1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SILVERSTREAM SOFTWARE, INC., SILVERSTREAM ACQUISITION CORP.
AND
GEMLOGIC, INC.
December 13, 1999
2
TABLE OF CONTENTS
EXHIBIT 2.1
Page
----
ARTICLE I - THE MERGER .................................................. 1
1.1 The Merger .................................................... 1
1.2 The Closing ................................................... 1
1.3 Actions at the Closing ........................................ 2
1.4 Additional Action ............................................. 2
1.5 Conversion of Shares .......................................... 2
1.6 Dissenting Shares ............................................. 6
1.7 Fractional Shares ............................................. 6
1.8 Certificate of Incorporation and By-laws ...................... 7
1.9 No Further Rights ............................................. 7
1.10 Closing of Transfer Books ..................................... 7
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY .............. 7
2.1 Organization, Qualification and Corporate Power ............... 8
2.2 Capitalization ................................................ 8
2.3 Authorization of Transaction .................................. 9
2.4 Noncontravention .............................................. 9
2.5 Subsidiaries .................................................. 10
2.6 Financial Statements .......................................... 10
2.7 Absence of Certain Changes .................................... 10
2.8 Undisclosed Liabilities ....................................... 11
2.9 Tax Matters ................................................... 11
2.10 Assets ........................................................ 13
2.11 Owned Real Property ........................................... 13
2.12 Real Property Leases .......................................... 13
2.13 Intellectual Property ......................................... 13
2.14 Contracts ..................................................... 16
2.15 Accounts Receivable ........................................... 17
2.16 Powers of Attorney ............................................ 17
2.17 Insurance ..................................................... 17
2.18 Litigation .................................................... 18
2.19 Employees ..................................................... 18
2.20 Employee Benefits ............................................. 18
2.21 Legal Compliance .............................................. 18
2.22 Customers and Suppliers ....................................... 18
2.23 Permits ....................................................... 19
-i-
3
EXHIBIT 2.1
Page
----
2.24 Certain Business Relationships With Affiliates.............. 19
2.25 Brokers' Fees............................................... 19
2.26 Books and Records........................................... 19
2.27 Disclosure.................................................. 19
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY..................................... 20
3.1 Organization, Qualification and Corporate Power............. 20
3.2 Capitalization.............................................. 20
3.3 Authorization of Transaction................................ 20
3.4 Noncontravention............................................ 21
3.5 Reports and Financial Statements............................ 21
3.6 Absence of Material Adverse Change.......................... 22
3.7 Litigation.................................................. 22
3.8 Interim Operations of the Transitory Subsidiary............. 22
3.9 Brokers' Fees............................................... 22
3.10 Disclosure.................................................. 22
ARTICLE IV - COVENANTS................................................. 23
4.1 Closing Efforts............................................. 23
4.2 Governmental and Third-Party Notices and Consents........... 23
4.3 Stockholder Approval........................................ 23
4.4 Operation of Business....................................... 23
4.5 Access to Information....................................... 25
4.6 Notice of Breaches.......................................... 26
4.7 Exclusivity................................................. 26
4.8 Expenses.................................................... 27
4.9 Post-Closing Covenants Relating to B2B Solutions Division... 27
4.10 Personal Guaranties......................................... 27
4.11 Registration Rights......................................... 27
-ii-
4
EXHIBIT 2.1
Page
----
ARTICLE V - CONDITIONS TO CONSUMMATION OF MERGER.......................28
5.1 Conditions to Each Party's Obligations.....................28
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary..............................................28
5.3 Conditions to Obligations of the Company...................29
ARTICLE VI - INDEMNIFICATION...........................................31
6.1 Indemnification by the Company Stockholders................31
6.2 Indemnification by the Buyer...............................32
6.3 Indemnification Claims.....................................32
6.4 Survival of Representations and Warranties.................35
6.5 Limitations................................................35
ARTICLE VII - TERMINATION..............................................36
7.1 Termination of Agreement...................................36
7.2 Effect of Termination......................................37
ARTICLE VIII - DEFINITIONS.............................................38
ARTICLE IX - MISCELLANEOUS.............................................40
9.1 Press Releases and Announcements...........................40
9.2 No Third Party Beneficiaries...............................40
9.3 Entire Agreement...........................................40
9.4 Succession and Assignment..................................40
9.5 Counterparts and Facsimile Signature.......................40
9.6 Headings...................................................40
9.7 Notices....................................................41
9.8 Governing Law..............................................41
9.9 Amendments and Waivers.....................................42
9.10 Severability...............................................42
9.11 Submission to Jurisdiction.................................42
9.12 Construction...............................................43
-iii-
5
EXHIBIT A - Form of Founder Option Agreement
EXHIBIT B - Investment Representation Letter
EXHIBIT C - Form of Opinion from Counsel to the Company
EXHIBIT D - Forms of Non-Competition and Non Solicitation Agreement and
Invention and Non-Disclosure Agreement
EXHIBIT E - Form of Employee Release
-iv-
6
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of December 13, 1999 by and among
SilverStream Software, Inc., a Delaware corporation (the "Buyer"), SilverStream
Acquisition Corp., a Connecticut corporation and a wholly-owned subsidiary of
the Buyer (the "Transitory Subsidiary"), and GemLogic, Inc., a Connecticut
corporation (the "Company"). The Buyer, the Transitory Subsidiary and the
Company are referred to collectively herein as the "Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into
the Company. In such merger, the stockholders of the Company will receive common
stock of the Buyer in exchange for their capital stock of the Company.
The parties intend that the transaction contemplated under this
agreement will qualify as a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company (with
such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Surviving
Corporation files a certificate of merger or other appropriate documents
prepared and executed in accordance with Section 33-819 of the Connecticut
Business Corporation Act (the "Certificate of Merger") with the Secretary of
State of the State of Connecticut. The Merger shall have the effects set forth
in Section 33-820 of the Connecticut Business Corporation Act. The sole
stockholders of the Company are Xxxxxxxxx Xxxxxxx and Xxxxxxxxxxx Xxxxxx (each a
"Company Stockholder").
1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxx and Xxxx LLP
in Boston, Massachusetts, commencing at 10:00 a.m. local time on December 13,
1999, or,
7
if all of the conditions to the obligations of the Parties to consummate the
transactions contemplated hereby have not been satisfied or waived by such date,
on such mutually agreeable later date as soon as practicable (and in any event
not later than three business days) after the satisfaction or waiver of all
conditions (excluding the delivery of any documents to be delivered at the
Closing by any of the Parties) set forth in Article V hereof (the "Closing
Date").
1.3 Actions at the Closing. At the Closing:
(a) the Company shall deliver to the Buyer and the Transitory
Subsidiary the various certificates, instruments and documents referred to in
Section 5.2;
(b) the Buyer and the Transitory Subsidiary shall deliver to
the Company the various certificates, instruments and documents referred to in
Section 5.3;
(c) the Surviving Corporation shall file with the Secretary of
State of the State of Connecticut the Certificate of Merger;
(d) each of the Company Stockholders immediately prior to the
Effective Time shall deliver to the Buyer the certificate(s) representing his,
her or its Common Shares (as defined below); and
(e) the Buyer shall deliver certificates for the portion of
the Merger Consideration (as defined below) to each Company Stockholder in
accordance with Section 1.5.
1.4 Additional Action. The Surviving Corporation may, at any time after
the Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 Conversion of Shares. Conversion of Shares. At the Effective Time,
by virtue of the Merger and without any action on the part of any Party or the
holder of any securities:
(a) Each share of common stock, $.01 par value per share, of
the Company ("Common Shares") issued and outstanding immediately prior to the
Effective Time (other than Common Shares owned beneficially by the Buyer or the
Transitory Subsidiary, Dissenting Shares (as defined below) and Common Shares
held
-2-
8
in the Company's treasury) shall be converted into and represent the right to
receive the following (collectively, the "Merger Consideration"):
(i) at the Closing, a number of shares of Common
Stock, $.001 par value per share, of the Buyer ("Buyer Common Stock") equal to
$9,600,000 divided by the product of (A) the average of the last reported sales
price per share of the Buyer Common Stock on the Nasdaq National Market over the
20 consecutive trading days ending on the trading day that is three trading days
prior to the date of issuance (the "Average Price") multiplied by (B) the number
of Common Shares issued and outstanding immediately prior to the Closing (the
"Closing Shares"); provided, however, that 60% of the Closing Shares that
represent the Merger Consideration issuable in respect of shares of restricted
stock of the Company (pursuant to stock restriction agreements between the
Company and each of the Company Stockholders) shall be retained in escrow by the
Buyer and released only upon the satisfaction of the terms and conditions set
forth in such stock restriction agreements;
(ii) on or before July 31, 2000, a number of shares
of Buyer Common Stock equal to $800,000 divided by the product of the Average
Price multiplied by the Closing Shares if the Chief Executive Officer of the
Buyer and the Vice President and General Manager of the B2B Solutions Division
mutually agree to ship the XML Integration Server on or before June 30, 2000;
(iii) on or before January 31, 2001, a number of
shares of Buyer Common Stock equal to $400,000 divided by the product of the
Average Price multiplied by the Closing Shares if the Buyer's B2B Solutions
Division receives at least $1,000,000 in total revenue by December 31, 2000;
(iv) on or before January 31, 2001, in addition to
the shares of Buyer Common Stock referred to in Section 1.5(a)(iii), a number of
shares of Buyer Common Stock equal to $400,000 divided by the product of the
Average Price multiplied by the Closing Shares if the Buyer's B2B Solutions
Division receives at least $1,500,000 in total revenue by December 31, 2000;
(v) on or before July 31, 2001, a number of shares of
Buyer Common Stock equal to $600,000 divided by the product of the Average Price
multiplied by the Closing Shares if the Buyer's B2B Solutions Division receives
at least $3,000,000 in total revenue in the first six months of calendar year
2001;
(vi) on or before July 31, 2001, in addition to the
shares of Buyer Common Stock referred to in Section 1.5(a)(v), a number of
shares of Buyer Common Stock equal to $600,000 divided by the product of the
Average Price multiplied by the
-3-
9
Closing Shares if the Buyer's B2B Solutions Division receives at least
$4,000,000 in total revenue in the first six months of calendar year 2001;
(vii) on or before January 31, 2002, a number of
shares of Buyer Common Stock equal to $600,000 divided by the product of the
Average Price multiplied by the Closing Shares if the Buyer's B2B Solutions
Division receives at least $5,000,000 in total revenue in the last six months of
calendar year 2001;
(viii) on or before January 31, 2002, in addition to
the shares of Buyer Common Stock referred to in Section 1.5(a)(vii), a number of
shares of Buyer Common Stock equal to $600,000 divided by the product of the
Average Price multiplied by the Closing Shares if the Buyer's B2B Solutions
Division receives at least $6,000,000 in total revenue in the last six months of
calendar year 2001;
(ix) all such shares that remain eligible for
delivery to a Company Stockholder upon the satisfaction of a condition pursuant
to clauses (ii) through (viii) above will be delivered promptly in the event (i)
such Company Stockholder's employment with the Buyer (or an affiliate of the
Buyer) is terminated without Cause or such Company Stockholder voluntarily
terminates his employment for Good Reason, (ii) of a Change of Control of the
Buyer, while the Company Stockholder is an employee of the Buyer, (iii) of such
Company Stockholder's death or disability, while the Company Stockholder is an
employee of the Buyer or (iv) while the Company Stockholder is an employee of
the Buyer, the primary geographic location of the B2B Solutions Division moves
outside of Connecticut on or before the third anniversary of the Closing Date.
