agreement, the outstanding shares of
Common Stock (the "Company Common Shares") and Preferred
Stock (the "Company Preferred Shares") of the Company as of a
given date are sometimes referred to as the "Company Shares" as
of such date, and the Selling Stockholders and the Other
Stockholders are sometimes referred to as the "Company
Stockholders".
The respective Boards of Directors of the Parent, the Buyer
and the Company have duly approved the acquisition of the
Company by the Parent pursuant to the terms of this Agreement
(including the Share Exchange and the Merger).
Now, therefore, in consideration of the representations,
warranties and covenants herein contained, the Parties agree as
follows.
Upon and subject to the terms and conditions of this Agreement, at
the closing of the Share Exchange (the "Share Exchange Closing"),
each Selling Stockholder shall exchange each of the Company
Shares owned by such Selling Stockholder as of the Share
Exchange Closing Date (including shares issuable on the exercise
of Options for which a Notice of Exercise (as defined below) has
been executed and delivered by such Selling Stockholder on or
before the Share Exchange Closing Date), for the Share Exchange
Consideration (as defined below).
The closing of the transactions contemplated by this Article I (the
"Share Exchange Closing") shall take place at the offices of
Venture Law Group in Menlo Park, California, commencing at
9:00 a.m. local time on the first business day following the
expiration of the Election Period, or, if all of the conditions to the
obligations of the Parties to consummate the transactions
contemplated hereby have not been satisfied or waived by such
date, on such mutually agreeable later date as soon as practicable
after the satisfaction or waiver of all conditions to the obligations
of the Parties to consummate the transactions contemplated hereby
(the "Share Exchange Closing Date").
. At the Share Exchange Closing, (a) the Company and the Selling
Stockholders shall deliver to the Parent and the Buyer the various
certificates, instruments and documents referred to in Section 6.2,
(b) the Parent and the Buyer shall deliver to the Company the
various certificates, instruments and documents referred to in
Section 6.3, (c) the Selling Stockholders shall deliver to the Parent
and the Buyer certificates evidencing the Company Shares owned
by such Selling Stockholder (the "Share Certificates") duly
endorsed in blank or with stock powers duly executed by such
Selling Stockholder, with signatures guaranteed if required by the
Parent or an executed Notice of Exercise or Option Exchange and
Termination (as defined below) and stock power duly executed by
such Selling Stockholder in the case of a Selling Stockholder who
is exercising or exchanging an Option as of the Share Exchange
Closing Date, (d) the Buyer and the Parent shall deliver the Share
Exchange Consideration to the Selling Stockholders in accordance
with Section 1.5 and Section 1.6 and (e) the Parent, the
Indemnification Representatives (as defined below) and the
Escrow Agent (as defined in the Escrow Agreement) shall execute
and deliver the Escrow Agreement attached hereto as Exhibit 1.3
(the "Escrow Agreement") and the Buyer shall deliver to the
Escrow Agent the cash amount being placed in escrow on the
Closing Date pursuant to Section 1.7.
. At any time and from time to time after the Share Exchange
Closing, at the Buyer's request and without further consideration,
each of the Selling Stockholders shall promptly execute and
deliver such instruments of sale, transfer, conveyance, assignment
and confirmation, and take all such other action as the Buyer may
reasonably request, more effectively to transfer, convey and assign
to the Buyer, and to confirm the Buyer's title to, all of the
Company Shares owned by such Selling Stockholder.
.
(a) At the Share Exchange Closing, the Buyer
(and the Parent in the event Warrants shall be issued) shall pay, for
each Company Share (including Company Common Shares
issuable upon exercise of Options pursuant to executed Notices of
Exercise tendered for exchange by a Selling Stockholder, at the
election of each Selling Stockholder, either:
(I) cash (subject to the provisions of
Section 1.7) equal to (x) $36,000,000 divided by (y) the sum of (A)
the aggregate number of Company Common Shares issued and
outstanding immediately prior to the Share Exchange Closing
(treating all Company Preferred Shares as if they had been
converted into Company Common Shares at the then current
conversion rate) plus (B) the number of Company Common Shares
issuable upon the exercise of "in-the-money" Options (as defined
in Section 1.5 below) and Options committed to be issued to
employees of the Company as described in Section 3.2 of the
Disclosure Schedule ("Committed Options") minus (C) the
number of Company Common Shares equal to (a) the aggregate
exercise price of all "in-the-money" Options and Committed
Options divided by (b) the Per Share Cash Consideration (such
quotient of (x) divided by (y) being hereinafter referred to as the
"Per Share Cash Consideration"); or
(II) (A) a warrant (each, a "Warrant", and as
collectively issued to all electing Selling Stockholders, the
"Warrants") to purchase such number of shares of Common Stock,
$.01 par value per share, of the Parent ("Parent Common Stock")
as is equal to (X) 1,500,000 divided by (Y) the sum of the number
of Company Common Shares (treating all Company Preferred
Shares as if they had been converted into Company Common
Shares at the then current conversion rate) held by all Selling
Stockholders plus the aggregate Option Equivalent Shares held by
all Selling Stockholders at the Share Exchange Closing (the
"Shares Per Warrant") plus (B) an amount of cash equal to: (x) the
Per Share Cash Consideration, minus (y) the product of: (i) the
Shares per Warrant, multiplied by (ii) $5.00.
An election to receive the amounts set forth in clause (I) or clause
(II) above shall be made by each Selling Stockholder pursuant to
Section 1.5(d) below. The Warrants shall be exercisable in cash at
a price of $23.50 per share of Parent Common Stock (subject to
equitable adjustment in the event of any stock split, stock dividend,
reverse stock split or similar event affecting the Parent Common
Stock), will expire on the second anniversary of the Share
Exchange Closing Date, and shall be in the form attached hereto as
Exhibit 1.5. For purposes hereof, "in-the-money" Options (or
Committed Options) means those Options (or Committed Options)
which have an exercise price per share immediately prior to the
Share Exchange Closing Date which is less than the Per Share
Cash Consideration. Each Selling Stockholder shall elect to
receive either the consideration set forth in clause (I) above or the
consideration set forth in clause (II) above with respect to all of
his, her or its shares.
(b) At the Share Exchange Closing, a portion of
the cash payable to the Selling Stockholders (the "Share Exchange
Escrow Cash Amount") shall be deposited in escrow pursuant to
Section 1.7 as follows: (i) for each Selling Stockholder receiving
solely cash pursuant to Section 1.5(a)(I) above, an amount equal to
fifteen percent (15%) of the aggregate cash so payable to such
Company Stockholder; and (ii) for each Selling Stockholder
receiving cash plus a Warrant pursuant to Section 1.5(a)(II), an
amount of cash equal to fifteen percent (15%) of the cash such
Company Stockholder would have received pursuant to Section
1.5(a) if such Company Stockholder had elected to receive only
cash pursuant to Section 1.5(a)(I) above. Each of the Company
Stockholders shall be entitled to receive immediately upon the
Share Exchange Closing the remainder of the cash payable to such
Company Stockholder pursuant to this Section 1.5 (the "Initial
Cash Amount") and the Warrants (if applicable).
(c) The cash payable to the Company
Stockholders shall be subject to adjustment after the Share
Exchange Closing Date as follows:
(1) As promptly as possible following
the Share Exchange Closing Date, the Indemnification
Representatives shall cause PriceWaterhouseCoopers, independent
public accountants for the Company Stockholders (the
"Stockholders' Auditors"), to conduct an audit of the books and
records of the Company as of the Share Exchange Closing Date.
Not later than 60 days after the Share Exchange Closing Date, the
Indemnification Representatives shall cause the Stockholders'
Auditors to deliver a consolidated balance sheet of the Company as
of the Share Exchange Closing Date (as corrected pursuant to
Subsection (5) hereof, the "Closing Balance Sheet") to each of the
Parties and to the Escrow Agent. The Closing Balance Sheet shall
be prepared in accordance with generally accepted accounting
principles applied consistently with the Company's past practice
(to the extent that such past practice was in accordance with
generally accepted accounting principles), and shall be certified
without qualification by the Stockholders' Auditors. The Closing
Balance Sheet shall be accompanied by a statement prepared by
the Stockholders' Auditors setting forth the basis for the
determination of the items and values reflected on the Closing
Balance Sheet.
(2) The Parent and Ernst & Young LLP,
acting on behalf of the Parent (the "Parent's Auditors") shall have
the right to review the work papers of the Stockholders' Auditors
utilized in preparing the Closing Balance Sheet, and shall have
reasonable access to the books, records, properties and personnel
of the Company for purposes of verifying the accuracy and fairness
of the presentation of the Closing Balance Sheet. The
Indemnification Representatives shall work in good faith and
cooperate with the Parent and the Parent's Auditors in the
preparation of the Closing Balance Sheet and the resolution of any
dispute in connection therewith pursuant to paragraph (3) below.
(3) The values or amounts for each item
reflected on the Closing Balance Sheet shall be binding upon the
Parent, unless the Parent gives written notice within 30 days after
receipt of the Closing Balance Sheet of disagreement with any of
the values or amounts shown on the Closing Balance Sheet,
specifying as to each such item in reasonable detail, the nature and
extent of such disagreement (the "Dispute Notice"). If the Parent
and the Indemnification Representatives are unable to resolve any
such disagreement within 30 days after the date of the Dispute
Notice, the disagreement shall be submitted to arbitration in
accordance with the provisions of Subsection 10.13 hereof. The
sole issue to be decided in such arbitration is whether the Closing
Balance Sheet was prepared in accordance with generally accepted
accounting principles applied consistently with the Company's past
practice. If as a result of the resolution of any disputes by
agreement pursuant to this Subsection 1.5(d)(3) or by arbitration
pursuant to Subsection 10.13, any amount shown in the Closing
Balance Sheet is determined to be erroneous, such erroneous
amount shall be deleted from the Closing Balance Sheet and the
correct amount shall be inserted in lieu thereof. The Closing
Balance Sheet, as so corrected, shall constitute the Closing Balance
Sheet for purposes of this Agreement.
(4) The Parent shall pay the fees and
disbursements of the Parent's Auditors and the Stockholders'
Auditors incurred in the review of the Closing Balance Sheet.
(5) Promptly (and in any event within
ten business days) upon the expiration of the 30-day period for
giving the Dispute Notice, if no Dispute Notice is given, or
promptly (and in any event within ten business days) upon the
resolution of disputes, if any, pursuant to this Subsection 1.5(d)
(the "Determination Date"), the Parent shall deliver a Claim Notice
(as defined in the Escrow Agreement) to the Escrow Agent setting
forth the amount by which the Closing Balance Sheet, as corrected
pursuant to the foregoing provisions, states that the Tangible Net
Worth of the Company (as defined below) is less than zero (the
"Net Worth Deficiency"), and the Escrow Agent shall deliver to
the Parent, out of the Escrow Fund (as defined in the Escrow
Agreement) an amount of cash equal to the Net Worth Deficiency.
For purposes of this Agreement, the term "Tangible Net Worth of
the Company" shall mean the excess of the depreciated book value
of all tangible assets of the Company over all liabilities of the
Company and the Subsidiaries, all as shown on the Closing
Balance Sheet. For clarification, the parties agree that, of the
assets listed on Exhibit 1.5(c)(5) hereto, only software licenses,
capitalized software and long-term deposits (but only to the extent
composed of assets other than prepaid license fees and deposits on
leases) constitute intangible assets under generally accepted
accounting principles.
(6) Notwithstanding the foregoing, the
Escrow Agent shall pay to the Parent at the Share Exchange
Closing Date from the Specific Escrow Fund (as defined in Section
1.7 below), an amount equal to the fees and expenses paid by the
Company at the Share Exchange Closing pursuant to Section 10.11
below (and such payment shall be netted against the amount
otherwise payable to the Parent pursuant to paragraph (5) above),
and in the event that, following the determination of the Closing
Balance Sheet, as corrected pursuant to the foregoing provisions,
the amount paid to the Parent on account of this paragraph (6)
exceeds that to which the Parent would otherwise have been
entitled pursuant to paragraph (5) above, the Parent shall promptly
return such excess to the Escrow Agent. The amounts so returned
by the Parent shall thereupon become part of the Specific Escrow
Fund, which shall be distributed by the Escrow Agent pursuant to
the terms of the Escrow Agreement.
(d) Within three business days after the date of
this Agreement, the Company shall mail to each stockholder of the
Company who is not then a Selling Stockholder and each holder of
Options who is not then a Selling Stockholder, a Notice regarding
this Agreement and the Merger and an Investor Questionnaire (the
"Accredited Investor Notice"). Such other stockholders and
holders of Options that respond by stating that they are "accredited
investors" as defined under Rule 501 of the Securities Act, unless
the Parent determines in its reasonable judgment that it does not
have a reasonable basis for believing such person to be an
accredited investor (each of which is an "Accredited Investor"),
will have seven business days after the mailing by the Company of
the Accredited Investor Notice (the "Election Period") to sign this
Agreement (and to become a Selling Stockholder thereby). In
addition, each Selling Stockholder and each other stockholder or
Optionholder that is an Accredited Investor shall within such seven
day period make the election set forth in clause 1.5(a)(I) or
1.5(a)(II) by mailing to the Parent and to the Company a form
designated by the Parent for that purpose (a "Form of Election") in
accordance with this Section. To be effective, a Form of Election
must be properly completed, signed and submitted to the Parent.
The Parent shall have the discretion to determine whether Forms of
Election have been properly completed, signed and submitted or
revoked and to disregard immaterial defects in Forms of Election.
The decision of the Parent in such matters shall be conclusive and
binding. The Parent shall be under no obligation to notify any
person of any defect in a Form of Election, and may, in its
discretion, extend the Election Period without notice to any
stockholders or other persons. For the purposes hereof, a Selling
Stockholder who does not submit a Form of Election which is
received by the Parent prior to the Election Deadline (as defined
below) shall be deemed to have elected to receive all cash for his,
her or its Company Shares pursuant to clause 1.5(a)(I) above. A
Form of Election must be received by the Parent by the close of
business on the last day of the Election Period (the "Election
Deadline") in order to be effective. All elections may be revoked
until the Election Deadline.
.
(a) If any Share Exchange Consideration is to
be issued in the name of a person other than the person in whose
name the Share Certificate surrendered in exchange therefor is
registered, it shall be a condition to the issuance of such Share
Exchange Consideration that (i) the Share Certificate so
surrendered shall be transferable, and shall be properly assigned,
endorsed or accompanied by appropriate stock powers, (ii) such
transfer shall otherwise be proper and (iii) the person requesting
such transfer shall pay to the Parent any transfer or other taxes
payable by reason of the foregoing or establish to the satisfaction
of the Parent that such taxes have been paid or are not required to
be paid.
(b) In the event any Share Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Share Certificate to be lost,
stolen or destroyed, the Parent shall issue in exchange for such
lost, stolen or destroyed Share Certificate the cash and Warrants (if
applicable) issuable in exchange therefor pursuant to Section 1.5.
The Board of Directors of the Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of
such lost, stolen or destroyed Share Certificate to give the Parent a
bond in such sum as it may direct as indemnity against any claim
that may be made against the Buyer or the Parent with respect to
the Share Certificate alleged to have been lost, stolen or destroyed.
.
(a) On the Share Exchange Closing Date, the
Buyer shall deliver to the Escrow Agent cash equal to the Share
Exchange Escrow Cash Amount, as described in Section 1.5. One-
third of the Share Exchange Escrow Cash Amount deposited in
escrow on behalf of the Selling Stockholders (together with
one-third of the Merger Escrow Cash Amount deposited in escrow
on behalf of the Other Stockholders, the "Specific Escrow Fund")
shall be available solely for the purchase price adjustment set forth
in Section 1.5(c) above, and the balance of the Share Exchange
Escrow Cash Amount (together with the portion of the Merger
Escrow Cash Amount representing the Merger Escrow Cash
Amount other than the portion thereof in the Specific Escrow
Fund, the "General Escrow Fund") shall be available for all
purposes (including the purchase price adjustment set forth in
Section 1.5(c) above) for which claims may be made under the
Escrow Agreement. The Share Exchange Escrow Cash Amount
shall be held by the Escrow Agent under the Escrow Agreement
pursuant to the terms thereof. The Share Exchange Escrow Cash
Amount shall not be subject to any lien, attachment, trustee process
or any other judicial process of any creditor of any party, and shall
be held and disbursed solely for the purposes and in accordance
with the terms of the Escrow Agreement.
(b) The adoption of this Agreement by the
Selling Stockholders shall constitute approval of the Escrow
Agreement and of all of the arrangements relating thereto,
including without limitation the placement of the Share Exchange
Escrow Cash Amount in escrow and the appointment of the
Indemnification Representatives.
.
