EXHIBIT 2.2
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization ("Agreement") is
made and entered into as of February 23, 1999, by and among: Vertel Corporation,
a California corporation ("Parent"); Expersoft Acquisition Corp., a California
corporation and a wholly owned subsidiary of Parent ("Merger Sub"); and
Expersoft Corporation, a California corporation (the "Company"). Certain other
capitalized terms used in this Agreement are defined in Exhibit A.
Recitals
A. Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub into the Company in accordance with this Agreement and the California
General Corporation Law (the "Merger"). Upon consummation of the Merger, Merger
Sub will cease to exist, and the Company will become a wholly owned subsidiary
of Parent.
B. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company.
Agreement
The parties to this Agreement agree as follows:
SECTION 1. Description of Transaction.
1.1 Merger of Merger Sub Into the Company. Upon the terms and
subject to the conditions set forth in this Agreement, at the Effective Time (as
defined in Section 1.3), Merger Sub shall be merged with and into the Company,
and the separate existence of Merger Sub shall cease. The Company will continue
as the surviving corporation in the Merger (the "Surviving Corporation"). The
Company's outstanding shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock as of immediately prior to the
Merger (collectively, "Company Stock") shall be converted into the right to
receive consideration or cancelled in exchange for no consideration, all as
provided herein.
1.2 Effect of the Merger. The Merger shall have the effects set
forth in this Agreement and in the applicable provisions of the California
General Corporation Law.
1.3 Closing; Effective Time. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place on March 12,
1999 or at such other time as Parent and Company may designate. The "Scheduled
Closing Time" shall mean the time and date as of which the Closing is required
to take place pursuant to this paragraph at the offices of Xxxxxxxx, Xxxxxxxxxx
& Xxxxx LLP at 00000 Xxxx Xxxxxxx Xxxxxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000. (The
date on which the Closing actually takes place is referred to in this Agreement
as the "Closing Date.") Contemporaneously with or as promptly as practicable
after the Closing, a properly executed agreement of merger conforming to the
requirements of Chapter 11 of the California General Corporation Law shall be
filed with the Secretary of State of the State of
California. The Merger shall become effective at the time such agreement of
merger is filed with the Secretary of State of the State of California (the
"Effective Time").
1.4 Articles of Incorporation and Bylaws; Directors and Officers. Unless
otherwise determined by Parent and the Company prior to the Effective Time:
(a) the Articles of Incorporation of the Surviving Corporation shall be
the Articles of Incorporation of Merger Sub as in effect immediately prior
to the Effective Time;
(b) the Bylaws of the Surviving Corporation shall be the bylaws of
Merger Sub as in effect immediately prior to the Effective Time;
(c) the directors and officers of the Surviving Corporation immediately
after the Effective Time shall be the individuals identified on Exhibit C;
and
(d) the name of the Surviving Corporation immediately after the
Effective Time shall remain "Expersoft Corporation."
1.5 Conversion of Shares.
(a) The aggregate consideration payable by the Parent (the "Total
Consideration") in exchange for all the capital stock of the Company and the
other obligations of the Company pursuant hereto shall be $3,000,000 cash
(subject to the terms of the Escrow Agreement). The parties hereby agree that
cash consisting of an aggregate of up to 34% of the Total Consideration (the
"Change of Control Distribution"), shall be distributed immediately following
the Closing by the Surviving Corporation under the terms of the Company's 1999
Change of Control Plan (the "Change of Control Plan"). The parties hereby agree
that no amounts allocable under the Change of Control Plan shall be paid to
Messrs. Xxxxxxx Xxxxxxxx and Xxxxxx Xxxxxx of the Company until the date which
is six (6) months following the Closing Date, at which time Parent shall cause
the Surviving Corporation to pay such amounts promptly in cash. An aggregate of
$600,000 of cash of the Total Consideration will be held in escrow as security
for the obligations of the Company hereunder pursuant to an Escrow and Indemnity
Agreement in the form attached hereto as Exhibit C ("Escrow Agreement"), to be
entered into by and among Parent, Xxxxxx Chedrich, as a representative of the
shareholders of the Company (the "Shareholders"), and the escrow agent named
therein (the "Escrow Agent').
(b) Prior to the Closing, the Company's Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock (collectively, the "Preferred
Stock") shall be converted into shares of the Company's Common Stock. Pursuant
to the written consent of the holders of shares constituting a majority of the
Preferred Stock in accordance with Section 4 of the Company's Amended and
Restated Articles of Incorporation (the "Restated Articles"), subject to
Sections 1.8 and 1.9 hereof, at the Effective Time, by virtue of the Merger and
without any further action on the part of Parent, Merger Sub, the Company or the
Shareholders, each share of the Company's Common Stock outstanding immediately
prior to the Closing, shall be converted into the right to receive in cash the
amount determined by dividing (a) the Total Consideration minus the Change of
Control Distribution by (b) the total number of shares of the Company's Common
Stock outstanding as of immediately prior to the Closing.
2.
1.6 Stock Options and Other Rights to Acquire Securities. At the
Effective Time, each stock option that is then outstanding under the Company's
1998 Equity Incentive Plan and any other right to acquire the Company's equity
securities (including, without limitation, any warrants or convertible
securities), shall be terminated if not exercised at or prior to the Closing.
1.7 Closing of the Company's Transfer Books. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged to the extent provided in Section 1.8.
1.8 Surrender of Certificates.
(a) At or as soon as practicable after the Effective Time, Parent
will send to the holders of Company Stock Certificates entitled to a share of
the Total Consideration (i) a letter of transmittal in customary form and
containing such provisions as Parent may reasonably specify, and (ii)
instructions for use in effecting the surrender of Company Stock Certificates in
exchange for cash. Upon surrender of a Company Stock Certificate to Parent for
exchange, together with a duly executed letter of transmittal and such other
documents as may be reasonably required by Parent, the holder of such Company
Stock Certificate shall be entitled to receive in exchange therefor a check in
the amount of cash to which such holder is entitled; and the Company Stock
Certificate so surrendered shall be canceled. Until surrendered as contemplated
by this Section 1.8, each such Company Stock Certificate shall be deemed, from
and after the Effective Time, to represent only the right to receive cash upon
such surrender. If any such Company Stock Certificate shall have been lost,
stolen or destroyed, Parent may, in its discretion and as a condition precedent
to the payment of cash, require the owner of such lost, stolen or destroyed
Company Stock Certificate to provide an appropriate affidavit and to deliver a
bond (in such sum as Parent may reasonably direct) as indemnity against any
claim that may be made against Parent or the Surviving Corporation with respect
to such Company Stock Certificate.
(b) Parent and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise deliverable to any
holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required to
deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
(c) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company for any cash amounts
delivered to any public official pursuant to any applicable abandoned property,
escheat or similar law.
3.
1.9 Dissenting Shares.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of capital stock of the Company that, as of the Effective
Time, are or may become "dissenting shares" within the meaning of Section
1300(b) of the California Corporations Code shall not be converted into or
represent the right to receive any of the Total Consideration in accordance with
Section 1.5, and the holder or holders of such shares shall be entitled only to
such rights as may be granted to such holder or holders in Chapter 13 of the
California General Corporation Law; provided, however, that if the status of any
such shares as "dissenting shares" shall not be perfected, or if any such shares
shall lose their status as "dissenting shares," then, as of the later of the
Effective Time or the time of the failure to perfect such status or the loss of
such status, such shares shall automatically be canceled and to the extent such
shares are entitled to consideration pursuant hereto they shall be converted
into and shall represent only the right to receive (upon the surrender of the
certificate or certificates representing such shares) such consideration in
accordance with Section 1.5.
(b) The Company shall give Parent (i) prompt notice of any written
demand received by the Company prior to the Effective Time to require the
Company to purchase shares of capital stock of the Company pursuant to Chapter
13 of the California General Corporation Law and of any other demand, notice or
instrument delivered to the Company prior to the Effective Time pursuant to the
California General Corporation Law, and (ii) the opportunity to participate in
all negotiations and proceedings with respect to any such demand, notice or
instrument. The Company shall not make any payment or settlement offer prior to
the Effective Time with respect to any such demand unless Parent shall have
consented in writing to such payment or settlement offer.
1.10 Accounting Treatment. For accounting purposes, the Merger is intended
to be treated as a "purchase."
1.11 Allocation of Total Consideration. The Total Consideration under this
Agreement shall be allocated to assets and otherwise in accordance with Exhibit
D to this Agreement. After the Closing, the parties shall make consistent use
of the allocation, fair market value and useful lives specified in Exhibit D for
all tax purposes and in any and all filings, declarations and reports with the
Internal Revenue Service in respect thereof, including the reports required to
be filed under Section 1060 of the Internal Revenue Code of 1986, as amended
(the "Code").
1.12 Further Action. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Parent with
full right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, in the name of the
Company and otherwise) to take such action.
4.
SECTION 2. Representations and Warranties of the Company
The Company hereby represents and warrants to Parent and Merger Sub, except
as described in the Disclosure Schedule supplied by the Company to Parent (the
"Disclosure Schedule") and dated as of the date hereof, as follows:
2.1 Due Organization The Company is a corporation duly organized, validly
existing, and in good standing under the laws of California and has all
necessary corporate powers to own its properties and operate its business as now
owned and operated by it. Neither the ownership of its properties nor the nature
of its business requires the Company to be qualified in any jurisdiction other
than the state of its incorporation except where the failure to be so qualified
would not have a Material Adverse Effect on the Company.
2.2 Capitalization, Etc.
(a) Capital Stock. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, of which 1,061,054 are issued or
outstanding as of the date hereof and 9,193,740 shares of Preferred Stock; (i)
694,915 shares of which are designated Series A Preferred Stock, 694,912 of
which are issued and outstanding as of the date hereof, (ii) 398,825 shares of
which are designated Series B Preferred Stock, 398,823 of which are issued and
outstanding as of the date hereof, and (iii) 8,100,000 shares of which are
designated Series C Preferred Stock, 6,857,694 shares of which are issued and
outstanding as of the date hereof. All issued and outstanding shares of the
Company's capital stock have been duly authorized and validly issued, are fully
paid and nonassessable, are not subject to any right of rescission and have been
offered, issued, sold and delivered by the Company in compliance with all
registration or qualification requirements (or applicable exemptions therefrom)
of applicable federal and state securities laws.
(b) Options/Warrants/Rights. As of the date hereof, 26,730 shares of
the Company's Common Stock are subject to issued and outstanding warrants to
purchase shares of the Company's Common Stock and 150,712 shares of the
Company's Series C Preferred Stock are subject to issued and outstanding
warrants to purchase shares of the Company's Series C Preferred Stock. As of the
date hereof, an aggregate of 4,912,500 shares of the Company's Common Stock are
reserved and authorized for issuance pursuant to the Company's 1998 Equity
Incentive Plan, of which options to purchase 4,666,900 shares of the Company's
Common Stock are issued and outstanding. A list of all holders of the Company's
Stock and options or warrants to purchase the Company's Stock as of the date
hereof, and the number of shares, options and warrants held by such holders is
set forth in Section 2.2 of the Disclosure Schedule. Except as set forth in
Section 2.2 of the Disclosure Schedule, there are no options, warrants, calls,
commitments, conversion privileges or preemptive or other rights or agreements
outstanding to purchase any of the Company's authorized but unissued capital
stock or any securities convertible into or exchangeable for shares of the
Company's capital stock or obligating the Company to grant, extend, or enter
into any such option, warrant, call, right, commitment, conversion privilege or
other right or agreement, and there is no liability for dividends accrued but
unpaid. There are no outstanding subscriptions, rights, convertible securities,
or other agreements or commitments obligating the Company to issue or to
transfer from treasury any additional shares of its capital stock of any class.