(b) For purposes of this Agreement, the following terms shall
have the following definitions:
(i) "Cause" for termination means (a) the Company
Stockholder's willful misconduct, embezzlement, fraud, or other criminal act
involving moral turpitude, or (b) gross negligence in the performance of the
Company Stockholder's duties to the Buyer, or (c) any material and intentional
breach by the Company Stockholder of any employment agreement, invention and
non-disclosure agreement, non-competition agreement or similar agreement with
the Buyer provided such breach is not cured within twenty (20) days after the
Company Stockholder receives written notice thereof from the Buyer which notice
shall state in reasonable detail the facts and circumstances claimed to be a
breach and the intent of the Buyer to terminate the Company Stockholder's
employment upon failure to cure such breach.
-4-
10
(ii) "Change in Control" means the (i) consummation
of a merger, consolidation, reorganization, recapitalization or tender offer
involving the Buyer, immediately following which the individuals and entities
who were the beneficial owners of the Buyer Common Stock immediately prior to
such transaction beneficially own, directly or indirectly, less than 50% of the
combined voting power of the then-outstanding securities entitled to vote
generally in the election of directors, of the resulting or acquiring
corporation in such transaction; or (ii) the sale of the B2B Solutions Division
business by sale of stock or assets.
(iii) "Good Reason" means (a) a substantial adverse
change in the nature, description, status or geographic location of a Company
Stockholder's employment responsibilities unless such Company Stockholder agrees
to such change in writing, (b) a material breach by the Buyer or the Surviving
Corporation of its obligations contained in any material agreement with a
Company Stockholder; or (c) if the Buyer's actions are inconsistent with the
terms and conditions set forth in the offer letter from the Buyer to such
Company Stockholder and such actions have a substantial adverse effect on such
Company Stockholder's employment arrangements with the Company; provided such
adverse change, breach or action is not cured within twenty (20) days after the
Buyer receives written notice thereof from the Company Stockholder which notice
shall state in reasonable detail the facts and circumstances claimed to be an
adverse change, breach or action and the intent of the Company Stockholder to
terminate his employment upon failure to cure such adverse change, breach or
action.
(iv) "B2B Solutions Division" means the business of
the Company as conducted by the Company as of the Closing and by the Buyer and
the Surviving Corporation after the Closing.
(c) Each Common Share held in the Company's treasury
immediately prior to the Effective Time and each Common Share owned beneficially
by the Buyer or the Transitory Subsidiary shall be canceled and retired without
payment of any consideration therefor.
(d) Each share of common stock, $.01 par value per share, of
the Transitory Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into and thereafter evidence one share of
common stock, $.01 par value per share, of the Surviving Corporation.
(e) Each share of Buyer Common Stock that constitutes a
portion of the Merger Consideration shall be validly issued, fully paid, and
non-assessable.
-5-
11
(f) Neither the Buyer, the Surviving Corporation nor their
respective affiliates shall take any action designed to negatively affect the
achievement by the B2B Solutions Division of any of the performance or revenue
milestones required to be achieved in order for the Company Stockholders to
receive the shares of Buyer Common Stock issuable here under after the Closing
Date. Until the earlier of (i) the issuance of the aftermentioned shares of
Buyer Company Stock or (ii) the termination of the employment of a Company
Stockholder by the Buyer, the Company Stockholders will be entitled to actively
participate in and assert to all material decisions relating to the business and
operations of the B2B Solutions Division.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means
Common Shares held as of the Effective Time by a Company Stockholder who has not
voted such Common Shares in favor of the adoption of this Agreement and the
Merger and with respect to which appraisal shall have been duly demanded and
perfected in accordance with Section 33-861 of the Connecticut Business
Corporation Act and not effectively withdrawn or forfeited prior to the
Effective Time. Dissenting Shares shall not be converted into or represent the
right to receive Merger Consideration, unless such Company Stockholder shall
have forfeited his, her or its right to appraisal under the Connecticut Business
Corporation Act or properly withdrawn, his, her or its demand for appraisal. If
such Company Stockholder has so forfeited or withdrawn his, her or its right to
appraisal of Dissenting Shares, then as of the occurrence of such event, such
holder's Dissenting Shares shall cease to be Dissenting Shares and shall be
converted into and represent the right to receive the Merger Consideration
issuable in respect of such Common Shares pursuant to Section 1.5.
(b) The Company shall give the Buyer (i) prompt notice of any
written demands for appraisal of any Common Shares, withdrawals of such demands,
and any other instruments that relate to such demands received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the Connecticut Business Corporation Act. The
Company shall not, except with the prior written consent of the Buyer, make any
payment with respect to any demands for appraisal of Common Shares or offer to
settle or settle any such demands.
1.7 Fractional Shares. No certificates or scrip representing fractional
shares of the Buyer Common Stock shall be issued to former Company Stockholders
upon the surrender for exchange of Common Shares (including any Common Shares
referred to in the last sentence of Section 1.6(a)) ("Certificates"), and such
former Company Stockholders shall not be entitled to any voting rights, rights
to receive any dividends
-6-
12
or distributions or other rights as a stockholder of the Buyer with respect to
any fractional shares that would have otherwise been issued to such former
Company Stockholders. In lieu of any fractional shares that would have otherwise
been issued, each former Company Stockholder that would have been entitled to
receive a fractional share shall, upon proper surrender of such person's
Certificates, receive such whole number of shares of Buyer Common Stock as is
equal to the precise number of shares to which such person would be entitled,
rounded up or down to the nearest whole number (with a fractional interest equal
to .5 rounded up to the nearest whole number).
1.8 Certificate of Incorporation and By-laws.
(a) The Certificate of Incorporation of the Surviving
Corporation immediately following the Effective Time shall be the same as the
Certificate of Incorporation of the Company immediately prior to the Effective
Time.
(b) The By-laws of the Surviving Corporation immediately
following the Effective Time shall be the same as the By-laws of the Transitory
Subsidiary immediately prior to the Effective Time, except that the name of the
corporation set forth therein shall be changed to the name of the Company.
1.9 No Further Rights. From and after the Effective Time, no Common
Shares shall be deemed to be outstanding, and holders of Certificates shall
cease to have any rights with respect thereto, except for the right to receive a
pro rata portion of the Merger Consideration and such other rights as provided
herein or by law.
1.10 Closing of Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Common Shares
shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Buyer or the Surviving Corporation, they shall be canceled and
exchanged for Buyer Common Stock in accordance with Section 1.5, subject to
applicable law in the case of Dissenting Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule provided by the Company to the Buyer on the date hereof and
accepted by the Buyer (the "Disclosure Schedule"). The Disclosure Schedule shall
be arranged in
-7-
13
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article II. For purposes of this Article II, the phrase "to the knowledge
of the Company" or any phrase of similar import shall be deemed to refer to the
actual knowledge of the executive officers of the Company.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of Connecticut. The Company is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified or in good standing, individually or in the
aggregate, has not had and would not reasonably be expected to have a Company
Material Adverse Effect (as defined below). The Company has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Company has
furnished to the Buyer complete and accurate copies of its Articles of
Incorporation and By-laws. The Company is not in default under or in violation
of any provision of its Certificate of Incorporation or By-laws. For purposes of
this Agreement, "Company Material Adverse Effect" means a material adverse
effect on the assets, business, condition (financial or otherwise), results of
operations or future prospects of the Company, taken as a whole.
2.2 Capitalization. The authorized capital stock of the Company
consists of 20,000 Common Shares, of which, as of the date of this Agreement,
10,000 shares were issued and outstanding. Section 2.2 of the Disclosure
Schedule sets forth a complete and accurate list of (i) all stockholders of the
Company, indicating the number and class or series of Common Shares held by each
stockholder (ii) all outstanding options and warrants to purchase capital stock
of the Company, indicating (A) the holder thereof, (B) the number of Common
Shares subject to each option and warrant (C) the exercise price, date of grant,
vesting schedule and expiration date for each option or warrant, and (D) any
terms regarding the acceleration of vesting, and (iii) all stock option plans
and other stock or equity-related plans of the Company. All of the issued and
outstanding Common Shares are, and all Common Shares that may be issued upon
exercise of options or warrants will be (upon issuance in accordance with their
terms), duly authorized, validly issued, fully paid, nonassessable and free of
all preemptive rights. Other than the options and warrants listed in Section 2.2
of the Disclosure Schedule, there are no outstanding or authorized options,
warrants, rights, agreements or commitments to which the Company is a party or
which are binding upon the Company providing for the issuance or redemption of
any of its capital stock. There are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Company. There
are no agreements to which the Company is
-8-
14
a party or by which it is bound with respect to the voting (including without
limitation voting trusts or proxies), registration under the Securities Act of
1933, as amended ("Securities Act"), or sale or transfer (including, without
limitation, agreements relating to pre-emptive rights, rights of first refusal,
co-sale rights or "drag-along" rights) of any securities of the Company. To the
knowledge of the Company, there are no agreements among other parties, to which
the Company is not a party and by which it is not bound, with respect to the
voting (including without limitation voting trusts or proxies) or sale or
transfer (including without limitation agreements relating to rights of first
refusal, co-sale rights or "drag-along" rights) of any securities of the
Company. All of the issued and outstanding Common Shares were issued in
compliance with applicable federal and state securities laws. Each of the
stockholders of the Company is an "accredited investor" as defined in Rule
501(a) under the Securities Act.