(a) All holders of "in-the-money" Options may
either exercise such Options on or before the Share Exchange
Closing Date or exchange such Options at the Share Exchange
Closing pursuant to this Section 1.8. (An Accredited Investor who
exercises such Options shall make the election in Section 1.5(a)(I)
or 1.5(a)(II).) An Accredited Investor who holds "in-the-money"
Options may elect to exchange such Options for: (i) cash or (ii)
cash and warrants, and shall, upon his or her execution and
delivery of this Agreement pursuant to Section 1.5(d) above, be
considered a "Selling Stockholder." A holder of "in-the-money"
Options who is not an Accredited Investor may elect only to
exchange such Options for cash. A holder of "in-the-money"
Options who is exchanging his or her Options for cash shall enter
into an agreement with the Company, in a form reasonably
satisfactory to the Parent, providing for a termination of such
Option effective as of the Share Exchange Closing Date (a "Notice
of Exchange and Option Termination"), in exchange for the
payment to such holder by Parent at the Share Exchange Closing
of an amount in cash equal to the product of (i) the Per Share Cash
Consideration, multiplied by (ii) such holder's Option Equivelent
Shares (as defined below), provided however that such cash
payment shall be reduced by any applicable federal and state
withholding taxes. An Accredited Investor who is exchanging his
or her Options for cash and warrants shall execute a Notice of
Exchange and Option Termination in exchange for (A) Warrants to
purchase that number of shares of Parent Common Stock equal to
the product of: (x) the Shares Per Warrant, multiplied by (y) such
holder's Option Equivalent Shares (as defined below), and (B) the
payment to such holder by Parent at the Share Exchange Closing
of an amount of cash equal to the product of such holder's Option
Equivalent Shares (as defined below) multiplied by the difference
between (1) the Per Share Cash Consideration, minus (2) the
product of (x) the Shares Per Warrant multiplied by (y) $5.00,
provided however that such cash payment shall be reduced by any
applicable federal and state withholding taxes. For purposes of
this Agreement, a holder's Option Equivalent Shares shall equal (a)
the aggregate number of Company Common Shares for which such
holder's in-the-money Options are exercisable (including the effect
of any accelerated vesting of such Options effective as of the Share
Exchange Closing Date) minus (b) the quotient of the aggregate
exercise price of such Options divided by the Per Share Cash
Consideration. All cash payments due and/or Warrants issuable on
exchange of Options shall be considered "Option Consideration".
All Options that are "in the money" as of the Share Exchange
Closing and are not exercised or exchanged pursuant hereto shall
be deemed to be exchanged solely for cash pursuant to the formula
above. The Company will enter into an agreement in form
reasonably satisfactory to the Company with each holder of
Options under the 1992 Stock Option Plan that are not
"in-the-money" (and with each other holder of Options (other than
holders of Options under the 1982 Stock Option Plan that
terminate prior to the Effective Time) who does not enter into a
Notice of Exchange and Option Termination) providing for the
termination of such Option as of the Share Exchange Closing
without payment or any other liability to the holders thereof.
(b) All stock option plans and other stock or
equity-related plans of the Company (the "Stock Plans") shall
terminate immediately prior to the Effective Time.
. At the Share Exchange Closing, the directors of the Company
shall tender their resignations as directors.
. From and after the date hereof, no Selling Stockholder shall
transfer any interest in any Company Shares.
.
(a) In order to efficiently administer (i) the
determination of the Tangible Net Worth of the Company, (ii) the
waiver of any condition to the obligations of the Company
Stockholders to consummate the transactions contemplated hereby,
and (iii) the defense and/or settlement of any claims for which the
Company Stockholders may be required to indemnify the
Surviving Corporation, the Buyer or the Parent pursuant to
Article VII hereof, the Company Stockholders hereby designate
Xxxxx Xxxxxxxx and Xxxxxxx Xxxxxxxx as their representatives (the
"Indemnification Representatives").
(b) The Company Stockholders hereby
authorize the Indemnification Representatives (A) to make all
decisions relating to the determination of the Tangible Net Worth
of the Company, (B) to take all action necessary in connection with
the waiver of any condition to the obligations of the Company
Stockholders to consummate the transactions contemplated hereby,
or the defense and/or settlement of any claims for which the
Company Stockholders may be required to indemnify the
Surviving Corporation, the Buyer or the Parent pursuant to Article
VII hereof, (C) to give and receive all notices required to be given
under this Agreement by the Company Stockholders, and (D) to
take any and all additional action as is contemplated to be taken
by or on behalf of the Company Stockholders by the terms of this
Agreement, including, without limitation, the execution and
delivery of the Escrow Agreement.
(c) In the event that an Indemnification
Representative dies, becomes unable to perform his responsibilities
hereunder or resigns from such position, Company Stockholders
holding, prior to the Share Exchange Closing, a majority of the
Company Shares (on an as-converted basis) shall select another
representative to fill such vacancy and such substituted
representative shall be deemed to be an Indemnification
Representative for all purposes of this Agreement.
(d) All decisions and actions by the
Indemnification Representatives, including, without limitation, any
agreement between the Indemnification Representatives and the
Buyer or the Parent relating to the determination of the Tangible
Net Worth of the Company, or the defense or settlement of any
claims for which the Company Stockholders may be required to
indemnify the Surviving Corporation, the Buyer and/or the Parent
pursuant to Article VII hereof, shall be binding upon all of the
Company Stockholders, and no Company Stockholder shall have
the right to object, dissent, protest or otherwise contest the same.
(e) By their execution of this Agreement or
(with respect to Other Stockholders) by their failure to exercise
dissenter's rights with respect to their Company Shares, the
Company Stockholders agree that:
(1) the Buyer, the Parent and the
Surviving Corporation shall be able to rely conclusively on the
instructions and decisions of the Indemnification Representatives
as to the determination of the Tangible Net Worth of the Company,
or the settlement of any claims for indemnification by the Buyer,
the Parent or the Surviving Corporation pursuant to Article VII
hereof or any other actions required to be taken by the
Indemnification Representatives hereunder, and no party hereunder
shall have any cause of action against the Buyer, the Parent or the
Surviving Corporation for any action taken by the Buyer, the
Parent or the Surviving Corporation in reliance upon the
instructions or decisions of the Indemnification Representatives;
(2) all actions, decisions and instructions
of the Indemnification Representatives shall be conclusive and
binding upon all of the Company Stockholders and no Company
Stockholder shall have any cause of action against the
Indemnification Representatives for any action taken, decision
made or instruction given by the Indemnification Representatives
under this Agreement, except for fraud or willful breach of this
Agreement by the Indemnification Representative;
(3) the provisions of this
Subsection 1.11 are independent and severable, are irrevocable and
coupled with an interest and shall be enforceable notwithstanding
any rights or remedies that any Company Stockholder may have in
connection with the transactions contemplated by this Agreement;
(4) remedies available at law for any
breach of the provisions of this Subsection 1.11 are inadequate;
therefore, the Buyer, the Parent and the Surviving Corporation
shall be entitled to temporary and permanent injunctive relief if
either the Buyer, the Parent or the Surviving Corporation brings an
action to enforce the provisions of this Subsection 1.11; and
(5) the provisions of this
Subsection 1.11 shall be binding upon the executors, heirs, legal
representatives and successors of each Company Stockholder, and
any references in this Agreement to a Company Stockholder or the
Company Stockholders shall mean and include the successors to
the Company Stockholders' rights hereunder, whether pursuant to
testamentary disposition, the laws of descent and distribution or
otherwise.
(f) All fees and expenses incurred by the
Indemnification Representatives shall be paid: (A) first, out of the
General Escrow Fund in accordance with the Escrow Agreement,
and second, (B) to the extent such fees and expenses exceed the
then-available General Escrow Fund, by the Selling Stockholders
in proportion to their ownership of Company Shares as set forth on
Annex I attached hereto.
. Upon and subject to the terms and conditions of this Agreement,
the Buyer shall merge with and into the Company (with such
merger referred to herein as the "Merger") at the Effective Time
(as defined below). From and after the Effective Time, the
separate corporate existence of the Buyer shall cease and the
Company shall continue as the surviving corporation in the Merger
(the "Surviving Corporation"). The "Effective Time" shall be the
later to occur of (i) the time at which the Company and the Buyer
file the agreement of merger or other appropriate documents
prepared and executed in accordance with the relevant provisions
of the California Corporations Code (the "Agreement of Merger")
with the Secretary of State of the State of California and (ii) the
time at which the Company and the Buyer file the certificate of
merger or other appropriate documents prepared and executed in
accordance with the relevant provisions of the Delaware General
Corporation Law (the "Certificate of Merger") with the Secretary
of State of the State of Delaware. The Merger shall have the
effects set forth in Section 1107 of the California Corporations
Code and Section 259 of the Delaware General Corporation law.
. The closing of the transactions contemplated by this Article II
(the "Merger Closing") shall take place following the satisfaction
or waiver of all conditions to the obligations of the Parent, the
Buyer and the Company to consummate the Merger.
. At the Merger Closing, (a) the Company and the Buyer shall file
with the Secretary of State of the State of California the Agreement
of Merger and with the Secretary of State of the State of Delaware
the Certificate of Merger, (b) the Parent shall deliver cash equal to
the aggregate Initial Merger Cash Amount (as defined below) to a
bank, trust company or other entity reasonably satisfactory to the
Company appointed by the Parent to act as the disbursing agent
(the "Disbursing Agent") in accordance with Section 2.7 and
(c) the Parent shall deliver to the Escrow Agent the cash amount
being placed in escrow on the Merger Closing Date pursuant to
Section 2.8.
. The Surviving Corporation may, at any time after the Effective
Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the
Buyer, in order to consummate the transactions contemplated by
this Agreement.
. At the Effective Time, by virtue of the Merger and without any
action on the part of any Party or the holder of any of the following
securities:
(a) Each Company Share issued and
outstanding immediately prior to the Effective Time (other than
Company Shares owned beneficially by the Parent or the Buyer,
Dissenting Shares (as defined below) and Company Shares held in
the Company's treasury) shall be converted into and represent the
right to receive the Per Share Cash Consideration, subject to
Section 2.8 below.
(b) At the Merger Closing, cash (the "Merger
Escrow Cash Amount"), in an amount equal to fifteen percent
(15%) of the aggregate cash payable to the Other Stockholders as a
result of the Merger, shall be deposited in escrow and held and
disposed of in accordance with the terms of the Escrow
Agreement, provided, however, that notwithstanding anything to
the contrary contained in this subsection, if the Merger Closing
occurs after the delivery to the Escrow Agent of the Closing
Balance Sheet (and after the Escrow Agent has made the payment
regarding the Net Worth Deficiency, if any, required in the
Purchase Price Adjustment Claim Notice (as defined in the Escrow
Agreement)), then, except to the extent set forth in the next
sentence, the Merger Escrow Cash Amount shall consist of ten
percent (10%) of the aggregate cash payable to the Other
Stockholders as a result of the Merger. If the payment made with
respect to the Purchase Price Adjustment Claim Notice to the
Parent or the Buyer prior to the Merger Closing was made out of
the General Escrow Fund because the Specific Escrow Fund was
insufficient to cover such payment, then notwithstanding the
proviso in the preceding sentence, the Merger Escrow Cash
Amount shall consist of such additional amount (i.e., in excess of
ten percent (10%)), up to fifteen percent of the aggregate cash
payable to the Other Stockholders as a result of the Merger, as
would have been released from the Specific Escrow Fund to the
Parent or the Buyer had the Merger Closing occurred prior to the
payment regarding the Net Worth Deficiency. Each of the Other
Stockholders shall be entitled to receive immediately upon the
Merger Closing the remainder of the cash payable to such Other
Stockholder pursuant to this Section 2.5 (the "Initial Merger Cash
Amount").
(c) Each Company Share held in the Company's
treasury immediately prior to the Effective Time and each
Company Share owned beneficially by the Parent or the Buyer
shall be cancelled and retired without payment of any
consideration therefor.
(d) Each share of common stock, $.01 par value
per share, of the Buyer issued and outstanding immediately prior to
the Effective Time shall be converted into and thereafter evidence
one share of common stock, $0.01 par value per share, of the
Surviving Corporation.
.
(a) For purposes of this Agreement, "Dissenting
Shares" means Company Shares held as of the Effective Time by a
Company Stockholder who has not voted such Company Shares in
favor of the adoption of this Agreement and the Merger and with
respect to which appraisal shall have been or might be duly
demanded and perfected in accordance with Section 1300 et seq. of
the California Corporations Code and not effectively withdrawn or
forfeited. Dissenting Shares shall not be converted into or
represent the right to receive the payment which the Company
Stockholders are entitled to receive pursuant to Section 2.5(a) (the
"Merger Consideration"), unless such Company Stockholder shall
have forfeited his dissenter's right under the California
Corporations Code or withdrawn, with the consent of the
Company, his demand for such right. If such Company
Stockholder has so forfeited or withdrawn his dissenter's right with
regard to Dissenting Shares, then (i) as of the occurrence of such
event, such holder's Dissenting Shares shall cease to be Dissenting
Shares and shall be converted into and represent the right to
receive the Merger Consideration issuable in respect of such
Company Shares pursuant to Section 2.5, and (ii) promptly
following the occurrence of such event, the Parent shall deliver to
the Disbursing Agent cash representing the portion of the Merger
Consideration to which the Company Stockholder would have
been entitled pursuant to Section 2.5 had such shares not been
Dissenting Shares at the Effective Time and shall deliver to the
Escrow Agent cash representing the cash which would have been
paid to the Escrow Agent on account of such Company Shares had
such shares not been Dissenting Shares at the Effective Time.
(b) The Company shall give the Parent
(i) prompt notice of any written demands for purchase of any
Company Shares pursuant to Section 1300 of the California
Corporations Code, withdrawals of such demands, and any other
instruments that relate to such demands received by the Company
and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for dissenters' rights under the California
Corporations Code. The Company shall not, except with the prior
written consent of the Parent, make any payment with respect to
any demands for dissenters' rights of Company Shares or offer to
settle or settle any such demands.
(a) Prior to the Effective Time, the Parent shall
appoint the Disbursing Agent to effect the exchange for the Initial
Merger Cash Amount of Share Certificates that, immediately prior
to the Effective Time, represented Company Shares converted into
Merger Consideration pursuant to Section 2.5 (including any
Company Shares referred to in the last sentence of Section 2.6(a)
(the "Share Certificates"). On the Merger Closing Date, the Parent
shall deliver to the Disbursing Agent, in trust for the benefit of
holders of Share Certificates, the Initial Merger Cash Amount, as
described in Section 2.5. As soon as practicable after the Effective
Time, the Parent shall cause the Disbursing Agent to send a notice
and a transmittal form to each holder of a Share Certificate (other
than those surrendered and paid for at the Merger Closing)
advising such holder of the effectiveness of the Merger and the
procedure for surrendering to the Disbursing Agent such Share
Certificate in exchange for the Initial Merger Cash Amount
payable to such holder pursuant to Section 2.5. Each holder of a
Share Certificate, upon proper surrender thereof to the Disbursing
Agent in accordance with the instructions in such notice, shall be
entitled to receive in exchange therefor (subject to any taxes
required to be withheld) the Initial Merger Cash Amount payable
to such holder pursuant to Section 2.5. Until properly surrendered,
each such Share Certificate shall be deemed for all purposes to
evidence only the right to receive the Merger Consideration
issuable pursuant to Section 2.5. Holders of Share Certificates
shall not be entitled to receive Merger Consideration to which they
would otherwise be entitled until such Share Certificates are
properly surrendered.
(b) If any Merger Consideration is to be issued
in the name of a person other than the person in whose name the
Share Certificate surrendered in exchange therefor is registered, it
shall be a condition to the issuance of such Merger Consideration
that (i) the Share Certificate so surrendered shall be transferable,
and shall be properly assigned, endorsed or accompanied by
appropriate stock powers, (ii) such transfer shall otherwise be
proper and (iii) the person requesting such transfer shall pay to the
Disbursing Agent any transfer or other taxes payable by reason of
the foregoing or establish to the satisfaction of the Disbursing
Agent that such taxes have been paid or are not required to be paid.
Notwithstanding the foregoing, neither the Disbursing Agent nor
any Party shall be liable to a holder of Company Shares for any
Initial Merger Cash Amount issuable to such holder pursuant to
Section 2.5 that are delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(c) In the event any Share Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Share Certificate to be lost,
stolen or destroyed, the Parent shall issue in exchange for such
lost, stolen or destroyed Share Certificate the Initial Merger Cash
Amount issuable in exchange therefor pursuant to Section 2.5. The
Board of Directors of the Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of
such lost, stolen or destroyed Share Certificate to give the Parent a
bond in such sum as it may direct as indemnity against any claim
that may be made against the Parent with respect to the Share
Certificate alleged to have been lost, stolen or destroyed.
