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AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CYBERCASH, INC.
CYBERCASH ACQUISITION CORPORATION,
AND
ICVERIFY INC.
April 8, 1998
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TABLE OF CONTENTS
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1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Closing; Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation; Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.8 No Further Ownership Rights in Target Capital Stock . . . . . . . . . . . . . . . . . . . . 8
1.9 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.10 Tax and Accounting Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.11 Taking of Necessary Action; Further Action . . . . . . . . . . . . . . . . . . . . . . . . . 9
2. Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 Conditions to Obligations of Each Party to Effect the Merger . . . . . . . . . . . . . . . . 9
2.2 Additional Conditions to Obligations of Target . . . . . . . . . . . . . . . . . . . . . . 10
2.3 Additional Conditions to the Obligations of Acquiror and Merger Sub . . . . . . . . . . . 11
3. Representations and Warranties of Target and Principal Shareholders . . . . . . . . . . . . . . . 13
3.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.5 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.7 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.8 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.9 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.10 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.11 Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.12 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.13 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.14 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.15 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.16 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.17 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.18 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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3.19 Interested Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.20 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.21 Complete Copies of Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.22 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.23 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.24 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.25 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.26 Employees and Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.27 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.28 Indemnification Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.29 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.30 Representations Complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4. Representations and Warrantees of Acquiror and Merger Sub . . . . . . . . . . . . . . . . . . . . 28
4.1. Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2. Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.3. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.4 SEC Documents: Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.5. Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.7 Broker's and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.8 Interim Operations of Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5. Conduct Prior To The Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.1 Conduct of Business of Target and Acquiror . . . . . . . . . . . . . . . . . . . . . . . . 31
5.2 Conduct of Business of Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.3 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6. Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.1 Preparation of Solicitation Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.2 Approval of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.3 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.4 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.5 Confidentiality; Non-Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.6 Public Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.7 Consents; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.8 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.9 Form S-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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6.10 Shareholders' Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.11 Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.12 Blue Sky Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.13 Nonaccredited Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.14 Listing of Additional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.15 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.16 Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.17 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.18 Registration of Shares Issued in the Merger . . . . . . . . . . . . . . . . . . . . . . . 40
6.19 Reasonable Commercial Efforts and Further Assurances . . . . . . . . . . . . . . . . . . . 44
6.20 Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.21 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7. Termination, Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.3 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.5 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8. Escrow and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.1 Escrow Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.2 Survival of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.3 Availability of Escrow Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.4 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.5 Indemnification by Acquiror and Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . 49
8.6 Limitation of Liability on Acquiror and Merger Sub . . . . . . . . . . . . . . . . . . . . 49
8.7 Escrow Period; Release From Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.8 Claims Upon Escrow Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.9 Objections to Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.10 Resolution of Conflicts and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.11 Shareholders' Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.4 Entire Agreement; Nonassignability; Parties in Interest . . . . . . . . . . . . . . . . . 55
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9.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.6 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.8 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and entered
into as of April 8, 1998 by and among CyberCash, Inc., a Delaware corporation
("Acquiror"), CyberCash Acquisition Corporation, a Delaware corporation and
wholly owned subsidiary of Acquiror ("Merger Sub"), and ICVERIFY Inc., a
California corporation ("Target").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub believe it
is in the best interests of their respective companies and shareholders that
Target and Merger Sub combine into a single company through the statutory
merger of Target with and into Merger Sub (the "Merger") and, in furtherance
thereof, have approved the Merger.
B. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the covenants and representations set forth
herein, and for other good and valuable consideration, the parties agree as
follows:
AGREEMENT
1. The Merger.
1.1 The Merger. At the Effective Time (as defined in
Section 1.2) and subject to and upon the terms and conditions of this
Agreement, the Certificate of Merger attached hereto as Exhibit A (the
"Certificate of Merger"), the applicable provisions of the California
Corporations Code ("California Law"), and the Delaware General Corporation Law
("Delaware Law"), Target shall be merged with and into Merger Sub, the separate
corporate existence of Target shall cease and Merger Sub shall continue as the
surviving corporation. Merger Sub as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the
transactions contemplated hereby (the "Closing") shall take place as soon as
practicable after the satisfaction or waiver of each of the conditions set
forth in Section 2 hereof, but no later than 2 business days thereafter, or at
such other time as the parties hereto agree (the "Closing Date"). The Closing
shall take place at the offices of Xxxx Xxxx Xxxx & Freidenrich, 000 Xxxxxxxx
Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000, or at such other location as the parties
hereto agree. In connection with the Closing, the parties hereto shall cause
the Merger to be consummated by filing (i) the Certificate of Merger and a
California Franchise Tax Board Tax Clearance Certificate with the Secretary of
State of the State of California, in accordance with the relevant provisions of
California Law and (ii) the
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Certificate of Merger with the Secretary of State of the State of Delaware (the
time of filing with the Delaware Secretary of State being the "Effective
Time").
1.3 Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in this Agreement, the Certificate of
Merger and the applicable provisions of California Law and Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
Target and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Target and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by Delaware Law and such Certificate of
Incorporation; provided, however, that Section 1 of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read as follows:
"First: The name of the corporation is ICVERIFY Inc."
(b) The Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. At the Effective Time, the
directors and officers of Merger Sub immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation, until their
respective successors are duly elected or appointed and qualified.
1.6 Effect on Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Merger Sub, Target
or the holders of any of the following securities:
(a) Consideration. Subject to Section 1.6(c),
notwithstanding anything to the contrary herein, the total aggregate
consideration to be paid by Acquiror for all of the outstanding shares of
Target Capital Stock shall be $16,250,000 and 2,300,000 shares of Acquiror
Common Stock; which consideration shall be allocated as follows:
(i) Conversion of Target Capital Stock.
Each share of Target Capital Stock issued and outstanding immediately prior to
the Effective Time (other than (i) shares to be canceled pursuant to Section
1.6(d) and (ii) any Dissenting Shares (to the extent provided in Sections
1.6(j) and 1.7(h)) will be canceled and extinguished and be converted
automatically into the right, upon surrender of the certificate representing
such share of Target Capital Stock in the manner provided in and subject to
Section 1.7, to receive consideration (the "Merger Consideration") as follows:
(i) each outstanding share of Target Common Stock will be converted into the
right to receive a number of shares of Acquiror Common Stock equal to the
quotient obtained by dividing the Common Value by $12.50 (the "Common Exchange
Ratio"); (ii) each outstanding share of Target Series A Preferred Stock will be
converted into the right to
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receive (A) the Per Share Cash Payment and (B) a number of shares of Acquiror
Common Stock equal to the quotient obtained by dividing (1) the difference of
the (x) Series A Value less (y) the Per Share Cash Payment by (2) $12.50 (the
"Series A Exchange Ratio"); (iii) each outstanding share of Target Series B
Preferred Stock will be converted into the right to receive (A) the Per Share
Cash Payment and (B) a number of shares of Acquiror Common Stock equal to the
quotient obtained by dividing (1) the difference of (x) the Series B Value less
(y) the Per Share Cash Payment by (2) $12.50 (the "Series B Exchange Ratio,"
and together with the Common Exchange Ratio and the Series A Exchange Ratio,
the "Exchange Ratios").
(ii) Target Employees. At the Effective
Time, the employees of Target identified on Schedule 1.6(a)(ii) hereto shall
have the right to receive an aggregate of (i) $100,000 in cash and (ii) 16,000
shares of Acquiror Common Stock, in the amount(s) set forth opposite the name
of each such employee on Schedule 1.6(a)(ii). For purposes of this Agreement,
including without limitation Sections 1.6(c) and 1.7(i) and Article 8, each
Target employee identified on Schedule 1.6(a)(ii) shall be treated as a holder
of Target Capital Stock, and any cash or shares of Acquiror Common Stock to be
received by such employee at the Effective Time shall be treated as if received
in exchange for shares of Target Capital Stock.
(b) Definitions. For purposes of this Agreement,
the following terms shall have the definitions set forth below:
"Adjusted Consideration Value" means
$41,400,000.
"Aggregate Cash Payment" means $16,150,000.
"Common Value" means the Adjusted
Consideration Value divided by the
Outstanding Share Number. "Outstanding Share
Number" means the aggregate number of shares
of Target Capital Stock outstanding as of the
Effective Time.
"Outstanding Preferred Number" means the
aggregate number of shares of Target
Preferred Stock outstanding as of the
Effective Time.
"Per Share Cash Payment" means the quotient
obtained by dividing the Aggregate Cash
Payment by the Outstanding Preferred Number.
"Series A Liquidation Preference" means
$0.06.
"Series A Value" means the sum of the Common
Value and the Series A Liquidation
Preference.
"Series B Liquidation Preference" means
$1.05.
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"Series B Value" means the sum of the Common
Value and the Series B Liquidation
Preference.
(c) Adjustment to Merger Consideration. The
Merger Consideration shall be subject to adjustment as follows: if the
Effective Market Price (as defined in Section 1.6(g) hereof) is less than
$10.00 per share, the Merger Consideration to be paid to each holder of Target
Capital Stock, at the Effective Time (or, if the Registration Statement is
declared effective by the SEC after the Effective Time, upon the effectiveness
of the Registration Statement), shall be increased by a cash payment equal to
the product of (i) the number of shares of Acquiror Common Stock to which such
holder is entitled under this Section 1 by virtue of ownership of outstanding
shares of Target Capital Stock multiplied by (ii) the difference between $10.00
and the Effective Market Price (the "Cash Adjustment"); provided, however, that
if the Closing Market Price is equal to or less than $9.00 per share, upon
written notice by Target pursuant to Section 7.1(e) hereof, the Cash Adjustment
to be paid to each holder of Target Capital Stock shall be limited to the
product of (i) the number of shares of Acquiror Common Stock to which such
holder is entitled under this Section 1 by virtue of ownership of outstanding
shares of Target Capital Stock multiplied by (ii) $1.00.
(d) Cancellation of Target Capital Stock Owned by
Acquiror. At the Effective Time, each share of Target Common Stock and Target
Preferred Stock (collectively, "Target Capital Stock") owned by Acquiror or any
direct or indirect wholly owned subsidiary of Acquiror immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(e) Target Stock Option Plans. At the Effective
Time, the Target Stock Option Plan (the "Target Stock Option Plan") and all
options to purchase Target Common Stock then outstanding under the Target Stock
Option Plan shall be assumed by Acquiror in accordance with Section 6.8.
(f) Capital Stock of Merger Sub. At the
Effective Time, each share of Common Stock of Merger Sub ("Merger Sub Common
Stock") issued and outstanding immediately prior to the Effective Time shall be
converted, without any action on the part of Merger Sub or any holder of Merger
Sub Common Stock, into one share of the Common Stock of the Surviving
Corporation.
(g) Market Price. For the purpose of this
Agreement, as of a particular date, the term "Market Price" shall mean the
average of the closing price per share of Acquiror's Common Stock as quoted on
the NASDAQ National Market System for 5 consecutive trading days ending on the
trading day immediately prior to that date, as reported in The Wall Street
Journal. Further, for the purpose of this Agreement, (i) the term "Closing
Market Price" shall mean the Market price determined as of the Closing Date,
and (ii) the term "Effective Market Price" shall mean the Market Price
determined as of the later to occur of (x) the Closing Date and (y) the date
that the Registration Statement (as defined below) is declared effective by the
United States Securities and Exchange Commission (the "SEC"), provided,
however, that, if the
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Registration Statement is declared effective by the SEC after the Closing Date,
in no event shall the Effective Market Price be deemed to be below $9.00 per
share.
(h) Adjustments to Exchange Ratio. The Exchange
Ratios shall be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Acquiror Common Stock or Target Common Stock),
reorganization, recapitalization or other like change with respect to Acquiror
Common Stock or Target Common Stock occurring after the date hereof and prior
to the Effective Time.
(i) Fractional Shares. No fraction of a share of
Acquiror Common Stock will be issued, but in lieu thereof each holder of shares
of Target Capital Stock who would otherwise be entitled to a fraction of a
share of Acquiror Common Stock (after aggregating all fractional shares of
Acquiror Common Stock to be received by such holder) shall receive from
Acquiror an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the Closing Market Price. The
fractional share interests of each Target shareholder shall be aggregated, so
that no Target shareholder shall receive cash in respect of fractional share
interests in an amount greater than the value of one full share of Acquiror
Common Stock.
(j) Dissenters' Rights. Dissenting Shares, if
any, shall not be converted into the Merger Consideration but shall instead be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to California Law.
Target shall give Acquiror prompt notice of any demand received by Target to
require Target to purchase shares of Common Stock of Target, and Acquiror shall
have the right to direct and participate in all negotiations and proceedings
with respect to such demand. Target agrees that, except with the prior written
consent of Acquiror, or as required under the California Law, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such purchase demand. Each holder of Dissenting Shares ( each a "Dissenting
Shareholder") who, pursuant to the provisions of California Law, becomes
entitled to payment of the fair value for shares of Target Capital Stock shall
receive payment therefor (but only after the value therefor shall have been
agreed upon or finally determined pursuant to such provisions). If, after the
Effective Time, any Dissenting Shares shall lose their status as Dissenting
Shares, Acquiror shall issue and deliver, upon surrender by such shareholder of
a certificate or certificates representing shares of Target Capital Stock, the
Merger Consideration to which such shareholder would otherwise be entitled
under this Section 1.6, the Certificate of Merger less the Merger Consideration
allocable to such shareholder that has been deposited into the Escrow Fund (as
defined below) in respect of such shares of Target Common Stock pursuant to
Section 1.7(h).
(k) Certificate Legends. Subject to the
provisions of Section 6.18, the shares of Acquiror Common Stock to be issued
pursuant to this Section 1.6 shall not have been registered and shall be
characterized as "restricted securities" under the federal securities laws, and
under such laws such shares may be resold without registration under the
Securities Act or 1933, as amended (the "Securities Act"), only in certain
limited circumstances. Each certificate evidencing shares of Acquiror Common
Stock to be issued pursuant to this Section 1 shall bear the following legend:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH
SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR AN OPINION OF
LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED."
and any legends required by state securities laws.
1.7 Surrender of Certificates.
(a) Exchange Agent. Boston EquiServe shall act
as exchange agent (the "Exchange Agent") in the Merger.
(b) Acquiror to Provide Common Stock and Cash.
At the Effective Time, Acquiror shall supply or cause to be supplied to the
Exchange Agent for exchange in accordance with this Section 1.7 through such
reasonable procedures as Acquiror may adopt (i) certificates evidencing the
shares of Acquiror Common Stock issuable pursuant to Section 1.6(a) in
exchange for shares of Target Capital Stock outstanding immediately prior to
the Effective Time, (ii) cash in an amount sufficient to pay the Aggregate Cash
Payment which the holders of Target Capital Stock are entitled to receive
pursuant to Section 1.6 above, (iii) cash in an amount sufficient to permit
payment of cash in lieu of fractional shares pursuant to Section 1.6(i)
hereof, and (iv) cash in an amount sufficient to pay the aggregate amount of
the Cash Adjustment, if any, pursuant to Section 1.6(c) hereof (provided,
that if the Registration Statement is declared effective by the SEC after the
Effective Time, Acquiror shall provide cash representing the Cash Adjustment to
the Exchange Agent on the effective date of the Registration Statement)
(collectively, the "Exchange Fund").
(c) Exchange Procedures. Within 2 business days
after the Effective Time, the Acquiror shall cause to be mailed to each holder
of record of a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented outstanding shares of
Target Capital Stock, whose shares were converted into the right to receive
cash and/or shares of Acquiror Common Stock (and cash in lieu of fractional
shares) pursuant to Section 1.6, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon receipt of the Certificates by the Exchange
Agent, and shall be in such form and have such other provisions as Acquiror may
reasonably specify), (ii) such other customary documents as may be required
pursuant to such instructions, and (iii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Acquiror Common Stock and/or the Per Share Cash Payments (and cash in lieu
of fractional shares and the Cash Adjustment, if any). Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Acquiror, together with such letter of
transmittal and other documents, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor (A) a certificate representing the
number of whole shares of Acquiror Common Stock less the number of shares of
Acquiror Common Stock to be deposited in the Escrow Fund on such holder's
behalf pursuant to Section 1.7(i) and Article 8
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hereof, (B) any dividends or other distributions (without interest) to which
such holder is entitled pursuant to Section 1.7(d), (C) cash (without
interest) in respect of fractional shares as provided in Section 1.6(g), (D)
cash (without interest) in the amount of the Per Share Cash Payments, (E) cash
(without interest) in the amount of the Cash Adjustment, if any, as provided in
Section 1.6(c), which such holder has the right to receive in accordance with
Section 1.6 in respect of the shares of Target Capital Stock formerly evidenced
by such Certificate and the Certificate so surrendered shall forthwith be
canceled (provided, that if the Registration Statement is declared effective by
the SEC after the Effective Time, the holder of such Certificate shall be
entitled to receive cash (without interest) in the amount of the Cash
Adjustment, if any, as provided in Section 1.6(c), on the effective date of the
Registration Statement). Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of Target Capital Stock
will be deemed from and after the Effective Time, for all corporate purposes,
other than the payment of dividends, to evidence the ownership of the number of
full shares of Acquiror Common Stock into which such shares of Target Capital
Stock shall have been so converted, cash in the amount of the Per Share Cash
Payments and any Cash Adjustment to which the holder is entitled pursuant to
Section 1.6, and the right to receive an amount in cash in lieu of the issuance
of any fractional shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged
Shares. No dividends or other distributions with respect to Acquiror Common
Stock with a record date after the Effective Time will be paid to the holder of
any unsurrendered Certificate with respect to the shares of Acquiror Common
Stock represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this Section
1.7(d)) with respect to such shares of Acquiror Common Stock.
(e) Transfers of Ownership. At the Effective
Time, the stock transfer books of the Target shall be closed and there shall be
no further registration of transfers of Target Common Stock or Target Preferred
Stock thereafter on the records of the Target. If any certificate for shares
of Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
(f) Termination of Exchange Fund. Any portion of
the Exchange Fund which remains undistributed to the shareholders of Target one
year after the Effective Time shall be delivered to Acquiror, upon demand, and
any shareholders of Target who have not previously complied with this Section
1.7 shall thereafter look only to Acquiror for payment of their claim
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for the Merger Consideration and any dividends or distributions with respect to
Acquiror Common Stock.
(g) No Liability. Notwithstanding anything to
the contrary in this Section 1.7, none of the Exchange Agent, the Surviving
Corporation or any party hereto shall be liable to any person for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(h) Dissenting Shares. The provisions of this
Section 1.7 shall also apply to Dissenting Shares that lose their status as
such, except that the obligations of Acquiror under this Section 1.7 shall
commence on the date of loss of such status and the holder of such shares shall
be entitled to receive in exchange for such shares the Merger Consideration to
which such holder is entitled pursuant to Section 1.6 hereof.
(i) Escrow. At Effective Time, and subject to
and in accordance with the provisions of Article 8 hereof, Acquiror shall cause
to be distributed to the Escrow Agent (as defined in Section 8.1 hereof) a
certificate or certificates representing a number of shares of Acquiror Common
Stock equal to the sum of (i) 230,000 and (ii) the quotient obtained by
dividing (x) 10% of the difference of (1) Aggregate Cash Payment less (2)
$3,200,000 by (y) the Closing Market Price (which shall be registered in the
name of the Escrow Agent as nominee for the holders of Certificates canceled
pursuant to this Section 1.7) (the "Escrow Shares"). Such shares shall be
beneficially owned by such holders and such shares shall be held in escrow and
shall be available to compensate Acquiror for certain damages as provided in
Article 8. To the extent not used for such purposes, such shares shall be
released, all as provided in Article 8 hereof.
(j) The portion of the Escrow Shares contributed
on behalf of each holder of Target Capital Stock shall be equal to the sum of
(i) 10% of the aggregate number of shares of Acquiror Common Stock to which
such holder is otherwise entitled under this Article 1 by virtue of ownership
of outstanding shares of Target Capital Stock and (ii) a number of shares of
Acquiror Capital Stock equal to the quotient obtained by dividing (x) 10% of
the difference of (1) the aggregate amount of the cash payments (excluding any
Cash Adjustment) to which such holder is otherwise entitled under this Article
1 by virtue of ownership of outstanding shares of Target Capital Stock less (2)
an amount equal to the sum of (A) the product of (I) the number of shares of
Target Series A Preferred Stock held by such holder multiplied by (II) the
Series A Liquidation Preference and (B) the product of (I) the number of shares
of Target Series B Preferred Stock held by such holder multiplied by (II) the
Series B Liquidation Preference by (y) the Closing Market Price.
1.8 No Further Ownership Rights in Target Capital Stock.
The Merger Consideration delivered upon the surrender for exchange of shares of
Target Capital Stock in accordance with the terms hereof (including any
dividends, distributions or cash paid in lieu of fractional shares) shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Target Capital Stock, and there shall be no further registration
of transfers on the records of the Surviving Corporation of shares of Target
Capital Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to
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the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Section 1.
1.9 Lost, Stolen or Destroyed Certificates. In the event
any Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, such Merger
Consideration (and dividends, distributions and cash in lieu of fractional
shares) as may be required pursuant to Section 1.6; provided, however, that
Acquiror may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
agree to indemnify Acquiror, the Surviving Corporation and the Exchange Agent
against any claim that may be made against Acquiror, the Surviving Corporation
or the Exchange Agent with respect to the Certificates alleged to have been
lost, stolen or destroyed.
1.10 Tax and Accounting Consequences. It is intended by
the parties hereto that the Merger shall constitute a tax-free reorganization
within the meaning of Section 368(a) of the Code and shall be accounted for as
a purchase.
1.11 Taking of Necessary Action; Further Action. Each of
Acquiror, Merger Sub and Target will take all such reasonable and lawful action
as may be necessary or desirable in order to effectuate the Merger in
accordance with this Agreement as promptly as possible. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Target and Merger Sub, the officers and directors of Target
and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
2. Conditions to the Merger.
2.1 Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to this Agreement to
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, by
agreement of all the parties hereto:
(a) Shareholder Approval. This Agreement and the
Merger shall be approved and adopted by the shareholders of the Target by the
requisite vote under applicable law and the Target's Articles of Incorporation.
(b) Governmental Approval. Acquiror, Target and
Merger Sub and their respective subsidiaries shall have timely obtained from
each Governmental Entity (as defined below) all approvals, waivers and
consents, if any, necessary for consummation of or in connection with the
Merger and the several transactions contemplated hereby, including such
approvals, waivers and consents as may be required under the Securities Act,
under state Blue Sky laws, and under applicable antitrust laws.
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2.2 Additional Conditions to Obligations of Target. The
obligations of Target to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Target:
(a) Representations, Warranties and Covenants.
(i) The representations and warranties of Acquiror and Merger Sub in this
Agreement shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall be
true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time and (ii)
Acquiror and Merger Sub shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective Time.
(b) Certificate of Acquiror. Target shall have
been provided with a certificate executed on behalf of Acquiror by its
President and its Chief Financial Officer to the effect that, as of the
Effective Time:
(i) all representations and warranties
made by Acquiror and Merger Sub under this Agreement are true and complete in
all material respects (except for such representations and warranties that are
qualified by their terms by a reference to materiality or material adverse
effect, which representations and warranties as so qualified shall be true in
all respects); and
(ii) all covenants, obligations and
conditions of this Agreement to be performed by Acquiror and Merger Sub on or
before such date have been so performed in all material respects.
(c) Legal Opinion. Target shall have received a
legal opinion from Acquiror's legal counsel substantially in the form of
Exhibit B-1 hereto.
(d) No Material Adverse Change. There shall not
have occurred any material adverse change in the financial condition,
properties, assets (including intangible assets), liabilities, business,
operations capitalization, financial performance, prospects or results of
operations of Acquiror and its subsidiaries, taken as a whole; provided that
with respect to Acquiror, none of the following shall be deemed by itself or by
themselves, either alone or in combination, to constitute a "Material Adverse
Change": (i) a change in the market price or trading volume of Acquiror's
common stock, (ii) a failure by Acquiror to meet the revenue or earnings
predictions of analysts, any other revenue or earnings predictions or
expectations, for any period ending (or for which earnings are released) on or
after the date of this Agreement and prior to the Closing Date, to the extent,
and only to the extent, that Acquiror's reported results are consistent with
Acquiror's projections concerning its Q1 1998 operating results provided to
Target in a document referencing this Section 2.2(d), on or prior to the date
hereof, (iii) conditions affecting the Internet or electronic commerce industry
as a whole or the U.S. economy as a whole, (iv) any effect arising primarily
out of or resulting primarily from actions contemplated by the parties in
connection with, or which is primarily attributable to, the
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announcement of this Agreement and the transactions contemplated herein, to the
extent so attributable, or (v) losses by Acquiror in any reporting period
consistent with losses in prior periods and arising in the ordinary course of
Acquiror's business.