2.3 Authorization of Transaction. The Company has all requisite power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery by the Company of this
Agreement and, subject to the adoption of this Agreement and the approval of the
Merger by the required stockholder vote (the "Requisite Stockholder Approval"),
the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of the Company. Without limiting the generality of the foregoing, the Board of
Directors of the Company, at a meeting duly called and held, by the unanimous
vote of all directors or, by unanimous written consent executed by all of the
directors of the Company in accordance with the applicable provisions of the
Connecticut Business Corporation Act,(i) determined that the Merger is fair and
in the best interests of the Company and its stockholders, (ii) adopted this
Agreement in accordance with the provisions of the Connecticut Business
Corporation Act , and (iii) directed that this Agreement and the Merger be
submitted to the stockholders of the Company for their adoption and approval and
resolved to recommend that the stockholders of Company vote in favor of the
adoption of this Agreement and the approval of the Merger. This Agreement has
been duly and validly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be subject to or
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity (whether considered at law or in equity).
2.4 Noncontravention. Subject to the filing of the Certificate of
Merger as required by the Connecticut Business Corporation Act, neither the
execution and delivery by the Company of this Agreement, nor the consummation by
the Company of the transactions contemplated hereby, will (a) conflict with or
violate any provision of
-9-
15
the Certificate of Incorporation or By-laws of the Company, (b) require on the
part of the Company any filing with, or any permit, authorization, consent or
approval of, any court, arbitrational tribunal, administrative agency or
commission or other governmental or regulatory authority or agency (a
"Governmental Entity"), (c) conflict with, result in a breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of obligations under, create in any party the right to
terminate, modify or cancel, or require any notice, consent or waiver under, any
contract or instrument to which the Company is a party or by which the Company
is bound or to which any of its assets is subject, except for (i) any conflict,
breach, default, acceleration, termination, modification or cancellation which
would not have a Company Material Adverse Effect and would not adversely affect
the consummation of the transactions contemplated hereby or (ii) any notice,
consent or waiver the absence of which would not have a Company Material Adverse
Effect and would not adversely affect the consummation of the transactions
contemplated hereby, (d) result in the imposition of any Security Interest (as
defined below) upon any assets of the Company or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its properties or assets. For purposes of this Agreement: "Security Interest"
means any mortgage, pledge, security interest, encumbrance, charge or other lien
(whether arising by contract or by operation of law), other than (i) mechanic's,
materialmen's, and similar liens, (ii) liens arising under worker's
compensation, unemployment insurance, social security, retirement, and similar
legislation, (iii) liens for taxes not yet due and payable, and (iv) liens on
goods in transit incurred pursuant to documentary letters of credit, in each
case arising in the Ordinary Course of Business (as defined below) of the
Company and not material to the Company; and "Ordinary Course of Business" means
the ordinary course of the Company's business, consistent with past custom and
practice (including with respect to frequency and amount).
2.5 Subsidiaries. There are no corporations, partnerships, joint
ventures or other entities in which the Company has, directly or indirectly, an
equity interest representing 50% or more of the capital stock thereof or other
equity interests therein.
2.6 Financial Statements. The Company has provided to the Buyer the
unaudited consolidated balance sheet and statements of income, changes in
stockholders' equity as of and for the period from inception, through September
30, 1999 (the "Most Recent Balance Sheet Date"). Such financial statements
(collectively, the "Financial Statements") have been prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied on a
consistent basis, fairly present the financial condition, results of operations
and cash flows of the Company as of the respective dates thereof and for the
periods referred to therein and are consistent with the books and records of the
Company; provided, however, that the Financial
-10-
16
Statements referred to above are subject to normal recurring year-end
adjustments (which will not be material) and do not include footnotes.
2.7 Absence of Certain Changes. Since the Most Recent Balance Sheet
Date, (a) there has occurred no event or development which has had, or could
reasonably be expected to have in the future, a Company Material Adverse Effect,
and (b) the Company has not taken any of the actions set forth in paragraphs (a)
through (o) of Section 4.4.
2.8 Undisclosed Liabilities. The Company has no liabilities (whether
known or unknown, whether absolute or contingent, whether liquidated or
unliquidated and whether due or to become due), except for (a) liabilities shown
on the balance sheet referred to in clause (b) of Section 2.6 (the "Most Recent
Balance Sheet"), (b) liabilities which have arisen since the Most Recent Balance
Sheet Date in the Ordinary Course of Business and which are similar in nature
and amount to the liabilities which arose during the comparable period of time
in the immediately preceding fiscal period and (c) contractual and other
liabilities incurred in the Ordinary Course of Business which are not required
by GAAP to be reflected on a balance sheet.
2.9 Tax Matters.
(a) For purposes of this Agreement, the following terms shall
have the following meanings:
(i) "Taxes" means all taxes, charges, fees, levies or
other similar assessments or liabilities, including without limitation income,
gross receipts, ad valorem, premium, value-added, excise, real property,
personal property, sales, use, transfer, withholding, employment, unemployment
insurance, social security, business license, business organization,
environmental, workers compensation, payroll, profits, license, lease, service,
service use, severance, stamp, occupation, windfall profits, customs, duties,
franchise and other taxes imposed by the United States of America or any state,
local or foreign government, or any agency thereof, or other political
subdivision of the United States or any such government, and any interest,
fines, penalties, assessments or additions to tax resulting from, attributable
to or incurred in connection with any tax or any contest or dispute thereof.
(ii) "Tax Returns" means all reports, returns,
declarations, statements or other information required to be supplied to a
taxing authority in connection with Taxes.
-11-
17
(b) The Company has filed on a timely basis all Tax Returns
that it was required to file, and all such Tax Returns were complete and
accurate in all material respects. The Company is not nor has it ever been a
member of a group of corporations with which it has filed (or been required to
file) consolidated, combined or unitary Tax Returns. The Company has paid on a
timely basis all Taxes that were due and payable. The unpaid Taxes of the
Company for tax periods ending on or before the Most Recent Balance Sheet Date
do not exceed the accruals and reserves for Taxes (excluding accruals and
reserves for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the Most Recent Balance Sheet. The Company has
no actual or potential liability for any Tax obligation of any taxpayer
(including without limitation any affiliated group of corporations or other
entities that included the Company during a prior period) other than the
Company. All Taxes that the Company is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity.
(c) The Company has delivered to the Buyer complete and
accurate copies of all federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company since
its inception. No examination or audit of any Tax Return of the Company by any
Governmental Entity is currently in progress or, to the knowledge of the
Company, threatened or contemplated. The Company has not been informed by any
jurisdiction that the jurisdiction believes that the Company was required to
file any Tax Return that was not filed. The Company has not waived any statute
of limitations with respect to Taxes or agreed to an extension of time with
respect to a Tax assessment or deficiency.
(d) The Company: (i) is not a "consenting corporation" within
the meaning of Section 341(f) of the Code, and none of the assets of the Company
are subject to an election under Section 341(f) of the Code; (ii) has not been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(l)(A)(ii) of the Code; (iii) has not made any payments, is not obligated
to make any payments, or is not a party to any agreement that could obligate it
to make any payments that may be treated as an "excess parachute payment" under
Section 280G of the Code; or (iv) has no actual or potential liability for any
Taxes of any person (other than the Company) under Treasury Regulation Section
1.1502-6 (or any similar provision of federal, state, local, or foreign law), or
as a transferee or successor, by contract, or otherwise.
(e) None of the assets of the Company: (i) is property that is
required to be treated as being owned by any other person pursuant to the
provisions of former Section 168(f)(8) of the Code; (ii) is "tax-exempt use
property" within the meaning of
-12-
18
Section 168(h) of the Code; or (iii) directly or indirectly secures any debt the
interest on which is tax exempt under Section 103(a) of the Code.
(f) The Company has not undergone a change in its method of
accounting resulting in an adjustment to its taxable income pursuant to Section
481 of the Code.
(g) No state or federal "net operating loss" of the Company
determined as of the Closing Date is subject to limitation on its use pursuant
to Section 382 of the Code or comparable provisions of state law as a result of
any "ownership change" within the meaning of Section 382(g) of the Code or
comparable provisions of any state law occurring prior to the Closing Date.
2.10 Assets. The Company owns or leases all tangible assets necessary
for the conduct of its businesses as presently conducted and as presently
proposed to be conducted. Each such tangible asset is free from material
defects, has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear). No asset
of the Company (tangible or intangible) is subject to any Security Interest.
2.11 Owned Real Property. The Company owns no real property.
2.12 Real Property Leases. There is no real property leased or
subleased to or by the Company.
2.13 Intellectual Property.
(a) The Company owns or has the right to use all Intellectual
Property (as defined below) necessary (i) to use, develop, market and distribute
the products developed, marketed, sold or licensed, and to provide the services
provided, by the Company to other parties (together, the "Customer
Deliverables") or (ii) to operate the Company's internal systems that are
material to the business or operations of the Company, including, without
limitation, computer hardware systems, software applications and embedded
systems (the "Internal Systems"; the Intellectual Property owned by or licensed
to the Company and incorporated in or underlying the Customer Deliverables or
the Internal Systems is referred to herein as the "Company Intellectual
Property"). Each item of Company Intellectual Property will be owned or
available for use by the Surviving Corporation immediately following the Closing
on substantially identical terms and conditions as it was immediately prior to
the Closing. The Company has taken all commercially reasonable measures to
protect the proprietary nature of each item of Company Intellectual Property. To
the knowledge of the
-13-
19
Company, (a) no other person or entity has any rights to any of the Company
Intellectual Property owned by the Company (except pursuant to agreements or
licenses specified in Section 2.13(c) of the Disclosure Schedule), and (b) no
other person or entity is infringing, violating or misappropriating any of the
Company Intellectual Property. For purposes of this Agreement, "Intellectual
Property" means all (i) patents and patent applications, (ii) copyrights and
registrations thereof, (iii) mask works and registrations and applications for
registration thereof, (iv) computer software, data and documentation, (v) trade
secrets and confidential business information, whether patentable or
unpatentable and whether or not reduced to practice, know-how, manufacturing and
production processes and techniques, research and development information, and
copyrightable works, (vi) trademarks, service marks, trade names, domain names
and applications and registrations therefor and (vii) other proprietary rights
relating to any of the foregoing. Section 2.13(a) of the Disclosure Schedule
lists each patent, patent application, copyright registration or application
therefor, mask work registration or application therefor, and trademark, service
xxxx and domain name registration or application therefor of the Company.
