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EXHIBIT 2.03
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
December 23, 1999 ("Agreement Date"), by and among Xxxxxxxx.xxx, Inc., a
Delaware corporation ("Acquirer"), Pharos Technologies, Inc., a California
corporation ("Target"), and Minimee, Inc., a Delaware corporation that is a
wholly-owned subsidiary of Acquirer ("Minimee").
RECITALS
A. The parties intend that, subject to the terms and conditions hereinafter
set forth, Minimee will merge with and into Target in a reverse-triangular
merger (the "Merger"), with Target to be the surviving corporation of the
Merger, all pursuant to the terms and conditions of this Agreement, the
applicable provisions of the General Corporation Law of the State of Delaware
("Delaware Law") and the applicable provisions of the California Corporations
Code of the State of California ("California Law"). Immediately prior to the
effective time of the Merger (the "Effective Time"), all outstanding convertible
Preferred Stock of Target, ("Target Preferred Stock"), will be converted into
Target Common Stock ("Target Common Stock"). Upon the effectiveness of the
Merger, all the outstanding Common Stock and Common Stock equivalents of Target
will be converted into Common Stock and Common Stock equivalents of Acquirer,
all in the manner and on the basis determined herein.
B. The Merger is intended to be treated in accordance with the purchase
method of accounting and as a tax-free reorganization pursuant to the provisions
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), by virtue of the provisions of Section 368(a)(2)(E) of the Code.
C. Concurrently herewith, the directors, officers and 2% shareholders of
Target (including Xxxxxx Publishing Company) are entering into Voting Agreements
in which they agree to vote all shares of Target capital stock held by them in
favor of the Merger.
NOW, THEREFORE, the parties hereto agree as follows:
1. PLAN OF MERGER
1.1 The Merger. A Certificate of Merger containing only the
information required by Section 251(d) of the Delaware Law (the "Delaware
Certificate of Merger") will be filed with the Secretary of State of the State
of Delaware as soon as practicable after the Closing (as defined in Section 6.1
below). An Agreement of Merger containing only the information required by
Section 1103 of the California Law (the "California Agreement of Merger") will
be filed with the Secretary of State of the State of California as soon as
practicable after the Closing (as defined in Section 6.1 below). The Effective
Time will occur upon the filing of both the Delaware Certificate of Merger with
the Delaware Secretary of State and the California Agreement of Merger with the
California Secretary of State, or on such other date as the parties hereto may
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mutually agree upon. Subject to the terms and conditions of this Agreement,
Minimee will be merged with and into Target in a statutory merger pursuant to
this Agreement and in accordance with applicable provisions of Delaware Law and
California Law as follows:
1.1.1 Conversion of Target Stock Immediately prior to the Effective
Time, all outstanding shares of Target Preferred Stock (or rights to purchase
same) shall be converted into shares of Target Common Stock (the "CONVERSION"),
and then each share of Target Common Stock then issued and outstanding, other
than shares, if any, for which dissenters' rights have been or will be perfected
in compliance with California Law, will, by virtue of the Merger and at the
Effective Time, and without further action on the part of any holder thereof, be
converted into the right to receive a fraction (the "APPLICABLE FRACTION") of a
fully paid and nonassessable share of Acquirer Common Stock, $0.001 par value
("Acquirer Common Stock"), the numerator of which is 2,000,000 shares and the
denominator of which is the total number of shares of Target Common Stock
Equivalents (as defined below). For purposes of this Section, "Target Common
Stock Equivalents" means the total number of shares of Target Common Stock
outstanding (after giving effect to the Conversion), plus the total number of
shares of Target Common Stock that could be obtained through the exercise or
conversion of all other outstanding rights, options and convertible securities
(whether or not exercisable or convertible), in each case immediately prior to
the Effective Time.
1.1.2 Assumptions of Options. Effective at the Effective Time,
Acquirer will assume all the outstanding options (whether vested or unvested) to
purchase Target Common Stock listed on Item 2.3 (as described in Section 2.3(b)
below) (collectively, the "Target Options"). Each Target Option shall be
converted into an option (an "Acquirer Option"), to purchase that number of
shares of Acquirer Common Stock that is equal to the number of shares of Target
Common Stock that could be purchased pursuant to the Target Option immediately
prior to the Effective Time multiplied by the Applicable Fraction (determined in
accordance with Section 1.1.1 hereof), with fractional shares being rounded down
to the nearest whole share. The exercise price per share of Acquirer Common
Stock purchasable under each such Acquirer Option shall be equal to the exercise
price per share of Target Common Stock under the corresponding Target Option
divided by the Applicable Fraction, rounded up to the nearest tenth of a cent.
All of the other terms and conditions of each Acquirer Option will be the same
in all material respects to the corresponding Target Option, except as otherwise
expressly provided in the Employment Agreements (as defined below). No cash will
be paid in lieu of fractional shares which are rounded down pursuant to this
Section.
1.1.3 Note. Upon the Closing, that certain Promissory Note dated
in November 1999 in the principal amount of $500,000 (the "Note"), shall be
terminated and cancelled per its terms.
1.2 Fractional Shares. No fractional shares of Acquirer Common Stock
will be issued in connection with the Merger, but in lieu thereof, the holder of
any shares of Target Company Stock who would otherwise be entitled to receive a
fraction of a share of Acquirer Common Stock will receive from Acquirer,
promptly after the Effective Time, a certificate representing a whole share of
Acquirer Common Stock.
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1.3 Escrow Agreement. Pursuant to an Escrow Agreement to be entered
into on or before the Closing Date in the form of Exhibit A (the "Escrow
Agreement"), among Acquirer, Target, the Representative (as defined in the
preamble paragraph of the Escrow Agreement hereof) of the Target Shareholders
and State Street Bank and Trust Company of California, N.A., (the "Escrow
Agent"), Acquirer will withhold from the shares of Acquirer Common Stock
otherwise distributable to Xxxxxxx Xxxxxxxx, Xxxxx Xxxxx and Xxxxx Xxxxxxxxx
(the "Founders") as a result of the Merger an aggregate of 150,000 of Acquirer
Common Stock (the "Escrow Shares"), with 60,000 of such Escrow Shares being
withheld from shares otherwise distributable to Xxxxxxx Xxxxxxxx, 60,000 of such
Escrow Shares being withheld from shares otherwise distributable to Xxxxx Xxxxx
and 30,000 of such Escrow Shares being withheld from shares otherwise
distributable to Xxxxx Xxxxxxxxx. None of the Escrow Shares shall be Unvested
Shares (as that term is defined in Section 8.13). Promptly after the Closing
Date, Acquirer will deposit or cause to be deposited in escrow pursuant to the
Escrow Agreement, the Escrow Shares. The Escrow Shares will be held in escrow as
collateral for the indemnification obligations of Target under Section 10.2
below and pursuant to the Escrow Agreement pending release from escrow pursuant
to the Escrow Agreement.
1.4 Effects of the Merger. At the Effective Time, the parties agree
that the following shall occur, whether by law or by action of Acquirer: (a) the
separate existence of Minimee will cease and Minimee will be merged with and
into Target and Target will be the surviving corporation pursuant to the terms
of this Agreement (the "Surviving Corporation"); (b) the Certificate of
Incorporation and Bylaws of Minimee will become the Certificate of Incorporation
and Bylaws of the Surviving Corporation; (c) each share of Target Common Stock
and each of the Target Outstanding Options will be converted as provided in this
Section 1; (d) the directors and executive officers of Minimee will become the
directors and executive officers of Target; and (e) the Merger will, at and
after the Effective Time, have all of the effects provided by applicable law.
1.5 Further Assurances. Target agree that if, at any time after the
Effective Time, Acquirer considers or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable to vest, perfect
or confirm in Acquirer or the Surviving Corporation title to any property or
rights of Target as provided herein, Acquirer and any of its officers are hereby
authorized by Target to execute and deliver all such proper deeds, assignments
and assurances and do all other things necessary or desirable to vest, perfect
or confirm title to such property or rights in Acquirer or the Surviving
Corporation and otherwise to carry out the purposes of this Agreement, in the
name of Target or otherwise.
1.6 Private Placement; Certificate Legends. The shares of Acquirer
Common Stock to be issued pursuant to this Section 1 shall not have been
registered and shall be characterized as "restricted securities" under the
federal securities laws, and under such laws such shares may be resold without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), only in certain limited circumstances. Each certificate evidencing shares
of Acquirer 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. Specifically, the shares
issuable in connection with the Merger will not be eligible for resale under
Rule 144 for a period of one year following the Merger; provided, however, that
Section 10.3 below provides for certain registration rights with respect to such
shares.
1.7 Tax-Free Reorganization. The parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Section 368(a)(1)(A) of the Code, by virtue of
the provisions of Section 368(a)(2)(E) of the Code. For purposes of this Section
1.7, Acquirer and Target agree to report the transactions contemplated in this
Agreement in a manner consistent with the reorganization treatment they intend
and will not take any position inconsistent therewith in any tax return, refund
claim, litigation or otherwise unless required to do so by any governmental
authority. The shares of Acquirer Common Stock and the Acquirer Options issued
in the Merger will be issued solely in exchange for the Target capital stock and
Target Options pursuant to this Agreement, and no other transaction other than
the Merger represents, provides for or is intended to be an adjustment to the
consideration paid for the Target capital stock and Target Options. Except for
the cash paid in lieu of fractional shares, no consideration that could
constitute "other property" within the meaning of Section 356 of the Code will
be paid by Acquirer for shares of Target capital stock or Target Options in the
Merger. Acquirer, Minimee and Target will use all reasonable best efforts prior
to the Effective Time to cause the Merger to qualify as a reorganization under
Section 368(a)(1)(A) of the Code. At the Closing (as defined in Section 6.1
hereof), officers of Target and officers of Acquirer will execute and deliver
officers' certificates that have been mutually agreed and approved by the
parties' respective counsel. Following the Effective Time, Acquirer and Target
will not take any action (or fail to take any action) where such action (or
failure to take such action) would result in a breach of the representations
contained in the Officers' Certificates described in Sections 7.6 and 8.11.
1.8 Purchase Accounting. The parties intend that the Merger be
treated as a purchase for accounting purposes.
1.9 Dissenting Shares. Holders of shares of Target capital stock who
have complied with all requirements for perfecting shareholders' rights of
appraisal, as set forth in Section 1300 and the following sections of the
California Law, shall be entitled to their rights under the California Law with
respect to such shares ("Dissenting Shares").
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2. REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants that, except as disclosed in the
Target disclosure letter (the "Target Disclosure Letter") delivered by Target to
Acquirer herewith as amended from time to time in non-material respects prior to
Closing:
2.1 Organization and Good Standing. Except as disclosed in Item 2.1,
Target is a corporation duly organized, validly existing and in good standing
under the laws of the State of California, has the corporate power and authority
to own, operate and lease its properties and to carry on its business as now
conducted and is qualified as a foreign corporation in each jurisdiction where
the nature of its business or location of its properties requires such
qualification and where the failure to qualify would have a Material Adverse
Effect (as defined below) on Target.
2.2 Power, Authorization and Validity.
2.2.1 Target has the corporate right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement and
under the Escrow Agreement, the Employment Agreements and the Noncompetition
Agreements (the "Target Ancillary Agreements"). This Agreement and the Target
Ancillary Agreements have been or will be duly executed and delivered by Target.
The execution, delivery and performance of this Agreement and the Target
Ancillary Agreements have been duly and validly approved and authorized by all
necessary corporate action on the part of Target (other than the approval and
adoption of this Agreement by the shareholders of Target as required under
California Law). The Board of Directors of Target (at a meeting duly called and
held or by action by unanimous written consent) has (a) unanimously determined
that the Merger is advisable and fair and in the best interests of Target and
its shareholders, (b) unanimously approved the execution, delivery and
performance of this Agreement by the Target and has unanimously approved the
Merger, and (c) unanimously recommended the adoption and approval of this
Agreement and the Merger by the Target shareholders and directed that this
Agreement and the Merger be submitted for consideration by the Target's
shareholders at the Shareholders' Meeting (as defined in Section 4.15). The
affirmative vote of the holders of a majority of the shares of Target Common
Stock and Preferred Stock voting as a single class, as well as the affirmative
vote of the holders of at least 50% of the outstanding shares of Target
Preferred Stock outstanding on the record date for the Shareholders' Meeting
(the "Required Vote") is the only vote of the holders of any class or series of
the Company's capital stock necessary to adopt and approve this Agreement, the
Merger and the other transactions contemplated by this Agreement. The
signatories of the Voting Agreements signed concurrently herewith own or have
the power to vote in the aggregate shares of Target Stock which if all voted
would have the Required Vote.
2.2.2 No filing, authorization or approval with or of any
governmental entity is necessary or required to be made or obtained prior to the
Effective Time to enable Target to enter into, and to perform its obligations
under, this Agreement and the Target Ancillary Agreements, except for (a) the
filing of the California Agreement of Merger with the Secretary of State of the
State of California, the filing of such officers' certificates and other
documents as are required to effectuate the Merger under California law and the
filing of appropriate documents with the relevant authorities of the states
other than California in which Target is qualified to do
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business, if any, (b) such filings as may be required to comply with federal and
state securities laws, and (c) the approval of the Target Shareholders of the
transactions contemplated hereby.
2.2.3 Assuming the due authorization, execution and delivery by
Acquirer and, if applicable, Minimee, this Agreement and the Target Ancillary
Agreements are, or when executed and delivered by Target, and the other parties
thereto will be, valid and binding obligations of Target, enforceable against
Target and against the Escrow Shares deposited pursuant to the Escrow Agreement
in accordance with their respective terms, subject to approval of Target's
shareholders, except as to the effect, if any, of (a) applicable bankruptcy and
other similar laws affecting the rights of creditors generally, (b) rules of law
governing specific performance, injunctive relief and other equitable remedies,
and (c) the enforceability of provisions requiring indemnification in connection
with the offering, issuance or sale of securities.