(e) Tax Opinion. Target shall have received a
written opinion from Wilson, Sonsini, Xxxxxxxx & Xxxxxx, counsel to Target
substantially similar to the form of opinion of counsel referred to in Section
2.3(m), to the effect that the Merger will be treated for federal income tax
purposes as a tax free reorganization within the meaning of Section 368(a) of
the Code. In rendering such opinion, such counsel may rely upon reasonable
representations and certificates of Target, Acquiror and Merger Sub; and
Target, Acquiror and Merger Sub will make such representations and deliver such
certificates.
(f) Registration Statement. Acquiror shall have
filed with the SEC a registration statement (the "Registration Statement") on
Form S-3 or such other form as is then available under the Securities Act of
1933, as amended (the "Securities Act"), registering the resale of all shares
of Acquiror Common Stock issued in the Merger (the "Registrable Securities").
(g) Injunctions or Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger shall be and
remain in effect, nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, or which makes the consummation of the Merger illegal.
2.3 Additional Conditions to the Obligations of Acquiror
and Merger Sub. The obligations of Acquiror and Merger Sub to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
(a) Representations, Warranties and Covenants.
(i) The representations and warranties of Target in this Agreement shall be
true and correct in all material respects (except for such representations and
warranties that are qualified by their terms by a reference to materiality or
material adverse effect which representations and warranties as so qualified
shall be true and correct in all respects) on and as of the Effective Time as
though such representations and warranties were made on and as of such time and
(ii) Target shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time.
(b) Certificate of Target and the Principal
Shareholders. Acquiror shall have been provided with a certificate executed on
behalf of Target by its President and Chief Financial Officer to the effect
that, as of the Effective Time:
(i) all representations and warranties
made by Target under this Agreement are true and correct in all material
respects (except for such representations and
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warranties that are qualified by their terms by a reference to materiality or
material adverse effect, which representations and warranties as so qualified
shall be true in all respects); and
(ii) all covenants, obligations and
conditions of this Agreement to be performed by Target on or before such date
have been so performed in all material respects.
(c) Third Party Consents. With respect to the
agreements identified in Section 3.4, 3.7, 3.9, 3.18 and 3.22 of the Target
Disclosure Schedule, Acquiror shall have been furnished with evidence
satisfactory to it of the consent or approval of those persons whose consent or
approval is required, pursuant to the terms of such agreements, in connection
with the Merger.
(d) Injunctions or Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger shall be and
remain in effect, nor shall there be any action taken (including, without
limitation, any pending or threatened suit, proceeding or investigation), or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger or any of
the transactions contemplated thereby illegal, which would limit or restrict
Acquiror's conduct of the business of the Surviving Corporation following the
Merger or which would otherwise have a Material Adverse Effect on either
Acquiror or on Acquiror combined with the Surviving Corporation after the
Effective Time.
(e) Legal Opinion. Acquiror shall have received
a legal opinion from Target's legal counsel in substantially the form of
Exhibit B-2.
(f) Escrow Agreement. Acquiror, Merger Sub,
Target, Escrow Agent and the Shareholders' Agent (as defined in Article 8
hereof) shall have entered into an Escrow Agreement substantially in the form
attached hereto as Exhibit C.
(g) No Material Adverse Changes. There shall not
have occurred any material adverse change in the financial condition,
properties, assets (including intangible assets), liabilities, business,
operations, capitalization, financial performance, prospects or results of
operations of Target and its subsidiaries, taken as a whole, provided that,
none of the following shall be deemed by itself or by themselves, either alone
or in combination, to include a "Material Adverse Change": (i) conditions
affecting the Internet or electronic commerce industry as a whole, (ii) any
effect arising primarily out of or resulting primarily from actions
contemplated by the parties in connection with, or which is primarily
attributable to, the announcement of this Agreement and the transactions
contemplated herein, to the extent so attributable or (iii) losses by Target in
any reporting period consistent with losses in prior periods and arising in the
ordinary course of Target's business.
(h) Shareholder Agreement; Compliance with
Securities Laws. Target shall have used its reasonable best efforts to have
each of the Target's shareholders execute and deliver to Acquiror a signed
shareholders agreement in substantially the form attached hereto as Exhibit D
(the "Shareholders Agreements"); and each such delivered agreement shall be in
full
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force and effect. The offering shall be in compliance with Section 4(2) of the
Securities Act to the reasonable satisfaction of Acquiror.
(i) Purchaser Representative. There shall be a
Purchaser Representative, as defined in Regulation D under the Securities Act,
reasonably satisfactory to Acquiror, and Target shall have used its reasonable
best efforts to have each holder of Target Capital Stock who is not an
"accredited investor" as defined in Rule 501 under the Securities Act agree to
the appointment, and accept the representation, of such Purchaser
Representative.
(j) Audited Financial Statements. Target shall
have delivered to Acquiror its audited financial statements for each of the
fiscal years ended December 31, 1996 and December 31, 1997.
(k) Employment Agreements and Non-Competition
Agreements. The employees of Target set forth on Schedule 6.15 shall have
accepted employment with Merger Sub pursuant to the terms of employment
agreements substantially in the form attached hereto as Exhibit E (the
"Employment Agreements") and shall have entered into non-competition agreements
substantially in the form attached hereto as Exhibit F (the "Non-Competition
Agreements").
(l) Dissenters' Rights. Not more than 5% of the
holders of Target Capital Stock outstanding immediately prior to the Effective
Time shall have made a demand for purchase of their shares of Target Capital
Stock as contemplated by Section 1301 of the California Corporations Code.
(m) Tax Opinion. Acquiror shall have received a
written opinion from Xxxx Xxxx Xxxx & Freidenrich, LLP, counsel to Acquiror,
substantially similar to the opinion of Target's counsel referred to in Section
2.2((e)) to the effect that the Merger will be treated for federal income tax
purposes as a tax-free organization within the meaning of Section 368(a) of the
Code. In rendering such opinion, such counsel may rely upon reasonable
representations and certificates of Acquiror, Merger Sub and Target; and
Acquiror, Merger Sub and Target will make such representations and deliver such
certificates.
(n) Venture Investors. The shareholders of
Target listed in Schedule 2.3(n) (the "Venture Investors") shall have entered
into an agreement which provides that they will not distribute to their limited
partners more than 50% of their respective holdings of Acquiror Common Stock
received under Section 1.6((a)) hereof during the consecutive 60 day period
commencing on the Closing Date; provided, that such restriction shall not apply
to sales made through not more than two brokerage firms selected by mutual
written agreement of the Venture Investors and directed to handle such sales in
such a manner as to maintain an orderly market and not unduly to affect the
market price of the Acquiror's Common Stock.
3. Representations and Warranties of Target and Principal
Shareholders. Except as disclosed in a document of even date herewith and
delivered by Target to Acquiror prior to the execution and delivery of this
Agreement and referring to the representation and warranty in this
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Agreement (the "Target Disclosure Schedule"), Target represents and warrants to
Acquiror and Merger Sub as follows:
3.1 Organization, Standing and Power. Each of Target and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Target has the
corporate power to own its properties and to carry on its business as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing would
have a Material Adverse Effect on Target. Each of Target and its subsidiaries
has delivered a true and correct copy of the Articles of Incorporation and
Bylaws or other charter documents, as applicable, of Target and its
subsidiaries, each as amended to date, to Acquiror. Each of Target and its
subsidiaries is not in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent organizational documents. Each of Target
and its subsidiaries does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for,
any equity or similar interest in, any corporation, partnership, joint venture
or other business association or entity, other than Target's interest in the
subsidiaries listed on Section 3.1 of the Target Disclosure Schedule. Promptly
after the signing of this Agreement, Target will provide Acquiror with a list
of each jurisdiction in which Target maintains employees, real property or
other assets.
3.2 Authority.
(a) Target has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Target subject only to the
approval of the Merger by Target's shareholders as contemplated by Section
2.1(a). The affirmative vote of the holders of a majority of the shares of
Target's Common Stock and Series A Preferred Stock and the holders of more than
67% of Target's Series B Preferred Stock voting as separate classes outstanding
on the record date for the Written Consent of Shareholders relating to this
Agreement is the only vote of the holders of any of Target's Capital Stock
necessary under California Law to approve this Agreement and the transactions
contemplated hereby. The Board of Directors of Target has (i) unanimously
approved this Agreement and the Merger, (ii) determined that in its opinion the
Merger is in the best interests of the shareholders of Target and is on terms
that are fair to such shareholders and (iii) recommended that the shareholders
of Target approve this Agreement and the Merger. No consent or action on the
part of any of Target's subsidiaries is required for the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Target and constitutes the valid and binding obligation of Target
enforceable against Target in accordance with its terms, except that such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to creditors' rights generally, and is
subject to general principles of equity. The execution and delivery of this
Agreement by Target does not, and the consummation of the transactions
contemplated hereby will not conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any material
obligation or loss of any material benefit under (i) any provision of the
Articles of Incorporation or Bylaws of Target or any of its
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subsidiaries, as amended, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Target or any of its subsidiaries or any of their properties or
assets, with only such exceptions as would not individually or in the aggregate
have a Material Adverse Effect on Target and its subsidiaries, taken as a
whole. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign
("Governmental Entity") is required by or with respect to Target or any of its
subsidiaries in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (i) the
filing of the Certificate of Merger, together with the State of California
Franchise Tax Board Tax Clearance Certificate, as provided in Section 1.2, (ii)
such filings, consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws and the securities laws of any foreign country; (iii) such
filings as may be required under applicable antitrust laws (including, without
limitation, the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended ("HSR")), if any; and (iv) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on Target and would not prevent, or materially
alter or delay any of the transactions contemplated by this Agreement. The
consents referenced in this Section 3.2 together with the consents listed in
Section 2.3(c) hereof are the only consents required for the consummation of
the transactions contemplated hereby, other than those consents which if not
obtained, individually or in the aggregate, would have a Material Adverse
Effect on Acquiror or the Surviving Corporation.
3.3 Governmental Authorization. Target and each of its
subsidiaries have obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity (i) pursuant to which Target or any of its subsidiaries
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Target's or any of its subsidiaries' business
or the holding of any such interest and all of such authorizations are in full
force and effect except where the failure to obtain or have any such
authorizations could not reasonably be expected to have a Material Adverse
Effect on Target.
3.4 Title to Property. Target and its subsidiaries have
good and marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Target Balance Sheet
or acquired after the Target Balance Sheet Date (except properties, interests
in properties and assets sold or otherwise disposed of since the Target Balance
Sheet Date in the ordinary course of business), or with respect to leased
properties and assets, valid leasehold interests therein, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties and (iii) liens securing debt which is reflected on the Target
Balance Sheet. The plants, property and equipment of Target and its
subsidiaries that are used in the operations of their businesses are in all
material respects in good operating condition and repair, subject to normal
wear and tear. All properties
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used in the operations of Target and its subsidiaries are reflected in the
Target Balance Sheet to the extent generally accepted accounting principles
require the same to be reflected. All leases to which Target and each of its
subsidiaries are parties are in full force and effect and are valid, binding
and enforceable in accordance with their respective terms, except as such
enforceability may be limited by (i) bankruptcy laws and other similar laws
affecting creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law. True and
correct copies of all such leases have been provided to Acquiror. Target and
its subsidiaries own no real property. Section 3.4 of the Target Disclosure
Schedule sets forth a true and complete list of all real and personal property
leased by Target and each of its subsidiaries. Assuming the due execution and
delivery thereof by the other parties thereto, all such real property leases
are in full force and effect and are valid, binding and enforceable in
accordance with their respective terms, except as such enforceability may be
limited by (i) bankruptcy laws and other similar laws affecting creditors'
rights generally and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or at law. True and correct copies all such
real property leases have been provided to Acquiror.
3.5 Environmental Matters.
(a) The following terms shall be defined as
follows:
(i) "Environmental Laws" shall mean any
federal, state or local laws, ordinances, codes, regulations, rules, policies
and orders that are intended to assure the protection of the environment, or
that classify, regulate, call for the remediation of, require reporting with
respect to, or list or define air, water, groundwater, solid waste, hazardous
or toxic substances, materials, wastes, pollutants or contaminants, or which
are intended to assure the safety of employees, workers or other persons,
including the public.
(ii) "Hazardous Materials" shall mean any
toxic or hazardous substance, material or waste or any pollutant or
contaminant, or infectious or radioactive substance or material, including
without limitation, those substances, materials and wastes defined in or
regulated under any Environmental Laws.
(b) Each of Target and its subsidiaries is not
and has not been in violation of any Environmental Law relating to the
properties or facilities of Target or its subsidiaries at which any part of
Target's or its subsidiaries' business is or has been conducted. Each of
Target and its subsidiaries has not used, generated, manufactured or stored on
or under any part of its properties or facilities at which any part of Target's
or its subsidiaries' business is or has been conducted, or transported to or
from any part thereof, any Hazardous Materials in violation of any applicable
Environmental Laws. To the knowledge of Target, there has not been any
presence, disposal, or release of any Hazardous Materials on, from or under any
part of Target's or its subsidiaries' properties or facilities at which any
part of Target's or its subsidiaries' business is or has been conducted. No
civil, criminal or administrative action, proceeding or investigation is
pending against Target or its subsidiaries, or to the knowledge of Target,
threatened against Target or its subsidiaries, and Target is not aware of any
facts or circumstances which could form the basis for assertion of a claim or
liability, regarding non-compliance with Environmental Laws by Target.
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3.6 Taxes. As used in this Agreement, the terms "Tax"
and, collectively, "Taxes" mean any and all federal, state and local taxes of
any country, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed
with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
(a) Each of Target and its subsidiaries has
prepared and timely filed all returns, estimates, information statements and
reports required to be filed with any taxing authority ("Returns") relating to
any and all Taxes concerning or attributable to Target and its subsidiaries or
their operations with respect to Taxes for any period ending on or before the
Closing Date and such Returns are true and correct in all material respects and
have been completed in all material respects in accordance with applicable law
or an adequate reserve has been made for such Taxes on the Target Balance
Sheet.
(b) Each of Target and its subsidiaries, as of
the Closing Date: (i) will have paid all Taxes shown to be payable on such
Returns covered by Section 3.6(a) and (ii) will have withheld with respect to
its employees all Taxes required to be withheld.
(c) There is no Tax deficiency outstanding or
assessed or, to the best of knowledge of Target, its subsidiaries and the
Principal Shareholders, proposed against Target or any of its subsidiaries that
is not reflected as a liability on the Target Balance Sheet nor has Target or
any of its subsidiaries executed any agreements or waivers extending any
statute of limitations on or extending the period for the assessment or
collection of any Tax other than an extension occurring by reason of an
extension of time to file a return.
(d) Each of Target and its subsidiaries has no
material liabilities for unpaid Taxes that have not been accrued for or
reserved on the Target Balance Sheet, whether asserted or unasserted,
contingent or otherwise.
(e) Each of Target and its subsidiaries is not a
party to any tax-sharing agreement or similar arrangement with any other party,
or any contractual obligation to pay any Tax obligations of, or with respect to
any transaction relating to, any other person or to indemnify any other person
with respect to any Tax.
(f) Target's Returns have never been audited by a
government or taxing authority, nor is any such audit in process or pending,
and Target has not been notified of any request for such an audit or other
examination.
(g) Each of Target and its subsidiaries has never
been a member of an affiliated group of corporations filing a consolidated
federal income tax return.
(h) Each of Target and its subsidiaries has made
available to Acquiror copies of all Returns filed for all periods since its
inception.
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(i) Each of Target and its subsidiaries has not
filed any consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(4) apply to any disposition of assets owned by Target or its
subsidiaries.
(j) Each of Target and its subsidiaries has not
been at any time a United States Real Property Holding Corporation within the
meaning of Section 897(c)(2) of the Code.
(k) Each of Target and its subsidiaries is not a
party to any contract, agreement, plan or arrangement, including but not
limited to the provisions of this Agreement, covering any employee or former
employee of Target or its subsidiaries that, individually or collectively,
could give rise to the payment of any amount that would not be deductible by
Target or Merger Sub as an expense under applicable law.
3.7 Employee Benefit Plans.
(a) Section 3.7 of the Target Disclosure Schedule
lists, with respect to Target, each subsidiary of Target and any trade or
business (whether or not incorporated) which is treated as a single employer
with Target (an "ERISA Affiliate") within the meaning of Section 414(b),
(c),(m) or (o) of the Code, (i) all material employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), (ii) each loan to a non-officer employee in excess of
$10,000, loans to officers and directors in excess of $10,000, and any material
stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, severance, cafeteria benefit (Code Section
125) or dependent care (Code Section 129), life insurance or accident insurance
plans, programs or arrangements, (iii) all material bonus, pension, profit
sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (iv) other material fringe or employee benefit plans, programs or
arrangements that apply to senior management of Target or any of its
subsidiaries and that do not generally apply to all employees, and (v) any
material employee or executive compensation or severance agreements, written or
otherwise, as to which unsatisfied obligations of Target or its subsidiaries of
greater than $10,000 remain for the benefit of or relating to, any present or
former employee, consultant or director of Target or any of its subsidiaries
(together, the "Target Employee Plans").
(b) Target has furnished to Acquiror a copy of
each of the Target Employee Plans and related plan documents (including trust
documents, insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and, to the extent still in its
possession, any material employee communications relating thereto) and has,
with respect to each Target Employee Plan which is subject to ERISA reporting
requirements, made available copies of the Form 5500 reports filed for the last
three plan years. Any Target Employee Plan intended to be qualified under
Section 401(a) of the Code has either obtained from the Internal Revenue
Service a favorable determination letter as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has applied to or has a period of time
remaining under applicable Treasury Regulations or Internal Revenue Service
pronouncements to apply to the
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Internal Revenue Service for such a determination letter and to make any
amendments necessary to obtain a favorable determination, or has been
established under a standardized prototype plan for which an Internal Revenue
Service opinion letter has been obtained by the plan sponsor and is valid as to
the adopting employer. Target has also furnished Acquiror with the most recent
Internal Revenue Service determination or opinion letter issued with respect to
each such Target Employee Plan, and to the knowledge of Target, nothing has
occurred since the issuance of each such letter which could reasonably be
expected to cause the loss of the tax-qualified status of any Target Employee
Plan subject to Code Section 401(a).
(c) (i) None of the Target Employee Plans
promises or provides material retiree medical or other retiree welfare benefits
to any person; (ii) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Target Employee Plan, which could reasonably be expected to have, in the
aggregate, a Material Adverse Effect; (iii) each Target Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate, a
Material Adverse Effect, and Target and each subsidiary or ERISA Affiliate have
performed all material obligations required to be performed by them under, are
not in any material respect in default under or violation of and have no
knowledge of any material default or violation by any other party to, any of
the Target Employee Plans; (iv) neither Target nor any subsidiary or ERISA
Affiliate is subject to any liability or penalty under Sections 4976 through
4980 of the Code or Title I of ERISA with respect to any of the Target Employee
Plans, except as would not have, in the aggregate, a Material Adverse Effect on
Target; (v) all material contributions required to be made by Target or any
subsidiary or ERISA Affiliate to any Target Employee Plan have been made on or
before their due dates and a reasonable amount has been accrued for
contributions to each Target Employee Plan for the current plan years; (vi)
with respect to each Target Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding any such event for which the thirty
(30) day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA
has occurred; and (vii) no Target Employee Plan is covered by, and neither
Target nor any subsidiary or ERISA Affiliate has incurred or expects to incur
any material liability under Title IV of ERISA or Section 412 of the Code.
With respect to each Target Employee Plan subject to ERISA as either an
employee pension plan within the meaning of Section 3(2) of ERISA or an
employee welfare benefit plan within the meaning of Section 3(l) of ERISA,
Target has prepared in good faith and timely filed all requisite governmental
reports (which were true and correct as of the date filed) and has properly and
timely filed and distributed or posted all notices and reports to employees
required to be filed, distributed or posted with respect to each such Target
Employee Plan, except as would not have, in the aggregate, a Material Adverse
Effect on Target. No suit, administrative proceeding, action or other
litigation (other than routine claims for benefits) has been brought, or to the
knowledge of Target, its subsidiaries and the Principal Shareholders is
threatened, against or with respect to any such Target Employee Plan, including
any audit or inquiry by the IRS or United States Department of Labor. Neither
Target nor any Target subsidiary or other ERISA Affiliate is a party to, or has
made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
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(d) With respect to each Target Employee Plan,
Target and each of its United States subsidiaries have complied with (i) the
applicable health care continuation and notice provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the proposed
regulations thereunder and (ii) the applicable requirements of the Family Leave
Act of 1993 and the regulations thereunder, except to the extent that such
failure to comply would not in the aggregate, have a Material Adverse Effect.
(e) The consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee or other service provider of Target, any Target subsidiary or any
other ERISA Affiliate to material severance benefits or any other material
payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement or (ii)
accelerate the time of payment or vesting of any such benefits, or increase the
amount of compensation due any such employee or service provider.
(f) There has been no amendment to, written
interpretation or announcement (whether or not written) by Target, any Target
subsidiary or other ERISA Affiliate relating to, or change in participation or
coverage under, any Target Employee Plan which would materially increase the
expense of maintaining such Plan above the level of expense incurred with
respect to that Plan for the most recent fiscal year included in Target's
financial statements.
3.8 Employee Matters. Target and each of its
subsidiaries is in compliance with all currently applicable laws and
regulations respecting discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment
practices, except for such noncompliance as has not and would not reasonably be
expected to have had a Material Adverse Effect on Target, and are not engaged
in any unfair labor practice. There are no pending claims against Target or
any of its subsidiaries under any workers' compensation plan or policy or for
long term disability. Target and its subsidiaries taken together have no
material obligations under COBRA with respect to any former employees or
beneficiaries thereunder. There are no proceedings pending or, to the
knowledge of Target, threatened, between Target or any of its subsidiaries and
their employees, which proceedings have or could reasonably be expected to have
a Material Adverse Effect on Target. Each of Target and its subsidiaries is
not a party to any collective bargaining agreement or other labor union
contract nor does Target know of any activities or proceedings of any labor
union to organize its employees. There has been no claim against Target or any
of its subsidiaries based on actual or alleged race, age, sex, disability or
other harassment or discrimination. In addition, each of Target and its
subsidiaries has provided all employees with all material relocation benefits,
stock options, bonuses and incentives, and all other material compensation
earned up through the date of this Agreement.
3.9 Insurance. Section 3.9 of the Target Disclosure
Schedule contains a list of all policies of insurance maintained by Target and
its subsidiaries. Target and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of Target and its
subsidiaries. The Company has not incurred any material loss, damage, expense
or liability covered by any such insurance policy for which it has not properly
filed a claim under the requisite policy. There is no
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material claim pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have
been paid and Target and its subsidiaries are otherwise in compliance with the
terms of such policies and bonds. Target has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
3.10 Compliance With Laws. Each of Target and its
subsidiaries has complied with, is not in violation of and has not received any
notices of violation with respect to, any federal state, local or foreign
statute, law or regulation which are applicable to Target, its subsidiaries,
and their respective assets and businesses, except for such violations or
failures to comply as could not be reasonably expected to have a Material
Adverse Effect on Target.
3.11 Brokers' and Finders' Fees. Target has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or investment bankers' fees or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.12 Capital Structure. The authorized capital stock of
Target consists of 20,000,000 shares of Target Common Stock, of which there
were issued and outstanding as of the close of business on the date hereof,
5,068,280 shares and 10,000,000 shares of Target Preferred Stock, of which
there were issued and outstanding as of that same date 4,627,665 shares of
Series A Preferred Stock and 2,843,602 shares of Series B Preferred Stock.