(b) To the knowledge of the Company, after due inquiry, none
of the Customer Deliverables, or the development, marketing, distribution,
provision or use thereof, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any person or entity.
To the knowledge of the Company, after due inquiry, none of the Internal
Systems, or the use thereof, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any person or entity.
Section 2.13(b) of the Disclosure Schedule lists any complaint, claim or notice,
or written threat thereof, received by the Company alleging any such
infringement, violation or misappropriation; and the Company has provided to the
Buyer complete and accurate copies of all written documentation in the
possession of the Company relating to any such complaint, claim, notice or
threat. The Company has provided to the Buyer complete and accurate copies of
all written documentation in the Company's possession relating to claims or
disputes known to the Company concerning any Company Intellectual Property.
(c) Section 2.13(c) of the Disclosure Schedule identifies each
license or other agreement (or type of license or other agreement) pursuant to
which the Company has licensed, distributed or otherwise granted any rights to
any third party with respect to, any Company Intellectual Property.
(d) Section 2.13(d) of the Disclosure Schedule identifies each
item of Company Intellectual Property that is owned by a party other than the
Company, and the license or agreement pursuant to which the Company uses it
(excluding
-14-
20
off-the-shelf software programs licensed by the Company pursuant to "shrink
wrap" licenses).
(e) The Company has not disclosed the source code for any of
the software owned by the Company (the "Software") or other confidential
information constituting, embodied in or pertaining to the Software to any
person or entity, except pursuant to the agreements listed in Section 2.13(e) of
the Disclosure Schedule, and the Company has taken commercially reasonable
measures to prevent disclosure of such source code.
(f) All of the copyrightable materials (including Software)
incorporated in or bundled with the Customer Deliverables have been created by
employees of the Company within the scope of their employment by the Company or
by independent contractors of the Company who have executed agreements expressly
assigning all right, title and interest in such copyrightable materials to the
Company. No portion of such copyrightable materials was jointly developed with
any third party.
(g) To the knowledge of the Company, the Internal Systems are
free from significant defects or significant programming errors and conform in
all material respects to the written documentation and specifications therefor.
(h) All of the Customer Deliverables currently being
developed, marketed, distributed or licensed by the Company or which were
developed, marketed, distributed or licensed by the Company since inception, and
all Internal Systems, are Year 2000 Compliant. The Company is not aware of any
failure to be Year 2000 Compliant of any third-party system that is material to
the business or operations of the Company, including without limitation any
system belonging to any of the Company's suppliers, service providers or
customers.
(i) For purposes of this Agreement, "Year 2000 Compliant"
means that the applicable system or item:
(i) will accurately receive, record, store, provide,
recognize and process all date and time data from, during, into and between the
twentieth and twenty-first centuries, the years 1999 and 2000 and all leap
years;
(ii) will accurately perform all date-dependent
calculations and operations (including, without limitation, mathematical
operations, sorting, comparing and reporting) from, during, into and between the
twentieth and twenty-first centuries, the years 1999 and 2000 and all leap
years; and
-15-
21
(iii) will not malfunction, cease to function or
provide invalid or incorrect results as a result of (x) the change of years from
1999 to 2000, (y) date data, including date data which represents or references
different centuries, different dates during 1999 and 2000, or more than one
century or (z) the occurrence of any particular date;
in each case without human intervention, other than original data entry;
provided, in each case, that all applications, hardware and other systems used
in conjunction with such system or item which are not owned or licensed by the
Company correctly exchange date data with or provide data to such system or
item.
2.14 Contracts.
(a) Section 2.14 of the Disclosure Schedule lists the
following agreements (written or oral) to which the Company or any Subsidiary is
a party as of the date of this Agreement:
(i) any agreement (or group of related agreements)
for the lease of personal property from or to third parties providing for lease
payments in excess of $10,000 per annum or having a remaining term longer than
twelve (12) months;
(ii) any agreement (or group of related agreements)
for the purchase or sale of products or for the furnishing or receipt of
services (A) which calls for performance over a period of more than one year,
(B) which involves more than the sum of $20,000, or (C) in which the Company has
granted manufacturing rights, "most favored nation" pricing provisions or
marketing or distribution rights relating to any products or territory or has
agreed to purchase a minimum quantity of goods or services or has agreed to
purchase goods or services exclusively from a certain party;
(iii) any agreement establishing a partnership or
joint venture;
(iv) any agreement (or group of related agreements)
under which it has created, incurred, assumed or guaranteed (or may create,
incur, assume or guarantee) indebtedness (including capitalized lease
obligations) involving more than $10,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition where the Company is bound to maintain information as
confidential or not to compete;
-16-
22
(vi) any employment or consulting agreement;
(vii) any agreement involving any officer, director
or stockholder of the Company or any affiliate (an "Affiliate"), as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), thereof;
(viii) any agreement under which the consequences of
a default or termination would reasonably be expected to have a Company Material
Adverse Effect;
(ix) any agreement which contains any provisions
requiring the Company or any Subsidiary to indemnify any other party thereto
(excluding indemnities contained in agreements for the purchase, sale or license
of products entered into in the Ordinary Course of Business); and
(x) any other agreement (or group of related
agreements) either involving more than $25,000 or not entered into in the
Ordinary Course of Business.
(b) The Company has delivered to the Buyer a complete and
accurate copy of each agreement listed in Section 2.13 or Section 2.14 of the
Disclosure Schedule. With respect to each agreement so listed: (i) the agreement
is legal, valid, binding and enforceable and in full force and effect; (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 immediately prior to the Closing; and (iii) neither the
Company nor, to the knowledge of the Company, any other party, is in breach or
violation of, or default under, any such agreement, and no event has occurred,
is pending or, to the knowledge of the Company, is threatened, which, after the
giving of notice, with lapse of time, or otherwise, would constitute a breach or
default by the Company or, to the knowledge of the Company, any other party
under such contract.
2.15 Accounts Receivable. All accounts receivable of the Company
reflected on the Most Recent Balance Sheet are valid receivables subject to no
setoffs or counterclaims and are current and collectible (within 90 days after
the date on which it first became due and payable), net of the applicable
reserve for bad debts on the Most Recent Balance Sheet. All accounts receivable
reflected in the financial or accounting records of the Company that have arisen
since the Most Recent Balance Sheet Date are valid receivables subject to no
setoffs or counterclaims and are collectible (within 90 days after the date on
which it first became due and payable), net of a reserve for bad debts in an
amount proportionate to the reserve shown on the Most Recent Balance Sheet.
-17-
23
2.16 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
2.17 Insurance. Section 2.17 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company is a party. There is no material claim pending under any such policy as
to which coverage has been questioned, denied or disputed by the underwriter of
such policy. All premiums due and payable under all such policies have been
paid. The Company is in compliance in all material respects with the terms of
such policies. The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any such policy. Each such policy
will continue to be enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect
immediately prior to the Closing.
2.18 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation before any Governmental Entity or before any
arbitrator (a "Legal Proceeding") which is pending or has been threatened in
writing against the Company.
2.19 Employees. Section 2.19 of the Disclosure Schedule contains a list
of all employees of the Company, along with the position and the annual rate of
compensation of each such person. Section 2.19 of the Disclosure Schedule also
lists for each such employee each agreement between the Company and such
employee.
2.20 Employee Benefits. Section 2.20 of the Disclosure Schedule lists
all Employee Benefit Plans of the Company. "Employee Benefit Plan" means any
"employee pension benefit plan" (as defined in Section 3(2) of ERISA), any
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA), and any
other written or oral plan, agreement or arrangement involving direct or
indirect compensation, including without limitation insurance coverage,
severance benefits, disability benefits, deferred compensation, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement compensation. "ERISA" means the
Employee Retirement Income Security Act of 1974, as amended.
2.21 Legal Compliance. The Company, and the conduct and operations of
its business, is in compliance with each applicable law (including rules and
regulations thereunder) of any federal, state, local or foreign government, or
any Governmental Entity, except for any violations or defaults that,
individually or in the aggregate, have
-18-
24
not had and would not reasonably be expected to have a Company Material Adverse
Effect.
2.22 Customers and Suppliers. Section 2.22 of the Disclosure Schedule
sets forth a list of (a) the largest ten (10) customers of the Company during
the last full fiscal year or the interim period through the Most Recent Balance
Sheet Date and the amount of revenues accounted for by such customer during each
such period and (b) each supplier that is the sole supplier of any significant
product to the Company.
2.23 Permits. Section 2.23 of the Disclosure Schedule sets forth a list
of all permits, licenses, registrations, certificates, orders or approvals from
any Governmental Entity (including without limitation those issued or required
under environmental laws and those relating to the occupancy or use of owned or
leased real property) ("Permits") issued to or held by the Company. Such listed
Permits are the only Permits that are required for the Company to conduct their
respective businesses as presently conducted or as proposed to be conducted,
except for those the absence of which, individually or in the aggregate, have
not had and would not reasonably be expected to have a Company Material Adverse
Effect. Each such Permit is in full force and effect and, to the knowledge of
the Company, no suspension or cancellation of such Permit is threatened. Each
such Permit will continue in full force and effect immediately following the
Closing.
2.24 Certain Business Relationships With Affiliates. No Affiliate of
the Company (a) owns any property or right, tangible or intangible, which is
used in the business of the Company, (b) has any claim or cause of action
against the Company, or (c) owes any money to, or is owed any money by, the
Company. Section 2.24 of the Disclosure Schedule describes any transactions or
relationships between the Company and any Affiliate thereof which have occurred
or existed since the Company's inception.
2.25 Brokers' Fees. The Company has no liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
2.26 Books and Records. The minute books and other similar records of
the Company contain complete and accurate records of all actions taken at any
meetings of the Company's stockholders, Board of Directors or any committee
thereof and of all written consents executed in lieu of the holding of any such
meeting. The books and records of the Company accurately reflect in all material
respects the assets, liabilities, business, financial condition and results of
operations of the Company.