(d) Promptly following the date which is six
months after the Closing Date, the Disbursing Agent shall return to
the Parent all cash in its possession, and the Disbursing Agent's
duties shall terminate. Thereafter, each holder of a Share
Certificate may surrender such Share Certificate to the Parent and,
subject to applicable abandoned property, escheat and similar laws,
receive in exchange therefor the cash issuable with respect thereto
pursuant to Section 2.5.
.
(a) On the Merger Closing Date, the Parent
shall deliver to the Escrow Agent cash equal to the Merger Escrow
Cash Amount, as described in Section 2.5. One-third of the
Merger Escrow Cash Amount shall be available solely for the
purchase price adjustment set forth in Section 1.5(c) above, and the
balance of the Merger Escrow Cash Amount shall be available for
all purposes (including the purchase price adjustment set forth in
Section 1.5(c) above) for which claims may be made under the
Escrow Agreement. The Merger Escrow Cash Amount shall be
held by the Escrow Agent under the Escrow Agreement pursuant
to the terms thereof. The Merger Escrow Cash Amount shall not
be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party, and shall be held and
disbursed solely for the purposes and in accordance with the terms
of the Escrow Agreement.
(b) The determination by the Other
Stockholders not to exercise their dissenters' rights under
California law shall constitute approval of the Escrow Agreement
and of all of the arrangements relating thereto, including without
limitation the placement of the Merger Escrow Cash Amount in
escrow and the appointment of the Indemnification
Representatives.
. The Articles of Incorporation of the Company shall be the
Articles of Incorporation of the Surviving Corporation as of the
Effective Time.
. The By-laws of the Company shall be the By-laws of the
Surviving Corporation as of the Effective Time.
. From and after the Effective Time, no Company Shares shall be
deemed to be outstanding, and holders of Share Certificates shall
cease to have any rights with respect thereto, except as provided
herein or by law.
. At the Effective Time, the stock transfer books of the Company
shall be closed and no transfer of Company Shares shall thereafter
be made. If, after the Effective Time, Share Certificates are
presented to the Surviving Corporation or the Disbursing Agent,
they shall be cancelled and exchanged for cash in accordance with
Section 2.5, subject to Section 2.8 and to applicable law in the case
of Dissenting Shares.
. The Parties agree that, notwithstanding anything to the contrary
contained herein or in any other document contemplated hereby, in
no event shall
(a) the total cash consideration payable to the
Company Stockholders (excluding claims pursuant to Section
1.5(c) or any other claims against the Escrow Fund) pursuant to the
Share Exchange and the Merger exceed (a) $36,000,000 minus (b)
the sum of (i) (X) the number of shares of Parent Common Stock
issuable upon exercise of Warrants issued in the Share Exchange
times (Y) $5.00 and (ii) the amount payable to persons exercising
dissenters' rights;
(b) the total number of shares of Parent
Common Stock issuable upon exercise of Warrants issued
hereunder exceed 1,500,000; or
(c) subject to Section 2.5(b), the total amount
deposited in escrow be less than $5,400,000 (less a proportionate
amount otherwise payable on account of persons exercising
dissenters' rights),and in the event any formula set forth
herein or in any other document results in a greater payout to
company Stockholders or a lesser amount in escrow, an equitable
adjustment of such formula shall be agreed to by the Parties so as
to cause such payout to conform to the amounts set forth in
this Section 2.13.
The Company represents and warrants to the Parent that the
statements contained in this Article III are true and correct, except
as set forth in the disclosure schedule attached hereto (the
"Disclosure Schedule"). The Disclosure Schedule shall be initialed
by the Parties and shall be arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Article III,
and the disclosures in any paragraph of the Disclosure Schedule
shall qualify any other paragraph in this Article III only to the
extent it is clear from a reading of the disclosure that such
disclosure is applicable to such other paragraphs.
. The Company is a corporation duly organized, validly existing
and in corporate and tax good standing under the laws of the state
of its incorporation. The Company is duly qualified to conduct
business and is in corporate and tax good standing under the laws
of each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the assets, business, financial
condition, results of operations or future prospects of the Company
and its subsidiaries taken as a whole. The Company has all
requisite corporate power and authority to carry on the businesses
in which it is engaged and to own and use the properties owned
and used by it. The Company has furnished to the Parent true and
complete copies of its Certificate of Incorporation and By-laws,
each as amended and as in effect on the date hereof. The Company
is not in default under or in violation of any provision of its
Certificate of Incorporation or By-laws.
. The authorized capital stock of the Company consists of
15,000,000 Company Common Shares and 6,000,000 Company
Preferred Shares, of which 4,655,491 Company Common Shares
and 5,454,054 Company Preferred Shares are issued and
outstanding. Section 3.2 of the Disclosure Schedule sets forth a
complete and accurate list of (i) all stockholders of the Company,
indicating the number of Company Shares held by each
stockholder, and (ii) all holders of Options indicating the number
of Company Shares subject to each Option. All of the issued and
outstanding Company Shares are, and all Company Shares that
may be issued upon exercise of Options will be, duly authorized,
validly issued, fully paid, nonassessable and free of all preemptive
rights. There are no outstanding or authorized options, warrants,
rights, agreements or commitments to which the Company is a
party or which are binding upon the Company providing for the
issuance, disposition or acquisition of any of its capital stock, other
than the Options listed in Section 3.2 of the Disclosure Schedule.
There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to the Company.
There are no agreements, voting trusts, proxies, or understandings
with respect to the voting, or registration under the Securities Act,
of any Company Shares. All of the issued and outstanding
Company Shares were issued in compliance with applicable
federal and state securities laws. Under the terms of the 1982
Stock Option Plan, all options granted thereunder which are not
"in-the-money" (as defined in Section 1.5 above) will terminate
thirty days following the date of the Accredited Investor Notice
without payment or any other liability to the holders thereof.
. The Company has all requisite power and authority to execute
and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and the
performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated
hereby (including the Merger) have been duly and validly
authorized by all necessary corporate action on the part of the
Company. Without limiting the generality of the foregoing, the
Board of Directors of the Company has determined that the
Merger, if effected, is fair to and just and reasonable as to the
Other Stockholders. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms.
. Subject to compliance with the applicable requirements of the
Securities Act and any applicable state securities laws, the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "Xxxx-Xxxxx-Xxxxxx Act"), the filing of the
Agreement of Merger as required by the California Corporations
Code and the filing of the Certificate of Merger as required by the
Delaware General Corporation Law, neither the execution and
delivery of this Agreement by the Company, nor the
consummation by the Company of the transactions contemplated
hereby, will (a) conflict with or violate any provision of the charter
or By-laws of the Company or any Subsidiary, (b) require on the
part of the Company or any entity with respect to which the
Company, directly or indirectly, has the power to vote or direct the
voting of sufficient securities to elect a majority of the directors (a
"Subsidiary") any filing with, or any permit, authorization, consent
or approval of, any court, arbitrational tribunal, administrative
agency or commission or other governmental or regulatory
authority or agency (a "Governmental Entity"), (c) conflict with,
result in a breach of, constitute (with or without due notice or lapse
of time or both) a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify or cancel, or
require any notice, consent or waiver under, any contract, lease,
sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest (as defined below) or other
arrangement to which the Company or any Subsidiary is a party or
by which the Company or any Subsidiary is bound or to which any
of their assets is subject, other than any conflict, breach, default,
acceleration, termination, modification or cancellation which
individually or in the aggregate would not have a material adverse
effect on the assets, business, financial condition, results of
operations or future prospects of the Surviving Corporation and its
Subsidiaries, taken as a whole, or on the ability of the Parties to
consummate the transactions contemplated by this Agreement,
(d) result in the imposition of any Security Interest upon any assets
of the Company or any Subsidiary or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the
Company, any Subsidiary or any of their properties or assets. For
purposes of this Agreement, "Security Interest" means any
mortgage, pledge, security interest, encumbrance, charge, or other
lien (whether arising by contract or by operation of law), other than
(i) mechanic's, materialmen's, and similar liens, (ii) liens arising
under worker's compensation, unemployment insurance, social
security, retirement, and similar legislation, and (iii) liens on goods
in transit incurred pursuant to documentary letters of credit, in each
case arising in the ordinary course of business consistent with past
custom and practice (including with respect to frequency and
amount) ("Ordinary Course of Business") of the Company and not
material to the Company.
Section 3.5 of the Disclosure Schedule sets forth for each
Subsidiary (a) its name and jurisdiction of incorporation, (b) the
number of shares of authorized capital stock of each class of its
capital stock (or, in the case of any subsidiary which is not a
corporation, a comparable disclosure of its equity interests), (c) the
number of issued and outstanding shares of each class of its capital
stock, the names of the holders thereof and the number of shares
held by each such holder (or, in the case of any subsidiary which is
not a corporation, a comparable disclosure of its equity interests),
(d) the number of shares of its capital stock held in treasury, and
(e) its directors and officers. Each Subsidiary is a corporation (or
other entity) duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each
Subsidiary is duly qualified to conduct business and is in corporate
(with respect to each Subsidiary which is a corporation) and tax
good standing under the laws of each jurisdiction in which the
failure so to qualify would have a material adverse effect on the
assets, business, financial condition, results of operations or future
prospects of the Surviving Corporation and its Subsidiaries taken
as a whole. Each Subsidiary has all requisite power and authority
to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. The Company has
delivered to the Parent correct and complete copies of the charter
and By-laws or other organizational documents of each Subsidiary,
as amended to date. No Subsidiary is in default under or in
violation of any provision of its charter or By-laws or other
organizational documents. All of the issued and outstanding shares
of capital stock or other equity interests of each Subsidiary are
duly authorized, validly issued, fully paid, nonassessable and free
of preemptive rights. All shares or other equity interests of each
Subsidiary that are held of record or owned beneficially by either
the Company or any Subsidiary are held or owned free and clear of
any restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), claims, Security Interests,
options, warrants, rights, contracts, calls, commitments, equities
and demands. There are no outstanding or authorized options,
warrants, rights, agreements or commitments to which the
Company or any Subsidiary is a party or which are binding on any
of them providing for the issuance, disposition or acquisition of
any capital stock of any Subsidiary. There are no outstanding
stock appreciation, phantom stock or similar rights with respect to
any Subsidiary. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of any
capital stock or other equity interests of any Subsidiary. The
Company does not control directly or indirectly or have any direct
or indirect equity participation in any corporation, partnership,
trust, or other business association which is not a Subsidiary.
. The Company has attached hereto as Section 3.6 to the
Disclosure Schedule (a) the audited consolidated balance sheets
and statements of income, changes in stockholders' equity and cash
flows for each of the last five fiscal years for the Company and the
Subsidiaries; and (b) the unaudited consolidated balance sheet and
statements of income, changes in stockholders' equity and cash
flows as of and for the quarter ended September 30, 1998 (the
"Most Recent Fiscal Quarter End") and for the year to date. Such
financial statements (collectively, the "Financial Statements") have
been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis
throughout the periods covered thereby, fairly present the financial
condition, results of operations and cash flows of the Company and
the Subsidiaries as of the respective dates thereof and for the
periods referred to therein and are consistent with the books and
records of the Company and the Subsidiaries; provided, however,
that the Financial Statements referred to in clause (b) above are
subject to normal recurring year-end adjustments (which will not
be material) and do not include footnotes.
. Since the Most Recent Fiscal Quarter End, (a) there has not been
any material adverse change in the assets, business, financial
condition or results of operations of the Company or any
Subsidiary, nor has there occurred any event or development which
could reasonably be foreseen to result in such a material adverse
change in the future, and (b) neither the Company nor any
Subsidiary has taken any of the actions set forth in paragraphs (a)
through (n) of Section 4.5.
. None of the Company and its Subsidiaries has any liability
(whether known or unknown, whether absolute or contingent,
whether liquidated or unliquidated and whether due or to become
due), except for (a) liabilities shown on the September 30, 1998
balance sheet (the "Most Recent Balance Sheet"), (b) liabilities
which have arisen since the Most Recent Fiscal Quarter End in the
Ordinary Course of Business and which are similar in nature and
amount to the liabilities which arose during the comparable period
of time in the immediately preceding fiscal period and
(c) contractual liabilities incurred in the Ordinary Course of
Business which are not required by GAAP to be reflected on a
balance sheet.
.
(a) Each of the Company and the Subsidiaries
has filed all Tax Returns (as defined below) that it was required to
file and all such Tax Returns were correct and complete in all
material respects. Each of the Company and the Subsidiaries has
paid all Taxes (as defined below) owed in respect of the periods
covered by such Tax Returns. The unpaid Taxes of the Company
and the Subsidiaries for tax periods through the date of the Most
Recent Balance Sheet do not exceed the accruals and reserves for
Taxes set forth on the Most Recent Balance Sheet. Neither the
Company nor any Subsidiary has any actual or potential liability
for any Tax obligation of any taxpayer (including without
limitation any affiliated group of corporations or other entities that
included the Company or any Subsidiary during a prior period)
other than the Company and the Subsidiaries. All Taxes that the
Company or any Subsidiary is or was required by law to withhold
or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Entity. For
purposes of this Agreement, "Taxes" means all taxes, charges,
fees, levies or other similar assessments or liabilities, including
without limitation income, gross receipts, ad valorem, premium,
value-added, excise, real property, personal property, sales, use,
transfer, withholding, employment, payroll and franchise taxes
imposed by the United States of America or any state, local or
foreign government, or any agency thereof, or other political
subdivision of the United States or any such government, and any
interest, fines, penalties, assessments or additions to tax resulting
from, attributable to or incurred in connection with any tax or any
contest or dispute thereof. For purposes of this Agreement, "Tax
Returns" means all reports, returns, declarations, statements or
other information required to be supplied to a taxing authority in
connection with Taxes.
(b) The Company has made available to the
Parent correct and complete copies of all federal income Tax
Returns, examination reports and statements of deficiencies
assessed against or agreed to by any of the Company or any
Subsidiary since December 31, 1993. The federal income Tax
Returns of the Company have never been audited by the Internal
Revenue Service. No examination or audit of any Tax Returns of
the Company or any Subsidiary by any Governmental Entity is
currently in progress or, to the knowledge of the Company and the
Subsidiaries, threatened or contemplated. Neither the Company
nor any Subsidiary has waived any statute of limitations with
respect to taxes or agreed to an extension of time with respect to a
tax assessment or deficiency.
(c) Neither the Company nor any Subsidiary is
a "consenting corporation" within the meaning of Section 341(f) of
the Code and none of the assets of the Company or the Subsidiaries
are subject to an election under Section 341(f) of the Code.
Neither the Company nor any Subsidiary has been a United States
real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(l)(A)(ii) of the Code. Neither the
Company nor any Subsidiary is a party to any Tax allocation or
sharing agreement.
(d) Neither the Company nor any Subsidiary is
or has ever been a member of an "affiliated group" of corporations
(within the meaning of Section 1504 of the Code), other than a
group of which only the Company and the Subsidiaries are
members. Neither the Company nor any Subsidiary has made an
election under Treasury Reg. Section 1.1502-20(g). Neither the
Company nor any Subsidiary is or has been required to make a
basis reduction pursuant to Treasury Reg. Section 1.1502-20(b) or
Treasury Reg. Section 1.337(d)-2T(b).
. Each of the Company and the Subsidiaries owns or leases all
tangible assets necessary for the conduct of its businesses as
presently conducted and as presently proposed to be conducted.
Each such tangible asset is free from material defects, has been
maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear)
and is suitable for the purposes for which it presently is used. No
asset of the Company (tangible or intangible) is subject to any
Security Interest.
. Neither the Company nor any Subsidiary owns any real property.
.
(a) Each of the Company and the Subsidiaries
owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications for such patents, trademarks, trade
names, service marks and copyrights, schematics, technology,
know-how, computer software programs or applications and
tangible or intangible proprietary information or material
(collectively, "Intellectual Property") that are used to conduct its
business as currently conducted or planned to be conducted.
Section 3.12 of the Disclosure Schedule lists (i) all patents and
patent applications and all trademarks, registered copyrights, trade
names and service marks owned or licensed by the Company or the
Subsidiaries, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which
any such application for such issuance or registration has been
filed, (ii) all material written licenses, sublicenses and other
agreements to which the Company or a Subsidiary is a party and
pursuant to which any person is authorized to use any Intellectual
Property rights, and (iii) all material written licenses, sublicenses
and other agreements as to which the Company or a Subsidiary is a
party and pursuant to which the Company or a Subsidiary is
authorized to use any third party patents, trademarks or copyrights,
including software ("Third Party Intellectual Property Rights").
Neither the Company nor any Subsidiary is a party to any oral
license, sublicense or agreement which, if reduced to written form,
would be required to be listed in Section 3.12 of the Disclosure
Schedule under the terms of this Section 3.12(a).