Each share of Preferred Stock is convertible into 1 share of Common Stock. All
outstanding shares of Target Common Stock and Target Preferred Stock are duly
authorized, validly issued, fully paid and non-assessable and are free of any
liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Articles of Incorporation or
Bylaws of Target or any agreement to which Target is a party or by which it is
bound. Target maintains the Target Stock Option Plan, pursuant to which there
are outstanding as of the date hereof options to purchase 1,535,718 shares of
Target's Common Stock and has reserved an additional 664,282 shares of the
Target's Common Stock for issuance pursuant to options to be granted to
employees, consultants and directors of Target. Target also has outstanding
warrants to purchase up to 600,000 shares of Target Common Stock . Section
3.12 of the Target Disclosure Schedule sets forth a complete and accurate
listing of all shares of Target Capital Stock and options to purchase Target
Capital Stock outstanding as of the date hereof, showing the name and address
of each holder and amount of each such security outstanding. True and correct
copies of the Target Option Plan and all forms of option agreement issued by
Target have been delivered to Acquiror's counsel. Except as set forth in
Section 3.12 of the Target Disclosure Schedule and for the rights created
pursuant to this Agreement, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Target is a party
or by which it is bound obligating Target to issue, deliver, sell, repurchase
or redeem or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of Target Capital Stock or obligating Target to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. There are
no other contracts, commitments or agreements relating to voting, purchase or
sale of Target's capital stock (i) between or among Target and any of its
shareholders and (ii) to Target's, its subsidiaries and the Principal
Shareholders' knowledge,
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between or among any of Target's shareholders, except for the shareholders
delivering the Shareholder Agreements (as defined below). There are no former
shareholders of Target. Target has not repurchased any shares of its capital
stock. All shares of outstanding Target Common Stock and Target Preferred
Stock were issued in compliance with all applicable federal and state
securities laws.
3.13 Financial Statements. Target has delivered to
Acquiror its audited financial statements for each of the fiscal years ended
December 31, 1996 and December 31, 1997 (collectively, the "Financial
Statements"). The Financial Statements are complete and correct in all
material respects, are consistent with the books and records of Target, and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated. The Financial
Statements fairly present the consolidated financial condition and operating
results of Target, on a consolidated basis, as of the dates, and for the
periods, indicated therein. Target maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
generally accepted accounting principles.
3.14 Absence of Certain Changes. Since December 31, 1997,
(the "Target Balance Sheet Date"), each of Target and its subsidiaries has
conducted its business in the ordinary course consistent with past practice and
there has not occurred: (i) any change, event or condition (whether or not
covered by insurance) that has resulted in, or would reasonably be expected to
result in, a Material Adverse Effect to Target; (ii) any acquisition, sale or
transfer of any material asset of Target or any of its subsidiaries other than
in the ordinary course of business and consistent with past practice; (iii) any
change in accounting methods or practices (including any change in depreciation
or amortization policies or rates) by Target or any revaluation by Target of
any of its or any of its subsidiaries' assets; (iv) any declaration, setting
aside, or payment of a dividend or other distribution with respect to the
shares of Target or any direct or indirect redemption, purchase or other
acquisition by Target of any of its shares of capital stock; (v) any material
contract entered into by Target or any of its subsidiaries, other than in the
ordinary course of business and as provided to Acquiror, or any material
amendment or termination of, or default under, any material contract to which
Target or any of its subsidiaries is a party or by which it is bound; (vi) any
amendment or change to the Articles of Incorporation or Bylaws of Target; (vii)
any increase in or modification of the compensation or benefits payable or to
become payable by Target or any of its subsidiaries to any of their directors
or officers; (viii) any increase in or modification of the compensation or
benefits payable or to become payable by Target or any of its subsidiaries to
any of their non-officer employees, other than in the ordinary course of
business and consistent with past practice; (ix) any negotiation or agreement
by Target or any of its subsidiaries to do any of the things described in the
preceding clauses (i) through (viii) (other than negotiations with Acquiror and
its representatives regarding the transactions contemplated by this Agreement).
At the Effective Time, there will be no accrued but unpaid dividends on shares
of Target's capital stock.
3.15 Absence of Undisclosed Liabilities. Target and its
subsidiaries taken together have no material obligations or liabilities of any
nature (matured or unmatured, fixed or contingent) other than (i) those set
forth or adequately provided for in the Balance Sheet for the period ended
December 31, 1997 (the "Target Balance Sheet"), (ii) those incurred in the
ordinary
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course of business and not required to be set forth in the Target Balance Sheet
under generally accepted accounting principles, (iii) those incurred in the
ordinary course of business since the Target Balance Sheet Date and consistent
with past practice; and (iv) those incurred in connection with the execution of
this Agreement.
3.16 Litigation. There is no private or governmental
action, suit, proceeding, claim, arbitration or investigation pending before
any agency, court or tribunal, foreign or domestic, or, to the knowledge of
Target, threatened against Target or any of its subsidiaries or any of their
respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Target. There is
no judgment, decree or order against Target or any of its subsidiaries, or, to
the knowledge of Target, any of their respective directors or officers (in
their capacities as such), that could prevent, enjoin, or materially alter or
delay any of the transactions contemplated by this Agreement, or that would
reasonably be expected to have a Material Adverse Effect on Target. All
litigation to which Target or its subsidiaries is a party (or, to the knowledge
of Target threatened to become a party) is disclosed in the Target Disclosure
Schedule.
3.17 Restrictions on Business Activities. There is no
agreement, judgment, injunction, order or decree binding upon Target or any of
its subsidiaries which has or would reasonably be expected to have the effect
of prohibiting or materially impairing any current or future business practice
of Target or any of its subsidiaries, any acquisition of property by Target or
any of its subsidiaries or the conduct of business by Target or any of its
subsidiaries as currently conducted.
3.18 Intellectual Property.
(a) Target and its subsidiaries own and have good
and marketable title to, or are licensed or otherwise possess legally
enforceable rights to use, all patents, patent applications, trademarks, trade
names, service marks, copyrights (whether registered or unregistered), and any
applications therefor, maskworks, maskwork applications, net lists, schematics,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs or applications (in both source code and object code
form), client lists and tangible or intangible proprietary information or
material ("Intellectual Property") that are used by Target to be used in the
business of Target and its subsidiaries as currently conducted except to the
extent that the failure to have such rights has not had and would not
reasonably be expected to have a Material Adverse Effect on Target. Target is
the exclusive owner of all Intellectual Property, except (i) as disclosed in
Section 3.18 of the Target Disclosure Schedule, (ii) normal shrink-wrap
licenses for off-the-shelf software products issued to Target and its
subsidiaries in the ordinary course of business, and (iii) standard licenses
covering products sold by Target and granted by Target to its customers in the
ordinary course of business. Each of Target and its subsidiaries has not
licensed any of the Intellectual Property on an exclusive basis.
(b) Section 3.18 of the Target Disclosure
Schedule lists (i) all patents and patent applications and all registered and
unregistered trademarks, trade names and service marks, registered and
unregistered copyrights, and maskworks, included in the Intellectual
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Property, including the jurisdictions in which each such Intellectual Property
right has been issued or registered or in which any application for such
issuance and registration has been filed, (ii) all licenses, sublicenses and
other agreements as to which Target or any of its subsidiaries is a party and
pursuant to which any person other than Target is authorized to use any
Intellectual Property, and (iii) all licenses, sublicenses and other agreements
as to which Target or any of its subsidiaries is a party and pursuant to which
Target or any of its subsidiaries is authorized to use any third party patents,
trademarks or copyrights, know how or other Intellectual Property, including
software ("Third Party Intellectual Property Rights") which are incorporated
in, are, or form a part of any Target product.
(c) There is no unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of Target
or any of its subsidiaries, any trade secret material to Target or any of its
subsidiaries, or any Intellectual Property right of any third party to the
extent licensed by or through Target or any of its subsidiaries, by any third
party, including any employee or former employee of Target or any of its
subsidiaries. Neither Target nor any of its subsidiaries has entered into any
agreement to indemnify any other person against any charge of infringement of
any Intellectual Property, other than indemnification provisions contained in
sales agreements arising in the ordinary course of business. Other than
pursuant to licenses, sublicenses and other agreements listed in Section 3.18
of the Target Disclosure Schedule, there are no royalties, fees or other
payments payable by Target to any person by reason of the ownership, use, sale
or disposition of Intellectual Property.
(d) Neither Target nor any of its subsidiaries is
or will it be as a result of the execution and delivery of this Agreement or
the performance of its obligations under this Agreement, in breach of any
license, sublicense or other agreement relating to the Intellectual Property or
Third Party Intellectual Property Rights, the breach of which would have a
Material Adverse Effect on Target.
(e) All patents, registered trademarks, service
marks and copyrights held by Target or its subsidiaries are valid and
subsisting. Each of Target and its subsidiaries is not infringing,
misappropriating or making unlawful use of, and neither Target nor any of its
subsidiaries has received any notice or other communication (in writing or
otherwise) of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use by Target or any of its subsidiaries of any
proprietary asset owned or used by any third party, other than proprietary
assets that are the subject of pending third party patent applications of which
application neither Target nor any of its subsidiaries have knowledge. Each of
Target and its subsidiaries (i) has not been sued in any suit, action or
proceeding which involves a claim of infringement of any patents, trademarks,
service marks, copyrights or violation of any trade secret or other proprietary
right of any third party; and (ii) has not brought any action, suit or
proceeding for infringement of Intellectual Property or breach of any license
or agreement involving Intellectual Property against any third party.
(f) All current and former officers, employees
and consultants of Target and its subsidiaries have executed and delivered to
Target an agreement (containing no exceptions or exclusions from the scope of
its coverage, other than (i) the exception mandated by Section 2870 of the
California Labor Code and (ii) an exception for inventions by the current and
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former officers, employees and consultants of Target prior to their employment
or engagement by Target (collectively, the "Inventions Agreement Exceptions"))
regarding the protection of proprietary information and the assignment to
Target of any Intellectual Property arising from services performed for Target
by such persons, the form of which has been supplied to Acquiror, and all
current and former consultants and independent contractors to Target and its
subsidiaries involved in the development, modification, marketing and servicing
of Target's technology and/or software have executed and delivered to Target an
agreement (containing no exceptions or exclusions from the scope of its
coverage other than the Inventions Agreement Exceptions) in the form of which
has been delivered to Acquiror. To the knowledge of Target, no employee or
independent contractor of Target or any of its subsidiaries is in violation of
any term of any patent disclosure agreement or employment contract or any other
contract or agreement relating to the relationship of any such employee or
independent contractor with Target's Intellectual Property.
(g) Each of Target and its subsidiaries has taken
all commercially reasonable and customary measures and precautions necessary to
protect and maintain the confidentiality of all Intellectual Property (except
such Intellectual Property whose value would be unimpaired by public
disclosure) and otherwise to maintain and protect the full value of all
proprietary assets. All use, disclosure or appropriation of Intellectual
Property not otherwise protected by patents, patent applications or copyright
("Confidential Information") owned by Target or its subsidiaries and licensed
by Target or its subsidiaries to a third party has been pursuant to the terms
of a written agreement between Target and such third party. All use,
disclosure or appropriation of Confidential Information not owned by Target or
its subsidiaries has been pursuant to the terms of a written agreement between
Target and the owner of such Confidential Information, or is otherwise lawful.
(h) To the knowledge of Target, no product
liability claims have been communicated in writing to or threatened against
Target.
(i) A complete list of Target's proprietary
software ("Target Software"), together with a brief description, is set forth
in Section 3.18 of the Target Disclosure Schedule. Except as set forth in
Section 3.18 of the Target Disclosure Schedule, The Target Software conforms in
all material respects with any specification, documentation, performance
standard, representation or statement provided with respect thereto by or on
behalf of Target.
3.19 Interested Party Transactions. Neither Target nor
any of its subsidiaries is indebted to any director, officer, employee or agent
of Target or any of its subsidiaries (except for amounts due as normal salaries
and bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to Target or any of its subsidiaries. There have been no transactions
during the two year period ending December 31, 1997 which would require
disclosure under Item 404 of Regulation S-K under the Securities Act.
3.20 Minute Books. The minute books of Target and its
subsidiaries made available to Acquiror contain a complete and accurate summary
of all meetings of directors and shareholders or actions by written consent
since the time of incorporation of Target and the respective subsidiaries
through the date of this Agreement, and accurately reflect all transactions
referred to in such minutes and other similar records.
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3.21 Complete Copies of Materials. Target has delivered
or made available true and complete copies of each document which has been
requested by Acquiror or its counsel in connection with their legal and
accounting review of Target and its subsidiaries.
3.22 Material Contracts. All the material contracts and
agreements to which Target or any of its subsidiaries is a party are listed in
Section 3.22 of the Target Disclosure Schedule. With respect to each contract
and agreement so listed: (i) the contract or agreement is legal, valid, binding
and enforceable and in full force and effect with respect to Target or its
subsidiary, and to the knowledge of Target is legal, valid, binding,
enforceable and in full force and effect with respect to each other party
thereto, in either case subject to the effect of bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and except as the availability of equitable remedies may be limited
by general principles of equity; (ii) the contract or agreement will continue
to be legal, valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect prior to the Closing, subject to the effect of bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and except as the availability of equitable remedies may be limited
by general principles of equity; (iii) neither Target nor, to the knowledge of
Target, any other party, is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach of default by
Target or, to Target's knowledge, by any such other party, or permit
termination, modification or acceleration, under the contract or agreement; and
(iv) to Target's knowledge, no party to any such contract or agreement has
expressed its intention to cancel, withdraw, modify or amend any such contract
or agreement. Each of Target and its subsidiaries is not a party to any
material oral contract, agreement or other arrangement.
3.23 Inventory. The inventories shown on the Financial
Statements or thereafter acquired by Target, were acquired and maintained in
the ordinary course of business, are of good and merchantable quality, and
consist of items of a quantity and quality usable or salable in the ordinary
course of business.
3.24 Accounts Receivable. Subject to any reserves set
forth in the Financial Statements, the accounts receivable shown on the
Financial Statements are, and any accounts receivable arising after the Target
Balance Sheet Date and prior to the Effective Time will be, valid and genuine,
have arisen solely out of bona fide sales and deliveries of goods, performance
of services, and other business transactions in the ordinary course of business
consistent with past practices in each case with persons other than affiliates,
are not subject to any prior assignment, lien or security interest and are not
subject to valid defenses, set-offs or counter claims other than in the
ordinary course of business and Target has no knowledge of any specific facts
that would be likely to give rise to any such claim. No material amount of any
such accounts is contingent upon the performance by Target or its subsidiaries
of any obligation, and no agreement for deduction or discount has been made
with respect to any such accounts receivable. The accounts receivable will be
collected in the ordinary course of business consistent with past practice and
subject to the reserve for doubtful accounts on the Financial Statements.
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3.25 Customers. As of the date hereof, no customer which
individually accounted for more than 5% of Target's gross revenues during the
12 month period preceding the date hereof has canceled or otherwise terminated,
or made any written threat to Target or any of its subsidiaries to cancel or
otherwise terminate its relationship with Target or any of its subsidiaries or
has at any time on or after December 31, 1997, decreased materially its usage
of the services or products of Target or any of its subsidiaries in the case of
such customer, and to the knowledge of Target, no such customer has indicated
either orally or in writing that it will cancel or otherwise terminate its
relationship with Target or any of its subsidiaries or decrease materially its
usage of the services or products of Target and its subsidiaries taken
together. Target has not engaged in any fraudulent conduct with respect to,
any customer of Target.
3.26 Employees and Consultants. Section 3.26 of the
Target Disclosure Schedule contains a list of the names of all employees and
consultants of Target and its subsidiaries, their respective salaries or wages,
other compensation and dates of employment and positions.
3.27 Bank Accounts. Section 3.27 of the Target Disclosure
Schedule sets forth the names and locations of all banks and other financial
institutions at which Target and its subsidiaries, maintain accounts of any
nature, the type of accounts maintained at each such institution and the names
of all persons authorized to draw thereon or make withdrawals therefrom.
3.28 Indemnification Claims. Section 3.28 of the Target
Disclosure Schedule sets forth a list of all persons who are parties to
director, officer and/or employee indemnification agreements with Target or its
subsidiaries (the "Indemnification Agreements"). Except as set forth in
Section 3.28 of the Target Disclosure Schedule, there are no outstanding claims
under any of the Indemnification Agreements or under any indemnification rights
granted pursuant to the Articles of Incorporation or Bylaws of Target or its
subsidiaries (as currently in effect); and to the best of Target's knowledge,
there are no facts or circumstances that either now, or with the passage of
time, would reasonably be expected to provide a basis for a claim under any
such Indemnification Agreement or under any indemnification rights granted
pursuant to the Articles of Incorporation or Bylaws of Target or its
subsidiaries.
3.29 Power of Attorney. Except as set forth in Section
3.29 of the Target Disclosure Schedule, neither Target nor its subsidiaries,
has granted to any person a power of attorney or similar authorization that is
currently in effect of authority.
3.30 Representations Complete. None of the
representations or warranties made by Target herein or in any Schedule or
Exhibit hereto, including the Target Disclosure Schedule, or certificate
furnished by Target pursuant to this Agreement or any written statement
furnished to Acquiror pursuant hereto or in connection with the transactions
contemplated hereby, when all such documents are read together in their
entirety, contain, or will contain at the Effective Time any untrue statement
of a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading;
provided, however, that for purposes of this representation, any document
attached hereto and the terms of any document
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specifically referenced in the Target Disclosure Schedule, that provides
information inconsistent with or in addition to any other written statement
previously furnished to Acquiror shall be deemed to supersede such prior
written statement furnished to Acquiror with respect to such inconsistent or
additional information.
4. Representations and Warrantees of Acquiror and Merger Sub.
Except as disclosed in a document of even date herewith and delivered by
Acquiror to Target prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the
"Acquiror Disclosure Schedule"), Acquiror and Merger Sub represent and warrant
to Target as follows:
4.1 Organization, Standing and Power. Each of Acquiror
and Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of Acquiror
and Merger Sub has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect on Acquiror.
Acquiror has delivered a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Acquiror
and Merger Sub, each as amended to date, to Target. Neither Acquiror nor
Merger Sub is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws or equivalent organizational documents.
4.2 Capital Structure. The authorized capital stock of
Acquiror consists of 25,000,000 shares of Common Stock, $.001 par value, and
5,000,000 shares of Preferred Stock, $.001 par value, of which there were
issued and outstanding as of the close of business on March 31, 1998,
11,788,451 shares of Common Stock and 22,300 shares Preferred Stock. There are
no other outstanding shares of capital stock or voting securities of Acquiror
other than shares of Acquiror Common Stock issued after March 31, 1998 upon the
exercise of options issued under the Acquiror Stock Option Plan (the "Acquiror
Stock Option Plan"), or the Acquiror Outside Directors Stock Option Plan (the
"Acquiror Directors' Option Plan), or shares of Acquiror Common Stock issued
under the Acquiror Employee Stock Purchase Plan (the "Acquiror Employee Stock
Purchase Plan"). The authorized capital stock of Merger Sub consists of 1,000
shares of Common Stock all of which are issued and outstanding and are held by
Acquiror. All outstanding shares of Acquiror and Merger Sub have been duly
authorized, validly issued, fully paid and are nonassessable. As of the close
of business on March 31, 1998, Acquiror has reserved 3,500,000 shares of
Acquiror Common Stock for issuance to employees, directors and independent
contractors pursuant to the Acquiror Stock Option Plan, of which 1,655,908
shares are subject to outstanding, unexercised options, 100,000 shares of
Acquiror Common Stock for issuance to directors pursuant to the Acquiror
Directors' Option Plan, of which 42,158 shares are subject to outstanding,
unexercised options, and 500,000 shares of Acquiror Common Stock for issuance
pursuant to the Acquiror Purchase Plan, of which 441,100 shares are available
for issuance. The Acquiror has reserved 15,000 shares of Series D Convertible
Preferred Stock pursuant to a Securities Purchase Agreement, dated February 5,
1998, among the Acquiror and each of the buying parties thereto for the
issuance of such shares upon the satisfaction of certain conditions and he
receipt of consideration therefor (the "Series D Commitment"). The Acquiror
has reserved 708,382 shares of Common Stock in connection with
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the granting of certain investment options (the "Investment Options") on
February 5, 1998. Carnegie Mellon University holds warrants to purchase 50,000
shares of Acquiror Common Stock (the "CMU Warrants"). Other than this
Agreement, the Acquiror Stock Option Plan, the Acquiror Directors' Option Plan
and the Acquiror Purchase Plan, the Series D Commitment, the Investment Options
and the CMU Warrants, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which Acquiror or Merger Sub is a
party or by which either of them is bound obligating Acquiror or Merger Sub to
issue, deliver, sell, repurchase or redeem or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of Acquiror or
Merger Sub or obligating Acquiror or Merger Sub to grant, extend or enter into
any such option, warrant, call, right, commitment or agreement. The shares of
Acquiror Common Stock to be issued pursuant to the Merger will be duly
authorized, validly issued, fully paid, and nonassessable. There are no other
contracts, commitments or agreements relating to voting, purchase or sale of
Acquiror's capital stock (i) between or among Acquiror and any of its
stockholders and (ii) to Acquiror's knowledge, between or among any of
Acquiror's stockholders.
4.3 Authority. Acquiror and Merger Sub have all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement have been and the consummation of the transactions contemplated
hereby have been, or will have been by the Closing, duly authorized by all
necessary corporate action on the part of Acquiror and Merger Sub. No vote of
the stockholders of Acquiror is required in order to consummate the
transactions contemplated by this Agreement. The Boards of Directors of
Acquiror and Merger Sub have (i) unanimously approved this Agreement and the
Merger and (ii) determined that in their respective opinions the Merger is in
the best interests of the stockholders of Acquiror and Merger Sub,
respectively, and is on terms that are fair to such respective stockholders.
This Agreement has been duly executed and delivered by Acquiror and Merger Sub
and constitutes the valid and binding obligations of Acquiror and Merger Sub.
The execution and delivery of this Agreement do not and the consummation of the
transactions contemplated hereby will not conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any material obligation or loss of a material benefit under (i) any provision
of the Certificate of Incorporation or Bylaws of Acquiror or any of its
subsidiaries, as amended, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Acquiror or any of its subsidiaries or their properties or
assets. No consent approval, order or authorization of or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Acquiror or any of its subsidiaries in connection with the execution
and delivery of this Agreement by Acquiror and Merger Sub or the consummation
by Acquiror and Merger Sub of the transactions contemplated hereby, except for
(i) the filing of the Certificate of Merger, together with the State of
California Franchise Tax Board Tax Clearance Certificate, as provided in
Section 1.2, (ii) such filings as
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may be required under federal and state securities laws, (iii) the filing of a
Form 8-K with the Securities and Exchange Commission ("SEC") and National
Association of Securities Dealers ("NASD") within 15 days after the Closing
Date, (iv) any filings as may be required under applicable state securities
laws and the securities laws of any foreign country, (v) such filings as may be
required under applicable antitrust laws, (vi) the filing with the Nasdaq
National Market of a Notification Form for Listing of Additional Shares with
respect to the shares of Acquiror Common Stock issuable upon conversion of the
Target Common Stock in the Merger and upon exercise of options under the Target
Stock Option Plan assumed by Acquiror, and (vii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Acquiror and would not
prevent, materially alter or delay any of the transactions contemplated by this
Agreement.
4.4 SEC Documents: Financial Statements. Acquiror has
furnished to Target a true and complete copy of each statement, report,
registration statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement, and other filing
filed with the SEC by Acquiror since December 31, 1995, and, prior to the
Effective Time, Acquiror will have furnished Target with true and complete
copies of any additional documents filed with the SEC by Acquiror prior to the
Effective Time (collectively, the "Acquiror SEC Documents"). In addition,
Acquiror has made available to Target all exhibits to the Acquiror SEC
Documents filed prior to the date hereof and will promptly make available to
Target all exhibits to any additional Acquiror SEC Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the Target
SEC Documents have been so filed, and all material contracts so filed as
exhibits are in full force and effect except those which have expired in
accordance with their terms, and neither Acquiror nor any of its subsidiaries
is in default thereunder. As of their respective filing dates, the Acquiror
SEC Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
Securities Act and none of the Acquiror SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Acquiror SEC Document prior to the date
hereof. The financial statements of Acquiror, including the notes thereto,
included in the Acquiror SEC Documents (the "Acquiror Financial Statements"),
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Qs, as permitted by Form
10-Q of the SEC). The Acquiror Financial Statements fairly present the
consolidated financial condition and operating results of Acquiror and its
subsidiaries at the dates and during the periods indicated therein (subject, in
the case of unaudited statements, to normal, recurring yearend adjustments).
There has been no change in Acquiror accounting policies except as described in
the notes to the Acquiror Financial Statements.