2.3 Capitalization.
(a) Authorized/Outstanding Capital Stock. As of the date hereof,
the authorized capital stock of Target consists of 10,000,000 shares of Common
Stock, no par value, of which 4,007,000 shares are issued and outstanding, and
1,886,793 shares of convertible Preferred Stock, no par value, of which all
1,886,793 shares are issued and outstanding, which are convertible into an
aggregate of 1,886,793 shares of Common Stock. As of the date hereof, an
aggregate of 2,500,000 shares of Target Common Stock are reserved and authorized
for issuance pursuant to the Target 1998 Stock Option Plan ("Plan"), of which
options to purchase a total of 2,055,109 shares of Target Common Stock are
outstanding and no shares of capital stock of Target (the "Target Stock") have
been reserved for issuance outside of the Plan, other than such shares of Target
Common Stock which have been reserved for issuance upon conversion of the Target
Preferred Stock. All issued and outstanding shares of Target Stock have been
duly authorized and validly issued, are fully paid and nonassessable, are not
subject to any right of rescission and have been offered, issued, sold and
delivered by Target in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws. All outstanding Target Options have been duly authorized
and validly issued, are not subject to any right of rescission and have been
offered and granted by Target in compliance with all registration or
qualification requirements (or applicable exemptions therefrom) of applicable
federal and state securities laws. A list of all holders of Target Stock and
options to purchase Target Stock, and the number of shares and options held by
each, in each case as of the date hereof, has been delivered by Target to
Acquirer herewith as Item 2.3. No Target Options are subject to acceleration of
vesting as a result of the Merger.
(b) Options/Rights. Except as disclosed in Section 2.3(a) or on
Item 2.3, there are no options, warrants, calls, commitments, conversion
privileges or preemptive or other rights or agreements outstanding to purchase
any of Target's authorized but unissued capital stock or any securities
convertible into or exchangeable for shares of Target Stock or obligating Target
to grant, extend, or enter into any such option, warrant, call, right,
commitment, conversion privilege or other right or agreement, and there is no
liability for dividends accrued but unpaid. Except as described in Item 2.3,
there are no voting agreements, rights of first refusal or other restrictions
(other than normal restrictions on transfer under applicable federal and state
securities laws) applicable to any of Target's outstanding securities. Except as
described in Item
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2.3 and as provided in this Agreement, Target is not under any obligation to
register under the Securities Act any of its presently outstanding securities or
any securities that may be subsequently issued.
2.4 Subsidiaries and Guaranties. Target does not have any
subsidiaries or any interest, direct or indirect, in any corporation,
partnership, joint venture or other business entity. Target is not a guarantor
of any obligation of a third party, whether or not such third party is related
to or affiliated with Target.
2.5 No Violation of Existing Agreements or Laws. Except as disclosed
in Item 2.5, neither the execution and delivery of this Agreement or any Target
Ancillary Agreement, nor the consummation of the transactions provided for
herein or therein, will conflict with, or (with or without notice or lapse of
time, or both) result in a termination, breach or violation of (a) any provision
of the Articles of Incorporation or Bylaws of Target, as currently in effect,
(b) any instrument or contract to which Target or is a party or by which Target
is bound or (c) any federal, state, local or foreign judgment, writ, decree,
order, statute, rule or regulation applicable to Target or its assets or
properties, other than, with respect to (a), (b) and (c), any such conflict,
termination, breach or violation that would not have a Material Adverse Effect
on Target. The consummation of the Merger and succession by the Surviving
Corporation to all rights, licenses, franchises, leases and agreements of Target
in and of itself will not require the consent of any third party, except as
disclosed in Item 2.5.
2.6 Litigation. There is no action, proceeding or claim or to the
knowledge of Target investigation pending against Target before any court or
administrative agency nor to the knowledge of Target is there any basis
therefor, nor to the knowledge of Target has any party threatened same. Except
as disclosed in Item 2.6, to the knowledge of Target there is no basis for any
shareholder or former shareholder of Target, or any other person, firm,
corporation or entity to assert a claim against Target, Acquirer or the
Surviving Corporation as successor in interest to Target based upon: (a)
ownership or rights to ownership of any shares of Target Stock or other
securities, (b) any rights as a Target securities holder, including, without
limitation, any option or other right to acquire any Target securities, any
preemptive rights or any rights to notice or to vote or (c) any rights under any
agreement between Target and any Target securities holder or former Target
securities holder in such holder's capacity as such. There is no action, suit,
proceeding, claim, arbitration or investigation pending or as to which Target
has received any notice of assertion against Target, which in any manner
challenges or seeks to prevent, enjoin, materially alter or materially delay any
of the transactions contemplated by this Agreement.
2.7 Target Financial Statements. Target has delivered to Acquirer in
Item 2.7 Target's unaudited balance sheet as of December 31, 1998 (respectively,
the "Target Balance Sheet" and the "Balance Sheet Date") and Target's unaudited
balance sheet as of October 31, 1999 (respectively, the "Target Latest Balance
Sheet" and the "Latest Balance Sheet Date") and Target's unaudited income
statement for the twelve months ended December 31, 1998 and December 31, 1999
respectively and unaudited income statements and statements of cash flows for
the quarters ended March 31, June 30, and September 30, 1999 and for the month
ended October 31, 1999 (collectively, the "Target Financial Statements"). The
Target Financial Statements (a) are in accordance with the books and records of
Target, (b) fairly and accurately represent the financial
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condition of Target at the respective dates specified therein and the results of
operations for the respective periods specified therein and (c) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, subject to year-end audit adjustments and the absence of
footnotes. Except as disclosed in Item 2.7, Target has no debt, liability or
obligation of any nature, whether accrued, absolute or contingent, and whether
due or to become due, that would be required under generally accepted accounting
principles ("GAAP") to be reflected on the liabilities column of a balance
sheet, prepared as of the date hereof in accordance with GAAP and is not
reflected, reserved against or disclosed in the Target Financial Statements,
except for those that may have been incurred after the Latest Balance Sheet Date
in the ordinary course of business consistent with past practice ("Ordinary
Course").
2.8 Taxes.
(a) For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means any and all taxes, including without limitation (i) any income, profits,
alternative or add-on minimum tax, gross receipts, sales, use, value-added, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, net worth, premium, property,
environmental or windfall profit tax, custom, duty or other tax governmental fee
or assessment or charge of any kind whatsoever, together with any interest or
any penalty, addition to tax or additional amount imposed by any governmental
entity responsible for the imposition of any such tax (domestic or foreign) (a
"Taxing Authority"), (ii) any liability for the payment of any amounts of the
type described in clause (i) above as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) above
as a result of any express or implied obligation to indemnify any other person.
(b) All Tax returns, statements, reports and forms (including
estimated Tax returns and reports and information returns and reports) required
to be filed with any Taxing Authority with respect to any Taxable period ending
on or before the Effective Time, by or on behalf of Target (collectively, the
"Target Returns"), have been or will be filed when due (including any extensions
of such due date), and all amounts shown to be due thereon on or before the
Effective Time have been or will be paid on or before such date. The Target
Financial Statements fully accrue all actual and contingent liabilities for
Taxes with respect to all periods through the dates thereof. The Target Latest
Balance Sheet fully accrues consistent with past practices and in accordance
with GAAP all actual and contingent liabilities for Taxes (i) with respect to
all periods through the Latest Balance Sheet Date, and (ii) with respect to all
transactions and events occurring on or prior to such date. All information set
forth in the notes to the Target Financial Statements relating to Tax matters is
true, complete and accurate in all material respects.
(c) No Tax liability since January 1, 1999 has been incurred
other than in the ordinary course of business, and adequate provision has been
made for all Taxes since that date in accordance with past practices on a timely
basis. Target has timely withheld and paid to the applicable financial
institution or Taxing Authority all amounts required to be withheld. Copies of
audit reports, if any, previously have been provided to Acquirer or are with
respect to
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Target Returns for which the applicable period for assessment under applicable
law, after giving effect to extensions or waivers, has expired. Target has not
granted any extension or waiver of the limitation period applicable to any
Target Returns.
(d) There is no claim, audit, action, suit, proceeding, or
investigation now pending of which Target has received notice or, to the best
knowledge of Target, threatened against or with respect to Target in respect of
any Tax, nor to the best knowledge of Target is there any basis therefor. There
are no liabilities for Taxes with respect to any notice of deficiency or similar
document of any Tax Authority received by Target which have not been satisfied
in full (including liabilities for interest, additions to tax and penalties
thereon and related expenses). Neither Target nor any person on behalf of Target
has entered into or will enter into any agreement or consent pursuant to Section
341(f) of the Code. There are no liens for taxes upon the assets of Target
except liens for current Taxes not yet due. Except as disclosed in Item 2.8,
Target has not been and will not be required to include any adjustment in
Taxable income for any Tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions, events or accounting methods employed prior to the
Closing.
(e) There is no contract, agreement, plan or arrangement,
including without limitation the provisions of this Agreement and the Employment
Agreements, covering any employee, director or independent contractor or former
employee, director or independent contractor of Target that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Section 280G or Section 162 of the Code (as determined
without regard to Section 280G(b)(4)). Other than pursuant to this Agreement,
Target is not a party to or bound by (or will prior to the Effective Date become
a party to or bound by) any tax indemnity, tax sharing or tax allocation
agreement. Target has previously provided or made available to Acquirer true and
correct copies of all Target Returns, and, as reasonably requested by Acquirer,
prior to or following the date hereof, presently existing information
statements, reports, work papers, Tax opinions and memoranda and other Tax data
and documents.
Target has not been at any time within the past five years, and
will not be prior to the Effective Time, a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code.
2.9 Title to Properties. Except as disclosed in Item 2.9, Target has
good and marketable title to all of its material assets and properties
(including but not limited to those shown on the balance sheet as of the Latest
Balance Sheet Date included in the Target Financial Statements), free and clear
of all liens, charges or encumbrances (other than (i) liens for taxes not yet
due and payable; (ii) liens reflected on the Latest Balance Sheet as of the
Latest Balance Sheet Date; (iii) liens reflected on the Balance Sheet Date as of
the Balance Sheet Date; (iv) liens which are not material in character, amount
or extent, and which do not materially detract from the value or materially
interfere with the use of the property subject thereto or affected thereby; and
(v) contractor's liens and liens with respect to taxes that are not yet due and
payable (the foregoing (i), (ii), (iii), (iv) and (v), "Permitted Liens"). The
machinery and equipment included in such assets are in good condition and
repair, normal wear and tear excepted, and all leases of real or personal
property to which Target is a party are fully effective and afford Target
peaceful and undisturbed possession of the subject matter of the lease. To the
best knowledge of Target, Target is not in
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violation of any zoning, building, safety or environmental ordinance, regulation
or requirement or other law or regulation applicable to the operation of owned
or leased real property which would have a Material Adverse Effect on Target,
and Target has not received any notice of such violation with which it has not
complied or had waived.
2.10 Absence of Certain Changes. From the Latest Balance Sheet Date
to the date of this Agreement, Target has carried on its business in the
Ordinary Course substantially in accordance with the procedures and practices in
effect on the Balance Sheet Date. Except as disclosed in Item 2.10 or in
connection with the transactions contemplated by this Agreement and the Target
Ancillary Agreements, from the Latest Balance Sheet Date there has not been with
respect to Target:
(a) any change in the financial condition, properties, assets,
liabilities, business, material rights relating to Intellectual Property (as
defined below), results of operations, which change by itself or in conjunction
with all other such changes, whether or not arising in the Ordinary Course, have
had or is reasonably likely to have a Material Adverse Effect on Target;
(b) any material contingent liability incurred thereby as
guarantor or surety with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the assets
or properties thereof (other than Permitted Liens);
(d) any obligation or liability incurred thereby other than in
the Ordinary Course, which obligations or liabilities do not exceed in the
aggregate $25,000;
(e) any purchase, license, sale or other disposition, or any
agreement or other arrangement for the purchase, license, sale or other
disposition, of any of the properties, assets or goodwill of Target other than
in the Ordinary Course;
(f) any damage, destruction or loss, whether or not covered by
insurance, that has had a Material Adverse Effect on Target;
(g) any declaration, setting aside or payment of any dividend on,
or the making of any other distribution in respect of, the capital stock
thereof, any split, stock dividend, combination or recapitalization of the
capital stock thereof, any direct or indirect redemption, purchase or other
acquisition of the capital stock thereof;
(h) any labor dispute or claim of unfair labor practices, any
change in the compensation payable or to become payable to any of its officers,
employees or agents (other than pursuant to existing agreements set out on Item
2.10(h) or, in the case of non-officers, in the Ordinary Course), or any bonus
payment or arrangement made to or with any of such officers, employees or agents
other than amounts paid pursuant to Employee Plans, as that term is defined in
Section 2.15.3, disclosed in Item 2.15.3 or bonuses in an aggregate amount not
to exceed $50,000 for all persons to whom bonuses are paid;
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(i) any loss of key executive, management or development
personnel thereof;
(j) any payment or discharge of a lien or liability thereof,
which lien or liability was not either (i) shown on the balance sheet as of the
Latest Balance Sheet Date included in the Target Financial Statements or (ii)
incurred in the Ordinary Course after the Latest Balance Sheet Date;
(k) any obligation or liability incurred thereby to any of its
officers, directors, shareholders or affiliates, or any loans or advances made
thereby to any of its officers, directors, shareholders or affiliates, except
normal compensation and expense allowances payable to officers and employees;
(l) any loss on or prior to the date of this Agreement of one or
more Material Customers (as defined in Section 2.24) or such number of customers
which together represent a material amount of business or any indication that
such a loss is, or losses are, reasonably likely, other than in connection with
completion of projects and normal customer turnover in the Ordinary Course;
(m) any amendment or change in the Articles of Incorporation or
Bylaws of Target;
(n) any issuance or sale of any debt or equity securities
(including but not limited to stock) thereby or of any options or other rights
to acquire from Target, directly or indirectly, any debt or equity securities
(including but not limited to stock) thereof other than the issuance of Target
Options issued pursuant to the Plan and included in the 2,127,109 shares subject
to outstanding Target Options listed in Section 2.3(a) and shares of Target
Common Stock issued upon exercise of Target Options issued pursuant to the Plan;
provided, however, that modification of Target Options to permit exercise with a
promissory note and exercise of such options with such note shall not be a
breach of this representation, so long as such modification is undertaken by
Target Counsel at the sole expense of Target shareholders and/or optionees; or
(o) any termination, or any extension, amendment, relinquishment,
expiration or non-renewal that to Target's knowledge resulted from third party
dissatisfaction with Target's services or contract performance, of any contract
to which Target is a party, or any written request received by Target for or to
effect any of the foregoing, other than, in each such case, where any such
action or requested action would not have a Material Adverse Effect on Target.
