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EXHIBIT 2.01
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CYBERCASH, INC.
SHAKER ACQUISITION CORPORATION,
TELLAN SOFTWARE, INC.
AND
XXXXXX X. XXXX
June 25, 1999
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TABLE OF CONTENTS
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1. The Merger.............................................................1
1.1 The Merger.......................................................1
1.2 Closing; Effective Time..........................................2
1.3 Effect of the Merger.............................................2
1.4 Articles of Incorporation; Bylaws................................2
1.5 Directors and Officers...........................................2
1.6 Effect on Capital Stock..........................................2
1.7 Surrender of Certificates.......................................10
1.8 No Further Ownership Rights in Target Capital
Stock...........................................................13
1.9 Lost, Stolen or Destroyed Certificates..........................13
1.10 Tax and Accounting Consequences.................................13
1.11 Taking of Necessary Action; Further Action......................13
2. Representations and Warranties of Target..............................13
2.1 Organization, Standing and Power................................14
2.2 Authority.......................................................14
2.3 Governmental Authorization......................................15
2.4 Financial Statements............................................15
2.5 Capital Structure...............................................15
2.6 Absence of Certain Changes......................................16
2.7 Absence of Undisclosed Liabilities..............................17
2.8 Litigation......................................................17
2.9 Restrictions on Business Activities.............................17
2.10 Intellectual Property...........................................17
2.11 Interested Party Transactions...................................22
2.12 Minute Books....................................................22
2.13 Complete Copies of Materials....................................22
2.14 Material Contracts..............................................22
2.15 Inventory.......................................................23
2.16 Accounts Receivable.............................................23
2.17 Customers and Suppliers.........................................23
2.18 Employees and Consultants.......................................24
2.19 Title to Property...............................................24
2.20 Environmental Matters...........................................24
2.21 Taxes...........................................................25
2.22 Employee Benefit Plans..........................................27
2.23 Employee Matters................................................30
2.24 Insurance.......................................................30
2.25 Compliance With Laws............................................30
2.26 Brokers' and Finders' Fees......................................31
2.27 Bank Accounts...................................................31
2.28 Indemnification Claims..........................................31
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TABLE OF CONTENTS
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2.29 Power of Attorney...............................................31
2.30 Representations Complete........................................31
3. Representations and Warranties of Acquiror and Merger
Sub...................................................................31
3.1 Organization, Standing and Power................................32
3.2 Authority.......................................................32
3.3 SEC Documents: Financial Statements.............................33
3.4 Capital Structure...............................................34
3.5 Interim Operations of Merger Sub................................35
3.6 Absence of Certain Changes......................................35
3.7 Broker's Fees and Finder's Fees.................................35
3.8 Litigation......................................................35
3.9 Registration Statement..........................................36
3.10 Representations Complete........................................36
4. Conduct Prior To The Effective Time...................................36
4.1 Conduct of Business of Target and Acquiror......................36
4.2 Conduct of Business of Target...................................37
4.3 No Solicitation.................................................39
5. Additional Agreements.................................................39
5.1 Preparation of Solicitation Statement...........................39
5.2 Approval of Shareholders........................................40
5.3 Sale of Shares Pursuant to Regulation D.........................41
5.4 Access to Information...........................................41
5.5 Confidentiality.................................................41
5.6 Public Disclosure...............................................41
5.7 Consents; Cooperation...........................................42
5.8 Shareholder Agreement...........................................42
5.9 Legal Requirements..............................................42
5.10 Blue Sky Laws...................................................42
5.11 Escrow Agreement................................................43
5.12 Nonaccredited Stockholders......................................43
5.13 Option Exercise.................................................43
5.14 Employees.......................................................43
5.15 Reorganization..................................................43
5.16 Expenses; Target Legal Fees.....................................43
5.17 Interim Balance Sheet...........................................43
5.18 Registration of Shares Issued in the Merger.....................44
5.19 Indemnification.................................................47
5.20 Termination of 401(k) Plan......................................48
5.21 Employee Plans of the Surviving Corporation.....................49
5.22 Excluded Vehicle Asset Transfer.................................49
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TABLE OF CONTENTS
(continued)
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6. Conditions to the Merger..............................................49
6.1 Conditions to Obligations of Each Party to Effect
the Merger......................................................49
6.2 Additional Conditions to the Obligations of
Acquiror and Merger Sub.........................................49
6.3 Additional Conditions to Obligations of Target..................52
7. Termination, Amendment and Waiver.....................................53
7.1 Termination.....................................................53
7.2 Effect of Termination...........................................53
7.3 Amendment.......................................................54
7.4 Extension; Waiver...............................................54
8. Escrow and Indemnification............................................55
8.1 Escrow Fund.....................................................55
8.2 Indemnification.................................................56
8.3 Limitation of Liability.........................................56
8.4 Manner of Indemnification.......................................56
8.5 Indemnification by Acquiror and Merger Sub......................56
8.6 Limitation of Liability on Acquiror and Merger Sub..............57
8.7 Escrow Period; Release From Escrow..............................57
8.8 Claims Upon Escrow Fund.........................................58
8.9 Objections to Claims............................................58
8.10 Resolution of Conflicts and Arbitration.........................58
8.11 Shareholders' Agent.............................................60
8.12 Actions of the Shareholders' Agent..............................60
8.13 Third-Party Claims..............................................61
8.14 Adjustment Escrow...............................................61
9. General Provisions....................................................61
9.1 Notices.........................................................61
9.2 Definitions.....................................................63
9.3 Counterparts....................................................63
9.4 Entire Agreement; Nonassignability; Parties in
Interest........................................................63
9.5 Severability....................................................63
9.6 Remedies Cumulative.............................................64
9.7 Arbitration.....................................................64
9.8 Governing Law...................................................64
9.9 Rules of Construction...........................................64
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LIST OF EXHIBITS
Exhibit A Agreement of Merger
Exhibit B Certificate of Merger
Exhibit C Shareholder Agreement
Exhibit D Escrow Agreement
Exhibit E Employment Offer Letter
Exhibit F Noncompete Agreement
Exhibit G-1 and G-2 Employment Agreements
Exhibit H Legal Opinion of Target Counsel
Exhibit I Legal Opinion of Acquiror Counsel
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of June 25, 1999 by and among CyberCash, Inc., a Delaware
corporation ("Acquiror"), Shaker Acquisition Corporation, a Delaware corporation
("Merger Sub") and wholly owned subsidiary of Acquiror, Tellan Software, Inc., a
California corporation ("Target"), and Xxxxxx X. Xxxx, the principal shareholder
of Target ("Principal Shareholder").
RECITALS
The Boards of Directors of Target, Acquiror and Merger Sub believe it is
in the best interests of their respective companies and the shareholders of
their respective companies that Target and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into Target (the
"Merger") and, in furtherance thereof, have approved the Merger.
Pursuant to the Merger, among other things, the outstanding shares of
Target Common Stock ("Target Common Stock") shall be converted into the right to
receive the Merger Consideration (as defined in Section 1.6(a)) upon the terms
and subject to the conditions set forth herein.
Target, Acquiror and Merger Sub desire to make certain representations and
warranties and other agreements in connection with the Merger.
The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
1. The Merger.
1.1 The Merger. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement, the
Agreement of Merger in the form attached hereto as Exhibit A (the "Agreement of
Merger"), the Certificate of Merger in the form attached hereto as Exhibit B
(the "Certificate of Merger") and the applicable provisions of the Delaware
General Corporation Law ("Delaware Law") and the California Corporations Code
("California Law"), Merger Sub shall be merged with and into Target, the
separate corporate existence of Merger Sub shall cease and Target shall continue
as the surviving corporation. Target as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
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1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable, but
no later than two (2) business days, after the satisfaction or waiver of each of
the conditions set forth in Section 6 hereof, or at such other time as the
parties hereto agree (the "Closing Date"). The Closing shall take place at the
offices of Xxxx Xxxx Xxxx & Freidenrich LLP, 000 Xxxxxxxx Xxxxxx, Xxxx Xxxx,
Xxxxxxxxxx 00000, or at such other location as the parties hereto agree. In
connection with the Closing, the parties hereto shall cause the Merger to be
consummated by filing the Agreement of Merger, together with any required
certificates, with the Secretary of State of the State of California and the
Certificate of Merger with the Secretary of State of the State of Delaware, in
accordance with the relevant provisions of California Law and Delaware Law,
respectively (the time of such filing being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Agreement of Merger, the
Certificate of Merger and the applicable provisions of California Law and
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of Target and Merger Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of Target and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by California Law and such Articles of Incorporation; provided,
however, that Section 1 of the Articles of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation is
Tellan Software, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors and
officers of Merger Sub immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, Target or the holders
of any of the following securities:
(a) Conversion of Target Capital Stock. Each share of Target
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares to be canceled pursuant to Section 1.6(b) hereof and any
Dissenting Shares (to the extent provided in Sections 1.6(i) and 1.7(h) hereof))
will be canceled and extinguished and shall be
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converted and exchanged, without any action on the part of the holders (the
"Shareholders") thereof, into the right to receive the following (the "Merger
Consideration"):
(i) subject to Section 1.6(c) hereof, that
number of validly issued, fully paid and nonassessable shares of the Common
Stock of the Acquiror ("Acquiror Common Stock") equal to the amount obtained by
(i) the quotient of $11,000,000 divided by the Closing Market Price (defined
below) divided by (ii) the number of outstanding shares of Target Common Stock
immediately prior to the Effective Time (the "Exchange Ratio"); and
(ii) subject to Sections 1.6(d) and 1.6(e)
hereof, the cash amount equal to $1,000,000 (the "Pre-Fee Cash Consideration")
less the fees and expenses of Target incurred in connection with the merger
prior to the Effective Time (the "Transaction Fees") (the "Aggregate Cash
Consideration") and divided by the number of outstanding shares of Target Common
Stock immediately prior to the Effective Time (the "Per Share Cash
Consideration").
(iii) Any adjustments to the Merger
Consideration pursuant to Section 1.6(c), Section 1.6(d), and Section 1.6(e)
hereof shall be made on a pro rata basis in accordance with the Shareholders'
respective ownership of Target Common Stock immediately prior to the Effective
Time ("Pro Rata") and, with respect to Section 1.6(c) and 1.6(e), shall be
subject to Section 1.7(i) hereof.
(b) Cancellation of Target Capital Stock Owned by Acquiror. At
the Effective Time, each share of Target Common Stock and Target Preferred Stock
(collectively, "Target Capital Stock") owned by Acquiror or any direct or
indirect wholly owned subsidiary of Acquiror immediately prior to the Effective
Time shall be canceled and extinguished without any conversion thereof.
(c) Merger Consideration Adjustment - Collar.
The Merger Consideration shall be subject to adjustment as
follows:
(i) If the Effective Market Price (as
defined in Section 1.6(a)(iii) below) is less than the Closing Market Price, the
Merger Consideration to be paid to each holder of Target Common Stock shall be
increased by issuing additional shares of Acquiror Common Stock equal to (i) the
product of (x) the number of shares of Acquiror Common Stock to which such
holder is entitled under Section 1.6(a)(i) hereof by virtue of ownership of
outstanding shares of Target Common Stock and (y) the difference between the
Effective Market Price and the Closing Market Price divided by (ii) the
Effective Market Price (the "Post-Closing Additional Shares"), provided,
however, that the number of Post-Closing Additional Shares issued hereunder
shall not exceed ten percent (10%) of the shares issuable to such holder as part
of the Merger Consideration as of the Effective Time and shall be subject to
Section 1.7(i) hereof.
Examples of calculations of the foregoing formula are set forth in
Schedule 1.6(c)(i) hereof.
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(ii) If the Effective Market Price is
greater than the Closing Market Price, the Merger Consideration to be paid to
each holder of Target Common Stock shall be decreased by canceling the number of
shares of Acquiror Stock issued as of the Effective Time equal to (i) the
product of (x) the number of shares of Acquiror Common Stock to which such
holder is entitled under Section 1.6(a)(i) hereof by virtue of ownership of
outstanding shares of Target Common Stock and (y) the difference between the
Effective Market Price and the Closing Market Price divided by (ii) the
Effective Market Price (the "Post-Closing Canceled Shares"), provided, however,
that the number of Post-Closing Canceled Shares canceled hereunder shall not
exceed ten percent (10%) of the shares issuable to such holder as part of the
Merger Consideration as of the Effective Time. For purposes of effecting this
Section 1.6(c)(ii), ten percent (10%) of the shares issued to such holder as
part of the Merger Consideration as of the Effective Time shall be deposited and
subject to the Adjustment Escrow (defined in Section 1.7(i) hereof) pursuant to
Section 1.7(i) and Section 8 hereof; and
Examples of calculations of the foregoing formula are set forth in
Schedule 1.6(c)(ii) hereof.
(iii) For the purpose of this Agreement,
as of a particular date, the term "Market Price" shall mean the average of the
closing bid price per share of Acquiror's Common Stock as quoted on the NASDAQ
National Market System for 5 consecutive trading days ending on the trading day
immediately prior to that date, as reported in the Wall Street Journal. Further,
for the purpose of this Agreement, (i) the term "Closing Market Price" shall
mean the Market Price determined as of the Closing Date, and (ii) the term
"Effective Market Price" shall mean the Market Price determined as of the date
the Registration Statement (as defined below) is declared effective by the SEC
after the Closing Date.
(d) Merger Consideration Adjustment - Earnout. The Merger
Consideration shall be subject to adjustment upward based on the achievement of
certain product development milestones and financial targets, as follows:
(i) (x) $335,000 in cash shall be payable
Pro Rata to the Shareholders within thirty (30) days after the Acquiror
reasonably determines that Target has substantially met the acceptance criteria
for the Unix Port to Solaris (the "Solaris Milestone"), as set forth on Schedule
1.6(d)(i) during the four fiscal quarters following the Effective Time and (y)
an additional $335,000 in cash shall be payable Pro Rata to the Shareholders
within thirty (30) days after the Acquiror reasonably determines that Target has
substantially met the acceptance criteria for the complete technical turnover
for development (the "Technical Turnover Milestone"), as set forth on Schedule
1.6(d)(i), during the four fiscal quarters following the Effective Time, each in
accordance with the terms set forth in Schedule 1.6(d)(i) hereof.
(ii) Up to an additional $499,000 in cash
shall be payable Pro Rata to the Shareholders within thirty (30) days after the
completion of an audit by Acquiror to the extent that sales revenues derived
from Target's products (including future releases) and products of Acquiror and
its Affiliates (defined below) derived from Target's products (including future
releases) (collectively the "Target Products") exceed an aggregate $2,500,000
(the
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"Primary Threshold Amount") during the four fiscal quarters following the
Effective Time (the "First Earnout Period") as set forth below:
(x) For reported revenues between
$2,500,001 to $3,000,000, the aggregate cash amount equal to the product of (1)
the reported revenue figure less $2,500,000 divided by $500,000 and (2) $335,000
(the "Initial Earnout Amount"); and
(y) For reported revenues over
$3,000,000, the aggregate cash amount equal to the Initial Earnout Amount and
the product of (1) the reported revenue figure less $3,000,000 (or $500,000,
whichever is less) divided by $500,000 and (2) $164,000.
Examples of calculations of the foregoing formulas are set
forth in Schedule 1.6(d)(ii) hereof.
(iii) If sales revenues of the Target
Products reach sales revenues of at least $2,000,000 (the "Secondary Threshold
Amount") during the First Earnout Period, then at the end of the four fiscal
quarters following the First Earnout Period (the "Second Earnout Period") and
four fiscal quarters following the Second Earnout Period (the "Third Earnout
Period"), Acquiror will pay in cash Pro Rata to Shareholders within thirty (30)
days upon completion of an audit by Acquiror of reported revenues of the Second
Earnout Period or Third Earnout Period, as the case may be, 15% of any increase
in sales of the Target Products recognized in such earnout period. As used in
this Agreement, "Affiliate" means any person that directly, or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with the person specified.
Examples of calculations of the foregoing formula are set
forth in Schedule 1.6(c)(iii) hereof.
(iv) Acquiror will conduct an audit of
records relating to Target product sales revenue promptly after the conclusion
of each Earnout Period, with such audit to be completed within sixty (60) days
after the conclusion of the applicable Earnout Period.
(v) Notwithstanding anything to the
contrary herein, if the ratio of (i) aggregate cash payments ("Aggregate Cash
Payments") required by this Agreement (including cash payable to Shareholders,
cash paid in lieu of fractional shares and cash paid to dissenters) divided by
(ii) the sum of (x) Aggregate Cash Payments plus (y) the value of the shares of
Acquiror Common Stock (the "Test Ratio Share Value") deliverable to the
Shareholders under this Agreement exceeds nineteen percent (19%), Acquiror shall
deliver to the Shareholders, and the Shareholders shall accept, in lieu of any
cash amount payable to the Shareholders in excess of the Aggregate Cash Payments
previously paid to the Shareholders prior to the date the Test Ratio Share Value
exceeds nineteen percent (19%), additional shares of Acquiror Common Stock ("Tax
Qualification Shares"), until the foregoing ratio equals or is less than
nineteen percent (19%). Such Tax Qualification Shares shall be issued as
restricted stock, provided that Acquiror shall use its diligent efforts to
include such shares in the next registration
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statement filed by Acquiror for any purpose and thereby register the shares at
its expense. Such right of the Shareholders to receive Tax Qualification Shares
shall not be assignable by any Shareholder.
For purposes of calculating the Test Ratio Share Value, shares of Acquiror
Common Stock issued pursuant to Section 1.6(a)(i) shall be valued at the mean of
the high and low sales price of a share of Acquiror Common Stock on the date of
the Effective Time (the "Closing Tax Value") and additional shares of Acquiror
Common Stock issued pursuant to Section 1.6(c)(i), and any Tax Qualification
Shares issued prior to calculation of the Test Ratio Share Value shall be valued
at the lesser of the Closing Tax Value or the mean of the high and low sales
price of a share of Acquiror Common Stock on the date of issuance of such stock.
For purposes of calculating any required adjustment in the mix of
consideration, the parties shall first compute any required reduction in
Aggregate Cash Payments by adding Aggregate Cash Payments to the numerator and
denominator of the foregoing ratio, excluding any adjustment to the denominator
of the ratio resulting from any corresponding increase in Tax Qualification
Shares resulting from the required reduction.
For purposes of substituting Tax Qualification Shares in lieu of the
reduced amount of Aggregate Cash Payments as so determined, the Tax
Qualification Shares shall be valued at the time of issuance based on the
average of the closing bid price per share of Acquiror's Common Stock as quoted
on the NASDAQ National Market System, as reported in the Wall Street Journal,
for 5 consecutive trading days ending on the trading day immediately prior to
the date the Tax Qualification Shares are issued (the "Issuance Time Value").