-19-
25
2.27 Disclosure. No representation or warranty by the Company contained
in this Agreement, and no statement contained in the Disclosure Schedule or any
certificate or other instrument delivered or to be delivered by or on behalf of
the Company pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants
to the Company as follows:
3.1 Organization, Qualification and Corporate Power. Each of the Buyer
and the Transitory Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation. The Buyer
is duly qualified to conduct business and is in corporate and tax good standing
under the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified or in good standing would not have a Buyer
Material Adverse Effect (as defined below). The Buyer has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Buyer has furnished
or made available to the Company complete and accurate copies of its Certificate
of Incorporation and By-laws. The Buyer is not in default under or in violation
of any provision of its Certificate of Incorporation or Bylaws. For purposes of
this Agreement, "Buyer Material Adverse Effect" means a material adverse effect
on the assets, business, condition (financial or otherwise), results of
operations or future prospects of the Buyer and its subsidiaries, taken as a
whole.
3.2 Capitalization. The authorized capital stock of the Buyer consists
of (a) 100,000,000 shares of Buyer Common Stock, of which 17,519,808 shares were
issued and outstanding as of the close of business on December 8, 1999, and (b)
2,000,000 shares of Preferred Stock, $.001 par value per share, of which no
shares are issued or outstanding. All of the issued and outstanding shares of
Buyer Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. All of the shares of Buyer
Common Stock issued as part of the Merger Consideration ("Merger Shares") will
be, when issued in accordance with this
-20-
26
Agreement, duly authorized, validly issued, fully paid, nonassessable and free
of all preemptive rights.
3.3 Authorization of Transaction. Each of the Buyer and the Transitory
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and thereunder. The execution
and delivery by the Buyer and the Transitory Subsidiary of this Agreement and
the consummation by the Buyer and the Transitory Subsidiary of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Buyer and Transitory Subsidiary,
respectively. This Agreement has been duly and validly executed and delivered by
the Buyer and the Transitory Subsidiary and constitutes a valid and binding
obligation of the Buyer and the Transitory Subsidiary, enforceable against them
in accordance with its terms.
3.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act and the filing of the Certificate of Merger as required by the
Connecticut Business Corporation Act, neither the execution and delivery by the
Buyer or the Transitory Subsidiary of this Agreement nor the consummation by the
Buyer or the Transitory Subsidiary of the transactions contemplated hereby will
(a) conflict with or violate any provision of the charter or By-laws of the
Buyer or the Transitory Subsidiary, (b) require on the part of the Buyer or the
Transitory Subsidiary any filing with, or permit, authorization, consent or
approval of, any Governmental Entity, (c) conflict with, result in breach of,
constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of obligations under, create in any party any
right to terminate, modify or cancel, or require any notice, consent or waiver
under, any contract or instrument to which the Buyer or the Transitory
Subsidiary is a party or by which either is bound or to which any of their
assets are subject, except for (i) any conflict, breach, default, acceleration,
termination, modification or cancellation which would not adversely affect the
consummation of the transactions contemplated hereby or (ii) any notice, consent
or waiver the absence of which would not adversely affect the consummation of
the transactions contemplated hereby, or (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Buyer or the
Transitory Subsidiary or any of their properties or assets.
3.5 Reports and Financial Statements. The Buyer has previously
furnished or made available to the Company complete and accurate copies, as
amended or supplemented, of its (a) Quarterly Report on Form 10-Q for the
quarter year ended September 30, 1999, as filed with the Securities and Exchange
Commission (the "SEC"), and (b) all other reports filed by the Buyer under
Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act with the
SEC since August 20, 1999 (such reports are
-21-
27
collectively referred to herein as the "Buyer Reports"). The Buyer Reports
constitute all of the documents required to be filed by the Buyer under Section
13 or subsections (a) or (c) of Section 14 of the Exchange Act with the SEC from
September 30, 1999 through the date of this Agreement. The Buyer Reports
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder when filed. As of their respective dates,
the Buyer Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited financial statements set forth in the
Registration Statement on Form S-1 initially filed with the SEC on June 11, 1999
(the "Registration Statement") and unaudited interim financial statements of the
Buyer included in the Buyer Reports (i) complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto when filed, (ii) were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto, and
in the case of quarterly financial statements, as permitted by Form 10-Q under
the Exchange Act), (iii) fairly present the consolidated financial condition,
results of operations and cash flows of the Buyer as of the respective dates
thereof and for the periods referred to therein, and (iv) are consistent with
the books and records of the Buyer.
3.6 Absence of Material Adverse Change. Since September 30, 1999, there
has occurred no event or development which has had, or could reasonably be
expected to have in the future, a Buyer Material Adverse Effect.
3.7 Litigation. Except as disclosed in the Buyer Reports, as of the
date of this Agreement, there is no Legal Proceeding which is pending or, to the
Buyer's knowledge, threatened against the Buyer or any subsidiary of the Buyer
which, if determined adversely to the Buyer or such subsidiary, could have,
individually or in the aggregate, a Buyer Material Adverse Effect or which in
any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
3.8 Interim Operations of the Transitory Subsidiary. The Transitory
Subsidiary was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and has engaged in no business activities other
than as contemplated by this Agreement.
3.9 Brokers' Fees. Neither the Buyer nor the Transitory Subsidiary has
any liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by this Agreement.
-22-
28
3.10 Disclosure. No representation or warranty by the Buyer contained
in this Agreement, and no statement contained in any document, certificate or
other instrument delivered or to be delivered by or on behalf of the Buyer
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact or omit or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading.
ARTICLE IV
COVENANTS
4.1 Closing Efforts. Each of the Parties shall use its best efforts, to
the extent commercially reasonable ("Reasonable Best Efforts"), to take all
actions and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including without limitation using
its Reasonable Best Efforts to ensure that (i) its representations and
warranties remain true and correct in all material respects through the Closing
Date and (ii) the conditions to the obligations of the other Parties to
consummate the Merger are satisfied.
4.2 Governmental and Third-Party Notices and Consents.
(a) Each Party shall use its Reasonable Best Efforts to
obtain, at its expense, all waivers, permits, consents, approvals or other
authorizations from Governmental Entities, and to effect all registrations,
filings and notices with or to Governmental Entities, as may be required for
such Party to consummate the transactions contemplated by this Agreement and to
otherwise comply with all applicable laws and regulations in connection with the
consummation of the transactions contemplated by this Agreement.
(b) The Company shall use its Reasonable Best Efforts to
obtain, at its expense, all such waivers, consents or approvals from third
parties, and to give all such notices to third parties, as are required to be
listed in Section 2.4 of the Disclosure Schedule.
4.3 Stockholder Approval. The Company shall use its Reasonable Best
Efforts to obtain, as promptly as practicable, the Requisite Stockholder
Approval, either at a special meeting of stockholders or pursuant to a written
stockholder consent, all in accordance with the applicable requirements of the
Connecticut Business Corporation Act.
-23-
29
4.4 Operation of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, the
Company shall conduct its operations in the Ordinary Course of Business and in
compliance with all applicable laws and regulations and, to the extent
consistent therewith, use its Reasonable Best Efforts to preserve intact its
current business organization, keep its physical assets in good working
condition, keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not be
impaired in any material respect. Without limiting the generality of the
foregoing, prior to the Effective Time, the Company shall not, without the
written consent of the Buyer:
(a) issue or sell, or redeem or repurchase, any stock or other
securities of the Company or any rights, warrants or options to acquire any such
stock or other securities (except pursuant to the conversion or exercise of
convertible securities or Options or Warrants outstanding on the date hereof),
or amend any of the terms of (including without limitation the vesting of) any
such convertible securities or Options or Warrants;
(b) split, combine or reclassify any shares of its capital
stock; declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock;
(c) create, incur or assume any indebtedness (including
obligations in respect of capital leases); assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity, in any such case, in excess of $50,000;
(d) enter into, adopt or amend any Employee Benefit Plan or
any employment or severance agreement or arrangement of the type described in
Section 2.20 or (except for normal increases in the Ordinary Course of Business
for employees who are not Affiliates) increase in any manner the compensation or
fringe benefits of, or materially modify the employment terms of, its directors,
officers or employees, generally or individually, or pay any bonus or other
benefit to its directors, officers or employees (except for existing payment
obligations listed in Section 2.20 of the Disclosure Schedule);
(e) acquire, sell, lease, license or dispose of any assets or
property (including without limitation any shares or other equity interests in
or securities of any Subsidiary or any corporation, partnership, association or
other business organization
-24-
30
or division thereof), other than purchases and sales of assets in the Ordinary
Course of Business;
(f) mortgage or pledge any of its property or assets or
subject any such property or assets to any Security Interest other than purchase
money security interests;
(g) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the Ordinary Course of Business or as
otherwise contemplated hereby;
(h) amend its charter, by-laws or other organizational
documents;
(i) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(j) enter into, amend, terminate, take or omit to take any
action that would constitute a violation of or default under, or waive any
rights under, any material contract or agreement;
(k) make or commit to make any capital expenditure in excess
of $25,000 per item or $100,000 in the aggregate;
(l) institute or settle any Legal Proceeding;
(m) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of the Company set
forth in this Agreement becoming untrue or (ii) any of the conditions to the
Merger set forth in Article V not being satisfied;
(n) agree in writing or otherwise to take any of the foregoing
actions.
(o) make any Tax election or settle or compromise any material
federal, state, local or foreign income Tax liability.
4.5 Access to Information.
(a) The Company shall permit representatives of the Buyer to
have full access (at all reasonable times, and in a manner so as not to
interfere with the
-25-
31
normal business operations of the Company and the Subsidiaries) to all premises,
properties, financial and accounting records, contracts, other records and
documents, and personnel, of or pertaining to the Company.
(b) Each of the Buyer and the Transitory Subsidiary (i) shall
treat and hold as confidential any Confidential Information (as defined below),
(ii) shall not use any of the Confidential Information except in connection with
this Agreement, and (iii) if this Agreement is terminated for any reason
whatsoever, shall return to the Company all tangible embodiments (and all
copies) thereof which are in its possession. For purposes of this Agreement,
"Confidential Information" means any confidential or proprietary information of
the Company that is furnished in writing to the Buyer or the Transitory
Subsidiary by the Company in connection with this Agreement and is labelled
confidential or proprietary; provided, however, that it shall not include any
information (A) which, at the time of disclosure, is available publicly, (B)
which, after disclosure, becomes available publicly through no fault of the
Buyer or the Transitory Subsidiary, (C) which the Buyer or the Transitory
Subsidiary knew or to which the Buyer or the Transitory Subsidiary had access
prior to disclosure or (D) which the Buyer or the Transitory Subsidiary
rightfully obtains from a source other than the Company.