(b) Neither the Company nor any of the
Subsidiaries is, nor will any of them be as a result of the execution
and delivery of this Agreement or the performance of the
Company's obligations under this Agreement, in material breach of
any license, sublicense or other agreement relating to the
Intellectual Property or Third Party Intellectual Property Rights.
(c) Neither the Company nor any of the
Subsidiaries has been named in any suit, action or proceeding
which involves a claim of infringement of any Intellectual Property
right of any third party. To the Company's knowledge, the
manufacturing, marketing, licensing or sale of the products or
performance of the service offerings of the Company and the
Subsidiaries do not infringe any Intellectual Property right of any
third party; and to the knowledge of the Company and the
Subsidiaries, the Intellectual Property rights of the Company and
the Subsidiaries are not being infringed by activities, products or
services of any third party.
. Each product sold or licensed by the Company or used in the
business of the Company will: (a) provide accurate processing of
date and date dependent data (including, but not limited to,
calculating, comparing and sequencing operations, as well as the
transmitting and receiving of date and date dependent data to, from
and through such product) for all dates through the year 2100,
including without limitation all leap year instances; and (b) express
all date and date dependent data passed to, from or through such
products through the use of fully complemented 4 digit years in a
single field in the format "CCYY", where "CC" stands for the
century and "YY" stands for the year. Section 3.13 of the
Disclosure Schedule summarizes the Company's reasonable
judgment as to its exposure to the Year 2000 problem in a manner
consistent with the disclosure obligations that would be faced by
the Company if it were a public company, under the Interpretive
Release (No. 33-7558) issued by the Securities and Exchange
Commission effective August 4, 1998 ("Disclosure of Year 2000
Issues and Consequences by Public Companies, Investment
Advisers, Investment Companies, and Municipal Securities
Issuers"), including (1) the Company's assessment of its exposure
to the Year 2000 problem and the steps heretofore conducted by
the Company in assessing such exposure; (2) the Company's state
of readiness for the Year 2000 (including with respect to its
information technology and non-information technology systems);
(3) a description of the Company's Year 2000 issues relating to
third parties with whom the Company has a material relationship;
(4) the Company's reasonable judgment as to the costs of fixing
the Year 2000 issues faced by it (whether by modification or
replacement); (5) the risks of the Company's Year 2000 Issues,
including a reasonable description of the Company's most
reasonably likely worst case Year 2000 scenarios; and (6) a
description of how the Company is preparing to handle the most
reasonably likely worst case scenarios.
Section 3.14 of the Disclosure Schedule lists and describes briefly
all real property leased or subleased to the Company or any
Subsidiary and lists the term of such lease, any extension and
expansion options, and the rent payable thereunder. The Company
has delivered to the Parent correct and complete copies of the
leases and subleases (as amended to date) listed in Section 3.14 of
the Disclosure Schedule. With respect to each lease and sublease
listed in Section 3.14 of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect;
(b) the lease or sublease will continue to be
legal, valid, binding, enforceable and in full force and effect
immediately following the Closing in accordance with the terms
thereof as in effect prior to the Closing;
(c) no party to the lease or sublease is in
material breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a material breach or
default or permit termination, modification, or acceleration
thereunder;
(d) there are no disputes, oral agreements or
forbearance programs in effect as to the lease or sublease;
(e) neither the Company nor any Subsidiary has
assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the leasehold or subleasehold;
(f) all facilities leased or subleased thereunder
are supplied with utilities and other services necessary for the
operation of said facilities;
(g) the Company has not received notice that
the owner of the facility leased or subleased does not have good
and clear record and marketable title to the parcel of real property,
free and clear of any Security Interest, easement, covenant or other
restriction, except for recorded easements, covenants, and other
restrictions which do not impair the Intended Uses, occupancy or
value of the property subject thereto; and
(h) the Company and the Subsidiaries have
obtained non-disturbance agreements from the holder of each
superior Security Interest and ground lease in connection with each
such lease or sublease (each of which is listed in Section 3.14 of
the Disclosure Schedule); and the representations and warranties
set forth in clauses (a) through (d) of this Section 3.14 with respect
to leases and subleases are true and correct with respect to such
nondisturbance agreements.
. Section 3.15 of the Disclosure Schedule lists the following
written arrangements (including without limitation written
agreements) to which the Company or any Subsidiary is a party:
(a) any written arrangement (or group of related
written arrangements) for the lease of personal property from or to
third parties providing for lease payments in excess of $25,000 per
annum;
(b) any written arrangement (or group of related
written arrangements) for the purchase or sale of raw materials,
commodities, supplies, products or other personal property or for
the furnishing or receipt of services (i) which calls for performance
over a period of more than one year, (ii) which involves more than
the sum of $25,000, or (iii) in which the Company or any
Subsidiary has granted manufacturing rights, "most favored
nation" pricing provisions or marketing or distribution rights
relating to any products or territory or has agreed to purchase a
minimum quantity of goods or services or has agreed to purchase
goods or services exclusively from a certain party;
(c) any written arrangement establishing a
partnership or joint venture;
(d) any written arrangement (or group of related
written arrangements) under which it has created, incurred,
assumed, or guaranteed (or may create, incur, assume, or
guarantee) indebtedness (including capitalized lease obligations)
involving more than $25,000 or under which it has imposed (or
may impose) a Security Interest on any of its assets, tangible or
intangible;
(e) any written arrangement concerning
confidentiality or noncompetition (other than standard
confidentiality agreements between the Company and any of its
employees or customers and prospective customers in the Ordinary
Course of Business);
(f) any written arrangement involving any of
the Company Stockholders or their affiliates, as defined in
Rule 12b-2 under the Exchange Act ("Affiliates");
(g) any written arrangement under which the
consequences of a default or termination could have a material
adverse effect on the assets, business, financial condition, results of
operations or future prospects of the Company or any Subsidiary;
and
(h) any other written arrangement (or group of
related written arrangements) either involving more than $25,000
or not entered into in the Ordinary Course of Business.
The Company has delivered to the Parent a correct and complete
copy of each written arrangement (as amended to date) listed in
Section 3.15 of the Disclosure Schedule. With respect to each
written arrangement so listed: (i) the written arrangement is in full
force and effect and is the legal, valid, binding and enforceable
obligation of the Company and, to the Company's knowledge, is
the legal, valid, binding and enforceable obligation of each other
party thereto, and ; (ii) immediately following the Closing, the
written arrangement will continue to be the legal, valid, binding
and enforceable obligation of the Company and, to the Company's
knowledge, will continue to be the legal, valid, binding and
enforceable obligation of each other party thereto and will continue
in full force and effect in accordance with the terms thereof as in
effect prior to the Closing; and (iii) no party is in material breach
or default, and no event has occurred which with notice or lapse of
time would constitute a material breach or default or permit
termination, modification, or acceleration, under the written
arrangement. Neither the Company nor any Subsidiary is a party
to any oral contract, agreement or other arrangement which, if
reduced to written form, would be required to be listed in
Section 3.15 of the Disclosure Schedule under the terms of this
Section 3.15.
. All accounts receivable of the Company and the Subsidiaries
reflected on the Most Recent Balance Sheet are valid receivables
subject to no setoffs or counterclaims and are current and
collectible (within 90 days after the date on which it first became
due and payable), net of the applicable reserve for bad debts on the
Most Recent Balance Sheet. All accounts receivable reflected in
the financial or accounting records of the Company that have
arisen since the Most Recent Fiscal Quarter End are valid
receivables subject to no setoffs or counterclaims and are
collectible, net of a reserve for bad debts in an amount
proportionate to the reserve shown on the Most Recent Balance
Sheet.
. There are no outstanding powers of attorney executed on behalf
of the Company or any Subsidiary.
. Section 3.18 of the Disclosure Schedule sets forth the following
information with respect to each insurance policy currently in force
(including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product
liability and automobile insurance policies and bond and surety
arrangements) to which the Company or any Subsidiary is a party,
a named insured, or otherwise the beneficiary of coverage and all
claims made under any insurance policy since August 1993:
(a) the name of the insurer, the name of the
policyholder and the name of each covered insured;
(b) the policy number and the period of
coverage;
(c) the scope (including an indication of
whether the coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how deductibles and
ceilings are calculated and operate) of coverage; and
(d) a description of any retroactive premium
adjustments or other loss-sharing arrangements.
(i) Each such insurance policy is enforceable and in full force and
effect; (ii) such policy will continue to be enforceable and in full
force and effect immediately following the Closing in accordance
with the terms thereof as in effect prior to the Closing; (iii) neither
the Company nor any Subsidiary is in breach or default (including
with respect to the payment of premiums or the giving of notices)
under such policy, and no event has occurred which, with notice or
the lapse of time, would constitute such a breach or default or
permit termination, modification or acceleration, under such
policy; and (iv) neither the Company nor any Subsidiary has
received any notice from the insurer disclaiming coverage or
reserving rights with respect to a particular claim or such policy in
general. Neither the Company nor any Subsidiary has incurred any
loss, damage, expense or liability covered by any such insurance
policy for which it has not properly asserted a claim under such
policy. Each of the Company and the Subsidiaries is covered by
insurance in scope and amount which, in the reasonable judgment
of the Company, is customary and reasonable for the businesses in
which it is engaged.
. Section 3.19 of the Disclosure Schedule identifies, and contains a
brief description of, (a) any unsatisfied judgment, order, decree,
stipulation or injunction and (b) any claim, complaint, action, suit,
proceeding, hearing or investigation of or in any Governmental
Entity or before any arbitrator to which the Company or any
Subsidiary is a party or, to the knowledge of the Company and the
Subsidiaries, is threatened to be made a party. None of the
complaints, actions, suits, proceedings, hearings, and
investigations set forth in Section 3.19 of the Disclosure Schedule
could reasonably be expected to have a material adverse effect on
the assets, business, financial condition, results of operations or
future prospects of the Company or any Subsidiary.
. No product manufactured, sold, leased, licensed or delivered by
the Company or any Subsidiary is subject to any guaranty,
warranty, right of return or other indemnity beyond the applicable
standard terms and conditions of sale or lease, which are set forth
in Section 3.20 of the Disclosure Schedule, which could
reasonably be expected to have a material adverse effect on the
assets, business, financial condition, results of operations or future
prospects of the Company. Section 3.20 of the Disclosure
Schedule sets forth the aggregate expenses incurred by the
Company and the Subsidiaries in fulfilling their obligations under
their guaranty, warranty, right of return and indemnity provisions
during each of the fiscal years and the interim period covered by
the Financial Statements; and neither the Company nor any
Subsidiary reasonably expects such expenses to significantly
increase as a percentage of sales in the future.
.
Section 3.21 of the Disclosure Schedule contains a
list of all employees of the Company and each Subsidiary as the
date of this Agreement, along with the position and the annual rate
of compensation of each such person. Except as set forth in
Section 3.21 of the Disclosure Schedule, each such employee has
entered into a confidentiality/assignment of inventions agreement
with the Company or a Subsidiary, a copy of the form of which has
previously been delivered to the Parent and each employee has
entered into such agreement without material change to such form.
To the knowledge of the Company and its Subsidiaries, no key
employee or group of employees has any plans to terminate
employment with the Company or any Subsidiary. Neither the
Company nor any Subsidiary is a party to or bound by any
collective bargaining agreement, nor has any of them experienced
any strikes, grievances, claims of unfair labor practices or other
collective bargaining disputes. The Company and the Subsidiaries
have no knowledge of any organizational effort made or
threatened, either currently or within the past two years, by or on
behalf of any labor union with respect to employees of the
Company or any Subsidiary. Section 3.21 of the Disclosure
Schedule sets forth the Attrition Rate of Sherpa Technical
Employees for the years ended December 31, 1996 and December
31, 1997, and the quarters ended March 31, 1998, June 30, 1998
and September 30, 1998, respectively. For purposes hereof,
"Attrition Rate" means (i) the number of Technical Employees
whose employment by the Company terminated during the year or
quarter indicated in Section 3.21 of the Disclosure Schedule (other
than terminations by the Company for documented "cause"),
divided by the total number of Technical Employees employed by
the Company on the first day of the year or quarter indicated. For
purposes hereof, "Technical Employees" means software
developers employed in the Company's product development
organization, excluding persons paid by the Company as
independent contractors. Except as set forth in Section 3.21 of the
Disclosure Schedule, there has been no attrition of the Sherpa
Technical Employees during the periods indicated.
.
(a) Section 3.22(a) of the Disclosure Schedule
contains a complete and accurate list of all Employee Benefit Plans
(as defined below) maintained, or contributed to, by the Company,
any Subsidiary, or any ERISA Affiliate (as defined below). For
purposes of this Agreement, "Employee Benefit Plan" means any
"employee pension benefit plan" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA")), any "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA), and any other written or oral plan,
agreement or arrangement involving direct or indirect
compensation, including without limitation insurance coverage,
severance benefits, disability benefits, deferred compensation,
bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or
post-retirement compensation. For purposes of this Agreement,
"ERISA Affiliate" means any entity which is a member of (i) a
controlled group of corporations (as defined in Section 414(b) of
the Code), (ii) a group of trades or businesses under common
control (as defined in Section 414(c) of the Code), or (iii) an
affiliated service group (as defined under Section 414(m) of the
Code or the regulations under Section 414(o) of the Code), any of
which includes the Company or a Subsidiary. Complete and
accurate copies of (i) all Employee Benefit Plans which have been
reduced to writing, (ii) written summaries of all unwritten
Employee Benefit Plans, (iii) all related trust agreements,
insurance contracts and summary plan descriptions, and (iv) all
annual reports filed on IRS Form 5500, 5500C or 5500R for the
last five plan years for each Employee Benefit Plan, have been
delivered to the Parent. Each Employee Benefit Plan has been
administered in all material respects in accordance with its terms
and each of the Company, the Subsidiaries and the ERISA
Affiliates has in all material respects met its obligations with
respect to such Employee Benefit Plan and has made all required
contributions thereto. The Company and all Employee Benefit
Plans are in compliance in all material respects with the currently
applicable provisions of ERISA and the Code and the regulations
thereunder.
(b) There are no investigations by any
Governmental Entity, termination proceedings or other claims
(except claims for benefits payable in the normal operation of the
Employee Benefit Plans and proceedings with respect to qualified
domestic relations orders) suits or proceedings against or involving
any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to
any material liability.
(c) All the Employee Benefit Plans that are
intended to be qualified under Section 401(a) of the Code have
received determination letters from the Internal Revenue Service to
the effect that such Employee Benefit Plans are qualified and the
plans and the trusts related thereto are exempt from federal income
taxes under Sections 401(a) and 501(a), respectively, of the Code,
no such determination letter has been revoked and revocation has
not been threatened, and no such Employee Benefit Plan has been
amended since the date of its most recent determination letter or
application therefor in any respect, and no act or omission has
occurred, that would adversely affect its qualification or materially
increase its cost.
(d) Neither the Company, any Subsidiary, nor
any ERISA Affiliate has ever maintained an Employee Benefit
Plan subject to Section 412 of the Code or Title IV of ERISA.
(e) At no time has the Company, any Subsidiary
or any ERISA Affiliate been obligated to contribute to any
"multi-employer plan" (as defined in Section 4001(a)(3) of
ERISA).
(f) There are no unfunded obligations under any
Employee Benefit Plan providing benefits after termination of
employment to any employee of the Company or any Subsidiary
(or to any beneficiary of any such employee), including but not
limited to retiree health coverage and deferred compensation, but
excluding continuation of health coverage required to be continued
under Section 4980B of the Code and insurance conversion
privileges under state law.
(g) No act or omission has occurred and no
condition exists with respect to any Employee Benefit Plan
maintained by the Company, any Subsidiary or any ERISA
Affiliate that would subject the Company, any Subsidiary or any
ERISA Affiliate to any material fine, penalty, tax or liability of any
kind imposed under ERISA or the Code.
(h) No Employee Benefit Plan is funded by,
associated with, or related to a "voluntary employee's beneficiary
association" within the meaning of Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan
documentation or agreement, summary plan description or other
written communication distributed generally to employees by its
terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(j) Section 3.22(j) of the Disclosure Schedule
discloses each: (i) agreement with any director, executive officer
or other key employee of the Company or any Subsidiary (A) the
benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving
the Company or any Subsidiary of the nature of any of the
transactions contemplated by this Agreement, (B) providing any
term of employment or compensation guarantee or (C) providing
severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee;
(ii) agreement, plan or arrangement under which any person may
receive payments from the Company or any Subsidiary that may be
subject to the tax imposed by Section 4999 of the Code or included
in the determination of such person's "parachute payment" under
Section 280G of the Code; and (iii) agreement or plan binding the
Company or any Subsidiary, including without limitation any stock
option plan, stock appreciation right plan, restricted stock plan,
stock purchase plan, severance benefit plan, or any Employee
Benefit Plan, any of the benefits of which will be increased, or the
vesting of the 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.
.