(e) Merger Consideration Adjustment - Balance Sheet.
(i) Within sixty (60) days following the
Closing Date, Acquiror shall cause to be prepared and delivered to the
Shareholder Agent an unaudited balance sheet of the Surviving Corporation as of
the Closing Date (the "Adjusted Balance Sheet"). The Adjusted Balance Sheet will
be prepared in accordance with generally accepted accounting principles on a
basis consistent with the most recent regularly prepared financial statements of
Acquiror. The parties hereby agree that the Final Net Assets (defined below)
shall not include or account as an asset (i) any loans receivable from holders
of options under the Target Stock Option Plan (defined in Section 2.5) pursuant
to any purchases of Target Common Stock upon exercise of such options with a
promissory note (or any payments received on such loans receivable), (ii)
accounts receivable which are more than ninety (90) days outstanding as of May
31, 1999, (iii) Target's 1995 Ford Explorer which shall be purchased from Target
by Principal Shareholder pursuant to Section 5.22 below (the "Excluded Vehicle
Asset") or (iv) the Excluded Vehicle Proceeds (as defined in Section 5.22) and
shall not include as a liability the Transaction Fees. In accordance with the
foregoing, the (x) total assets less (y) total liabilities as of the Closing
Date (the "Final Net Assets") shall be derived from the Adjusted Balance Sheet.
In the event that, pursuant to the terms of this Section 1.6(e), it is
determined that Final Net Assets are less than the (x) total assets less (y)
total liabilities (the "Preliminary Net Assets") derived from the balance sheet
of Target dated May 31, 1999 (the "Interim Balance Sheet," such
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Interim Balance Sheet to likewise exclude as an asset accounts receivable which
are more than ninety (90) days outstanding as of May 31, 1999 and the Excluded
Vehicle Asset, and to exclude as a liability the Transaction Fees, in
determining the Preliminary Net Assets) and required by Section 5.17 hereof,
then an amount equal to such difference (the "Negative Difference") shall be
paid to Acquiror out of the Escrow Fund upon the delivery to the Escrow Agent of
an Officer's Certificate in accordance with the terms of Section 8 hereof;
provided, however, that in the event that the Negative Difference exceeds
$50,000 (an "Extraordinary Difference"), the Shareholders (including Principal
Shareholder) shall, in addition to the $50,000 paid out from the Escrow Fund,
reimburse Acquiror in cash separate from and in addition to amounts contributed
to the Escrow Fund by such Shareholders for the for the amount over $50,000.
Payments made by the Shareholders with respect to an Extraordinary Difference
shall be made to Acquiror within fifteen (15) days of the resolution of such
matter pursuant to the terms hereof. In the event that, pursuant to the terms of
this Section 1.6(e), it is determined that Final Net Assets at the Closing Date
are greater than Preliminary Net Assets, then Acquiror shall pay Pro Rata to the
Shareholders, subject to Section 1.7(i), a cash amount equal to such difference
within fifteen (15) days of the resolution of such matter pursuant to the terms
hereof. "Shareholder Agent," "Escrow Fund," "Escrow Agent" and "Officer's
Certificate" are defined in Section 8 hereof.
(ii) Following delivery by Acquiror to the
Shareholder Agent of the Adjusted Balance Sheet, Acquiror shall give to the
Shareholder Agent reasonable access during Acquirer's business hours to those
books and records of the Surviving Corporation in the possession of Acquiror and
any personnel which relate to the preparation of the Adjusted Balance Sheet for
purposes of resolving any disputes concerning the Adjusted Balance Sheet and the
calculation of Final Net Assets.
(iii) The Shareholder Agent shall have
thirty (30) days following delivery of the Adjusted Balance Sheet during which
to notify Acquiror in writing (the "Notice of Objection") of any good faith
objections to the calculation of Final Net Assets or the Adjusted Balance Sheet
as it affects such calculation, setting forth a reasonably specific and detailed
description of its objections and the dollar amount of each objection. If the
Shareholder Agent objects to the Adjusted Balance Sheet, or Acquiror's
calculation of Final Net Assets as reflected thereon, Acquiror and the
Shareholder Agent shall attempt to resolve any such objections within thirty
(30) days of the receipt by Acquiror of the Notice of Objection.
(iv) If Acquiror and the Shareholder Agent
are unable to resolve any such dispute within the thirty (30) day period
referred to in Section 1.6(e)(iii) above, Acquiror and the Shareholder Agent
shall submit the dispute to a "Big Five" independent accounting firm chosen by
Acquiror (the "Independent Accounting Firm"). Each of the parties to this
Agreement shall, and shall cause their respective affiliates and representatives
to, provide full cooperation to the Independent Accounting Firm. The Independent
Accounting Firm shall (x) act in its capacity as an expert and not as an
arbitrator, (y) consider only those matters as to which there is a dispute
between the parties and (z) be instructed to reach its conclusions regarding any
such dispute within thirty (30) days after its appointment and provide a written
explanation of its decision. In the event that Acquiror and the Shareholder
Agent submit any
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dispute to an Independent Accounting Firm, each such party may submit a
"position paper" to the Independent Accounting Firm setting forth the position
of such party with respect to such dispute, to be considered by such Independent
Accounting Firm as it deems fit. Fifty percent (50%) of any expenses relating to
the engagement of the Independent Accounting Firm shall be paid by Acquiror and
fifty percent (50%) of such expenses shall be paid by the Shareholders
(including Principal Shareholder) separate and in cash separate from and in
addition to the amounts contributed to the Escrow Fund.
(v) If the Shareholder Agent does not
deliver the Notice of Objection in accordance with Section 1.6(e)(iii) above
(i.e., within a thirty-day period), the Adjusted Balance Sheet (together with
Acquiror's calculation of Final Net Assets reflected thereon), shall be deemed
to have been accepted by all of the parties to this Agreement. In the event that
the Shareholder Agent delivers a Notice of Objection in accordance with the
provisions above and Acquiror and the Shareholder Agent are able to resolve such
dispute by mutual agreement, the Adjusted Balance Sheet, together with
Acquiror's calculation of Final Net Assets reflected thereon, to the extent
modified by mutual agreement of such parties, shall be deemed to have been
accepted by all of the parties to this Agreement. In the event that the
Shareholder Agent delivers a Notice of Objection in accordance with the
provisions set forth above and Acquiror and the Shareholder Agent are unable to
resolve such dispute by mutual agreement, the determination of the Independent
Accounting Firm shall be final and binding on the parties and the Adjusted
Balance Sheet, together with Acquiror's calculation of Final Net Assets
reflected thereon, to the extent modified by the Independent Accounting Firm,
shall be deemed to have been accepted by all of the parties to this Agreement.
Subject to the foregoing provisions, the calculations of Final Net Assets
reflected on any such Adjusted Balance Sheet shall be conclusive and binding on
all of the parties to this Agreement, no further adjustments shall be made
thereto and neither Acquiror, the Shareholder Agent nor the Shareholders shall
have any further right to challenge such calculation of Final Net Assets,
whether pursuant to the terms of Section 8.10 hereof or otherwise.
(f) Capital Stock of Merger Sub. At the Effective Time, each
share of Common Stock of Merger Sub ("Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of Common
Stock of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
(g) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Common Stock or Target Common Stock), reorganization, recapitalization
or other like change with respect to Acquiror Common Stock or Target Common
Stock occurring after the date hereof and prior to the Effective Time.
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(h) Fractional Shares. No fraction of a share of Acquiror
Common Stock will be issued, but in lieu thereof each holder of shares of Target
Common Stock who would otherwise be entitled to a fraction of a share of
Acquiror Common Stock (after aggregating all fractional shares of Acquiror
Common Stock to be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the Closing Market Price. The fractional share
interests of each Target shareholder shall be aggregated, so that no Target
shareholder shall receive cash in respect of fractional share interests in an
amount greater than the value of one full share of Acquiror Common Stock.
(i) Dissenters' Rights. Dissenting Shares, if any, shall not
be converted into the Merger Consideration but shall instead be converted into
the right to receive such consideration as may be determined to be due with
respect to such Dissenting Shares pursuant to California Law. Target shall give
Acquiror prompt notice of any demand received by Target to require Target to
purchase shares of Common Stock of Target, and Acquiror shall have the right to
direct (in consultation with Target prior to the Closing Date) and to
participate in all negotiations and proceedings with respect to such demand.
Target agrees that, except with the prior written consent of Acquiror, which
Acquiror shall not unreasonably withhold or delay, or as required under the
California Law, it will not voluntarily make any payment with respect to, or
settle or offer to settle, any such purchase demand. Each holder of Dissenting
Shares ("Dissenting Shareholder") who, pursuant to the provisions of California
Law, becomes entitled to payment of the fair value for shares of Target Capital
Stock shall receive payment therefor (but only after the value therefor shall
have been agreed upon or finally determined pursuant to such provisions). If,
after the Effective Time, any Dissenting Shares shall lose their status as
Dissenting Shares, Acquiror shall issue and deliver, upon surrender by such
shareholder of a certificate or certificates representing shares of Target
Capital Stock, the Merger Consideration to which such shareholder would
otherwise be entitled under this Section 1.6 and the Certificate of Merger less
the Merger Consideration allocable to such shareholder that has been deposited
in the Escrow Fund (as defined below) in respect of such shares of Target Common
Stock pursuant to Section 1.7(i) and Section 8 hereof.
(j) Certificate Legends. The shares of Acquiror Common Stock
to be issued pursuant to this Section 1 shall not have been registered and shall
be characterized as "restricted securities" under the federal securities laws,
and under such laws such shares may be resold without registration under the
Securities Act of 1933, as amended (the "Securities Act"), only in certain
limited circumstances. Each certificate evidencing shares of Acquiror Common
Stock to be issued pursuant to this Section 1 shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE
SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY
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ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
and any legends required by state securities laws. Further, each certificate
shall additionally bear the following legend in connection with the Rights
Agreement between Acquiror and BankBoston, N.A. dated as of June 30, 1998:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN CYBERCASH,
INC. (THE "COMPANY") AND BANKBOSTON N.A. (THE "RIGHTS AGENT") DATED
AS OF JUNE 30, 1998 (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE
HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY. UNDER
CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH
RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER
BE EVIDENCED BY THIS CERTIFICATE. THE COMPANY WILL MAIL TO THE
HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT AS IN
EFFECT ON THE DATE OF MAILING WITHOUT CHARGE AFTER RECEIPT OF A
WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN
THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO
IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE
THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER
CURRENTLY HELD BY OR ON BEHALF OFSUCH PERSON OR BY ANY SUBSEQUENT
HOLDER, MAY BECOME NULL AND VOID. THE RIGHTS SHALL NOT BE
EXERCISABLE, AND SHALL BE NULL AND VOID SO LONG AS HELD, BY A HOLDER
IN ANY JURISDICTION WHERE THE REQUISITE QUALIFICATION OF THE
ISSUANCE TO SUCH HOLDER, OR THE EXERCISE BY SUCH HOLDER, OF THE
RIGHTS IN SUCH JURISDICTION SHALL NOT HAVE BEEN OBTAINED OR BE
OBTAINABLE.
1.7 Surrender of Certificates.
(a) Exchange Agent. BankBoston, N.A. shall act
as exchange agent (the "Exchange Agent") in the Merger.
(b) Acquiror to Provide Common Stock and Cash. Promptly after
the Effective Time, Acquiror shall supply or cause to be supplied to the
Exchange Agent for exchange in accordance with this Section 1 through such
reasonable procedures as Acquiror may adopt (i) certificates evidencing the
shares of Acquiror Common Stock issuable pursuant to Section 1.6(a) in exchange
for shares of Target Capital Stock outstanding immediately prior to the
Effective Time, less the number of shares of Acquiror Common Stock to be
deposited into an
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escrow fund (the "Escrow Fund") pursuant to the requirements of Section 1.7(i)
and Section 8, (ii) cash in an amount sufficient to pay the Per Share Cash
Consideration which the holders of Target Common Stock are entitled to deserve
pursuant to Section 1.6(a) above less 10% of the aggregate Per Share Cash
Consideration to be deposited into the Escrow Fund pursuant to the requirements
of Section 1.7(i) and Section 8 hereof, and (iii) cash in an amount sufficient
to permit payment of cash in lieu of fractional shares pursuant to Section
1.6(i) (collectively, (i), (ii) and (iii) shall be referred to as the "Exchange
Fund").
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Target Common Stock, whose
shares were converted into the right to receive shares of Acquiror Common Stock
(and cash in lieu of fractional shares) pursuant to Section 1.6, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Acquiror may reasonably specify), (ii) such other customary
documents as may be required pursuant to such instructions, and (iii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Acquiror Common Stock and the Per Share
Cash Consideration (and cash in lieu of fractional shares). Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Acquiror, together with such letter of transmittal
and other documents, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor (A) a certificate representing the number of whole
shares of Acquiror Common Stock less the number of shares of Acquiror Common
Stock to be deposited in the Escrow Fund on such holder's behalf pursuant to
Sections 1.7(i) and 8 hereof, (B) any dividends or other distributions to which
such holder is entitled pursuant to Section 1.7(d), (C) the aggregate Per Share
Cash Consideration which the holder is entitled to less the amount to be
deposited into the Escrow Fund on such holder's behalf pursuant to Sections
1.7(i) and 8 hereof, and (D) cash (without interest) in respect of fractional
shares as provided in Section 1.6(i) and the Certificate so surrendered shall
forthwith be canceled. Until so surrendered, each outstanding Certificate that,
prior to the Effective Time, represented shares of Target Capital Stock will be
deemed from and after the Effective Time, for all corporate purposes, other than
the payment of dividends, to evidence the ownership of the number of full shares
of Acquiror Common Stock into which such shares of Target Capital Stock shall
have been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole
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shares of Acquiror Common Stock issued in exchange therefor, without interest at
the time of such surrender, the amount of any such dividends or other
distributions with a record date after the Effective Time theretofore payable
(but for the provisions of this Section 1.7(d)) with respect to such shares of
Acquiror Common Stock.
(e) Transfers of Ownership. At the Effective Time, the stock
transfer books of the Target shall be closed and there shall be no further
registration of transfers of Target Common Stock or Target Preferred Stock
thereafter on the records of the Target. If any certificate for shares of
Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the shareholders of Target one year after
the Effective Time shall be delivered to Acquiror, upon demand, and any
shareholders of Target who have not previously complied with this Section 1.7
shall thereafter look only to Acquiror for payment of their claim for the Merger
Consideration and any dividends or distributions with respect to Acquiror Common
Stock.
(g) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Dissenting Shares. The provisions of this Section 1.7 shall
also apply to Dissenting Shares that lose their status as such, except that the
obligations of Acquiror under this Section 1.7 shall commence on the date of
loss of such status and the holder of such shares shall be entitled to receive
in exchange for such shares the Merger Consideration to which such holder is
entitled pursuant to Section 1.6 hereof.
(i) Escrow. As soon as practicable after the Effective Time,
and subject to and in accordance with the provisions of Section 8 hereof,
Acquiror shall cause to be deposited with the Escrow Agent the number of shares
of Acquiror Common Stock equal to the sum of (i) 10% of the total number of
shares of Acquiror Common Stock to be issued in the Merger (the "Indemnification
Shares"), (ii) pursuant to Section 1.6(c)(ii) hereof, an additional 10% of the
total number of shares of Acquiror Common Stock to be issued in the Merger (the
"Adjustment Shares") and (iii) 10% of the Aggregate Cash Consideration (the
"Indemnification Cash," and collectively with the Indemnification Shares and the
Adjustment Shares, the "Initial Escrowed Consideration"). Additionally, and as
soon as practicable after the occurrence and in accordance with Sections 1.6(c)
and/or 1.6(e) hereof, Acquiror shall cause to be deposited with
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the Escrow Agent 10% of (i) any shares of Post-Closing Additional Shares issued
pursuant to Section 1.6(c)(i) hereof, and (ii) any cash payment made by Acquiror
to Shareholders pursuant to Section 1.6(e) hereof, to the extent that the Final
Net Assets exceed the Preliminary Net Assets (the "Contingent Escrowed
Consideration," and collectively with the "Initial Escrowed Consideration," the
"Total Escrowed Consideration"). Pursuant to Section 8 hereof, the Adjustment
Shares shall be held in a segregated escrow account (the "Adjustment Escrow").
1.8 No Further Ownership Rights in Target Capital Stock. The Merger
Consideration delivered upon the surrender for exchange of shares of Target
Capital Stock in accordance with the terms hereof (including any dividends,
distributions or cash paid in lieu of fractional shares) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Target Capital Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Target Capital Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Section 1.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof such Merger
Consideration (and dividends, distributions and cash in lieu of fractional
shares) as may be required pursuant to Section 1.6; provided, however, that
Acquiror may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct which is permissible
under Section 167 of the Delaware Law and will indemnify it against any claim
that may be made against Acquiror, the Surviving Corporation or the Exchange
Agent with respect to the Certificates alleged to have been lost stolen or
destroyed.
1.10 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368(a) of the Code.
1.11 Taking of Necessary Action; Further Action. Each of Acquiror,
Merger Sub and Target will take all such reasonable and lawful action as may be
necessary or desirable in order to effectuate the Merger in accordance with this
Agreement as promptly as possible. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
Target and Merger Sub, the officers and directors of Target and Merger Sub are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
2. Representations and Warranties of Target. Except as disclosed in a
document of even date herewith and delivered by Target and Principal Shareholder
to Acquiror prior to the execution and delivery of this Agreement and referring
to the representations and warranties in
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this Agreement (the "Target Disclosure Schedule"), Target and Principal
Shareholder hereby jointly and severally represent and warrant to Acquiror and
Merger Sub as follows:
2.1 Organization, Standing and Power. Each of Target and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Target has the
corporate power to own its properties and to carry on its business as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing would
have a Material Adverse Effect on Target. Each of Target and its subsidiaries
has delivered a true and correct copy of the Articles of Incorporation and
Bylaws or other charter documents, as applicable, of Target, each as amended to
date, to Acquiror. Each of Target and its subsidiaries is not in violation of
any of the provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents. Target is the owner of all outstanding shares of
capital stock of each of its subsidiaries listed in Section 2.1 of the
Disclosure Schedule and all such shares are duly authorized, validly issued,
fully paid and nonassessable. Target does not directly or indirectly own any
equity or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity other than
Target's interest in the subsidiaries listed in Section 2.1 of the Disclosure
Schedule.