2.11 Agreements and Commitments. As of the date hereof, except as
disclosed in Item 2.11 delivered by Target to Acquirer herewith, or as disclosed
in Item 2.12, Item 2.15.3 or Item 2.15.6 as required by Section 2.12, Section
2.15.3 or Section 2.15.6, as the case may be, on the date of this Agreement
Target is not a party or subject to any oral or written executory contract or,
to the extent expressly enumerated in paragraphs below, commitment, that is
material to Target, its financial condition, business or prospects, including
but not limited to the following:
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(a) Any contract, commitment, letter agreement or purchase order
providing for payments by or to Target in an aggregate amount of (i) $25,000 or
more in the Ordinary Course or (ii) $25,000 or more not in the Ordinary Course;
(b) Any license agreement under which Target is licensor (except
for any nonexclusive software license granted by Target to customers in the
Ordinary Course); or under which Target is licensee (except for standard "shrink
wrap" licenses for off-the-shelf software products with a license fee or
purchase price of under $5,000 per copy or seat);
(c) Any material agreement by Target to encumber, transfer or
sell rights in or with respect to any material item of Target Intellectual
Property (as defined in Section 2.12 hereof), excluding non-exclusive software
licenses;
(d) Any agreement for the sale or lease of real or tangible
personal property involving more than $25,000 per year;
(e) Any dealer, distributor, sales representative, original
equipment manufacturer, value-added remarketer or other agreement for the
distribution of Target's products;
(f) Any franchise agreement;
(g) Any stock redemption or agreement obligating Target to
purchase its capital stock;
(h) Any joint venture contract or arrangement or any other
agreement that involves a sharing of profits with other persons or the payment
of royalties to any other person, excluding non-exclusive software licenses;
(i) Any instrument evidencing indebtedness for borrowed money by
way of direct loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee or otherwise, except for trade indebtedness or any
advance to any employee of Target incurred or made in the Ordinary Course, and
except as disclosed in the Target Financial Statements;
(j) Any contract containing covenants purporting to limit
Target's freedom to compete in any line of business, market or industry and/or
in any geographic area; or
(k) Any contract for the employment of any officer, employee or
consultant of Target or any other type of contract or commitment with any
officer, employee or consultant of Target that is not immediately terminable by
Target without cost or other liability.
Except as noted in Item 2.5, all agreements, obligations and
commitments disclosed in Item 2.11, Item 2.12, Item 2.15.3 or Item 2.15.6 as
required by Section 2.11, Section 2.12, Section 2.15.3 or Section 2.15.6, as the
case may be, are valid and in full force and effect, except where the failure to
be such would not have a Material Adverse Effect on Target. Except as noted on
Item 2.11, neither Target nor any other party is in breach of or default under
any material term of any such agreement, obligation or commitment nor has such
other party threatened such a
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breach or default. Target is not a party to any contract or arrangement that it
believes will have a Material Adverse Effect on Target. Target does not have
liability for renegotiation of government contracts or subcontracts which can
reasonably be expected to have a Material Adverse Effect on Target.
2.12 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property"
means:
(i) all issued patents, reissued or reexamined patents,
revivals of patents, utility models, certificates of invention, registrations of
patents and extensions thereof, regardless of country or formal name
(collectively, "Issued Patents");
(ii) all published or unpublished nonprovisional and
provisional patent applications, reexamination proceedings, invention
disclosures and records of invention (collectively "Patent Applications" and,
with the Issued Patents, the "Patents");
(iii) all copyrights, copyrightable works, semiconductor
topography and mask work rights, including all rights of authorship, use,
publication, reproduction, distribution, performance transformation, moral
rights and rights of ownership of copyrightable works, semiconductor topography
works and mask works, and all rights to register and obtain renewals and
extensions of registrations, together with all other interests accruing by
reason of international copyright, semiconductor topography and mask work
conventions (collectively, "Copyrights");
(iv) trademarks, registered trademarks, applications for
registration of trademarks, service marks, registered service marks,
applications for registration of service marks, trade names, registered trade
names and applications for registrations of trade names (collectively,
"Trademarks");
(v) all technology, ideas, inventions, designs, proprietary
information, manufacturing and operating specifications, know-how, formulae,
trade secrets, technical data and proprietary processes;
(vi) all databases and all collected data and all rights
therein throughout the world;
(vii) all computer software, including all source code,
object code firmware, development tools, files, records and data and all media
on which any of the foregoing is recorded; and
(viii) all Web addresses, rights and domain names and all
rights under all Web cross-linking agreements.
(b) With respect to each item of Intellectual Property
incorporated into any product of Target or used in connection with any service
offered or provided by Target or otherwise used in the business of Target and in
each case owned by Target or licensed to Target
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(except "off the shelf" or other software widely available through regular
commercial distribution channels at a cost not exceeding $5,000 per copy or seat
on standard, non-negotiated terms and conditions) ("Target Intellectual
Property"), the Target Disclosure Letter lists as of the date of this Agreement
at Item 2.12:
(i) all Patents, all registered Trademarks, and all
registered Copyrights, including the jurisdictions in which each such
Intellectual Property has been issued or registered or in which any such
application for such issuance and registration has been filed.
(ii) the following agreements relating to the products or
service offerings or capabilities of Target, including products or service
offerings or capabilities currently under development (collectively the "Target
Products and Services") or other Target Intellectual Property: all (A)
agreements granting any right to distribute or sublicense any of the Target
Products and Services on any exclusive basis, (B) any exclusive licenses of
Intellectual Property to or from Target, (C) agreements pursuant to which the
amounts actually paid or payable under firm commitments to or by Target are
$25,000 or more, (D) joint development agreements, (E) any agreement by which
Target grants any ownership right to any Intellectual Property owned by Target
other than nonexclusive software licenses entered into with customers in the
Ordinary Course, (F) any option relating to any Target Intellectual Property,
and (G) agreements pursuant to which any party is granted any rights to access
source code or to use source code to create derivative works of Target
Intellectual Property.
(c) The Target Disclosure Letter contains an accurate list
as of the date of this Agreement of all licenses, sublicenses and other
agreements to which Target is a party and pursuant to which Target is authorized
to use any Intellectual Property owned by any third party (except "off the
shelf" or other software widely available through regular commercial
distribution channels at a cost not exceeding $5,000 per copy or seat on
standard non-negotiated terms and conditions and any rights implied by law)
("Third Party Intellectual Property").
(d) To the best knowledge of Target, there is no
unauthorized use, disclosure, infringement or misappropriation of any Target
Intellectual Property, including any Third Party Intellectual Property, by any
employee or former employee of Target or by any other third party. Target has
not entered into any agreement to indemnify any other person against any charge
of infringement of any Intellectual Property, other than indemnification
provisions contained in standard sales or agreements to end users arising in the
ordinary course of business, the forms of which have been delivered to Acquirer
or its counsel. There are no royalties, fees or other payments payable by Target
to any Person, under any written or oral contract or understanding or otherwise,
by reason of the ownership, use, sale or disposition of any Intellectual
Property.
(e) Target is not in breach of any license, sublicense or
other agreement relating to the Target Intellectual Property or Third Party
Intellectual Property rights. Neither the execution, delivery or performance of
this Agreement or any ancillary agreement contemplated hereby nor the
consummation of the Merger or any of the transactions contemplated by this
Agreement will contravene, conflict with or result in an infringement on the
Acquirer's right to own or use any Target Intellectual Property, including any
Third Party Intellectual Property.
(f) All Patents, registered Trademarks, registered service
marks and registered copyrights held by Target are valid and subsisting. Except
for such as are not past due, all maintenance and annual fees have been fully
paid and all fees paid during prosecution and after issuance of any patent
comprising or relating to such item have been paid in the correct entity
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status amounts. Target has not infringed, misappropriated or made unlawful use
of, is not currently infringing, misappropriating or making unlawful use of, and
has not received any written notice or written communication alleging or
relating to any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any copyright or trade secret owned or used
by any third party or, to the best knowledge of Target after due inquiry, any
other Intellectual Property or other proprietary right or asset owned or used by
any third party. Without limiting the foregoing, the offering and sale of the
Target Products and Services by Target does not, and the offering and sale of
the Target Products and Services by the Surviving Corporation immediately after
the Effective Time will not, and the business of Target as conducted as of the
date hereof does not, and Target's use of Intellectual Property as of the date
hereof does not, infringe or violate any copyright or trade secret owned or used
by any third party or, to the best knowledge of Target after due inquiry, any
other Intellectual Property of any other person. To the best knowledge of Target
after due inquiry, there is no proceeding pending or threatened, nor has any
written claim or demand been made, which challenges the legality, validity,
enforceability or ownership of any item of Target Intellectual Property or Third
Party Intellectual Property. Target has not brought a proceeding alleging
infringement of Target Intellectual Property or breach of any license or
agreement involving Intellectual Property against any third party.
(g) All current and former officers and managerial and technical
employees and employees engaged in development of Target have executed and
delivered to Target an agreement (containing no exceptions or exclusions from
the scope of its coverage other than as set forth in the standard form)
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 Acquirer. All current and former
consultants and independent contractors to Target involved in the development,
modification, marketing and servicing of Target's products, and/or Target
Intellectual Property have executed and delivered to Target an agreement
(containing no exceptions or exclusions from the scope of its coverage other
than as set forth in Item 2.12) regarding the protection of proprietary
information and the assignment to Target of any Intellectual Property arising
from services performed for Target by such persons. To the knowledge of Target,
no employee or independent contractor of Target is in violation of any term
relating to Intellectual Property 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 or, to
Target's knowledge, of any other term of any such agreements or contracts. Other
than with respect to Third Party Intellectual Property that is not used in
connection with Target Products and Services, no current or former officer,
director, shareholder, employee, consultant or independent contractor has any
right, claim or interest in or with respect to any Target Intellectual Property.
Target is not using any trade secrets, and to the knowledge of Target, Target is
not using any other confidential information, of any former employer of any past
or present employees.
(h) Target has taken all commercially reasonable and customary
measures and precautions necessary to protect and maintain the confidentiality
of all Target Intellectual Property (except such Target Intellectual Property
whose value would be unimpaired by public disclosure) and otherwise to maintain
and protect in all material respects the full value of all Intellectual Property
it owns. All use, disclosure or appropriation of confidential and proprietary
information of any third party ("Confidential Information") has, to Target's
knowledge, been pursuant to the
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terms of a written agreement between Target and the owner of such Confidential
Information, or is otherwise lawful.
(i) No product liability claims have been communicated in writing
to or, to Target's knowledge, threatened against Target.
(j) A complete list of each of the Target Products and Services,
together with a brief description of each, is set forth in Schedule 2.12(j). The
Target Products and Services, including the performance and results thereof,
conform in all material respects with any published specification, published
documentation or written performance standard provided with respect thereto by
Target.
(k) Target is not subject to any proceeding or outstanding
decree, order, judgment, or stipulation which may affect the validity, use or
enforceability of any Target Intellectual Property or restricting in any manner
the use, transfer, or licensing thereof by Target. Target is not subject to any
agreement which restricts in any material respect the use, transfer, or
licensing by Target of the Target Intellectual Property or Target Products and
Services, excluding agreements relating to Third Party Intellectual Property.
(l) Target owns all right, title and interest in, or has the
right to use, all Intellectual Property that is material to or reasonably
necessary to the conduct of its business as presently conducted ("Material
Target Intellectual Property"). Target is not aware of any loss, cancellation,
termination or expiration of any Patent or Patent Application, registered
Trademark, or registered Copyright relating to any Material Target Intellectual
Property. Copies of all forms of nondisclosure or confidentiality agreements
currently utilized to protect the Target Intellectual Property have been
provided to Acquirer. Except as set out in Item 2.12(l), Target has not granted
any reseller, distributor, sales representative, original equipment
manufacturer, value added reseller or other third party any right to reproduce,
manufacture, sell, license, furnish or distribute any Target Products and
Services in any market segment or geographic location.
2.13 Compliance with Laws. Except for noncompliance that would not
result in a Material Adverse Effect on Target, Target has complied, or prior to
the Closing Date (as defined in Section 6.1 hereof) will have complied, and is
or will be at the Closing Date (as defined in Section 6.1 hereof) in full
compliance, in all material respects, with all applicable laws, ordinances,
regulations and rules, and all orders, writs, injunctions, awards, judgments and
decrees, applicable to Target or to the assets, properties and business thereof,
including, without limitation: (a) all applicable federal and state securities
laws and regulations except as disclosed in Item 2.13, (b) all applicable
federal, state and local laws, ordinances and regulations, and all orders,
writs, injunctions, awards, judgments and decrees, pertaining to (i) the sale,
licensing, leasing, ownership or management of owned, leased or licensed real or
personal property, products or technical data, (ii) employment or employment
practices, terms and conditions of employment, or wages and hours and (iii)
safety, health, fire prevention, environmental protection (including toxic waste
disposal and related matters described in Section 2.21 hereof), building
standards, zoning or other similar matters, (c) the Export Administration Act
and regulations promulgated thereunder and other laws, regulations, rules,
orders, writs, injunctions, judgments or decrees applicable to the export or
re-export of controlled commodities or technical data, (d) the Immigration
Reform and Control Act and (e) all governmental and nongovernmental regulations
related to the operation and use of the Internet. Except as disclosed in Item
2.13, Target has received all permits and approvals from, and has made all
filings with, third parties, including government agencies and authorities, that
are necessary to the conduct of its business as presently conducted except where
the
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failure to receive such permit or approval or make such filing would not have a
Material Adverse Effect on Target.