4.5 Absence of Certain Changes. Since December 31, 1997
(the "Acquiror Balance Sheet Date"), Acquiror has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or would reasonably be expected to result in, a Material Adverse
Effect to Acquiror; (ii) any acquisition, sale or transfer of any material
asset of Acquiror or any of its subsidiaries other than in the ordinary course
of business and consistent
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with past practice; (iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
Acquiror or any revaluation by Acquiror of any of its assets; (iv) any
declaration, setting aside, or payment of a dividend or other distribution with
respect to the shares of Acquiror, or any direct or indirect redemption,
purchase or other acquisition by Acquiror of any of its shares of capital
stock; (v) any amendment or change to Acquiror's Certificate of Incorporation
or Bylaws; or (vi) any negotiation or agreement by Acquiror or any of its
subsidiaries to do any of the things described in the preceding clauses (i)
through (v) (other than negotiations with Target and its representatives
regarding the transactions contemplated by this Agreement).
4.6 Litigation. There is no private or governmental
action, suit, proceeding, claim, arbitration or investigation pending before
any agency, court or tribunal, foreign or domestic, or, to the knowledge of
Acquiror, threatened against Acquiror or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors
(in their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Acquiror. There is
no judgment, decree or order against Acquiror or any of its subsidiaries or, to
the knowledge of Acquiror, any of their respective directors or officers (in
their capacities as such) that could prevent, enjoin, or materially alter or
delay any of the transactions contemplated by this Agreement, or that could
reasonably be expected to have a Material Adverse Effect on Acquiror.
4.7 Broker's and Finders' Fees. Acquiror has not
incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or investment bankers' fees
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
4.8 Interim Operations of Merger Sub. Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement, has engaged in no other business activities and has conducted
its operations only as contemplated by this Agreement.
5. Conduct Prior To The Effective Time.
5.1 Conduct of Business of Target and Acquiror. During
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, each of Target and
Acquiror agrees (except to the extent expressly contemplated by this Agreement
or as consented to in writing by the other), to carry on its and its
subsidiaries' business in the usual regular and ordinary course in
substantially the same manner as heretofore conducted; to pay and to cause its
subsidiaries to pay debts and Taxes when due subject (i) to good faith disputes
over such debts or Taxes and (ii) in the case of Taxes of Target or any of its
subsidiaries, to Acquiror's consent to the filing of material Tax Returns if
applicable; to pay or perform other obligations when due, and to use all
reasonable efforts to preserve intact its present business organizations, keep
available the services of its and its subsidiaries' present officers and key
employees and preserve its and its subsidiaries' relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it or its subsidiaries, to the end that its and its subsidiaries'
goodwill and ongoing businesses shall be unimpaired at the Effective Time.
Each of Target and Acquiror agrees to promptly notify the other of (i) any
event
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or occurrence not in the ordinary course of its or its subsidiaries' business,
and of any event which could reasonably be expected to have a Material Adverse
Effect and (ii) any material change in its capitalization as set forth in
Sections 3.12 and 4.2, respectively. Without limiting the foregoing, except as
expressly contemplated by this Agreement or the Target Disclosure Schedule or
the Acquiror Disclosure Schedule, neither Target nor Acquiror, respectively,
shall do, cause or permit any of the following, or allow, cause or permit any
of its subsidiaries to do, cause or permit any of the following, without the
prior written consent of the other:
(a) Charter Documents. Cause or permit any
amendments to its Articles or Certificate of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declare
or pay any dividends on or make any other distributions (whether in cash, stock
or property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of service to it or its subsidiaries;
or
(c) Other. Take, or agree in writing or
otherwise to take, any of the actions described in Sections 5.1((a)) and ((b))
above, or any action which would cause a material breach of its representations
or warranties contained in this Agreement or prevent it from materially
performing or cause it not to materially perform its covenants hereunder.
5.2 Conduct of Business of Target. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, except as expressly
contemplated by this Agreement or the Target Disclosure Schedule, Target shall
not do, cause or permit any of the following, or allow, cause or permit any of
its subsidiaries to do, cause or permit any of the following, without the prior
written consent of Acquiror:
(a) Material Contracts. Enter into any material
contract or commitment, or violate, amend or otherwise modify or waive any of
the terms of any of its material contracts, other than in the ordinary course
of business consistent with past practice;
(b) Issuance of Securities. Issue, deliver or
sell or authorize or propose the issuance, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any
such shares or other convertible securities other than the issuance of shares
of its Common Stock pursuant to the exercise of stock options, warrants or
other rights therefor outstanding as of the date of this Agreement;
(c) Intellectual Property. Transfer to any
person or entity any rights to its Intellectual Property other than in the
ordinary course of business consistent with past practice;
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(d) Exclusive Rights. Enter into or amend any
agreements pursuant to which any other party is granted exclusive marketing or
other exclusive rights of any type or scope with respect to any of its products
or technology;
(e) Dispositions. Sell, lease, license or
otherwise dispose of or encumber any of its properties or assets which are
material individually or in the aggregate, to its and its
parent's/subsidiaries' business, taken as a whole, except in the ordinary
course of business consistent with past practice;
(f) Indebtedness. Incur any indebtedness for
borrowed money or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others other than pursuant to
the bank line of credit currently being negotiated;
(g) Agreements. Enter into, terminate or amend,
in a manner which will adversely affect the business of Target (i) any
agreement involving an obligation to pay $25,000 or more, (ii) any agreement
relating to the license, transfer or other disposition or acquisition of
intellectual property rights or rights to market or sell Target products, other
than in the ordinary course of business or (iii) any other agreement which is
material to the business or prospects of Target or is otherwise not in the
ordinary course of business of Target;
(h) Payment of Obligations. Pay, discharge or
satisfy in an amount in excess of $25,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business, other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the Target Financial Statements;
(i) Capital Expenditures. Make any capital
expenditures, capital additions or capital improvements except in the ordinary
course of business and consistent with past practice;
(j) Insurance. Materially reduce the amount of
any material insurance coverage provided by existing insurance policies;
(k) Termination or Waiver. Terminate or waive
any right of substantial value, other than in the ordinary course of business;
(l) Employee Benefit Plans; New Hires; Pay
Increases. Adopt or amend any employee benefit or stock purchase or option
plan, change its personnel policies, hire any new officer level employee, pay
any special bonus or special remuneration (except payments made pursuant to (i)
written agreements outstanding on the date hereof or (ii) pursuant to Target's
1997 executive bonus plan, as disclosed in writing to Acquiror prior to the
date hereof, such payments not to exceed the amounts accrued therefor on the
Financial Statements), or increase the salaries or wage rates of its employees
except in the ordinary course of business in accordance with its standard past
practice;
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(m) Severance Arrangements. Grant any severance
or termination pay (i) to any director or officer or (ii) to any other employee
except (A) payments made pursuant to written agreements outstanding on the date
hereof or (B) grants which are made in the ordinary course of business in
accordance with its standard past practice;
(n) Lawsuits. Commence a lawsuit other than (i)
for the routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material
impairment of a valuable aspect of its business, provided that it consults with
Acquiror prior to the filing of such a suit, or (iii) for a breach of this
Agreement or any agreement attached hereto as an Exhibit;
(o) Acquisitions. Acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets which are material
individually or in the aggregate, to its and its parent's/subsidiaries'
business, taken as a whole;
(p) Taxes. Other than in the ordinary course of
business, make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any material Tax Return
or any amendment to a material Tax Return, enter into any closing agreement,
settle any material claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any material claim
or assessment in respect of Taxes;
(q) Revaluation. Revalue any of its assets,
including without limitation writing down the value of inventory or writing off
notes or accounts receivable other than in the ordinary course of business; or
(r) Stock Option Plans, Etc. Accelerate, amend
or change the period of exercisability or vesting of options or other rights
granted under its stock plans or authorize cash payments in exchange for any
options or other rights granted under any of such plans;
(s) Other. Take or agree in writing or otherwise
to take, any of the actions described in Sections 5.2((a)) through ((r)) above.
5.3 No Solicitation.
(a) From and after the date of this Agreement
until the earlier to occur of the (i) the date on which Acquiror terminates
this agreement for a reason other than those set forth in Section 7.1(d) hereof
or (ii) June 1, 1998, Target shall not, directly or indirectly through any
officer, director, employee, representative or agent of Target or otherwise,
(i) solicit, initiate, or encourage any inquiries or proposals that constitute,
or could reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, share exchange, business combination, sale of all or
substantially all assets, sale of shares of capital stock or similar
transactions involving Target other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in
this Agreement as an "Acquisition Proposal"), (ii) engage or
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participate in negotiations or discussions concerning, or provide any
non-public information to any person or entity relating to, any Acquisition
Proposal, or (iii) agree to, enter into, accept, approve or recommend any
Acquisition Proposal.
(b) Target shall notify Acquiror immediately (and
no later than 24 hours) after receipt by Target (or its advisors) of any
Acquisition Proposal or any request for nonpublic information in connection
with an Acquisition Proposal or for access to the properties, books or records
of Target by any person or entity that informs Target that it is considering
making, or has made, an Acquisition Proposal. Such notice shall be made orally
and in writing and shall indicate in reasonable detail the identity of the
offeror and the terms and conditions of such proposal, inquiry or contact.
6. Additional Agreements.
6.1 Preparation of Solicitation Statement.
(a) As soon as practicable after the execution of
this Agreement, Target shall prepare, with the cooperation of Acquiror, a
solicitation statement for the solicitation of approval of the shareholders of
Target describing this Agreement, the Certificate of Merger and the
transactions contemplated hereby and thereby. As soon as practicable following
the completion of the solicitation statement, Target shall deliver a copy of
such solicitation statement to each shareholder of Target. The information
supplied by Target for inclusion in the solicitation statement to be sent to
the shareholders of Target shall not, on the date the solicitation statement is
first mailed to Target's shareholders or at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication which has become false or
misleading. Notwithstanding the foregoing, Target makes no representation,
warranty or covenant with respect to any information supplied by Acquiror or
Merger Sub or changed at the request of Acquiror or Merger Sub over the
reasonable objection of Target. The information supplied by Acquiror and
Merger Sub for inclusion in the solicitation statement shall not, on the date
the solicitation statement is first mailed to Target's shareholders, nor at the
Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which it is made, not false or misleading; or omit to state
any material fact necessary to correct any statement in any earlier
communication which has become false or misleading. Notwithstanding the
foregoing, Acquiror and Merger Sub make no representation, warranty or covenant
with respect to any information supplied by Target which is contained in any of
the foregoing documents.
(b) The solicitation statement shall constitute a
disclosure document for the offer and issuance of shares of Acquiror Common
Stock to be received by the holders of Target Capital Stock in the Merger.
Acquiror and Target shall each use reasonable best efforts to cause the
solicitation statement to comply with applicable federal and state securities
laws requirements. Each of Acquiror and Target agrees to provide promptly to
the other such
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information concerning its business and financial statements and affairs as, in
the reasonable judgment of the providing party or its counsel, may be required
or appropriate for inclusion in the solicitation statement or in any amendments
or supplements thereto, and to cause its counsel and auditors to cooperate with
the other's counsel and auditors in the preparation of the solicitation
statement. Target will promptly advise Acquiror, and Acquiror will promptly
advise Target, in writing if at any time prior to the Effective Time either
Target or Acquiror shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the solicitation statement in
order to make the statements contained or incorporated by reference therein not
misleading or to comply with applicable law. The solicitation statement shall
contain the recommendation of the Board of Directors of Target that the Target
shareholders approve the Merger and this Agreement and the conclusion of the
Board of Directors that the terms and conditions of the Merger are fair and
reasonable to the shareholders of Target. Anything to the contrary contained
herein notwithstanding, Target shall not include in the solicitation statement
any information with respect to Acquiror or its affiliates or associates, the
form and content of which information shall not have been approved by Acquiror
prior to such inclusion; provided, however, that the failure of Target to
include materials objected to by Acquiror shall not constitute a default under
this Section 6.1.
6.2 Approval of Shareholders. Target shall promptly
after the date hereof take all action necessary in accordance with California
Law and its Articles of Incorporation and Bylaws to obtain the written consent
of the Target Shareholders approving the Merger as soon as practicable.
Subject to Section 6.1, Target shall use its best efforts to solicit from
shareholders of Target written consents in favor of the Merger and shall take
all other action necessary or advisable to secure the vote or consent of
shareholders required to effect the Merger.
6.3 Restricted Securities. Subject to Section 6.18, the
parties hereto acknowledge and agree that the shares of Acquiror Common Stock
issuable to the Target shareholders pursuant to Section 1.6 hereof, shall
constitute "restricted securities" within the Securities Act. The certificates
of Acquiror Common Stock shall bear the legends set forth in Section 1.6((k)).
It is acknowledged and understood that Acquiror is relying on certain written
representations made by each shareholder of Target. Target will use its
reasonable best efforts to cause each Target shareholder to execute and deliver
to Acquiror the Shareholders' Agreement.
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6.4 Access to Information.
(a) Target shall afford Acquiror and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (i) all of
Target's and its subsidiaries' properties, books, contracts, commitments and
records, and (ii) all other information concerning the business, properties and
personnel of Target and its subsidiaries as Acquiror may reasonably request.
Target agrees to provide to Acquiror and its accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
Acquiror shall afford Target and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of Acquiror's and its
subsidiaries' properties, books, contracts, commitments and records, and (ii)
all other information concerning the business, properties and personnel of
Acquiror and its subsidiaries as Target may reasonably request. Acquiror
agrees to provide to Target and its accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
(b) Subject to compliance with applicable law,
from the date hereof until the Effective Time, each of Acquiror and Target
shall confer on a regular and frequent basis with one or more representatives
of the other party to report operational matters of materiality and the general
status of ongoing operations.
(c) No information or knowledge obtained in any
investigation pursuant to this Section 6.4 shall affect or be deemed to modify
any representation or warranty contained herein.
6.5 Confidentiality; Non-Solicitation. The parties
acknowledge that Acquiror and Target have previously executed a Confidentiality
and Non-Disclosure Agreement dated February 27, 1998 (the "Confidentiality
Agreement") and a Non-Solicitation Agreement, dated March 30, 1998 (the
"Non-Solicitation Agreement"), which agreements are hereby incorporated herein
by reference and shall continue in full force and effect in accordance with
their respective terms.
6.6 Public Disclosure. Unless otherwise permitted by
this Agreement, Acquiror and Target shall consult with each other before
issuing any press release or otherwise making any public statement or making
any other public (or non-confidential) disclosure (whether or not in response
to an inquiry) regarding the terms of this Agreement and the transactions
contemplated hereby, and neither shall issue any such press release or make any
such statement or disclosure without the prior approval of the other (which
approval shall not be unreasonably withheld), except as may be required by law
or by obligations pursuant to any listing agreement with any national
securities exchange or with the NASD.
6.7 Consents; Cooperation.
(a) Each of Acquiror and Target shall promptly
apply for or otherwise seek, and use reasonable best efforts to obtain, all
consents and approvals required to be obtained by it from Governmental
Authorities for the consummation of the Merger, including those
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required under applicable Antitrust Laws (as defined below), and shall use
reasonable best efforts to obtain all necessary consents, waivers and approvals
pursuant to an agreement listed in Section 3.4, 3.7, 3.9, 3.18 and Section 3.22
of the Target Disclosure Schedule in connection with the Merger for the
assignment thereof or otherwise. The parties hereto will consult and cooperate
with one another, and consider in good faith the views of one another, in
connection with any analyses, appearances, presentations, memoranda, briefs,
arguments, opinions and proposals made or submitted by or on behalf of any
party hereto in connection with proceedings under or relating to any federal or
state antitrust or fair trade law.
(b) Each of Acquiror and Target shall use all
reasonable best efforts to resolve such objections, if any, as may be asserted
by any Governmental Entity with respect to the transactions contemplated by
this Agreement under the HSR, the Xxxxxxx Act as amended, the Xxxxxxx Act, as
amended, the Federal Trade Commission Act, as amended, and any other Federal,
state or foreign statutes, rules, regulations, orders or decrees that are
designed to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade (collectively, "Antitrust Laws"). In
connection therewith, if any administrative or judicial action or proceeding is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Antitrust Law, each of
Acquiror and Target shall cooperate and use all reasonable best efforts
vigorously to contest and resist any such action or proceeding and to have
vacated, lifted, reversed, or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent (each an "Order"),
that is in effect and that prohibits, prevents, or restricts consummation of
the Merger or any such other transactions, unless by mutual agreement Acquiror
and Target decide that litigation is not in their respective best interests.
Each of Acquiror and Target shall use all reasonable best efforts to take such
action as may be required to cause the expiration of the notice periods under
the HSR or other Antitrust Laws with respect to such transactions as promptly
as possible after the execution of this Agreement.
(c) Notwithstanding anything to the contrary in
Section 6.7(a) or (b), neither Acquiror nor any of it subsidiaries shall be
required to divest any of their respective businesses, product lines or assets,
or to take or agree to take any other action or agree to any limitation that
could reasonably be expected to have a Material Adverse Effect on Acquiror or
on Acquiror combined with the Surviving Corporation after the Effective Time.
6.8 Employee Benefit Plans. At the Effective Time, the
Target Stock Option Plan and each outstanding option to purchase shares of
Target Common Stock under the Target Stock Option Plan, whether vested or
unvested, will be assumed by Acquiror. Section 3.12 of the Target Disclosure
Schedule sets forth a true and complete list as of the date hereof of all
holders of outstanding options under the Target Stock Option Plan including the
number of shares of Target capital stock subject to each such option, the
exercise or vesting schedule, the exercise price per share and the term of each
such option. On the Closing Date, Target shall deliver to Acquiror an updated
version of Section 3.12 of the Target Disclosure Schedule current as of such
date. Each such option so assumed by Acquiror under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the Target Stock Option Plan immediately prior to the Effective Time, except
that (i) such option will be exercisable for that number of whole shares of
Acquiror Common Stock equal to the product of the number of shares
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of Target Common Stock that were issuable upon exercise of such option
immediately prior to the Effective Time multiplied by .2464 (the "Option
Conversion Ratio") and rounded down to the nearest whole number of shares of
Acquiror Common Stock, and (ii) the per share exercise price for the shares of
Acquiror Common Stock issuable upon exercise of such assumed option will be
equal to the quotient determined by dividing the exercise price per share of
Target Common Stock at which such option was exercisable immediately prior to
the Effective Time by the Option Conversion Ratio, rounded up to the nearest
whole cent; provided, however, that if the Closing Market Price is less than
$10.00 and greater than or equal to $9.00 a proportionate adjustment shall be
made to the Option Conversion Ratio; provided, further, that if the Closing
Market Price is less than $9.00 and this Agreement is not terminated pursuant
to Section 7.1(e) hereof, then the adjustment to the Option Conversion Ratio
shall be based on a Closing Market Price of $9.00; and provided, further that
if the Closing Market Price is less than $9.00 and Acquiror and Target have
agreed to a Cash Adjustment which is greater than that contemplated by Section
1.6(c) hereof, a parallel adjustment shall be made to the Option Conversion
Ratio, but in such circumstances nothing herein contained shall obligate any
party hereto to negotiate for or agree to such an adjustment to the Cash
Adjustment. Consistent with the terms of the Target Stock Option Plan and the
documents governing the outstanding options under such Plans, the Merger will
not terminate any of the outstanding options under the Target Stock Option Plan
(other than outstanding options that have been granted to nonemployee members
of Target's Board of Directors) or accelerate the exercisability or vesting of
such options or the shares of Acquiror Common Stock which will be subject to
those options upon the Acquiror's assumption of the options in the Merger. It
is the intention of the parties that the options so assumed by Acquiror
following the Effective Time qualify as incentive stock options as defined in
Section 422 of the Code to the extent such options qualified as incentive stock
options prior to the Effective Time. Within 10 business days after the
Effective Time, Acquiror will issue to each person who, immediately prior to
the Effective Time was a holder of an outstanding option under the Target Stock
Option Plan a document in form and substance satisfactory to Target evidencing
the foregoing assumption of such option by Acquiror.
6.9 Form S-8. Acquiror agrees to file, no later than 10
days after the Closing, a registration statement on Form S-8 covering the
shares of Acquiror Common Stock issuable pursuant to outstanding options under
the Target Stock Option Plan assumed by Acquiror. Target shall cooperate with
and assist Acquiror in the preparation of such registration statement. Target
optionees shall have no right to exercise options for Acquiror Common Stock
assumed pursuant to Section 6.8 until the effective date of such registration
statement on Form S-8.
6.10 Shareholders' Agreement. Target shall use its
reasonable best efforts, on behalf of and pursuant to the request of Acquiror,
to cause each Target shareholder to execute and deliver to Acquiror a
Shareholder Agreement.
6.11 Legal Requirements. Each of Acquiror, Merger Sub and
Target will, and will cause their respective subsidiaries to, take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with
and furnish information to any party hereto necessary in connection with any
such requirements imposed upon such other party in connection with the
consummation of the
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transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto
in obtaining) any consent, approval, order or authorization of or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
6.12 Blue Sky Laws. Acquiror shall take such steps as may
be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of the Acquiror Common Stock
in connection with the Merger. Target shall use its best efforts to assist
Acquiror as may be necessary to comply with the securities and blue sky laws of
all jurisdictions which are applicable in connection with the issuance of
Acquiror Common Stock in connection with the Merger.
6.13 Nonaccredited Stockholders. Prior to the Closing,
Target shall not take any action that would cause the number of Target
stockholders who are not "accredited investors" pursuant to Regulation D
promulgated under the Securities Act of 1933, as amended, to increase;
provided, however, that the issuance shares of Target Common Stock pursuant to
the exercise of vested options by holders or options under Target Option Plan
shall not constitute a default under this Section 6.13.
6.14 Listing of Additional Shares. Prior to the Effective
Time, Acquiror shall file with the Nasdaq National Market a Notification Form
for Listing of Additional Shares with respect to the shares of Acquiror Common
Stock issuable upon conversion of the Target Common Stock in the Merger.
6.15 Employees. Set forth on Schedule 6.15 is a list of
employees of Target to whom Merger Sub will make an offer to enter into
employment pursuant to the Employment Agreements and with salaries equal to
these set forth opposite each employee's name on Schedule 6.15 and the
Non-Competition Agreements.
6.16 Reorganization. Acquiror and Target shall each use
its best efforts to cause the business combination to be effected by the Merger
to be qualified as a "reorganization" described in Section 368(a) of the Code.
6.17 Expenses. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expense.
6.18 Registration of Shares Issued in the Merger.
(a) Acquiror shall use its reasonable best
efforts to cause the Registrable Securities to be registered under the
Securities Act so as to permit the resale thereof, and in connection therewith
shall use its reasonable best efforts to prepare and file the Registration
Statement with the SEC as soon as practicable after the date hereof, but no
later than immediately prior to the Effective Time, and shall use its
reasonable best efforts to cause the Registration Statement to become effective
as soon as possible after the Effective Time; provided,
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however, that each holder of Registrable Securities ("Holder") shall provide
all such information and materials to Acquiror and take all such action as may
be required in order to permit Acquiror to comply with all applicable
requirements of the SEC and to obtain any desired acceleration of the effective
date of such Registration Statement. Such provision of information and
materials is a condition precedent to the obligations of Acquiror pursuant to
this Section 6.18. Acquiror shall not be required to effect more than 1
registration under this Section 6.18. The offering made pursuant to such
registration shall not be underwritten.
(b) Acquiror shall (i) prepare and file with the
SEC the Registration Statement in accordance with Section 6.18(a) hereof with
respect to the shares of Registrable Securities and shall use all reasonable
efforts to cause the Registration Statement to become effective as promptly as
practicable after filing and to keep the Registration Statement effective until
1 year after the Effective Time (subject to Sections 6.18(c)); and (ii)
prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith as may
be necessary, and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all securities proposed to be
registered in the Registration Statement until the termination of effectiveness
of the Registration Statement, (iii) furnish to each Holder such number of
copies of any prospectus (including any preliminary prospectus and any amended
or supplemented prospectus) in conformity with the requirements of the
Securities Act, and such other documents, as each Holder may reasonably request
in order to effect the offering and sale of the shares of the Registrable
Securities to be offered and sold, but only while Acquiror shall be required
under the provisions hereof to cause the Registration Statement to remain
current.