2.2 Authority. Each of Target and Principal Shareholder has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Target
subject only to the approval of the Merger by Target's shareholders as
contemplated by Section 6.1(a). The affirmative vote of the holders of a
majority of the shares of Target's Common Stock outstanding on the record date
for the Written Consent of Shareholders relating to this Agreement is the only
vote of the holders of any of Target's Capital Stock necessary under California
Law to approve this Agreement and the transactions contemplated hereby. The
Board of Directors of Target has (i) unanimously approved this Agreement and the
Merger, (ii) determined that in its opinion the Merger is in the best interests
of the shareholders of Target and is on terms that are fair to such shareholders
and (iii) recommended that the shareholders of Target approve this Agreement and
the Merger. This Agreement has been duly executed and delivered by Target and
constitutes the valid and binding obligation of Target enforceable against
Target in accordance with its terms, except that such enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to creditors' rights generally, and is subject to general principles of
equity. The execution and delivery of this Agreement by Target does not, and the
consummation of the transactions contemplated hereby will not conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any material obligation or loss of any material benefit under
(i) any provision of the Articles of Incorporation or Bylaws of Target or any of
its subsidiaries, as amended, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, or, to Target's knowledge, any statute,
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law, ordinance, rule or regulation applicable to Target or any of its
subsidiaries or any of their properties or assets. No consent, approval, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity") is required by or with respect to Target
or any of its subsidiaries in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the Agreement of Merger in California and the Certificate
of Merger in Delaware, together with the required officers' certificates, as
provided in Section 1.2; (ii) the filing of the Certificate of Merger, as
provided in Section 1.2; (iii) filings, if any, required under Regulation D of
the Securities Act of 1933; (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
and (v) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Target and would not prevent, or materially alter or delay any of the
transactions contemplated by this Agreement.
2.3 Governmental Authorization. Target and each of its subsidiaries
have obtained each federal, state, county, local or foreign governmental
consent, license, permit, grant, or other authorization of a Governmental Entity
(i) pursuant to which Target or any of its subsidiaries currently operates or
holds any interest in any of its properties or (ii) that is required for the
operation of Target's or any of its subsidiaries' business or the holding of any
such interest and all of such authorizations are in full force and effect except
where the failure to obtain or have any such authorizations could not reasonably
be expected to have a Material Adverse Effect on Target.
2.4 Financial Statements. Target has delivered to Acquiror its
unaudited financial statements for each of the fiscal years ended December 31,
1997 and December 31, 1998, respectively, and its unaudited financial statements
(balance sheet, statement of operations and statement of cash flows) on a
consolidated basis as at and for the three month period ended March 31, 1999 and
unaudited reported revenues for the twelve month period ended March 31, 1999
(collectively, the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles (except that the
Financial Statements do not have notes thereto) applied on a consistent basis
throughout the periods indicated and with each other. The Financial Statements
fairly present the consolidated financial condition and operating results of
Target as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments. Target maintains and will continue, prior to
the Effective Time, to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles
consistent with prior practice.
2.5 Capital Structure. The authorized capital stock of Target
consists of twenty-five million (25,000,000) shares of Target Common Stock, of
which there are two million three hundred ninety-eight thousand eight hundred
(2,398,800) issued and outstanding shares as of the close of business on the
date hereof. All outstanding shares of Target Common Stock are duly authorized,
validly issued, fully paid and non-assessable and are free of any liens or
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encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, and are not subject to preemptive rights or rights of first
refusal created by statute, the Articles of Incorporation or Bylaws of Target or
any agreement to which Target is a party or by which it is bound. Target
maintains the 1997 Stock Incentive Plan (the "Target Stock Option Plan"),
pursuant to which there are outstanding on the date hereof options to purchase
three hundred forty-seven thousand nine hundred (347,900) shares of Target
Common Stock and has reserved an additional two thousand one hundred (2,100)
shares of the Target Common Stock for issuance pursuant to options to be granted
to employees, consultants and directors of Target. Except for the rights created
pursuant to this Agreement and the rights disclosed in the preceding sentence,
there are no other options, warrants, calls, rights, commitments or agreements
of any character to which Target is a party or by which it is bound obligating
Target to issue, deliver, sell, repurchase or redeem or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of Target Capital Stock or
obligating Target to grant, extend, accelerate the vesting of, change the price
of, or otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no other contracts, commitments or agreements
relating to voting, purchase or sale of Target's capital stock (i) between or
among Target and any of its shareholders and (ii) to Target's knowledge, between
or among any of Target's shareholders, except for the shareholders delivering
the Shareholder Agreements (as defined below). All shares of outstanding Target
Common Stock and Target Preferred Stock were issued in compliance with all
applicable federal and state securities laws. There are no former shareholders
of Target. Target has not repurchased any shares of its Capital Stock.
2.6 Absence of Certain Changes. Since March 31, 1999, (the "Target
Balance Sheet Date"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to Target;
(ii) any acquisition, sale or transfer of any material asset of Target or any of
its subsidiaries other than in the ordinary course of business and consistent
with past practice; (iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
Target or any revaluation by Target of any of its or any of its subsidiaries'
assets; (iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Target or any direct or indirect
redemption, purchase or other acquisition by Target of any of its shares of
capital stock; (v) any material contract entered into by Target or any of its
subsidiaries, other than in the ordinary course of business and as provided to
Acquiror, or any material amendment or termination of, or default under, any
material contract to which Target or any of its subsidiaries is a party or by
which it is bound; (vi) any amendment or change to the Articles of Incorporation
or Bylaws of Target; (vii) any increase in or modification of the compensation
or benefits payable or to become payable by Target to any of its directors or
employees or (viii) any negotiation or agreement by Target or any of its
subsidiaries to do any of the things described in the preceding clauses (i)
through (vii) (other than negotiations with Acquiror and its representatives
regarding the transactions contemplated by this Agreement). At the Effective
Time, there will be no accrued but unpaid dividends on shares of Target's
Capital Stock.
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2.7 Absence of Undisclosed Liabilities. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet for the period ended March 31, 1999 (the "Target Balance Sheet"),
(ii) those incurred in the ordinary course of business and not required to be
set forth in the Target Balance Sheet under generally accepted accounting
principles, (iii) those incurred in the ordinary course of business since the
Target Balance Sheet Date and consistent with past practice; and (iv) those
incurred in connection with the execution of this Agreement. Notwithstanding the
foregoing, Target has made available or delivered to Acquiror a list of all of
its accounts payable (invoiced or otherwise) and other liabilities outstanding
as of the date hereof.
2.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target or any of its
subsidiaries, threatened against Target or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Target. There is no
judgment, decree or order against Target or any of its subsidiaries, or, to the
knowledge of Target and its subsidiaries, any of their respective directors or
officers (in their capacities as such), that could prevent, enjoin, or
materially alter or delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Target. All litigation to which Target is a party (or, to the
knowledge of Target, threatened to become a party) is disclosed in the Target
Disclosure Schedule.
2.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Target or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current business practice of Target or
any of its subsidiaries, any acquisition of property by Target or any of its
subsidiaries or the conduct of business by Target or any of its subsidiaries as
currently conducted by Target or any of its subsidiaries.
2.10 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property"
means:
(i) all issued patents, reissued or
reexamined patents, revivals of patents, utility models, certificates of
invention, registrations of patents and extensions thereof, regardless of
country or formal name (collectively, "Issued Patents");
(ii) all published or unpublished
nonprovisional and provisional patent applications, reexamination proceedings,
invention disclosures and records of invention (collectively "Patent
Applications" and, with the Issued Patents, the "Patents");
(iii) all copyrights, copyrightable
works, semiconductor topography and mask work rights, including all rights of
authorship, use, publication,
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reproduction, distribution, performance transformation, moral rights and rights
of ownership of copyrightable works, semiconductor topography works and mask
works, and all rights to register and obtain renewals and extensions of
registrations, together with all other interests accruing by reason of
international copyright, semiconductor topography and mask work conventions
(collectively, "Copyrights");
(iv) trademarks, registered trademarks,
applications for registration of trademarks, service marks, registered service
marks, applications for registration of service marks, trade names, registered
trade names and applications for registrations of trade names (collectively,
"Trademarks");
(v) all technology, ideas, inventions,
designs, proprietary information, manufacturing and operating specifications,
know-how, formulae, trade secrets, technical data, computer programs, hardware,
software and processes; and
(vi) all other intangible assets, properties
and rights (whether or not appropriate steps have been taken to protect, under
applicable law, such other intangible assets, properties or rights).
(b) Target and its subsidiaries own and have good and
marketable title to, or possess legally enforceable rights to use, all
Intellectual Property used in the business of Target and its subsidiaries as
currently conducted by Target and its subsidiaries. The Intellectual Property
owned by and licensed to Target collectively constitutes all of the Intellectual
Property necessary to enable Target to conduct its business as such business is
currently being conducted.
(c) With respect to each item of Intellectual Property
incorporated into any product of Target or otherwise used in the business of
Target (except "off the shelf" or other software widely available through
regular commercial distribution channels at a cost not exceeding $25,000 on
standard terms and conditions, as modified for Target's operations) ("Target
Intellectual Property") the Target Disclosure Schedule lists:
(i) all Issued Patents and Patent
Applications and all registered trademarks, and trademark applications and all
registered copyrights, including the jurisdictions in which each such
Intellectual Property has been issued or registered or in which any such
application for such issuance and registration has been filed; and
(ii) the following agreements relating to
each of the products of Target or its subsidiaries (the "Target Products") or
other Target Intellectual Property: all (A) agreements granting any right to
distribute or sublicense a Target Product on any exclusive basis, (B) any
exclusive licenses of Intellectual Property to or from Target, (C) agreements
pursuant to which the amounts actually paid or payable under firm commitments to
Target or its Subsidiaries are $25,000 or more, (D) joint development
agreements, (E) any agreement by which Target grants any ownership right to any
Target Intellectual Property owned by Target, (F) any purchase order relating to
Target Intellectual Property, (G) any option relating to any
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Target Intellectual Property, and (H) agreements pursuant to which any party is
granted any rights to access source code or to use source code to create
derivative works of Target Products.
(d) The Target Disclosure Schedule contains an accurate list
as of the date of this Agreement of all licenses, sublicenses and other
agreements to which Target or its Subsidiaries are a party and pursuant to which
Target or its Subsidiaries are authorized to use any Intellectual Property owned
by any third party excluding "off the shelf" or other software at a cost not
exceeding $25,000 and widely available through regular commercial distribution
channels on standard terms and conditions, as modified for Target's operations
("Third Party Intellectual Property"). Target has not been subject to an audit
by the Software Publishers Association as to any of its Third Party Intellectual
Property.
(e) To the knowledge of Target, there is no unauthorized use,
disclosure, infringement or misappropriation of any Target Intellectual Property
by any third party, including any employee or former employee of Target or any
of its subsidiaries. Neither Target nor any of its subsidiaries has entered into
any agreement to indemnify any other person against any charge of infringement
of any Intellectual Property, other than indemnification provisions contained in
standard sales or license agreements to end users arising in the ordinary course
of business, the forms of which have been delivered to Acquiror or its counsel.
There are no royalties, fees or other payments payable by Target to any Person
by reason of the ownership, use, sale or disposition of Intellectual Property.
(f) Target has not breached, or received in writing any claim
or threat that it has breached (i) any license, sublicense or other agreement
(the "License Agreements") to which it is a party relating to Target
Intellectual Property or Third Party Intellectual Property involving more than
$10,000 in consideration in each such case, or (ii) any License Agreement in
such a manner as would permit any other party to cancel or terminate the same
(with or without notice of passage of time) or would provide a basis for any
other party to claim money damages (either individually or in the aggregate with
all other such claims) from Target or give rise to a right of acceleration of
any material obligation or loss of any material benefit under any such License
Agreement, which in the aggregate could reasonably be expected to have a
Material Adverse Effect on Target. Neither the execution, delivery or
performance of this Agreement or any ancillary agreement contemplated hereby nor
the consummation of the Merger or any of the transactions contemplated by this
Agreement will contravene, conflict with or result in an infringement on the
Surviving Corporation's right to own or use any Target Intellectual Property,
including any Third Party Intellectual Property.
(g) All patents, registered trademarks, service marks and
copyrights held by Target are valid and subsisting. All maintenance and annual
fees have been fully paid and all fees paid during prosecution and after
issuance of any patent comprising or relating to such item have been paid in the
correct entity status amounts. Excluding from consideration all "off the shelf"
or other software at a cost not exceeding $25,000 and widely available through
regular commercial distribution channels on standard terms and conditions, as
modified for Target's operations, Target is not infringing, misappropriating or
making unlawful use of any
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proprietary asset owned or used by any third party, and Target has received no
notice or other communication (in writing or otherwise) of any actual, alleged,
possible or potential infringement, misappropriation or unlawful use of any
proprietary asset owned or used by any third party. There is no proceeding
pending or, to the knowledge of Target, threatened, nor has any claim or demand
been made, which challenges the legality, validity, enforceability or ownership
of any item of Target Intellectual Property or Third Party Intellectual Property
or alleges a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party. Target has not brought a proceeding alleging infringement of Target
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(h) All current and former officers and employees of Target
who have or had access to Target's Intellectual Property have executed and
delivered to Target an agreement (containing no exceptions or exclusions from
the scope of its coverage) regarding the protection of proprietary information
and the assignment to Target of any Intellectual Property arising from services
performed for Target by such persons, the form of which has been supplied to
Acquiror. All current and former consultants and independent contractors to
Target involved in the development or modification of Target's products
(including those involved in supporting those products), and/or Target
Intellectual Property have executed and delivered to Target an agreement
(containing no exceptions or exclusions from the scope of its coverage) in the
form delivered to Acquiror. To Target's knowledge, no employee or independent
contractor of Target is in violation of any term of any patent disclosure
agreement or employment contract or any other contract or agreement relating to
the relationship of any such employee or independent contractor with Target. No
current or former officer, director, stockholder, employee, consultant or
independent contractor has any right, claim or interest in or with respect to
any Target Intellectual Property.
(i) Target has taken commercially reasonable and customary
measures and precautions as necessary to protect and maintain the
confidentiality of all Target Intellectual Property (except such Target
Intellectual Property whose value would be unimpaired by public disclosure) and
otherwise to maintain and protect the full value of all material Intellectual
Property it owns or uses. Target has not disclosed, either directly or through a
third party, Intellectual Property not otherwise protected by patents, patent
applications or copyright ("Confidential Information") owned by Target to third
parties for use or appropriation by such third parties except pursuant to the
terms of a written agreement between Target and such third parties and, to
Target's knowledge, no disclosure, use or appropriation by or for a third party
has occurred, either through Target or through a third party, without Target's
consent. All use, disclosure or appropriation by Target of Confidential
Information not owned by Target has been pursuant to the terms of a written
agreement between Target and the owner of such Confidential Information, or is
otherwise lawful.
(j) No product liability claims have been communicated in
writing to or, to the knowledge of Target, threatened against Target.
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(k) A complete list of each of the Target Products and
Target's proprietary software ("Target Software"), together with a brief
description of each, is set forth in Schedule 2.10. The Target Software and
Target Products conform in all material respects with any published
specification, documentation, or performance standard, as published through any
means, provided with respect thereto by or on behalf of Target.
(l) Target is not subject to any proceeding or outstanding
decree, order, judgment, or stipulation restricting in any manner the use,
transfer, or licensing thereof by Target, or which may affect the validity, use
or enforceability of such Target Intellectual Property. Target is not subject to
any agreement which restricts in any material respect the use, transfer, or
licensing by Target of the Target Intellectual Property or Target Products.
(m) All of Target's and its subsidiaries' products in the
versions which are in present commercial release, as listed on Schedule 2.10(m)
of the Target Disclosure Schedule (i) accept input and provide output of data
involving dates or portions of dates before, during and after January 1, 2000 in
a consistent, defined, disclosed and unambiguous manner as to the appropriate
century, (ii) manage, store, manipulate, sort, sequence and perform calculations
with respect to data involving dates or portions of dates before, during and
after January 1, 2000, consistently and accurately, (iii) recognize, to the
extent that such products contain functionality which requires the recognition
of leap years generally, the year 2000 as a leap year and (iv) operate
continuously without material error, malfunction or interruption caused by or
resulting from the change of the centuries from 1999 to 2000, or the transition
from any date in the twentieth or twenty-first century to any other date in the
twentieth or the twenty-first centuries, and will record, store, process,
calculate and present calendar dates falling on and after (and if applicable,
spans of time including) January 1, 2000 (collectively, "Year 2000 Compliant").
Except as listed on Schedule 2.10(m) of the Target Disclosure Schedule, all of
the Target's and its subsidiaries' products in previously released versions
which are no longer being distributed by Target or its subsidiaries are Year
2000 Compliant. Further, Target has disclosed to Acquiror the status of its year
2000 compliance efforts and Acquiror has accepted those efforts as adequate as
of the date hereof. Acquiror acknowledges and accepts that (1) the corrective
measures relating to prior versions of Target's and its subsidiaries' products,
as outlined on Schedule 2.10(m) of the Target Disclosure Schedule, are
commercially reasonable and adequately address Target's obligations with respect
to such product versions as of the date hereof; and (2) the Surviving
Corporation will be required to continue to implement such measures (or greater
measures selected by Acquiror or the Surviving Corporation) at its expense after
the Effective Time in order to complete those measures.
(n) To Target's knowledge, all of the Target's and its
subsidiaries' Information Technology (as defined below) is Year 2000 Compliant,
and will not cause a material interruption in the ongoing operations of the
Target's or Subsidiary's business as it is presently conducted on or after
January 1, 2000. For purposes of the foregoing, the term "Information
Technology" shall mean and include all software, hardware, firmware,
telecommunications systems, network systems, embedded systems and other systems,
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components and/or services (other than general utility services including gas,
electric, telephone and postal) that are owned or used by the Target or
Subsidiary in the conduct of its business.
2.11 Interested Party Transactions. Neither Target nor any of its
subsidiaries is indebted to any director, officer, employee or agent of Target
or any of its subsidiaries (except for amounts due as normal salaries and
bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to Target or any of its subsidiaries. There have been no transactions
during the two year period ending December 31, 1998 which would require
disclosure if Target were subject to disclosure under Item 404 of Regulation S-K
under the Securities Act.
2.12 Minute Books. The minute books of Target and its subsidiaries
made available to Acquiror contain a complete and accurate summary of actions
taken by the board of directors and the shareholders, whether at a meeting or by
written consent since the time of incorporation of Target and the respective
subsidiaries through the date of this Agreement, except for such actions, if
any, the omission of which is not material to Target, its Shareholders or its
business, and reflect all transactions referred to in such minutes accurately in
all material respects.
2.13 Complete Copies of Materials. Target has delivered or made
available true and complete copies of each document which has been requested by
Acquiror or its counsel in connection with their legal and accounting review of
Target and its subsidiaries.