Except as set forth in the Disclosure Schedule,
5.
there are no voting agreements, preemptive rights, rights of first refusal or
other restrictions (other than normal restrictions on transfer under applicable
federal and state securities laws) applicable to any of the Company outstanding
securities.
2.3 Financial Statements. Exhibit 2.3(a) to this Agreement sets forth
consolidated balance sheets of the Company as of September 30, 1996, and the
related consolidated statements of income and retained earnings for the three
years ending on that date, audited by the Company's independent public
accountants, whose opinions with respect to those financial statements appear in
Exhibit 2.3(a). Exhibit 2.3(b) to this Agreement sets forth unaudited
consolidated balance sheets of the Company as for the years ended September 30,
1997, September 30, 1998, and together with related unaudited consolidated
statements of income and retained earnings for the quarter ended December 31,
1998 certified by an officer of the Company as accurately reflecting the
financial condition of the Company for those periods and accurately reflecting
all information normally reported to the Company's independent public
accountants for the preparation of the Company's "financial statements." The
financial statements in Exhibits 2.3(a) and 2.3(b) are referred to hereafter as
the Financial Statements. The Financial Statements have been prepared in
accordance with generally accepted accounting principles, except as may be
indicated in the notes to such financial statements (except that the unaudited
financial statements referred to in this Section 2.3 do not contain footnotes
and are subject to normal and recurring year end audit adjustments, which will
not, individually or in the aggregate, be material in magnitude) consistently
followed by the Company throughout the periods indicated, and fairly present the
financial position of the Company on the respective dates of the balance sheets
included in the financial statements, and the results of its operations for the
respective periods indicated.
2.4 Absence of Changes. Except as set forth in Section 2.4 of the
Disclosure Schedule, between September 30, 1998 and the date of this Agreement
there has been no:
(a) Transaction by the Company except in the ordinary course of
business as conducted on that date;
(b) Capital expenditure by the Company exceeding $50,000;
(c) Material Adverse change in the financial condition, liabilities,
assets, business, or prospects of the Company;
(d) Destruction, damage to, or loss of any asset of the Company
(whether insured or uninsured) that materially and adversely affects the
financial condition, business, or prospects of the Company;
(e) Change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rates) by the
Company;
(f) Revaluation by the Company of any of its assets as reflected on the
Financial Statements;
6.
(g) Declaration, setting aside, or payment of a dividend or other
distribution in respect to the capital stock of the Company, or any direct or
indirect redemption, purchase, or other acquisition by the Company of any of its
shares of capital stock;
(h) Increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, or employees or
declaration, payment, or commitment or obligation of any kind or the payment, by
the Company, of a bonus or other additional salary or compensation to any such
person, except in each case for any of the foregoing that was consistent with
the Company's past practices;
(i) Sale or transfer of any asset of the Company, except in the ordinary
course of business;
(j) Amendment or termination of any contract, agreement, or license to
which the Company is a party, except in the ordinary course of business;
(k) Loan by the Company to any person or entity, or guaranty by the Company
of any loan;
(l) Mortgage, pledge, or other encumbrance of any asset of the Company;
(m) Waiver or release of any right or claim of the Company, except in the
ordinary course of business;
(n) Commencement, notice, or, to the knowledge of the Company, threat of
commencement of any civil litigation or governmental proceeding against the
Company or investigation of its affairs by either of them;
(o) Claim against the Company of wrongful discharge or other unlawful labor
practice or action;
(p) Issuance or sale by the Company of any shares of its capital stock of
any class or of any other of its securities other than to employees under the
Company's 1998 Equity Incentive Plan;
(q) Agreement by the Company to do any of the things described in the
preceding clauses (a) through (p); or
(r) Other event or condition of any character that had or could reasonably
be expected to have a Material Adverse Effect on the Company.
2.5 Liabilities. The Company has no debt, liability, or obligation of any
nature, whether accrued, absolute, contingent, or otherwise, and whether due or
to become due, that is not reflected or reserved against in the Company's
consolidated balance sheet as of December 31, 1998, included in the financial
statements or set forth in Section 2.5 of the Disclosure Schedule except for (1)
those that may have been incurred after the date of that consolidated balance
sheet and (2) those that are not required by generally accepted accounting
principles to be included in a balance sheet. All debts, liabilities, and
obligations incurred after that date were incurred in the
7.
ordinary course of business and are usual and normal in amount both individually
and in the aggregate.
2.6 Tax Matters. Within the times and in the manner prescribed by law,
the Company has filed all federal, state, and local tax returns required by law
and have paid all taxes, assessments, and penalties due and payable. The
provisions for taxes reflected in the Company's consolidated balance sheet as of
December 31, 1998, are adequate for federal, state, county, and local taxes for
the period ending on the date of that balance sheet and for all prior periods,
whether disputed or undisputed. There are no present disputes about taxes of any
nature payable by the Company. To the Company's knowledge, payments pursuant to
the Company's 1999 Change of Control Plan will not result in the payment of any
"excess parachute payment" within the meaning of Section 280(G) of the Code.
2.7 Real Property. Section 2.7 of the Disclosure Schedule is a complete
and accurate list of all real property owned by or leased to the Company,
together with an accurate and brief description of each property and a list of
the policies of title insurance issued to the Company for these properties.
2.8 Books and Records. Section 2.8 of the Disclosure Schedule contains a
complete and accurate description and specification of, the location of all of
the Company's books of account, payroll records, income records, stock and other
records, information relating to customers and suppliers (including without
limitation a list of all the customers of the business during the last two
years), a list of purchasers to which outstanding quotations have been given and
a list of unfulfilled orders as at the Closing Date, relevant computer programs
and other books and documents which relate to the Business.
2.9 Capital Assets. Section 2.9 of the Disclosure Schedule contains a
complete and accurate schedule of all capital assets having a book or fair
market value in excess of $5,000, owned by, in the possession of, or used by the
Company in connection with its business, including work in process. All such
assets are in good condition and repair and are adequate for the conduct by the
Company in its business as now conducted.
2.10 Personal Property. Except as stated in Section 2.10 of the Disclosure
Schedule, no personal property used by the Company in connection with its
business is, subject to any Encumbrances, held under any lease, security
agreement, conditional sales contract, or other title retention or security
arrangement, or is located other than in the possession of the Company.
2.11 Accounts Receivable. All accounts receivable of the Company shown on
the consolidated balance sheet of the Company as of December 31, 1998, and all
accounts receivable of the Company created after that date arose from valid
sales or licensing agreements in the ordinary course of business. These accounts
have been collected in full since that date, or, to the knowledge of the
Company, are collectible at their full amounts, and are not subject to any
Encumbrances.
2.12 Commercial Information. Section 2.12 of the Disclosure Schedule
contains a complete and accurate schedule describing and specifying the
Company's confidential industrial, technical and commercial information and
techniques in any form (including paper, electronically stored data, magnetic
media, film and microfilm) including (without prejudice to
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the generality thereof) source code listings, drawings, formulae, test
reports, project reports and testing procedures, shop practices, instruction and
training manuals, tables of operating conditions, market forecasts,
specifications, quotations, tables, lists and particulars of customers and
suppliers, marketing methods and procedures and advertising copy. Computer
programs identified in this schedule include that in object code and any current
developments thereof including any planned programs referred, and all (if any),
source code, functional specifications and other program development materials
associated therewith.
2.13 Trademarks and Copyrights. Section 2.13 of the Disclosure Schedule
contains a schedule of all trade names, trademarks, service marks, and
copyrights and their registrations, including applications therefor, owned by
the Company or in which it has any rights or licenses, together with a brief
description of each. The Company has no knowledge of any infringement or
alleged infringement by others of any trade name, trademark, service xxxx, or
copyright. To the knowledge of the Company, the Company has not infringed, and
is not now infringing on, and has not incurred any obligations, contractual or
otherwise, that would require infringement of any trade name, trademark, service
xxxx, or copyright belonging to any other person, firm, or corporation. Except
as set forth in Section 2.13 of the Disclosure Schedule, the Company is not a
party to any license, agreement, or arrangement, whether as licensor, licensee,
franchisor, franchisee, or otherwise, with respect to any trademarks, service
marks, trade names, or applications for them, or any copyrights other than as
licensee under licenses or as purchaser under agreements for the purchase of
"off the shelf" or standard products. The Company owns, or holds adequate
licenses or other rights to use, all trademarks, service marks, trade names, and
copyrights necessary for its business as now conducted by it (including without
limitation those listed in Section 2.13 of the Disclosure Schedule), and to the
knowledge of the Company, that use does not, and will not, conflict with,
infringe on, or otherwise violate any rights of others. The Company has the
right to sell or assign to Parent all owned trademarks, copyrights, trade names,
service marks, registrations and all such licenses and other rights. The
Company has not assigned, transferred, encumbered, liened, hypothecated or
otherwise burdened any of its tradenames, trademarks, servicemarks or
copyrights.
2.14 Patents. Section 2.14 of the Disclosure Schedule contains a complete
schedule of all patents, inventions, industrial models, processes, designs, and
applications for patents owned by the Company or in which they have any rights,
licenses, or immunities. The patents and applications for patents listed in
Section 2.14 of the Disclosure Schedule, are valid and in full force and effect
and are not subject to any taxes, maintenance fees, or actions falling due
within 30 days after the Closing Date except as set forth in the Disclosure
Schedule. To the Company's knowledge, there are no pending patent applications
that may support allowable claims that, if issued in a patent, may be infringed
by the Company's past or planned activities or products. Except as set forth in
the Disclosure Schedule there have been no claims, interference actions or other
judicial, arbitration, or other adversary proceedings pending or, to the
Company's knowledge, threatened concerning the patents or applications for
patents listed in the Disclosure Schedule. Each patent application is awaiting
action by the United States and respective foreign patent offices except as
otherwise indicated the Disclosure Schedule. Except as set forth in the
Disclosure Schedule, to the knowledge of the Company, the manufacture, use, or
sale of the inventions, models, designs, and systems covered by the patents and
applications for patents listed in Section 2.14 of the Disclosure Schedule do
not violate or infringe on any patent or any proprietary or personal right of
any person, firm, or corporation; and to the knowledge of the
9
Company, the Company has not infringed or is now infringing on any patent or
other right belonging to any person, firm, or corporation. Except as set forth
in the Disclosure Schedule, the Company is not a party to any license,
agreement, or arrangement, whether as licensee, licensor, or otherwise, (other
than any licenses or agreements for the purchase or sale of "off the shelf" or
standard products) with respect to any patent, application for patent,
invention, design, model, process, trade secret, or formula. The Company has the
right and authority to use and to transfer to Parent such patents, inventions,
trade secrets, processes, models, designs, and formulas as are necessary to
enable it to conduct and continue to conduct all phases of the Business in the
manner presently conducted by it, and, to the knowledge of the Company, that use
does not, and will not, conflict with, infringe on, or violate any patent or
other rights of others. The Company has not assigned, transferred, encumbered,
liened, hypothecated or otherwise burdened any of its patents.