2.14 Certain Transactions and Agreements. No person who is an officer
of Target nor any member of their immediate families, has any direct or indirect
ownership interest in or any employment or consulting agreement with any firm or
corporation that competes with Target or Acquirer (except with respect to any
interest in less than 2% of the outstanding voting shares of any corporation
whose stock is publicly traded). Except as disclosed in Item 2.14, none of said
officers or any directors of Target or any member of their immediate families,
is directly or indirectly interested in any contract with Target, including, but
not limited to, any loan agreements (excluding travel advances), except for
normal compensation for services as an officer (disclosed in Item 2.15.3),
director or employee of Target and except for the normal rights of a
shareholder, warrantholder or optionholder. Except as disclosed in Item 2.14,
none of such officers or directors or family members has, except for the normal
rights of a shareholder or an option holder, any interest in any (a) Target
Intellectual Property or (b) any interest in any property (other than Target
Intellectual Property) used in the business of Target, whether such property is
real or personal, tangible or intangible.
2.15 Employees.
2.15.1 Except as disclosed in Item 2.15.1, Target does not have
any employment contract or consulting agreement currently in effect that is not
terminable at will without penalty or payment of compensation by Target (other
than agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
2.15.2 Target (a) has not ever been or is now subject to a union
organizing effort, (b) is subject to any collective bargaining agreement with
respect to any of its employees, (c) is not subject to any other material
contract, written or oral, with any trade or labor union, employees' association
or similar organization or (d) does not have has any current labor dispute.
Target has good labor relations, and has no knowledge of any facts indicating
that the consummation of the transactions provided for herein (other than any
contemplated reductions in force associated therewith) will have a Material
Adverse Effect on Target and has no knowledge that any of its key development or
other employees intends to leave its employ where such departure would
reasonably be expected to have a Material Adverse Effect on Target.
2.15.3 Item 2.15.3 delivered by Target to Acquirer herewith
contains a list of all severance agreements, pension, retirement, disability,
medical, dental or other health plans, life insurance or other death benefit
plans, profit sharing, deferred compensation agreements, stock, option, bonus or
other incentive plans, vacation, sick, holiday or other paid leave plans,
severance plans or other similar employee benefit plans maintained by Target or
any trade or business which is treated as a single employer with Target within
the meaning of Code Section 414(b), (c), (m) or (o) (each an "ERISA Affiliate")
or in which any employees of Target participate (the "Employee Plans"),
including without limitation all "employee benefit plans" as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), as well as all employment and consulting agreements to which Target
is a party.
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Except as disclosed in Item 2.15.3, each of the Employee Plans, and its
operation and administration, is in compliance in all respects with each of the
respective Employee Plans' terms and with all applicable, federal, state, local
and other governmental laws and ordinances, orders, rules and regulations,
including the requirements of ERISA and the Code. Target has delivered to
Acquirer a true and complete copy of, to the extent applicable, (a) all Employee
Plans as well as all employment and consulting agreements to which Target is a
party as amended, (b) the three most recent annual reports (Form 5500s), (c)
each trust agreement related to such Employee Plans, (d) most recent summary
plan description for each Employee Plan for which a description is required, (e)
the most recent Internal Revenue Service determination letter issued with
respect to any Employee Plan, and (f) any material contract regarding the
funding arrangement for any Employee Plan. Except as disclosed in Item 2.15.3,
all such Employee Plans that are "employee pension benefit plans" (as defined in
Section 3(2) of ERISA) which are intended to qualify under Section 401(a) of the
Code have received favorable determination opinion, notification or advisory
letters with respect to such plans that such plans comply with the Tax Reform
Act of 1986 or have remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter and make
any amendments necessary to obtain a favorable determination as to the qualified
states of each such Employee Plan. In addition, Target has not ever been a
participant in any "prohibited transaction," within the meaning of Section 406
of ERISA with respect to any employee pension benefit plan (as defined in
Section 3(2) of ERISA) which Target sponsors as employer or in which Target
participates as an employer, which would impose a material penalty on Target or
which was not otherwise exempt pursuant to Section 408 of ERISA (including, but
not limited to, any individual exemption granted under Section 408(a) of ERISA),
or which could result in an excise tax under the Code. The group health plans,
as defined in Section 4980B(g) of the Code, that benefit employees of Target is
in compliance in all material respects with the continuation coverage
requirements of subsection 4980B of the Code. There are no outstanding
violations of Section 4980B of the Code with respect to any Employee Plan,
covered employees or qualified beneficiaries. Except as set forth in Item
2.15.3, no Employee Plans will be subject to any surrender fees or service fees
upon termination other than the normal and reasonable administrative fees
associated with the termination of benefit plans. Except as disclosed in Item
2.15.3, no employee of Target and no person subject to any Target health plan
has made medical claims through such health plan during the twelve months
preceding the date hereof for more than $30,000 in the aggregate.
2.15.4 To the knowledge of Target, no employee of Target is in
violation of any term of any employment contract, patent or trade secret
disclosure agreement or noncompetition agreement or any other contract or
agreement, or any restrictive covenant, relating to the right of any such
employee to be employed by Target or to use trade secrets or proprietary
information of others, and the employment of any employee of Target does not
subject Target to any material liability to any third party.
2.15.5 Except as disclosed in Item 2.15.4, Target is not a party
to any (a) agreement with any employee of Target (i) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving Target in the nature of any of the transactions
contemplated by this Agreement (ii) providing any term of employment or
compensation guarantee or (iii) providing severance benefits or other benefits
after the termination of employment of such employee regardless of the reason
for such termination of employment
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other than as required by law, or (b) agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be materially increased, or the
vesting of benefits of which will be materially accelerated, by the occurrence
of any of the transactions contemplated by this Agreement. Except as disclosed
in Item 2.15.4, each Target Option was granted with an exercise price per share
equal to the fair market value of the underlying shares covered by such option,
as determined by Target's Board of Directors after giving due consideration to
the advice of its counsel as to possible compensation charge issues, on the date
of grant. All Target Options granted as incentive stock options met the
requirements of Section 422 of the Internal Revenue Code on the date of grant.
All Options granted to individuals who are not identified as independent
contractors or non-employee directors may properly be accounted for under
Accounting Principles Bulletin 25.
2.15.6 A list of all employees of Target and their current base
compensation as of the date of this Agreement is disclosed on Item 2.15.6.
Copies of all offer letters and other documents reflecting bonus arrangements of
any Target officer, director or employee have been delivered to Acquirer.
2.15.7 All contributions due from Target with respect to any of
the Employee Plans through the Latest Balance Sheet Date have been made or
accrued on Target's financial statements.
2.16 Corporate Documents. Target has made available to Acquirer for
examination all documents and information disclosed in Items 2.1 through 2.25 or
other exhibits called for by this Agreement which have been reasonably requested
by Acquirer' legal counsel, including, without limitation, the following: (a)
copies of Target's Articles of Incorporation and Bylaws as currently in effect;
(b) Target's minute book containing all records of all proceedings, consents,
actions and meetings of Target's directors and shareholders; (c) Target's stock
ledger, journal and other records reflecting all stock issuances and transfers;
and (d) all permits, orders and consents issued by any regulatory agency with
respect to Target, or any securities of Target, and all applications for such
permits, orders and consents.
2.17 No Brokers. Except as disclosed in Item 2.17, Target is not
obligated for the payment of fees or expenses of any investment banker, broker
or finder in connection with the origin, negotiation or execution of this
Agreement or in connection with any transaction provided for herein or therein.
2.18 Books and Records. The books, records and accounts of Target (a)
are in all material respects true and complete, and (b) have been maintained in
accordance with reasonable business practices.
2.19 Environmental Matters.
2.19.1 To the knowledge of Target, during the period that
Target has leased or owned its properties or leased, owned or operated any
facilities, there have been no disposals, releases or threatened releases of
Hazardous Materials (as defined below) on, from or under any such properties or
facilities that would have a Material Adverse Effect on Target. Target has no
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knowledge of any presence, disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such properties or facilities,
which may have occurred prior to Target having taken possession of any of such
properties or facilities which might reasonably be expected to have a Material
Adverse Effect on Target. For purposes of this Agreement, the terms "disposal,"
"release," and "threatened release" have the definitions assigned thereto by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601 et seq., as amended ("CERCLA"). For the purposes of this
Section 2.21, "Hazardous Materials" mean any hazardous or toxic substance,
material or waste which is or becomes prior to the Closing Date, regulated
under, or defined as a "hazardous substance," "pollutant," "contaminant," "toxic
chemical," "hazardous material," "toxic substance" or "hazardous chemical" under
(i) CERCLA; (ii) the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001 et seq.; (iii) the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801, et seq.; (iv) the Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq.; (v) the Occupational Safety and Health Act of 1970,
29 U.S.C. Section 651 et seq.; (vi) regulations promulgated under any of the
above statutes; or (vii) any other applicable federal, state or local statute,
ordinance, rule or regulation that has a scope or purpose similar to those
identified above.
2.19.2 To the knowledge of Target, none of the properties or
facilities currently leased or owned by Target or any properties or facilities
previously leased or owned by Target is in violation of any federal, state or
local law, ordinance, regulation or order relating to industrial hygiene or to
the environmental conditions on, under or about such properties or facilities,
including, but not limited to, soil and ground water condition which violation
would have a Material Adverse Effect on Target.
2.19.3 During Target's occupancy of any properties or facilities
owned or leased at any time by Target, neither Target, nor to Target's
knowledge, any third party, has used, generated, manufactured, released or
stored on, under or about such properties and facilities or transported to or
from such properties and facilities any Hazardous Materials that would have or
is reasonably likely to have a Material Adverse Effect on Target.
2.19.4 During the time that Target has owned or leased the
properties and facilities currently occupied by it or any properties and
facilities previously occupied by Target, there has been no material litigation,
proceeding or administrative action brought or threatened against Target, or any
material settlement reached by Target with, any party or parties alleging the
presence, disposal, release or threatened release of any Hazardous Materials on,
from or under any of such properties or facilities.
2.20 Government Contracts. All representations, certifications and
disclosures made by Target to any Government Contract Party (as defined below)
have been in all material respects current, complete and accurate at the times
they were made. There have been no acts, omissions or noncompliance with regard
to any applicable public contracting statute, regulation or contract requirement
(whether express or incorporated by reference) relating to any of Target's
contracts with any Government Contract Party (as defined below) in either case
that have led to or is reasonably likely to lead to, either before or after the
Closing Date, (a) any material claim or dispute involving Target, and/or
Acquirer as successor in interest to Target and any Government Contract Party or
(b) any suspension, debarment or contract termination, or proceeding related
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thereto. There has been no act or omission that relates to the marketing,
licensing or selling to any Government Contract Party (as defined below) of any
of Target technical data, computer software, products and services and that has
led to or is reasonably likely to lead to, either before or after the Closing
Date, any cloud on any of Target's rights in and to its technical data, computer
software, products and services. There is currently no dispute between Target
and any Government Contract Party. For purposes of this Section 2.20, the term
"Government Contract Party" means any independent or executive agency, division,
subdivision, audit group or procuring office of the federal, state, county,
local or municipal government, including any prime contractor of the federal
government and any higher level subcontractor of a prime contractor of the
federal government, and including any employees or agents thereof, in each case
acting in such capacity.
2.21 Year 2000 Conformity. All software, computer hardware and other
systems developed or modified by or for Target, or provided to Target customers
in connection with Target Products and Services, or used by Target pursuant to
contracts or licenses entered into by Target in order to provide Target Products
and Services ("Target Items"): (i) will record, store, process, calculate and
present calendar dates falling on and after (and if applicable, spans of time
including) January 1, 2000, and will calculate any information dependent on or
relating to such dates in the same manner, and with the same functionality, data
integrity and performance, as the products record, store, process, calculate and
present calendar dates on or before December 31, 1999, or calculate any
information dependent on or relating to such dates (collectively, "Year 2000
Compliant") and (ii) will lose no functionality with respect to the introduction
of records containing dates falling on or after January 1, 2000, except insofar
as such Target Items interface with other software, hardware or systems that are
not Target Items and that are not Year 2000 Compliant.
2.22 Warranties, Guarantees and Indemnities. Except as disclosed in
Item 2.22 or in the agreements or contract listed herein, Target has not
provided to its customers or any third parties (i) any warranties or guarantees
regarding the Target Products and Services; (ii) any rights to obtain refunds
with respect to Target Products and Services or (iii) any indemnities with
respect to intellectual property infringement or Year 2000 compliance, except as
provided in Target's standard customer license agreement a copy of which is
attached to or set out verbatim in Item 2.22.
2.23 No Shareholder Claims. No Target Shareholder has claimed in
writing any interest in any additional shares of Target Stock, or any options,
warrants or other securities of Target, except for the number of shares of
Target Stock which such person is shown to be the owner of on Item 2.3, and no
third party who is not disclosed on Item 2.3 has made in writing, any claim of
entitlement to receive any shares of the capital stock of Target, any warrants
or other rights to acquire any capital stock of Target or any other securities
of Target, and to Target's knowledge no such claim has been made orally.
2.24 Customer Relationships. Target has good commercial working
relationships with its customers. Except as disclosed in Item 2.24, no customer
accounting for more than 5% of the Target's revenues in any month during the
last ten calendar months ending October 31, 1999 ("Material Customer") has
canceled or otherwise terminated its relationship with Target, decreased or
limited materially the amount of product or services ordered from Target or
threatened in writing (or to Target's knowledge orally) to take any such action.
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2.25. Product and Service Quality. All Target Products and Services
sold, or provided by Target to customers on or prior to the Closing Date conform
to applicable contractual commitments, implied warranties not disclaimed,
express warranties, product or service specifications and quality standards
published by Target in all material respects, and Target does not have any
material liability (and Target is not aware of any basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against Target giving rise to any liability) for replacement or
repair thereof, or for the taking of any remedial action with respect thereto or
other damages in connection therewith. All material complaints received since
January 1, 1999 from customers regarding Target's services are set out in Item
2.25 in detail reasonably sufficient to understand the nature of the complaint
and the resolution or lack of resolution thereof.
2.26 Insurance. Target maintains the insurance coverage disclosed on
Item 2.26 which it believes to be reasonably prudent for similarly sized and
similarly situated business. Item 2.26 sets forth all claims made under such
insurance policies since Target's inception and the premiums that apply with
respect to such insurance policies as of the date of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF ACQUIRER AND MINIMEE
Each of Acquirer and Minimee, where applicable, hereby represents and
warrants, that, except as disclosed on the Acquirer disclosure letter delivered
to Target herewith as amended from time to time in non-material respects prior
to Closing:
3.1 Organization and Good Standing. Each of Acquirer and Minimee is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now conducted
and as proposed to be conducted.