2.14 Material Contracts. All the Material Contracts (as hereafter
defined) to which Target is a party are listed in Schedule 2.14 hereto. With
respect to each agreement so listed: (i) the agreement is legal, valid, binding
and enforceable and in full force and effect with respect to Target, and to
Target's knowledge is legal, valid, binding, enforceable and in full force and
effect with respect to each other party thereto, in either case subject to the
effect of bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and except as the availability of
equitable remedies may be limited by general principles of equity; (ii) the
agreement will continue to be legal, valid, binding and enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect prior to the Closing, subject to the effect of bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and except as the availability of equitable remedies
may be limited by general principles of equity; and (iii) neither the Target
nor, to Target's knowledge, any other party, is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
of default by Target or, to Target's knowledge, by any such other party, or
permit termination, modification or acceleration, under the agreement. Target is
not a party to any oral contract, agreement or other arrangement. "Material
Contract" means any contract, agreement or commitment to which Target is a party
(i) involving more than $10,000 in consideration in each such case, or (ii)
which if breached by Target in such a manner as would permit any other party to
cancel or terminate the same (with or without notice of passage of time) or
would provide a basis for any other party to claim money damages (either
individually or in the aggregate with all other such claims under that contract)
from Target or give rise to a right of acceleration of any material obligation
or loss
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of any material benefit under any such contract, agreement or commitment which,
if exercised, in the aggregate could reasonably be expected to have a Material
Adverse Effect on Target.
2.15 Inventory. The inventories shown on the Financial Statements or
thereafter acquired by Target, were acquired and maintained in the ordinary
course of business, are of good and merchantable quality, and consist of items
of a quantity and quality usable or salable in the ordinary course of business.
Since the Target Balance Sheet Date, Target has continued to replenish
inventories in a normal and customary manner consistent with past practices.
Target has not received notice that it will experience in the foreseeable future
any difficulty in obtaining, in the desired quantity and quality and at a
reasonable price and upon reasonable terms and conditions, the raw materials,
supplies or component products required for the manufacture, assembly or
production of its products. The values at which inventories are carried reflect
the inventory valuation policy of Target, which is consistent with its past
practice and in accordance with generally accepted accounting principles applied
on a consistent basis. Target is not under any liability or obligation with
respect to the return of any material item of inventory in the possession of
wholesalers, retailers or other customers. Since the Target Balance Sheet Date,
adequate provision has been made on the books of Target in the ordinary course
of business consistent with past practices to provide for all slow-moving,
obsolete, or unusable inventories to their estimated useful or scrap values and
such inventory reserves are adequate to provide for such slow-moving, obsolete
or unusable inventory and inventory shrinkage.
2.16 Accounts Receivable. Subject to any reserves set forth in the
Financial Statements, the accounts receivable shown on the Financial Statements
are valid and genuine, have arisen solely out of bona fide sales and deliveries
of goods, performance of services, and other business transactions in the
ordinary course of business consistent with past practices in each case with
persons other than affiliates, are not subject to any prior assignment, lien or
security interest and are not subject to valid defenses, set-offs or counter
claims. The accounts receivable will be collected in accordance with their terms
at their recorded amounts, subject only to the reserve for doubtful accounts on
the Financial Statements.
2.17 Customers and Suppliers. As of the date hereof, no customer
which individually accounted for more than 5% of Target's gross revenues during
the 12 month period preceding the date hereof and no supplier of Target, has
canceled or otherwise terminated, or made any written threat to Target to cancel
or otherwise terminate its relationship with Target or has at any time on or
after the Target Balance Sheet Date, decreased materially its services or
supplies to Target in the case of any such supplier, or its usage of the
services or products of Target in the case of such customer, and to Target's
knowledge, no such supplier or customer has indicated either orally or in
writing that it will cancel or otherwise terminate its relationship with Target
or to decrease materially its services or supplies to Target or its usage of the
services or products of Target, as the case may be. Target has not engaged in
any fraudulent conduct with respect to, any customer or supplier of Target.
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Schedule 2.17 sets forth all customers which individually account for 5%
or more of Target's gross revenues during the 12 month period (the "Revenue
Period") preceding May 31, 1999, specifically setting forth opposite such
customers' respective names (i) their gross revenue amounts during such Revenue
Period and (ii) the percentage of gross revenues attributable to such customers
during such Revenue Period.
2.18 Employees and Consultants. Section 2.18 of the Target
Disclosure Schedule contains a list of the names of all present employees and
consultants of Target and their respective dates of employment or engagement.
Target has provided, in a letter delivered to Acquiror, the respective salaries
or wages, or other compensation of such employees and consultants.
2.19 Title to Property. Target and its subsidiaries have good and
marketable title to all of their respective properties, interests in properties
and assets, real and personal, reflected in the Target Balance Sheet or acquired
after the Target Balance Sheet Date (except properties, interests in properties
and assets sold or otherwise disposed of since the Target Balance Sheet Date in
the ordinary course of business), or with respect to leased properties and
assets, valid leasehold interests therein, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except (i) the
lien of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements as do not and will not materially detract from or interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the Target Balance Sheet. The plants,
property and equipment of Target and its subsidiaries that are used in the
operations of their businesses are in all material respects in good operating
condition and repair, subject to normal wear and tear. All properties used in
the operations of Target and its subsidiaries are reflected in the Target
Balance Sheet to the extent generally accepted accounting principles require the
same to be reflected. All leases to which Target is a party are in full force
and effect and are valid, binding and enforceable on Target and, to Target's
knowledge, on the other party, in accordance with their respective terms, except
as such enforceability may be limited by (i) bankruptcy laws and other similar
laws affecting creditors' rights generally and (ii) general principles of
equity, regardless of whether asserted in a proceeding in equity or at law. True
and correct copies of all such leases have been provided to Acquiror. Target
owns no real property.
2.20 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental Laws" shall mean any
applicable foreign, federal, state or local governmental laws (including common
laws), statutes, ordinances, codes, regulations, rules, policies, permits,
licenses, certificates, approvals, judgments, decrees, orders, directives, or
requirements that pertain to the protection of the environment, protection of
public health and safety, or protection of worker health and safety, or that
pertain to the handling, use, manufacturing, processing, storage, treatment,
transportation, discharge, release, emission, disposal, re-use, recycling, or
other contact or involvement with Hazardous Materials (defined
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below), including, without limitation, the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601, et
seq., as amended ("CERCLA"), and the federal Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq., as amended ("RCRA").
(ii) "Hazardous Materials" shall mean any
material, chemical, compound, substance, mixture, or by-product that is
identified, defined, designated, listed, restricted or otherwise regulated under
Environmental Laws (defined above) as a "hazardous constituent," "hazardous
substance," "hazardous material," "acutely hazardous material," "extremely
hazardous material," "hazardous waste," "hazardous waste constituent," "acutely
hazardous waste," "extremely hazardous waste," infectious waste," "medical
waste," "biomedical waste," "pollutant," "toxic pollutant," or "contaminant," or
any other formulation or terminology intended to classify or identify
substances, constituents, materials, or wastes by reason of properties that are
deleterious to the environment, natural resources, worker health and safety, or
public health and safety, including, without limitation, ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, and reproductive toxicity.
The term "Hazardous Materials" shall include, without limitation, any "hazardous
substances" as defined, listed, designated or regulated under CERCLA, any
"hazardous wastes" or "solid wastes" as defined, listed, designated or regulated
under RCRA, any asbestos or asbestos-containing materials, any polychlorinated
biphenyls, and any petroleum or hydrocarbonic substance, fraction, distillate,
or by-product.
(b) Target is and has been in compliance with all
Environmental Laws relating to the properties or facilities used, leased, or
occupied by Target at any time (collectively, "Target's Facilities;" such
properties or facilities currently used, leased, or occupied by Target are
defined herein as "Target's Current Facilities"), and no discharge, emission,
release, leak, or spill of Hazardous Materials has occurred at any of Target's
Facilities which may or will give rise to liability of Target under
Environmental Laws. To Target's knowledge, there are no Hazardous Materials
(including, but not limited to, asbestos) present in the surface waters,
structures, groundwaters, or soils of or beneath any of Target's Current
Facilities. To Target's knowledge, there neither are nor have been any
aboveground or underground storage tanks for Hazardous Materials at Target's
Current Facilities. To Target's knowledge, no Target employee or other person
has claimed that Target is liable for alleged injury or illness resulting from
an alleged exposure to a Hazardous Material. No civil, criminal or
administrative action, proceeding or investigation is pending against Target, or
to Target's knowledge, threatened against Target, with respect to Hazardous
Materials or Environmental Laws, and Target is not aware of any facts or
circumstances which could form the basis for assertion of a claim against Target
or which could form the basis for liability of Target, regarding Hazardous
Materials or regarding actual or potential non-compliance with Environmental
Laws.
2.21 Taxes. As used in this Agreement, the terms "Tax" and,
collectively, "Taxes" mean any and all federal, state and local taxes of any
country, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad
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valorem, stamp transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
(a) Each of Target and its subsidiaries has prepared and
timely filed all returns, estimates, information statements and reports required
to be filed with any taxing authority ("Returns") relating to any and all Taxes
concerning or attributable to Target and its subsidiaries or its operations with
respect to Taxes for any period ending on or before the Closing Date and such
Returns are true and correct in all material respects and have been completed in
accordance with applicable law.
(b) Target and its subsidiaries, as of the Closing Date: (i)
will have paid all Taxes shown to be payable on such Returns covered by Section
2.21(a) and (ii) will have withheld with respect to its employees all Taxes
required to be withheld.
(c) There is no Tax deficiency outstanding or assessed or, to
the best of Target's knowledge, proposed against Target or its subsidiaries that
is not reflected as a liability on the Target Balance Sheet nor has Target
executed any agreements or waivers extending any statute of limitations on or
extending the period for the assessment or collection of any Tax.
(d) Target and its subsidiaries have no liabilities for unpaid
Taxes that have not been accrued for or reserved on the Target Balance Sheet,
whether asserted or unasserted, contingent or otherwise and Target has no
knowledge of any basis for the assertion of any such liability attributable to
each of Target or its subsidiaries, its assets or operations.
(e) Target or its subsidiaries are not a party to any
tax-sharing agreement or similar arrangement with any other party, and Target or
its subsidiaries have not assumed to pay any Tax obligations of, or with respect
to any transaction relating to, any other person or agreed to indemnify any
other person with respect to any Tax.
(f) Target's or its subsidiaries' Returns have never been
audited by a government or taxing authority, nor is any such audit in process or
pending, and Target has not been notified of any request for such an audit or
other examination.
(g) Target or its subsidiaries have never been a member of an
affiliated group of corporations filing a consolidated federal income tax
return.
(h) Target has disclosed to Acquiror (i) any Tax exemption,
Tax holiday or other Tax sparing arrangement that Target or its subsidiaries
have in any jurisdiction, including the nature, amount and lengths of such Tax
exemption, Tax holiday or other Tax-sparing arrangement and (ii) any expatriate
tax programs or policies affecting Target. Target and its subsidiaries are in
compliance with all terms and conditions required to maintain such Tax
exemption, Tax holiday or other Tax-sparing arrangement or order of any
governmental entity
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and the consummation of the transactions contemplated hereby will not have any
adverse effect on the continuing validity and effectiveness of any such Tax
exemption, Tax holiday or other Tax-sparing arrangement or order.
(i) Target has made available to Acquiror copies of all
Returns filed by Target and its subsidiaries for all periods since their
inception.
(j) Neither Target nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(4) apply to any disposition of assets owned by Target.
(k) Neither Target nor any of its subsidiaries has been at any
time a United States Real Property Holding Corporation within the meaning of
Section 897(c)(2) of the Code.
(l) Neither Target nor any of its subsidiaries is a party to
any contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of Target
or any of its subsidiaries that, individually or collectively, could give rise
to the payment of any amount that would not be deductible by Target, any of its
subsidiaries, or Merger Sub as an expense under applicable law.
2.22 Employee Benefit Plans.
(a) Schedule 2.22 contains a complete and accurate list of
each plan, program, policy, practice, contract, agreement or other arrangement
providing for employment, compensation, deferred compensation, loans, severance,
separation, relocation, repatriation, expatriation, visas, work permits,
termination pay, performance awards, bonus, incentive, stock option, stock
purchase, stock bonus, phantom stock, stock appreciation right, supplemental
retirement, fringe benefits, cafeteria benefits, or other benefits, whether
written or unwritten, including, without limitation, each "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") which is or has been sponsored,
maintained, contributed to, or required to be contributed to by Target, any
subsidiary of Target and any trade or business (whether or not incorporated)
which is treated as a single employer with Target (an "ERISA Affiliate") within
the meaning of Section 414(b), (c), (m) or (o) of the Code, for the benefit of
any person who performs or who has performed services for Target or with respect
to which Target, any subsidiary, or ERISA Affiliate has or may have any
liability or obligation (collectively, the "Target Employee Plans"). In
addition, Schedule 2.22 lists each Target Employee Plan that has been adopted or
maintained by Target, whether formally or informally, for the benefit of
employees outside the Untied States ("Target International Employee Plans").
There has been no amendment to, written interpretation or announcement by
Target, any Target subsidiary or other ERISA Affiliate which would materially
increase the expense of maintaining any Plan above the level of expense incurred
with respect to that Plan for the most recent fiscal year included in Target's
financial statements.
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(b) Documents. Target has furnished to Acquiror true and
complete copies of documents embodying each of the Target Employee Plans and
related plan documents, including, without limitation, to the extent such
documents exist, trust documents, group annuity contracts, plan amendments,
insurance policies or contracts, participant agreements, employee booklets,
administrative service agreements, summary plan descriptions, compliance and
nondiscrimination tests for the last three plan years, standard COBRA forms and
related notices, registration statements and prospectuses, and, to the extent
still in its possession, any material employee communications relating thereto.
With respect to each Target Employee Plan which is subject to ERISA reporting
requirements, Target represents, and Acquiror acknowledges, that such Plans are
in the first six (6) months of their existence and that no Form 5500 reports are
yet due or have been prepared or filed. Target has furnished Acquiror with the
most recent Internal Revenue Service determination or opinion letter issued with
respect to each such Target Employee Plan, and nothing has occurred since the
issuance of each such letter which could reasonably be expected to cause the
loss of the tax-qualified status of any Target Employee Plan subject to Code
Section 401(a).
(c) Compliance. (i) Each Target Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code) which are applicable to it, except as would not
have, in the aggregate, a Material Adverse Effect, and Target and each
subsidiary or ERISA Affiliate have performed all material obligations required
to be performed by them under, are not in material respect in default under or
violation of and have no knowledge of any material default or violation by any
other party to, any of the Target Employee Plans; (ii) any Target Employee Plan
intended to be qualified under Section 401(a) of the Code has either obtained
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or has applied to the
Internal Revenue Service for such a determination letter prior to the expiration
of the requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination letter
and to make any amendments necessary to obtain a favorable determination, or has
been established under a standardized prototype plan for which an Internal
Revenue Service opinion letter has been obtained by the plan sponsor and is
valid as to the adopting employer; (iii) none of the Target Employee Plans
promises or provides retiree medical or other retiree welfare benefits to any
person; (iv) there has been no "prohibited transaction," as such term is defined
in Section 406 of ERISA and Section 4975 of the Code, with respect to any Target
Employee Plan, which could reasonably be expected to have, in the aggregate, a
Material Adverse Effect; (v) neither Target nor any subsidiary or ERISA
Affiliate is subject to any liability or penalty under Sections 4976 through
4980 of the Code or Title I of ERISA with respect to any of the Target Employee
Plans; (vi) all contributions required to be made by Target or any subsidiary or
ERISA Affiliate to any Target Employee Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to each
Target Employee Plan for the current plan years; (vii) with respect to each
Target Employee Plan, no "reportable event" within the meaning of Section 4043
of ERISA (excluding any such event for which the thirty (30) day notice
requirement has been waived under the regulations to
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Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 or
ERISA has occurred; (viii) each Target Employee Plan subject to ERISA, has
prepared in good faith and timely filed all requisite governmental reports
(which were true and correct as of the date filed) and has properly and timely
filed and distributed or posted all notices and reports to employees required to
be filed, distributed or posted with respect to each such Target Employee Plan;
and (ix) no suit, administrative proceeding, action or other litigation has been
brought, or to the knowledge of Target is threatened, against or with respect to
any such Target Employee Plan, including any audit or inquiry by the IRS or
United States Department of Labor.
(d) No Title IV or, Multiemployer Plan. Neither Target, any
Target subsidiary nor any ERISA Affiliate has ever maintained, established,
sponsored, participated in, contributed to, or otherwise incurred any obligatory
under any "multiemployer plan" (as defined in Section 3(37) of ERISA) or to any
"pension plan" (as defined in Section 3(2) of ERISA) subject to Title IV of
ERISA or Section 412 of the Code. Neither Target, any subsidiary nor any ERISA
Affiliate has any actual or potential withdrawal liability for any complete or
partial withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any
multiemployer plan.
(e) COBRA, FMLA, HIPAA, CANCER RIGHTS. With respect to each
Target Employee Plan, Target and each of its United States subsidiaries have
complied with (i) the applicable health care continuation and notice provisions
of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
regulations thereunder; (ii) the applicable requirements of the Family and
Medical Leave Act of 1993 and the regulations thereunder; (iii) the Health
Insurance Portability and Accountability Act ("HIPAA") and (iv) the Cancer
Rights Act of 1998 except to the extent that such failure to comply would not in
the aggregate, have a Material Adverse Effect. Target has no material
unsatisfied obligations to any employees, former employees, or qualified
beneficiaries pursuant to COBRA, HIPAA, or any state law governing health care
coverage extension or continuation.
(f) Effect of Transaction. The consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee or other service provider of Target, any Target subsidiary or
any other ERISA Affiliate to severance benefits or any other payment (including,
without limitation, unemployment compensation, golden parachute or bonus),
except as expressly provided in this Agreement or (ii) accelerate the time of
payment or vesting of any such benefits, or increase the amount of compensation
due any such employee or service provider. No benefit payable or which may
become payable by Target pursuant to any Target Employee Plan or as a result of
or arising under this Agreement shall constitute an "excess parachute payment"
(as defined in Section 280G(b)(1) of the Code) which is subject to the
imposition of an excise Tax under Section 4999 of the Code or which would not be
deductible by reason of Section 280G of the Code. Each Target Employee Plan can
be amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without material liability to Acquirer or Target
(other than ordinary administration expenses typically incurred in a termination
event).
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(g) International Employee Plans. Each Target International
Employee Plans has been established, maintained and administered in compliance
with its terms and conditions and with the requirements prescribed by any and
all statutory or regulatory laws that are applicable to such International
Target Employee Plan. No Target International Employee Plan has unfunded
liabilities, that as of the Effective Time, will not be offset by insurance or
fully accrued. Except as required by law, no condition exists that would prevent
Target or Acquiror from terminating or amending any International Target
Employee Plan at any time for any reason.