2.15 Trade Secrets. Section 2.15 of the Disclosure Schedule contains a
complete list, without extensive or revealing descriptions, of the Company's
trade secrets, including, but not limited to all customer lists, processes, know
how, computer programs and routines, and other technical data. The specific
location of each trade secret's documentation, including its complete
description, specifications, charts, procedures, and other material relating to
it, is also set forth in that exhibit. Each trade secret's documentation is
current, accurate in all material respects, and sufficient in detail and content
to identify and explain it and to allow its full and proper use by Parent
without reliance on the special knowledge or memory of others.
(a) The Company is the sole owner of each of these trade secrets,
free and clear of any liens, encumbrances, restrictions, or legal or equitable
claims of others, except as specifically stated in the Disclosure Schedule. The
Company has taken all reasonable security measures to protect the secrecy,
confidentiality, and value of these trade secrets; any of its employees and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed, or designed these secrets, or who have
knowledge of or access to information relating to them, have been put on notice
and, if appropriate, has entered into agreements that these secrets are
proprietary to the Company and not to be divulged or misused.
(b) All these trade secrets are presently valid and are not, to the
knowledge of the Company, part of the public knowledge or literature; they have
not, to the Company's knowledge, been used, divulged, or appropriated for the
benefit of any past or present employees or other persons, or to the detriment
of the Company. The Company has not assigned, transferred, encumbered, liened,
hypothecated or otherwise burdened any of its trade secrets.
2.16 Good and Marketable Title. The Company has good and marketable title
to all its respective assets and interests in assets, whether real, personal,
mixed, tangible, or intangible, which constitute all the assets and interests in
assets that are used in the businesses of the Company. All these assets are free
and clear of restrictions on or conditions to transfer or assignment and free
and clear of mortgages, liens, pledges, charges, encumbrances, equities, claims,
easements, rights of way, covenants, conditions, or restrictions, except for (1)
those disclosed in the Company's consolidated balance sheet as of December 31,
1998, or in Exhibit(s) 2.3(a) or 2.3(b) to this Agreement; (2) the lien of
current taxes not yet due and payable; and (3) possible minor matters that, in
the aggregate, are not substantial in amount and
10
do not detract from or interfere with the present or intended use of any of
these assets or impair business operations.
2.17 Leases. The Company is not in default or in arrears under any lease.
All real property and tangible personal property of the Company that is
necessary to the operation of its businesses, is in good operating condition and
repair, ordinary wear and tear excepted. The Company is in possession of all
premises leased to it from others. Neither the Company's shareholders, nor any
officer, director, or employee of the Company; nor any spouse, child, or other
relative of any of these persons, owns, or has any interest, directly or
indirectly, in any of the real or personal property owned by or leased to the
Company or any copyrights, patents, trademarks, trade names, or trade secrets
licensed by the Company. To the knowledge of the Company, the Company does not
occupy any real property in violation of any law, regulation, or decree.
2.18 Insurance Policies. Section 2.18 of the Disclosure Schedule contains
a description of all insurance policies held by the Company concerning its
businesses and properties, and their respective principal amounts. The Company
has maintained and now maintains (1) insurance on all its assets and businesses
of a type customarily insured by businesses substantially similar to the
Company, covering property damage and loss of income by fire or other casualty,
and (2) adequate insurance protection against all liabilities, claims, and risks
against which it is customary to insure by businesses substantially similar to
the Company. The Company has not received any notices of cancellations or any
reservation of rights on any such claims. The Company is not in default with
respect to payment of premiums on any such policy. Except as set forth in
Section 2.18 of the Disclosure Schedule, no claim is pending under any such
policy.
2.19 Material Agreements. The Company is not a party to, nor is the
property of it bound by, any material agreement not entered into in the ordinary
course of business; any indenture, mortgage, deed of trust, or lease; or any
material agreement that is unusual in nature, duration, or amount (including any
agreement requiring the performance by the Company of any obligation for more
than ninety (90) days from closing date or calling for consideration of more
than $50,000); except the agreements listed in Section 2.19 of the Disclosure
Schedule, copies of which have been furnished or made available to Parent. To
the knowledge of the Company, there is no default or event that, with notice,
lapse of time, or both, would constitute a default by any party to any of these
agreements. The Company has not received notice that any party to any of these
agreements intends to cancel or terminate any of these agreements or to exercise
or not exercise any options under any of these agreements.
2.20 Governmental Authorizations. The Company has not received notice from
any government entity of any violation of any applicable federal, or local
statute, law, or regulation, and represents that the Company has complied with,
and to its knowledge, is not in violation of, any other applicable federal,
state, or local statute, law, or regulation (including any applicable building,
zoning, environmental protection or other law, ordinance, or regulation)
affecting its properties or the operation of its businesses; except as has not
had or which reasonably would not be expected to have a Material Adverse Effect
on the Company.
11
2.21 Legal Proceedings. Except as set forth in Section 2.21 of the
Disclosure Schedule, there is no pending, or, to the best knowledge of the
Company, threatened, suit, action, arbitration, or legal, administrative, or
other proceeding, or governmental investigation against or affecting the
Company, or its business, assets, or financial condition. The Company is not in
default with respect to any order, writ, injunction, or decree of any federal,
state, local, or foreign court, department, agency, or instrumentality. Except
as set forth in Section 2.21 of the Disclosure Schedule, the Company, is not
presently engaged in any legal action to recover money due to it or damages
sustained by it.
2.22 Non-Contravention. The consummation of the transactions contemplated
by this Agreement will not result in or constitute any of the following: (1) a
default or an event that, with notice, lapse of time, or both, would be a
default, breach, or violation of the Company's Articles of Incorporation,
bylaws, or any lease, license, promissory note, conditional sales contract,
commitment, indenture, mortgage, deed of trust, or other agreement, instrument,
or arrangement to which a shareholder or the Company is a party or by which any
of them or the property of any of them is bound, and which would have a Material
Adverse Effect on the Company; (2) an event that would permit any party to
terminate any material agreement or to accelerate the maturity of any material
indebtedness or other material obligation of the Company; or (3) the creation or
imposition of any material lien, charge, or encumbrance on any of the properties
of the Company.
2.23 Consents. The Company has the right, power, legal capacity, and
authority to enter into and perform its respective obligations under this
Agreement; and except as set forth in Section 2.23 of the Disclosure Schedule,
no approvals or consents of any other persons or entities are necessary in
connection with it. The execution and delivery of this agreement by the Company
has been duly authorized by all necessary corporate action.
2.24 Officers and Directors. Section 2.24 of the Disclosure Schedule
contains a list of the names and business addresses of all officers, directors
and employees of the Company.
2.25 Employment Arrangements. Section 2.25 of the Disclosure Schedule
contains a list of all employment agreements, whether oral, written, express,
implied or otherwise and all collective bargaining agreements, and all hourly
wages or weekly salaries of all employees and all pension, bonus, profit-
sharing, stock option, or other agreements or arrangements providing for
employee remuneration or benefits to which the Company is a party or by which
the Company is bound. All these Agreements and arrangements are in full force
and effect, and neither the Company, nor any other party is in default under
them. There have been no claims of defaults and, to the best knowledge of the
Company, there are no facts or conditions that if continued, or upon notice,
will result in a claim of default. There is no pending or threatened labor
dispute, strike, or work stoppage affecting the Company's business. The Company
has complied with all applicable laws for each of its respective employee
benefit plans, including the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") if and to the extent applicable. There are no
pending claims by or on behalf of any such benefit plan, by or on behalf of any
employee covered under any such plan, or otherwise involving any such benefit
plan, that allege a breach of fiduciary duties or violation of any applicable
state or federal law; nor is there any basis for such a claim. Except as set
forth in Section 2.25 of the Disclosure Schedule the Company has not entered
into any severance or termination agreement or
12
arrangement, or any change of control agreement or arrangement or similar
agreement or arrangement with any present or former employee that will result in
any obligation, absolute or contingent, of Parent or the Company to make any
payment to any present or former employee following termination of employment.
All of the Company's employees and consultants (including present or former) are
subject to valid and enforceable nondisclosure and inventions assignment
agreements.
2.26 Payments to Retirees. Except as described in Section 2.26 of the
Disclosure Schedule, the Company, is not obligated to make any payment to or
with respect to any former employee of the Company under any retiree medical
benefit or other welfare plan.
2.27 Brokers and Finders. The Company nor any of its officers, directors
or employees has employed any broker or finder or incurred liability for any
financial advisory fees, brokerage fees, commissions or finder's fees, and no
broker or finder has acted directly or indirectly for the Company in connection
with this Agreement or the transactions contemplated hereby.
2.28 Powers of Attorney. Section 2.28 of the Disclosure Schedule lists (1)
the names and addresses of all persons holding a power of attorney on behalf of
the Company and (2) the names and addresses of all banks or other financial
institutions in which the Company has an account, deposit, or safe deposit box,
with the names of all persons authorized to draw on these accounts or deposits
or to have access to these boxes.
2.29 Year 2000 Compliance.
(a) Products and Services.
(i) All of the Company's Products and Services are Year 2000
Compliant.
(ii) If the Company is obligated to repair or replace Products or
Services previously provided by the Company that are not Year 2000 Compliant in
order to meet the Company's contractual obligations, to avoid personal injury,
to avoid misrepresentation claims, or to satisfy any other contractual or legal
obligations or requirements, to the Company's knowledge it has repaired or
replaced those Products and Services to make them Year 2000 Compliant.
(iii) The Company has furnished Parent with true, correct and
complete copies of any customer agreements and other materials and
correspondence in which the Company has furnished (or could be deemed to have
furnished) assurances as to the performance and/or functionally of the Company's
products or Services on or after January 1, 2000, as a result of the occurrence
of such date.
(b) Internal MIS Systems and Facilities. All of Company's Internal
MIS Systems and Facilities are Year 2000 Complaint.
13
(c) Suppliers. To the knowledge of the Company, all vendors of
products or services to the Company, and their respective products, services and
operations, are Year 2000 Compliant.
(d) Year 2000 Compliance Investigations and Reports. The Company has
furnished Parent with a true, correct and complete copy of any written internal
investigations, memoranda, budget plans, forecasts, or reports concerning the
Year 2000 Compliance of the products, services, operations, systems, supplies,
and facilities of the Company and the Company's vendors.
The terms as used within this Section 2.29 have the following definitions:
"Facilities" means any facilities or equipment used by the Company or its
subsidiaries in any location, including HVAC systems, mechanical systems,
elevators, security systems, fire suppression systems, telecommunications
systems, fax machines, copy machines, and equipment, whether or not owned by the
Company.
"Products" means any products offered or furnished by the Company or its
subsidiaries, or any predecessor in interest of the Company or its subsidiaries,
or any predecessor in interest of the Company, currently or at any time in the
past, including, without limitation, each item of hardware, software, or
firmware; any system, equipment, or products consisting of or containing one or
more thereof; and any and all enhancements, upgrades, customizations,
modifications, and maintenance thereto.
"Services" means any services offered or furnished by the Company or its
subsidiaries, or any predecessor in interest of the Company, currently or at any
time in the past.