3.2 Power, Authorization and Validity; Adverse Changes.
3.2.1 Each of Acquirer and Minimee has the corporate right,
power, legal capacity and authority to enter into and perform its obligations
under this Agreement, and under the Escrow Agreement, the Employment Agreements
and the Noncompetition Agreements (the "Acquirer Ancillary Agreements"). This
Agreement and the Acquirer Ancillary Agreements have been or will be duly
executed and delivered by Acquirer and Minimee, as applicable. The execution,
delivery and performance of this Agreement and the Acquirer Ancillary Agreements
have been duly and validly approved and authorized by Acquirer's Board of
Directors and Minimee's Board of Directors, as applicable, and no other
corporate approvals or proceedings on the part of Acquirer or Minimee are
necessary to authorize this Agreement and the transactions contemplated hereby.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary or required to be made or obtained to enable Acquirer
and Minimee as applicable, to enter into, and to perform its obligations under,
this Agreement and the Acquirer Ancillary Agreements, except for (a) the filing
of the Delaware Certificate of Merger with the Secretary of
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State of the State of Delaware, the filing of such officers' certificates and
other documents as are required to effectuate the Merger under Delaware law and
the filing of appropriate documents with the relevant authorities of states
other than Delaware in which Acquirer and Minimee are qualified to do business,
if any, and (b) such filings as may be required to comply with federal and state
securities laws.
3.2.3 This Agreement and the Acquirer Ancillary Agreements are,
or when executed and delivered by Acquirer and Minimee (as applicable) and the
other parties thereto will be, valid and binding obligations of Acquirer and
Minimee, enforceable against Acquirer and Minimee in accordance with their
respective terms, except as to the effect, if any, of (a) applicable bankruptcy
and other similar laws affecting the rights of creditors generally, (b) rules of
law governing specific performance, injunctive relief and other equitable
remedies; and (c) the enforceability of provision requiring indemnification in
connection with the offering, issuance or sale of securities.
3.2.4 Since the Lates Balance Sheet Date, there has not been
with respect to Acquirer any Material Adverse Change.
3.3 No Violations. Neither the execution nor delivery of this
Agreement or any Acquirer Ancillary Agreement, nor the consummation of the
transactions contemplated hereby or thereby, will conflict with, or (with or
without notice or lapse of time, or both) result in a termination, breach or
violation of (a) any provision of the Certificate of Incorporation or Bylaws of
Acquirer or Minimee, as currently in effect or (b) any instrument or contract to
which Acquirer or Minimee is a party or by which Acquirer or Minimee is bound,
or (c) any federal, state, local or foreign judgment, writ, decree, order,
statute, rule or regulation applicable to Acquirer or Minimee or their
respective assets or properties, other than, with respect to (a), (b) and (c),
any such, conflict, termination, breach or violation that would not have a
Material Adverse Effect on Acquirer.
3.4 Minimee. Minimee has been formed for the sole purpose of
effecting the Merger and, except as contemplated by this Agreement, Minimee has
not conducted any business activities and does not have any material liabilities
or obligations. The sole stockholder of Minimee has adopted this Agreement in
accordance with Section 251 of Delaware Law.
3.5 Issued Shares. The shares of Acquirer Common Stock to be issued
pursuant to the Merger will be duly and validly issued, fully paid and
nonassessable, will not be subject to any preemptive or other statutory right of
stockholders. Assuming that the Information Statement to be circulated to
shareholders of Target meets applicable statutory disclosure requirements and
the accuracy of the representations of each shareholder and option holder of
Target in the Investor Representation Letter delivered by them to Acquirer at
Closing, the shares of Acquirer Common Stock to be issued pursuant to the Merger
will be issued in compliance with applicable federal and California state
securities laws.
3.6 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of Acquirer.
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3.7 Acquirer SEC Documents. Acquirer has filed with the United States
Securities and Exchange Commission ("SEC") a registration statement on Form S-1
filed on December 2, 1999 (the "Registration Statement"). The Registration
Statement, at the time it was filed, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to made the statements therein, in light of the circumstances
under which they were made, not misleading.
3.8 Litigation. Except as disclosed in the Registration Statement,
there is no suit, claim, action, proceeding or, to the knowledge of Acquirer,
investigation, pending or, to the knowledge of Acquirer, threatened, against or
affecting Acquirer or any of its material subsidiaries that individually or in
the aggregate could reasonably be expected to have a Material Adverse Effect on
Acquirer, nor it there any judgment, order, decree, injunction, statute, law,
ordinance, rule or regulation of any judicial, regulatory or other governmental
body or arbitrator outstanding against, or , to the knowledge of Acquirer,
investigation by any judicial, regulatory or other governmental body involving,
Acquirer or any of its material subsidiaries that individually or in the
aggregate would have a Material Adverse Effect on Acquirer.
3.9 Investigation. Without limiting the representations of Target or
Acquirer's ability to rely thereon, Acquirer acknowledges that it has conducted
its own independent review and analysis of the business, operations, assets,
liabilities, results of operations, financial condition, software, technology
and prospects of the Target and acknowledges that Acquirer has been provided all
requested access to the personnel, properties, premises and records of the
Target for such purposes.
4. TARGET PRECLOSING COVENANTS
During the period from the date of this Agreement until the Effective
Time, Target covenants to and agrees with Acquirer as follows:
4.1 Advice of Changes. Target will promptly advise Acquirer in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Target contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect (however, no advisory need be
provided regarding any event or action contemplated or permitted under this
Agreement) and (b) of the occurrence of any Material Adverse Change with respect
to Target. To ensure compliance with this Section 4.1, Target shall deliver to
Acquirer within fifteen (15) days after the end of each monthly accounting
period ending after the date of this Agreement and before the Closing Date, an
unaudited balance sheet and statement of operations, which financial statements
shall be prepared in the Ordinary Course, in accordance with Target's books and
records and generally accepted accounting principles and shall fairly present
the financial position of Target as of their respective dates and the results of
Target's operations for the periods then ending.
4.2 Maintenance of Business. The parties hereto understand and
acknowledge that it is their intent to work closely together during the period
from the date hereof until the Closing Date. Target will use its reasonable best
efforts to carry on and preserve its business and its relationships with
customers, suppliers, employees and others in substantially the same manner
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as it has prior to the date hereof. If Target becomes aware of a material
deterioration in the relationship with any material customer, material
prospective customer, supplier or key employee, it will promptly bring such
information to the attention of Acquirer in writing and, if requested by
Acquirer, will exert its best efforts to restore the relationship.
4.3 Conduct of Business. Target will continue to conduct its business
and maintain its business relationships in the Ordinary Course and will not,
without the prior written consent of the Chief Executive Officer or Chief
Financial Officer of Acquirer, not to be unreasonably withheld:
(a) borrow any money other than pursuant to existing lines of
credit;
(b) enter into any capital expenditure by Target in excess of
$25,000 (in the case of transactions or commitments which are neither made in
the Ordinary Course nor contemplated by Target's current capital expenditure
budget) or $50,000 (in the case of transactions or commitments made in the
Ordinary Course);
(c) encumber or permit to be encumbered any of its assets except
in the Ordinary Course and to an extent which is not material;
(d) dispose of any of its assets except in the Ordinary Course;
(e) enter into any lease or contract for the purchase or sale of
any property, real or personal, tangible or intangible, except in the Ordinary
Course or enter into any agreement of the types described in Section 2.11 to the
extent involving amounts in excess of $25,000;
(f) fail to maintain its equipment and other assets in good
working condition and repair according to the standards it has maintained to the
date of this Agreement, subject only to ordinary wear and tear;
(g) pay any bonus, royalty, increased salary (except for annual
increases in the Ordinary Course and disclosed to Acquirer in writing and
approved by Acquirer, such approval not to unreasonably be withheld) or special
remuneration to any officer, employee or consultant (except pursuant to existing
arrangements heretofore disclosed in writing to Acquirer) or enter into any new
employment or consulting or severance agreement with any such person, or enter
into any new agreement or plan of the type described in Section 2.15.3;
provided, however, that modification of Target Options to permit exercise with a
promissory note and exercise of such options with such note shall not be a
breach of this covenant, so long as such modification is undertaken by Target
counsel at the sole expense of Target shareholders and/or optionees;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or, except as contemplated in this
Agreement, redeem or otherwise acquire any of its capital stock;
(j) amend or terminate or settle any disputes under any contract,
agreement or license to which it is a party of a nature required to be disclosed
in Section 2.12;
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(k) lend any amount to any person or entity, other than advances
for travel and expenses which are incurred in the Ordinary Course and which are
not material in amount, which travel and expenses shall be reasonably documented
by receipts for the claimed amounts; provided, however, that modification of
Target Options to permit exercise with a promissory note and exercise of such
options with such note shall not be a breach of this covenant, so long as such
modification is undertaken by Target counsel at the sole expense of Target
shareholders and/or optionees;
(l) guarantee or act as a surety for any obligation except for
the endorsement of checks and other negotiable instruments in the Ordinary
Course and which are not material in amount;
(m) waive or release any material right or claim except in the
Ordinary Course;
(n) issue or sell any shares of its capital stock of any class or
any other of its securities (other than the issuance of Target Common Stock upon
the exercise of Target Options), or issue, grant, modify or create any warrants,
obligations, subscriptions, options, convertible securities, stock appreciation
rights or other commitments to issue shares of capital stock or accelerate the
vesting of any outstanding option or other security (other than stock option
grants to new hires in the Ordinary Course where the Target Disclosure Letter
relating to Section 2.3(a) and Item 2.3 included therein are updated by Closing
to reflect same, the grants have no acceleration provisions not provided in the
Plan and the aggregate number of shares subject to all such grants does not
exceed 100,000 shares); provided, however, that modification of Target Options
to permit exercise with a promissory note and exercise of such options with such
note shall not be a breach of this covenant, so long as such modification is
undertaken by Target Counsel at the sole expense of Target shareholders and/or
optionees;
(o) split or combine the outstanding shares of its capital stock
of any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other of
its securities;
(p) except for the Merger, merge, consolidate or reorganize with,
or acquire any entity;
(q) amend its Articles of Incorporation or Bylaws;
(r) agree to any audit assessment by any tax authority or file
any federal or state income or franchise tax return unless copies of such
returns have been delivered to Acquirer for its review prior to filing;
(s) license any of its technology or any Target Intellectual
Property, except in the Ordinary Course;
(t) change or terminate any insurance coverage;
(u) terminate the employment of any key employee disclosed in
Item 2.10(i); or
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(v) agree to do any of the things described in the preceding
clauses 4.3(a) through 4.3(v).
4.4 Certain Agreements. Target will cause all present employees and
consultants of Target engaged in development activity who have not previously
executed Target's forms of assignments of copyright and other intellectual
property rights to Target to execute such forms.
4.5 Sale of Shares Pursuant to Regulation D or Section 4(2). The
parties hereto acknowledge and agree that the shares of Acquirer Common Stock
issuable pursuant to Section 1 hereof shall constitute "restricted securities"
within the meaning of the Securities Act. The certificates of Acquirer Common
Stock shall bear the legends set forth in Section 1. It is acknowledged and
understood that Acquirer is relying on certain written representations made by
each shareholder of Target. Target will cause each Target shareholder to execute
and deliver to Acquirer an Investor Representation Statement in the form
attached hereto as Exhibit 4.18.
4.6 Regulatory Approvals. Target will execute and file, or join in
the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which Acquirer may reasonably request, in connection with the
consummation of the transactions provided for in this Agreement. Target will use
its reasonable best efforts to obtain or assist Acquirer in obtaining all such
authorizations, approvals and consents. Without limiting the generality of the
foregoing, Target shall respond as promptly as practicable to (i) any inquiries
or requests received from the Federal Trade Commission or the Department of
Justice for additional information or documentation and (ii) any inquiries or
requests received from any state attorney general or other governmental body in
connection with antitrust or related matters. Target shall (i) give Acquirer
prompt notice of the commencement of any material legal proceeding by or before
any court or other governmental body with respect to the Merger or any of the
other transactions contemplated by this Agreement, (ii) keep Acquirer informed
as to the status of any such legal proceeding and (iii) except as may be
prohibited by any governmental body or by any legal requirement, permit Acquirer
to be present at each meeting or conference relating to any such legal
proceeding and to have access to and be consulted in connected with any document
filed with or provided to any governmental body in connection with any such
legal proceeding.
4.7 Necessary Consents. Target will use its reasonable best efforts
to obtain such written consents and waivers (including waivers of any applicable
refusal or co-sale rights that may apply to the transactions hereby
contemplated) and take such other actions as may be necessary or appropriate for
Target, in addition to those disclosed in Section 4.6, to facilitate and allow
the consummation of the transactions provided for herein and to facilitate and
allow Acquirer to carry on Target's business after the Closing Date.
4.8 Litigation. Target will notify Acquirer in writing promptly after
learning of any material action, suit, proceeding or investigation by or before
any court, board or governmental agency, initiated by or against Target or
threatened against it.
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4.9 No Other Negotiations.
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4.9.1 The Target and its directors and officers shall not, and
the Target shall direct and use its best efforts to cause the employees,
representatives and agents of the Target not to, directly or indirectly, solicit
or encourage the initiation of (including by way of furnishing information) any
inquiries or proposals regarding any merger, sale of assets, sale of shares of
capital stock (including without limitation by way of a tender offer) or similar
transaction involving the Target that if consummated would constitute an
Alternative Transaction (as defined below) (any of the foregoing inquiries or
proposals being referred to herein as a "Target Takeover Proposal").