2.23 Employee Matters. Target and any Target subsidiary is in
compliance with all currently applicable laws and regulations respecting terms
and conditions of employment including, without limitation, applicant and
employee background checking, immigration laws, discrimination laws,
verification of employment eligibility, employee leave laws, classification of
workers as employees and independent contractors, wage and hour laws, and
occupational safety and health laws, except for such noncompliance that neither
has, nor reasonably would be expected to have, a Material Adverse Effect on
Target. There are no proceedings pending or, to Target's knowledge, reasonably
expected or threatened, between Target, on the one hand, and any or all of its
current or former employees, on the other hand, which proceedings have, or would
reasonably be expected to have, a Material Adverse Effect on Target, including,
but not limited to, any claims for actual or alleged harassment or
discrimination based on race, national origin, age, sex, sexual orientation,
religion, disability, or similar tortious conduct, breach of contract, wrongful
termination, defamation, intentional or negligent infliction of emotional
distress, interference with contract or interference with actual or prospective
economic disadvantage. There are no claims pending, or, to Target's knowledge,
reasonably expected or threatened, against Target or any subsidiary under any
workers' compensation or long term disability plan or policy. Target is not a
party to any collective bargaining agreement or other labor union contract, nor
does Target know of any activities or proceedings of any labor union to organize
its employees. Target has provided all employees with all wages, benefits,
relocation benefits, stock options, bonuses and incentives, and all other
compensation earned up through the date of this Agreement, except for those
accrued and not yet due.
2.24 Insurance. Target and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of Target and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Target and its subsidiaries are
otherwise in compliance with the terms of such policies and bonds. Target has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.25 Compliance With Laws. Each of Target and its subsidiaries has
complied with, is not in violation of and has not received any notices of
violation with respect to, any federal state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business.
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2.26 Brokers' and Finders' Fees. Target has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.27 Bank Accounts. Section 2.27 of the Target Disclosure Schedule
sets forth the names and locations of all banks and other financial institutions
at which Target and its subsidiaries, maintain accounts of any nature, the type
of accounts maintained at each such institution and the names of all persons
authorized to draw thereon or make withdrawals therefrom.
2.28 Indemnification Claims. Section 2.28 of the Target Disclosure
Schedule sets forth a list of all persons who are parties to director, officer
and/or employee indemnification agreements with Target or its subsidiaries (the
"Indemnification Agreements"). Except as set forth in Section 2.28 of the Target
Disclosure Schedule, there are no outstanding claims under any of the
Indemnification Agreements or under any indemnification rights granted pursuant
to the Articles of Incorporation or Bylaws of Target or its subsidiaries (as
currently in effect); and to the best of Target's knowledge, there are no facts
or circumstances that either now, or with the passage of time, would reasonably
be expected to provide a basis for a claim under any such Indemnification
Agreement or under any indemnification rights granted pursuant to the Articles
of Incorporation or Bylaws of Target or its subsidiaries.
2.29 Power of Attorney. Except as set forth in Section 2.29 of the
Target Disclosure Schedule, neither Target nor its subsidiaries, has granted to
any person a power of attorney or similar authorization that is currently in
effect of
authority.
2.30 Representations Complete. None of the representations or
warranties made by Target or Principal Shareholder herein or in any Schedule or
Exhibit hereto, including the Target Disclosure Schedule, or certificate
furnished by Target pursuant to this Agreement or any written statement
furnished to Acquiror pursuant hereto or in connection with the transactions
contemplated hereby, when all such documents are read together in their
entirety, contain, 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 order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading;
provided, however, that for purposes of this representation, any document
attached hereto and any document specifically referenced in the Target
Disclosure Schedule as a "Superseding Document" (even if not attached hereto)
that provides information inconsistent with or in addition to any other written
statement furnished to Acquiror in connection with the transaction contemplated
hereby, shall be deemed to supersede any other document or written statement
furnished to Acquiror with respect to such inconsistent or additional
information.
3. Representations and Warranties of Acquiror and Merger Sub. Except as
disclosed in a document of even date herewith and delivered by Acquiror to
Target prior to the execution and delivery of this Agreement and referring to
the representations and warranties in this
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Agreement (the "Acquiror Disclosure Schedule"), Acquiror and Merger Sub
represent and warrant to Target as follows:
3.1 Organization, Standing and Power. Each of Acquiror and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. Each of Acquiror and Merger Sub
has the corporate power to own its properties and to carry on its business as
now being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on
Acquiror. Acquiror has delivered a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Acquiror
and Merger Sub, each as amended to date, to Target. Neither Acquiror nor Merger
Sub is in violation of any of the provisions of its Certificate of Incorporation
or Bylaws or equivalent organizational documents.
3.2 Authority. Acquiror and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been, or will
have been by the Closing, duly authorized by all necessary corporate action on
the part of Acquiror and Merger Sub. The Boards of Directors of Acquiror and
Merger Sub have (i) unanimously approved this Agreement and the Merger and (ii)
determined that in their respective opinions the Merger is in the best interests
of the stockholders of Acquiror and Merger Sub, respectively. This Agreement has
been duly executed and delivered by Acquiror and Merger Sub and constitutes the
valid and binding obligations of Acquiror and Merger Sub, enforceable against
each of them in accordance with its terms, except that such enforceability may
be limited by bankruptcy, insolvency, moratorium or other similar laws affecting
or relating to creditors' rights generally, and is subject to general principles
of equity. The execution and delivery of this Agreement do not and the
consummation of the transactions contemplated hereby will not conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any material obligation or loss of a material benefit under (i)
any provision of the Certificate of Incorporation or Bylaws of Acquiror or any
of its subsidiaries, as amended, or (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Acquiror or any of its subsidiaries or any of their properties or
assets. No consent approval, order or authorization of or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Acquiror or any of its subsidiaries in connection with the execution
and delivery of this Agreement by Acquiror and Merger Sub or the consummation by
Acquiror and Merger Sub of the transactions contemplated hereby, except for (i)
the filing of the Agreement of Merger in California and the Certificate of
Merger in Delaware, together with the required officers' certificates, as
provided in Section 1.2, (ii) the filing of a Form D with the Securities and
Exchange Commission in accordance with Regulation D following the Effective
Time, (iii) the filing of a Form 8-K with the Securities and Exchange Commission
("SEC") and National Association of Securities Dealers ("NASD"), (iv) the filing
of the Registration Statement (as defined in Section 6.3(f)) with the SEC, (v)
any
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filings as may be required under applicable state securities laws and the
securities laws of any foreign country, (vi) the filing with the NASDAQ National
Market of a Notification Form for Listing of Additional Shares with respect to
the shares of Acquiror Common Stock issuable upon conversion of the Target
Common Stock in the Merger, and (vii) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on Acquiror and would not prevent, materially
alter or delay any of the transactions contemplated by this Agreement.
3.3 SEC Documents; Financial Statements. Acquiror has made available
to Target all statements, reports, registration statements, definitive proxy
statements, and other filings filed with the SEC by Acquiror using XXXXX since
January 1, 1997 ("XXXXX Filings"), and, prior to the Effective Time, Acquiror
will have made available to Target any additional XXXXX Filings prior to the
Effective Time (collectively together with the documents described in the
following sentence, the "Acquiror SEC Documents"). In addition, Acquiror has
furnished to Target all statements, reports, registration statements, definitive
proxy statements, and other filings with the SEC since June 30, 1996 requested
by Target which are not available as XXXXX Filings, and all exhibits to the
Acquiror SEC Documents requested by Target which are not otherwise available as
XXXXX Filings, and will promptly make available to Target all exhibits to any
additional Acquiror SEC Documents filed prior to the Effective Time. All
documents required to be filed as exhibits to the Acquiror SEC Documents have
been so filed, and all material contracts so filed as exhibits are in full force
and effect except those which have expired in accordance with their terms, and
neither Acquiror nor any of its subsidiaries is in default thereunder. As of
their respective filing dates, the Acquiror SEC Documents complied in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the Securities Act and none of the Acquiror
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed Acquiror
SEC Document prior to the date hereof. Acquiror has filed each Acquiror SEC
Document on or before the applicable filing deadline for such document and
Acquiror is not currently and, immediately prior to the Effective Time, will not
be untimely in its filing of any document which is required to be filed with the
SEC or otherwise not in compliance with any SEC filing or reporting requirement.
The financial statements of Acquiror, including the notes thereto, included in
the Acquiror SEC Documents (the "Acquiror Financial Statements"), complied as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Qs, as permitted by Form 10-Q of the SEC). The Acquiror
Financial Statements fairly present the consolidated financial condition and
operating results of Acquiror and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring yearend adjustments). Acquiror has no material obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other than
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(i) those set forth or adequately provided for in the Acquiror Financial
Statements, (ii) those incurred in the ordinary course of business and not
required to be set forth in the Acquiror Financial Statement under generally
accepted accounting principles, applicable accounting requirements, or published
rules and regulations of the SEC with respect thereto as of date each Acquiror
was filed with the SEC, (iii) those incurred in the ordinary course of business
since the date of the most recent Acquiror Financial Statement and consistent
with past practice; and (iv) those incurred in connection with the execution of
this Agreement. There has been no change in Acquiror accounting policies except
as described in the notes to the Acquiror Financial Statements.
3.4 Capital Structure. The authorized capital stock of the Acquiror
is (i) 40,000,000 shares of Common Stock; and (ii) 5,000,000 shares of preferred
stock, none of which is issued or outstanding and of which 300,000 are
designated as Series E Junior Participating Preferred Stock, of which, as of the
close of business on June 17, 1999, (i) 20,229,128 shares of Acquiror Common
Stock , and (ii) no shares of Acquiror preferred stock were issued and
outstanding, and (iii) and 6,548,253 shares are subject to outstanding warrants,
investment options and stock options granted by Acquiror and as described on
Schedule 3.4 of the Acquiror Disclosure Schedule. There are no other outstanding
shares of capital stock or voting securities of Acquiror other than shares of
Acquiror Common Stock issued after June 17, 1999, upon the exercise of the
warrants, investment options and stock options listed on Schedule 3.4 of the
Acquiror Disclosure Schedule. The authorized capital stock of Merger Sub
consists of 1,000 shares of Common Stock, 100 of which are issued and
outstanding and all of which are held by Acquiror. As of the close of business
on June 17, 1999, Acquiror has reserved shares of Acquiror Common Stock and
Acquiror preferred stock in the amounts and for the purposes set forth Schedule
3.4 of the Acquiror Disclosure Schedule. Except as set forth thereon, there are
no other options, warrants, calls, rights, commitments or agreements of any
character to which Acquiror or Merger Sub is a party or by which either of them
is bound obligating Acquiror or Merger Sub to issue, deliver, sell, repurchase
or redeem or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of Acquiror or Merger Sub or obligating Acquiror or
Merger Sub to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. Except as described on Schedule 3.4 of the Acquiror
Disclosure Schedule, there are no other contracts, commitments or agreements
relating to voting, purchase or sale of Acquiror's capital stock (i) between or
among Acquiror and any of its stockholders and (ii) to Acquiror's knowledge,
between or among any of Acquiror's stockholders. All of the outstanding shares
of Acquiror's and Merger Sub's capital stock are duly authorized, validly
issued, fully paid and nonassessable and the shares of Acquiror Common Stock to
be issued pursuant to the Merger will be duly authorized, validly issued, fully
paid, and nonassessable. No shares of capital stock of the Acquiror or Merger
Sub are subject to preemptive rights or any other similar rights of the
stockholders of the Acquiror or any liens or encumbrances imposed through the
actions or failure to act of Acquiror.
3.5 Interim Operations of Merger Sub. Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated by this Agreement,
has engaged in no other business activities and has conducted its operations
only as contemplated by this Agreement.
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3.6 Absence of Certain Changes. Since December 31, 1998 (the
"Acquiror Balance Sheet Date"), Acquiror has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or would reasonably be expected to result in, a Material Adverse
Effect to Acquiror; (ii) any acquisition, sale or transfer of any material asset
of Acquiror or any of its subsidiaries other than in the ordinary course of
business and consistent with past practice; (iii) any change in accounting
methods or practices (including any change in depreciation or amortization
policies or rates) by Acquiror or any revaluation by Acquiror of any of its
assets; (iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Acquiror, or any direct or indirect
redemption, purchase or other acquisition by Acquiror of any of its shares of
capital stock; (v) any amendment or change to Acquiror's Certificate of
Incorporation or Bylaws; or (vi) any negotiation or agreement by Acquiror or any
of its subsidiaries to do any of the things described in the preceding clauses
(i) through (v) (other than negotiations with Target and its representatives
regarding the transactions contemplated by this Agreement).
3.7 Broker's and Finders' Fees. Acquiror has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acquiror or any of its
subsidiaries, threatened against Acquiror or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Acquiror. There is
no judgment, decree or order against Acquiror or any of its subsidiaries or, to
the knowledge of Acquiror or any of its subsidiaries, any of their respective
directors or officers (in their capacities as such) that could prevent, enjoin,
or materially alter or delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Acquiror.
3.9 Registration Statement. At the time Acquiror files the
Registration Statement, it will be eligible to do so on SEC Form S-3 or such
other comparable form as is available under the Securities Act and will not
materially delay the effectiveness of the Registration Statement.
3.10 Representations Complete. None of the representations or
warranties made by Acquiror or Merger Sub herein or in any Schedule hereto,
including the Acquiror Disclosure Schedule, or certificate furnished by Acquiror
or Merger Sub pursuant to this Agreement, or the Acquiror SEC Documents, or any
written statement furnished to Target pursuant hereto or in connection with the
transactions contemplated hereby, when all such documents are read together in
their entirety, 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
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material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading;
provided, however, that for purposes of this representation, any document
attached hereto and any document specifically referenced in the Acquiror
Disclosure Schedule as a "Superseding Document" (even if not attached hereto)
that provides information inconsistent with or in addition to any other written
statement furnished to Target in connection with the transactions contemplated
hereby, shall be deemed to supersede any other document or written statement
furnished to Target with respect to such inconsistent or additional information.
4. Conduct Prior To The Effective Time.
4.1 Conduct of Business of Target and Acquiror. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, each of Target and Acquiror
agrees (except to the extent expressly contemplated by this Agreement or as
consented to in writing by the other), to carry on its and its subsidiaries'
business in the usual regular and ordinary course in substantially the same
manner as heretofore conducted; to pay and to cause its subsidiaries to pay
debts and Taxes when due subject (i) to good faith disputes over such debts or
Taxes and (ii) in the case of Taxes of Target or any of its subsidiaries, to
Acquiror's consent to the filing of material Tax Returns if applicable; to pay
or perform other obligations when due, and to use all reasonable efforts to
preserve intact its present business organizations, keep available the services
of its and its subsidiaries' present officers and key employees and preserve its
and its subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries, to the end that its and its subsidiaries' goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Each of Target and
Acquiror agrees to promptly notify the other of (x) any event or occurrence not
in the ordinary course of its or its subsidiaries' business, and of any event
which could have a Material Adverse Effect and (y) any material change in its
capitalization as set forth in Sections 2.5 and 3.4, respectively. Without
limiting the foregoing, except as expressly contemplated by this Agreement or
the Target Disclosure Schedule or the Acquiror Disclosure Schedule, neither
Target nor Acquiror, respectively, shall do, cause or permit any of the
following, or allow, cause or permit any of its subsidiaries to do, cause or
permit any of the following, without the prior written consent of the other:
(a) Charter Documents. Cause or permit any
amendments to its Articles of Incorporation or Bylaws, in the
case of Target, or its Certificate of Incorporation or Bylaws,
in the case of Acquiror;
(b) Dividends; Changes in Capital Stock. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements
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providing for the repurchase of shares in connection with any termination of
service to it or its subsidiaries;
(c) Other. Take, or agree in writing or otherwise to take, any
of the actions described in Sections 4.1(a) and (b) above, or any action which
would cause a material breach of its representations or warranties contained in
this Agreement or prevent it from materially performing or cause it not to
materially perform its covenants hereunder.
4.2 Conduct of Business of Target. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement or the Target Disclosure Schedule, Target shall not do, cause or
permit any of the following, or allow, cause or permit any of its subsidiaries
to do, cause or permit any of the following, without the prior written consent
of Acquiror:
(a) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts, other than in the ordinary course of business
consistent with past practice;
(b) Issuance of Securities. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement;
(c) Intellectual Property. Transfer to any person or entity
any rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
(d) Exclusive Rights. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of Target Products or
Target Intellectual Property;
(e) Dispositions. Sell, lease, license or otherwise dispose of
or encumber any of its properties or assets which are material individually or
in the aggregate, to its and its parent's/subsidiaries' business, taken as a
whole, except in the ordinary course of business consistent with past practice;
(f) Indebtedness. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others. provided, however, that Target may
allow holders of options under the Target Stock Option Plan to purchase Target
Common Stock upon exercise thereof with interest bearing promissory notes;
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(g) Agreements. Enter into, terminate or amend, in a manner
which will adversely affect the business of Target (i) any agreement involving
an obligation to pay or the right to receive $10,000 or more, (ii) any agreement
relating to the license, transfer or other disposition or acquisition of
Intellectual Property rights or rights to market or sell Target Products, or
(iii) any other agreement which is material to the business or prospects of
Target;
(h) Payment of Obligations. Pay, discharge or satisfy in an
amount in excess of $10,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) arising
other than in the ordinary course of business, other than the payment, discharge
or satisfaction of liabilities reflected or reserved against in the Target
Financial Statements;
(i) Capital Expenditures. Make any capital expenditures,
capital additions or capital improvements except in the ordinary course of
business and consistent with past practice;
(j) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
(k) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(l) Employee Benefit Plans; New Hires; Pay Increases. Adopt or
amend any Target Employee Plan or hire any new officer level employee, pay any
special bonus, special remuneration or special noncash benefit (except payments
and benefits made pursuant to written agreements outstanding on the date
hereof), or increase the benefits, salaries or wage rates of its employees
except in the ordinary course of business in accordance with its standard past
practice;
(m) Severance Arrangements. Grant any severance or termination
pay or benefits (i) to any director or officer or (ii) to any other employee
except (A) payments made pursuant to written agreements outstanding on the date
hereof or (B) grants which are made in the ordinary course of business in
accordance with its standard past practice;
(n) Lawsuits. Commence a lawsuit other than (i) for the
routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with Acquiror
prior to the filing of such a suit, or (iii) for a breach of this Agreement;
(o) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire or agree
to acquire any assets which are material individually or in the aggregate, to
its and its parent's/subsidiaries' business, taken as a whole;
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(p) Taxes. Other than in the ordinary course of business, make
or change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement, settle any
material claim or assessment in respect of Taxes, or consent to any extension or
waiver of the limitation period applicable to any material claim or assessment
in respect of Taxes;
(q) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
(r) Other. Take or agree in writing or otherwise to take, any
of the actions described in Sections 4.2(a) through (q) above, or any action
which would cause a material breach of its representations or warranties
contained in this Agreement or prevent it from materially performing or cause it
not to materially perform its covenants hereunder.