4.6 Notice of Breaches.
(a) From the date of this Agreement until the Effective Time,
the Company shall promptly deliver to the Buyer supplemental information
concerning events or circumstances occurring subsequent to the date hereof which
would render any representation, warranty or statement in this Agreement or the
Disclosure Schedule inaccurate or incomplete in any material respect at any time
after the date of this Agreement until the Closing Date. No such supplemental
information shall be deemed to cure any misrepresentation or breach of warranty
or constitute an amendment of any representation, warranty or statement in this
Agreement or the Disclosure Schedule.
(b) From the date of this Agreement until the Effective Time,
the Buyer shall promptly deliver to the Company supplemental information
concerning events or circumstances occurring subsequent to the date hereof which
would render any representation or warranty in this Agreement inaccurate or
incomplete in any material respect at any time after the date of this Agreement
until the Closing Date. No such supplemental information shall be deemed to cure
any misrepresentation or breach of warranty or constitute an amendment of any
representation or warranty in this Agreement.
-26-
32
4.7 Exclusivity.
(a) The Company shall not, and the Company shall require each
of its officers, directors, employees, representatives and agents not to,
directly or indirectly, (i) initiate, solicit, encourage or otherwise facilitate
any inquiry, proposal, offer or discussion with any party (other than the Buyer)
concerning any merger, reorganization, consolidation, recapitalization, business
combination, liquidation, dissolution, share exchange, sale of stock, sale of
material assets or similar business transaction involving the Company, (ii)
furnish any non-public information concerning the business, properties or assets
of the Company to any party (other than the Buyer) except in the Ordinary Course
of Business or (iii) engage in discussions or negotiations with any party (other
than the Buyer) concerning any such transaction.
(b) The Company shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a) above were
pending that the Company is terminating such discussions or negotiations. If the
Company receives any inquiry, proposal or offer of the nature described in
paragraph (a) above, the Company shall, within one business day after such
receipt, notify the Buyer of such inquiry, proposal or offer, including the
identity of the other party and the terms of such inquiry, proposal or offer.
4.8 Expenses. Except as set forth in Article VI, each of the Parties
shall bear its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby; provided, however, that if the Merger is consummated, the Company and
the Subsidiaries shall not incur more than an aggregate of $25,000 in legal fees
and expenses in connection with the Merger.
4.9 Post-Closing Covenants Relating to B2B Solutions Division. The
Buyer shall reserve shares of its Common Stock for issuance to employees of the
B2B Solutions Division who are mutually agreed upon by the Company Stockholders
and the Buyer as set forth on Schedule I. The Buyer shall provide reasonable
financing to the B2B Solutions Division in such amounts and on such terms as
will permit the B2B Solutions Division to fulfill its business plan, which
business plan shall be agreed upon by each of the Buyer and the Company
Stockholders. The B2B Solutions Division shall be located primarily in
Connecticut until at least the third anniversary of the Closing.
4.10 Personal Guaranties. The Buyer shall use its reasonable best
efforts to terminate the personal guaranties of the Company Stockholders listed
on Schedule 2.14(a)(i) and shall indemnify each such Company Stockholder for the
full
-27-
33
amount of all costs and expenses, if any, incurred by such stockholders in
satisfaction of its obligations thereunder.
4.11 Registration Rights. The Buyer shall use its reasonable best
efforts to allow the Company Stockholders to register and sell shares
representing 40% of the Closing Shares in any future registered public offering
of Buyer Common Stock occurring in the 12-month period after the Closing (other
than offerings pursuant to a registration statement on Form S-4). Subject to
securities laws restrictions on sales by affiliates, the shares of Buyer Common
Stock underlying options granted to the Company Stockholders and Company
employees under option agreements referred to in Sections 5.2(b) and (i) hereof
shall be covered by a Registration Statement on Form S-8.
4.12 Conditions Waived at Closing. To the extent waived at Closing, the
Buyer and the Company Stockholders shall use reasonable best efforts to satisfy
the conditions set forth in Sections 5.2 (j) and 5.3(f), (g), (h) and (i) after
the Closing.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations
of each Party to consummate the Merger are subject to the receipt by all Parties
of the Requisite Stockholder Approval.
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the Merger is subject to the satisfaction (or waiver by the Buyer) of
the following additional conditions:
(a) the Company shall have obtained (and shall have provided
copies thereof to the Buyer) all of the waivers, permits, consents, approvals or
other authorizations, and effected all of the registrations, filings and
notices, referred to in Section 4.2 which are required on the part of the
Company except if no Company Material Adverse Effect would result from the
failure to obtain any such waiver, permit, consent, approval, or other
authorization;
(b) the representations and warranties of the Company set
forth in the first sentence of Section 2.1 and in Section 2.3 and any
representations and warranties of the Company set forth in this Agreement that
are qualified as to materiality shall be
-28-
34
true and correct in all respects, and all other representations and warranties
of the Company set forth in this Agreement shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Effective Time as though made as of the Effective Time, except to the extent
such representations and warranties are specifically made as of a particular
date or as of the date of this Agreement (in which case such representations and
warranties shall be true and correct as of such date);
(c) the Company shall have performed or complied in all
material respects with its agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Effective Time;
(d) no Legal Proceeding shall be pending or threatened wherein
an unfavorable judgment, order, decree, stipulation or injunction would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation or (iii) have a Company Material Adverse
Effect, and no such judgment, order, decree, stipulation or injunction shall be
in effect;
(e) the Company shall have delivered to the Buyer and the
Transitory Subsidiary a certificate (the "Company Certificate") to the effect
that each of the conditions specified in clause (a) of Section 5.1 and clauses
(a) through (d) (insofar as clause (d) relates to Legal Proceedings involving
the Company or a Subsidiary) of this Section 5.2 is satisfied in all respects;
(f) each of the Company Stockholders shall have executed and
delivered to the Buyer an Investment Representation Letter in the form attached
hereto as Exhibit B and the Buyer shall have no reason to believe that the
statements set forth therein are not true;
(g) the Buyer shall have received from counsel to the Company
an opinion with respect to the matters set forth in Exhibit C attached hereto,
addressed to the Buyer and dated as of the Closing Date;
(h) the Buyer shall have received such other certificates and
instruments (including without limitation certificates of good standing of the
Company in its jurisdiction of organization and the various foreign
jurisdictions in which it is qualified, certified charter documents,
certificates as to the incumbency of officers and the adoption of authorizing
resolutions) as it shall reasonably request in connection with the Closing.
-29-
35
(i) Xxxxxxxxx Xxxxxxx and Xxxxxxxxxxx Xxxxxx shall each have
entered into a Non-Competition and Non-Solicitation Agreement and Invention and
Non-Disclosure Agreement in the forms attached hereto as Exhibit D.
(j) The Company Stockholders shall have received releases from
all employees of the Company who are entering into option agreements which
releases shall be in the form attached hereto as Exhibit E.
5.3 Conditions to Obligations of the Company. The obligation of the
Company to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the Buyer shall have effected all of the registrations,
filings and notices referred to in Section 4.2 which are required on the part of
the Buyer, except for any which if not obtained or effected would not have a
Buyer Material Adverse Effect or a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement;
(b) the representations and warranties of the Buyer and the
Transitory Subsidiary set forth in the first sentence of Section 3.1 and Section
3.3 and any representations and warranties of the Buyer and the Transitory
Subsidiary set forth in this Agreement that are qualified as to materiality
shall be true and correct, and the representations and warranties of the Buyer
and the Transitory Subsidiary set forth in this Agreement shall be true and
correct in all material respects, in each case as of the date of this Agreement
and as of the Effective Time as though made as of the Effective Time, except to
the extent such representations and warranties are specifically made as of a
particular date or as of the date of this Agreement (in which case such
representations and warranties shall be true and correct as of such date);
(c) each of the Buyer and the Transitory Subsidiary shall have
performed or complied with in all material respects its agreements and covenants
required to be performed or complied with under this Agreement as of or prior to
the Effective Time;
(d) no Legal Proceeding shall be pending or threatened wherein
an unfavorable judgment, order, decree, stipulation or injunction would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation or (iii) have a Buyer Material Adverse Effect,
and no such judgment, order, decree, stipulation or injunction shall be in
effect;
-30-
36
(e) the Buyer shall have delivered to the Company a
certificate (the "Buyer Certificate") to the effect that each of the conditions
specified in clauses (a) through (d) (insofar as clause (d) relates to Legal
Proceedings involving the Buyer) of this Section 5.3 is satisfied in all
respects;
(f) Any personal guaranties of the Company Stockholder listed
on Schedule 2.14(a)(i) relating to obligations of the Company shall be
terminated and released as of the Closing Date, including personal guaranties
relating to certain Company computer leases;
(g) The Company Stockholders shall have received releases from
all employees of the Company who are entering into option agreements which
releases shall be in the form attached as Exhibit E.
(h) the Buyer and each of Xxxxxxxxx Xxxxxxx and Xxxxxxxxxxx
Xxxxxx shall have entered into an option agreement in the form attached as
Exhibit A; and
(i) the Buyer and each of the persons listed on Schedule I
shall have entered into option agreements as set forth thereon using the Buyer's
customary forms.
(j) the Company shall have received such other certificates
and instruments (including without limitation certificates of good standing of
the Buyer and the Transitory Subsidiary in their jurisdiction of organization,
certified charter documents, certificates as to the incumbency of officers and
the adoption of authorizing resolutions) as it shall reasonably request in
connection with the Closing.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Company Stockholders. Xxxxxxxxx Xxxxxxx and
Xxxxxxxxxxx Xxxxxx (the "Indemnifying Stockholders") shall severally, but not
jointly, indemnify the Buyer in respect of, and hold it harmless against, any
and all debts, obligations and other liabilities (whether absolute, accrued,
contingent, fixed or otherwise, or whether known or unknown, or due or to become
due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
amounts paid in settlement, interest, court costs, costs of investigators, fees
and expenses of attorneys, accountants, financial advisors and other experts,
and other expenses of litigation) ("Damages") incurred or
-31-
37
suffered by the Surviving Corporation or the Buyer or any Affiliate thereof
resulting from, relating to or constituting:
(a) any misrepresentation, breach of warranty or failure to
perform any covenant or agreement of the Company contained in this Agreement or
the Company Certificate;
(b) any failure of any Company Stockholder to have good, valid
and marketable title to the issued and outstanding Common Shares issued in the
name of such Company Stockholder, free and clear of all Security Interests; or
(c) any claim by a stockholder or former stockholder of the
Company, or any other person or entity, seeking to assert, or based upon: (i)
ownership or rights to ownership of any shares of stock of the Company; (ii) any
rights of a stockholder (other than the right to receive the Merger Shares
pursuant to this Agreement or appraisal rights under the applicable provisions
of the Connecticut Business Corporation Act), including any option, preemptive
rights or rights to notice or to vote; (iii) any rights under the Certificate of
Incorporation or By-laws of the Company; or (iv) any claim that his, her or its
shares were wrongfully repurchased by the Company.