"Internal MIS Systems" means any computer software and systems (including
hardware, firmware, operating systems software, utilities, and applications
software) used in the ordinary course of the Company's or its subsidiaries'
business by or on behalf of the Company or its subsidiaries, including payroll,
accounting, billing/receivables, inventory, asset tracing, customer services,
human resources, and e-mail systems.
"Year 2000 Compliant" means that (1) the products, services, or other
items) at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, sequencing, processing and outputting)
within, from, into, and between centuries (including the twentieth and twenty-
first centuries and the years 1999 and 2000), including leap year calculations,
and (2) neither the performance nor the functionality nor the Company's
provision of the products, services, and other item(s) at issue will be affected
by any dates/times prior to, on, after, or spanning January 1, 2000. The design
of the products, services, and other item(s) at issue to ensure compliance with
the foregoing warranties and representations includes proper date/time data
century recognition and recognition of 1999 and 2000, calculations that
accommodate single century and multi-century formulae and date/time values
before, on, after, and spanning January 1, 2000, and date/time data interface
values that reflect the century, 1999, and 2000. In particular, but without
limitation, (i) no value for current date/time will cause any error,
interruption, or decreased performance in or for such product(s), service(s),
and other item(s), (ii) all manipulations of date and time related data
(including calculating, comparing, sequencing, processing, and outputting) will
produce correct results for all valid dates and times
14
when used independently or in combination with other product, services, and/or
items, (iii) date/time elements in interfaces and data storage will specify the
century to eliminate date ambiguity without human intervention, including leap
year calculations, (iv) where any date/time element is represented without a
century, the correct century will be unambiguous for all manipulations involving
that element, (v) authorization codes, passwords, and zaps (purge functions)
will function normally and in the same manner during, prior to, on and after
January 1, 2000, including the manner in which they function with respect to
expiration dates and CPU serial numbers, and (vi) the Company's or its
subsidiaries' supply of the product(s), service(s), and other item(s) will not
be interrupted, delayed, decreased, or otherwise affected by the advent of the
year 2000.
2.30 Disclosure. No representation by Company in this Agreement or in any
schedule or exhibit, or any statement, list or certificate furnished or to be
furnished by the Company pursuant to this Agreement, or in connection with these
transactions, contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact required to be stated herein or
therein or necessary to make the statements contained herein or therein not
misleading.
SECTION 3. Representations and Warranties of Parent and Merger Sub.
Parent and Merger Sub jointly and severally represent and warrant to
the Company as follows:
3.1 Due Organization, Standing and Power. Parent and Merger Sub are
corporations duly organized, validly existing and in good standing under the
laws of the State of California. Each of Parent and Merger Sub has the
corporate power to own its properties and to carry on its business as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the ability of Parent and Merger Sub to consummate the
transactions contemplated hereby.
3.2 Authority; Binding Nature of Agreement. Parent and Merger Sub have
the absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance by
Parent and Merger Sub of this Agreement have been duly authorized by all
necessary action on the part of Parent and Merger Sub and their respective
boards of directors. No vote of Parent's stockholders is needed to approve the
Merger. This Agreement constitutes the legal, valid and binding obligation of
Parent and Merger Sub, enforceable against them in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
3.3 Litigation. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Parent has received any notice of
assertion against Parent which in any manner challenges or seeks to prevent,
enjoin, alter or delay any of the transactions contemplated by this Agreement.
3.4 Non-Contravention; Consents. Neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor
15
(2) the consummation of the Merger or any of the other transactions contemplated
by this Agreement, will directly or indirectly (with or without notice or lapse
of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of Parent's Articles of Incorporation or bylaws, or (ii) any
resolution adopted by Parent's shareholders, Parent's board of directors or any
committee of Parent's board of directors;
(b) contravene, conflict with or result in a violation of any Legal
Requirement or any order, writ, injunction, judgment or decree to which Parent,
or any of the assets owned or used by Parent is subject; and
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of any Governmental Authorization that is held by Parent
or that otherwise relates to the business or to any of the assets owned or used
by Parent which, in any event, would have a Material Adverse Effect on Parent or
the ability to consummate the Merger or the other transactions contemplated
hereby; and
3.5 Brokers and Finders. Neither Parent nor Merger Sub nor any of their
respective officers, directors or employees has employed any broker or finder or
incurred liability for any financial advisory fees, brokerage fees, commissions
or finder's fees, and no broker or finder has acted directly or indirectly for
Parent or Merger Sub in connection with this Agreement or the transactions
contemplated hereby.
3.6 Disclosure. No representation by Parent nor Merger Sub in this
Agreement or in any schedule or exhibit, or any statement, list or certificate
furnished or to be furnished by Parent or Merger Sub pursuant to this Agreement,
or in connection with these transactions, contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
required to be stated herein or therein or necessary to make the statements
contained herein or therein not misleading.
3.7 Adequate Financial Resources. Parent and Merger Sub have the
necessary financial resources to consummate the Merger and the transactions
contemplated by this Agreement, and to pay the Total Consideration at the
Effective Time.
SECTION 4. Certain Covenants.
4.1 Access and Investigation. During the period from the date of this
Agreement and continuing until the earlier of (i) the termination of this
Agreement and (ii) the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide Parent and Parent's
Representatives with reasonable access to the Company's Representatives,
customers, suppliers, personnel and assets and to all existing books, records,
Tax Returns, work papers and other documents and information relating to the
Company; and (b) provide Parent and Parent's Representatives with copies of such
existing books, records, Tax Returns, work papers and other documents and
information relating to the Company, and with such additional financial,
operating and other data and information regarding the Company, as Parent may
reasonably request.
16
4.2 Operation of the Company's Business. During the Pre-Closing Period,
except pursuant to written consent of Parent, which consent will not be
unreasonably withheld, the Company shall:
(a) conduct its business and operations in the ordinary course and in
substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use commercially reasonable efforts to preserve intact its cash
reserves, current business organization, keep available the services of its
current officers and employees and maintain its relations and good will with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company;
(c) keep in full force all insurance policies identified in Section
2.18 of the Disclosure Schedule;
(d) not declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities;
(e) not sell, issue or authorize the issuance of (i) any capital
stock or other security, (ii) any option or right to acquire any capital stock
or other security, or (iii) any instrument convertible into or exchangeable for
any capital stock or other security (except that the Company shall be permitted
(a) to issue Company Common Stock to employees upon the exercise of outstanding
Company Options, (b) to issue shares of Company Common Stock upon the conversion
of shares of its outstanding Preferred Stock), (c) to issue shares of Company
Common Stock upon the exercise of any outstanding warrants or other securities
convertible or exercisable into Company Common Stock) and (d) to amend and
otherwise adjust rights of participants thereto with respect to the Change of
Control Plan;
(f) except as contemplated herein, not amend or permit the adoption
of any amendment to the Company's articles of incorporation or bylaws, not
effect or permit the Company to become a party to any recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(g) not form any subsidiary or acquire any equity interest or other
interest in any other Entity;
(h) not make any capital expenditure, except for capital expenditures
that, when added to all other capital expenditures made on behalf of the Company
during the Pre-Closing Period, do not exceed $50,000 per month;
(i) not lend money to any Person, except for any loan not exceeding
$1,000 for any one year period to any Person in the ordinary course of business
consistent with past practices;
(j) not pay any bonus or make any profit-sharing payment, cash
incentive payment or similar payment to (except for payments under the 1999
Change of Control Bonus
17
Plan as described in Section 1 or alterations thereto as permitted by subsection
(e) above), or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, or (iii) hire any new employee whose aggregate annual
compensation is expected to exceed $150,000
(k) not change any of its methods of accounting or accounting
practices in any material respect;
(l) not make any Tax election;
(m) not commence or settle any material Legal Proceeding;
(n) not hire any new employees without the consent of Parent; and
(o) not agree or commit to take any of the actions described in
clauses "(d)" through "(n)" above.
4.3 Notification by Company; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, the Company shall promptly notify
Parent in writing of:
(i) the discovery by the Company of any event, condition, fact
or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a material inaccuracy in or
material breach of any representation or warranty made by the Company in
this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute a material inaccuracy in or material breach of any
representation or warranty made by the Company in this Agreement if (A)
such representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this Agreement;
(iii) any material breach of any covenant or obligation of the
Company;
(iv) the discovery by the Company of any event, condition, fact
or circumstance that would make the timely satisfaction of any of the
conditions set forth in Section 6 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to be
disclosed pursuant to Section 4.3(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to Parent an update to the
Disclosure Schedule specifying such change. No such update shall be deemed to
supplement or amend the Disclosure Schedule for the purpose of (i) determining
the accuracy of any of the
18
representations and warranties made by the Company in this Agreement, or (ii)
determining whether any of the conditions set forth in Section 6 has been
satisfied.
4.4 Notification by Parent; Update to Schedules.
(a) During the Pre-Closing Period, Parent shall promptly notify the
Company in writing of:
(i) the discovery by Parent of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a material inaccuracy in or
material breach of any representation or warranty made by Parent in this
Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute a material inaccuracy in or material breach of any
representation or warranty made by the Parent in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or
(B) such event, condition, fact or circumstance had occurred, arisen or
existed on or prior to the date of this Agreement;
(iii) any material breach of any covenant or obligation of
Parent;
(iv) the discovery by Parent of any event, condition, fact or
circumstance that would make the timely satisfaction of any of the
conditions set forth in Section 6 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to be
disclosed pursuant to Section 4.4(a) requires any change in any schedule
delivered by Parent, or if any such event, condition, fact or circumstance would
require such a change assuming such schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to Parent an update to
such schedule specifying such change. No such update shall be deemed to
supplement or amend such schedule for the purpose of (i) determining the
accuracy of any of the representations and warranties made by Parent in this
Agreement, or (ii) determining whether any of the conditions set forth in
Section 7 has been satisfied.
4.5 Change of Control Payment. Parent shall pay Surviving Corporation the
Change of Control Distribution at the Closing, and immediately following the
Closing, Surviving Corporation shall, subject to the provisions set forth in
Section 1.5(a), pay the Change of Control Distribution to the persons entitled
to portions thereof under the terms of the 1999 Change of Control Plan.
SECTION 5. Additional Covenants of the Parties.
5.1 Filings and Consents. As promptly as practicable after the execution
of this Agreement, each party to this Agreement (a) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other
19
transactions contemplated by this Agreement, and (b) shall use all commercially
reasonable efforts to obtain all Consents (if any) required to be obtained
(pursuant to any applicable Legal Requirement or Contract, or otherwise) by such
party in connection with the Merger and the other transactions contemplated by
this Agreement. The Company shall (upon request) promptly deliver to Parent a
copy of each such filing made, each such notice given and each such Consent
obtained by the Company during the Pre-Closing Period.
5.2 Public Announcements. During the Pre-Closing Period, (a) except as
required by applicable law the Company shall not (and the Company shall not
permit any of its Representatives to) issue any press release or make any public
statement regarding this Agreement or the Merger, or regarding any of the other
transactions contemplated by this Agreement, without Parent's prior written
consent (which consent shall not be unreasonably withheld), and (b) Parent will
use reasonable efforts to consult with the Company prior to issuing any press
release or making any public statement regarding the Merger.