4.3 No Solicitation. Between the date hereof and until the Effective
Time, Principal Shareholder will not (either directly, or indirectly, through
Target's officers, directors, employees, agents and affiliates) take any action
to solicit, initiate, seek, encourage or support any inquiry, proposal or offer
from, furnish any information to, or participate in any negotiations with, any
corporation, partnership, person or other entity or group (other than
discussions with Acquiror) regarding any acquisition of Target, any merger or
consolidation with or involving Target, or any acquisition of any material
portion of the stock or assets of Target. Target will promptly notify Acquiror
regarding any contact by any third party regarding any offer, proposal or
inquiry regarding any such acquisition or financing of Target, but in no event
later than two (2) business days after such contact. In no event will Target
accept or enter into an agreement concerning any such third party transaction.
It shall not be a breach of this Section if Principal Shareholder, Target or
Target's officers, directors, employees, agents or affiliates receives inquiries
regarding the acquisition of Target or its assets, or investment by third
parties in Target, provided that Target complies with the notice provisions of
this Section 4.3 and Principal Shareholder responds to such inquiries by
refusing to discuss the matter further with such third party or by indicating,
consistent with Target's obligations under Section 5.6, that neither Principal
Shareholder nor Target may discuss the matter. If Acquiror terminates this
Agreement as a result of Principal Shareholder's breach of this covenant prior
to the last to occur of the execution by the parties of this Agreement or July
15, 1999, Target shall pay a fee of $500,000 (the "Termination Fee") to Acquiror
as Acquiror's sole and exclusive remedy for the termination of this Agreement.
5. Additional Agreements.
5.1 Preparation of Solicitation Statement.
(a) As soon as practicable after the execution of this
Agreement, Target shall prepare, with the cooperation of Acquiror, a
solicitation statement for the solicitation of approval of the shareholders of
Target describing this Agreement, the Agreement of Merger
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and the transactions contemplated hereby and thereby. The information supplied
by Target for inclusion in the solicitation statement to be sent to the
shareholders of Target shall not, on the date the solicitation statement is
first mailed to Target's shareholders or at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication which has become false or
misleading. Notwithstanding the foregoing, Target makes no representation,
warranty or covenant with respect to any information supplied by Acquiror or
Merger Sub which is contained in any of the foregoing documents. The information
supplied by Acquiror for inclusion in the solicitation statement shall not, on
the date the solicitation statement is first mailed to Target's shareholders,
nor at the Effective Time, contain any statement which, at such time, is false
or misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which it is made, not false or misleading; or omit to state
any material fact necessary to correct any statement in any earlier
communication which has become false or misleading. Notwithstanding the
foregoing, Acquiror and Merger Sub make no representation, warranty or covenant
with respect to any information supplied by Target which is contained in any of
the foregoing documents.
(b) The solicitation statement shall constitute a disclosure
document for the offer and issuance of shares of Acquiror Common Stock to be
received by the holders of Target Capital Stock in the Merger. Acquiror and
Target shall each use reasonable commercial efforts to cause the solicitation
statement to comply with applicable federal and state securities laws
requirements. Each of Acquiror and Target agrees to provide promptly to the
other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the solicitation statement or in
any amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
solicitation statement. Target will promptly advise Acquiror, and Acquiror will
promptly advise Target, in writing if at any time prior to the Effective Time
either Target or Acquiror shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the solicitation statement in
order to make the statements contained or incorporated by reference therein not
misleading or to comply with applicable law. The solicitation statement shall
contain the recommendation of the Board of Directors of Target that the Target
shareholders approve the Merger and this Agreement and the conclusion of the
Board of Directors that the terms and conditions of the Merger are fair and
reasonable to the shareholders of Target. Anything to the contrary contained
herein notwithstanding, Target shall not include in the solicitation statement
any information with respect to Acquiror or its affiliates or associates, the
form and content of which information shall not have been approved by Acquiror
prior to such inclusion.
5.2 Approval of Shareholders. Target shall promptly after the date
hereof take all action necessary in accordance with California Law and its
Articles of Incorporation and Bylaws to obtain the written consent of the Target
shareholders approving the Merger as soon as
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practicable. Subject to Section 5.1, Target shall use its efforts to solicit
from shareholders of Target written consents in favor of the Merger and shall
take all other action necessary or advisable to secure the vote or consent of
shareholders required to effect the Merger.
5.3 Sale of Shares Pursuant to Regulation D. The parties hereto
acknowledge and agree that the shares of Acquiror Common Stock issuable to the
Target shareholders pursuant to Section 1.6 hereof, shall constitute "restricted
securities" within the Securities Act. The certificates of Acquiror Common Stock
shall bear the legends set forth in Section 1.6(j). Acquiror acknowledges that,
notwithstanding the foregoing, that it is the parties' intention that such the
Target shareholder shall receive Acquiror Common Stock which may be publicly
traded as soon as practicable after the Effective Time by the filing and
effectiveness of the Registration Statement.
5.4 Access to Information.
(a) Target shall afford Acquiror and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of Target's and its
subsidiaries' properties, personnel books, contracts, commitments and records,
and (ii) all other information concerning the business, properties and personnel
of Target and its subsidiaries as Acquiror may reasonably request. Acquiror
shall likewise provide Target with reasonable access customarily associated with
seller-side due diligence in connection with a merger where the merger
consideration includes shares of the acquiring entity.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.4 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.5 Confidentiality. The terms of that certain Confidentiality
Agreement, previously executed by the parties on March 8, 1999 (the
"Confidentiality Agreement") shall remain in effect pursuant to its terms during
the term hereof.
5.6 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD. The foregoing shall
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not be construed as prohibiting Target from indicating in general terms in
response to inquiries from third parties concerning a potential acquisition that
it is under a contractual obligation not to discuss such matters.
5.7 Consents; Cooperation.
(a) Each of Acquiror and Target shall promptly apply for or
otherwise seek, and use reasonable best efforts to obtain, all consents and
approvals required to be obtained by it from Governmental Authorities for the
consummation of the Merger and all necessary consents, waivers and approvals
pursuant to an agreement listed in Sections 2.3, 2.10, 2.14, 2.22 and 2.24 of
the Target Disclosure Schedule (except for such agreements which are to be
terminated at or before Closing pursuant to the terms hereof) and Section 3.2 of
the Acquiror Disclosure Schedule in connection with the Merger for the
assignment thereof or otherwise.
(b) Notwithstanding anything to the contrary in Section
5.7(a), neither Acquiror nor any of it subsidiaries shall be required to divest
any of their respective businesses, product lines or assets, or to take or agree
to take any other action or agree to any limitation that could reasonably be
expected to have a Material Adverse Effect on Acquiror or on Acquiror combined
with the Surviving Corporation after the Effective Time.
5.8 Shareholder Agreement. Target shall use reasonable commercial
efforts, on behalf of Acquiror and pursuant to the request of Acquiror, to cause
the Principal Shareholder to execute and deliver to Acquiror a Shareholder
Agreement substantially in the form attached hereto as Exhibit C, providing an
irrevocable proxy with respect to Acquiror Common Stock concurrently with the
execution of this Agreement and in any event prior to the time that the
solicitation statement is mailed to the shareholders of Target.
5.9 Legal Requirements. Each of Acquiror, Merger Sub and Target
will, and will cause their respective subsidiaries to, take all reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on them with respect to the consummation of the transactions
contemplated by this Agreement and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of or any registration,
declaration or filing with, any Governmental Entity or other person, required to
be obtained or made in connection with the taking of any action contemplated by
this Agreement.
5.10 Blue Sky Laws. Acquiror shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Target shall use reasonable commercial efforts to assist
Acquiror as may be necessary to comply with the securities and blue sky laws of
all jurisdictions which are applicable in connection with the issuance of
Acquiror Common Stock in connection with the Merger.
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5.11 Escrow Agreement. On or before the Effective Time, the
Acquiror, Merger Sub, Escrow Agent and the Shareholders' Agent (as defined in
Section 8 hereto) will execute the Escrow Agreement contemplated by Section 8 in
the form attached hereto as Exhibit D ("Escrow Agreement").
5.12 Nonaccredited Stockholders. Prior to the Closing, Target shall
not take any action, including the granting of employee stock options, that
would cause the number of Target stockholders who are not "accredited investors"
pursuant to Regulation D promulgated under the Securities Act of 1933, as
amended, to increase to more than 35 during the term of this Agreement.
5.13 Option Exercise. All outstanding options to purchase shares of
Target Common Stock shall be exercised or terminated, to the extent not
exercised, prior to the Closing.
5.14 Employees. Set forth on Schedule 5.14 is a list of employees of
Target to whom Acquiror will make an offer to enter into employment pursuant to
offer letters substantially in the form attached hereto as Exhibit E. Each
individual offer letter will contain an offer of salary and other benefits which
are comparable to or better than the corresponding employment terms that the
employee is receiving from Target as of the date hereof.
5.15 Reorganization. Acquiror and Target shall each use its
reasonable best efforts to cause the business combination to be effected by the
Merger to be qualified as a "reorganization" described in Section 368 of the
Code and to obtain the opinion of its respective counsel contemplated by
Sections 6.2(e) and 6.3(c). Each party shall make such representations as
counsel to the parties shall reasonably request to enable them to render such
opinions.
5.16 Expenses; Transaction Fees. Except for the (i) payment of fees
and expenses by the non-prevailing party in connection with the Final
Determination (defined in Section 7.2 (b)) pursuant to Section 7.2(b) hereof,
and (ii) payment arrangement of any expenses relating to the engagement of the
Independent Accounting Firm pursuant to Section 1.6(e)(iv), and whether or not
the Merger is consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense. To the extent that the Merger is consummated, the
Transaction Fees incurred by Target prior to the Effective Time shall be paid
from the Pre-Fee Cash Consideration. The Target shall cause the determination of
the amount of Transaction Fees and provide such amount to Acquiror on or prior
to the Closing.
5.17 Interim Balance Sheet. Target shall prepare and deliver to
Acquiror, at least three (3) business days prior to the Closing Date, a balance
sheet of Target, dated as of the May 31, 1999 (the "Interim Balance Sheet") that
has been prepared in accordance with generally accepted accounting principles
(except that they will not include notes which are typically included with
financial statements prepared in accordance with generally accepted accounting
principles) consistently applied on a basis consistent with the most recent
regularly prepared financial statements of Acquiror (except that they will
exclude as an asset accounts receivable which are more than ninety (90) days
outstanding as of May 31, 1999 and the Excluded Vehicle
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Asset, and will exclude as a liability the Transaction Fees, in determining the
Preliminary Net Assets, as set forth in Section 1.6(e)(i) hereof), and that
presents fairly the financial condition of the Target and its subsidiaries as of
May 31, 1999 (taking into account the exclusion of the foregoing assets and
liabilities). In connection with the foregoing, Acquiror will provide reasonable
access and assistance from its accounting personnel to Target's accounting
personnel and outside accountant to facilitate Target's preparation of the
Interim Balance Sheet.
5.18 Registration of Shares Issued in the Merger.
(a) Acquiror shall use commercially reasonable efforts to
cause the Shares of Acquiror Common Stock issued in the Merger, including any
and all Escrow Shares (the "Registrable Securities") to be registered under the
Securities Act so as to permit the resale thereof, and in connection therewith
shall use its reasonable efforts to prepare and file the Registration Statement
with the SEC as soon as practicable after the date hereof, but no later than
immediately prior to the Effective Time, and shall use its reasonable efforts in
the preparation and filing of the Registration Statement and the response to any
comments from the SEC to cause the Registration Statement to become effective as
soon as practicable after the Effective Time; provided, however, that each
holder of Registrable Securities ("Holder") shall provide all such information
and materials to Acquiror and take all such action as may be required in order
to permit Acquiror to comply with all applicable requirements of the SEC and to
obtain any desired acceleration of the effective date of such Registration
Statement. Such provision of information and materials is a condition precedent
to the obligations of Acquiror pursuant to this Section 5.18. Acquiror shall not
be required to effect more than one (1) registration under this Section 5.18.
The offering made pursuant to such registration shall not be underwritten.
(b) Acquiror shall (i) prepare and file with the SEC the
Registration Statement in accordance with Section 5.18(a) hereof with respect to
the shares of Registrable Securities and shall use all reasonable efforts to
cause the Registration Statement to become effective as promptly as practicable
after filing and to keep the Registration Statement effective until eighteen
(18) months after the Effective Time (subject to Sections 5.18(c)); and (ii)
prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith as may be
necessary, and to comply with the provisions of the Securities Act with respect
to the sale or other disposition of all securities proposed to be registered in
the Registration Statement until the termination of effectiveness of the
Registration Statement, (iii) furnish to each Holder such number of copies of
any prospectus (including any preliminary prospectus and any amended or
supplemented prospectus) in conformity with the requirements of the Securities
Act, and such other documents, as each Holder may reasonably request in order to
effect the offering and sale of the shares of the Registrable Securities to be
offered and sold, but only while Acquiror shall be required under the provisions
hereof to cause the Registration Statement to remain current.
(c) Notwithstanding any other provision of this Section 5.18,
Acquiror shall have the right at any time to require that all Holders suspend
further open market offers and sales of Registrable Securities whenever, and for
so long as, in the reasonable judgment of
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Acquiror in good faith after consultation with counsel, there is in existence
material undisclosed information or events with respect to Acquiror (the
"Suspension Right"). In the event Acquiror exercises the Suspension Right, such
suspension will continue for the period of time reasonably necessary for
disclosure to occur at a time that is not materially detrimental to Acquiror or
until such time as the information or event is no longer material, each as
determined in good faith by Acquiror after consultation with counsel. Acquiror
will promptly give the Shareholders' Agent (defined in Section 8 below) notice,
in a writing signed by an executive officer of Acquiror of any such suspension
(the "Suspension Notice"). Acquiror agrees to notify the Shareholders' Agent
promptly upon termination of the suspension (the "Resumption Notice"). Upon
receipt of either a Suspension Notice or Resumption Notice, the Purchaser
Representative shall immediately notify each Holder concerning the status of the
Registration Statement. The period during which Acquiror is required to keep the
Registration Statement effective shall be extended by a period equal in length
to any and all periods during which open market offers and sales of Registrable
Securities are suspended pursuant to exercise of the Suspension Right.
(d) Acquiror shall pay all of the out-of-pocket expenses,
other than underwriting discounts and commissions, if any, incurred in
connection with any registration of Registrable Securities pursuant to this
Section 5.18, including, without limitation, all registration and filing fees,
printing expenses, transfer agents' and registrars' fees, the fees and
disbursements of Acquiror's outside counsel and independent accountants, and the
reasonable fees of a single counsel for the Holders.
(e) To the fullest extent permitted by law, the Acquiror will
indemnify defend, protect and hold harmless each selling Holder, each
underwriter of Acquiror Common Stock being sold by such Holders pursuant to this
Section 5.18, each person, if any, who controls any such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act and their
respective affiliates, officers, directors, partners, successors and assigns
(each a "Holder Indemnitee"), against all actions, claims, losses, damages,
liabilities and expenses to which they or any of them become subject under the
Securities Act, the Exchange Act or under any other statute or at common law or
otherwise and, except as hereinafter provided, will promptly reimburse each such
Holder Indemnitee, for any legal or other expenses reasonably incurred by them
or any of them in connection with investigating or defending any actions whether
or not resulting in any liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of material fact in any registration
statement and any prospectus filed pursuant to Section 5.18 or any
post-effective amendment thereto 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 or any violation by the
Acquiror of any rule or regulation promulgated under the Securities Act, the
Exchange Act or any statute, regulation or law applicable to the Acquiror and
relating to action or inaction required of the Acquiror in connection with such
registration; provided, however, that the Acquiror shall not be liable to any
such Holder Indemnitee in respect of any claims, losses, damages, liabilities
and expenses resulting from any untrue statement or alleged untrue statement, or
omission or alleged omission made in reliance upon and in conformity with
information furnished in writing to the Acquiror by such Holder Indemnitee or
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any of such Holder Affiliate specifically for use in connection with such
registration statement and prospectus or post-effective amendment.
(f) To the fullest extent permitted by law, each selling
Holder of Registrable Shares registered in accordance with Section 5.18 will
indemnify the Acquiror, each person, if any, who controls the Acquiror within
the meaning of the Securities Act or the Exchange Act, each underwriter of
Acquiror Common Stock and their respective affiliates, officers, directors,
partners, successors and assigns (each an "Acquiror Indemnitee") against any
actions, claims, losses, damages, liabilities and expenses to which they or any
of them may become subject under the Securities Act, the Exchange Act or under
any other statute or at common law or otherwise, and, except as hereinafter
provided, will promptly reimburse each Acquiror Indemnitee for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact in any registration statement and any prospectus
filed pursuant to Section 5.18 or any post-effective amendment thereto, or any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, which untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with information furnished in writing to the
Acquiror by such Holder or underwriter specifically for use in connection with
such registration statement, prospectus or post-effective amendment; provided,
however, that the obligations of each such selling Holder hereunder shall be
limited to an amount equal to the proceeds to such Holder from the sale of such
Holder's Registrable Securities as contemplated herein.