(c) Notwithstanding any other provision of this
Section 6.18, Acquiror shall have the right at any time to require that all
Holders suspend further open market offers and sales of Registrable Securities
whenever, and for so long as, in the reasonable judgment of Acquiror in good
faith after consultation with counsel, there is in existence material
undisclosed information or events with respect to Acquiror (the "Suspension
Right"). In the event Acquiror exercises the Suspension Right, such suspension
will continue for the period of time reasonably necessary for disclosure to
occur at a time that is not materially detrimental to Acquiror or until such
time as the information or event is no longer material, each as determined in
good faith by Acquiror after consultation with counsel. Acquiror will promptly
give the Purchaser Representative notice, in a writing signed by an executive
officer of Acquiror of any such suspension (the "Suspension Notice"). Acquiror
agrees to notify the Purchaser Representative promptly upon termination of the
suspension (the "Resumption Notice"). Upon receipt of either a Suspension
Notice or Resumption Notice, the Purchaser Representative shall immediately
notify each Holder concerning the status of the Registration Statement.
Notwithstanding the foregoing, under no circumstances shall the Company be
entitled to suspend trading of shares covered by the Registration Statement for
more than 90 days in any 12 month period, nor shall the Company be entitled to
suspend trading for more than 45 consecutive days. The period during which
Acquiror is required to keep the Registration Statement effective shall be
extended by a period equal in length to any and all periods during which open
market offers and sales of Registrable Securities are suspended pursuant to
exercise of the Suspension Right.
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(d) Acquiror shall pay all of the out-of-pocket
expenses, other than underwriting discounts and commissions, if any, incurred
in connection with any registration of Registrable Securities pursuant to this
Section 6.18, including, without limitation, all registration and filing fees,
printing expenses, transfer agents' and registrars' fees, and the reasonable
fees and disbursements of Acquiror's outside counsel and independent
accountants.
(e) To the fullest extent permitted by law, the
Acquiror will indemnify defend, protect and hold harmless each selling Holder,
each underwriter of Acquiror Common Stock being sold by such Holders pursuant
to this Section 6.18, each person, if any, who controls any such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act and
their respective affiliates, officers, directors, partners, successors and
assigns (each a "Holder Indemnitee"), against all actions, claims, losses,
damages, liabilities and expenses to which they or any of them become subject
under the Securities Act, the Exchange Act or under any other statute or at
common law or otherwise and, except as hereinafter provided, will promptly
reimburse each such Holder Indemnitee, for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability, insofar as
such losses, claims, damages, expenses, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of material
fact in any registration statement and any prospectus filed pursuant to Section
6.18 or any post-effective amendment thereto or arise out of or are based upon
any omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or any
violation by the Acquiror of any rule or regulation promulgated under the
Securities Act, the Exchange Act or any statute, regulation or law applicable
to the Acquiror and relating to action or inaction required of the Acquiror in
connection with such registration; provided, however, that the Acquiror shall
not be liable to any such Holder Indemnitee in respect of any claims, losses,
damages, liabilities and expenses resulting from any untrue statement or
alleged untrue statement, or omission or alleged omission made in reliance upon
and in conformity with information furnished in writing to the Acquiror by such
Holder Indemnitee or any of such Holder Affiliate specifically for use in
connection with such registration statement and prospectus or post-effective
amendment.
(f) To the fullest extent permitted by law, each
selling Holder of Registrable Shares registered in accordance with Section 6.18
will indemnify the Acquiror, each person, if any, who controls the Acquiror
within the meaning of the Securities Act or the Exchange Act, each underwriter
of Acquiror Common Stock and their respective affiliates, officers, directors,
partners, successors and assigns (each an "Acquiror Indemnitee") against any
actions, claims, losses, damages, liabilities and expenses to which they or any
of them may become subject under the Securities Act, the Exchange Act or under
any other statute or at common law or otherwise, and, except as hereinafter
provided, will promptly reimburse each Acquiror Indemnitee for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged
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untrue statement of a material fact in any registration statement and any
prospectus filed pursuant to Section 6.18 or any post-effective amendment
thereto, or any omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, which untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with information
furnished in writing to the Acquiror by such Holder or underwriter specifically
for use in connection with such registration statement, prospectus or
post-effective amendment; provided, however, that the obligations of each such
selling Holder hereunder shall be limited to an amount equal to the proceeds to
such Holder from the sale of such Holder's Registrable Securities as
contemplated herein.
(g) Each person entitled to indemnification under
this Section 6.18 (an "Indemnified Person") shall give notice to the party
required to provide indemnification (the "Indemnifying Person") promptly after
such Indemnified Person has actual knowledge of any claim as to which indemnity
may be sought and shall permit the Indemnifying Person to assume the defense of
any such claim and any litigation resulting therefrom, provided that counsel
for the Indemnifying Person who conducts the defense of such claim or any
litigation resulting therefrom shall be approved by the Indemnified Person
(whose approval shall not unreasonably be withheld), and the Indemnified Person
may participate in such defense at such party's expense (unless the Indemnified
Person has reasonably concluded that there may be a conflict of interest
between the Indemnifying Person and the Indemnified Person in such action, in
which case the fees and expenses of counsel for the Indemnified Person shall be
at the expense of the Indemnifying Person), and provided further that the
failure of any Indemnified Person to give notice as provided herein shall not
relieve the Indemnifying Person of its obligations under this Section 6.18
except to the extent the Indemnifying Person is materially prejudiced thereby.
No Indemnifying Person, in the defense of any such claim or litigation, shall
(except with the consent of each Indemnified Person) consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Person
of a release from all liability in respect to such claim or litigation. Each
Indemnified Person shall furnish such information regarding itself or the claim
in question as an Indemnifying Person may reasonably request in writing and as
shall be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(h) In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
the Acquiror or any Holder makes a claim for indemnification pursuant to this
Section 6.18 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding that this Section 6.18 provides
for indemnification, in such case, then the Acquiror and such Holder will
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion as is
appropriate to reflect the relative fault of the Acquiror on the one hand and
of the Holder on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations or, if the allocation provided herein is not
permitted by applicable law, in such proportion as shall be permitted by
applicable law and reflect as nearly as possible the allocation provided
herein. The relative fault of the Acquiror on the one hand and of the Holder
on the other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
the Acquiror on the one hand or by the Holder on the other, and each party's
relative intent, knowledge, access to
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information and opportunity to correct or prevent such statement or omission;
provided, however, that, in any such case (i) no Holder will be required to
contribute any amount in excess of the proceeds received by such Holder from
the sale of Registrable Shares pursuant to the Registration Statement; and (ii)
no person or entity guilty of fraudulent misrepresentation within the meaning
of Section 11(f) of the Securities Act will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
6.19 Reasonable Commercial Efforts and Further Assurances.
Each of the parties to this Agreement shall use reasonable commercial efforts
to effectuate the transactions contemplated hereby and to fulfill and cause to
be fulfilled the conditions to closing under this Agreement. Each party
hereto, at the reasonable request of another party hereto, shall execute and
deliver such other instruments and do and perform such other acts and things as
may be necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
6.20 Indemnification and Insurance.
(a) Target shall and, from and after the
Effective Time, Acquiror and the Surviving Corporation shall, indemnify, defend
and hold harmless each person who is now, or has been at any time prior to the
date of this Agreement or who becomes prior to the Effective Time, an officer,
director or employee of Target or any of its subsidiaries (the "Indemnified
Parties") against all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of or in
connection with any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer, or employee of Target or any of its
Subsidiaries, whether pertaining to any matter existing or occurring at or
prior to the Effective Time and whether asserted or claimed prior to, or at or
after, the Effective Time ("Indemnified Liabilities") including, without
limitation, all losses, claims, damages, costs, expenses, liabilities or
judgments based in whole or in part on, or arising in whole or in part out of,
or pertaining to this Agreement or the transactions contemplated hereby, in
each case to the full extent a corporation is permitted under the California
Law to indemnify its own directors, officers and employees, as the case may be
(Target, Acquiror and the Surviving Corporation, as the case may be, will pay
expenses in advance of the final disposition of any such action or proceeding
to each Indemnified Party to the full extent permitted by law upon receipt of
any undertaking contemplated by Section 317(f) of the California Law). Without
limiting the foregoing, in the event any such claim, action, suit, proceeding
or investigation is brought against any Indemnified Party (whether arising
before or after the Effective Time), (i) the Indemnified Parties may retain
counsel satisfactory to them and Target (or them and Acquiror and the Surviving
Corporation after the Effective Time), (ii) Target (or after the Effective
Time, Acquiror and the Surviving Corporation) shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received, and (iii) Target (or after the Effective Time, Acquiror
and the Surviving Corporation) will use all reasonable efforts to assist in the
vigorous defense of any such matter, provided that none of Target, Acquiror or
the Surviving Corporation shall be liable for any settlement of any claim
effected without its written consent, which consent, however, shall not be
unreasonably withheld. Any Indemnified Party wishing to claim indemnification
under this Section 6.20, upon
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learning of such claim, action, suit, proceeding or investigation, shall
promptly notify Target (or after the Effective Time, Acquiror and the Surviving
Corporation) (but the failure so to notify an Indemnifying Party shall not
relieve it from any liability which it may have under this Section 6.20, except
to the extent such failure prejudices such party), and shall deliver to Target
(or after the Effective Time, Acquiror and the Surviving Corporation) the
undertaking contemplated by Section 317(f) of the California Law. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to each such matter unless there is, under applicable standards of
professional conduct a conflict on any significant issue between the positions
of any 2 or more Indemnified Parties. The obligations of the parties set forth
in this Section 6.20 shall be in the furtherance of and not in limitation of
the succeeding paragraphs of this Section 6.20.
(b) From and after the Effective Time, the
Surviving Corporation and Acquiror will fulfill, assume and honor in all
respects the obligations of Target pursuant to Target's Articles of
Incorporation and any indemnification agreement between Target and any of
Target's directors and officers existing and in force as of the Effective Time.
(c) Acquiror and the Surviving Corporation shall,
until the third anniversary of the Effective Time or such earlier date as may
be mutually agreed upon by Acquiror, the Surviving Corporation and the
applicable Indemnified Party, cause to be maintained in effect, to the extent
available, the policies of directors' and officers' liability insurance
maintained by Target and its Subsidiaries as of the date hereof with respect to
claims arising from facts or events that occurred on or prior to the Effective
Time; provided, however, that in no event shall Acquiror or the Surviving
Corporation be required to expend in any one year an amount in excess of 150%
of the annual premiums currently paid by Target for such insurance; and,
provided, further, that if during such period the annual premiums for such
comparable insurance coverage exceed such amount, Acquiror and the Surviving
Corporation shall be obligated to obtain a policy which, in the reasonable
judgment of the Acquiror and the Surviving Corporation, provides the best
coverage available for a cost not exceeding such amount.
6.21 Escrow Agreement. On or before the Effective Time,
the Acquiror, Merger Sub, Escrow Agent and the Shareholders' Agent (as defined
in Section 8 hereto) will execute the Escrow Agreement.
7. Termination, Amendment and Waiver.
7.1 Termination. This Agreement may be terminated at any
time prior to the Effective Time (with respect to Section 7.1(b) through
Section 7.1(d), by written notice by the terminating party to the other
party):
(a) by the mutual written consent of Acquiror and
Target;
(b) by either Acquiror or Target if the Merger
shall not have been consummated by June 30, 1998, provided, however, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date;
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(c) by either Acquiror or Target if a court of
competent jurisdiction or other Governmental Entity shall have issued a
nonappealable final order, decree or ruling or taken any other action, in each
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, except, if the party relying on such order, decree or
ruling or other action has not complied with its obligations under this
Agreement;
(d) by Acquiror or Target, if there has been a
breach of any representation, warranty, covenant or agreement on the part of
the other party set forth in this Agreement, which breach (i) causes the
conditions set forth in Section 2.2(a) or (b) (in the case of termination
by Acquiror) or Section 2.3(a) or (b) (in the case of termination by
Target) not to be satisfied and (ii) shall not have been cured within ten (10)
business days following receipt by the breaching party of written notice of
such breach from the other party
(e) by Acquiror if the Closing Market Price (as
defined in Section 1.6(g)) is less than $9.00 per share, unless Target
provides written notice to Acquiror within 1 business day following
determination of the Closing Market Price that Target elects to cap the Cash
Adjustment at $1.00 per share.
7.2 Effect of Termination. In the event of termination
of this Agreement as provided in Section 7.1, there shall be no liability or
obligation on the part of Acquiror, Target, Merger Sub or their respective
officers, directors, or stockholders, except to the extent that such
termination results from the willful breach by a party of any of its
representations, warranties or covenants set forth in this Agreement; provided
that the provisions of Sections 6.5, 6.17, and 7.3 shall remain in full force
and effect and survive any termination of this Agreement.
7.3 Investment.
(a) In the event that this Agreement is
terminated by Acquiror pursuant to Section 7.1, Acquiror shall, subject to
Section 7.3(d) hereof, provide Target with a 3-year, unsecured loan in the
amount of $6,000,000, which loan shall accrue interest at the lowest applicable
rate permissible without the imputation of income to Target (the "Bridge
Loan"). At the such time as Target has filed restated articles of
incorporation with the Secretary of State of the State of California, which, to
the mutual satisfaction of Acquiror and Target, set forth the rights,
preferences and privileges of the New Preferred (as defined below), the
principal and interest due on the Bridge Loan shall be converted into shares of
a new series of Target's preferred stock (the "New Preferred"), with a price
per share computed using a pre-money valuation of Target of $35,000,000 and the
rights, preferences and privileges set forth in subsection (b) hereof.
(b) Except as expressly set forth in this Section
7.3(b), the New Preferred shall have rights, preferences and privileges which
are substantially identical to the Series B Preferred Stock of Target. The New
Preferred will have participating preferred liquidation rights on a pari passu
basis with the holders of other series of preferred stock of Target. The New
Preferred will have no voting rights (except to the extend required by
California law), no information rights, no right of first refusal and no board
or other visitation rights. The New Preferred will convert into shares of
Target Common Stock upon substantially the same
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terms as the Series B Preferred Stock of Target, including, without limitation,
upon the voluntary conversion of the holder.
(c) Acquiror agrees that if Target issues the
Note, Acquiror will enter into a voting agreement (the "Acquiror Voting
Agreement") and a standstill agreement (the "Standstill Agreement") each on
terms which are mutually acceptable to Target and Acquiror. The Acquiror
Voting Agreement will provide that Acquiror will vote its shares of New
Preferred in the same proportion as the holders of the outstanding shares of
Target's other series of preferred stock as a whole for any action that
requires the vote of the Target's preferred stock. In connection with an event
triggering the liquidation preference held by Target's preferred stock,
Acquiror will vote to waive its liquidation preference in the same proportion
as do the other holders of Target's Series A and Series B preferred stock. In
addition, Acquiror agrees that it will not exercise its "dissenters" rights
with respect to any acquisition of Target to the extent that such exercise
would prohibit pooling of interest accounting from being available for such
acquisition. The Standstill Agreement will have a term of 10 years and limit
Acquiror from increasing its equity ownership in Target above the percentage
Acquiror owns as a result of the conversion of the Bridge Loan into the New
Preferred.
(d) Notwithstanding any other provision of this
Section 7.3, Acquiror shall have no obligation to enter into the Bridge Loan,
the Acquiror Voting Agreement or Standstill Agreement if:
(i) Acquiror shall have terminated this
Agreement due to an intentional misstatement, or intentional omission by Target
of one or more representations or warranties made in this Agreement by Target,
which individually or in the aggregate has a Material Adverse Effect on Target,
or
(ii) Target shall have willfully and
materially breached a material covenant of Target set forth in this Agreement.
7.4 Amendment. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards of
Directors. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
7.5 Extension; Waiver. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on
behalf of such party.
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8. Escrow and Indemnification.
8.1 Escrow Fund.
(a) At the Closing, a number of shares of
Acquiror Common Stock equal to the sum of (i) 230,000 and (ii) the quotient
obtained by dividing (x) 10% of the difference of (1) Aggregate Cash Payment
less (2) $3,200,000 by (y) the Closing Market Price (the "Escrow Shares") shall
be registered in the name of, and be deposited with, First Trust of California
(or other institution selection by Acquiror with the reasonable consent of
Target) as escrow agent (the "Escrow Agent"), such deposit shall constitute the
escrow fund ("Escrow Fund") and to be governed by the terms set forth herein
and in the Escrow Agreement. The Escrow Fund shall be available to compensate
Acquiror pursuant to the indemnification obligations of the shareholders of
Target set forth in Section 8.3. In the event Acquiror issues any Additional
Escrow Shares (as defined below), such shares will be issued in the name of the
Escrow Agent and delivered to the Escrow Agent in the same manner as the Escrow
Shares delivered at the Closing.
(b) Except for dividends paid in stock declared
with respect to the Escrow Shares ("Additional Escrow Shares"), which shall be
treated pursuant to Section 8.1(a) hereof, any cash dividends, dividends
payable in securities or other distributions of any kind made in respect of the
Escrow Shares will be delivered to the shareholders of Target on a pro rata
basis in accordance with the number of shares of Acquiror Common Stock
deposited on behalf of such holder. Each shareholder of Target will have
voting rights with respect to the Escrow Shares deposited in the Escrow Fund
with respect to such shareholder so long as such Escrow Shares are held in
escrow, and Acquiror will take all reasonable steps necessary to allow the
exercise of such rights. While the Escrow Shares remain in the Escrow Agent's
possession pursuant to this Agreement, the shareholders of Target will retain
and will be able to exercise all other incidents of ownership of said Escrow
Shares which are not inconsistent with the terms and conditions of this
Agreement.
8.2 Survival of Warranties. All representations and
warranties made by Target, Acquiror or Merger Sub herein, or in any
certificate, schedule or exhibit delivered pursuant hereto, shall survive the
Closing and continue in full force and effect until 90 days after the Closing
Date (sometimes referred to herein as the "Termination Date").
8.3 Availability of Escrow Fund.
(a) Subject to the limitations set forth in this
Article 8 and in Section 6.18, the Escrow Fund shall be available to compensate
Acquiror, Merger Sub and the Surviving Corporation and their respective
officers, directors, agents, attorneys and employees, and each person, if any,
who controls or may control Acquiror, Merger Sub or the Surviving Corporation
within the meaning of the Securities Act (hereinafter referred to individually
as an "Indemnified Person" and collectively as "Indemnified Persons") from and
against any and all losses, costs, damages, liabilities and expenses arising
from claims, demands, actions, causes of action, including, without limitation,
legal fees, (collectively, "Damages") arising out of any misrepresentation or
breach of or default in connection with any of the representations,
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warranties, covenants and agreements given or made by Target in this Agreement,
the Target Disclosure Schedules or any exhibit or schedule to this Agreement.
(b) Except for the indemnification provisions of
Section 6.18 and Section 7.2, the Escrow Fund shall constitute the sole and
exclusive remedy of Acquiror and the Surviving Corporation with respect to any
and all claims for Damages arising under this Agreement, provided, however,
that nothing in this Agreement shall limit the liability in amount or otherwise
(i) of Target for any breach of any representation, warranty or covenant if the
Merger does not close, (ii) of any Target shareholder in connection with any
breach by such shareholder of any representation or covenant in the
Shareholders' Agreements, or (iii) of Target or the Target shareholders with
respect to fraud, criminal activity or intentional breach of any covenant
contained in this Agreement.
8.4 Limitation of Liability. No claim for Damages shall
be made under this Section 8.4 until the aggregate amount of all Damages
evidenced by such claims exceeds $50,000, in which case Acquiror shall be
entitled to seek compensation from the Escrow Fund for the full amount of all
such claims. Acquiror and Merger Sub shall not be entitled to recover under
Section 8.3 with respect to the breach of any representation or warranty unless
the claim has been asserted by written notice, specifying the details of such
breach, delivered to Shareholder's Agent (as defined below) within 90 days
after the Closing Date. Moreover, Acquiror shall not be entitled to recover
Damages under Section 8.3 to the extent such Damages result from the bad faith
or gross negligence of Acquiror or Merger Sub.
8.5 Indemnification by Acquiror and Merger Sub. Subject
to the limitation set forth in this Article 8 and in Sections 6.18, 6.20 and
7.2 hereof, Acquiror hereby agrees to indemnifiy, defend and hold harmless
Target, the shareholders of Target and their respective officers, directors,
agents, attorneys and employees, and each person who controls or may control
Target or such Target shareholder (hereinafter "Indemnified Person") from and
against any and all Damages which arising out of: (i) any representation or
breach of or default in connection with the representations, warranties,
covenants and agreements given or made by Acquiror or Merger Sub in this
Agreement or any exhibit or schedule to this Agreement; or (ii) the operation
of the business of the Surviving Corporation after the Closing.
8.6 Limitation of Liability on Acquiror and Merger Sub.
No claim shall be made against Acquiror or Merger Sub for indemnification under
Article 8 until the aggregate amount of all such claims against Acquiror or
Merger Sub exceeds $50,000, in which case Target and/or the Target Shareholders
shall be entitled to seek indemnification from the Acquiror for the full amount
of all such claims. Target and/or the Target Shareholders shall not be
entitled to recover under Section 8.5 with respect to the breach of any
representation or warranty unless such claim has been asserted by written
notice, specifying the details of such breach, delivered to Acquiror within 90
days after the Closing Date. Neither Target nor any of the subsidiaries of
Target shall be entitled to any recovery under this Article 8 to the extent
that any damages result from the bad faith or gross negligence of Target or any
of the Target shareholders.
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8.7 Escrow Period; Release From Escrow.
(a) The Escrow Period shall terminate upon the
expiration of 90 days after the Effective Time; provided, however, that a
portion of the Escrow Fund which, in the reasonable judgment of Acquiror,
subject to the objection of the Shareholders' Agent and the subsequent
arbitration of the matter in the manner provided in Section 8.9 hereof, is
necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate (as defined below) theretofore delivered to the Escrow Agent and
the Shareholders' Agent prior to termination of the Escrow Period with respect
to facts and circumstances existing prior to expiration of the Escrow Period,
shall remain in the Escrow Fund until such claims have been resolved.
(b) Within 3 business days after the Termination
Date (the "Release Date"), the Escrow Agent shall release from escrow to each
shareholder of Target the portion of the Escrow Shares and the Additional
Escrow Shares contributed to the Escrow Fund on such shareholder's behalf, less
with respect to each such shareholder the number of Escrow Shares and
Additional Escrow Shares with a value (as determined pursuant to Section 8.8)
equal to (A) such shareholder's pro rata portion of any disbursement from the
Escrow Fund delivered to Acquiror in satisfaction of claims and (B) such
shareholder's pro rata portion of any liability subject to delivery to Acquiror
in accordance with Section 8.7(a) with respect to any pending but unresolved
claims. Any Escrow Shares and Additional Escrow Shares held as a result of
clause (B) shall be released to the Target shareholders or released to Acquiror
(as appropriate) promptly upon resolution of each specific indemnification
claim involved. Escrow Shares and Additional Escrow Shares shall be released
to the respective shareholders of Target in proportion to their contribution of
the foregoing to the Escrow Fund. Acquiror will take such action as may be
necessary to cause such certificates to be issued in the names of the
appropriate persons. Certificates representing Escrow Shares and Additional
Escrow Shares so issued that are subject to resale restrictions under
applicable securities laws will bear a legend to that effect. No fractional
shares shall be released and delivered from Escrow to the shareholders of
Target. In lieu of any fraction of an Escrow Share to which a Target
shareholder would otherwise be entitled, such holder will receive from Acquiror
an amount of cash determined in accordance with Section 1.6(i) hereof.
(c) No Escrow Shares, Additional Escrow Shares or
any beneficial interest therein may be pledged, sold, assigned or transferred,
including by operation of law, by any shareholder of Target or be taken or
reached by any legal or equitable process in satisfaction of any debt or other
liability of any such shareholder, prior to the delivery to such shareholder of
the portion of the Escrow Fund contributed on Shareholder's behalf, by the
Escrow Agent as provided herein.
(d) The Escrow Agent is hereby granted the power
to effect any transfer of Escrow Shares contemplated by this Agreement.
Acquiror will cooperate with the Escrow Agent in promptly issuing stock
certificates to effect such transfers.
8.8 Claims Upon Escrow Fund. Upon receipt by the Escrow
Agent on or before the Release Date of a certificate signed by any officer of
Acquiror (an "Officer's Certificate") stating that Damages exist and specifying
in reasonable detail the individual items of
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such Damages included in the amount so stated, the date each such item was
paid, or properly accrued or arose, and the nature of the misrepresentation,
breach of warranty or claim to which such item is related, the Escrow Agent
shall, subject to the provisions of this Article 8, deliver to Acquiror out of
the Escrow Fund, as promptly as practicable, Acquiror Common Stock or other
assets held in the Escrow Fund having a value equal to such Damages. For the
purpose of compensating Acquiror for its Damages pursuant to this Agreement,
the Acquiror Common Stock in the Escrow Fund shall be valued at the Closing
Market Price. In determining the amount of any Damage attributable to a
breach, any materiality standard contained in a representation, warranty or
covenant of Acquiror shall be disregarded.