5.3 Best Efforts. During the Pre-Closing Period, (a) the Company shall
use its best efforts to cause the conditions set forth in Section 6 to be
satisfied on a timely basis, and (b) Parent and Merger Sub shall use their best
efforts to cause the conditions set forth in Section 7 to be satisfied on a
timely basis.
5.4 FIRPTA Matters. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasure Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Xxxxxxx 0.000 - 0(x)(0)
xx xxx Xxxxxx Xxxxxx Treasury Regulations.
5.5 Termination of Stock Options and Other Rights to Acquire Securities.
All stock options that are outstanding under the Company's 1998 Equity Incentive
Plan and the Company's 1993 Stock Option Plan and any other option agreement or
plan or other right to acquire the Company's securities (including, without
limitation, any warrant or convertible securities) will be terminated at or
prior to the Closing.
5.6 Termination of Agreements. Prior to the Closing, the Company shall
terminate that certain Fourth Amended and Restated Investors' Rights Agreement
to which the Company and certain of its shareholders are parties.
5.7 Parent Plans and Benefit Arrangements. The employee benefit plans and
benefit arrangements maintained by the Company that provide non-discretionary,
non-cash benefits to employees of the Company and that are substantially similar
to benefit plans and benefit arrangements currently maintained by Parent shall,
to the extent practicable, be maintained in effect by the Surviving Corporation
until the Continuing Employees (as defined in this Section 5.7) are allowed to
participate in such similar benefit plans or benefit arrangements maintained by
Parent (each, a "Plan"). Parent shall use reasonable efforts to attempt to
ensure that: (a) as soon as practicable after the Effective Time, the benefit
plans and benefit arrangements applicable to the Continuing Employees will
provide benefits to the Continuing Employees that in total are comparable to the
non-discretionary, non-cash benefits provided to similarly situated employees of
Parent; (b) to the extent practicable, any pre-existing condition
20
limitations contained in such health plans and health benefit arrangements for
any Continuing Employee who would be deemed under such health plans and health
benefit arrangements to have a disqualifying pre-existing condition are waived,
to the extent such condition was covered by a Plan immediately prior to the
Effective Time (provided that, in the case of disability and life insurance
plans, such Continuing Employee is actively at work and is not hospitalized or
on disability leave as of the Effective Time); and (c) to the extent
practicable, such benefit plans and benefit arrangements give full credit to
each Continuing Employee for such Continuing Employee's period of service with
the Company prior to the Effective Time for all purposes for which such service
was recognized under the Plans and arrangements of the Company prior to the
Effective Time. For purposes of this Section 5.14, "Continuing Employee" shall
mean any employee of any of the Company who continues as an employee of the
Parent or the Surviving Corporation after the Effective Time.
SECTION 6. Conditions Precedent to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
6.1 Accuracy of Representations. Each of the representations and
warranties made by the Company in this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Scheduled Closing Time as if made at the Scheduled
Closing Time.
6.2 Performance of Covenants. All of the covenants and obligations that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects.
6.3 Shareholder Approval. The terms of the Merger (including the Escrow
Agreement) shall have been duly approved by the legally requisite affirmative
vote of at least (a) majority of the Company Common Stock entitled to vote with
respect thereto, (b) a majority of the Company Series A Preferred Stock entitled
to vote with respect thereto, (c) a majority of the Company Series B Preferred
Stock entitled to vote with respect thereto, (d) a majority of the Company
Series C Preferred Stock entitled to vote with respect thereto, (e) sixty-two
percent (62%) of the Preferred Stock voting together as a single class, and (f)
ninety-five percent (95%) of the outstanding shares of capital stock of the
Company, on an as-converted basis.
6.4 Consents. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement (including the
Consents identified in Section 2.23 of the Disclosure Schedule) shall have been
obtained and shall be in full force and effect.
6.5 Agreements and Documents. Parent and the Company shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) a legal opinion of Xxxxxx Godward llp, dated as of the Closing
Date, in a form reasonably acceptable to Parent;
21
(b) the Escrow Agreement, which shall have been executed by the
Escrow Agent, the shareholder representative and Parent;
(c) written resignations of all directors of the Company, effective
as of the Effective Time; and
(d) customary closing certificates.
6.6 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.7 No Legal Proceedings. No Person shall have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of Damages or
injunctive or other equitable relief in connection with the Merger or seeking to
prohibit or limit the exercise by Parent of any right pertaining to its
ownership of stock of the Surviving Corporation.
6.8 Due Diligence Review. Parent and Merger sub shall have completed a
due diligence review investigation relating to the business of the Company,
which investigation shall not have resulted in the discovery by Parent of
circumstances or information which could, in Parent's reasonable opinion be
expected to have a Material Adverse Effect on the Company, its business assets,
condition, liabilities, operations, or financial performance.
6.9 Bank Accounts. The Company's bank accounts shall have positive
balances and sufficient funds to cover all outstanding checks as of the Closing
Date.
6.10 Compliance Certificate. The Company shall have delivered to Parent a
Compliance Certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the effect that the representations and
warranties contained in Section 2 of this Agreement are true and correct in all
material respects as of the Closing Date and that all covenants and conditions
precedent have been performed and satisfied in all material respects.
6.11 Approval of 1999 Change of Control Plan. The Company's 1999 Change of
Control Plan shall have been approved by a majority of the disinterested
Company's shareholders, voting on an as-if-converted to Common Stock basis.
6.12 Releases by Significant Shareholders and Officers. The Company shall
have obtained releases in a form reasonably acceptable to both the Parent and
the Company from those individuals identified on Exhibit E.
6.13 Acknowledgement Letters. The Company shall have obtained an
acknowledgement letter from each of the Company's employees in a form reasonably
acceptable to the Parent and the Company, which letter shall contain an
acknowledgement from such employees of the "at-will" nature of their employment
with the Company.
22
6.14 Balance Sheet Deficit. The Company's Retained Earnings as set forth
on its balance sheet as of December 31, 1998 will not be less than as of
February 28, 1998.
6.15 Tax Matters. Prior to the Closing Date, the Company shall have filed
its federal and state tax returns for the year ended September 30, 1998, and
shall have paid all taxes (together with any interest and any penalties or
additional amounts) that are due and payable.
6.16 OTLC Matters. Parent and Merger Sub, in their sole discretion, have
determined that the patent infringement claim asserted by OTLC against the
Company will not result in any monetary liability or injunctive or other
equitable remedy against the Company, Parent or the Surviving Corporation,
and/or have an adverse effect on the Company's business assets, condition,
liabilities, operations or financial performance.
SECTION 7. Conditions Precedent to Obligations of the Company.
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
7.1 Accuracy of Representations. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement and shall be
accurate in all material respects as of the Scheduled Closing Time as if made at
the Scheduled Closing Time.
7.2 Performance of Covenants. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
7.3 Documents. The Company shall have received the following documents:
(a) a legal opinion of Xxxxxxxx, Xxxxxxxxxx & Xxxxx LLP dated as of
the Closing Date, in a form reasonably acceptable to the Company;
(b) the Escrow Agreement shall have been executed by the Escrow
Agent and Parent; and
(c) customary closing documents.
7.4 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.5 No Legal Proceedings. No Person shall have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of Damages or
injunctive or other equitable relief in connection with the Merger or seeking to
prohibit or limit the exercise by Parent of any right pertaining to its
ownership of stock of the Surviving Corporation.
23
7.6 Compliance Certificate. Parent shall have delivered to the Company a
Compliance Certificate, executed by the Chief Executive Officer of the Parent,
dated as of the Closing Date, to the effect that the representations and
warranties contained in Section 3 of this Agreement are true and correct in all
material respects as of the Closing Date.
7.7 Conversion of Shares. Immediately prior to the Closing, each share of
the Company's Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be converted into shares of the Company's Common Stock.
SECTION 8. Termination.
8.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 6 will not occur (other
than as a result of any failure on the part of Parent or Merger Sub to
comply with or perform any covenant or obligation of Parent or Merger Sub
set forth in this Agreement);
(b) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 7 will not occur
(other than as a result of any failure on the part of the Company to comply
with or perform any covenant or obligation set forth in this Agreement or
in any other agreement or instrument delivered to Parent);
(c) by Parent if the Closing has not taken place on or before April
30, 1999 (other than as a result of any failure on the part of Parent to
comply with or perform any covenant or obligation of Parent set forth in
this Agreement);
(d) by the Company if the Closing has not taken place on or before
April 30, 1999 (other than as a result of the failure on the part of the
Company to comply with or perform any covenant or obligation set forth in
this Agreement); or
(e) by the mutual consent of Parent and the Company.
8.2 Termination Procedures. If Parent wishes to terminate this Agreement
pursuant to Section 8.1(a) or Section 8.1(c) Parent shall deliver to the Company
a written notice stating that Parent is terminating this Agreement and setting
forth a brief description of the basis on which Parent is terminating this
Agreement. If the Company wishes to terminate this Agreement pursuant to
Section 8.1(b) or Section 8.1(d) the Company shall deliver to Parent a written
notice stating that the Company is terminating this Agreement and setting forth
a brief description of the basis on which the Company is terminating this
Agreement.
8.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor Parent shall be
relieved of any obligation or liability arising from any prior breach by such
party of any provision of this Agreement; (b) the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in
Section 9;
24
and (c) the Company shall, in all events, remain bound by and continue to be
subject to Section 5.2.
SECTION 9. Miscellaneous Provisions.
9.1 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
9.2 Fees and Expenses. Except as set forth in the Escrow Agreement, each
party to this Agreement shall bear and pay all fees, costs and expenses
(including legal fees and accounting fees) that have been incurred or that are
incurred by such party in connection with the transactions contemplated by this
Agreement, including all fees, costs and expenses incurred by such party in
connection with or by virtue of (a) the investigation and review conducted by
Parent and its Representatives with respect to the Company's business (and the
furnishing of information to Parent and its Representatives in connection with
such investigation and review), (b) the negotiation, preparation and review of
this Agreement (including the Disclosure Schedule) and all agreements,
certificates, opinions and other instruments and documents delivered or to be
delivered in connection with the transactions contemplated by this Agreement,
(c) the preparation and submission of any filing or notice required to be made
or given in connection with any of the transactions contemplated by this
Agreement, and the obtaining of any Consent required to be obtained in
connection with any of such transactions, and (d) the consummation of the
Merger.
9.3 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
9.4 Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Parent:
Vertel Corporation
Warner Corporate Center
00000 Xxxxxxx Xxxx., Xxxxx 0000
Xxxxxxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Attn: President
25
With a copy to:
Xxxxxxxx Xxxxxxxxxx & Xxxxx LLP
00000 Xxxx Xxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Facsimile: (000) 000-0000
Attn: Xxxxx X. Xxxx, Esq.
if to the Company:
Expersoft Corporation
0000 Xxxxxxx Xxxxx
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Attn: Chief Executive Officer
With a copy to:
Xxxxxx Godward LLP
0000 Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Attn: Xxxxxxxxxxx X. Xxxxxx, Esq.
9.5 Time of the Essence. Time is of the essence of this Agreement.
9.6 Headings. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
9.7 Counterparts. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
9.8 Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
9.9 Successors and Assigns. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); Parent and its successors and
assigns (if any); and Merger Sub and its successors and assigns (if any).