(a) Each of the Company and the Subsidiaries
has complied with all applicable Environmental Laws (as defined
below), except for violations of Environmental Laws that do not
and will not, individually or in the aggregate, have a material
adverse effect on the assets, business, financial condition, results of
operations or future prospects of the Company and the
Subsidiaries. There is no pending or, to the knowledge of the
Company and the Subsidiaries, threatened civil or criminal
litigation, written notice of violation, formal administrative
proceeding, or investigation, inquiry or information request by any
Governmental Entity, relating to any Environmental Law involving
the Company or any Subsidiary, except for litigation, notices of
violations, formal administrative proceedings or investigations,
inquiries or information requests that will not, individually or in
the aggregate, have a material adverse effect on the assets,
business, financial condition, results of operations or future
prospects of the Company and the Subsidiaries. For purposes of
this Agreement, "Environmental Law" means any federal, state or
local law, statute, rule or regulation or the common law relating to
the environment or occupational health and safety, including
without limitation any statute, regulation or order pertaining to
(i) treatment, storage, disposal, generation and transportation of
industrial, toxic or hazardous substances or solid or hazardous
waste; (ii) air, water and noise pollution; (iii) groundwater and soil
contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous substances, or solid
or hazardous waste, including without limitation emissions,
discharges, injections, spills, escapes or dumping of pollutants,
contaminants or chemicals; (v) the protection of wild life, marine
sanctuaries and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels and
containers; (vii) underground and other storage tanks or vessels,
abandoned, disposed or discarded barrels, containers and other
closed receptacles; (viii) health and safety of employees and other
persons; and (ix) manufacture, processing, use, distribution,
treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms "release" and
"environment" shall have the meaning set forth in the federal
Comprehensive Environmental Compensation, Liability and
Response Act of 1980 ("CERCLA").
(b) There have been no releases of any
Materials of Environmental Concern (as defined below) into the
environment at any parcel of real property or any facility formerly
or currently owned, operated or controlled by the Company or a
Subsidiary. With respect to any such releases of Materials of
Environmental Concern, the Company or such Subsidiary has
given all required notices to Governmental Entities (copies of
which have been provided to the Parent). Neither the Company
nor any Subsidiary is aware of any releases of Materials of
Environmental Concern at parcels of real property or facilities
other than those owned, operated or controlled by the Company or
a Subsidiary that could reasonably be expected to have an impact
on the real property or facilities owned, operated or controlled by
the Company or a Subsidiary. For purposes of this Agreement,
"Materials of Environmental Concern" means any chemicals,
pollutants or contaminants, hazardous substances (as such term is
defined under CERCLA), solid wastes and hazardous wastes (as
such terms are defined under the federal Resources Conservation
and Recovery Act), toxic materials, oil or petroleum and petroleum
products, or any other material subject to regulation under any
Environmental Law.
(c) Set forth in Section 3.23(c) of the Disclosure
Schedule is a list of all environmental reports, investigations and
audits relating to premises currently or previously owned or
operated by the Company or a Subsidiary (whether conducted by
or on behalf of the Company or a Subsidiary or a third party, and
whether done at the initiative of the Company or a Subsidiary or
directed by a Governmental Entity or other third party) which the
Company has possession of or access to. Complete and accurate
copies of each such report, or the results of each such investigation
or audit, have been provided to the Parent.
(d) Set forth in Section 3.23(d) of the Disclosure
Schedule is a list of all of the solid and hazardous waste
transporters and treatment, storage and disposal facilities that have
been utilized by the Company or a Subsidiary. Neither the
Company nor any Subsidiary is aware of any material
environmental liability of any such transporter or facility.
. Each of the Company and the Subsidiaries, and the conduct and
operations of their respective businesses, are in compliance with
each law (including rules and regulations thereunder) of any
federal, state, local or foreign government, or any Governmental
Entity, which (a) affects or relates to this Agreement or the
transactions contemplated hereby or (b) is applicable to the
Company or such Subsidiary or business, except for any violation
of or default under a law referred to in clause (b) above which
cannot reasonably be expected to have a material adverse effect on
the assets, business, financial condition, results of operations or
future prospects of the Company and the Subsidiaries, taken as a
whole.
. Section 3.25 of the Disclosure Schedule sets forth a list of all
permits, licenses, registrations, certificates, orders or approvals
from any Governmental Entity (including without limitation those
issued or required under Environmental Laws and those relating to
the occupancy or use of owned or leased real property) ("Permits")
issued to or held by the Company or any Subsidiary, except for
those the absence of which could not reasonably be expected to
have any material adverse effect on the assets, business, financial
condition, results of operations or future prospects of the Company
and the Subsidiaries. Such listed Permits are the only Permits that
are required for the Company and the Subsidiaries to conduct their
respective businesses as presently conducted or as proposed to be
conducted, except for those the absence of which could not
reasonably be expected to have any material adverse effect on the
assets, business, financial condition, results of operations or future
prospects of the Company and the Subsidiaries. Each such Permit
is in full force and effect and, to the best of the knowledge of the
Company or any Subsidiary, no suspension or cancellation of such
Permit is threatened and there is no reasonable basis for believing
that such Permit will not be renewable upon expiration. Each such
Permit will continue in full force and effect following the Closing.
. No Affiliate of the Company or of any Subsidiary (a) owns any
property or right, tangible or intangible, which is used in the
business of the Company or any Subsidiary, (b) has any claim or
cause of action against the Company or any Subsidiary, or (c) owes
any money to the Company or any Subsidiary. Section 3.26 of the
Disclosure Schedule describes any transactions or relationships
between the Company and any Affiliate thereof which are reflected
in the statements of operations of the Company included in the
Financial Statements.
. Neither the Company nor any Subsidiary has any liability or
obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this
Agreement.
. The minute books and other similar records of the Company and
each Subsidiary contain true and complete records of all actions
taken at any meetings of the Company's or such Subsidiary's
stockholders, Board of Directors or any committee thereof and of
all written consents executed in lieu of the holding of any such
meeting. The books and records of the Company and each
Subsidiary accurately reflect in all material respects the assets,
liabilities, business, financial condition and results of operations of
the Company or such Subsidiary and have been maintained in
accordance with good business and bookkeeping practices.
. No unfilled customer order or commitment obligating the
Company or any Subsidiary to license or otherwise deliver
products or perform services will result in a loss to the Company or
any Subsidiary upon completion of performance. No material
licensor to or supplier of the Company or any Subsidiary has
indicated within the past year to an officer of the Company, nor is
any officer of the Company otherwise aware, that such licensor or
supplier will stop, or decrease the rate of, licensing intellectual
property or supplying materials, products or services to them and
no material customer of the Company or any Subsidiary has
indicated within the past year to an officer of the Company, nor is
any officer of the Company otherwise aware, that such customer
will stop, or decrease the rate of, buying, leasing or licensing
materials, products or services from them. Section 3.29 of the
Disclosure Schedule sets forth a list of (a) each customer that
accounted for more than 1% of the consolidated revenues of the
Company during the last full fiscal year or the interim period
through the Most Recent Fiscal Quarter End and the amount of
revenues accounted for by such customer during each such period
and (b) each supplier that is the sole supplier of any significant
product or component to the Company or a Subsidiary.
.
(a) The Board of Directors of the Company, at a
meeting duly called and held, has by the unanimous vote of all
directors present (i) determined that the Merger is in the best
interests of the Company and its stockholders and that the value of
the Merger Consideration is the Board of Director's good faith
estimate of the fair market value of the Company Shares
exchanged therefor in the Merger, (ii) adopted this Agreement in
accordance with the provisions of the California Corporations
Code, and (iii) directed that this Agreement and the Merger be
submitted to the Company Stockholders for their adoption and
approval and resolved to recommend that Company Stockholders
vote in favor of the adoption of this Agreement and the approval of
the Merger.
(b) The Company has received the written
opinion of Prudential Securities Incorporated dated the date hereof,
to the effect that the terms of the Merger are fair to the Company
Stockholders from a financial point of view. A copy of such
opinion has been previously furnished to the Parent.
. Following the Share Exchange Closing, the Buyer will own at
least ninety (90) percent of the outstanding Company Common
Shares and at least ninety (90) percent of the outstanding Company
Preferred Shares, and no vote of the shareholders of the Company
will be required in order for the Buyer to effect the Merger under
California law.
. No representation or warranty by the Company contained in this
Agreement, and no statement contained in the Disclosure Schedule
or any other document, certificate or other instrument delivered to
or to be delivered by or on behalf of the Company pursuant to this
Agreement, and no other statement made by the Company or any
of its representatives in connection with this Agreement, contains
or will contain at the Effective Time any untrue statement of a
material fact or omits or will omit at the Effective Time to state
any material fact necessary, in light of the circumstances under
which it was or will be made at the Effective Time, in order to
make the statements herein or therein not misleading.
Each Selling Stockholder severally represents and warrants
to the Parent and to the Buyer as follows:
. Such Stockholder has good and marketable title to the Company
Shares which are to be transferred to the Buyer by such
Stockholder pursuant hereto, free and clear of any and all
covenants, conditions, restrictions, voting trust arrangements, liens,
charges, encumbrances, options and adverse claims or rights
whatsoever, except restrictions on transfer under applicable state
and federal securities laws. Annex I attached hereto sets forth a
true and correct description of all Company Shares owned by such
Stockholder.
. Such Stockholder has the full right, power and authority to enter
into this Agreement and to transfer, convey and sell to the Buyer at
the Share Exchange Closing the Company Shares to be sold by
such Stockholder hereunder and, upon consummation of the
purchase contemplated hereby, the Buyer will acquire from such
Stockholder good and marketable title to such Company Shares,
free and clear of all covenants, conditions, restrictions, voting trust
arrangements, liens, charges, encumbrances, options and adverse
claims or rights whatsoever.
. Such Stockholder is not a party to, subject to or bound by any
agreement or any judgment, order, writ, prohibition, injunction or
decree of any court or other governmental body which would
prevent the execution or delivery of this Agreement by such
Stockholder or the transfer, conveyance and sale of the Company
Shares to be sold by such Stockholder to the Buyer pursuant to the
terms hereof.
. No broker or finder has acted for such Stockholder in connection
with this Agreement or the transactions contemplated hereby, and
no broker or finder is entitled to any brokerage or finder's fee or
other commissions in respect of such transactions based upon
agreements, arrangements or understandings made by or on behalf
of such Stockholder.
. Such Stockholder (if such Stockholder has elected to receive
Warrants as part of the Share Exchange Consideration) is
acquiring the Warrants for his, her or its own account for
investment and not with a view to, or for sale in connection with,
any distribution thereof or of the Warrant Shares, nor with any
present intention of distributing or selling the same; and, except as
contemplated by this Agreement, such Stockholder has no present
or contemplated agreement, undertaking, arrangement, obligation,
indebtedness or commitment providing for the disposition thereof.
Such Stockholder is an "accredited investor" as defined in Rule
501(a) under the Securities Act.
Such Stockholder has sufficient knowledge and experience
in finance and business that he, she or it is capable of evaluating
the risks and merits of his, her or its investment in the Parent and
such Stockholder is able financially to bear the risks thereof.
Each of the Parent and the Buyer represents and warrants to
the Company as follows:
. Each of the Parent and the Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state of
its incorporation. The Parent is duly qualified to conduct business
and is in corporate and tax good standing under the laws of each
jurisdiction in which the failure to be so qualified would have a
material adverse effect on the assets, business, financial condition,
results of operations or future prospects of the Parent. Each of the
Parent and Buyer has all requisite corporate power and authority to
carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. Each of the Parent and Buyer
has furnished to the Company true and complete copies of its
Certificate of Incorporation and By-laws, each as amended and as
in effect on the date hereof. Each of the Parent and Buyer is not in
default under or in violation of any provision of its Certificate of
Incorporation or By-laws.
. The authorized capital stock of the Parent consists of 50,000,000
shares of Parent Common Stock, of which 15,373,478 shares were
issued and outstanding and 5,075 shares were held in the treasury
of the Parent as of June 30, 1998 and 1,000,000 shares of Preferred
Stock, none of which were issued or outstanding at June 30, 1998.
The authorized capital stock of the Buyer consists of 3,000 shares
of Common Stock; of which 1,000 shares are issued and
outstanding and held by Parent as of the date hereof. All such
shares have been duly authorized, and all of such issued and
outstanding shares are validly issued, fully paid, nonassessable and
free of all preemptive rights. The Buyer has reserved an aggregate
of 10,665,000 shares of Buyer Common Stock for issuance
pursuant to the 1993 Stock Incentive Plan, the 1996 Stock
Incentive Plan and the 1996 Non-Employee Director Plan, of
which 4,090,798 shares are subject to outstanding options and
5,707,876 shares are available for issuance. There are no
outstanding or authorized options, warrants, rights, agreements or
commitments to which the Buyer is a party or which are binding
upon the Buyer providing for the issuance, disposition or
acquisition of any of its capital stock, other than the options issued
and issuable pursuant to the above referenced plans. There are no
outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Buyer. All of the shares of Parent
Common Stock will be, when issued upon the exercise of the
Warrants, duly authorized, validly issued, fully paid, nonassessable
and free of all preemptive rights. There are no agreements, voting
trusts, proxies or understandings to which the Parent is a party with
respect to the voting, or registration under the Securities Act, of
any shares of Parent Common Stock. All of the issued and
outstanding shares of Parent Common Stock were issued in
compliance with applicable federal and state securities laws.
. Each of the Parent and the Buyer has all requisite power and
authority to execute and deliver this Agreement and (in the case of
the Parent) the Escrow Agreement and to perform its obligations
hereunder and thereunder. The execution and delivery of this
Agreement and (in the case of the Parent) the Escrow Agreement
by the Parent and the Buyer and the performance of this
Agreement and (in the case of the Parent) the Escrow Agreement
and the consummation of the transactions contemplated hereby and
thereby by the Parent and the Buyer have been duly and validly
authorized by all necessary corporate action on the part of the
Parent and Buyer. This Agreement has been duly and validly
executed and delivered by the Parent and the Buyer and constitutes
a valid and binding obligation of the Parent and the Buyer,
enforceable against them in accordance with its terms.
. Subject to compliance with the applicable requirements of the
Securities Act and any applicable state securities laws, the
Exchange Act, the Xxxx-Xxxxx-Xxxxxx Act and the filing of the
Certificate of Merger as required by the Delaware General
Corporation Law and the Agreement of Merger as required by the
California Corporations Code, neither the execution and delivery
of this Agreement or (in the case of the Parent) the Escrow
Agreement by the Parent or the Buyer, nor the consummation by
the Parent or the Buyer of the transactions contemplated hereby or
thereby, will (a) conflict with or violate any provision of the
charter or By-laws of the Parent or the Buyer, (b) require on the
part of the Parent or the Buyer any filing with, or permit,
authorization, consent or approval of, any Governmental Entity,
(c) conflict with, result in breach of, constitute (with or without
due notice or lapse of time or both) a default under, result in the
acceleration of, create in any party any right to accelerate,
terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest or other
arrangement to which the Parent or Buyer is a party or by which
either is bound or to which any of their assets are subject, other
than any conflict, breach, default, acceleration, termination,
modification or cancellation which individually or in the aggregate
would not have a material adverse effect on the assets, business,
financial condition, results of operations or future prospects of the
Parent or on the ability of the Parties to consummate the
transactions contemplated by this Agreement, (d) result in the
imposition of any Security Interest upon any assets of the Parent,
or (e) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Parent or the Buyer or any of their
properties or assets.
. The Parent has previously furnished to the Company complete
and accurate copies, as amended or supplemented, of its (a) Annual
Report on Form 10-K for the fiscal year ended December 31, 1997,
as filed with the SEC, and (b) all other reports filed by the Parent
under Section 13 of the Exchange Act (the "Exchange Act") with
the SEC through June 30, 1998 (such reports are collectively
referred to herein as the "Parent Reports"), which comply in all
material respects with the requirements of the Exchange Act. As
of their respective dates, the Parent Reports did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading. Parent has timely filed with the Securities and
Exchange Commission all reports required to be filed within the
twelve months preceding the date hereof under Section 13, 14 and
15(d) of the Exchange Act. The audited financial statements and
unaudited interim financial statements of the Parent included in the
Parent Reports (i) comply as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared
in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby (except as may be indicated therein or
in the notes thereto, and in the case of quarterly financial
statements, as permitted by Form 10-Q under the Exchange Act),
(iii) fairly present the consolidated financial condition, results of
operations and cash flows of the Parent as of the respective dates
thereof and for the periods referred to therein, and (iv) are
consistent with the books and records of the Parent.
. Since June 30, 1998, there has not been any material adverse
change in the assets, business, financial condition, results of
operations or future prospects of the Parent.