8.9 Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's
Certificate shall be delivered to the Shareholders' Agent (as defined below)
and for a period of 30 days after such delivery, the Escrow Agent shall make no
delivery of Acquiror Common Stock or other property pursuant to Section 8.8
hereof unless the Escrow Agent shall have received written authorization from
the Shareholders' Agent to make such delivery. After the expiration of such 30
day period, the Escrow Agent shall make delivery of the Acquiror Common Stock
or other property in the Escrow Fund in accordance with Section 8.8 hereof,
provided that no such payment or delivery may be made if the Shareholders'
Agent shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow Agent
and to Acquiror prior to the expiration of such 30 day period.
8.10 Resolution of Conflicts and Arbitration.
(a) In case the Shareholders' Agent shall so
object in writing to any claim or claims by Acquiror made in any Officer's
Certificate, Acquiror shall have 30 days to respond in a written statement to
the objection of the Shareholders' Agent. If after such 30 day period there
remains a dispute as to any claims, the Shareholders' Agent and Acquiror shall
attempt in good faith for 60 days to agree upon the rights of the respective
parties with respect to each of such claims (the "Negotiation Period"). If the
Shareholders' Agent and Acquiror should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and shall distribute the Acquiror Common Stock or other
property from the Escrow Fund in accordance with the terms thereof.
(b) If after the Negotiation Period there remains
a dispute as to any Indemnification Claims, either Acquiror or the
Shareholders' Agent may, by written notice to the other, demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by
arbitration conducted by one arbitrator. Acquiror and the Shareholders' Agent
shall agree on the arbitrator, provided that if Acquiror and the Shareholders'
Agent cannot agree on such arbitrator, either Acquiror or Shareholders' Agent
can request that Judicial Arbitration and Mediation Services ("JAMS") select
the arbitrator. The arbitrator shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing
the parties an opportunity, adequate in the sole judgment of the arbitrator, to
discover relevant
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information from the opposing parties about the subject matter of the dispute.
The arbitrator shall rule upon motions to compel or limit discovery and shall
have the authority to impose sanctions, including attorneys' fees and costs, to
the same extent as a court of competent law or equity, should the arbitrator
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of the arbitrator shall be written, shall be in accordance with
applicable law and with this Agreement, and shall be supported by written
findings of fact and conclusion of law which shall set forth the basis for the
decision of the arbitrator. The decision of the arbitrator as to the validity
and amount of any claim in such Officer's Certificate shall be binding and
conclusive upon the parties to this Agreement, and notwithstanding anything in
Article 8 hereof, the Escrow Agent shall be entitled to act in accordance with
such decision and make or withhold payments out of the Escrow Fund in
accordance therewith.
(c) Judgment upon any award rendered by the
arbitrator may be entered in any court having jurisdiction. Any such
arbitration shall be held in (i) Fairfax County, Commonwealth of Virginia for
matters instituted by the Target or Target shareholders or (ii) Alameda County,
State of California for matters instituted by Acquiror or Merger Sub, in each
case under the commercial rules then in effect of the American Arbitration
Association. For purposes of this Section (c), in any arbitration hereunder in
which any claim or the amount thereof stated in the Officer's Certificate is at
issue, Acquiror shall be deemed to be the Non-Prevailing Party unless the
arbitrators award Acquiror more than one-half of the amount in dispute, plus
any amounts not in dispute; otherwise, the Target shareholders for whom the
Escrow Shares, Additional Escrow Shares (if any) and Escrow Cash have been
deposited in the Escrow Fund shall be deemed to be the Non-Prevailing Party.
The Non-Prevailing Party to an arbitration shall pay its own expenses, the fees
of the arbitrator, any administrative fee of JAMS, and the expenses, including
attorneys' fees and costs, reasonably incurred by the other party to the
arbitration.
8.11 Shareholders' Agent.
(a) A party to be appointed by the agreement of
the holders of the Target Capital Stock shall be constituted and appointed as
agent ("Shareholders' Agent") for and on behalf of the Target shareholders to
give and receive notices and communications, to authorize delivery to Acquiror
of the Acquiror Common Stock or other property from the Escrow Fund in
satisfaction of claims by Acquiror, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of the
Shareholders' Agent for the accomplishment of the foregoing. Such agency may
be changed by the holders of a majority in interest of the outstanding capital
stock of Target prior to the Closing from time to time upon not less than 10
days' prior written notice to Acquiror. No bond shall be required of the
Shareholders' Agent. The Shareholders' Agent shall receive no compensation for
his services provided, however, that all reasonable expenses of the
Shareholders' Agent shall be paid out of the Escrow Fund. Notices or
communications to or from the Shareholders' Agent shall constitute notice to or
from each of the Target shareholders.
(b) The Shareholders' Agent shall not be liable
for any act done or omitted hereunder as Shareholders' Agent while acting in
good faith and in the exercise of
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reasonable judgment and any act done or omitted pursuant to the advice of
counsel shall be conclusive evidence of such good faith. The Target
shareholders shall severally indemnify the Shareholders' Agent and hold him
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Shareholders' Agent shall have reasonable
access to information about Target and the reasonable assistance of Target's
and the Surviving Corporation's officers and employees for purposes of
performing his duties and exercising his rights hereunder, provided that the
Shareholders' Agent shall treat confidentially and not disclose any nonpublic
information from or about Target to anyone (except on a need to know basis to
individuals who agree to treat such information confidentially).
(d) Acquiror acknowledges that the Shareholders'
Agent may have a conflict of interest with respect to his duties as
Shareholders' Agent, and in such regard the Shareholders' Agent has informed
Acquiror that he will act in the best interests of Target shareholders.
(e) A decision, act, consent or instruction of
the Shareholders' Agent shall constitute a decision of all Target shareholders
and shall be final, binding and conclusive upon each such Target shareholder
and the Escrow Agent, and Acquiror and Merger Sub may rely upon any decision,
act, consent or instruction of the Shareholders' Agent as being the decision,
act, consent or instruction of each and every such Target shareholder. The
Acquiror and Merger Sub are hereby relieved from any liability to any person
for any acts done by them in accordance with such decision, act, consent or
instruction of the Shareholders' Agent.
9. General Provisions.
9.1 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed duly delivered if delivered
personally (upon receipt), or 3 business days after being mailed by registered
or certified mail, postage prepaid (return receipt requested), or 1 business
day after it is sent by reputable nationwide overnight courier service, or upon
transmission, if sent via facsimile (with confirmation of receipt) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
(a) if to Acquiror or Merger Sub, to:
CyberCash, Inc.
0000 Xxxxxx Xxxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxx, Xx., Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
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with a copy to:
Acquiror's Counsel
Xxxx Care Xxxx & Freidenrich LLP
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx Xxxx Xxxxxxx, Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
(b) if to Target, to:
ICVERIFY Inc.
000 Xxxxxx Xxx
Xxxxxxx, XX 00000
Attention: Xxxxxxxxx Xxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
with a copy to:
Target's Counsel
Wilson, Sonsini, Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
(c) if to Shareholders' Agent, to
an address to be provided, in
writing, to Acquiror at or
prior to the Closing
9.2 Definitions. In this Agreement any reference to any
event, change, condition or effect being "material" with respect to any entity
or group of entities means any material event, change, condition or effect
related to the financial condition, properties, assets (including intangible
assets), liabilities, business, operations, capitalization, financial
performance, or results of operations of such entity or group of entities. In
this Agreement any reference to a "Material Adverse Effect" with respect to any
entity or group of entities means any event, change or effect that is
materially adverse to the financial condition, properties, assets, liabilities,
business, operations, capitalization, financial performance, prospects or
results of operations of such entity and its subsidiaries, taken as a whole,
provided, that with respect to Acquiror, a Material Adverse Effect shall not
include those events not constituting a Material Adverse Change pursuant to
Section 2.2(d), and with respect to Target a Material Adverse Effect shall not
include those
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events not constituting a Material Adverse Change pursuant to Section 2.3(g).
In this Agreement any reference to a party's "knowledge" means such party's
actual knowledge after reasonable inquiry of officers, directors and other
employees of such party reasonably believed to have knowledge of such matters.
9.3 Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
9.4 Entire Agreement; Nonassignability; Parties in
Interest. This Agreement and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits, the Schedules, including the Target Disclosure Schedule
and the Acquiror Disclosure Schedule (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any
termination of this Agreement or the Closing, in accordance with its terms; (b)
are not intended to confer upon any other person any rights or remedies
hereunder, and shall not be assigned by operation of law or otherwise without
the written consent of the other party.
9.5 Severability. In the event that any provision of
this Agreement, or the application thereof becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
9.6 Remedies Cumulative. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of California that might otherwise
govern under applicable principles of conflicts of law. Each of the parties
hereto irrevocably consents to (a) the exclusive jurisdiction of any court
located within Fairfax County, Commonwealth of Virginia, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
hereby and instituted by Target and (b) the exclusive jurisdiction of any court
located within Alameda County, State of California, in connection with any
matter based upon or arising out of this Agreement or the matter contemplated
hereby and instituted by Acquiror or Merger Sub. Each of the parties hereto
further agrees that process may be served upon it in any manner authorized by
the laws of the State of California for such persons and waives and covenants
not to assert or plead any objection which it might otherwise have to such
jurisdiction and such process.
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9.8 Rules of Construction. The parties hereto agree that
they have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
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IN WITNESS WHEREOF, Target, Acquiror and Merger Sub have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the date first written above.
ICVERIFY INC.
By: /s/ F. XXXXXX XXXX
----------------------------------------
F. Xxxxxx Xxxx,
President and Chief Executive Officer
CYBERCASH, INC.
By: /s/ XXXXXXX X. XXXXXX
----------------------------------------
Xxxxxxx X. Xxxxxx,
President and Chief Executive Officer
CYBERCASH ACQUISITION CORPORATION
By: /s/ XXXXX X. XXXXXX
----------------------------------------
Xxxxx X. Xxxxxx, President
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LIST OF EXHIBITS
Exhibit A Certificate of Merger
Exhibit B Forms of Legal Opinion
Exhibit C Escrow Agreement
Exhibit D Form of Shareholders' Agreement
Exhibit E Form of Employment Agreement
Exhibit F Form of Non-Competition Agreement
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EXHIBIT A
CERTIFICATE OF MERGER
OF
ICVERIFY INC.
(a California corporation)
INTO
CYBERCASH ACQUISITION CORPORATION
(a Delaware corporation)
Pursuant to Section 252(c) of the General Corporation Law of the State
of Delaware and Section 1108(d) of the General Corporation Law of the State of
California, CyberCash Acquisition Corporation, a Delaware corporation
("Surviving Corporation") does hereby certify to the following information
relating to the merger of ICVerify Inc., a California corporation ("Merging
Corporation"), with and into the Surviving Corporation (the "Merger"):
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
Name State of Incorporation
--------------------------------------------------------- -----------------------------
ICVerify Inc. California
CyberCash Acquisition Corporation Delaware
SECOND: That an Agreement and Plan of Reorganization dated as of
April ___, 1998, by and among the Merging Corporation, the Surviving
Corporation and CyberCash, Inc., a Delaware corporation (the "Merger
Agreement") has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with the requirements of
subsection (c) of Section 252 of the General Corporation Law of the State of
Delaware and the provisions of Section 1101 of the General Corporation Law of
the State of California.
THIRD: That the name of the corporation surviving the merger is
CyberCash Acquisition Corporation.
FOURTH: That the Certificate of Incorporation of CyberCash
Acquisition Corporation, shall, as of the Effective Time of the Merger, be the
Certificate of Incorporation of the Surviving Corporation and, further, that
the Certificate of Incorporation of the Surviving Corporation is hereby amended
so that Article FIRST of such Certificate of Incorporation reads in its
entirety as follows:
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"FIRST: The name of the corporation is ICVERIFY Inc."
FIFTH: That the executed Agreement and Plan of Merger is on file at
the principal place of business of the Surviving Corporation. The address of
said principal place of business is 0000 Xxxxxx Xxxxxxx, Xxxxxx, XX 00000.
SIXTH: That a copy of the Agreement and Plan of Reorganization will
be furnished by the Surviving Corporation upon request and without charge to
any stockholder of the Merging Corporation or the Surviving Corporation.
SEVENTH: Merging Corporation is authorized to issue 20,000,000 shares
of Common Stock, no par value; and 10,000,000 shares of Preferred Stock, no
par value, 4,627,665 shares of which have been designated "Series A Preferred
Stock" and 2,843,602 shares of which have been designated "Series B Preferred
Stock."
EIGHTH: This Certificate of Merger shall be effective immediately
upon filing.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
executed by its duly authorized officer this ____ day of April, 1998.
CYBERCASH ACQUISITION CORPORATION
(a Delaware corporation)
By:
--------------------------------------
F. Xxxxxx Xxxx, President
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EXHIBIT B-1
FORM OF OPINION OF COUNSEL TO THE ACQUIROR
Capitalized terms defined in the Agreement and Plan of Reorganization
and not otherwise defined herein shall have the same defined meanings given
under the Agreement and Plan of Reorganization.
1. Acquiror is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Acquiror has all
requisite corporate power to own, lease and operate its properties and to carry
on its business as currently being conducted.
2. Merger Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and is qualified
to do business in the State of California and is in good standing under the
laws of the State of California as a foreign corporation qualified to do
business therein.
3. All of the shares of Acquiror Common Stock to be issued in the
Merger when issued in accordance with the Agreement and Plan of Reorganization,
will be duly authorized, validly issued, fully paid, nonassessable and free of
all preemptive rights.
4. The Shares are accurately described in Acquiror's Form 8A
filed with the SEC.
5. Each of Acquiror and Merger Sub has all requisite power and
authority to execute and deliver the Agreement and Plan of Reorganization, the
Certificate of Merger and the Shareholder Agreements, the Escrow Agreement, the
Employment Agreements, and the Non-Competition Agreements (collectively the
"Ancillary Agreements"), to which they are a party, and to perform its
obligations thereunder. The execution and delivery of the Agreement and Plan
of Reorganization and the Ancillary Agreements by Acquiror and Merger Sub and
the consummation of the transactions contemplated thereby, which are to be
accomplished by Acquiror and the Merger Sub, have been duly and validly
authorized by all necessary corporate action. Each of the Agreement and Plan
of Reorganization and the Ancillary Agreements has been duly and validly
executed and delivered by Acquiror and Merger Sub and constitutes a valid and
binding obligation of each of Acquiror and Merger Sub enforceable in accordance
with its terms, other than the Non-Competition Agreements as to which we
express no opinion, and subject to the standard enforceability exceptions.
6. Subject to the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and the Secretary of State of the
State of California, and the accuracy of the representations made by the
shareholders of Target in the Shareholder Agreements, the execution and
delivery by Acquiror of the Agreement and Plan of Reorganization and the
Ancillary Documents and/or the consummation by Acquiror of the transactions
contemplated thereby, which are to be accomplished by Acquiror, will not, other
than as expressly contemplated by the Agreement and Plan of Reorganization, (a)
conflict with or violate any provision of the Certificate of Incorporation, as
amended, or By-laws of Acquiror, (b) require any filing with, or any permit,
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authorization, consent or approval of, any Governmental Entity, which has not
been filed or obtained, (c) to our knowledge, conflict with, result in a breach
of, constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any material agreement, instrument, commitment or other
obligation to which Acquiror is a party or by which Acquiror is bound, or (d)
to our knowledge, conflict with or violate any permit, concession, franchise,
license, judgment, order or decree, or any statute, law, ordinance, rule or
regulation, applicable to Acquiror or any of its properties.
7. Subject to the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and the Secretary of State of the
State of California, and the accuracy of the representations made by
shareholders of Target in the Shareholder Agreements, the execution and
delivery by Merger Sub of the Agreement and Plan of Reorganization and/or the
consummation by Merger Sub of the transactions contemplated thereby which are
to be accomplished by Merger Sub, will not, other than as expressly
contemplated by the Agreement and Plan of Reorganization, (a) conflict with or
violate any provision of the Certificate of Incorporation, as amended, or
By-laws of Merger Sub, (b) require any filing with, or any permit,
authorization, consent or approval of, any Governmental Entity, which has not
been filed or obtained, (c) to our knowledge, conflict with, result in a breach
of, constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any material agreement, instrument, commitment or other
obligation to which Merger Sub is a party or by which Merger Sub is bound, or
(d) to our knowledge, conflict with or violate any permit, concession,
franchise, license, judgment, order or decree, or any statute, law, ordinance,
rule or regulation, applicable to Merger Sub or any of its properties.
8. Upon the filing with the Secretary of State of the State of
Delaware and the Secretary of State of the State of California, the Certificate
of Merger will be effective in accordance with its terms.
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EXHIBIT B-2
FORM OF OPINION OF COUNSEL TO THE TARGET COMPANY
Capitalized terms defined in the Agreement and Plan of Reorganization
and not otherwise defined herein shall have the same defined meanings given
under the Agreement and Plan of Reorganization.
1. Target is a corporation duly organized, validly existing and
in good standing under the laws of the State of California. Target has all
requisite corporate power to own, lease and operate its properties and to
carry on its business as currently being conducted. Target is in tax good
standing under the laws of the State of California.
2. To counsel's knowledge, the subsidiaries listed in Annex A
(collectively, the "Target Subsidiaries") hereto are the only subsidiaries of
Target and except for such subsidiaries, Target owns no other interest, whether
direct or indirect, in any corporation, joint venture, partnership, association
or other entity. To counsel's knowledge, each of the Target Subsidiaries is a
wholly owned subsidiary of Target.
3. The authorized capital stock of Target consists of 20,000,000
shares of Target Common Stock, of which there were issued and outstanding as
of the close of business on April _____, 1998 [____________] shares, and
10,000,000 shares of Target Preferred Stock, of which there were issued and
outstanding as of that same date 4,627,665 shares of Series A Preferred Stock,
and 2,843,602 shares of Series B Preferred Stock. All outstanding shares of
Target Common Stock and Target Preferred Stock are duly authorized, validly
issued, fully paid and non-assessable and are not subject to preemptive rights
or rights of first refusal. Target maintains the Target Stock Option Plan,
pursuant to which there are outstanding as of the close of business on
April ___, 1998, options to purchase [____________] shares of Target Common
Stock and has reserved an additional [____________] shares of Target Common
Stock for issuance pursuant to options to be granted to employees, consultants
and directors of Target. To counsel's knowledge, except for options granted
under the Target Stock Option Plan there are no options, warrants, calls,
rights, commitments or agreements to which Target is a party or by which it
is bound obligating Target to issue, deliver, sell, repurchase or redeem or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of
Target Capital Stock or obligating Target to grant, extend, accelerate the
vesting of, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. To counsel's knowledge,
except as disclosed in Section 3.12 of the Target Disclosure Schedule, there
are no contracts, commitments or agreements relating to voting, purchase or sale
of Target's capital stock (i) between or among Target and any of its
shareholders and (ii) between or among any of Target's shareholders, except
for the shareholders delivering the Shareholder Agreements.
4. Target has all requisite corporate power and authority to
enter into the Agreement and Plan of Reorganization and to consummate the
transactions contemplated thereby. The execution and delivery of the
Agreement and Plan of Reorganization and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate and
shareholder action on the part of Target. The Agreement and Plan of
Reorganization has been
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duly executed and delivered by Target and constitutes the valid and binding
obligation of Target, enforceable against Target in accordance with its terms,
subject to the standard enforceability exceptions.
5. Subject to the filing of the Certificate of Merger as required
by the Delaware General Corporation Law with the Secretary of State of the State
of Delaware and the Secretary of State of the State of California, and the
accuracy of the representations made by the shareholders of Target in the
Shareholder Agreements, the execution and delivery by Target of the Agreement
and Plan of Reorganization and/or the consummation by Target of the transactions
contemplated thereby, which are to be accomplished by Target, will not, other
than as expressly contemplated by the Agreement and Plan of Reorganization (a)
conflict with or violate any provision of the Articles of Incorporation, as
amended, or By-laws of Target or any of the Target Subsidiaries, (b) require any
filing with, or any permit, authorization, consent or approval of, any
Governmental Entity, which has not been filed or obtained, (c) to counsel's
knowledge, conflict with, result in a breach of, constitute (with or without due
notice or lapse of time or both) a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify or cancel, or
require any notice, consent or waiver under, any material agreement, instrument,
commitment or other obligation to which Target or any of the Target Subsidiaries
is a party or by which Target or any of the Target Subsidiaries is bound or (d)
to counsel's knowledge, conflict with or violate any permit, concession,
franchise, license, judgment, order, or decree, or any statute, law, ordinance,
rule or regulation, applicable to Target or any of its properties or assets.
6. To counsel's knowledge, except as set forth on the Target
Disclosure Schedule, there is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, threatened against Target or any of the
Target Subsidiaries or any of their respective properties or any of their
respective officers or directors (in their capacities as such) that if decided
adversely, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect on Target and the Target Subsidiaries taken as a
whole. To counsel's knowledge, there is no judgment, decree or order against
Target or any Target Subsidiary, or, any of their respective directors or
officers (in their capacities as such), that could prevent, enjoin, or
materially alter or delay any of the transactions contemplated by the Agreement
and Plan of Reorganization, or that could reasonably be expected to have a
Material Adverse Effect on Target and the Target Subsidiaries taken as a whole
or the Surviving Corporation.
7. No consent, approval, permit, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Target or any of the Target Subsidiaries in connection with
the execution and delivery of the Agreement and Plan of Reorganization or the
consummation of the transactions contemplated thereby, except for (i) the filing
of the Certificate of Merger, together with the required State of California
Franchise Tax Board Tax Clearance Certificate with the Secretary of State of the
State of California and the Certificate of Merger with the Secretary of State of
the State of Delaware, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any foreign country; and (iii)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made,
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would not have a Material Adverse Effect on Target and would not prevent, or
materially alter or delay any of the transactions contemplated by the Agreement
and Plan of Reorganization.
8. Upon the filing with the Secretary of State for the State of
Delaware and the Secretary of State for the State of California, the Certificate
of Merger will be effective in accordance with its terms.
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EXHIBIT C
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") is made and entered into as of
April ____, 1998 by and among CyberCash, Inc., a Delaware corporation
("Acquiror"), First Trust of California (the "Escrow Agent"), and
______________________________ (the "Shareholders' Agent") for and on behalf of
the holders (the "Shareholders") of Common Stock, Series A Preferred Stock, and
Series B Preferred Stock, ("Target Capital Stock") of ICVERIFY Inc., a
California corporation ("Target").
RECITALS
A. Pursuant to that certain Agreement and Plan of Reorganization
dated as of April _____, 1998 (the "Merger Agreement"), Acquiror will issue to
the Shareholders shares of CyberCash Common Stock, $.001 par value ("Acquiror
Common Stock"), and make certain cash payments to certain of the Shareholders,
pursuant to the merger (the "Merger") of Target with and into Acquiror.
B. Pursuant to Article 8 of the Merger Agreement which is
incorporated herein by reference and a copy of which is attached hereto as
Annex A, the Shareholders have agreed to make available to Acquiror and
certain of its affiliates an escrow fund to compensate such parties for certain
damages incurred as a result of inaccuracies in or breaches of representations,
warranties, covenants or agreements made by Target in the Merger Agreement or
any instrument delivered pursuant to the Merger Agreement.
C. In accordance with the Merger Agreement, the parties desire to
establish an escrow for the purpose of providing a fund from which Acquiror (on
behalf of itself and certain of its affiliates) may seek compensation for
Damages (as defined in the Merger Agreement).
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual obligations herein, the parties agree as follows:
AGREEMENT
1. Definitions. All capitalized terms used herein without
definitions shall have the meaning specified in the Merger Agreement.
2. Escrow Arrangements. Except as otherwise expressly set forth
herein, all matters pertaining to the Escrow, the Escrow Fund and the Escrow
Shares (each as hereinafter defined) shall be governed by the provisions of
Article 8 of the Merger Agreement; provided, however, that if any express
provision of this Agreement conflicts with the provisions of Article 8 of the
Merger Agreement, the provisions of Article 8 of the Merger Agreement shall
control.
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3. Establishment of Escrow. At the Closing (as defined in the
Merger Agreement), Acquiror shall deliver to the Escrow Agent for deposit
into escrow "the Escrow Fund") a certificate representing that certain number
of Acquiror Common Stock (the "Escrow Shares") as required by Section 1.7(i)
of the Merger Agreement. The Escrow Agent agrees to establish the Escrow Fund
in the manner set forth in Section 8.1 of the Merger Agreement.