9.10 Remedies Cumulative; Specific Performance. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the
26
observance and performance of such covenant, obligation or other provision, and
(b) an injunction restraining such breach or threatened breach.
9.11 Waiver.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
9.12 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
9.13 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
9.14 Parties in Interest. None of the provisions of this Agreement is
intended to provide any rights or remedies to any Person other than the parties
hereto and their respective successors and assigns (if any).
9.15 Entire Agreement. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties hereto relating to the
subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof.
9.16 Construction.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
27
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
28
The parties hereto have caused this Agreement to be executed and delivered
as of February 23, 1999.
Vertel Corporation
a California corporation
By:__________________________________
Expersoft Acquisition Corp.,
a California corporation
By:__________________________________
Expersoft Corporation
a California corporation
By:----------------------------------
29
Exhibit A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Agreement. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
Company Contract. "Company Contract" shall mean any Contract: (a) to
which the Company is a party; (b) by which the Company or any of its assets is
or may become bound or under which the Company has, or may become subject to,
any obligation; or (c) under which the Company has or may acquire any right or
interest.
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
Damages. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation and litigation) or expense of any nature.
Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Parent on behalf of the Company.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1
Government Bid. "Government Bid" shall mean any quotation, bid or proposal
submitted to any Governmental Body or any proposed prime contractor or higher-
tier subcontractor of any Governmental Body.
Government Contract. "Government Contract" shall mean any prime contract,
subcontract, letter contract, purchase order or delivery order executed or
submitted to or on behalf of any Governmental Body or any prime contractor or
higher-tier subcontractor, or under which any Governmental Body or any such
prime contractor or subcontractor otherwise has or may acquire any right or
interest.
Governmental Authorization. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
Governmental Body. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
Legal Proceeding. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
Material Adverse Effect. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company or Parent if such violation or
other matter would have a material adverse effect on the Company's or Parent's,
as applicable, business, condition, assets, liabilities, operations, financial
performance or prospects.
Person. "Person" shall mean any individual, Entity or Governmental Body.
Representatives. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
2
Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
Tax Return. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
3
ESCROW AND INDEMNITY AGREEMENT
THIS ESCROW AND INDEMNITY AGREEMENT ("Escrow Agreement") is entered into as
of ___________, 1999, by and among VERTEL CORPORATION, a California corporation
("Parent"), and Xxxxxx Chedrich (the "Shareholder Representative") as
representative of the shareholders (the "Shareholders") of EXPERSOFT
CORPORATION, a California corporation (the "Company") and the party identified
as the Escrow Agent on the signature page below (the "Escrow Agent").
Recitals
A. Parent, Expersoft Acquisition Corporation, a California corporation
and a wholly-owned subsidiary of Parent ("Merger Sub"), and the Company have
entered into an Agreement and Plan of Merger and Reorganization, dated as of
February 23, 1999 (the "Merger Agreement"), which provides, among other things,
that Merger Sub will be merged with and into the Company (the "Merger"), with
the Company being the surviving corporation, on the terms and conditions set
forth therein. As used herein "Indemnitees" shall mean the following Persons,
each of whom shall be entitled to indemnification as provided in this Agreement:
(a) Parent; (b) Parent's affiliates (including the Surviving Corporation); and
(c) the respective Representatives of the Persons referred to in clauses "(a)"
and "(b)" above. Capitalized terms used herein and not otherwise defined shall
have the meanings given them in the Merger Agreement.
B. The Merger Agreement contemplates that the Parent will have certain
rights to indemnification, and further contemplates the establishment of an
escrow arrangement to secure such indemnification rights.
Agreement
Now, therefore, in consideration of the foregoing premises and the mutual
covenants and conditions contained herein, the parties to this Escrow Agreement,
intending to be legally bound, agree as follows:
SECTION 10. Indemnification, Etc.
10.1 Indemnification.
(a) Indemnification Rights of Indemnitees. Notwithstanding any
investigation of the business, condition, assets, liabilities, operations or
prospects of the Company by or on behalf of Parent or Merger Sub, or any
knowledge acquired (or capable of being acquired) at any time, whether before or
after the execution and delivery of the Merger Agreement or the Closing Date,
subject to the terms of this Escrow Agreement, each of the Indemnitees shall be
indemnified, defended and held harmless pursuant to the terms hereof out of the
Escrow Fund (described in Section 2.1 below) from and against, and each
Indemnitee shall be compensated, reimbursed and paid out of the Escrow Fund on
demand, the full amount of any Damages suffered or incurred by any of the
Indemnitees or to which any of the Indemnitees may otherwise become subject
(regardless of whether or not such Damages relate to any third-party claim),
arising out of or relating to any of the following:
(i) any inaccuracy in or breach of any representation or
warranty of the Company in the Merger Agreement, the Disclosure Schedule, or any
certificate or document delivered by or on behalf of the Company pursuant to the
Merger;
(ii) any breach or failure to perform any covenant or obligation
of the Company set forth in the Merger Agreement or the Disclosure Schedule, or
any certificate or document delivered by or on behalf of the Company pursuant to
the Merger;
(iii) any federal, state, local or other Tax obligation of the
Company of any nature arising out of any event or state of facts occurring or
existing at or prior to the Closing;
(iv) any claim, litigation or other action of any nature
asserted or brought by anyone other than Parent, arising out of any act
performed, transaction entered into or state of facts suffered to exist by the
Company prior to, or at, the Closing, or by the Shareholders prior to, at, or
subsequent to the Closing;
(v) without limiting the generality of the foregoing, any claim
of any employee of the Company, or of any other person, arising out of, or
relating to, any employee stock option, bonus, retirement, profit sharing,
pension or other similar plan of the Company or the operation prior to the
Closing Date or termination of any such plan;
(vi) any uncollectible accounts receivable not reserved against
on the Company's balance sheet as of February 28, 1999;
(vii) any payments, costs, expenses or fees related to any
"dissenting shares" within the meaning of Section 1300(b) of the California
Corporations Code;
(viii) any claims regarding any warrants or other derivative or
convertible securities or any other right to acquire the Company's equity
securities; and
(ix) any costs, expenses or fees reasonably incurred by Parent to
enforce any of its rights to the assets of the Surviving Corporation.
The Damages for which indemnity may be obtained pursuant to this Section
1.1 are hereinafter collectively referred to as the "Indemnitee Damages."
10.2 Limitations. The following limitations shall apply to the respective
indemnification obligations of the parties pursuant to Section 1.1:
(a) Cap on Company Indemnity. Following the Effective Time, the
Company's indemnity obligations under this Agreement shall not exceed in the
aggregate, $600,000.
(b) Exclusivity. Following the Effective Time, as set forth in this
Agreement, the Escrow Fund shall be the Indemnitees' sole recourse for
indemnification, payment of Damages or any other remedies against the Company or
the Shareholders under the Merger
Agreement or with respect to the matters provided for under Section 1.1;
provided, however, that this limitation shall not apply relative to fraudulent
and willful activity of the Company, its officers or the Shareholders.
(c) Limitations on Liability. Notwithstanding anything to the
contrary contained in the Merger Agreement or this Escrow Agreement (or any
related agreement or instrument described above), upon the Effective Time and
thereafter, the Company shall have no liability thereunder or hereunder with
respect to any representation, warranty or covenant; provided, however, that
following the Effective Time the Escrow Fund shall remain liable for such
representations, warranties and covenants of the Company as provided herein. It
is acknowledged and agreed that, if the Surviving Corporation suffers or
otherwise becomes subject to any Indemnitee Damages, then (without limiting any
of the rights of the Surviving Corporation as an Indemnitee) Parent shall also
be deemed, by virtue of its ownership of the stock of the Surviving Corporation,
to have suffered Indemnitee Damages.
10.3 No Contribution; Etc. No party shall have or shall exercise or assert
(or attempt to exercise or assert), any right of contribution, right of
indemnity or other similar right or remedy against the Surviving Corporation in
connection with any actual or alleged inaccuracy in or breach of any
representation, warranty, covenant or obligation set forth in the Merger
Agreement or any related agreement or instrument (including without limitation
this Escrow Agreement).
10.4 Defense of Third Party Claims.
(a) Notice of Third Party Claim. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Parent or against any other Person) with respect
to which any Indemnitee may have indemnification rights pursuant to Section
1.1(a), Parent shall promptly notify the Shareholder Representative thereof in
writing, but the failure to so notify the Shareholder Representative will not
limit any Indemnitee's rights to indemnification hereunder, except to the extent
the defense of such action is prejudiced by the failure to so give such notice.
(b) Procedure. Parent will have the right to defend against such
claim or Legal Proceeding, with counsel of its choice reasonably satisfactory to
the Shareholder Representative, and will conduct the defense of the claim or
Legal Proceeding actively and diligently and in a reasonable manner.
(c) Conduct by Parent. So long as the Parent is conducting the
defense of the claim or Legal Proceeding in accordance with Section 1.4(b), (A)
the Shareholder Representative may retain separate co-counsel at its sole cost
and expense and participate in the defense of the claim or Legal Proceeding, (B)
Parent will not consent to the entry of any judgment or enter into any
settlement with respect to the claim or Legal Proceeding without the prior
written consent of the Shareholder Representative (not to be withheld
unreasonably), and (C) the Shareholder Representative will not consent to the
entry of any judgment or enter into any settlement with respect to the claim or
Legal Proceeding without the prior written consent of Parent (not to be withheld
unreasonably). Notwithstanding the foregoing, if Parent determines in
good faith that there is a reasonable probability that any claim or Legal
Proceeding will adversely affect it or any Indemnitee other than as a result of
monetary damages which would be indemnifiable under this Agreement, Parent may,
by notice to the Shareholder Representative, assume the exclusive right to
defend, compromise or settle such claim or Legal Proceeding and the provisions
of Sections 1.4(d)(B) and (C) shall apply, but the Parent will not consent to
the entry of any judgment or enter into any settlement with respect to such
claim or Legal Proceeding without the prior written consent of the Shareholder
Representative (not to be withheld unreasonably).
(d) Fees and Indemnification. The Escrow Fund will reimburse Parent
promptly and periodically for the costs of defending against the claim or Legal
Proceeding (including reasonable attorneys' fees and expenses), and (C) the
Escrow Fund will remain responsible for the claim or Legal Proceeding to the
fullest extent of the indemnification rights pursuant to this Section 1.
10.5 Exercise of Remedies by Indemnitees Other Than Parent. No Indemnitee
(other than Parent or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Escrow Agreement unless Parent (or any successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
SECTION 11. Escrow.
11.1 Cash to be Placed in Escrow. On the Closing Date, Parent shall
deliver to the Escrow Agent $600,000 cash, to be held in escrow in accordance
with this Escrow Agreement. The value of the cash paid by Parent shall
constitute an indemnity fund (the "Escrow Fund"). The cash shall be held as a
trust fund and shall not be subject to any setoff, lien, attachment, trustee
process or any other judicial process or any creditor of any party hereto. The
Escrow Agent agrees to accept delivery of the cash and to hold the cash in
escrow (the "Escrow"), subject to and in accordance with the terms and
conditions of this Escrow Agreement.
11.2 Security for Indemnification. The Escrow Fund shall be security for
the Indemnitees' indemnity rights described above, subject to the limitations
and in the manner provided in this Escrow Agreement.