. Neither the Parent nor the Buyer has any liability or obligation to
pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
. No representation or warranty by the Parent or Buyer contained
in this Agreement, and no statement contained in any other
document, certificate or other instrument delivered to or to be
delivered by or on behalf of the Parent or Buyer pursuant to this
Agreement, and no other statement made by the Parent or any of
its representatives in connection with this Agreement, contains or
will at the Effective Time contain any untrue statement of a
material fact or omits or will at the Effective Time omit to state
any material fact necessary, in light of the circumstances under
which it was or will be made, in order to make the statements
herein or therein not misleading.
. As of the date of this Agreement, there is no claim, complaint,
action, suit, proceeding, hearing or investigation of or in any
Governmental Entity or before any arbitrator to which the Parent is
a party or, to the knowledge of the Parent, is threatened to be made
a party, which could reasonably be expected to have a material
adverse effect on the assets, business, financial condition, results of
operations or future prospects of the Parent or in any manner
challenges or seeks to prevent or delay the Share Exchange or the
Merger.
Each of the Parties shall use its best efforts, to the extent
commercially reasonable, to take all actions and to do all things
necessary, proper or advisable to consummate the transactions
contemplated by this Agreement; provided, however, that
notwithstanding anything in this Agreement to the contrary, the
Parent shall not be required to sell or dispose of or hold separately
(through a trust or otherwise) any assets or businesses of the Parent
or its Affiliates.
. Each Party shall use its best efforts to obtain, at its expense, all
such waivers, permits, consents, approvals or other authorizations
from third parties and Governmental Entities, and to effect all such
registrations, filings and notices with or to third parties and
Governmental Entities, as may be required by or with respect to
such Party in connection with the transactions contemplated by this
Agreement (including without limitation those listed in Section 3.4
or Section 3.25 of the Disclosure Schedule).
. Each of the Parties shall promptly file any Notification and
Report Forms and related material that it may be required to file
with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the
Xxxx-Xxxxx-Xxxxxx Act, shall use its best efforts to obtain an early
termination of the applicable waiting period, and shall make any
further filings or information submissions pursuant thereto that
may be necessary, proper or advisable; provided, however, that the
Parent shall not be obligated to respond to formal requests for
additional information or documentary material pursuant to 16
C.F.R. 803.20 under the Xxxx-Xxxxx-Xxxxxx Act except to the
extent it elects to do so in its sole discretion.
. Except as contemplated by this Agreement, during the period
from the date of this Agreement to the Share Exchange Closing,
the Company shall (and shall cause each Subsidiary to) conduct its
operations in the Ordinary Course of Business and in compliance
with all applicable laws and regulations and, to the extent
consistent therewith, use all reasonable efforts to preserve intact its
current business organization, keep its physical assets in good
working condition, keep available the services of its current
officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to
the end that its goodwill and ongoing business shall not be
impaired in any material respect. Without limiting the generality
of the foregoing, prior to the Share Exchange Closing, neither the
Company nor any Subsidiary shall, without the written consent of
the Parent:
(a) issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase
or otherwise) or authorize the issuance, sale or delivery of (except
issuances pursuant to the exercise of outstanding options), or
redeem or repurchase (except repurchases of Common Stock on
the termination of services of employees or consultants pursuant to
Common Stock Purchase Agreements), any stock of any class or
any other securities or any rights, warrants or options to acquire
any such stock or other securities (except pursuant to the
conversion or exercise of convertible securities or Options
outstanding on the date hereof), or amend any of the terms of any
such convertible securities or Options or exercise any discretionary
right in respect thereof;
(b) split, combine or reclassify any shares of its
capital stock; declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) (except repurchases of Common Stock on the termination
of services of employees or consultants pursuant to Common Stock
Purchase Agreements) in respect of its capital stock;
(c) create, incur or assume any debt not
currently outstanding (including obligations in respect of capital
leases) (provided that the Company may draw down additional
advances under the existing $5 million line of credit with Silicon
Valley Bank); assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person or entity; or make any
loans, advances or capital contributions to, or investments in, any
other person or entity;
(d) enter into, adopt or amend any Employee
Benefit Plan (except as required under ERISA or the Code with
respect to any Employee Benefit Plan qualified under Code section
401(a)) or any employment or severance agreement or arrangement
of the type described in Section 3.22(j) or (except for normal
increases in the Ordinary Course of Business) increase in any
manner the compensation or fringe benefits of, or materially
modify the employment terms of, its directors, officers or
employees, generally or individually, or pay any benefit not
required by the terms in effect on the date hereof of any existing
Employee Benefit Plan, provided however that the Company may
pay the bonuses listed on Exhibit 3.22 of the Disclosure Schedule;
(e) acquire, sell, lease, license, encumber or
dispose of any assets or property in excess of $25,000 for any
single such transaction or series of related transactions or in excess
of $200,000 in the aggregate (including without limitation any
shares or other equity interests in or securities of any Subsidiary or
any corporation, partnership, association or other business
organization or division thereof), other than purchases, sales and
licenses of assets in the Ordinary Course of Business;
(f) amend its charter or By-laws;
(g) change in any material respect its accounting
methods, principles or practices, except insofar as may be required
by a generally applicable change in GAAP;
(h) discharge or satisfy any Security Interest or
pay any obligation or liability other than in the Ordinary Course of
Business;
(i) mortgage or pledge any of its property or
assets or subject any such assets to any Security Interest;
(j) sell, assign, transfer or license any
Intellectual Property, other than in the Ordinary Course of
Business;
(k) enter into, amend, terminate, take or omit to
take any action that would constitute a material violation of or
default under, or waive any material rights under, any material
contract or agreement;
(l) make or commit to make any capital
expenditure in excess of $25,000 per item or $200,000 in the
aggregate;
(m) take any action or fail to take any action
permitted by this Agreement with the knowledge that such action
or failure to take action would result in (i) any of the
representations and warranties of the Company set forth in this
Agreement becoming materially untrue or (ii) any of the conditions
to the Share Exchange set forth in Article VI not being satisfied; or
(n) agree in writing or otherwise to take any of
the foregoing actions.
. The Company shall (and shall cause each Subsidiary to) permit
representatives of the Parent to have full access (at all reasonable
times, and in a manner so as not to interfere with the normal
business operations of the Company and the Subsidiaries) to all
premises, properties, financial and accounting records, contracts,
other records and documents, and personnel, of or pertaining to the
Company and each Subsidiary. Each of the Parent and the Buyer
(a) shall treat and hold as confidential any Confidential
Information (as defined below), (b) shall not use any of the
Confidential Information except in connection with this
Agreement, and (c) if this Agreement is terminated for any reason
whatsoever, shall return to the Company all tangible embodiments
(and all copies) thereof which are in its possession. For purposes
of this Agreement, "Confidential Information" means any
confidential or proprietary information of the Company or any
Subsidiary that is furnished in writing or orally (if such oral
information is confirmed in writing within 30 days thereafter) to
the Parent or the Buyer by the Company or any Subsidiary in
connection with this Agreement; provided, however, that it shall
not include any information (i) which, at the time of disclosure, is
available publicly, (ii) which, after disclosure, becomes available
publicly through no fault of the Parent or the Buyer, or (iii) which
the Parent or the Buyer knew or to which the Parent or the Buyer
had access prior to disclosure. The Company shall prepare and
deliver to the Parent, within 15 days after the end of each calendar
month which ends prior to the Share Exchange Closing Date,
financial statements (consisting of a balance sheet, statement of
operations and cash flow statement) for such month prepared in
accordance with GAAP applied on a consistent basis with the
historical financial statements of the Company.
. The Company or Selling Stockholder (as applicable) shall
promptly deliver to the Parent written notice of any event or
development that would (a) render any statement, representation or
warranty of the Company or such Selling Stockholder in this
Agreement (including the Disclosure Schedule) inaccurate or
incomplete in any material respect, or (b) constitute or result in a
breach by the Company or such Selling Stockholder of, or a failure
by the Company or such Selling Stockholder to comply with, any
agreement or covenant in this Agreement applicable to such party.
The Parent or the Buyer shall promptly deliver to the Company
written notice of any event or development that would (i) render
any statement, representation or warranty of the Parent or the
Buyer in this Agreement inaccurate or incomplete in any material
respect, or (ii) constitute or result in a breach by the Parent or the
Buyer of, or a failure by the Parent or the Buyer to comply with,
any agreement or covenant in this Agreement applicable to such
party. No such disclosure shall be deemed to avoid or cure any
such misrepresentation or breach.
. The Company and the Selling Stockholders shall not, and the
Company shall use its best efforts to cause its Affiliates and each
of its officers, directors, employees, representatives and agents not
to, directly or indirectly, (a) encourage, solicit, initiate, engage or
participate in discussions or negotiations or enter into any
agreement, arrangement or understanding with any person or entity
(other than the Parent) concerning any merger, consolidation, sale
of material assets, tender offer, recapitalization, investment,
accumulation of Company Shares, proxy solicitation or other
business combination involving the Company, any Subsidiary or
any division of the Company or any Subsidiary or (b) provide any
non-public information concerning the business, properties or
assets of the Company or any Subsidiary to any person or entity
(other than the Parent) or (c) otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do or seek any of the foregoing.
The Company and the respective Selling Stockholder shall
immediately notify the Parent of, and shall disclose to the Parent
all details of, any inquiries, discussions or negotiations of the
nature described in the first sentence of this Section 5.8.
. Prior to the Share Exchange Closing Date, Parent shall not,
without the written consent of the Company (not to be
unreasonably withheld) (i) amend its Certificate of Incorporation in
any manner which would materially and adversely affect the rights
of holders of Parent Common Stock (it being understood that an
increase in the number of authorized shares of Common Stock and
the designation of terms of, and issuance of, preferred stock is
deemed not to materially and adversely affect the rights of holders
of Parent Common Stock); (ii) split, combine or reclassify any
shares of its capital stock; declare, set aside or pay any dividend or
other distribution (whether in cash, stock or property or any
combination thereof) (except repurchases of Common Stock in
connection with the termination of services of employees or
consultants pursuant to Common Stock Purchase Agreements or
similar agreements) in respect of its capital stock; or (iii) take any
action or fail to take any action permitted by this Agreement with
the knowledge that such action or failure to take action would
result in (A) any of the representations and warranties of the Parent
or the Buyer set forth in this Agreement becoming untrue or (B)
any of the conditions to the Share Exchange set forth in Article VI
not being satisfied.
.
. Promptly, but in no event later than 10 business days following
the first to occur of (i) written demand from the holders of 20% or
more of the shares of Parent Common Stock issuable upon the
exercise of the Warrants (the "Warrant Shares"), or (ii) such time
as the closing sale price of Parent Common Stock on the Nasdaq
National Market shall have exceeded $21.25 for at least five
consecutive trading days, the Parent shall file with the Securities
and Exchange Commission under the Securities Act a Registration
Statement on Form S-3 (the "S-3 Registration Statement"), which
shall include a prospectus for the purpose of offering for resale the
Warrant Shares. The Parent shall use its best efforts to cause the
S-3 Registration Statement to be declared effective as soon as
practicable.
. The Parent shall use its best efforts to cause the S-3 Registration
Statement to remain effective until the first to occur of (i) such date
on which each person whose shares are included in the S-3
Registration Statement could, in a single transaction (with respect
to such person and his, her or its affiliates (if and to the extent the
shares of such affiliates are required to be aggregated with the
shares of such holder for purposes of calculating the volume
limitations under Rule 144) only), sell all of such shares then held
by him, her or it (and such affiliates) under Rule 144 under the
Securities Act within a three month period, or (ii) such date by
which all Warrant Shares are sold.
. The Parent may, by written notice to the holders of Warrant
Shares which are included in the S-3 Registration Statement (or
requested so to be) (the "Requesting Stockholders"), (x) delay the
filing or effectiveness of the S-3 Registration Statement for up to a
total of 60 days or (y) suspend (for up to a total of 60 days) the S-3
Registration Statement after effectiveness and require that the
Requesting Stockholders immediately cease sales of shares
pursuant to the S-3 Registration Statement, in the event and during
such period as the Parent determines that the existence of any fact
or the happening of any event (including without limitation
pending negotiations relating to, or the consummation of, a
transaction or the occurrence of any other event) would require
additional disclosure of material information by the Parent in the
S-3 Registration Statement the confidentiality of which the Parent
has a business purpose to preserve or which fact or event would
render the Parent unable to comply with SEC requirements (in
either case, a "Suspension Event"). If the Parent has delivered
preliminary or final prospectuses to the Requesting Stockholders
and after having done so the prospectus is amended to comply with
the requirements of the Securities Act, the Parent shall promptly
notify the Requesting Stockholders and, if requested by the Parent,
the Requesting Stockholders shall immediately cease making
offers or sales of shares under the S-3 Registration Statement and
return all prospectuses to the Parent. The Parent shall promptly
provide the Requesting Stockholders with revised prospectuses
(subject to any Suspension Event) and, following receipt of the
revised prospectuses, the Requesting Stockholders shall be free to
resume making offers and sales under the S-3 Registration
Statement. Notwithstanding the foregoing, in no event shall the
Parent declare a Suspension Event more than three times in any
twelve month period, and no Suspension Event shall be declared
fewer than twenty trading days following the termination of the
preceding Suspension Event.
. The Parent will pay all Registration Expenses for the S-3
Registration Statement. For purposes of this Section, the term
"Registration Expenses" shall mean all expenses incurred by the
Parent in preparing and filing the S-3 Registration Statement,
including, without limitation, all registration and filing fees,
exchange listing fees, printing expenses, fees and expenses of
counsel for the Parent and of one counsel to the Requesting
Stockholders, provided that the fees and expenses of such counsel
do not exceed, in the aggregate, $25,000, state Blue Sky fees and
expenses, and the expense of any special audits incident to or
required by any such registration, but excluding underwriting
discounts, selling commissions and the fees and expenses of the
Requesting Stockholders' own counsel (other than as expressly
provided above in this sentence).
. The Parent shall not be required to include any Warrant Shares in
the S-3 Registration Statement unless:
(i) the Requesting Stockholder owning
such shares furnishes to the Parent in writing such information
regarding such Requesting Stockholder and the proposed sale of
Warrant Shares by such Requesting Stockholder as the Parent may
reasonably request in writing in connection with the S-3
Registration Statement or as shall be required in connection
therewith by the SEC or any state securities law authorities;
(ii) such Requesting Stockholder shall
have provided to the Parent its written agreement to indemnify the
Parent in accordance with subsection (g)(2) hereof and to report to
the Parent sales made pursuant to the S-3 Registration Statement.
. A Requesting Stockholder may not assign any of its rights under
this Section 5.10 except in connection with the transfer of the
Warrants or Warrant Shares, provided, that each such transferee
agrees in a written instrument delivered to the Parent to be bound
by the provisions of this Section 5.10.
.
(1) In the event of any registration of
any of the Warrant Shares pursuant to the S-3 Registration
Statement, the Parent will, to the extent permitted by law,
indemnify and hold harmless the Requesting Stockholders, and
each other person, if any, who controls such Requesting
Stockholders within the meaning of the Securities Act or the
Exchange Act against any losses, claims, damages or liabilities,
joint or several, to which such person may become subject under
the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any
material fact contained in the S-3 Registration Statement, any
prospectus contained in the S-3 Registration Statement, or any
amendment or supplement to such S-3 Registration Statement, or
arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and the Parent will
reimburse such Requesting Stockholder and each such controlling
person for any legal or any other expenses reasonably incurred by
such Requesting Stockholder or controlling person in connection
with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Parent will not be
liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue
statement or omission made in the S-3 Registration Statement or
prospectus, or any such amendment or supplement, in reliance
upon and in conformity with information furnished to the Parent,
in writing, by or on behalf of such Requesting Stockholder or
controlling person specifically for use in the preparation thereof.
(2) In the event of any registration of
any of the Warrant Shares pursuant to the S-3 Registration
Statement, to the extent permitted by law, each Requesting
Stockholder, severally and not jointly, will indemnify and hold
harmless the Parent, each of its directors and officers and each
person, if any, who controls the Parent within the meaning of the
Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Parent, such
directors and officers or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue
Sky laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material
fact contained in the S-3 Registration Statement, any prospectus
contained in the S-3 Registration Statement, or any amendment or
supplement to the S-3 Registration Statement, or arise out of or are
based upon any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading, if, and only to the extent that,
the statement or omission was made in reliance upon and in
conformity with information relating to such Requesting
Stockholder furnished in writing to the Parent by or on behalf of
such Requesting Stockholder specifically for use in connection
with the preparation of such S-3 Registration Statement,
prospectus, amendment or supplement; provided, however, that the
obligations of a Requesting Stockholder hereunder shall be limited
to an amount equal to the net proceeds received by such
Requesting Stockholder in connection with such registration of the
Warrant Shares.