"Alternative Transaction" means any of (i) a transaction pursuant to which any
Person (or group of Persons) other than Acquirer or its affiliates (a "Third
Party") acquires or would acquire more than 50% of the outstanding shares of any
class of equity securities of the Target, whether from the Target or pursuant to
a tender offer or exchange offer or otherwise, (ii) a merger or other business
combination involving the Target pursuant to which any Third Party acquires more
than 50% of the outstanding equity securities of the Target or the entity
surviving such merger or business combination, (iii) any transaction pursuant to
which any Third Party acquires or would acquire control of assets of the Target
having a fair market value (as determined by the Target Board in good faith)
equal to more than 50% of the fair market value of all the assets of the Target
immediately prior to such transaction, or (iv) any other consolidation, business
combination, recapitalization or similar transaction involving the Target, other
than the transactions contemplated by this Agreement.
4.9.2 The Target shall immediately notify Acquirer after receipt
of any Target Takeover Proposal, or any modification of or amendment to any
Target Takeover Proposal, or any request for nonpublic information relating to
the Target in connection with a Target Takeover Proposal or for access to the
properties, books or records of the Target by any Person that informs the Target
Board that it is considering making, or has made, a Target Takeover Proposal.
Such notice to Acquirer shall be made orally and in writing.
4.9.3 The Target Board will recommend that Target Shareholders
approve the Merger. Neither the Target Board nor any committee thereof shall (i)
withdraw or modify, or indicate publicly its intention to withdraw or modify, in
a manner adverse to Acquirer, the approval or recommendation by such Board of
Directors or such committee of the Merger, (ii) approve or recommend, or
indicate publicly its intention to approve or recommend, any Target Takeover
Proposal or (iii) cause the Target to enter into any letter of intent, agreement
in principle, acquisition agreement or other similar agreement (each, a "Target
Acquisition Agreement") or any nondisclosure agreement related to any Target
Takeover Proposal.
4.9.4 The Target shall advise the directors, officers and
employees of the Target and any investment banker, attorney or other advisor
retained by the Target in connection with the transactions contemplated by this
Agreement of the restrictions set forth in this Section 4.9. It is understood
that any violation of the restrictions set forth in this Section 4.9 by any
director or officer of the Target, or any such violation by any employee,
representative or agent of the Target where the Target shall have failed to use
its best efforts to prevent such violation, shall be deemed to be a breach of
this Section 4.9 by the Target.
4.9.5 Upon the execution of this Agreement, the Target and its
directors, officers, employees, representatives and agents shall immediately
cease any and all existing
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activities, discussions or negotiations with any other person or entity
conducted previously with respect to any Target Takeover Proposal or Alternative
Transaction.
4.10 Access to Information. Until the Closing Date, Target will
provide Acquirer and its agents with reasonable access to the files, books,
records and offices of Target, including, without limitation, any and all
information relating to Target taxes, commitments, contracts, leases, licenses,
real, personal and intangible property and financial condition. Target will
cause its accountants to cooperate with Acquirer and its agents in making
available all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
4.11 Satisfaction of Conditions Precedent. Target will use all
reasonable best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 8, and Target will use its reasonable
best efforts to cause the transactions provided for in this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions provided for herein.
4.12 Blue Sky Laws. Target shall use its reasonable best efforts to
assist Acquirer to the extent necessary to comply with the securities and Blue
Sky laws of all jurisdictions applicable in connection with the Merger.
4.13 Notification of Employee Problems. Target will promptly notify
Acquirer if any of Target's officers becomes aware that any of its key employees
intends to leave its employ.
4.14 Benefit Plans. As soon as practicable after the execution of
this Agreement, Acquirer and Target shall confer and work together in good faith
to agree upon mutually acceptable employee benefit and compensation arrangements
for Target's employees following the Merger. Target shall take such actions as
are necessary to terminate such Employee Plans as are requested by Acquirer to
be terminated, provided that Acquirer shall take such steps as are commercially
and administratively reasonable to ensure that (i) those Target employees who
are eligible to participate in each such Employee Plan shall be entitled to
participate in comparable employee benefit plans maintained by Acquirer
effective immediately following the Effective Date and (ii) such employees shall
be credited with prior periods of employment with Target for purposes of
participation in and vesting under Acquirer's employee benefit plans, including,
without limitation, participation in and vesting under all employee pension
benefit plans (as defined in Section 3(2) of ERISA), participation in and
satisfaction of deductibles and co-pays under employee welfare benefit plans (as
defined in Section 3(1) of ERISA), vacation and sick leave entitlement where
service is a factor.
4.15 Shareholder Approval; Voting Agreement. Target will either hold
a special meeting of its shareholders or distribute to its shareholders a
written consent (the "Shareholders Meeting") at the earliest practicable date
(and in any event prior to the earlier of 30 days from the date of this
Agreement or the date of any consent with respect to any Alternative Transaction
("Latest Date")) to submit this Agreement, the Merger and related matters for
the consideration
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and approval of the Target Shareholders, which approval will be recommended by
Target's Board of Directors. Such meeting will be called, held and conducted,
and any proxies or consent will be solicited, in compliance with applicable law.
Concurrently with the execution of this Agreement, certain Target Shareholders
have executed a Voting Agreement in the form of Exhibit 4.15 agreeing to vote in
favor of the Merger. Target shall ensure that the Shareholders' Meeting is
called, noticed, convened, held and conducted and the Merger voted on prior to
the Latest Date, and that all proxies and consents solicited in connection with
the Shareholders' Meeting are solicited, in compliance with all applicable legal
requirements. The Target's obligation to call, give notice of, convene and hold
the Shareholders' Meeting and have its shareholders vote on the Merger prior to
the Latest Date in accordance with this Section 4.15 shall not be limited or
otherwise affected by the commencement, disclosure, announcement or submission
to the Target of any Alternative Proposal. Nothing contained in this Section
4.15 shall limit the Target's obligation to hold and convene the Shareholders'
Meeting, it being understood that the Target shall be required to hold and
convene the Shareholders' Meeting in accordance with this Section 4.15 unless
the holding of such meeting would constitute a violation of any applicable court
order or statute. Target shall use all reasonable efforts to ensure that the
holding of the Shareholders' Meeting will not constitute a violation of any
applicable court order or statute.
5. ACQUIRER PRECLOSING COVENANTS
During the period from the date of this Agreement until the Effective
Time, Acquirer covenants to and agrees with Target as follows:
5.1 Access to Information. Until the Closing Date, Acquirer will
allow Target and its agents reasonable access to its management and officers and
material information regarding Acquirer, including without limitation, material
information relating to Acquirer's business and financial condition. Acquirer
will cause its accountants to cooperate with Target's accountants in making
available all financial information reasonably requested to evaluate Acquirer's
financial statements.
5.2 Satisfaction of Conditions Precedent. Acquirer will use all
reasonable best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 7, and Acquirer will use all reasonable
best efforts to cause the transactions provided for in this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions provided for herein.
5.3 Regulatory Approvals. Acquirer will execute and file, or join in
the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which Target may reasonably request, in connection with the
consummation of the transactions provided for in this Agreement. Acquirer will
use all reasonable efforts to obtain all such authorizations, approvals and
consents. Without limiting the generality of the foregoing, Acquirer shall
respond as promptly as practicable to (i) any inquiries or requests received
from the Federal Trade Commission or the Department of Justice for additional
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information or documentation and (ii) any inquiries or requests received from
any state attorney general or other governmental body in connection with
antitrust or related matters. Acquirer shall (i) give Target prompt notice of
the commencement of any material legal proceeding by or before any court or
other governmental body with respect to the Merger or any of the other
transactions contemplated by this Agreement, (ii) keep Target informed as to the
status of any such legal proceeding and (iii) except as may be prohibited by any
governmental body or by any legal requirement, permit Target to be present at
each meeting or conference relating to any such legal proceeding and to have
access to and be consulted in connected with any document filed with or provided
to any governmental body in connection with any such legal proceeding.
5.4 Cooperation in Obtaining Necessary Consents. Acquirer will
cooperate with Target as reasonably requested by Target in order to assist
Target to obtain such written consents as are contemplated by Section 4.7
hereof.
5.5 Indemnification. From and after the Effective Time, Acquirer
agrees to indemnify and hold harmless each director of Target against any costs
or expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to the
Effective Time, asserted or claimed after the Effective Time, to the fullest
extent that Target would have been permitted under its Articles of Incorporation
or Bylaws as in effect on the date hereof to indemnify such person (and in
connection therewith Acquirer shall advance expenses as incurred to the fullest
extent provided for under Acquirer's Certificate of Incorporation and By-Laws as
from time to time in effect, provided the person to whom expenses are advanced
provides an undertaking to repay such advances if it is ultimately determined
that such person is not entitled to indemnification). Target represents that
there is no current basis for any indemnity claim under this Section 5.5, except
as set out in Item 5.5.
5.6 Advice of Changes. Acquirer will promptly advise Target in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Acquirer contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect (however, no advisory need be
provided regarding any event or action contemplated or permitted under this
Agreement) and (b) of the occurrence of any Material Adverse Change with respect
to Acquirer.
5.7 Satisfaction of Conditions Precedent. Acquirer will use all
reasonable best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 7, and Acquirer will use its reasonable
best efforts to cause the transactions provided for in this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions provided for herein.
6. CLOSING MATTERS
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6.1 The Closing. Subject to termination of this Agreement as provided
in Section 9 below, the closing of the transactions provided for herein (the
"Closing") will take place at the offices of Fenwick & West LLP, Two Xxxx Xxxx
Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000 at 10:00 a.m., Pacific Time on a mutually
agreeable date, or, if all other conditions to closing have not been met or
waived by such date, then the Closing will take place at such other place and
time as Target and Acquirer may mutually select. Prior to or concurrently with
the Closing, the Delaware Certificate of Merger and such officers' certificates
or other documents as may be required to effectuate the Merger will be filed in
the offices of the Delaware Secretary of State and the California Agreement of
Merger and such officers' certificates or other documents as may be required to
effectuate the Merger will be filed in the office of the California Secretary of
State. Accordingly, the Merger will become effective at the Effective Time.
6.2 Exchange of Certificates.
6.2.1 As of the Effective Time, all shares of Target Stock that
are outstanding immediately prior thereto will, by virtue of the Merger and
without further action, cease to exist, and all such shares will be converted
into the right to receive from Acquirer the number of shares of Acquirer Common
Stock as set forth in Section 1.1, subject to Sections 1.2 and 1.3 hereof.
6.2.2 At and after the Effective Time, each certificate
representing outstanding shares of Target Stock will represent the number of
shares of Acquirer Common Stock into which such shares of Target Stock have been
converted, and such shares of Acquirer Common Stock will be deemed registered in
the name of the holder of such certificate. As soon as practicable after the
Effective Time, each holder of shares of Target Stock will surrender (a) the
certificates for such shares (the "Target Certificates") to Acquirer for
cancellation or (b) an affidavit of lost certificate (or non-issued certificate)
with appropriate indemnification (the "Affidavit") in form reasonably
satisfactory to Acquirer. Promptly following the Effective Time and receipt of
the Target Certificates and/or the Affidavit (or any lost certificate bond, if
necessary), Acquirer will issue to such surrendering holder certificate(s) for
the number of shares of Acquirer Common Stock to which such holder is entitled
pursuant to Section 1.1, subject to Section 1.2 hereof, less such holder's pro
rata portion of the Escrow Shares deposited into escrow pursuant to Section 1.3
hereof, and any cash payable under Section 1.2.
6.2.3 All cash and shares of Acquirer Common Stock delivered
upon the surrender of Target Certificates in accordance with the terms hereof
will be delivered to the registered holder or placed in escrow with the Escrow
Agent, as applicable. After the Effective Time, there will be no further
registration of transfers of the shares of Target Stock on the stock transfer
books of Target. If, after the Effective Time, Target Certificates are presented
for transfer or for any other reason, they will be canceled and exchanged and
certificates and cash therefor will be delivered or placed in escrow as provided
in this Section 6.2.
6.2.4 Until Target Certificates representing Target Stock
outstanding prior to the Merger are surrendered pursuant to Section 6.2.2 above,
such certificates will be deemed, for all purposes, to evidence ownership of (a)
the number of shares of Acquirer Common Stock into which the shares of Target
Stock will have been converted as set forth in Section 1.1, subject
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to the obligation to place a portion thereof in escrow as required hereby, and
as set forth in Section 1.2 hereof.
6.3 Assumption of Options. Promptly after the Effective Time,
Acquirer will notify in writing each holder of a Target Option of: (i) the
assumption of such Target Option by Acquirer, (ii) the conversion of such Target
Options into Acquirer Options, (iii) the number of shares of Acquirer Common
Stock that are then subject to such Acquirer Option and (iv) the exercise price
of such Acquirer Option, all as determined pursuant to Section 1.1.2 hereof.
7. CONDITIONS TO OBLIGATIONS OF TARGET
Target's obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by Target):
7.1 Accuracy of Representations and Warranties. The representations
and warranties of Acquirer set forth in Section 3 (excluding any representation
or warranty that refers specifically to "the date of this Agreement," "the date
hereof" or any other date other than the Closing Date) shall be accurate in all
material respects on and as of the Closing Date as if made on and as of the
Closing Date, and the representations and warranties of Acquirer set forth in
Section 3 that refer specifically to "the date of this Agreement," "the date
hereof" or any other date other than the Closing Date shall have been accurate
in all material respects as of the Agreement Date or such other specified date,
and Target shall have received a certificate to such effect executed on behalf
of Acquirer by its Chief Executive Officer and its Chief Financial Officer.
7.2 Covenants. Acquirer shall have performed and complied in all
material respects with all of its covenants contained in Section 5 on or before
the Closing Date, and Target shall have received a certificate to such effect
executed on behalf of Acquirer by its Chief Executive Officer or Chief Financial
Officer.
7.3 Compliance with Law. There shall be no order, decree, or ruling
by any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
7.4 Government Consents. There shall have been obtained at or prior
to the Closing Date such permits or authorizations, and there shall have been
taken such other actions, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to satisfaction of all
requirements under applicable federal and state securities laws.
7.5 No Litigation. No litigation or proceeding initiated by a party
other than Target or the Target Shareholders shall be pending which will have
the probable effect of enjoining or preventing the consummation of any of the
transactions provided for in this Agreement or which have had or could
reasonably be expected to have a Material Adverse Effect on Acquirer.