4. Maintenance of the Escrow. The Escrow Agent shall establish a
separate account for each Shareholder showing the number of Escrow Shares held
in the Escrow for such Shareholder on the basis of the provisions of the Merger
Agreement and a list of the Shareholders' ownership of Target Capital Stock
provided to the Escrow Agent by the Shareholders' Agent. The Escrow Agent
shall maintain records showing each Shareholder's Proportionate Interest in the
Escrow Fund and shall adjust each Shareholder's account to reflect
distributions from, and additions or substitutions to, the property held for
the account of such Shareholder in the Escrow. For purposes of this Agreement,
each Shareholder's "Proportionate Interest" in the Escrow Fund as of a specific
date shall be equal to the percentage that the value of the Escrow Shares held
for the account of such Shareholder in the Escrow bears to the value of all
property held for the account of all Shareholders in the Escrow as of such
date. The Escrow Agent is hereby granted the power to effect any transfer of
Escrow Shares required by this Agreement. Acquiror shall cooperate with the
Escrow Agent in promptly issuing, or causing its transfer agent to promptly
issue, such stock certificates as shall be required to effect such transfers.
All Escrow Shares held in the Escrow Fund shall be registered in the name of
the Escrow Agent or its nominee.
5. Administration of Escrow Fund. The Escrow Agent shall
administer the Escrow Fund as set forth in Sections 8.7, 8.8, 8.9 and 8.10 of
the Merger Agreement.
6. Term of Escrow Agreement. This Agreement shall terminate upon
the termination of the Escrow Period, as set forth in Section 8.7(a) of the
Merger Agreement and the distribution by the Escrow Agent of all property held
in the Escrow Fund.
7. Fees of the Escrow Agent. The fees of the Escrow Agent,
including (i) the normal costs of administering the Escrow as set forth on the
Fee Schedule attached hereto as Annex B and (ii) all fees and costs associated
with the Escrow Agent's administration of Claims, shall be paid by Acquiror.
In the event that the Escrow Agent renders any service hereunder not provided
for herein or there is any assignment of any interest in the subject matter of
the Escrow or modification hereof, the Escrow Agent shall be reasonably
compensated for such extraordinary services by the party that is responsible
for or requests such services.
8. Liability of the Escrow Agent. In performing any of its
duties under this Agreement, the Escrow Agent shall not be liable to any party
for damages, losses or expenses, except in the event of gross negligence or
willful misconduct on the part of the Escrow Agent. The Escrow Agent shall not
incur any such liability for (i) any act or failure to act made or omitted in
good faith or (ii) any action taken or omitted in reliance upon any instrument,
including any written statement or affidavit provided for in this Agreement
that the Escrow Agent shall in good faith believe to be genuine; nor will the
Escrow Agent be liable or responsible for forgeries, fraud, impersonations or
determining the scope of any agent's authority. In addition, the Escrow
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Agent may consult with legal counsel in connection with its duties under this
Agreement and shall be fully protected in any act taken, suffered or permitted
by it in good faith in accordance with the advice of counsel. The Escrow Agent
is not responsible for determining and verifying the authority of any person
acting or purporting to act on behalf of any party to this Agreement.
9. Controversies. If any controversy arises between the parties
to this Agreement, or with any other party, concerning the subject matter of
the Escrow, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and funds and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in the
Escrow Agent's discretion, it may require, despite what may be set forth
elsewhere in this Agreement. In such event, the Escrow Agent will not be
liable for interest or damage. Furthermore, the Escrow Agent may at its
option, file an action of interpleader requiring the parties to answer and
litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and funds held
in the Escrow, except all costs, expenses, charges and reasonable attorneys'
fees incurred by it due to the interpleader action and which the parties
jointly and severally agree to pay. Upon initiating such action, the Escrow
Agent shall be fully released and discharged of and from all obligations and
liability imposed by the terms of the Escrow, and the action will be deemed to
be solely a dispute between the parties subject to Article 8 of the Merger
Agreement.
10. Indemnification of Escrow Agent. Acquiror and its successors
and assigns agree jointly and severally to indemnify and hold the Escrow Agent
harmless against any and all losses, claims, damages, liabilities and expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel, and disbursements that may be imposed on the Escrow
Agent, or incurred by it in connection with the performance of its duties under
this Agreement, including but not limited to any arbitration or litigation
arising from this Agreement or involving its subject matter, unless such loss,
claim, damage, liability or expense shall be caused by the gross negligence or
willful misconduct on the part of the Escrow Agent. Nothing contained in this
Section 10 shall impair the rights of the Shareholders and Acquiror, as between
themselves.
11. Resignation of Escrow Agent. The Escrow Agent may resign at
any time upon giving at least 30 days written notice to the other parties;
provided, however, that no such resignation shall become effective until the
appointment of a successor Escrow Agent which shall be accomplished as follows:
Acquiror and the Shareholder Agent shall use their best efforts to agree on a
successor Escrow Agent within 30 days after receiving such notice. If the
parties fail to agree on a successor Escrow Agent within such time, the Escrow
Agent shall have the right to appoint a successor Escrow Agent authorized to do
business in the State of California. The successor Escrow Agent shall execute
and deliver to the Escrow Agent an instrument accepting such appointment, and
the successor Escrow Agent shall, without further acts, be vested with all the
estates, property rights, powers and duties of the predecessor Escrow Agent as
if originally named as Escrow Agent herein. The predecessor Escrow Agent then
shall be discharged from any further duties and liability under this Agreement.
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12. Miscellaneous.
(a) Assignment; Binding upon Successors and Assigns.
None of the parties hereto may assign any of its rights or obligations
hereunder without the prior written consent of the other parties. This
Agreement will be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
(b) Severability. If any provision of this Agreement, or
the application thereof, shall for any reason and to any extent be held to be
invalid or unenforceable, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall be interpreted so as
best to reasonably effect the intent of the parties hereto. The parties
further agree to replace such invalid or unenforceable provision of this
Agreement with a valid and enforceable provision which will achieve, to the
extent possible, the economic, business and other purposes of the invalid or
unenforceable provision.
(c) Entire Agreement. This Agreement, the Merger
Agreement, the Annexes hereto, the documents referenced herein, and the
exhibits thereto, constitute the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof and thereof and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto and thereto. The express terms hereof control and
thereof supersede any course of performance or usage of the trade inconsistent
with any of the terms hereof and thereof.
(d) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed duly delivered if delivered
personally (upon receipt), or three business days after being mailed by
registered or certified mail, postage prepaid (return receipt requested), or
one business day after it is sent by reputable nationwide overnight courier
service, or upon transmission, if sent via facsimile (with confirmation of
receipt) to the parties at the following address (or at such other address for
a party as shall be specified by like notice):
(i) if to Acquiror, to:
CyberCash, Inc.
0000 Xxxxxx Xxxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxx, Xx., Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
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with a copy to:
Xxxx Xxxx Xxxx & Freidenrich
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx Xxxx Xxxxxxx, Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
(ii) if to Escrow Agent, to:
First Trust of California
---------------------------
---------------------------
---------------------------
Attention: Ms. Xxxxxxx Xxxx
Fax: ( )
---- ---------------
Tel: ( )
---- ---------------
with a copy to:
---------------------------
---------------------------
---------------------------
Attention:
-----------------
Fax: ( )
---- ---------------
Tel: ( )
---- ---------------
(iii) if to Target, to
ICVERIFY, Inc.
000 Xxxxxx Xxx
Xxxxxxx, XX 00000
Attention: Xxxxxxxxx Xxxx
Fax: ( )
---- ---------------
Tel: ( )
---- ---------------
with a copy to:
Wilson, Sonsini, Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000-0000
Attn: Xxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
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(iv) if to Shareholders' Agent, to:
---------------------------
---------------------------
---------------------------
Fax: ( )
---- ---------------
Tel: ( )
---- ---------------
with a copy to:
Wilson, Sonsini, Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000-0000
Attn: Xxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
(e) Other Remedies. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party shall be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by
law on such party, and the exercise of any one remedy shall not preclude the
exercise of any other.
(f) Amendment and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this 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. The waiver by a party of any breach hereof for default in
payment of any amount due hereunder or default in the performance hereof shall
not be deemed to constitute a waiver of any other default or any succeeding
breach or default.
(g) 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 better evidence and reflect the
transactions described herein and contemplated hereby and to carry into effect
the intents and purposes of this Agreement.
(h) Absence of Third Party Beneficiary Rights. No
provisions of this Agreement are intended, nor shall be interpreted, to provide
or create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, shareholder, partner of any party hereto or
any other person or entity unless specifically provided otherwise herein and
except for the Shareholders, and, except as so provided, all provisions hereof
shall be solely between the parties to this Agreement.
(i) Governing Law. It is the intention of the parties
hereto that the internal laws of the state of California (irrespective of its
choice of law principles) shall govern the validity of this agreement, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
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(j) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original and all of
which together shall constitute one and the same instrument.
(SIGNATURES ARE SET FORTH ON THE NEXT PAGE)
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78
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as
of the date first set forth above.
CYBERCASH, INC.
By:
------------------------
Title:
------------------------
FIRST TRUST OF CALIFORNIA
By:
------------------------
Title:
------------------------
SHAREHOLDERS' AGENT
--------------------------
--------------------------
8
79
ANNEX A
9
80
ANNEX B
10
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EXHIBIT D
SHAREHOLDER AGREEMENT
This Shareholder Agreement ("Agreement") is made and entered into as
of April __, 1998 by and among CyberCash, Inc., a Delaware corporation
("Acquiror"), and the undersigned holder (the "Shareholder") of shares of
Common or Preferred Stock (the "Target Capital Stock") of ICVERIFY Inc., a
California corporation ("Target"). Capitalized terms not defined herein shall
have the meaning set forth in the Merger Agreement (as defined below).
RECITALS
A. Acquiror, Target, and CyberCash Acquisition Corporation, a
Delaware corporation and wholly owned subsidiary of Acquiror ("Merger Sub"),
have entered into an Agreement and Plan of Reorganization, dated as of April
__, 1998 (the "Merger Agreement"), providing for the merger of (the "Merger")
Target with and into Merger Sub.
B. The Shareholder is the beneficial holder of record of the
number and class of shares of outstanding Target Capital Stock as is indicated
on the signature page of this Agreement (the "Shares"). In connection with the
Merger, Acquiror will acquire the Shareholder's entire equity interest in
Target and the Shareholder will receive in exchange certain shares of common
stock, par value $.001 per share, of Acquiror (the "Acquiror Common Stock")
and/or certain cash consideration.
C. In consideration of and to induce the execution of the Merger
Agreement by Acquiror, the Shareholder consents to the appointment of the
Purchaser's Representations and the Shareholders' Agent (each as defined
below).
NOW, THEREFORE, in consideration of the mutual promises and the mutual
covenants and agreements contained herein, the parties agree as follows:
AGREEMENT
1. Additional Purchases. For purposes of this Agreement
(including, without limitation, the recitals hereto), the term "Shares" shall
include any shares of Target capital stock which the Shareholder purchases or
as to which the Shareholder otherwise acquires voting power after the execution
of this Agreement and prior to the earlier to occur of the Effective Time (as
defined in the Merger Agreement) or the termination of the Merger Agreement
(the "Expiration Date").
2. Representations, Warranties and Covenants of the Shareholder.
Subject to the exceptions set forth in Annex A hereto, the Shareholder hereby
represents, warrants and covenants to Acquiror on the following:
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2.1 Ownership of Shares; Authority. The Shareholder (i)
is the holder and beneficial owner of the Shares, which at the date hereof and
at all times until the Expiration Date will be free and clear of any liens,
claims, options, charges or other encumbrances, (ii) does not beneficially own
any shares of stock of Target or its subsidiaries other than the Shares and
(iii) has the legal capacity and full power and authority to make, enter into,
deliver and carry out the terms of this Agreement. This Agreement constitutes
a valid and binding obligation of Shareholder, enforceable in accordance with
its terms. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority or other person on the
part of the Shareholder is required in connection with the valid execution and
delivery of this Agreement.
2.2 No Voting Trusts and Agreements. The Shareholder has
not, will not, and will not permit any entity under the Shareholder's control
to deposit any shares of Target Capital Stock held by the Shareholder or such
entity in a voting trust or subject any shares of Target Capital Stock held by
the Shareholder or such entity to any arrangement or agreement with respect to
the voting of such shares of Target Capital Stock, other than agreements
entered into with Acquiror except as set forth in the amendedand Restated
Voting Agreement dated December 30, 1996 by and among Target and certain
shareholders of Target.
2.3 Plan of Distribution. The Shareholder has, and as of
the Effective Time of the Merger will have, no present plan or intention (a
"Plan") to engage in a sale, exchange, transfer, distribution (excluding those
transactions expressly contemplated by the Merger Agreement), pledge,
disposition or any other transaction, including a transaction or arrangement
that reduces the risk of loss by short sale, hedging or otherwise, including a
direct or indirect disposition (collectively, a "Sale") of any of the shares of
Acquiror Common Stock to be acquired by the Shareholder upon consummation of
the Merger (the "Merger Shares).
2.4 Accredited Investor. Shareholder is [___] is not
[___] an "accredited investor" as defined in Rule 501 under the Securities Act
of 1933, as amended (the "Securities Act"). [PLEASE CHECK THE APPROPRIATE
BOX].
2.5 Full Opportunity for Due Diligence. The Shareholder,
either alone or together with the Purchaser Representative, has such knowledge
and experience in financial and business matters as to be able to evaluate the
merits and risks of an investment in the Merger Shares in connection with the
Merger. The Shareholder is able to acquire the Merger Shares without impairing
the Shareholder's financial condition, to hold the Merger Shares for an
indefinite period of time and to suffer a complete loss on the Shareholder's
investment. If the Shareholder is not an individual, the Shareholder has not
been organized solely for the purpose of acquiring the Merger Shares.
2.6 Investment Intention. The Shareholder is acquiring
the Acquiror Common Stock for his, her or its own account for investment and
not with a view to, or for resale in connection with, any distribution or
public offering thereof (within the meaning of the Securities Act), nor with
any present intention of distributing or selling the same; and, except as
contemplated by the Merger Agreement and the Exhibits thereto, the Shareholder
has no present or contemplated agreement, undertaking, arrangement, obligation,
indebtedness or commitment providing for the disposition thereof. Shareholder
understands that the Acquiror Common Stock
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has not been registered for sale to the holders of Target Capital Stock under
the Securities Act of 1933 (the "Securities Act") by reason of a specific
exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
Shareholder's investment intent as expressed in this Section 2.6.
2.7 Rule 144. The Shareholder acknowledges that the
Merger Shares must be held indefinitely unless subsequently registered under
the Securities Act and applicable state and other securities laws or unless an
exemption from such registration is available. The Shareholder is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of Securities purchased in a private placement subject to the
satisfaction of certain conditions. The conditions may include, among other
things, the existence of a public market for the securities, the availability
of certain current public information about Acquiror, the expiration of minimum
holding periods after a party has purchased and paid for the stock, the sale
being through a "broker's transaction" or in transactions directly with a
"market maker" (as provided by Rule 144(f)), and the number of shares being
sold during any three month period not exceeding specified limitations.
2.8 Purchaser Representation. If the Shareholder is a
"U.S. person" as defined in Regulation S promulgated under the Securities Act
("Regulation S"), but is not an "accredited investor," as defined in Rule 501
under the Securities Act and alone does not have such knowledge and experience
in financial and business matters that he or she is capable of evaluating the
merits and risks of an investment in the shares of Acquiror Common Stock in
connection with the Merger:
(i) The Shareholder agrees that the
Purchaser Representative has acted,
is acting or will actas purchaser
representative to the Shareholder in
evaluating the merits and risks of
the Merger;
(ii) The Shareholder has and will, to the
extent necessary to evaluate the
risks and merits of an investment in
the shares of Acquiror Common Stock
in connection with the Merger,
relied upon the advice of the
Purchaser Representative in
connection with the Merger; and
(iii) The Shareholder will have or has had
an opportunity to meet with the
Purchaser Representative to discuss
the Merger.
2.9 Review of Solicitation Statement. The Shareholder
has carefully reviewed the Solicitation of Written Consent of Shareholders and
the Information Statement delivered therewith (the "Solicitation Statement");
the officers of Acquiror have made available to the undersigned and, where
applicable, his, her or its Purchaser Representative the opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering of Acquiror Common Stock and to obtain any additional information that
Acquiror possesses or can acquire without unreasonable effort or expense that
is necessary to verify the accuracy of the information provided by Acquiror to
the Shareholder; in evaluating the suitability of an investment in Acquiror,
the Shareholder has not relied upon any representations or other information
(whether
3
84
oral or written) other than as set forth in the Solicitation Statement; and the
undersigned has adequate net worth and means of providing his, her or its
current needs and personal contingencies to sustain a complete loss of his, her
or its investment in Acquiror.
2.10 Legend. The shares of Acquiror Common Stock issuable
in the Merger shall bear a legend substantially in the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE
SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
2.11 Investor Representation Statement. The Shareholder
and Acquiror hereby covenant and agree to execute and deliver any additional
documents necessary or desirable, in the reasonable opinion of Acquiror's legal
counsel or the Shareholder, as the case may be, to carry out the intent of this
Agreement (including, without limitation, the Investor Representation Statement
which is attached hereto as Annex B which shall be delivered concurrently with
the execution of this Agreement).
3. Representations, Warranties and Covenants of Acquiror.
Acquiror represents, warrants and covenants to the Shareholder as follows:
3.1 Due Authorization. This Agreement has been
authorized by all necessary corporate action on the part of Acquiror and has
been duly executed by a duly authorized officer of Acquiror.
3.2 Validity; No Conflict. This Agreement constitutes
the legal, valid and binding obligation of Acquiror. Neither the execution of
this Agreement by Acquiror nor the consummation of the transactions
contemplated hereby will result in a breach or violation of the terms of any
agreement by which Acquiror is bound or of any decree, judgment, order, law or
regulation now in effect of any court or other governmental body applicable to
Acquiror.
4. Purchaser Representative. If the Shareholder is not an
accredited investor, as defined in SEC Regulation D (a copy of which definition
appears as Annex C hereto), the Shareholder agrees that in evaluating the
transactions contemplated by the Merger Agreement and the related investment
decision involving the Acquiror Common Stock, that the Shareholder will use the
services of a purchaser representative. By executing this Agreement the
Shareholder hereby approves the appointment of ______________ as its purchaser
representative (the "Purchaser Representative").
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4.1 Shareholders' Agent. The shareholder hereby
designates, constitutes and appoints and ratifies the appointment and
designation of __________ to be the shareholder's agent and attorney-in-fact to
act as the shareholder's agent (the "Shareholders' Agent") pursuant to the
provisions of Article 8 of the Merger Agreement (the "Indemnification
Provisions"), with all the rights, powers, authority and duties of the
Shareholder Agent as described therein.
5. Consent and Waiver. The Shareholder hereby gives any consent
or waivers that are reasonably required for the consummation of the Merger
under the terms of any agreement to which the Shareholder is a party or
pursuant to any rights the Shareholder may have.
6. Miscellaneous.
6.1 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
6.2 Binding Effect and Assignment. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor
any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without the prior written consent of the
other.
6.3 Amendments and Modifications. This Agreement may not
be modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
6.4 Specific Performance; Injunctive Relief. The parties
hereto acknowledge that Acquiror will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of the covenants or
agreements of the Shareholder set forth herein. Therefore, it is agreed that,
in addition to any other remedies which may be available to Acquiror upon such
violation, Acquiror shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to it at law or in equity.
6.5 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and deemed duly delivered
(upon confirmation of receipt) if delivered in person, three (3) business days
after mailed by registered or certified mail, postage prepaid (return receipt
requested), or one (1) business day after notice is sent by reputable
nationwide overnight courier service or upon transmission if sent by facsimile
with confirmation of receipt to the respective parties as follows:
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(a) if to Acquiror, to
CyberCash, Inc.
0000 Xxxxxx Xxxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxx, Xx., Esq.
Facsimile No.: (000) 000-0000
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxx Xxxxxxx, Esq.
Facsimile No.: (000) 000-0000
(a) if to Shareholder, to
the address for notice set forth on the
signature page hereof
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
6.6 Governing Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of California
without giving effect to principles of conflicts of law.
6.7 Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
6.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
6.9 Effect of Headings. The section headings herein are
for convenience only and shall not affect the construction or interpretation of
this Agreement.
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87
6.10 Termination. Notwithstanding anything else in this
Agreement, this Agreement, and all obligations of the Shareholder under either
of them, shall automatically terminate as of the earlier to occur of the
termination of the Merger Agreement or the Effective Time.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
CYBERCASH, INC.
By:
---------------------------------------------------
Its:
----------------------------------------------
SHAREHOLDER
By:
----------------------------------------------
Its:
----------------------------------------------
Address:
------------------------------------------
------------------------------------------
------------------------------------------
Shares of Target Capital Stock beneficially owned:
shares of Common Stock
-----------------
shares of Series A Preferred Stock
-----------------
shares of Series B Preferred Stock
-----------------
shares of Series C Preferred Stock
-----------------
shares of Series D Preferred Stock
-----------------
shares of Series E Preferred Stock
-----------------
7
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ANNEX A
SCHEDULE OF EXCEPTIONS
1
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ANNEX B
INVESTOR REPRESENTATION STATEMENT
(ALL INFORMATION FURNISHED IN THIS
STATEMENT WILL BE TREATED CONFIDENTIALLY)
Responses to this Statement will be used by CyberCash, Inc.
("Acquiror") to qualify prospective recipients of Acquiror Common Stock for
purposes of federal and state securities laws in connection with the merger
(the "Merger") of ICVERIFY, Inc. ("Target") with and into CyberCash
Acquisition Corporation.
If the answer to any question below is "none" or "not applicable,"
please so indicate.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings assigned to such terms in the Information Statement of
Target dated _____________, 1998 (the "Solicitation Statement") relating to the
Merger.
1. IDENTIFICATION
Name
------------------------------------------------------------------------
(if an individual) Address of Residence
-------------------------------------
----------------------------------------------------------------------------
Telephone (Residence)
-------------------------------------------------------
(if an entity) Address of Principal Place of Business
-----------------------
----------------------------------------------------------------------------
Telephone (Business)
--------------------------------------------------------
(if an individual) Date of Birth
--------------------------------------------
(if an individual) Social Security Number
-----------------------------------
(if an entity) Year and Jurisdiction of
Formation or Incorporation
--------------------------------------------------
(if an entity) Type of Entity
(corporation, partnership, etc.)
--------------------------------------------
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(if an entity) Was Entity formed for the specific purpose of this investment?
Yes No
------------ ------------
If answer is yes, each equity owner (shareholder, partner, etc.) of the entity
must complete the questions in this Statement applicable to individual
investors.
Name to Appear on Acquiror Shares
--------------------------------------------
NOTE: IF YOU ARE AN ENTITY, PLEASE SKIP TO ITEM 4.
2. BUSINESS OF INDIVIDUAL
Occupation
---------------------------------------------------------------------
Present Employer
---------------------------------------------------------------
Position/Title
-----------------------------------------------------------------
Number of Years
----------------------------------------------------------------
Business Address
---------------------------------------------------------------
Business Telephone
-------------------------------------------------------------
3. RESIDENCE INFORMATION
(a) Set forth in the space provided below the state(s) in which
you have maintained your principal residence during the past
three years and the dates during which you resided in each
state.
--------------------------------------------------------------
--------------------------------------------------------------
(b) Do you maintain residence in any other state? If yes, in which
state(s)?
--------------------------------------------------------------
4. PROPOSED INVESTMENT
Please indicate the number of shares of Target Common Stock or
Preferred Stock that you will exchange for Acquiror Common Stock in
the Merger.
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shares of Target Common Stock
-------------------
shares of Target Series A Preferred Stock
-------------------
shares of Target Series B Preferred Stock
-------------------
shares of Target Series C Preferred Stock
-------------------
shares of Target Series D Preferred Stock
-------------------
shares of Target Series E Preferred Stock
-------------------
NOTE: IF YOU ARE AN ENTITY, PLEASE SKIP TO ITEM 8.
5. INCOME (if an individual)
(a) Do you reasonably expect your income from all sources during
this year (ending December 31, 1997) to exceed $200,000?
Yes No If not, please specify amount
-------- -------- ------
(b) What percentage of your income as shown above is anticipated
to be derived from sources other than salary?