(3) Each party entitled to
indemnification under this Section (the "Indemnified Party") shall
give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom;
provided, that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved
by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, provided, further, that the failure of
any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section
except to the extent that the Indemnifying Party is adversely
affected by such failure. The Indemnified Party may participate in
such defense at such party's expense; provided, however, that the
Indemnifying Party shall pay such expense if representation of
such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or
potential differing interests between the Indemnified Party and any
other party represented by such counsel in such proceeding;
provided further that in no event shall the Indemnifying Party be
required to pay the expenses of more than one law firm per
jurisdiction as counsel for the Indemnified Party. The
Indemnifying Party also shall be responsible for the expenses of
such defense if the Indemnifying Party does not elect to assume
such defense. No Indemnifying Party, in the defense of any such
claim or litigation shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified
Party of a release from all liability in respect of such claim or
litigation, and no Indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written
consent of the Indemnifying Party, which consent shall not be
unreasonably withheld.
(4) In order to provide for just and
equitable contribution in circumstances in which the
indemnification provided for in this Section is due in accordance
with its terms but for any reason is held by a court of competent
jurisdiction to be unavailable to an Indemnified Party in respect to
any losses, claims, damages and liabilities referred to herein, then
the Indemnifying Party shall, in lieu of indemnifying such
Indemnified Party, contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages
or liabilities to which such party may be subject in such proportion
as is appropriate to reflect the relative fault of the Parent on the one
hand and the Requesting Stockholders on the other in connection
with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant
equitable considerations, provided, however, that in no event shall
any contribution by any Requesting Stockholder under this
subsection (g)(4) exceed the net proceeds received by such
Requesting Stockholder in connection with such registration. The
relative fault of the Parent and the Requesting Stockholders shall
be determined by reference to, among other things, whether the
untrue or alleged untrue statement of material fact or omission to
state a material fact related to information supplied by the Parent
or the Requesting Stockholders and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission.
. If the Buyer will not, immediately following the Share Exchange
Closing, be the owner of more than 90% of the outstanding shares
of each class of capital stock of the Company, then, prior to the
Closing, each of the Selling Stockholders which is a holder of
Company Preferred Shares or any other security convertible into or
exercisable for Company Common Shares shall convert such
securities into (or exercise such securities for) Company Common
Shares.
. Buyer and Parent covenant that, promptly after the Share
Exchange Closing Date, the Buyer shall give the notice required
under Sections 1110(i) and 1300 et seq. of the California
Corporations Code to all of the Other Stockholders and Buyer shall
promptly take, subject to the conditions set forth in Article VI
below, all other actions necessary to effect the Merger.
. The respective obligations of each Party to consummate the
Share Exchange are subject to the satisfaction of the following
conditions:
(a) [Intentionally omitted];
(b) all applicable waiting periods (and any
extensions thereof) under the Xxxx-Xxxxx-Xxxxxx Act shall have
expired or otherwise been terminated;
(c) no action, suit or proceeding shall be
pending by any Governmental Entity wherein an unfavorable
judgment, order, decree, stipulation or injunction would (i) prevent
consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or (iii) affect
adversely the right of the Parent to own, operate or control any of
the assets and operations of the Surviving Corporation and the
Subsidiaries following the Share Exchange or the Merger, and no
such judgment, order, decree, stipulation or injunction or any other
injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall be in effect; and
(d) the Warrant Shares shall have been
authorized for listing on the Nasdaq National Market upon official
notice of issuance.
. The obligation of each of the Parent and the Buyer to
consummate the Share Exchange is subject to the satisfaction of
the following additional conditions:
(a) the Company and the Subsidiaries shall have
obtained all of the waivers, permits, consents, approvals or other
authorizations, and effected all of the registrations, filings and
notices, referred to in Section 5.2 that are material to the
transactions contemplated hereby or the business of the Company,
and the conditions to the obligation of the Parent and the Buyer to
consummate the Merger set forth in Section 6.4 below (other than
paragraph (e) thereof) shall have been true and correct as of the
Share Exchange Closing Date, and the Election Period (set forth in
Section 1.05(d)) shall have expired;
(b) the representations and warranties of the
Company and the Selling Stockholders set forth in Article III and
Article IIIA shall be true and correct in all material respects when
made on the date hereof and shall be true and correct in all material
respects as of the Share Exchange Closing Date as if made as of
the Share Exchange Closing Date, except for representations and
warranties made as of a specific date, which shall be true and
correct in all material respects as of such date;
(c) the Company and the Selling Stockholders
shall have performed or complied in all material respects with their
agreements and covenants required to be performed or complied
with under this Agreement as of or prior to the Share Exchange
Closing Date;
(d) the Company and the Indemnification
Representatives (on behalf of the Selling Stockholders) shall have
delivered to the Parent and the Buyer a certificate (without
qualification as to knowledge or materiality or otherwise) to the
effect that each of the conditions specified in clause 6.1(b) and (c),
and in clauses (a) through (c) of this Section 6.2 is satisfied in all
respects;
(e) the Parent and the Buyer shall have received
from counsel to the Company an opinion with respect to the
matters set forth in Exhibit 6.2(e) attached hereto, addressed to the
Parent and the Buyer and dated as of the Share Exchange Closing
Date;
(f) the Parent and the Buyer shall have received
the resignations, effective as of the Effective Time, of each director
of the Company and the Subsidiaries specified by the Parent in
writing at least five business days prior to the Closing;
(g) those employees of the Company listed on
Schedule 6.2(g) hereto shall have entered into
non-competition/non-solicitation agreements with the Company
substantially in the form of Exhibit 6.2(g) hereto;
(h) the Company shall have delivered to the
Parent at the Company's sole cost and expense an estoppel
certificate from the landlord under each of the leases of real
property utilized by the Company and (X) listed on Schedule
6.2(h) or (Y) otherwise reasonably requested by the Parent, such
estoppel certificate to be in form and substance reasonably
acceptable to the Parent confirming that the Company is not in
default of any of its obligations under any of such leases and
addressing such other matters as the Parent shall reasonably
request; and
(i) the total number of Company Shares owned
by the Selling Stockholders and to be exchanged in the Share
Exchange shall represent at least 90% of all classes of the
Company's stock outstanding as of the Share Exchange Closing
Date (assuming the exercise of all outstanding in-the-money
Options and Committed Options which will be exercised, and not
exchanged, at the Share Exchange Closing), and all of the Selling
Stockholders shall have delivered to the Buyer the Share
Certificates duly endorsed in blank or with stock powers duly
executed by each such Selling Stockholder, with signatures
guaranteed if required by the Buyer, or executed Notices of
Exercise pursuant to the 1992 Plan and/or the 1982 Plan (the
"Notice of Exercise") and duly executed stock powers with respect
thereto in the case of each Selling Stockholder who is exercising
an Option as of the Share Exchange Closing Date or executed
Notices of Exchange and Option Termination in the case of a
Selling Stockholder who is exchanging an Option; and
(j) the Company shall have received a fairness opinion
from Prudential Securities Incorporated with respect to the
transactions contemplated by this Agreement (including the
Merger), which shall not have been withdrawn prior to the Share
Exchange Closing.
. The obligation of the Selling Stockholders and the Company to
consummate the Share Exchange is subject to the satisfaction of
the following additional conditions:
(a) the representations and warranties of the
Parent and the Buyer set forth in Article IV shall be true and
correct in all material respects when made on the date hereof and
shall be true and correct in all material respects as of the Share
Exchange Closing Date as if made as of the Share Exchange
Closing Date, except for representations and warranties made as of
a specific date, which shall be true and correct in all material
respects as of such date;
(b) each of the Parent and the Buyer shall have
performed or complied in all material respects with its agreements
and covenants required to be performed or complied with under
this Agreement as of or prior to the Share Exchange Closing Date;
(c) each of the Parent and the Buyer shall have
delivered to the Company a certificate (without qualification as to
knowledge or materiality or otherwise) to the effect that each of
the conditions specified in clauses (b), (c) and (d) of Section 6.1
and clauses (a),(b) and (e) of this Section 6.3 is satisfied in all
respects;
(d) the Company and the Selling Stockholders
shall have received from outside counsel to the Parent and the
Buyer an opinion with respect to the matters set forth in
Exhibit 6.3(d)-1 attached hereto, addressed to the Company and
the Selling Stockholders and dated as of the Share Exchange
Closing Date, and the Company and the Selling Stockholders shall
have received from the general counsel of the Parent an opinion
with respect to the matters set forth in Exhibit 5.3(d)-2 attached
hereto, addressed to the Company and the Selling Stockholders and
dated as of the Share Exchange Closing Date; and
(e) the Parent and Buyer shall have obtained all
waivers, permits, consents, approvals or other authorizations
required under agreements with third persons or entities or
applicable law, and effected all needed registrations, filings and
notices.
. The obligation of each of the Parent and the Buyer to
consummate the Merger is subject to the satisfaction of the
following additional conditions:
(a) no action, suit or proceeding shall be
pending or threatened by any Governmental Entity or before any
court wherein an unfavorable judgment, order, decree, stipulation
or injunction would (i) prevent consummation of the Merger,
(ii) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation or (iii) affect adversely
the right of the Parent to own, operate or control any of the assets
and operations of the Surviving Corporation and the Subsidiaries
following the Merger, and no such judgment, order, decree,
stipulation or injunction or any other injunction or other order
preventing the consummation of the transactions contemplated by
this Agreement shall be in effect;
(b) the Company and the Subsidiaries shall have
obtained all of the waivers, permits, consents, approvals or other
authorizations, and effected all of the registrations, filings and
notices, referred to in Section 5.2 that are material to the
transactions contemplated hereby or the business of the Company;
(c) all requisite statutory notice periods needed
to consummate the Merger under the California Corporations Code
(including without limitation pursuant to Section 1300 thereof)
shall have expired; and
(d) the Share Exchange
Closing shall have occurred.
. The Company Stockholders shall jointly and severally indemnify
(except as to misrepresentations or breaches of warranty under
Article IIIA above, with respect to which each of the Selling
Stockholders severally indemnifies) the Surviving Corporation and
the Parent (the "Indemnified Persons") in respect of, and hold the
Indemnified Persons harmless against, any and all debts,
obligations and other liabilities (whether absolute, accrued,
contingent, fixed or otherwise, or whether known or unknown, or
due or to become due or otherwise), monetary damages, fines, fees,
penalties, interest obligations, deficiencies, losses and expenses
(including without limitation amounts paid in settlement, interest,
court costs, costs of investigators, fees and expenses of attorneys,
accountants, financial advisors and other experts, and other
expenses of litigation) incurred or suffered by the Indemnified
Persons or any Affiliate thereof ("Damages"):
(a) resulting from, relating to or constituting
any misrepresentation, breach of warranty or failure to perform any
covenant or agreement of the Company or the Selling Stockholders
contained in this Agreement or in the Certificate delivered
pursuant to Section 6.2(d);
(b) resulting from any failure of any Company
Stockholders to have good, valid and marketable title to the issued
and outstanding Company Shares held by such Company
Stockholders, free and clear of all liens, claims, pledges, options,
adverse claims or charges of any nature whatsoever; or
(c) resulting from any claim by a stockholder or
former stockholder of the Company, or any other person, firm,
corporation or entity, seeking to assert, or based upon:
(i) ownership or rights to ownership of any shares of stock of the
Company; (ii) the form of consideration payable in the Merger or
Share Exchange or any actions of the board of directors of the
Company in connection with the transactions contemplated by this
Agreement (including any Damages resulting from any effort of a
stockholder or former stockholder to modify the form of Merger
Consideration or Share Exchange Consideration or to block, set
aside, rescind, attack the validity of or otherwise impede the
Merger or the Share Exchange); (iii) any rights of a stockholder
(other than the right to receive the Share Exchange Consideration
or Merger Consideration pursuant to this Agreement or dissenters'
rights under the applicable provisions of the California
Corporations Code), including any option, preemptive rights or
rights to notice or to vote; (iv) any rights under the Articles or By-
laws of the Company; or (v) any claim that his, her or its shares
were wrongfully repurchased by the Company.
.
(a) All claims for indemnification by an
Indemnified Person pursuant to this Article VII shall be made in
accordance with the provisions of the Escrow Agreement.
(b) If a third party asserts in writing that an
Indemnified Person is liable to such third party for a monetary or
other obligation which such Indemnified Person reasonably
anticipates will constitute or result in Damages for which such
Indemnified Person may be entitled to indemnification pursuant to
this Article VII, and such Indemnified Person reasonably
determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Person shall be entitled to
satisfy such obligation, without prior notice to or consent from the
Indemnification Representatives, (ii) such Indemnified Person may
make a claim for indemnification pursuant to this Article VII in
accordance with the provisions of the Escrow Agreement, and
(iii) such Indemnified Person shall be reimbursed, in accordance
with the provisions of the Escrow Agreement, for any such
Damages for which it is entitled to indemnification pursuant to this
Article VII (subject to the right of the Indemnification
Representatives to dispute the Indemnified Person's entitlement to
indemnification under the terms of the Escrow Agreement).
(c) The Indemnified Person shall give prompt
written notification to the Indemnification Representatives of the
commencement of any action, suit or proceeding relating to a third
party claim for which indemnification pursuant to this Article VII
may be sought; provided, however, that no delay on the part of the
Indemnified Person in notifying the Indemnification
Representatives shall relieve the Company Stockholders of any
liability or obligation hereunder except to the extent of any damage
or liability caused by or arising out of such failure. Within 20 days
after delivery of such notification, the Indemnification
Representatives may, upon written notice thereof to the
Indemnified Person, assume control of the defense of such action,
suit or proceeding with counsel reasonably satisfactory to the
Indemnified Person, provided that approval of such counsel shall
not be unreasonably withheld, and provided further that the
Indemnification Representatives acknowledge in writing to the
Indemnified Person that any damages, fines, costs or other
liabilities that may be assessed against the Indemnified Person in
connection with such action, suit or proceeding constitute
Damages for which the Indemnified Person shall be entitled to
indemnification pursuant to this Article VII. If the Indemnification
Representatives do not so assume control of such defense, the
Indemnified Person shall control such defense. The party not
controlling such defense may participate therein at its own
expense; provided that if the Indemnification Representatives
assume control of such defense and the Indemnified Person
reasonably concludes that the indemnifying parties and the
Indemnified Person have conflicting interests or different defenses
available with respect to such action, suit or proceeding, the
reasonable fees and expenses of counsel to the Indemnified Person
shall be considered "Damages" for purposes of this Agreement.
The party controlling such defense shall keep the other party
advised of the status of such action, suit or proceeding and the
defense thereof and shall consider in good faith recommendations
made by the other party with respect thereto. The Indemnified
Person shall not agree to any settlement of such action, suit or
proceeding without the prior written consent of the Indemnification
Representatives, which shall not be unreasonably withheld. The
Indemnification Representatives shall not agree to any settlement
of such action, suit or proceeding without the prior written consent
of the Indemnified Person, which shall not be unreasonably
withheld.
The representations and warranties of the Company set forth in
this Agreement shall survive the Closing and the consummation of
the transactions contemplated hereby and continue until the first
anniversary after the Closing, and shall not be affected by any
examination made for or on behalf of the Parent or the knowledge
of any of the Parent's officers, directors, stockholders, employees
or agents. If a notice is given in accordance with the Escrow
Agreement before expiration of such periods, then
(notwithstanding the expiration of such time period) the
representation or warranty applicable to such claim shall survive
until, but only for purposes of, the resolution of such claim.
. Notwithstanding anything to the contrary herein, (a) the
aggregate liability of the Company Stockholders for Damages
under this Article VII shall be limited to the Escrow Fund (or a
portion thereof, as set forth in the Escrow Agreement), and (b) the
Company Stockholders shall not be liable under this Article VII
unless and until the aggregate Damages exceed $287,500 (at which
point the Company Stockholders shall become liable for the
aggregate Damages, and not just amounts in excess of $287,500).
Except with respect to claims based on fraud, in the event the
Share Exchange Closing occurs, the rights of the Indemnified
Persons under this Article VII shall be the exclusive remedy of the
Indemnified Persons with respect to claims resulting from or
relating to any misrepresentation, breach of warranty or failure to
perform any covenant or agreement of the Company contained in
this Agreement. No Company Stockholder shall have any right of
contribution against the Company with respect to any breach by
the Company of any of its representations, warranties, covenants or
agreements.