7.6 Tax Representations. Officers of Acquirer shall have executed and
delivered the Officers' Certificate containing representations regarding tax
matters in a form approved by the Parties' respective counsel.
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7.7 Offer Letters. Acquirer shall have executed copies of offer
letters in favor of Xxxxxxx Xxxxxxxx, Xxxxx Xxxxxxxxx and Xxxxx Xxxxx in
substantially the form of Exhibit 7.7.
7.8 Shareholder Approval. The principal terms of this Agreement shall
have been approved and adopted by the Target Shareholders, as required by
applicable law and Target's Articles of Incorporation and Bylaws.
7.9 Absence of Material Adverse Change. Since September 30, 1999,
there shall not have been any Material Adverse Change with respect to Acquirer.
8. CONDITIONS TO OBLIGATIONS OF ACQUIRER
The obligations of Acquirer hereunder are subject to the fulfillment
or satisfaction on, and as of the Closing, of each of the following conditions
(any one or more of which may be waived by Acquirer):
8.1 Accuracy of Representations and Warranties. The representations
and warranties of Target set forth in Section 2 (excluding any representation or
warranty that refers specifically to "the date of this Agreement," "the date
hereof" or any other date other than the Closing Date) shall be accurate in all
material respects on and as of the Closing Date as if made on and as of the
Closing Date, and the representations and warranties of Target set forth in
Section 2 that refer specifically to "the date of this Agreement," "the date
hereof" or any other date other than the Closing Date shall have been accurate
in all material respects as of the Agreement Date or such other specified date,
and Acquirer shall have received a certificate to such effect executed on behalf
of Target by its Chief Executive Officer and its Chief Financial Officer.
8.2 Covenants. Target shall have performed and complied in all
material respects with all of its covenants contained in Section 4 on or before
the Closing and Acquirer shall have received a certificate to such effect signed
on behalf of Target by its Chief Executive Officer and its Chief Financial
Officer.
8.3 Compliance with Law. There shall be no order, decree, or ruling
by any court or governmental agency in effect that would prohibit or render
illegal the transactions provided for in this Agreement.
8.4 Government Consents. There shall have been obtained at or prior
to the Closing Date such permits or authorizations, and there shall have been
taken such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to satisfaction of all
requirements under applicable federal and state securities laws.
8.5 Consents. Acquirer shall have received all written consents,
assignments, waivers, authorizations or other certificates necessary to provide
for the continuation in full force and effect of any and all contracts and
leases of Target which if not continued would have a Material Adverse Effect on
Target.
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8.6 Absence of Material Adverse Change. Since the Latest Balance
Sheet Date, there shall not have been any Material Adverse Change with respect
to Target.
8.7 Requisite Approvals. The principal terms of this Agreement shall
have been approved and adopted by the Target Shareholders, as required by
applicable law and Target's Articles of Incorporation and Bylaws, and by
Target's Board of Directors.
8.8 Conversion of Target Preferred Stock. All Target Preferred Stock
shall have been converted into Common Stock.
8.9 No Litigation. No litigation or proceeding shall be threatened or
pending which will have the probable effect of enjoining or preventing the
consummation of any of the transactions provided for in this Agreement or which
have had or could reasonably be expected to have Material Adverse Effect on
Target.
8.10 Escrow. Acquirer shall have received the Escrow Agreement,
executed by the Representative of the Target Shareholders and the Escrow Agent,
which agreement provides for the escrow of the Escrow Shares on the terms and
conditions of the Escrow Agreement.
8.11 Tax Representations. Officers of Target shall have executed and
delivered the Officers' Certificate containing representations regarding tax
matters in a form approved by the Parties' respective Counsel.
8.12 Dissenting Shares. The Dissenting Shares shall not constitute
more than 5% of the total number of shares of Target Stock outstanding
immediately prior to the Effective Time.
8.13 Repurchase Agreements; Offer Letter. Acquirer shall have
received from each of the Founders executed Stock Repurchase Agreements in the
form of Exhibit 8.13 subjecting an aggregate of 478,053 shares of Acquirer stock
acquired by them hereunder to vesting restrictions ("Unvested Shares") and
copies of offer letters in substantially the form of Exhibit 7.7 executed by the
Founders. The number of Unvested Shares to be deposited by Xxxxxxx Xxxxxxxx,
Xxxxx Xxxxx and Xxxxx Xxxxxxxxx will be 191,221, 191,221 and 95,611 shares,
respectively.
8.14 Noncompete Agreements. Acquirer shall have received executed
copies of Noncompete Agreements in the form of Exhibit 8.14 from each of Xxxxxxx
Xxxxxxxx, Xxxxx Xxxxxxxxx and Xxxxx Xxxxx.
8.15 Investor Representation Letter. Each shareholder and option
holder of Target shall have executed and delivered to Acquirer an Investor
Representation Letter in the form of Exhibit 8.15 and an executed copy of the
market standoff agreement referenced therein.
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9. TERMINATION OF AGREEMENT
9.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the Merger by the
shareholders of Target:
(a) by the mutual written consent of Acquirer and Target;
(b) Upon notice by either party, if the Merger shall not have
been consummated by January 31, 2000 (the "Final Date") other than as the result
of a breach of this Agreement by the terminating party;
(c) by Target, if there has been a breach by Acquirer of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of Acquirer which has or can reasonably be expected to have a Material
Adverse Effect on Acquirer and which Acquirer fails to cure within a reasonable
time, not to exceed thirty (30) days, after written notice thereof (except that
no cure period will be provided for a breach by Acquirer which by its nature
cannot be cured);
(d) by Acquirer, if there has been a breach by Target of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of Target which has or can reasonably be expected to have a Material
Adverse Effect on Target and which Target fails to cure within a reasonable time
not to exceed thirty (30) days after written notice thereof (except that no cure
period will be provided for a breach by Target which by its nature cannot be
cured);
(e) by Acquirer, if the Required Vote is not obtained to approve
the Merger at or by virtue of the Shareholders' Meeting; or
(f) by either party, if a permanent injunction or other order by
any federal or state court which would make illegal or otherwise restrain or
prohibit the consummation of the Merger will have been issued and will have
become final and nonappealable.
(g) by Acquirer if Target breaches any of its obligations in
Section 4.9 or Section 4.15 hereof.
Any termination of this Agreement under this Section 9.1 will be
effective by the delivery of written notice of the terminating party to the
other party hereto.
9.2 Certain Continuing Obligations. Following any termination of this
Agreement pursuant to this Section 9, the parties hereto will continue to
perform their respective obligations under Section 11 but will not be required
to continue to perform their other covenants under this Agreement.
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10. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
10.1 Survival of Representations.
10.1.1 Representations of Target. All representations,
warranties and covenants of Target contained in this Agreement will remain
operative and in full force and effect after the Closing regardless of any
investigation made by or on behalf of the parties to this Agreement and shall
expire on the first anniversary of the Closing. No claim for breach of
representations, warranties or covenants shall be made unless Acquirer gives
written notice to the Representative (as defined below) in reasonable detail
specifying the Claim (as hereinafter defined) on or prior to the first
anniversary of the Closing Date.
Except for the obligations of Target under Section 11, the
representations, warranties and covenants of Target contained in this Agreement
will terminate as of the termination of this Agreement in accordance with its
terms.
10.1.2 Representations of Acquirer. All representations and
warranties of Acquirer contained in this Agreement will expire at Closing. All
covenants will survive the Closing. Except for the obligations of Acquirer under
Section 11, the representations, warranties and covenants of Acquirer contained
in this Agreement will terminate as of termination of this Agreement in
accordance with its terms.
10.2 Agreement to Indemnify.
10.2.1 Indemnification by Target. Subject to the limitations set
forth in this Section 10.2, from and after the Effective Time, Acquirer and its
respective officers, directors, agents and employees, and each person, if any,
who controls or may control Acquirer within the meaning of the Securities Act
(hereinafter in this Section 10.2 referred to individually as an "Acquiror
Indemnified Person" and collectively as "Acquiror Indemnified Persons") shall be
indemnified and held harmless from and against any and all claims, demands,
actions, causes of action, losses, costs, damages, liabilities and expenses
including, without limitation, reasonable legal fees (collectively, "Claims"):
(a) Arising out of any breach by Target of the
representations, warranties or covenants given or made by Target in this
Agreement;
(b) any and all actions, suits, claims or legal,
administrative, arbitrative, governmental or other proceedings or investigations
against any Acquirer Indemnified Person arising out of such breach.
10.2.2 Time and Value Limitations. The provisions of this
Section 10.2 shall apply notwithstanding anything to the contrary in the Escrow
Agreement. With respect to any Claim, the indemnification provided for in this
Section 10.2 shall not apply unless the recipient of notice of any Claim gives
written notice to the Representative with respect to such Claim on or prior to
the first anniversary of the Agreement Date. Escrow Shares shall be valued for
the purposes of satisfying Claims at the Price Per Share.
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10.2.3 Exclusive Remedy; Basket. The sole and exclusive remedy
of the Acquirer Indemnified Persons for misrepresentation or breach of or
default in connection with any of the representations, warranties or covenants
given by Target pursuant hereto or for any other indemnity claims under this
Section 10.2 or relating to this Agreement shall be to exercise their rights to
recover, under and pursuant to the Escrow Agreement, Escrow Shares and any other
assets deposited in escrow pursuant to the Escrow Agreement and no Target
shareholder shall be personally liable with respect thereto, other than to the
extent of such shareholder' proportionate interest in the Escrow Shares and any
other assets deposited under the Escrow Agreement. The indemnification provided
for in this Section 10.2 shall not apply unless the aggregate Damages for which
one or more Indemnified Persons seeks indemnification exceeds $250,000 (the
"Basket"), after which recovery shall be from the first dollar without regard to
the Basket.
10.2.4 Survival of Claims. Notwithstanding anything to the
contrary, if, prior to the expiration of a particular representation or
warranty, an Acquirer Indemnified Person makes a claim for indemnification under
either this Agreement or the Escrow Agreement with respect to a
misrepresentation or breach of such representation or warranty, then such
Indemnified Person's rights to indemnification under this Section 10.2 for such
claim shall survive any expiration of such representation or warranty.
10.3 Registration of Shares Issued in the Merger.
(a) Whenever Acquirer, during the 36 month period following the
Closing, files a registration statement on Form S-1 under the Securities Act, it
will, prior to such filing, give written notice to each of the Target
shareholders of its intention to do so and, upon the written request of a Target
shareholder given within 20 days after Acquirer provides such notice, Acquirer
shall use its best efforts to cause all shares of Acquirer Common Stock issued
to the Target stockholders in the Merger (the "Registrable Shares") which
Acquirer has been requested by such Target shareholder or shareholders to be
included in such registration statement; provided that Acquirer shall have the
right to postpone or withdraw any registration effected pursuant to this Section
10.3(a) without obligation to any Target shareholder. The terms of such "piggy
back" registration rights shall in all respects be identical to and subject to
those "piggy back" registration rights set out in Section 4.2 of the Acquirer's
Second Amended and Restated Investors' Rights Agreement ("RIGHTS AGREEMENT")
dated as of October 14, 1999 ("Existing Rights Agreement"), provided however
that in the event of underwriter cutbacks, shares held by Target shareholders
shall be cut back prior to any cut back of shares of persons that are parties to
such agreement. The rights granted under this Section 10.3(a) may not be
exercised with respect to the Company's initial public offering ("IPO").
Further, Target shareholders may not purchase any stock in the IPO. The above
rights are conditioned on Acquirer obtaining any consents required under the
Existing Rights Agreement; Acquirer shall use reasonable best efforts to obtain
such consents in a timely manner.
(b) Once Acquirer is eligible to use a Registration Statement on
Form S-3, Acquirer 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 prepare and file a
Registration Statement on Form S-3 ("Registration Statement") with the SEC
promptly after receipt of any request by Target shareholders seeking to register
at least $500,000 worth of Acquirer stock; provided, however, that each holder
of Registrable Securities ("Holder")
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shall provide all such information and materials to Acquirer in its possession
and take all such action in its control, in each case, as may be required in
order to permit Acquirer 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 Acquirer pursuant to this Section
10.3. Acquirer shall not be required to effect more than two (2) registration
under this Section 10.3(b) in any year. The offering made pursuant to such
registration shall not be underwritten.
(c) Once Acquirer is eligible to use a Registration Statement on
Form S-3 and within a reasonable time after receipt of Target shareholders'
request made after such first eligibility date, Acquirer shall (i) prepare and
file with the SEC the Registration Statement in accordance with Section 10.3(a)
hereof with respect to the shares of Registrable Securities and shall use all
reasonable best efforts to cause the Registration Statement remain effective for
a period ending on the last to occur of (A) the date all of the Shares
registered thereunder may be sold under Rule 144 in one three-month period
(assuming compliance by the Holders with the provisions thereof) or (B) one (1)
year after the effective date of such Registration Statement; and 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 Acquirer shall be required under the provisions
hereof to cause the Registration Statement to remain current.
(d) Notwithstanding any other provision of this Section 10.3,
Acquirer shall have the right at any time after the filing of the Registration
Statement to require that all Holders suspend further open market offers and
sales of Registrable Securities thereunder whenever, and for so long as, in the
reasonable judgment of Acquirer in good faith after consultation with counsel,
but in no event more than 30 days at any time and in any event not more than
three times in any twelve month period, there is in existence material
undisclosed information or events with respect to Acquirer (the "Suspension
Right"). In the event Acquirer 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 Acquirer or until such
time as the information or event is no longer material, each as determined in
good faith by Acquirer after consultation with counsel, but in no event more
than 30 days at any time and in any event not more than three times in any
twelve month period. Acquirer will promptly give the Purchaser Representative
notice, in a writing signed by an executive officer of Acquirer of any such
suspension (the "Suspension Notice"). Acquirer 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. The period during which Acquirer 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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(e) Acquirer 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 Section 10.3(b),
including, without limitation, all registration and filing fees, printing
expenses, transfer agents' and registrars' fees, the fees and disbursements of
Acquirer's outside counsel and independent accountants.