(g) Each person entitled to indemnification under this Section
5.18 (an "Indemnified Person") shall give notice to the party required to
provide indemnification (the "Indemnifying Person") promptly after such
Indemnified Person has actual knowledge of any claim as to which indemnity may
be sought and shall permit the Indemnifying Person to assume the defense of any
such claim and any litigation resulting therefrom, provided that counsel for the
Indemnifying Person who conducts the defense of such claim or any litigation
resulting therefrom shall be approved by the Indemnified Person (whose approval
shall not unreasonably be withheld), and the Indemnified Person may participate
in such defense at such party's expense (unless the Indemnified Person has
reasonably concluded that there may be a conflict of interest between the
Indemnifying Person and the Indemnified Person in such action, in which case the
fees and expenses of counsel for the Indemnified Person shall be at the expense
of the Indemnifying Person), and provided further that the failure of any
Indemnified Person to give notice as provided herein shall not relieve the
Indemnifying Person of its obligations under this Section 5.18 except to the
extent the Indemnifying Person is materially prejudiced thereby. No Indemnifying
Person, in the defense of any such claim or litigation, shall (except with the
consent of each Indemnified Person) consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Person of a release from
all liability in respect to such claim or litigation. Each Indemnified Person
shall furnish such information regarding itself or the claim
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in question as an Indemnifying Person may reasonably request in writing and as
shall be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(h) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which the Acquiror or
any Holder makes a claim for indemnification pursuant to this Section 5.18 but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding that this Section 5.18 provides for
indemnification, in such case, then the Acquiror and such Holder will contribute
to the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate to
reflect the relative fault of the Acquiror on the one hand and of the Holder 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 or, if the allocation provided herein is not permitted by
applicable law, in such proportion as shall be permitted by applicable law and
reflect as nearly as possible the allocation provided herein. The relative fault
of the Acquiror on the one hand and of the Holder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Acquiror on the one hand or
by the Holder on the other, and each party's relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission;
provided, however, that, in any such case (i) no Holder will be required to
contribute any amount in excess of the proceeds received by such Holder from the
sale of Registrable Shares pursuant to the Registration Statement; and (ii) no
person or entity guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the Securities Act will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
5.19 Indemnification.
(a) Target shall and, from and after the Effective Time, the
Surviving Corporation shall, indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time, an officer, director or employee of Target
or any of its Subsidiaries (the "Indemnified Parties") against all losses,
claims, damages, costs, expenses, liabilities or judgments or amounts that are
paid in settlement with the approval of the indemnifying party (which approval
shall not be unreasonably withheld) of or in connection with any claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director, officer,
or employee of Target or any of its Subsidiaries, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities") including, without limitation, all losses, claims, damages, costs,
expenses, liabilities or judgments based in whole or in part on, or arising in
whole or in part out of, or pertaining to this Agreement or the transactions
contemplated hereby, in each case to the full extent a corporation
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is permitted under the California Law to indemnify its own directors, officers
and employees, as the case may be (Target, the Surviving Corporation, as the
case may be, will pay expenses in advance of the final disposition of any such
action or proceeding to each Indemnified Party to the full extent permitted by
law upon receipt of any undertaking contemplated by Section 317(f) of the CGCL).
Without limiting the foregoing, in the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Party (whether
arising before or after the Effective Time), (i) the Indemnified Parties may
retain counsel satisfactory to them and Target (or them and Acquiror and the
Surviving Corporation after the Effective Time), (ii) Target (or after the
Effective Time, Acquiror and the Surviving Corporation) shall pay all reasonable
fees and expenses of such counsel for the Indemnified Parties promptly as
statement therefor are received, and (iii) Target (or after the Effective Time,
the Surviving Corporation) will use all reasonable efforts to assist in the
vigorous defense of any such matter, provided that none of Target, Acquiror or
the Surviving Corporation shall be liable for any settlement of any claim
effected without its written consent, which consent, however, shall not be
unreasonably withheld. Any Indemnified Party wishing to claim indemnification
under this Section 5.19, upon learning of such claim, action, suit, proceeding
or investigation, shall promptly notify Target, Acquirors or the Surviving
Corporation (but the failure so to notify an Indemnifying Party shall not
relieve it from any liability which it may have under this Section 5.19, except
to the extent such failure materially prejudices such party), and shall deliver
to Target (or after the Effective Time, Acquiror and the Surviving Corporation)
the undertaking contemplated by Section 317(f) of the CGCL. The Indemnified
Parties as a group may retain only one law firm to represent them with respect
to each such matter unless there is, under applicable standards of professional
obligations of the parties set forth in this Section 5.19 shall be in the
furtherance of and not in limitation of the succeeding paragraphs of this
Section 5.19.
(b) From and after the Effective Time, the Surviving
Corporation will fulfill, assume and honor in all respects the obligations of
Target pursuant to Target's Articles of Incorporation and any indemnification
agreement between Target and any of Target's directors and officers existing and
in force as of the Effective Time.
5.20 Termination of 401(k) Plan. Target agrees to take appropriate
corporate action through its Board of Directors to terminate any and all Target
Employee Plans that Target maintains or sponsors which are subject to the
requirements of Section 401(k) of the Code (the "401(k) Plan") prior to the
Closing Date and agrees that no further contributions shall be made to the
401(k) Plan on or after the Closing Date. Prior to the Closing Date, Target
shall provide to Acquiror (i) executed resolutions by Target's Board of
Directors authorizing the termination of the 401(k) Plan and (ii) an executed
amendment to the 401(k) Plan sufficient to assure compliance with all applicable
requirements of the Code and regulations thereunder so that the tax-qualified
status of the 401(k) Plan shall be maintained at the time of termination.
Acquiror acknowledges that distribution of assets in connection with the
termination of the 401(k) Plan is subject to legal and regulatory requirements,
including prescribed notice periods, and that these will not be completed prior
to Closing.
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5.21 Employee Plans of the Surviving Corporation. As soon as
practicable after the Effective Time, employees of the Surviving corporation
will be permitted to participate in Acquiror's 401(k) plan on the same terms as
employees of Acquiror and the employees of Acquiror's other subsidiaries to the
extent permitted by and in accordance with the terms of Acquiror's 401(k) plan.
5.22 Excluded Vehicle Asset Transfer. The Acquiror and Principal
Shareholder shall arrange for the conveyance and transfer from Acquiror to
Principal Shareholder of the Excluded Vehicle Asset as of the Closing Date. The
purchase price of the Excluded Vehicle Asset shall be $14,725 (the "Excluded
Vehicle Proceeds"). Any taxes or expenses in connection with the transfer of the
Excluded Vehicle Asset shall be borne by Target.
6. Conditions to the Merger.
6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall
be approved and adopted by the shareholders of the Target by the requisite vote
under applicable law and the Target's Articles of Incorporation.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be and remain in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending, which would have a Material
Adverse Effect on either Acquiror or on Acquiror combined with the Surviving
Corporation after the Effective Time, nor shall there be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal.
(c) Governmental Approval. Acquiror, Target and Merger Sub and
their respective subsidiaries shall have timely obtained from each Governmental
Entity (as defined below) all approvals, waivers and consents, if any, necessary
for consummation of or in connection with the Merger and the several
transactions contemplated hereby, including such approvals, waivers and consents
as may be required under the Securities Act and under state blue sky laws.
6.2 Additional Conditions to the Obligations of Acquiror and Merger
Sub. The obligations of Acquiror and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
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(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Target in this Agreement shall be true and
correct on and as of the date of this Agreement and on and as of the Closing as
though such representations and warranties were made on and as of such time
(except for such representations and warranties that speak specifically as of
the date hereof or as of another date, which shall be true and correct as of
such date and except to the extent that conditions have changed prior to Closing
in a manner not prohibited hereby) and Acquiror and Merger Sub shall have
received a certificate executed on behalf of Target by the chief executive
officer and chief financial officer of Target.
(b) Performance of Obligations. Target shall have performed
and complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by it as
of the Closing and Principal Shareholder shall have performed and complied in
all material respects with his covenant in Section 4.3.
(c) Third Party Consents. All consents or approvals required
to be obtained in connection with the Merger and the other transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect.
(d) No Governmental Litigation. There shall not be pending or
threatened any legal proceeding in which a Governmental Body is or is threatened
to become a party or is otherwise involved, and neither Acquiror nor Target
shall have received any communication from any Governmental Body in which such
Governmental Body indicates the probability of commencing any legal proceeding
or taking any other action: (a) challenging or seeking to restrain or prohibit
the consummation of the Merger; (b) relating to the Merger and seeking to obtain
from Acquiror or any of its subsidiaries, or Target, any damages or other relief
that would be material to Acquiror; (c) seeking to prohibit or limit in any
material respect Acquiror's ability to vote, receive dividends with respect to
or otherwise exercise ownership rights with respect to the stock of Target; or
(d) which would materially and adversely affect the right of Acquiror or Target
to own the assets or operate the business of Target.
(e) Tax Opinion. Acquiror shall have received a written
opinion from Xxxx Xxxx Xxxx & Freidenrich LLP to the effect that the Merger will
be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368 of the Internal Revenue Code.
(f) No Other Litigation. There shall not be pending any legal
proceeding in which there is a reasonable likelihood of an outcome that would
have a Material Adverse Effect on Target or a Material Adverse Effect on
Acquiror: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement; (b)
relating to the Merger and seeking to obtain from Acquiror or any of its
subsidiaries, or Target, any damages or other relief that would be material to
Acquiror; (c) seeking to prohibit or limit in any material respect Acquiror's
ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to the stock
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of Target; or (d) which would affect adversely the right of Acquiror or Target
to own the assets or operate the business of Target.
(g) Escrow Agreement. Acquiror, Merger Sub, Target, Escrow
Agent and the Shareholders' Agent (as defined in Section 8 hereof) shall have
entered into an Escrow Agreement substantially in the form attached hereto as
Exhibit D.
(h) Option Exercise. Each holder of an outstanding options to
purchase shares of the Target's Common Stock shall have exercised such option
(or by virtue of non-exercise of such option, caused such option to be
terminated).
(i) Employment Agreement. The employees of Target set forth on
Schedule 5.14 shall have accepted employment with Acquiror pursuant to the terms
of offer letters in the form of Exhibit E hereto.
(j) Transaction Fees. Target shall have provided the amount of
the Transaction Fees to Acquiror.
(k) Non-Compete Agreement. Principal Shareholder and the
Acquiror shall have entered into a Non-Compete Agreement in the form of Exhibit
F hereto (the "Non-Compete Agreement").
(l) Employment Agreement. Principal Shareholder and Xxxxx
Xxx-Xxxxxx shall have accepted employment with Acquiror pursuant to the terms of
an Employment Agreement in the forms of Exhibit G-1 and Exhibit G-2,
respectively, hereto.
(m) No Material Adverse Change. There shall not have occurred
any material adverse change in the financial condition, properties, assets
(including intangible assets), liabilities, business, operations, results of
operations or prospects of Target and its subsidiaries, taken as a whole.
(n) Shareholder Agreements. The Principal Shareholder shall
beneficially own at least a majority of the outstanding Target Capital Stock and
shall have executed and delivered to Acquiror a Shareholder Agreement
substantially in the form attached hereto as Exhibit C.
(o) Number of Shareholders. There shall be no more than
thirty-five (35) Target shareholders who are (A) U.S. persons as defined under
Regulation S under the Securities Act ("U.S. Person") and (B) not "accredited
investors" as defined in Rule 501 under the Securities Act.
(p) Purchaser Representative. There shall be a Purchaser
Representative, as defined in Regulation D under the Securities Act, reasonably
satisfactory to Acquiror, representing each holder of Target Capital Stock who
is a U.S. Person and not an "accredited investor" as defined in Rule 501 under
the Securities Act, and such Purchaser
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Representative shall have executed and delivered documentation reasonably
satisfactory to Acquiror.
(q) Dissenters' Rights. Not more than five percent (5%) of the
Target Capital Stock outstanding immediately prior to the Effective Time shall
be eligible as Dissenters' Shares.
(r) Legal Opinion. Acquiror shall have received a legal
opinion from Bay Venture Counsel, LLP substantially in the form of Exhibit H
hereto.
(s) Interim Balance Sheet. The Interim Balance Sheet, pursuant
to Section 5.7 hereof, shall have been delivered by Target to Acquiror.
(t) Termination of 401(k) Plan. Target shall have taken the
actions described in Section 5.20 to terminate the 401(k) Plan.
(u) Excluded Vehicle Asset Conveyance. Target shall have
conveyed, and Principal Shareholder shall have purchased, the Excluded Vehicle
Asset in accordance with Section 5.22 hereof.
6.3 Additional Conditions to Obligations of Target. The obligations
of Target to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Target:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Acquiror and Merger Sub in this Agreement
shall be true and correct on and as of the date of this Agreement and on and as
of the Closing as though such representations and warranties were made on and as
of such time (except for such representations and warranties that speak
specifically as of the date hereof or as of another date, which shall be true
and correct as of such date) and the Target shall have received a certificate
executed on behalf of Acquiror and Merger Sub by the chief executive officer and
chief financial officer of Acquiror and Merger Sub, respectively.
(b) Performance of Obligations. Acquiror and Merger Sub shall
have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by them as of the Closing and Target shall have received a
certificate executed on behalf of Acquiror and Merger Sub by the chief executive
officer and the chief financial officer of Acquiror and Merger Sub,
respectively.
(c) Tax Opinion. Target shall have received a written opinion
from Bay Venture Counsel, LLP to the effect that the Merger will be treated for
Federal income tax purposes as a reorganization within the meaning of Section
368 of the Internal Revenue Code.
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(d) No Material Adverse Change. There shall not have occurred
any material adverse change in the financial condition, properties, assets
(including intangible assets), liabilities, business, operations or results of
operations of Acquiror and its subsidiaries, taken as a whole.
(e) Legal Opinion. Target shall have received a legal opinion
from Acquiror's legal counsel, Xxxx Xxxx Xxxx & Freidenrich LLP, substantially
in the form of Exhibit I hereto.
(f) Registration Statement. Acquiror shall have filed with the
SEC a registration statement (the "Registration Statement") on Form S-3 or such
other form as is then available under the Securities Act of 1933, as amended
(the "Securities Act"), registering the resale of all shares of Acquiror Common
Stock issued in the Merger.
7. Termination, Amendment and Waiver.
7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time (with respect to Section 7.1(b) through Section 7.1(d), by
written notice by the terminating party to the other party):
(a) by the mutual written consent of Acquiror
and Target;
(b) by either Acquiror or Target if the Merger shall not have
been consummated by August 15, 1999, provided, however, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date.
(c) by either Acquiror or Target if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, except, if the party relying on such order, decree or ruling or other
action has not complied with its obligations under this Agreement;
(d) by Acquiror or Target, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
(or by Principal Shareholder in the case of termination by Acquiror in
connection with a breach by Principal Shareholder pursuant to Section 4.3
hereof) set forth in this Agreement, which breach (i) causes the conditions set
forth in Section 6.1 or 6.2 (in the case of termination by Acquiror) or Section
6.1 or 6.3 (in the case of termination by Target) not to be satisfied and (ii)
shall not have been cured within ten (10) business days following receipt by the
breaching party of written notice of such breach from the other party.
7.2 Effect of Termination.
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(a) Generally. In the event of termination of this Agreement
as provided in Section 7.1, there shall be no liability or obligation on the
part of Acquiror, Target, Sub or their respective officers, directors, or
stockholders, except to the extent that such termination results from the
willful breach by a party of any of its representations, warranties or covenants
set forth in this Agreement; provided that the provisions of Section 7.1, 7.2(b)
and Section 5.5 shall remain in full force and effect and survive any
termination of this Agreement
(b) Termination Fee. If Acquiror terminates this Agreement as
a direct result of Principal Shareholder's breach of his covenant in Section
4.3, Target shall pay the Termination Fee set forth in Section 4.3 hereof. If
Target does not contest the breach of the covenant in Section 4.3 by Principal
Shareholder, Target shall promptly notify Acquiror of its agreement and pay the
Termination Fee within fifteen (15) business days after the date of Target's
acknowledgment, in cash by wire transfer of immediately available funds to an
account designated by Acquiror. If Target contests the breach of the covenant,
Target will pay the Termination Fee within thirty (30) days after a "Final
Determination" (as hereafter defined) that Target terminated this Agreement as a
result of Principal Shareholder's breach of the covenant in Section 4.3. Any
dispute between Target and Acquiror concerning Target's liability shall be
resolved by binding arbitration held pursuant to the procedures set forth in
Section 8.10(b), modified as follows: The parties shall use their best efforts
to conduct an accelerated arbitration proceeding in which each side shall
complete its presentation to the arbitrator no later than sixty (60) days after
the date that Target notifies Acquiror that it is disputing its liability (the
"Arbitration Notice Date") and the arbitrator shall deliver its written findings
to the parties no later than seventy-five (75) days after the Arbitration Notice
Date. The nonprevailing party in the arbitration shall have fifteen (15) days
from the date it receives the arbitrator's ruling in which to request that the
arbitrator reconsider its ruling and to present its arguments therefor, which it
shall concurrently deliver to the prevailing party; and the prevailing party
shall have fifteen (15) days from date that it receives the reconsideration
request, as presented to the arbitrator, in which to respond. The arbitrator
shall affirm in writing its initial findings or reverse those findings within
fifteen (15) days after receipt of the prevailing party's opposition papers. The
arbitrator's determination becomes a "Final Determination" for purposes of this
Section upon the expiration of the non-prevailing party's right to request that
the arbitrator reconsider its determination. The prevailing party at the time of
the Final Determination shall be entitled to recover from the non-prevailing
party all fees and expenses incurred in connection with the dispute, including
reasonable attorneys fees and the fees of the arbitrator, together with interest
on the amount of the Termination Fee at the publicly announced prime rate of
Citibank, N.A. from the date such Termination Fee was required to be paid. The
provisions in this Section 7.2(b) shall survive the termination of this
Agreement.
7.3 Amendment. This Agreement may be amended by the parties hereto,
by action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent
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legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
8. Escrow and Indemnification.
8.1 Escrow Fund.
(a) Pursuant to Section 1.7(i) hereof, and as soon as
practicable after the Effective Time, the Indemnification Shares shall be
registered in the name of, and be deposited together with the Indemnification
Cash with, State Street Bank and Trust Company (or other institution selected by
Acquiror with the reasonable consent of Target) as escrow agent (the "Escrow
Agent"), and the Adjustment Shares shall likewise be registered in the name of,
and be deposited with, the Escrow Agent, provided that the Escrow Agent shall
segregate the Adjustment Shares in the Adjustment Escrow, the treatment of which
shall be governed by the terms set forth herein, in Section 8.14, and in the
Escrow Agreement attached hereto as Exhibit D. Additionally, any Contingent
Escrowed Consideration shall be deposited with the Escrow Agent as soon as
practicable upon the occurrences of the contingencies set forth in Section
1.7(i). The foregoing deposits consisting of the Total Escrowed Consideration,
less the Adjustment Shares, shall constitute the escrow fund (the "Escrow Fund")
and will be governed by the terms set forth herein and in the Escrow Agreement.
The Escrow Fund shall be available to compensate Acquiror pursuant to the
indemnification obligations of the shareholders of Target. In the event Acquiror
issues any Additional Escrow Shares (as defined below), such shares will be
issued in the name of the Escrow Agent and delivered to the Escrow Agent in the
same manner as the shares of Acquiror Common Stock delivered pursuant to this
Section 8.1(a) (the "Escrow Shares").
(b) Except for dividends paid in stock declared with respect
to the Escrow Shares ("Additional Escrow Shares"), which shall be treated as set
forth in Section 8.1(a) hereof, any cash dividends, dividends payable in
securities or other distributions of any kind made in respect of the Escrow
Shares will be delivered to the shareholders of Target on a Pro Rata basis. Each
shareholder of Target will have voting rights with respect to the Escrow Shares
deposited in the Escrow Fund and Adjustment Escrow with respect to such
shareholder so long as such Escrow Shares are held in escrow, and Acquiror will
take all reasonable steps necessary to allow the exercise of such rights. While
the Escrow Shares remain in the Escrow Agent's possession pursuant to this
Agreement, the shareholders of Target will retain and will be able to exercise
all other incidents of ownership of said Escrow Shares which are not
inconsistent with the terms and conditions of this Agreement.