6.2 Indemnification by the Buyer. The Buyer shall indemnify the
Indemnifying Stockholders in respect of, and hold them harmless against, any and
all Damages incurred or suffered by the Indemnifying Stockholders resulting
from, relating to or constituting any misrepresentation, breach of warranty or
failure to perform any covenant or agreement of the Buyer or the Transitory
Subsidiary contained in this Agreement or the Buyer Certificate.
6.3 Indemnification Claims.
(a) A party entitled, or seeking to assert rights, to
indemnification under this Article VI (an "Indemnified Party") shall give
written notification to the party from whom indemnification is sought (an
"Indemnifying Party") of the commencement of any suit or proceeding relating to
a third party claim for which indemnification pursuant to this Article VI may be
sought. Such notification shall be given within 20 business days after receipt
by the Indemnified Party of notice of such suit or proceeding, and shall
describe in reasonable detail (to the extent known by the Indemnified Party) the
facts constituting the basis for such suit or proceeding and the amount of the
claimed damages; provided, however, that no delay on the part of the Indemnified
Party in notifying the Indemnifying Party shall relieve the Indemnifying Party
of any liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such
-32-
38
notification, the Indemnifying Party may, upon written notice thereof to the
Indemnified Party, assume control of the defense of such suit or proceeding with
counsel reasonably satisfactory to the Indemnified Party; provided that (i) the
Indemnifying Party may only assume control of such defense if (A) it
acknowledges in writing to the Indemnified Party that any damages, fines, costs
or other liabilities that may be assessed against the Indemnified Party in
connection with such suit or proceeding constitute Damages for which the
Indemnified Party shall be indemnified pursuant to this Article VI and (B) the
ad damnum is less than or equal to the amount of Damages for which the
Indemnifying Party is liable under this Article VI and (ii) the Indemnifying
Party may not assume control of the defense of a suit or proceeding involving
criminal liability or in which equitable relief is sought against the
Indemnified Party. If the Indemnifying Party does not so assume control of such
defense, the Indemnified Party shall control such defense. The party not
controlling such defense (the "Non-controlling Party") may participate therein
at its own expense; provided that if the Indemnifying Party assumes control of
such defense and the Indemnified Party reasonably concludes that the
Indemnifying Party and the Indemnified Party have conflicting interests or
different defenses available with respect to such suit or proceeding, the
reasonable fees and expenses of counsel to the Indemnified Party shall be
considered "Damages" for purposes of this Agreement. The party controlling such
defense (the "Controlling Party") shall keep the Non-controlling Party advised
of the status of such suit or proceeding and the defense thereof and shall
consider in good faith recommendations made by the Non-controlling Party with
respect thereto. The Non-controlling Party shall furnish the Controlling Party
with such information as it may have with respect to such suit or proceeding
(including copies of any summons, complaint or other pleading which may have
been served on such party and any written claim, demand, invoice, billing or
other document evidencing or asserting the same) and shall otherwise cooperate
with and assist the Controlling Party in the defense of such suit or proceeding.
The Indemnifying Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior written
consent of the Indemnified Party, which shall not be unreasonably withheld or
delayed. The Indemnified Party shall not agree to any settlement of, or the
entry of any judgment arising from, any such suit or proceeding without the
prior written consent of the Indemnifying Party, which shall not be unreasonably
withheld or delayed.
(b) In order to seek indemnification under this Article VI, an
Indemnified Party shall give written notification (a "Claim Notice") to the
Indemnifying Party which contains (i) a description and the amount (the "Claimed
Amount") of any Damages incurred or reasonably expected to be incurred by the
Indemnified Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article VI for such Damages and a reasonable
explanation of the basis therefor, and (iii)
-33-
39
a demand for payment (in the manner provided in paragraph (c) below) in the
amount of such Damages.
(c) Within 20 days after delivery of a Claim Notice, the
Indemnifying Party shall deliver to the Indemnified Party a written response
(the "Response") in which the Indemnifying Party shall: (i) agree that the
Indemnified Party is entitled to receive all of the Claimed Amount (in which
case the Response shall be accompanied by a payment by the Indemnifying Party to
the Indemnified Party of the Claimed Amount, by check or by wire transfer), (ii)
agree that the Indemnified Party is entitled to receive part, but not all, of
the Claimed Amount (the "Agreed Amount") (in which case the Response shall be
accompanied by a payment by the Indemnifying Party to the Indemnified Party of
the Agreed Amount, by check or by wire transfer), or (iii) dispute that the
Indemnified Party is entitled to receive any of the Claimed Amount. If the
Indemnifying Party in the Response disputes its liability for all or part of the
Claimed Amount, the Indemnifying Party and the Indemnified Party shall follow
the procedures set forth in Section 6.3(d) for the resolution of such dispute (a
"Dispute").
(d) During the 60-day period following the delivery of a
Response that reflects a Dispute, the Indemnifying Party and the Indemnified
Party shall use good faith efforts to resolve the Dispute. If the Dispute is not
resolved within such 60-day period, the Indemnifying Party and the Indemnified
Party shall discuss in good faith the submission of the Dispute to a mutually
acceptable alternative dispute resolution procedure (which may be non-binding or
binding upon the parties, as they agree in advance) (the "ADR Procedure"). In
the event the Indemnifying Party and the Indemnified Party agree upon an ADR
Procedure, such parties shall, in consultation with the chosen dispute
resolution service (the "ADR Service"), promptly agree upon a format and
timetable for the ADR Procedure, agree upon the rules applicable to the ADR
Procedure, and promptly undertake the ADR Procedure. The provisions of this
Section 6.3(d) shall not obligate the Indemnifying Party and the Indemnified
Party to pursue an ADR Procedure or prevent either such party from pursuing the
Dispute in a court of competent jurisdiction; provided that, if the Indemnifying
Party and the Indemnified Party agree to pursue an ADR Procedure, neither the
Indemnifying Party nor the Indemnified Party may commence litigation or seek
other remedies with respect to the Dispute prior to the completion of such ADR
Procedure. Any ADR Procedure undertaken by the Indemnifying Party and the
Indemnified Party shall be considered a compromise negotiation for purposes of
federal and state rules of evidence, and all statements, offers, opinions and
disclosures (whether written or oral) made in the course of the ADR Procedure by
or on behalf of the Indemnifying Party, the Indemnified Party or the ADR Service
shall be treated as confidential and, where appropriate, as privileged work
product. Such statements, offers, opinions and disclosures shall not be
discoverable or admissible for any purposes in any litigation
-34-
40
or other proceeding relating to the Dispute (provided that this sentence shall
not be construed to exclude from discovery or admission any matter that is
otherwise discoverable or admissible). The fees and expenses of any ADR Service
used by the Indemnifying Party and the Indemnified Party shall be shared equally
by the Indemnifying Party and the Indemnified Party.
(e) Notwithstanding the other provisions of this Section 6.3,
if a third party asserts (other than by means of a lawsuit) that an Indemnified
Party is liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Party may be entitled
to indemnification pursuant to this Article VI, and such Indemnified Party
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Party shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnifying Party, (ii)
such Indemnified Party may subsequently make a claim for indemnification in
accordance with the provisions of this Article VI, and (iii) such Indemnified
Party shall be reimbursed, in accordance with the provisions of this Article VI,
for any such Damages for which it is entitled to indemnification pursuant to
this Article VI (subject to the right of the Indemnifying Party to dispute the
Indemnified Party's entitlement to indemnification, or the amount for which it
is entitled to indemnification, under the terms of this Article VI).
6.4 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement, the Company Certificate or the Buyer
Certificate shall (a) survive the Closing and any investigation at any time made
by or on behalf of an Indemnified Party and (b) shall expire on the date one
year following the Closing Date, except that (i) the representations and
warranties set forth in Sections 2.1, 2.2, 2.3, 3.1, 3.2 and 3.3 (and the
portion of the Company Certificate or the Buyer Certificate relating thereto)
shall survive the Closing without limitation and (ii) the representations and
warranties set forth in Sections 2.9 and 2.20 (and the portion of the Company
Certificate relating thereto) shall survive until 30 days following expiration
of all statutes of limitation applicable to the matters referred to therein. If
an Indemnified Party delivers to an Indemnifying Party, before expiration of a
representation or warranty, either a Claim Notice based upon a breach of such
representation or warranty, or a notice that, as a result a legal proceeding
instituted by or written claim made by a third party, the Indemnified Party
reasonably expects to incur Damages as a result of a breach of such
representation or warranty (an "Expected Claim Notice"), then such
representation or warranty shall survive until, but only for purposes of, the
resolution of the matter covered by such notice. If the legal proceeding or
written claim with respect to which an Expected Claim Notice has been given is
definitively withdrawn or resolved in favor of the Indemnified Party, the
Indemnified Party shall promptly so notify the Indemnifying Party.