(c) Was your yearly income from all sources during each of the
last two years, ending December 31, 1997 and 1996 in excess of
$200,000?
Yes No If not, please specify amount
-------- --------
1997:
----------
1996:
----------
(d) Do you reasonably expect your joint income with your spouse
from all sources during this year (ending December 31, 1997)
to exceed $300,000?
Yes No If not, please specify amount
-------- -------- ------
(e) What percentage of this income is anticipated to be derived
from sources other than salary?
------------------------------
(f) Was your joint income with your spouse from all sources during
each of the last two years, ending December 31, 1997 and 1996
in excess of $300,000?
Yes No If not, please specify amount
-------- --------
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1997:
----------
1996:
----------
6. NET WORTH
Will your net worth as of the date you purchase the Acquiror Common
Stock, individually or jointly with the net worth of your spouse, be
in excess of $1,000,000?
Yes No If not, please specify amount
--------- --------- ----------
7. EDUCATION
Please describe your educational background and degrees obtained, if
any.
----------------------------------------------------------------------
----------------------------------------------------------------------
8. BUSINESS OF ENTITY
Please indicate which, if any, of the following accurately describes
the entity:
(a) [ ] a bank as defined in section 3(a)(2) of the Securities Act of 1933 (the "Securities
Act") or a savings and loan association or other institution as defined in section
3(a)(5)(A) of the Securities Act, acting in either an individual or fiduciary
capacity;
(b) [ ] a broker or dealer registered pursuant to section 15 of the Securities Exchange Act
of 1934, as amended;
(c) [ ] an insurance company as defined in section 2(13) of the Securities Act;
(d) [ ] an investment company registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of that Act;
(e) [ ] a Small Business Investment Company licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business Investment Act of
1958;
(f) [ ] a plan established and maintained by a state, its political subdivisions, or an
agency or instrumentality of a state or its political subdivisions, for the benefit
of its employees, which plan has total assets in excess of
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93
$5,000,000;
(g) [ ] an employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, which satisfies one of the following criteria: (i) the
investment decision for such plan is made by a plan fiduciary, as defined in section
3(21) of such Act, which is either a bank, a savings and loan association, an
insurance company, or a registered investment adviser; (ii) such plan has total
assets in excess of $5,000,000; or (iii) such plan is a self-directed plan and its
investment decisions are made solely by persons who are "accredited investors"
within the meaning of Rule 501(a) under the Securities Act.
(h) [ ] a private business development company as defined in section 202(a)(22) of the
Investment Advisers Act of 1940;
(i) [ ] an organization described in section 501(c)(3) of the Internal Revenue Code, a
corporation, a Massachusetts or similar business trust, or a partnership, which was
not formed for the specific purpose of investing in Acquiror, and which has total
assets in excess of $5,000,000;
(j) [ ] a trust with total assets in excess of $5,000,000, which was not formed for the
specific purpose of investing in Acquiror and whose investment in Acquiror is
directed by a person with such knowledge and experience in financial and business
matters that he or she is capable of evaluating the merits and risks of an
investment in Acquiror; and
(k) [ ] any entity in which all of the equity owners are "accredited investors" within the
meaning of Rule 501(a) under the Securities Act (a copy of which definition is
attached as Annex II to the Solicitation Statement).
If paragraph (k) is checked, each equity owner (shareholder, partner,
etc.) of the entity must complete the Statement items applicable to
Individual Investors.
9. AFFILIATION
If you have any pre-existing personal or business relationship with
Acquiror, any of its officers, directors or controlling persons,
please describe the nature and duration of such relationship.
----------------------------------------------------------------------
----------------------------------------------------------------------
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94
----------------------------------------------------------------------
10. BUSINESS, FINANCIAL AND INVESTMENT EXPERIENCE
Please describe the nature and extent of the business, financial and
investment experience which you believe gives you or your entity the
capacity to evaluate the merits and risks of the proposed investment.
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
NOTE: IF YOU ARE AN ENTITY, PLEASE SKIP TO ITEM 12.
11. PRIOR INVESTMENTS
Please indicate the frequency of your prior investments (check one in
each column):
Publicly-Traded Securities Privately-Placed Securities
-------------------------- ---------------------------
Frequently
-------------------------- ---------------------------
Occasionally
-------------------------- ---------------------------
Never
-------------------------- ---------------------------
12. ORGANIZATIONAL DOCUMENTS
Please enclose with this Statement a copy of the entity's Certificate
of Incorporation, By-laws, Declaration of Trust, or other governing
instrument(s).
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The above information is true and correct in all material respects.
The undersigned recognizes that Acquiror is relying on the truth and accuracy
of such information so that it may rely on certain exemptions from registration
contained in the Securities Act and the securities laws of certain states. THE
UNDERSIGNED AGREES TO NOTIFY ACQUIROR PROMPTLY OF ANY CHANGES IN THE FOREGOING
INFORMATION WHICH MAY OCCUR PRIOR TO THE CLOSING OF THE MERGER.
Date: _______________________, 1998
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Name/Name of Entity
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Signature
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Name of Authorized Representative
(if applicable)
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Title of Authorized Representative
(if applicable)
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EXHIBIT E
EMPLOYMENT AGREEMENT
This Employment Agreement between _______________ ("you" or
"Employee") and CyberCash, Inc., a Delaware corporation with offices at 0000
Xxxxxx Xxxxxxx, Xxxxxx, Xxxxxxxx ("CyberCash" or the "Company") is entered into
as of the____ day of ___________, 1998 and sets forth the terms and conditions
of your employment by CyberCash.
1. SCOPE
a) You will act as ___________ of ICVERIFY, Inc., a wholly-owned
subsidiary of CyberCash, and as ________________ of CyberCash.
In that capacity you will report directly to the _____________
of CyberCash. You will be responsible for
___________________.
b) You agree not to engage in any other employment or activity at
any time during your employment with CyberCash which
materially interferes with the performance of your duties for
CyberCash.
c) You may become a director of any other organization with the
consent of CyberCash, which consent shall not be unreasonably
withheld.
2. TERM OF EMPLOYMENT
The term of this Employment Agreement is one year, commencing on the
date set forth above.
3. COMPENSATION AND BENEFITS
a) Your compensation will consist of the following:
i) An annual base salary of $____________, to be paid
monthly in arrears into a bank account designated by
you. The Company will withhold from payments of your
compensation all applicable federal and state income,
social security and other taxes as required by law.
Your base salary shall be evaluated annually by the
Board of Directors with consideration given to a
salary increase.
ii) For 1998, you will continue to participate in
ICVERIFY's bonus plan as in existence at the date of
this Agreement. For 1999 and thereafter, you will
participate in CyberCash's bonus plan.
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iii) Stock options to purchase _________ shares of the
Company's Common Stock at a price per share equal to
the closing price of the Common Stock on the day
prior to the date the options are approved by the
board of directors or its Compensation Committee.
These options shall be subject to the following
provisions regarding vesting:
(A) Options to purchase ____________ shares will
start vesting as of the first day of your
employent and will vest over 40 months in
accordance with the Company's standard
policy.
(B) Options to purchase the remaining __________
shares will be "performance options" and will
start vesting (over a 40 month period) as of
the commencement of the term of this
Agreement, if and only if the Company reports
a profit for the fourth quarter of 1998.
(C) If the Company does not report a profit for
the fourth quarter of 1998, but does report a
profit for the first quarter of 1999, options
to purchase ___________ shares will start
vesting (over a 40 month period) as of the
commencement of the term of this Agreement.
(D) Any of the performance options that do not
commence vesting as provided in either (B) or
(C), above, will expire.
iv) All of the foregoing options will be issued under,
and will be subject to, the terms and conditions of
CyberCash's 1995 Employee Stock Option Plan and will
be evidenced by CyberCash's standard form of option
agreement reflecting the terms of this paragraph. All
of your stock options will become immediately
exercisable in the event of a Change of Control (as
defined in Section 4 below).
b) The Company shall provide you the following additional
benefits:
i) Health insurance benefits for you and your family, in
accordance with the standard CyberCash health
insurance plan for CyberCash executives.
ii) Twenty-three days per year of paid vacation. You may
carry over to CyberCash any unused vacation days you
have accrued as an employee of ICVERIFY as of the
date of its acquisition by CyberCash, provided that
the use of and payment for unused vacation will be
subject to CyberCash's standard policy, including a
limit of 160 hours of unused vacation that may be
accrued.
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iii) Reimbursement of reasonable business expenses
incurred and documented in accordance with
CyberCash's standard policies.
iv) CyberCash will indemnify you and pay your related
expenses to the fullest extent permitted by law if
you are made, or threatened to be made, a party to
any legal action or proceeding, whether civil or
criminal, by reason of your employment by ICVERIFY or
CyberCash. CyberCash will provide you with coverage
under its directors' and officers' liability
insurance policy.
4. COMPENSATION IN CASE OF CERTAIN PREMATURE TERMINATIONS
a) If during the term of this Agreement (i) your employment is
terminated by CyberCash other than for cause, or (ii) you
voluntarily resign following a Change of Control (as defined
below) (such terminations being referred to as "Premature
Terminations"), you will be entitled, as your sole remedy, to
the severance payments and accelerated vesting of options
provided in this Section 4.
b) In the event of a Premature Termination, you will be entitled
to be paid in equal monthly installments your base salary
(without benefits and after the deduction of required
withholding taxes) as follows:
i) If the termination of your employment takes place
before the passage of six months after the
commencement of the term of this Agreement, you will
be paid your base salary through the remainder of the
twelve months of the original term of this Agreement;
and
ii) If the termination takes place thereafter, you will
be paid your base salary for a period of six months
from the date of termination of your employment.
c) In the event of a Premature Termination, the stock options
granted to you pursuant to Section 3.a)iii), above, will be
deemed to have vested to the extent they would have become
vested at the end of the original term of this Agreement.
d) For the purposes of this Agreement:
i) Cause for termination shall exist if: (a) you fail or
refuse to perform your duties (not including a
failure to perform due to a disability entitling you
to disability benefits) and your failure or refusal
continues after written notice; (b) you are convicted
for a crime constituting a felony involving
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moral turpitude; or (c) you commit a material act of
fraud or dishonesty resulting in substantial harm to
the Company.
ii) Change of Control shall mean (A) a transaction or
series of related transactions resulting in a change
in beneficial ownership of more than 50% of the
outstanding equity securities of the Company; (B) or
a sale of all or substantially all of the assets of
the Company; provided that such a transaction shall
not be considered a change in Change in Control if
after the transaction a majority of the members of
the board of directors are persons who were members
of the board of directors prior to the transaction
and the Chief Executive Officer of the Company
remains the same.
iii) You will be deemed to have been terminated other than
for cause if you voluntarily resign from employment
because of (A) a material adverse change in your
position with CyberCash which materially reduces your
responsibility without your written consent,
including your no longer reporting directly to
________________________.
5. CONFIDENTIAL INFORMATION.
a) In the course of your employment, CyberCash will disclose to
you confidential information concerning, among other things,
CyberCash's existing and prospective clients, existing and
contemplated products and services, inventions, software, and
other matters and information received from CyberCash clients,
any CyberCash affiliated entities, and other third parties,
which information constitutes valuable assets of CyberCash
("Confidential Information"). The term "Confidential
Information" shall include all information that is not known
by, or generally available to the public at large and that
concerns the business or affairs of CyberCash and CyberCash's
affiliated entities, including, but not limited to,
technology, methods of operation, and information regarding
clients of a party hereto. CyberCash shall have no obligation
to specifically identify any information as constituting
Confidential Information in order for it to be entitled to
protection as such.
b) You will not, at any time during or after your employment,
without the prior written consent of CyberCash, use any
portion of the Confidential Information for any purpose other
than as contemplated herein, and you agree that:
i) You will hold all Confidential Information in the
strictest confidence, and will exercise at least the
same care with respect thereto as you exercise with
respect to your own proprietary and confidential
information, and will not, without CyberCash's prior
written consent,
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copy or disclose any portion thereof to any third
party except as contemplated herein; and
ii) You will not remove or permit to be removed from any
Confidential Information any notice placed thereon by
CyberCash indicating the confidential nature of, or
the proprietary right of CyberCash in such items.
c) The foregoing shall not prohibit or limit your use of
information (including, but not limited to, ideas, concepts,
know-how, techniques, and methodologies) which: (i) are
already known to you; (ii) are independently developed by you;
(iii) were received by you on a non-confidential basis, prior
to receipt from CyberCash, from a third party lawfully
possessing and lawfully entitled to disclose such information;
or (iv) becomes part of the public domain through
circumstances unrelated to any breach by you of this
Agreement.
d) In the event you become aware that any person or entity is
taking or threatens to take any action which would violate any
of the foregoing provisions were that person or entity a party
to this Agreement, you shall promptly and fully advise
CyberCash (with written confirmation as soon as practicable
thereafter) of all facts known to you concerning such action
or threatened action. You shall not in any way aid, abet or
encourage any such action or threatened action. You agree to
cooperate in all reasonable ways to prevent such action or
threatened action, and you agree to do all reasonable things
and cooperate in all reasonable ways as may be requested by
CyberCash to protect the trade secrets, and proprietary rights
of CyberCash in and to the Confidential Information.
6. OWNERSHIP OF WORK.
a) CyberCash shall own and you hereby assign to CyberCash all
right, title and interest in any invention, technique,
process, device, discovery, improvement or know-how,
patentable or not, including all trade secrets and copyrights,
in and to the following works created by you on CyberCash
premises or at any other location: (i) works that relate to or
are derived from the actual or anticipated business of
CyberCash, and (ii) works that result from or are derived from
any services performed by you or, if not actually performed,
services requested by CyberCash to be so performed
(collectively the "Contract Work"). CyberCash shall own such
Contract Work even if you create such Contract Work outside
normal working hours and regardless of the ownership of the
equipment used to create such Contract Work. Such Contract
Work shall include program codes and documentation.
b) To the extent that any such Contract Work does not qualify as
works made for hire under U.S. copyright law, you hereby
assign to CyberCash and agree to assign to CyberCash,
irrevocably and in perpetuity, any and all right, title and
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interest that you may have in and to the Contract Work.
Promptly upon CyberCash's request, you agree that you will
execute any appropriate assignment document.
c) If you alone or jointly with others make or conceive of any
invention, technique, process, or other know-how, whether
patentable or not, in the course of your employment, which
relates in any manner to the actual or anticipated business of
CyberCash (collectively, "Inventions"), you hereby assign to
CyberCash your entire right, title and interest in such
Inventions. You will disclose any such Inventions to an
officer of CyberCash and will, upon request, promptly sign a
specific assignment of title to CyberCash, and do anything
else reasonably necessary to enable CyberCash to secure
patent, trade secret or any other proprietary rights in the
United States or foreign countries.
d) You hereby agree, at CyberCash's request, to assist CyberCash
and its nominees to secure, maintain, and defend for
CyberCash's own benefit all copyrights and patents, and other
proprietary rights in the Contract Work in any and all
countries. Your obligations to assist CyberCash in obtaining
and enforcing its proprietary rights in the Contract Work
shall continue beyond the termination or expiration of this
Agreement, but CyberCash shall compensate you for any
assistance rendered after such expiration or termination at a
reasonable rate for time actually spent by you at CyberCash's
request.
e) You understand that you may continue to work on, and retain
rights to, projects of your own interest outside of CyberCash
which do not in any way compete or conflict with the current
or planned business of CyberCash provided that (i) they do not
fall under the paragraphs titled "Ownership of Works" above;
and (ii) they do not interfere in any way with your time at
work or duties for CyberCash. You understand that you are not
permitted to engage in any outside business activities while
employed by CyberCash which compete with or conflict with the
current or planned business of CyberCash.
7. EQUITABLE RELIEF.
Because any breach by you of the promises set forth in Sections 4 and
5 herein would cause irreparable harm and significant injury which dollar
amount would be difficult to ascertain and which in fact would not be
compensable by money damages alone, you agree that CyberCash shall have the
right to enforce this Agreement and any of such provisions by injunction,
specific performance or other equitable relief without prejudice to any other
rights and remedies that CyberCash may have for breach of this Agreement.
8. GOVERNING LAW AND SEVERABILITY.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California. If any provision of this Agreement is for
any reason found by a court of
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competent jurisdiction to be unenforceable, that provision will be enforced to
the maximum extent permissible, and the remainder of this Agreement shall
continue in full force and effect.
9. NOTICES.
Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified above or at such other address as
the party shall specify in writing. Such notice shall be deemed given upon
personal delivery to the appropriate address or three days after being sent by
certified or registered mail or Federal Express.
10. ENTIRE AGREEMENT AND MODIFICATION.
This Agreement contains the entire agreement between you and CyberCash
concerning the subject matter hereof and supersedes all prior agreements and
understandings. This Agreement may be modified only by a writing signed by the
parties hereto.
CyberCash, Inc.
By:
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Date: Name:
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Title:
-----------------------------------
Date:
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EXHIBIT F
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
This Non-Competition and Non-Solicitation Agreement (the "Agreement") is made
and entered into as of _______________, 1998 by and among CyberCash, Inc., a
Delaware corporation ("CyberCash"), and _______________ (the "Employee"), a
shareholder and employee of ICVERIFY, Inc., a California corporation
("ICVERIFY").
Recitals
A. Pursuant to that certain Agreement and Plan of Reorganization (the
"Merger Agreement"), dated as of April __, 1998, by and among CyberCash,
ICVERIFY, CC/ICV Acquisition Corporation, a Delaware corporation and wholly
owned subsidiary of CyberCash ("Acquisition Sub") and the Principal
Shareholders of ICVERIFY, ICVERIFY will merge (the "Merger") with and into
Acquisition Sub and Acquisition Sub shall continue as the Surviving Corporation
(the "Surviving Corporation"), and the Surviving Corporation will acquire all
of the outstanding capital stock of ICVERIFY together with all of the goodwill
of ICVERIFY related to the business of ICVERIFY being conducted and proposed to
be conducted by ICVERIFY ("ICVERIFY Business"). After the Effective Time (as
defined in the Merger Agreement), the Employee will become an employee of both
the Surviving Corporation and CyberCash.
B. The Employee has special knowledge concerning the ICVERIFY Business and,
in conjunction with the Merger Agreement, as an inducement to CyberCash
entering into the Merger Agreement and as a condition to the consummation of
the Merger, the Employee has agreed to refrain from competing with the ICVERIFY
Business for a reasonable period of time in order that CyberCash may obtain the
contemplated benefits from the acquisition of the ICVERIFY Business and the
goodwill associated therewith.
NOW, THEREFORE, in consideration of the mutual promises made in this
Agreement, the Employee and CyberCash agree as follows:
1. Non-Competition. Employee agrees that for a period of one year
(the "Restricted Period") from the date of this Agreement, Employee will not
directly or indirectly, as an owner, partner, stockholder, joint venturer,
corporate officer, director, employee, consultant, principal, trustee or
licenser, or in any other similar capacity whatsoever of or for any person,
firm, partnership, company or corporation (other than CyberCash or any of its
subsidiaries): (a) own, manage, operate, sell, control or participate in the
ownership, management, operation, sales or control of, or be connected in any
manner with any business that materially competes with ICVERIFY Business or (b)
solicit divert or take away, or attempt to solicit, divert or take away, the
business or patronage of any of the clients, customers or suppliers of
ICVERIFY, CyberCash or its subsidiaries which were contracted, solicited or
served by the Employee while an employee of ICVERIFY or CyberCash or its
subsidiaries. Notwithstanding the foregoing, Employee is permitted to own,
individually, as a passive investor up to a 2% interest in any publicly traded
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entity. The restrictions set forth in this Paragraph 1 shall be effective
within all cities and counties of California, all cities, counties and states
of the United States and all other countries in the world.
2. Confidentiality. Employee further agrees that, during the
Restricted Period, he will not directly or indirectly, for himself or for any
other party, divulge, communicate, use to the detriment of CyberCash or use for
the benefit of any other person or persons, except as expressly authorized by
CyberCash, or misuse in any way, any Confidential Information of ICVERIFY,
CyberCash, or any of its subsidiaries known or acquired by such Employee as an
employee of ICVERIFY, CyberCash or its subsidiaries. For the purposes of this
Agreement, "Confidential Information" shall mean any information, technical
data, or know-how, including but not limited to, that which relates to
research, products, services, customers, markets, software, development,
inventions, processes, designs, drawings, engineering, marketing or finances,
but shall not include any such information, technical data or know-how which
(i) prior to or after the date of this Agreement becomes part of the public
knowledge or literature, not as a result of any inaction or action of Employee,
(ii) is approved for release, in writing, by CyberCash or (iii) is disclosed to
the Employee by a third party without restriction.
3. Non-Solicitation. While the Employee is employed by CyberCash
and for a period of one year after the termination or cessation of such
employment for any reason, the Employee will not directly or indirectly recruit
or solicit any employee of CyberCash or its subsidiaries, or induce or attempt
to induce any employee of CyberCash or its subsidiaries to terminate his or her
employment with, or otherwise cease his or her relationship with CyberCash or
its subsidiaries.
4. Condition of Merger; Consideration. Employee agrees that the
covenants provided for in Paragraphs 1 and 2, including the term of the
Restricted Period and the geographical area encompassed in such covenants, are
necessary and reasonable in order to protect CyberCash in the conduct of the
ICVERIFY Business and the utilization of its assets, tangible and intangible,
including goodwill, and to preserve and protect the tangible and intangible
assets of ICVERIFY, including ICVERIFY's goodwill, and the customers and trade
secrets of which Employee has and will have knowledge, and in consideration for
CyberCash's entering into and performing under the Merger Agreement. Both
CyberCash and Employee agree that the execution, delivery and performance of
this Agreement is in consideration of and a condition to the consummation of
the Merger and the parties do not ascribe and cannot ascribe a separate
consideration or value to the covenants provided in this Agreement.
5. Severability. The covenants contained in this Agreement shall
be construed as a series of separate covenants, one for each of the cities and
counties of California and the cities and counties in each of the states of the
United States of America and one for each country in the world other than the
United States. It is the desire and intent of the parties that these covenants
shall be enforced to the fullest extent permissible under applicable law. If
any particular provision or portion of this Agreement shall be adjudicated to
be invalid or unenforceable, this Agreement shall be deemed amended to revise
that provision or portion to the minimum extent necessary to render them
enforceable. Such amendment shall apply only with respect to the
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operation of the paragraph in the particular jurisdiction in which such
adjudication was made. If, in any judicial proceeding, a court of competent
jurisdiction shall refuse to enforce any covenant contained in this Agreement
(including, without limitation, the separate geographical covenants deemed
included in this Agreement), then such unenforceable covenants shall be deemed
deleted from this Agreement to the extent necessary to permit the remaining
separate covenants to be enforced.
6. Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modifications, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of CyberCash
(other than the Employee). No waiver by any party of any breach of, or
compliance with, any condition or provision of this Agreement by another party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
7. Injunctive Relief. It is expressly agreed between the parties
that monetary damages would be inadequate to compensate CyberCash for any
breach by Employee of the covenants and agreements set forth in this Agreement.
Accordingly, Employee agrees and acknowledges that any such violation or
threatened violation will cause irreparable injury CyberCash and that, in
addition to any other remedies at law or in equity which may be available,
CyberCash shall be entitled to obtain preliminary and permanent injunctive
relief against any breach or threatened breach of this Agreement or the
continuation of any such breach by Employee, without the necessity of proving
actual damages.
8. Assignability. CyberCash may assign this Agreement to any
other corporation or entity which acquires (whether by purchase, merger,
consolidation or otherwise) all or substantially all of the business and/or
assets of CyberCash.
9. Governing Law; Jurisdiction. This Agreement shall be governed,
construed and enforced in accordance with the laws of the State of California.
All disputes arising under this Agreement shall be brought in the federal and
state courts located in California, as permitted by law, and each of the
parties consents to the personal jurisdiction, service of process and venue of
such courts.
10. Entire Agreement. This Agreement, the Merger Agreement and the
Employment Agreement between CyberCash and Employee, dated of even date
herewith (the "Employment Agreement"), constitute the entire agreement between
the parties concerning the matters set forth in this Agreement and no
representations, warranties or inducements, express or implied, have been made
by either party to the other except as set forth in this Agreement, the Merger
Agreement and the Employment Agreement.
11. Counterparts. This Agreement may be executed in counterpart
copies, all of which when taken together shall be deemed to constitute one and
the same instrument.
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THE EMPLOYEE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT
AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
CYBERCASH, INC.:
Date: By:
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(print name and title)
EMPLOYEE:
Date:
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(print name)
Address:
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