(f) To the fullest extent permitted by law, the Acquirer will
indemnify, defend, protect and hold harmless each selling Holder, each
underwriter of Acquirer Common Stock being sold by such Holders pursuant to
Section 10.3(b), 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 10.3(b)
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 Acquirer of any rule or regulation promulgated under the
Securities Act, the Exchange Act or any statute, regulation or law applicable to
the Acquirer and relating to action or inaction required of the Acquirer in
connection with such registration; provided, however, that the Acquirer 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 Acquirer by such Holder
Indemnitee specifically for use in connection with such registration statement
and prospectus or post-effective amendment.
(g) To the fullest extent permitted by law, each selling Holder
of Registrable Shares registered in accordance with Section 10.3(b) will
indemnify the Acquirer, each person, if any, who controls the Acquirer within
the meaning of the Securities Act or the Exchange Act, each underwriter of
Acquirer Common Stock and their respective affiliates, officers, directors,
partners, successors and assigns (each an "Acquirer 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 Acquirer Indemnitee for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact in any registration statement and any prospectus
filed pursuant to Section 10.3 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
Acquirer by such Holder specifically for use in connection with such
registration
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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.
(h) Each person entitled to indemnification under this Section
10.3 (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 10.3 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.
(i) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which the Acquirer or
any Holder makes a claim for indemnification pursuant to this Section 10.3 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 10.3 provides for
indemnification, in such case, then the Acquirer 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 Acquirer 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 Acquirer 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 Acquirer on the one hand or
by the Holder on the other, and each party's relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission;
provided, however, that, in any such case (i) no Holder will be required to
contribute any amount in excess of the proceeds received by such Holder from the
sale of Registrable Shares pursuant to the Registration Statement; and (ii) no
person or entity guilty of fraudulent misrepresentation within the meaning of
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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.
(j) Each Target shareholder shall sign a underwriter lock up
agreement in the form requested by Acquirer's underwriter.
(k) The first Registration Statement on Form S-8 filed by
Acquirer after Closing with respect to shares of Acquirer Common Stock shall
include the shares issuable upon exercise of assumed Target Options.
11. MISCELLANEOUS
11.1 Governing Law. Except to the extent governed by the Delaware
General Corporation Law, the internal laws of the State of California
(irrespective of its choice of law principles) will 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.
11.2 Assignment; Binding Upon Successors and Assigns. No party hereto
may assign any of its rights or obligations hereunder without the prior written
consent of the other party hereto. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
11.3 Severability. If any provision of this Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
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 the void or unenforceable provision.
11.4 Counterparts. This Agreement may be executed in counterparts,
each of which will be an original as regards any party whose name appears
thereon and all of which together will constitute one and the same instrument.
This Agreement will become binding when one or more counterparts hereof,
individually or taken together, bear the signatures of all parties reflected
hereon as signatories.
11.5 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 or default in the performance hereof will
not be deemed to constitute a waiver of any other default or any succeeding
breach or default. This Agreement may be amended by the parties hereto at any
time before or after approval of the Target Shareholders.
11.6 No Waiver. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. The waiver by any party of the
right to enforce any of the provisions hereof on any occasion will
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not be construed to be a waiver of the right of such party to enforce such
provision on any other occasion.
11.7 Notices. Any notice or other communication required or permitted
to be given under this Agreement will be in writing, will be delivered
personally or by mail or express delivery, postage prepaid, and will be deemed
given upon actual delivery or, if mailed by registered or certified mail, on the
third business day following deposit in the mails, addressed as follows:
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(i) If to Acquirer:
Xxxxxxxx.xxx, Inc.
0000-0 Xxxxx Xxxxxxxxx
Xxxxx Xxxxx, XX 00000
Attention: Xxxxxxxxx X. Xxxxxxxxxx, CFO
Phone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
(ii) If to Target:
Pharos Technologies, Inc.
000 0xx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: C. Xxxxxxx Xxxxxxxx, CEO
Phone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
or to such other address as the party in question may have furnished to the
other party by written notice given in accordance with this Section 11.9.
11.8 Construction of Agreement. The language hereof will not be
construed for or against any party based solely on that party being the drafting
party. A reference to an article, section or exhibit will mean an article or
section in, or an exhibit to, this Agreement, unless otherwise explicitly set
forth. The titles and headings in this Agreement are for reference purposes only
and will not in any manner limit the construction of this Agreement. For the
purposes of such construction, this Agreement will be considered as a whole.
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11.9 No Joint Venture. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other, and the parties'
status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party will have any power or
authority to bind or commit any other. No party will hold itself out as having
any authority or relationship in contravention of this Section.
11.10 Further Assurances. Each party agrees to cooperate fully with
the other party and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by the other party to evidence and reflect the transactions provided
for herein and to carry into effect the intent of this Agreement.
11.11 Public Announcement. Acquirer and Target will issue a press
release approved by both parties announcing the Merger as soon as practicable
following the execution of this Agreement. Acquirer may issue such press
releases, and make such other disclosures regarding the Merger, as it determines
to be required or appropriate after reasonable consultation, where possible,
with Target. Target will not make any other public announcement or disclosure of
the transactions contemplated by this Agreement.
11.12 Time is of the Essence. The parties hereto acknowledge and
agree that time is of the essence in connection with the execution, delivery and
performance of this Agreement.
11.13 Material Adverse Effect" and "Material Adverse Change" For
purposes of this Agreement, the terms "Material Adverse Effect" and "Material
Adverse Change" mean or refer to, with respect to any entity, any adverse
change, circumstance or effect that, individually or in the aggregate with all
other adverse changes, circumstances and effects, is or is reasonably likely to
be materially adverse to the financial condition, properties, assets,
liabilities, material Intellectual Property rights, business, prospects or
operating results of such entity, and its subsidiaries if any, taken as a whole,
except (i) that a change in the market price of a company's Common Stock shall
not, in and of itself, be deemed a "Material Adverse Effect" or to have resulted
in a "Material Adverse Change" with respect to such company and (ii) that a
"Material Adverse Effect" or a "Material Adverse Change" with respect to a
company shall not include any adverse change, circumstance or effect (a)
resulting from or relating to general business, economic or industry conditions;
(b) relating to or resulting directly from implementation of the transactions
contemplated by this Agreement or (c) relating to any other acquisition or
investment made by Acquirer after the date of this Agreement.
11.14 "Person" shall mean any individual, Entity or Governmental
Body. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity. "Governmental Body" shall mean any: (a)
nation, state, commonwealth, province, territory, county, municipality, district
or other jurisdiction of any nature; (b) federal, state, local, municipal,
foreign or other government; or (c) governmental or quasi-governmental authority
of any nature (including any governmental division, department, agency,
commission, instrumentality, official, organization, unit, body or Entity and
any court or other tribunal).
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11.15 Expenses. Each party will bear its respective expenses and fees
of its own accountants, attorneys, investment bankers and other professionals
incurred with respect to this Agreement and the transactions contemplated
hereby; provided that in the event of Closing Acquirer shall pay all reasonable
and customary accounting and attorneys' fees and expenses incurred by Target,
not to exceed $150,000 in the aggregate. The Target Shareholders will pay and
hold Acquirer harmless from any investment banking fees and expenses incurred in
connection with the Merger and all accounting and attorneys' fees and expenses
incurred by Target and Target Shareholders in connection with the Merger in
excess of $150,000. If such payment of such amounts due to be paid by Target
shareholders under the preceding sentence is not made by the Target
Shareholders, Acquirer will pay such fees or expenses and will be entitled to
treat the amount of payment as Claims recoverable under Section 10.2 and as an
uncontested claim under the Escrow Agreement.
11.16 Absence of Third Party Beneficiary Rights. No provisions of
this Agreement are intended, nor will be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, partner or employee of any party hereto or any other person
or entity, except as specifically otherwise provided to be for the benefit of
officers, directors, employees or shareholders of Target in Sections 4.14 and
5.4 (as to employees), 5.5 (as to officers and directors) and 10.3 (as to
shareholders), and, except as so provided, all provisions hereof will be
personal solely between the parties to this Agreement.
11.17 Entire Agreement. This Agreement and the exhibits hereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect to the subject matter hereof.
The express terms hereof control and supersede any course of performance or
usage of trade inconsistent with any of the terms hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ACQUIRER TARGET
XXXXXXXX.XXX, INC. PHAROS TECHNOLOGIES, INC.
By: By:
---------------------------------- ----------------------------------
Xxxxxx X. Xxxxxxx, C. Xxxxxxx Xxxxxxxx
CEO & President CEO & President
MINIMEE, INC.
By:
----------------------------------
Xxxxxxxxx X. Xxxxxxxxxx
President and Secretary
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER
49
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
XXXXXXXX.XXX, INC.,
PHAROS TECHNOLOGIES, INC.,
AND
MINIMEE, INC.
DECEMBER 23, 1999
50
INVESTMENT REPRESENTATION LETTER
Ladies and Gentlemen:
The undersigned shareholder ("Purchaser") of Pharos Technologies, Inc.
("Target") has acquired from Xxxxxxxx.xxx, Inc., a Delaware corporation
("Acquirer"), shares of (or options to purchase) common stock of Acquirer
("Restricted Securities"), pursuant to the terms of the Agreement and Plan of
Merger ("Agreement") entered into as of December ___, 1999 ("Agreement Date"),
by and among Acquirer, Target and Minimee, Inc., a Delaware corporation that is
a wholly-owned subsidiary of Acquirer ("Minimee") as of the Closing. Capitalized
terms used in this letter and not otherwise defined herein will have the
meanings given them in the Agreement.
Purchaser hereby represents and warrants to Acquiror as follows:
(a) The Restricted Securities will be acquired by Purchaser for
investment for Purchaser's own account, not as a nominee or agent, and not with
a view to the public resale or distribution thereof within the meaning of the
Securities Act. If not an individual, Purchaser has not been formed for the
specific purpose of acquiring shares of Restricted Stock;
(b) Purchaser has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the Restricted Securities, including the opportunity to
review the Information Statement distributed by Acquirer and copies of
Acquirer's Registration Statement on Form S-1 filed with the U.S. Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") (which filings are available online at
HTTP:\\XXX.XXX.XXX). Purchaser further has had an opportunity to ask questions
and receive answers from Acquirer regarding the terms and conditions of this
Agreement and the offering of the Restricted Securities and to obtain additional
information necessary to verify any information furnished to Purchaser or to
which such Purchaser had access. The foregoing, however, does not in any way
limit or modify the representations and warranties made by Acquirer in the
Agreement or the right of Purchaser to rely thereon;
(c) Purchaser is fully aware of: (i) the highly speculative nature of
the investment in the Restricted Securities; (ii) the financial hazards involved
in such investment; (iii) the lack of liquidity of the Restricted Securities and
the restrictions on transferability applicable to the Restricted Securities
(e.g., that under certain circumstances Purchaser may not be able to sell or
dispose of the Restricted Securities or
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use them as collateral for loans if or when desired); (iv) the qualifications
and backgrounds of the management of Acquirer; and (v) the tax consequences of
investment in the Restricted Securities.
(d) Either alone or together with the Purchaser's Representative,
Purchaser has the knowledge and experience in financial and business matters
that Purchaser is capable of evaluating the merits and risks of the investment
in the Restricted Securities, and Purchaser has the ability to protect its own
interests in connection with the investment in the Restricted Securities and is
financially capable of bearing a total loss of this investment. Unless otherwise
specified on the signature page below, Purchaser is an "accredited investor"
within the meaning of Rule 501 promulgated under the Securities Act, as
presently in effect.
(e) Purchaser understands and acknowledges that, in reliance upon the
representations and warranties made by Purchaser herein, the Restricted
Securities are not being registered with the SEC under the Securities Act or
being qualified under the California Corporate Securities Law of 1968, as
amended (the "CALIFORNIA LAW"), but instead are being issued under an exemption
or exemptions from the registration and qualification requirements of the
Securities Act and California Law or other applicable securities laws which
impose certain restrictions on Purchaser's ability to transfer the Restricted
Securities. Specifically, Purchaser understands that the Restricted Securities
cannot be sold unless they are registered under the Securities Act or other
applicable securities laws or unless an exemption from registration is
available. Accordingly, the securities evidencing the Restricted Securities will
bear a legend to that effect and set forth the restrictions on transferability
and sale of such shares imposed by the Securities Act, other applicable
securities laws. Purchaser has also been advised that exemptions from
registration and qualification may not be available or may not permit Purchaser
to transfer all or any of the Restricted Securities in the amounts or at the
times proposed by Purchaser. Purchaser understands that Acquirer is under no
obligation to register any of the Restricted Securities, except as expressly
provided in the Agreement.
(f) At no time was Purchaser presented with or solicited by any
publicly issued or circulated newspaper, mail, radio, television or other form
of general advertising or solicitation in connection with the offer, sale and
purchase of the Restricted Securities;
(g) In addition, Purchaser has been advised that SEC Rule 144
promulgated under the 1933 Act, which permits certain limited sales of
unregistered securities, is not presently available with respect to the
Restricted Securities and, in any event, requires that the Restricted Securities
be held for a minimum of one year, and in certain cases two years, after they
have been purchased and paid for (within the meaning of Rule 144), before they
may be resold under Rule 144. For this purpose, the Restricted Securities will
be deemed purchased upon the effectiveness of the Merger and pre-Merger holding
periods cannot be "tacked." Purchaser understands that Rule 144 may indefinitely
restrict transfer of the Restricted Securities if and for so long as Purchaser
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remains an "affiliate" of Acquirer and "current public information" about
Acquirer (as defined in Rule 144) is not publicly available.
(i) Purchaser understands that, subject to Section 11.1 and the
Exchange Agreement, certificates or other instruments representing any of the
Restricted Securities acquired by Purchaser will bear legends substantially
similar to the following, in addition to any other legends required by United
States and other applicable securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
(j) The undersigned agrees not to purchase any stock offered in the
Company's initial public offering.
(k) The undersigned hereby agrees to sign such market standoff
agreement as the underwriter requests of other affiliates of the Company, in the
form attached hereto.
Signed and dated effective as of the Closing under the Agreement.
----------------------------------------
Print Name:
----------------------------------------
Signature
By:
-------------------------------------
Its:
------------------------------------
Check here __ if Purchaser is not an "accredited investor" within the
meaning of Regulation D, Rule 501 promulgated under the Securities Act of 1933,
as amended.
5