-35-
41
6.5 Limitations.
(a) Notwithstanding anything to the contrary herein, (i) the
aggregate liability of the Indemnifying Stockholders, on the one hand, and the
Buyer, on the other hand, for Damages under this Article VI shall not exceed
$9,600,000, and (ii) neither the Indemnifying Stockholders nor the Buyer shall
be liable under this Article VI unless and until the aggregate Damages for which
they or it would otherwise be liable exceed $100,000 (at which point the
Indemnifying Stockholders and the Buyer shall become liable for the aggregate
Damages, and not just amounts in excess of $100,000); provided that the
limitation set forth in clause (ii) above shall not apply to (A) a claim
pursuant to Section 6.1(a) relating to a breach of the representations and
warranties set forth in Sections 2.1, 2.2, 2.3 or 2.9 (or the portion of the
Company Certificate relating thereto) or to a breach of the covenant set forth
in Sections 4.7 and 4.8 or (B) a claim pursuant to Section 6.2 relating to a
breach of the representations and warranties set forth in Sections 3.1, 3.2, 3.3
(or the portion of the Buyer Certificate relating thereto) or to a breach of the
covenant set forth in Section 4.7. Except as set forth in the immediately
preceding proviso, an Indemnifying Stockholder shall not be obligated to
compensate the Buyer for Damages that are in excess of the value of the shares
of Buyer Common Stock received by such Indemnifying Stockholder at the time such
Damages were incurred. If Buyer's Damages exceed the value of the shares of
Buyer Common Stock received by an Indemnifying Stockholder as aforesaid, then
upon receipt of additional shares of Buyer Common stock pursuant to this
Agreement such Indemnifying Stockholder shall be obligated to compensate the
Buyer for such excess Damages until the Buyer has been compensated in full for
all of such Damages or the aforementioned $9,600,000 cap is reached. The
Indemnifying Stockholder may tender to the Buyer shares of Buyer's Common Stock
held by the Indemnifying Stockholder in order to compensate the Buyer for
Damages and the value of such shares as of the date of such tender (determined
by multiplying the Average Price by the number of shares tendered) shall be
credited against the amount of such Damages.
(b) Except with respect to claims based on fraud, after the
Closing, the rights of the Indemnified Parties under this Article VI shall be
the exclusive remedy of the Indemnified Parties with respect to third party
claims resulting from or relating to any misrepresentation, breach of warranty
or failure to perform any covenant or agreement contained in this Agreement.
(c) No Indemnifying Stockholder shall have any right of
contribution against the Company or the Surviving Corporation with respect to
any breach by the Company of any of its representations, warranties, covenants
or agreements.
-36-
42
ARTICLE VII
TERMINATION
7.1 Termination of Agreement. The Parties may terminate this Agreement
prior to the Effective Time (whether before or after Requisite Stockholder
Approval), as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) the Buyer may terminate this Agreement by giving written
notice to the Company in the event the Company is in breach of any
representation, warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i) would
cause the conditions set forth in clauses (b) or (c) of Section 5.2 not to be
satisfied and (ii) is not cured within 20 days following delivery by the Buyer
to the Company of written notice of such breach;
(c) the Company may terminate this Agreement by giving written
notice to the Buyer in the event the Buyer or the Transitory Subsidiary is in
breach of any representation, warranty or covenant contained in this Agreement,
and such breach, individually or in combination with any other such breach, (i)
would cause the conditions set forth in clauses (b) or (c) of Section 5.3 not to
be satisfied and (ii) is not cured within 20 days following delivery by the
Company to the Buyer of written notice of such breach;
(d) any Party may terminate this Agreement by giving written
notice to the other Parties at any time after the Company Stockholders have
voted on whether to approve this Agreement and the Merger in the event this
Agreement and the Merger failed to receive the Requisite Stockholder Approval;
(e) the Buyer may terminate this Agreement by giving written
notice to the Company if the Closing shall not have occurred on or before
December 31, 1999 by reason of the failure of any condition precedent under
Section 5.1 or 5.2 hereof (unless the failure results primarily from a breach by
the Buyer or the Transitory Subsidiary of any representation, warranty or
covenant contained in this Agreement); or
(f) the Company may terminate this Agreement by giving written
notice to the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before December 31, 1999 by reason of the failure of any
condition precedent
-37-
43
under Section 5.1 or 5.3 hereof (unless the failure results primarily from a
breach by the Company of any representation, warranty or covenant contained in
this Agreement).
7.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 7.1, all obligations, except obligations pursuant to Section
4.5(b), of the Parties hereunder shall terminate without any liability of any
Party to any other Party (except for any liability of any Party for willful
breaches of this Agreement).
ARTICLE VIII
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is defined
in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
ADR Procedure 6.3(d)
ADR Service 6.3(d)
Affiliate 2.14(a)(vii)
Agreed Amount 6.3(c)
Average Price 1.5(a)
Buyer Introduction
Buyer Certificate 5.3(e)
Buyer Common Stock 1.5(a)
Buyer Material Adverse Effect 3.1
Buyer Reports 3.5
Cause 1.5(a)(i)
Certificates 1.7
Certificate of Merger 1.1
Change in Control 1.5(a)(i)
Claim Notice 6.3(b)
Claimed Amount 6.3(b)
Closing 1.2
Closing Date 1.2
Closing Shares 1.5(a)
Common Shares 1.5(a)
Company Introduction
Company Certificate 5.2(e)
Company Intellectual Property 2.13(a)
-38-
44
Company Material Adverse Effect 2.1
Company Stockholders 1.3(d)
Confidential Information 4.5(b)
Controlling Party 6.3(a)
Customer Deliverables 2.13(a)
Damages 6.1
Disclosure Schedule Article II
Disclosure Statement 4.3(a)
Dispute 6.3(c)
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 2.20
ERISA 2.20(a)(ii)
Exchange Act 2.14(a)(vii)
Expected Claim Notice 6.4
Financial Statements 2.6
GAAP 2.6
Good Reason 1.5(a)(i)
Governmental Entity 2.4
Indemnified Party 6.3(a)
Indemnifying Party 6.3(a)
Indemnifying Stockholders 6.1
Intellectual Property 2.13(a)
Internal Systems 2.13(a)
Legal Proceeding 2.18
Merger 1.1
Merger Consideration 1.5(a)
Merger Shares 3.2
Most Recent Balance Sheet 2.8
Most Recent Balance Sheet Date 2.6
Non-controlling Party 6.3(a)
Ordinary Course of Business 2.4
Parties Introduction
Permits 2.23
Reasonable Best Efforts 4.1
Response 6.3(c)
Requisite Stockholder Approval 2.3
SEC 3.5
Security Interest 2.4
Software 2.13(e)
Subsidiary 2.5(a)
-39-
45
Surviving Corporation 1.1
Taxes 2.9(a)(i)
Tax Returns 2.9(a)(ii)
Transitory Subsidiary Introduction
Year 2000 Compliant 2.13(h)
ARTICLE IX
MISCELLANEOUS
9.1 Press Releases and Announcements. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however, that
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which case the disclosing
Party shall use reasonable efforts to advise the other Parties and provide them
with a copy of the proposed disclosure prior to making the disclosure).
9.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that (a) the provisions in
Article I concerning issuance of the Merger Shares and Article VI concerning
indemnification are intended for the benefit of the Company Stockholders.
9.3 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof; provided that the
Confidentiality Agreement dated November 19, 1999 between the Buyer and the
Company shall remain in effect in accordance with its terms.
9.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; provided that the Transitory Subsidiary may assign its
rights, interests and obligations hereunder to an Affiliate of the Buyer.
9.5 Counterparts and Facsimile Signature. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original
but all of which
-40-
46
together shall constitute one and the same instrument. This Agreement may be
executed by facsimile signature.
9.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered four business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
If to the Company: Copy to:
Xxxx Xxxxxxx Xxxxxx & Xxxx
00 Xxxxxx Xxxx Xxxx Xxx Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000 X.X. Xxx 0000
Xxx Xxxxx, XX 00000-0000
Attn: Xxxx X. Xxxxxx, Esq.
If to the Buyer or
the Transitory Subsidiary: Copy to:
SilverStream Software, Inc. Xxxx and Xxxx LLP
One Burlington Xxxxx, Suite 200 60 State Street
Burlington, MA 01803 Xxxxxx, XX 00000
Attn: Chief Financial Officer Attn: Xxxx X. Xxxxx, Esq.
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
-41-
47
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of laws of
any jurisdictions other than those of the State of Delaware.
9.9 Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time; provided,
however, that any amendment effected subsequent to the Requisite Stockholder
Approval shall be subject to any restrictions contained in the Connecticut
Business Corporation Act. No amendment of any provision of this Agreement shall
be valid unless the same shall be in writing and signed by all of the Parties.
No waiver of any right or remedy hereunder shall be valid unless the same shall
be in writing and signed by the Party giving such waiver. No waiver by any Party
with respect to any default, misrepresentation or breach of warranty or covenant
hereunder shall be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such occurrence.
9.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
9.11 Submission to Jurisdiction. Each of the Parties (a) submits to the
jurisdiction of any state or federal court sitting in Boston, Massachusetts in
any action or proceeding arising out of or relating to this Agreement, (b)
agrees that all claims in respect of such action or proceeding may be heard and
determined in any such court and (c) agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect thereto. Any
Party may make service on another Party by sending
-42-
48
or delivering a copy of the process to the Party to be served at the address and
in the manner provided for the giving of notices in Section 9.7. Nothing in this
Section 9.11, however, shall affect the right of any Party to serve legal
process in any other manner permitted by law.
9.12 Construction.
(a) The language used in this Agreement shall be deemed to be
the language chosen by the Parties to express their mutual intent, and no rule
of strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise.
[Remainder of Page Intentionally Left Blank]
-43-
49
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the date first above written.
SILVERSTREAM SOFTWARE, INC.
By: /s/ Xxxxx Xxxxx
--------------------------------
Title:
-----------------------------
SILVERSTREAM ACQUISITION CORP.
By:/s/ Xxxxx Xxxxx
--------------------------------
Title:
-----------------------------
GEMLOGIC, INC.
By: /s/ Xxxxxxxxx Xxxxxxx
--------------------------------
Title: President
-----------------------------
GEMLOGIC, INC. STOCKHOLDERS
/s/ Xxxxxxxxx Xxxxxxx
-----------------------------------
Xxxxxxxxx Xxxxxxx
/s/ Xxxxxxxxxxx Xxxxxx
-----------------------------------
Xxxxxxxxxxx Xxxxxx
-44-
50
The undersigned, being the duly elected Secretary of the Transitory Subsidiary,
hereby certifies that this Agreement has been adopted by a majority of the votes
represented by the outstanding shares of capital stock of the Transitory
Subsidiary entitled to vote on this Agreement.
/s/ Xxxxx Xxxxx
-------------------------------------
Secretary
The undersigned, being the duly elected Secretary of the Company, hereby
certifies that this Agreement has been adopted by a majority of the votes
represented by the outstanding Common Shares entitled to vote on this Agreement.
/s/ Xxxxxxxxxxx Xxxxxx
-------------------------------------
Secretary
-45-