. The Parties may terminate this Agreement prior to the Effective
Time as provided below:
(a) the Parties may terminate this Agreement by
mutual written consent;
(b) the Parent may terminate this Agreement by
giving written notice to the Company in the event the Company or
any Selling Stockholder is in material breach, and the Company
may terminate this Agreement by giving written notice to the
Parent and the Buyer in the event the Parent or the Buyer is in
breach, of any material representation, warranty or covenant
contained in this Agreement, and such breach is not remedied
within 10 days of delivery of written notice thereof;
(c) the Parent may terminate this Agreement by
giving written notice to the Company if the Share Exchange
Closing shall not have occurred on or before the 120th day
following the date of this Agreement by reason of the failure of
any condition precedent under Section 6.1 or 6.2 hereof (unless the
failure results primarily from a breach by the Parent or the Buyer
of any representation, warranty or covenant contained in this
Agreement); or
(d) the Company may terminate this Agreement
by giving written notice to the Parent and the Buyer if the Share
Exchange Closing shall not have occurred on or before the 120th
day following the date of this Agreement by reason of the failure
of any condition precedent under Section 6.1 or 6.3 hereof (unless
the failure results primarily from a breach by the Company or any
Selling Stockholder of any representation, warranty or covenant
contained in this Agreement).
. If any Party terminates this Agreement pursuant to Section 8.1,
all obligations of the Parties hereunder shall terminate without any
liability of any Party to any other Party (except for any liability of
any Party for breaches of this Agreement); provided, however, that
the confidentiality provisions contained in Section 4.6 shall survive
any such termination.
For purposes of this Agreement, each of the
following defined terms is defined in the Section of this Agreement
indicated below.
Defined Term Section
Affiliate 3.15(f)
Affiliate Agreement 4.9
Agreement of Merger 1.1
Attrition Rate 3.21(b)
Buyer Introduction CERCLA 3.23(a)
Certificate of Merger 1.1
Certificates 1.7(a)
Closing 1.2
Closing Date 1.2
Code 1.11(a)
Company Introduction
Company Affiliate 4.9
Company Shares 1.5(a)
Company Stockholder 1.5(a)
Confidential Information 4.6
Conversion Ratio 1.5(a)
Damages 6.1
Disclosure Schedule Article II
Disbursing Agent 1.3
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 3.22(a)
Environmental Law 3.23(a)
ERISA 3.22(a)
ERISA Affiliate 3.22(a)
Escrow Agreement 1.3
Escrow Agent 1.3
Escrow Cash Amount 1.5(a)
Exchange Act 3.4
Financial Statements 3.6
Form of Election 1.5(d)
GAAP 3.6
Governmental Entity 3.4
Xxxx-Xxxxx-Xxxxxx Act 3.4
Indemnification Representatives 1.3
Indemnified Party 4.10(g)
Indemnified Persons 6.1
Indemnifying Parties 4.10(g)
Initial Cash Amount 1.5(a)
Intellectual Property 3.12(a)
Intended Uses 3.11(a)
Materials of Environmental Concern 3.23(b)
Merger 1.1
Merger Consideration 1.6(a)
Most Recent Balance Sheet 3.8
Most Recent Fiscal Quarter End 3.7
Options 1.8
Ordinary Course of Business 3.4
Parent Introduction
Parent Common Stock 1.5(a)
Parent Reports 3.5
Party Introduction
Permit 3.25
S-3 Registration Statement 4.13
SEC 3.6
Securities Act 1.11(c)
Security Interest 3.4
Selling Stockholders 4.10
Special Meeting 4.3(a)
Subsidiary 3.4
Surviving Corporation 1.1
Tangible Net Worth of the Company 1.5(d)
Taxes 3.9(a)
Tax Returns 3.9(a)
Technical Employees 3.21(b)
Third Party Intellectual Property Rights 3.12(a)
Warrants 1.5
Warrant Shares 4.10
. No Party shall issue any press release or public disclosure
relating to the subject matter of this Agreement without the prior
written approval of the other Parties; provided, however, that any
Party may make any public disclosure it believes in good faith is
required by law or regulation (in which case the disclosing Party
shall advise the other Parties and provide them with a copy of the
proposed disclosure prior to making the disclosure).
. This Agreement shall not confer any rights or remedies upon any
person other than the Parties and their respective successors and
permitted assigns; provided, however, that the provisions in
Article II concerning issuance of the Merger Consideration are
intended for the benefit of the Other Stockholders.
. This Agreement (including the documents referred to herein)
constitutes the entire agreement among the Parties and supersedes
any prior understandings, agreements, or representations by or
among the Parties, written or oral, with respect to the subject
matter hereof.
. This Agreement shall be binding upon and inure to the benefit of
the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the
prior written approval of the other Parties.
. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice,
request, demand, claim, or other communication hereunder shall be
deemed duly delivered five business days after it is sent by
registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a nationally
reputable nationwide overnight courier service, in each case to the
intended recipient as set forth below:
If to the Company or
the Selling Stockholders: Copy to:
Sherpa Systems Corporation Venture Law Group
0000 XxXxxxxxxx Xxxxx 0000 Xxxx Xxxx Xxxx
Xxxxxxxx, XX 00000 Xxxxx Xxxx, XX 00000
Attn: Xxxx Xxxxx Attn: Xxxx X. Xxxxxxxx
Chief Executive Officer
If to the Parent: Copy to:
Inso Corporation Xxxx and Xxxx LLP
00 Xx. Xxxxx Xxxxxx 00 Xxxxx Xxxxxx
Xxxxxx, XX 00000 Xxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxx, Attn: Xxxxxxx X. Xxxxx
Vice President and
General Counsel
If to the Buyer: Copy to:
Tabasco Corp. Xxxx and Xxxx LLP
c/o Inso Corporation 00 Xxxxx Xxxxxx
00 Xx. Xxxxx Xxxxxx Xxxxxx, XX 00000-0000
Xxxxxx, XX 00000 Attn: Xxxxxxx X. Xxxxx
Attn: Xxxxx X. Xxxx,
Vice President and
General Counsel
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including
personal delivery, expedited courier, messenger service, telecopy,
telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed
to have been duly given unless and until it actually is received by
the party for whom it is intended. Any Party may change the
address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of
the State of California.
. The Parties may mutually amend any provision of this
Agreement at any time prior to the Effective Time; provided,
however, that (i) any amendment shall be subject to the restrictions
contained in the California Corporations Code, and (ii) an
amendment approved by the Indemnification Representatives shall
be binding on all of the Selling Stockholders. No amendment of
any provision of this Agreement shall be valid unless the same
shall be in writing and signed by all of the Parties. No waiver by
any Party of any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any
rights arising by virtue of any prior or subsequent such occurrence.
. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction. If the
final judgment of a court of competent jurisdiction declares that
any term or provision hereof is invalid or unenforceable, the
Parties agree that the court making the determination of invalidity
or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
. Except as set forth in the Escrow Agreement, each of the Parties
shall bear its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the
transactions contemplated hereby (it being understood that any fees
of the Company accrued as of the Share Exchange Closing (and
including any fees payable by the Company to Prudential
Securities Incorporated ("Prudential")) shall be included in the
calculation of Tangible Net Worth for purposes of Section 1.5(d)
above). Fees and expenses of Venture Law Group, Prudential (to
the extent set forth in the agreement between Prudential and the
Company) and PriceWaterhouseCoopers shall be paid by the
Company at the Share Exchange Closing upon (i) submission of a
xxxx at least three business days prior to the Share Exchange
Closing, in form and substance acceptable to the Parent in its
reasonable judgment and to the Indemnification Representatives,
and (ii) delivery at the Share Exchange Closing of a certificate to
the Escrow Agent, signed by the Parent and the Indemnification
Representatives, setting forth the amount of the fees and expenses
so payable (as required pursuant to Section 3(f) of the Escrow
Agreement).
. Each of the Parties acknowledges and agrees that one or more of
the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached. Accordingly,
each of the Parties agrees that the other Parties shall be entitled to
an injunction or injunctions to prevent breaches of the provisions
of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction
over the Parties and the matter (subject to the provisions of
Section 10.13), in addition to any other remedy to which it may be
entitled, at law or in equity.
. (a) Each of the Parties (i) submits to the jurisdiction of any state
or federal court sitting in California or Massachusetts in any action
or proceeding arising out of or relating to this Agreement (except
as set forth in paragraph (b) below), (ii) agrees that all claims in
respect of the action or proceeding may be heard and determined in
any such court, and (iii) agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other
court. Each of the Parties waives any defense of inconvenient
forum to the maintenance of any action or proceeding so brought
and waives any bond, surety or other security that might be
required of any other Party with respect thereto. Any Party may
make service on another Party by sending or delivering a copy of
the process to the Party to be served at the address and in the
manner provided for the giving of notices in Section 10.7. Nothing
in this Section 10.13, however, shall affect the right of any Party to
serve legal process in any other manner permitted by law.
(b) Any dispute arising out of or related to Section
1.5(d) above which cannot be resolved by negotiation shall be
settled by binding arbitration in Chicago, Illinois in accordance
with the J.A.M.S/Endispute Arbitration Rules and Procedures
("Endispute Rules"), as amended by this Agreement. The costs of
arbitration, including the fees and expenses of the arbitrator, shall
be shared equally (fifty percent by the Parent and fifty percent by
the Company Stockholders) unless the arbitration award provides
otherwise. Each Party shall bear the cost of preparing and
presenting its case. The Parties agree that this provision and the
arbitrator's authority to grant relief shall be subject to the United
States Arbitration Act, 9 U.S.C. 1-16 et seq. ("USAA"), the
provisions of this Agreement, substantive law, and the ABA-AAA
Code of Ethics for Arbitrators in Commercial Disputes. The
Parties agree that the arbitrator shall have no power or authority to
make awards or issue orders of any kind except as expressly
permitted by this Agreement, and in no event shall the arbitrator
have the authority to make any award that provides for punitive or
exemplary damages. The arbitrator's decision shall follow the plain
meaning of the relevant documents, and shall be final and binding.
The award may be confirmed and enforced in any court of
competent jurisdiction. All post proceedings shall be governed by
the USAA.
. The language used in this Agreement shall be deemed to be the
language chosen by the Parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against
any Party. Any reference to any federal, state, local, or foreign
statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires
otherwise.
. The Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the Parties hereto have executed
this Agreement as of the date first above written.
INSO CORPORATION
By: /s/ Xxxxx X. Xxxx
Xxxxx X. Xxxx
Title: Secretary
TABASCO CORP.
By: /s/ Xxxxx X. Xxxx
Xxxxx X. Xxxx
Title: Secretary
SHERPA SYSTEMS CORPORATION
By: /s/ Xxxx X. Xxxxx
Name: Xxxx X. Xxxxx
Title: President and CEO
SELLING STOCKHOLDERS:
/s/ Xxxxxxx X. Xxxxxxx
Xxxxxxx Baunauch
/s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx Xxxxxxxx
/s/ Xxxxx Xxxxxxx
Xxxxx Xxxxxxx
/s/ Xxxxxxx Xxxxxxx
Xxxxxxx Xxxxxxx
Century IV Partners, L.P.
By: /s/ Xxxxxxx X. Xxxxxx
Name: Xxxxxxx X. Xxxxxx
Title: General Partner
Commonwealth Venture Partners, L.P.
By: /s/ Xxxxxxx X. Xxxxxx
Name: Xxxxxxx X. Xxxxxx
Title: General Partner
CP Ventures, Inc.
By: /s/ Xxxxxx X. Xxxxx, Xx.
Name: Xxxxxx X. Xxxxx, Xx.
Title: President
/s/ Xxxxxxxxxxx X. Dress
Xxxxxxxxxxx X. Dress
Xxxxxxx Special Assets Limited Partnership,
an Arizona Partnership
By: /s/ Xxxxx Xxxxxxx Xxxxxx
Name: Xxxxx Xxxxxxx Xxxxxx
Title: General Partner
FINOVELEC
By: /s/ Its President
Name: ___________________________________
Title: President
Fostin Capital Associates
By: /s/ Xxxx X. Xxxxx
Name: Xxxx X. Xxxxx
Title: By Fostin Capital Corp.- General Partner
By Xxxx X. Xxxxx- Vice President of Fostin Capital Corp.
Fostin Capital Associates II
By: /s/ Xxxx X. Xxxxx
Name: Xxxx X. Xxxxx
Title: General Partner
Institute de Development Industriel
By: /s/ Xxxxxxxxx Xxxxxxxx Meusinne
Name: Xxxxxxxxx Xxxxxxxx Meusinne
Title: Chairman and CEO
/s/ Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxx
/s/ Xxxxx Xxxxxxxxx
Xxxxx Xxxxxxxxx
/s/ X.X. XxXxxxxx
C. Xxxxxxx XxXxxxxx
/s/ Xxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx
/s/ Xxxx X. Xxxxx
Xxxx X. Xxxxx
New Enterprise Associates II, Limited Partnership
By: /s/ Xxxxxxx Xxxxxxxx
Name: Xxxxxxx Xxxxxxxx
Title:
New Enterprise Associates V, Limited Partnership
By: /s/ Xxxxxx Page
Name: Xxxxxx Page
Title: Vice President, European Operations
_________________________________________
Xxxxxx Page
Xxxx Capital Partners V, L.P.
By: /s/ Xxxxx X. Xxxx
Name: Xxxxx X. Xxxx
Title: Manager, Xxxx Capital Management, LLC
General Partner of Xxxx Capital Partners V, X.X.
Xxxx Capital Partners V Domestic Annex Fund, L.P.
By: /s/ Xxxxx X. Xxxx
Name: Xxxxx X. Xxxx
Title: Manager, Xxxx Capital Management LLC,
General Partner of Xxxx Capital Partners
Domestic Annex Fund, X.X.
Xxxx Capital Partners V International, L.P.
By: /s/ Xxxxx X. Xxxx
Name: Xxxxx X. Xxxx
Title: Manager, Xxxx Capital Management, LLC,
General Partner of Xxxx Capital Partners V
International, L.P.
Pennsylvania Venture Partners
By: /s/ Xxxxxxx X. Xxxxxx
Name: Xxxxxxx X. Xxxxxx
Title: General Partner
Estate of Xxxxxxx X. Xxxxxxxxx
/s/ Xxxxx Xxxxxxxxx
Sequoia Capital III
By: /s/ Xxxxxx X. Xxxxxxxxx
Name: Xxxxxx X. Xxxxxxxxx
Title: ____________________________________
Sequoia Technology Partners
By: /s/ Xxxxxx X. Xxxxxxxxx
Name: Xxxxxx X. Xxxxxxxxx
Title: ____________________________________
Sequoia XI
By: /s/ Xxxxxx X. Xxxxxxxxx
Name: Xxxxxx X. Xxxxxxxxx
Title: ____________________________________
Xxxxxx Investment p.l.c.
By: /s/ X.X. Xxxxxxxx
Name: X.X. Xxxxxxxx
Title: Director Glasgow Investment Managers Ltd.
(Secretaries)
Spectra Enterprise Associates, Limited Partnership
By: /s/ Xxxxxxx X. Xxxxxxx III
Name: Xxxxxxx X. Xxxxxxx III
Title: General Partner
/s/ Xxxxx Xxxxxxxx
Xxxxx Xxxxxxxx
Technology Partners
By: /s/ Xxxxxxx Xxxx
Name: Xxxxxxx Xxxx
Title: General Partner
Tektronix, Inc.
By: _____________________________________
Name: ___________________________________
Title: ____________________________________
Tetraven Fund S.A. (i.l)
By: /s/ Xxxx X. Xxxxx, /s/ Xxxxxxx Xxxx
Name: Xxxx X. Xxxxx, Xxxxxxx Xxxx
Title: Liquidator, Mandatory
/s/ Xxxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxx
/s/ Xxxxxx X. Xxxxxxx, /s/ Xxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxx & Xxxxxx X. Xxxxxxx,
Joint Tenants
Transitions Three Limited Partnership
By: TTI Partners
As General Partner
By: /s/ Xxxx Xxxxxx
Name: Xxxx Xxxxxx
Title: Partner
TVM Techno Venture Enterprises No. II
Limited Partnership
By: /s/ Xxxx XxXxxxx
Name: Xxxx XxXxxxx
Title: Treasurer
TVM Intertech Limited Partnership
By: /s/ Xxxx XxXxxxx
Name: Xxxx XxXxxxx
Title: ____________________________________
TVM Techno Venture Investors No. I
Limited Partnership
By: /s/ Xxxx X. XxXxxxx
Name: Xxxx X. XxXxxxx
Title: General Partner
WS Investment Company '81
By: /s/ Xxxxx Xxxxxxxxx
Name: Xxxxx X. Xxxxxxxxx
Title: Administrator
WS Investment Company 90B
By: /s/ Xxxxx X. Xxxxxxxxx
Name: Xxxxx X. Xxxxxxxxx
Title: Administrator
The undersigned, being the duly elected Secretary of the
Buyer, hereby certifies that this Agreement has been adopted by a
majority of the votes represented by the outstanding shares of capital
stock of the Buyer entitled to vote on this Agreement.
____________________________________
Secretary
The undersigned, being the duly elected Secretary of the
Company, hereby certifies that this Agreement has been adopted by a
majority of the votes represented by the outstanding Company Shares
entitled to vote on this Agreement.
____________________________________
Secretary