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8.2 Indemnification.
(a) Survival of Warranties. All representations and warranties
made by Target, Principal Shareholder, Acquiror or Merger Sub herein, or in any
certificate, schedule or exhibit delivered pursuant hereto, shall survive the
Closing and continue in full force and effect until the first anniversary of the
Closing Date (sometimes referred to herein as the "Termination Date").
(b) Indemnification by Target. Subject to the limitations set
forth in this Section 8, the shareholders of Target (including Principal
Shareholder) (the "Shareholder Indemnitors") will jointly and severally
indemnify and hold harmless Acquiror and the Surviving Corporation and its
respective officers, directors, agents, attorneys and employees, and each
person, if any, who controls or may control Acquiror or the Surviving
Corporation within the meaning of the Securities Act (hereinafter referred to
individually as an "Acquiror Indemnified Person" and collectively as "Acquiror
Indemnified Persons") from and against any and all losses, costs, damages,
liabilities and expenses arising from claims, demands, actions, causes of
action, including, without limitation, legal fees, (collectively, "Damages")
arising out of any misrepresentation or breach of or default in connection with
any of the representations, warranties, covenants and agreements given or made
by Target in this Agreement, the Target Disclosure Schedules or any exhibit or
schedule to this Agreement.
(c) Maximum Indemnification. The aggregate indemnification
obligations of each of (i) the Shareholder Indemnitors or (ii) the Acquiror and
Merger Sub with respect for any and all claims for Damages arising under this
Agreement shall not exceed $6,000,000, provided however, that nothing in this
Agreement shall limit the liability in amount or otherwise of Acquiror, Merger
Sub, Target or Principal Shareholder with respect to fraud or criminal activity.
8.3 Limitation of Liability. No claim for Damages shall be made
under this Section 8.3 until the aggregate amount of all Damages evidenced by
such claims exceeds $50,000, in which case Acquiror and/or Acquiror Indemnified
Person shall be entitled to seek compensation for the full amount of all such
claims.
8.4 Manner of Indemnification. All claims for indemnification shall
be received initially from the Escrow pursuant to the procedures set forth in
this Section 8 until such time as the Escrow has been terminated or the funds
therein fully utilized. The Shareholder Indemnitors shall be liable in amounts
in excess of the Escrow once the funds in the Escrow have been fully utilized
subject to the limitations set forth in this Section 8.
8.5 Indemnification by Acquiror and Merger Sub. Subject to the
limitation set forth in this Section 8, Acquiror hereby agrees to indemnify,
defend and hold harmless Target, the Principal Shareholder, the shareholders of
Target and their respective officers, directors, agents, attorneys and
employees, and each person who controls or may control Target or such Target
shareholder (hereinafter "Target Indemnified Person") from and against any and
all Damages which arising out of: (i) any representation or breach of or default
in connection with
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the representations, warranties, covenants and agreements given or made by
Acquiror or Merger Sub in this Agreement or any exhibit or schedule to this
Agreement; or (ii) the operation of the business of the Surviving Corporation
after the Closing.
8.6 Limitation of Liability on Acquiror and Merger Sub. No claim
shall be made against Acquiror or Merger Sub for indemnification under Section 8
until the aggregate amount of all such claims against Acquiror or Merger Sub
exceeds $50,000, in which case Target Indemnified Person shall be entitled to
seek indemnification from the Acquiror for the full amount of all such claims.
8.7 Escrow Period; Release From Escrow.
(a) The Escrow Period shall terminate upon the expiration of
twelve months after the Effective Time; provided, however, that a portion of the
Escrow Fund, which, in the reasonable judgment of Acquiror, subject to the
objection of the Shareholders' Agent (defined below) and the subsequent
arbitration of the matter in the manner provided in Section 8.10 hereof, is
necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate theretofore delivered to the Escrow Agent prior to termination of
the Escrow Period with respect to facts and circumstances existing prior to
expiration of the Escrow Period, shall remain in the Escrow Fund until such
claims have been resolved.
(b) Within three (3) business days after the Termination Date
(the "Release Date"), the Escrow Agents shall release from escrow to the
shareholders of Target their Pro Rata portion of the Total Escrowed
Consideration and Additional Escrow Shares in the Escrow, less with respect to
each such shareholder the number of Total Escrowed Consideration and Additional
Shares in the Escrow with a value (as determined pursuant to Section 8.8) equal
to (A) such shareholder's Pro Rata portion of any liability delivered to
Acquiror in accordance with Section 8.8 in satisfaction of indemnification
claims by Indemnitee and (B) such shareholder's Pro Rata portion of any
liability subject to delivery to Indemnitee in accordance with Section 8.7(a)
with respect to any pending but unresolved indemnification claims of Indemnitee.
Any Total Escrowed Consideration and Additional Escrow Shares in the Escrow held
as a result of clause (B) shall be released to the shareholders of Target or
released to Acquiror (as appropriate) promptly upon resolution of each specific
indemnification claim involved. Total Escrowed Consideration and Additional
Escrow Shares in the Escrow shall be released to the respective shareholders of
Target in proportion to their respective ownership interest in Target
immediately prior to the Effective Time. Acquiror will take such action as may
be necessary to cause such certificates to be issued in the names of the
appropriate persons. Certificates representing Total Escrowed Consideration and
Additional Escrow Shares in the Escrow so issued that are subject to resale
restrictions under applicable securities laws will bear a legend to that effect.
No fractional shares shall be released and delivered from Escrow to the
shareholders of Target. In lieu of any fraction of an Escrow Share to which a
Target shareholder would otherwise be entitled, such holder will receive from
Acquiror an amount of cash (rounded to the nearest whole cent) equal to the
Product of such fraction multiplied by the Closing Market Price.
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(c) No Total Escrowed Consideration or Additional Escrow
Shares in the Escrow or any beneficial interest therein may be pledged, sold,
assigned or transferred, including by operation of law, by any shareholder of
Target or be taken or reached by any legal or equitable process in satisfaction
of any debt or other liability of any such shareholder, prior to the delivery to
such shareholder of his Pro Rata portion of the Escrow Fund by the Escrow Agent
as provided herein.
(d) The Escrow Agent is hereby granted the power to effect any
transfer of Escrow Shares contemplated by this Agreement. Acquiror will
cooperate with the Escrow Agent in promptly issuing stock certificates to effect
such transfers.
8.8 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or
before the Release Date of a certificate signed by the Chief Executive Officer,
President or Chief Financial Officer of Acquiror (an "Officer's Certificate")
stating that with respect to the indemnification obligations of the Shareholder
Indemnitors in Section 8.2, Damages exist and specifying in reasonable detail
the individual items of such Damages included in the amount so stated, the date
each such item was paid, or properly accrued or arose, and the nature of the
misrepresentation, breach of warranty or claim to which such item is related,
the Escrow Agent shall, subject to the provisions of this Section 8, deliver to
Acquiror out of the Escrow Fund, as promptly as practicable after the claim is
determined to be undisputed or any dispute concerning the claim is resolved as
set forth in this Section 8, Acquiror Common Stock, cash or other assets held in
the Escrow Fund having a value equal to such Damages. For the purpose of
compensating Acquiror for its Damages pursuant to this Agreement, the Acquiror
Common Stock in the Escrow Fund shall be valued at the Closing Market Price and
payments and distributions out of the Escrow shall be, to the maximum extent
possible, in the same ratio of cash and value of shares of Acquiror Common
Stock, as the ratio of total cash contributed to the Escrow bears to the total
value of Acquiror Common Stock contributed to the Escrow.
8.9 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Shareholders' Agent and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery of Acquiror
Common Stock or other property pursuant to Section 8.8 hereof unless the Escrow
Agent shall have received written authorization from the Shareholders' Agent to
make such delivery. After the expiration of such thirty (30) day period, the
Escrow Agent shall make delivery of the Acquiror Common Stock, cash or other
property in the Escrow Fund in accordance with Section 8.8 hereof, provided that
no such payment or delivery may be made if the Shareholders' Agent shall object
in a written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Escrow Agent and to Acquiror prior to
the expiration of such thirty (30) day period.
8.10 Resolution of Conflicts and Arbitration.
(a) In case the Shareholders' Agent shall so object in writing
to any claim or claims by Acquiror made in any Officer's Certificate, Acquiror
shall have thirty (30) days to respond in a written statement to the objection
of the Shareholders' Agent. If after such
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thirty (30) day period there remains a dispute as to any claims, the
Shareholders' Agent and Acquiror shall attempt in good faith for sixty (60) days
to agree upon the rights of the respective parties with respect to each of such
claims. If the Shareholders' Agent and Acquiror should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and shall distribute the Acquiror Common Stock or
other property from the Escrow Fund in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Acquiror or the Shareholders' Agent may, by written notice
to the other, demand arbitration of the matter unless the amount of the damage
or loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by one arbitrator. Acquiror and the
Shareholders' Agent shall agree on the arbitrator, provided that if Acquiror and
the Shareholders' Agent cannot agree on such arbitrator, either Acquiror or
Shareholders' Agent can request that Judicial Arbitration and Mediation Services
("JAMS") select the arbitrator. The arbitrator shall set a limited time period
and establish procedures designed to reduce the cost and time for discovery
while allowing the parties an opportunity, adequate in the sole judgment of the
arbitrator, to discover relevant information from the opposing parties about the
subject matter of the dispute. The arbitrator shall rule upon motions to compel
or limit discovery and shall have the authority to impose sanctions, including
attorneys' fees and costs, to the same extent as a court of competent law or
equity, should the arbitrator determine that discovery was sought without
substantial justification, that discovery was refused or objected to without
substantial justification, or that a party has engaged in any other practice
that would justify the imposition of sanctions if the dispute were being
litigated in Superior Court in the county in which the arbitration is being
held. The decision of the arbitrator shall be written, shall be in accordance
with applicable law and with this Agreement, and shall be supported by written
findings of fact and conclusion of law which shall set forth the basis for the
decision of the arbitrator. The decision of the arbitrator as to the validity
and amount of any claim in such Officer's Certificate shall be binding and
conclusive upon the parties to this Agreement, and notwithstanding anything in
Section 8.9 hereof, the Escrow Agent shall be entitled to act in accordance with
such decision and make or withhold payments out of the Escrow Fund in accordance
therewith.
(c) Judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Alameda County, California under the commercial rules then in effect of the
American Arbitration Association. For purposes of this Section 8.10(c), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Acquiror shall be deemed to be the
Non-Prevailing Party unless the arbitrators award Acquiror more than one-half
(1/2) of the amount in dispute, plus any amounts not in dispute; otherwise, the
Target shareholders for whom the Escrow Shares, Additional Escrow Shares (if
any) and the Escrow Cash have been deposited in the Escrow Fund shall be deemed
to be the Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall
pay its own expenses, the fees of the arbitrator, any administrative fee of
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JAMS, and the expenses, including attorneys' fees and costs, reasonably incurred
by the other party to the arbitration.
8.11 Shareholders' Agent.
(a) Principal Shareholder shall be constituted and appointed
as agent ("Shareholders' Agent") for and on behalf of the Shareholder
Indemnitors to give and receive notices and communications, to authorize
delivery to Acquiror of the Acquiror Common Stock, cash or other property from
the Total Escrowed Consideration from the Escrow Fund in satisfaction of claims
by Acquiror, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Shareholders' Agent for
the accomplishment of the foregoing. Such agency may be changed by the holders
of a majority in interest of the Escrow Fund from time to time upon not less
than 10 days' prior written notice to Acquiror. No bond shall be required of the
Shareholders' Agent, and the Shareholders' Agent shall receive no compensation
for his services, provided, however that the Shareholder Agent shall be entitled
to reimbursement of all reasonable out-of-pocket expenses incurred in serving in
this capacity from the Escrow Fund. Notices or communications to or from the
Shareholders' Agent shall constitute notice to or from each of the Target
shareholders.
(b) The Shareholders' Agent shall not be liable for any act
done or omitted hereunder as Shareholder' Agent while acting in good faith and
in the exercise of reasonable judgment and any act done or omitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith. The
Target shareholders shall severally indemnify the Shareholders' Agent and hold
him harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Shareholders' Agent shall have reasonable access to
information about Target and the reasonable assistance of Target's officers and
employees for purposes of performing his duties and exercising his rights
hereunder, provided that the Shareholders' Agent shall treat confidentially and
not disclose any nonpublic information from or about Target to anyone (except on
a need to know basis to individuals who agree to treat such information
confidentially).
(d) Acquiror acknowledges that the Principal Shareholder may
have a conflict of interest with respect to his duties as Shareholders' Agent,
and in such regard the Principal Shareholder has informed Acquiror that he will
act in the best interests of Target shareholders.
8.12 Actions of the Shareholders' Agent. A decision, act, consent or
instruction of the Shareholders' Agent shall constitute a decision of all
Shareholder Indemnitors for whom shares of Acquiror Common Stock otherwise
issuable to them and cash are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Target
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shareholder, and the Escrow Agent and Acquiror may rely upon any decision, act,
consent or instruction of the Shareholders' Agent as being the decision, act,
consent or instruction of each and every such Target shareholder. The Escrow
Agent and Acquiror are hereby relieved from any liability to any person for any
acts done by them in accordance with such decision, act, consent or instruction
of the Shareholders' Agent.
8.13 Third-Party Claims. In the event Acquiror becomes aware of a
third-party claim which Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall notify the Shareholders' Agent of such claim, and
the Shareholders' Agent and the Shareholder Indemnitors for whom shares of
Acquiror Common Stock and cash otherwise issuable to them are deposited in the
Escrow Fund shall be entitled, at their expense, to participate in any defense
of such claim. Acquiror shall have the right in its sole discretion to settle
any such claim. In the event that the Shareholders' Agent has consented to any
such settlement, the Shareholders' Agent shall have no power or authority to
object under Section 8.9 or any other provision of this Section 8 to the amount
of any claim by Acquiror against the Escrow Fund for indemnity with respect to
such settlement.
8.14 Adjustment Escrow. The Adjustment Shares shall be held in the
Adjustment Escrow separately from the Escrow and shall be disposed of by the
Escrow Agent for the benefit of the Shareholders and Acquiror:
(a) If the Effective Market Price does not exceed the Closing
Market Price, then the Adjusted Shares shall be disbursed Pro Rata to the
Shareholders, promptly after determination thereof by the Acquiror and
Shareholder Agent to the Shareholders.
(b) If the Effective Market Price is greater than the Closing
Market Price, then any Adjustment Shares to be canceled pursuant to Section
1.6(ii) hereof shall be returned to Acquiror promptly after determination
thereof by the Acquiror and Shareholder Agent. Any remaining Adjustment Shares
thereafter shall be delivered Pro Rata to the Shareholders promptly thereafter
or concurrently therewith.
(c) Upon the disbursement of shares under either Section
8.14(a) and Section 8.14(b) above, the Adjustment Escrow
shall terminate.
9. General Provisions.
9.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed duly delivered if delivered personally (upon
receipt), or three (3) business days after being mailed by registered or
certified mail, postage prepaid (return receipt requested), or one (1) business
day after it is sent by commercial overnight courier service, or upon
transmission, if sent via facsimile (with confirmation of receipt) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
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(a) if to Acquiror or Merger Sub, to:
CyberCash, Inc.
0000 Xxxxxx Xxxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
Fax: (000) 000-0000
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich, LLP
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
(b) if to Target, to:
Tellan Software, Inc.
0000 X. Xxxxx Xx., Xxxxx 000
Xxx Xxxx, XX
Attention: Xxxxxx X. Xxxx
Fax: (000) 000-0000
with a copy to:
Bay Venture Counsel, LLP
Lake Xxxxxxx Plaza
0000 Xxxxxxxx Xx., Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
(c) if to Shareholders' Agent, to:
Xxxxxx X. Xxxx
c/o Tellan Software, Inc.
0000 X. Xxxxx Xx., Xxxxx 000
Xxx Xxxx, XX
Fax: (000) 000-0000
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with a copy to:
Bay Venture Counsel, LLP
Lake Xxxxxxx Plaza
0000 Xxxxxxxx Xx., Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
9.2 Definitions. In this Agreement any reference to any event,
change, condition or effect being "material" with respect to any entity or group
of entities means any material event, change, condition or effect related to the
financial condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the financial condition, properties,
assets, liabilities, business, operations, or results of operations of such
entity and its subsidiaries, taken as a whole. In this Agreement any reference
to a party's "knowledge" means such party's actual knowledge after reasonable
inquiry of officers and directors of such party reasonably believed to have
knowledge of such matters.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Target Disclosure Schedule and the Acquiror Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder, and shall not be assigned by
operation of law or otherwise without the written consent of the other party.
9.5 Severability. In the event that any provision of this Agreement,
or the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
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9.6 Remedies Cumulative. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
9.7 Arbitration.
(a) Subject to paragraph (b) below, the parties shall endeavor
to resolve all disputes by agreement and to that end shall each provide the
other with sufficient descriptions and information regarding its position to
permit informed assessments and decisions. Any disagreement, claim, demand,
controversy, or dispute which arises after the Closing in any way relating to
this Agreement and the performance or alleged breach by the parties, whether
involving questions of law or fact or both and regardless of the nature thereof
or the remedy therefor, which is not settled by agreement of the parties shall
be resolved consistent with the arbitration provisions in Section 8.10 of the
Agreement.
(b) Any party hereto may request a court of competent
jurisdiction to grant provisional injunctive relief to such party until an
arbitrator can render an award on the matter in question and such award can be
confirmed by a court having jurisdiction thereof.
9.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of California regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof. Each
of the parties hereto irrevocably consents to the exclusive jurisdiction of any
court located within Alameda County, State of California, in connection with any
matter based upon or arising out of this Agreement or the matter contemplated
hereby and instituted by Target, Acquiror or Merger Sub. Each of the parties
hereto further agrees that process may be served upon it in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which it might otherwise have
to such jurisdiction and such process.
9.9 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Target, Acquiror and Merger Sub and Principal
Shareholder have caused this Agreement to be executed and delivered by each of
them or their respective officers thereunto duly authorized, all as of the date
first written above.
TELLAN SOFTWARE, INC.
By: /s/ Xxxxxx X. Xxxx
-----------------------------------------
Xxxxxx X. Xxxx
President and Chief Executive Officer
CYBERCASH, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxx
Executive Vice President for Strategic Relations
SHAKER ACQUISITION
CORPORATION
By: /s/ Xxxxx X. Xxxxxx
-----------------------------------------
Xxxxx X. Xxxxxx
President
PRINCIPAL SHAREHOLDER
By: /s/ Xxxxxx X. Xxxx
-----------------------------------------
Xxxxxx X. Xxxx
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