11.3 Transferability. The interests of the Shareholders in the Escrow and
in the Escrow Shares held in the Escrow shall not be assignable or transferable,
other than by operation of law. No transfer of any of such interests by
operation of law shall be recognized or given effect until Parent shall have
received written notice of such transfer.
11.4 Amounts Earned on Escrow. The Escrow Agent shall hold the Escrow Fund
in an interest-bearing account at Imperial Bank. The parties agree that as and
to the extent permitted by applicable law, earnings of the Escrow Fund, as
interest or otherwise, will be allocable for tax purposes to the Shareholders in
proportions to their entitlement to the Escrow Fund and Shareholders will have
responsibility to include all amounts earned on the Escrow Fund in their gross
income for federal, state and local income tax purposes and pay any income tax
resulting therefrom. Such amounts shall be released on the final Release Date
hereunder.
SECTION 12. Claim Procedures.
12.1 Claim Notice. If Parent determines that it or any other Indemnitee is
entitled to indemnification hereunder, then Parent may, in its sole and absolute
discretion, without limitation of any other rights or remedies available at law
or in equity, deliver to the Shareholder Representative and the Escrow Agent a
written notice thereof (a "Claim Notice") setting forth (i) a brief description
of the circumstances supporting Parent's belief that such entitlement to
indemnification exists and (ii) to the extent possible, a non-binding,
preliminary estimate of the aggregate dollar amount of all Damages that have
arisen or may arise therefrom or are otherwise associated therewith (such
aggregate amount being referred to as the "Claim Amount").
12.2 Response Notice. Within ten (10) days after the delivery of a Claim
Notice to the Shareholder Representative, the Shareholder Representative shall
deliver to Parent, with a copy to the Escrow Agent, a written notice (the
"Response Notice") containing: (i) instructions to the effect that the cash
equal to the entire Claim Amount set forth in such Claim Notice is to be
released from the Escrow to Parent; or (ii) instructions to the effect that cash
having a value equal to a specified portion of the Claim Amount set forth in
such Claim Notice is to be released from the Escrow to Parent, together with a
statement that the remaining portion of such Claim Amount is being disputed; or
(iii) a statement that the entire Claim Amount set forth in such Claim Notice is
being disputed. The Shareholder Representative may contest the release of any
part of the Escrow Fund only based upon a good faith belief that such portion of
the Claim Amount does not constitute an amount for which any Indemnitee is
entitled to seek indemnification under this Agreement. If no Response Notice is
received by Parent from the Shareholder Representative within ten (10) days
after the delivery of a Claim Notice to the Shareholder Representative, then the
Shareholder Representative shall be deemed to have given instructions that cash
having a value equal to the entire Claim Amount set forth in such Claim Notice
is to be released to Parent from the Escrow.
12.3 Release of Cash to Parent.
(a) Agreed Claims. If the Shareholder Representative gives (or is
deemed to have given) instructions that cash having a value equal to the entire
Claim Amount set forth in a Claim Notice is to be released from the Escrow to
Parent, then the Escrow Agent shall promptly deliver to Parent cash having a
value which is equal to the Claim Amount (or such lesser amount of the Escrow
Fund as is then held in the Escrow).
(b) Partially Contested Claims. If a Response Notice delivered by
the Shareholder Representative in response to a Claim Notice contains
instructions to the effect that cash having a value equal to a specified portion
(but not the entire amount) of the Claim Amount set forth in such Claim Notice
is to be released from the Escrow to Parent, then (i) the Escrow Agent shall
promptly deliver to Parent cash having a value which is equal to such specified
portion of such Claim Amount, and (ii) the procedures set forth in Sections
3.3(c) and (d) of this Escrow Agreement, as applicable, shall be followed with
respect to the remaining portion of such Claim Amount.
(c) Contested Amounts In the event that any Response Notice
indicates that there is a dispute as to all or any portion of a Claim Amount (a
"Contested Amount"), the Shareholder Representative and Parent shall for a
period of not more than thirty (30) days attempt in good faith to resolve such
Contested Amount.
(d) Arbitration. If no such resolution can be reached within such
thirty (30) day period, either Parent or the Shareholder Representative may
demand arbitration of the matter through binding and nonappealable arbitration
administered by the Judicial Arbitration & Mediation Services, Inc. ("JAMS") in
Los Angeles or San Diego County, California. Any such arbitration shall be
conducted before a single arbitrator to be appointed by the parties from JAMS'
roster. If the parties fail to agree as to the identity of the single
arbitrator, JAMS shall have the right to make such appointment. The conduct of
the arbitration hearing and discovery prior thereto shall be in accordance with
the California Code of Civil Procedure, California Rules of Court, and
California Rules of Evidence. There shall be limited discovery prior to the
arbitration hearing, subject to the discretion of the arbitrator, as follows:
(a) exchange of witness lists and copies of documentary evidence and documents
related to or arising out of the issues to be arbitrated, (b) depositions of all
party witnesses, and (c) such other depositions as may be allowed by the
arbitrator upon a showing of good cause. The Escrow Fund, and to the extent of
any shortfall in the Escrow Fund (or as otherwise determined by the arbitrator),
Parent shall bear the fees and expenses of the arbitrator. Notwithstanding the
foregoing, the Escrow Fund's obligations hereunder shall be subordinate to
claims of the Indemnitees for amounts payable out of the Escrow Fund pursuant
hereto, and therefore shall be paid out only at the time of the Subsequent
Release (or the resolution of any Claims not yet resolved at the time of the
Subsequent Release and subject to payment pursuant to the terms hereof). The
arbitrator shall decide the matter to be arbitrated pursuant hereto within sixty
(60) days after the appointment of the arbitrator.
The arbitrator's decision shall relate solely to whether Parent is entitled
to receive cash equal in value to the Contested Amount (or a portion thereof)
pursuant to the applicable terms of the Merger Agreement and this Agreement.
The final decision of the arbitrator shall be furnished to Parent and the
Shareholder Representative in writing and shall constitute a conclusive
determination of the issue in question, binding upon Parent, the Shareholders,
the Shareholder Representative and the Escrow Fund, and shall not be contested
by any of them. Such decision may be used in a court of law only for the
purpose of seeking enforcement of the arbitrator's award.
After delivery of a Response Notice that the Claim Amount is contested,
cash equal in value to the Contested Amount shall continue to be held in the
Escrow Fund, notwithstanding the occurrence of a Release Date (defined below),
until (i) delivery of a copy of a settlement agreement executed by Parent and
the Shareholder Representative setting forth instructions as to the release of
cash from the Escrow Fund, if any, that shall be made with respect to the
Contested Amount or (ii) delivery of a copy of the final award of the arbitrator
setting forth instructions as to the release of cash from the Escrow Account, if
any, that shall be made with respect to the Contested Amount.
SECTION 13. Shareholder Representative.
13.1 Shareholder Representative.
(a) Initial Representative; Authority The Shareholders shall be
represented hereunder by Xxxxxx Chedrich as the Shareholder Representative. The
Shareholder Representative is hereby empowered by each Shareholder to give and
receive notices and communications, to authorize delivery to Parent of cash
placed in Escrow in satisfaction of claims by any Indemnitee, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
demand arbitration of and comply with awards of arbitrators with respect to such
claims and to take any and all actions necessary or appropriate in the judgment
of the Shareholder Representative for the accomplishment of the foregoing.
(b) Successor Representative. In the event the Shareholder
Representative shall die or resign or otherwise terminate its status as such,
the successor shall be the Shareholder who received the largest portion of the
Merger Consideration at the Closing (and if such Shareholder shall not accept
such appointment then the Shareholder who received the nearest amount of Merger
Consideration at the Closing that accepts such appointment). The Shareholder
Representative shall receive no compensation for its services.
(c) Limitation of Liability. The Shareholder Representative shall
not be liable to the Shareholders for any act done or omitted hereunder while
acting in good faith and in the exercise of reasonable judgment. The Escrow Fund
shall indemnify and hold the Shareholder Representative harmless against any
loss, liability, or expenses incurred by him in his capacity as such, except to
the extent such loss, liability or expense is due to bad faith or negligent
conduct. The Shareholder Representative shall be entitled to reimbursement by
the Escrow Fund, for attorneys fees and other out-of-pocket expenses incurred by
him in accordance with this Escrow Agreement.
(d) Reliance on Representative. A decision by the Shareholder
Representative shall constitute a decision of all of the Shareholders, and shall
be final, binding and conclusive upon each of them. Parent, Merger Sub, the
Company, any other Indemnitee and the Escrow Agent may rely upon any act,
decision, consent or instruction of the Shareholder Representative as being the
act, decision, consent or instruction of each and all of the Shareholders; and
Parent, Merger Sub, the Company, any other Indemnitee and the Escrow Agent are
hereby relieved from any liability to any Person for any acts done by them in
accordance with any act, decision, consent or instruction of the Shareholder
Representative.
SECTION 14. Release of Cash to Shareholders.
14.1 Cash to be Released.
(a) Initial Release. Subject to Section 3 of this Escrow Agreement,
on the date that is six (6) months following the Closing Date (the "Initial
Release Date"), $400,000 shall be released from Escrow and delivered by the
Escrow Agent to the Shareholders pursuant to Section 5.2. Any cash subject to
any Claim Notices prior to the Initial Release Date shall be promptly
distributed following satisfaction of any Claims specified therein to the extent
of the excess of the cash actually used in satisfaction of such Claims.
(b) Subsequent Release. Subject to Section 3 of this Escrow
Agreement, on the date that is nine (9) months following the Closing Date (the
"Subsequent Release Date"), all cash then held in Escrow, less the cash subject
to any and all Claim Notices delivered to the Shareholder Representative prior
to the Subsequent Release Date, shall be released from Escrow and delivered by
the Escrow Agent to the Shareholders pursuant Section 5.2. The Initial Release
Date and the Subsequent Release Date are hereinafter referred to collectively as
the "Release Date." Any cash subject to any Claim Notices prior to the
Subsequent Release Date shall be promptly distributed following satisfaction of
any Claims specified therein to the extent of the excess of the cash actually
used in satisfaction of such Claims.
(c) Limitation. Notwithstanding any other provision of this Escrow
Agreement, the following shall apply:
(i) Except for claims pursuant to Section 1.1(a)(vii), in no
event may any claim for indemnification pursuant to this Agreement be made on or
after the Initial Release Date; and
(ii) In no event may any claim for indemnification pursuant to
Section 1.1(a)(vii) be made on or after the Subsequent Release Date.
14.2 Procedures for Releasing Cash. Any distribution of all or a portion of
the cash to the Shareholders shall be made in accordance with the terms of the
Merger Agreement and in proportion to the cash received by each Shareholder
pursuant to the Merger.
SECTION 15. Fees and Expenses.
15.1 Escrow Fees. The Escrow Agent will be entitled to reimbursement for
ordinary fees and expenses of the Escrow Agent, and for extraordinary expenses,
incurred in performance of its duties hereunder. Each of (i) Parent and (ii)
the Escrow Fund shall be liable for one-half (1/2) of such amounts; and Parent
may, and shall if requested by Escrow Agent, make all such payments in full and
shall be entitled to reimbursement from the Escrow Fund of one-half of all such
fees and expenses, to the extent the Escrow Fund's share is paid by Parent.
Notwithstanding the foregoing, the Escrow Fund's obligations hereunder shall be
subordinate to claims of the Indemnitees for amounts payable out of the Escrow
Fund pursuant hereto, and therefore shall be paid out only at the time of the
Subsequent Release (or the resolution of any Claims not yet resolved at the time
of the Subsequent Release and subject to payment pursuant to the terms hereof).
15.2 Other Fees. Except as may otherwise be provided herein, all expenses
(including attorneys' fees) incurred by any Shareholder in connection with this
Escrow Agreement shall be borne by such Shareholder.
15.3 Reimbursement of Certain Costs. Upon a notice in writing delivered to
the Escrow Agent by Parent in respect of Section 6.1 or Section 7.3, the Escrow
Agent shall transfer, deliver and assign to Parent, in reimbursement of fees and
expenses pursuant to the last sentence of Section 6.1 or the second sentence of
Section 7.3, cash held in the Escrow which has a value equal to the amount to be
reimbursed.
SECTION 16. Duties of the Escrow Agent; Limitation of Escrow Agent's
Liability.
16.1 Duties. The sole duty of the Escrow Agent, other than as herein
specified, shall be to receive and hold the cash and Escrow Shares, subject to
disbursement in accordance with this Escrow Agreement, and the Escrow Agent
shall be under no duty to determine whether Parent or the Shareholder
Representative is complying with the requirements of this Escrow Agreement or
any other agreement. The Escrow Agent shall not be liable for losses due to
acts of God, war, loss of electrical power or the failure of communication
devices.
16.2 Limitation of Liability. The Escrow Agent shall incur no liability
with respect to any action taken or suffered by it in reliance upon any notice,
direction, instruction, consent, statement or other documents believed by it to
be genuine and duly authorized, nor for other action or inaction except its own
willful misconduct or negligence. The Escrow Agent shall not be responsible for
the validity or sufficiency of this Escrow Agreement. In all questions arising
under this Escrow Agreement, the Escrow Agent may rely on the advice of counsel,
and for anything done, omitted or suffered in good faith by the Escrow Agent
based on such advice the Escrow Agent shall not be liable to anyone. The Escrow
Agent shall not be required to take any action hereunder involving any expense
unless the payment of such expense is made or provided for in a manner
reasonably satisfactory to it.
16.3 Indemnity. Parent and the Escrow Fund, jointly and severally, shall
indemnify the Escrow Agent for, and hold it harmless against, any loss,
liability or expense incurred without negligence or willful misconduct on the
part of Escrow Agent, arising out of or in connection with its carrying out of
its duties hereunder. As among themselves, each of Parent and the Escrow Fund
shall be liable for one-half (1/2) of such amounts and Parent shall be entitled
to elect reimbursement from the Escrow Fund of all or part of the Escrow Fund's
share of any such loss, liability or expense, if any of such share (and all
amounts properly reimbursable hereunder as indemnification payments) is paid by
Parent. Notwithstanding the foregoing, the Escrow Fund's obligations hereunder
shall be subordinate to claims of the Indemnitees for amounts payable out of the
Escrow Fund pursuant hereto, and therefore shall be paid out only at the time of
the Subsequent Release (or the resolution of any Claims not yet resolved at the
time of the Subsequent Release and subject to payment pursuant to the terms
hereof).
SECTION 17. General.
17.1 Other Agreements. Nothing in this Escrow Agreement is intended to
limit any of Parent's or the Shareholders' rights under the Merger Agreement (or
any agreement entered into in connection with the transactions contemplated by
the Merger Agreement), except as expressly provided herein.
17.2 Governing Law. This Escrow Agreement shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to the conflict of laws provisions thereunder.
17.3 Assignment; Binding Upon Successors and Assigns. None of the parties
hereto nor any beneficiary hereto may assign any of his, her or its rights or
obligations hereunder without the prior written consent of the Parent. This
Escrow Agreement will be binding upon
and inure to the benefit of the parties hereto, the Shareholders and their
respective successors and permitted assigns.
17.4 Severability. If any provision of this Escrow Agreement, or the
application thereof, is for any reason and to any extent invalid or
unenforceable, the remainder of this Escrow Agreement and application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Escrow Agreement with a
valid and enforceable provision that will achieve, to the greatest extent
possible, the economic, business and other purposes of the void or unenforceable
provision.
17.5 Counterparts. This Escrow Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument. This Escrow Agreement will become
binding when one or more counterparts hereof, individually or taken together,
bear the signatures of all the parties reflected hereon as signatories.
17.6 Amendment and Waivers. Any term or provision of this Escrow Agreement
may be amended, and the observance of any term of this Escrow Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby;
provided that this Escrow Agreement may be amended on behalf of all of the
Shareholders by either (i) the Shareholder Representative or (ii) a majority in
interest (determined based on the relative amounts of the Merger Consideration
received) of the Shareholders. Except as set forth in the previous sentence,
notwithstanding any rights that may be created in any third party under the
terms of this Escrow Agreement, no such amendment or waiver will require the
consent of such third party to be effective. The waiver by a party of any
breach hereof or default in the performance hereof will not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
17.7 Notices. All notices and other communications pursuant to this Escrow
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
If to Parent to: Vertel Corporation
00000 Xxxxxxx Xxxx, Xxx. 0000
Xxxxxxxx Xxxxx, XX 00000-0000
Attention: Xxxxxx Xxxxxxxx
Telephone: (000) 000-0000
Fax: (000) 000-0000
With a copy to: Xxxxxxxx Xxxxxxxxxx & Xxxxx LLP
Trident Center
00000 Xxxx Xxxxxxx Xxxx.
Xxx Xxxxxxx, XX 00000-0000
Attention: Xxxxx Xxxx, Esq.
Telephone: (000) 000-0000
Fax: (000) 000-0000
If to the Xxxxxx Chedrich
Shareholder
Representative:
Telephone:
Fax:
If to Escrow
Agent to: BD Escrow
000 Xxxxx Xxxxx Xxxxx, Xxx. 000
Xxxxxxx Xxxxx, XX 00000
Attn: Xxxxxx Xxxxx, President
Telephone: (000) 000-0000
Fax: (000) 000-0000
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of a telecopy, when the party receiving such copy shall have
confirmed receipt of the communication, (c) in the case of delivery by
nationally-recognized overnight courier, on the business day following dispatch,
and (d) in the case of mailing, on the third business day following such
mailing.
17.8 Construction of Agreement. This Escrow Agreement has been negotiated
by the respective parties hereto and their attorneys and the language hereof
will not be construed for or against either party. A reference to a Section or
an attachment will mean a Section in, or attachment to, this Escrow Agreement
unless otherwise explicitly set forth. The titles and headings herein are for
reference purposes only and will not in any manner limit the construction of
this Escrow Agreement, which will be considered as a whole.
17.9 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Escrow Agreement.
17.10 Entire Agreement.This Escrow Agreement and the Merger Agreement and
the attachments hereto and thereto constitute the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto. The express terms hereof control and supersede any
course of performance or usage of the trade inconsistent with any of the terms
hereof.
17.11 Resignation or Replacement of Escrow Agent. Parent may substitute a
successor Escrow Agent which shall be a bank with assets at least as great as
the initial Escrow Agent or else shall be an institution approved by the
Shareholder Representative, such approval not to be unreasonably withheld, for
the Escrow Agent upon thirty (30) days advance written notice to the Shareholder
Representative and the Escrow Agent. Escrow Agent may resign upon thirty (30)
days advance written notice to Parent and the Shareholder Representative.
Within such thirty (30) day period, Parent shall appoint a successor Escrow
Agent in accordance with this Section 8.11. If Parent has not appointed a
successor Escrow Agent within such period, the Escrow Agent may petition any
court of competent jurisdiction to name a successor escrow agent.
In Witness Whereof, the parties have executed this Escrow Agreement as
of ___________, 1999.
Vertel Corporation
a California corporation
By:___________________________________
Its:__________________________________
Xxxxxx Chedrich
By:___________________________________
Print Name:___________________________
BD Escrow
By:___________________________________
Print Name____________________________
Amendment No. 1
to
Agreement and Plan of Merger and Reorganization
This Amendment No. 1 ("Amendment No. 1") to that certain Agreement and Plan
of Merger and Reorganization ("Agreement") dated February 23, 1999, by and among
Vertel Corporation, a California corporation ("Parent"), Expersoft Acquisition
Corp., a California corporation and a wholly-owned subsidiary of Parent ("Merger
Sub"), and Expersoft Corporation, a California corporation (the "Company"), is
entered into as of this March 12, 1999.
RECITAL
A. The parties desire to amend and supplement certain terms of the
Agreement in this Amendment No. 1.
AGREEMENT
The parties to this Amendment No. 1 hereby amend and supplement the
Agreement as follows. All capitalized terms used herein that are not otherwise
defined herein shall have the meaning ascribed to them in the Agreement.
Exhibit D shall be amended as follows.
Exhibit D shall be deleted.
Section 1.11 shall be amended as follows:
"1.11 Intentionally omitted."
Section 2.3 shall be amended as follows:
"2.3 Financial Statements. Exhibit 2.3(a) to this Agreement sets forth
consolidated balance sheets of the Company as of September 30, 1996, and the
related consolidated statements of income and retained earnings for the three
years ending on that date, audited by the Company's independent public
accountants, whose opinions with respect to those financial statements appear in
Exhibit 2.3(a). Exhibit 2.3(b) to this Agreement sets forth unaudited
consolidated balance sheets of the Company as for the years ended September 30,
1997, September 30, 1998 and for the period ended February 28, 1999, and
together with related unaudited consolidated statements of income and retained
earnings for the quarter ended December 31, 1998 certified by an officer of the
Company as accurately reflecting the financial condition of the Company for
those periods and accurately reflecting all information normally reported to the
Company's independent public
accountants for the preparation of the Company's "financial statements." The
financial statements in Exhibits 2.3(a) and 2.3(b) are referred to hereafter as
the Financial Statements. The Financial Statements have been prepared in
accordance with generally accepted accounting principles, except as may be
indicated in the notes to such financial statements (except that the unaudited
financial statements referred to in this Section 2.3 do not contain footnotes
and are subject to normal and recurring year end audit adjustments, which will
not, individually or in the aggregate, be material in magnitude) consistently
followed by the Company throughout the periods indicated, and fairly present the
financial position of the Company on the respective dates of the balance sheets
included in the financial statements, and the results of its operations for the
respective periods indicated."
Section 6.14 shall be amended as follows:
"6.14 Intentionally omitted."
Section 6.15 shall be amended as follows:
"6.15 Intentionally omitted."
Section 6.16 shall be amended as follows:
"6.16 Intentionally omitted."
The parties hereto have caused this Agreement to be executed and delivered
as of March 12, 1999.
All other terms and conditions of the Agreement not expressly amended
herein shall remain in full force and effect without any change.
[Remainder of page intentionally left blank. Signature page attached]
The parties hereto have caused this Agreement to be executed and delivered as of
March 12, 1999.
Vertel Corporation
a California corporation
By:_____________________________________
Its: ___________________________________
Expersoft Acquisition Corp.,
a California corporation
By:_____________________________________
Its: ___________________________________
Expersoft Corporation
a California corporation
By:_____________________________________
Its:____________________________________
