EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
XXXX.XXX, INC.,
XXX ACQUISITION CORP.
AND
CADABRA INC.
Dated as of November 19, 1999
TABLE OF CONTENTS
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ARTICLE I THE MERGER.................................................................................................. 2
1.1 The Merger.......................................................................................... 2
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1.2 Effective Time...................................................................................... 2
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1.3 Effect of the Merger................................................................................ 2
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1.4 Articles of Incorporation; Bylaws................................................................... 2
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1.5 Directors and Officers.............................................................................. 3
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1.6 Merger Consideration................................................................................ 3
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1.7 Dissenting Shares for Holders of Company Capital Stock.............................................. 6
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1.8 Surrender of Certificates........................................................................... 6
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ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................................. 9
2.1 Organization of the Company......................................................................... 9
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2.2 Company Capital Structure........................................................................... 9
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2.3 Subsidiaries....................................................................................... 10
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2.4 Authority.......................................................................................... 10
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2.5 Company Financial Statements....................................................................... 11
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2.6 No Undisclosed Liabilities......................................................................... 11
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2.7 No Changes......................................................................................... 11
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2.8 Tax and Other Returns and Reports.................................................................. 13
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2.9 Restrictions on Business Activities................................................................ 14
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2.10 Title to Properties; Absence of Liens and Encumbrances............................................. 14
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2.11 Intellectual Property.............................................................................. 15
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2.12 Agreements, Contracts and Commitments.............................................................. 17
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2.13 Interested Party Transactions...................................................................... 19
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2.14 Compliance with Laws............................................................................... 19
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2.15 Litigation......................................................................................... 19
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2.16 Insurance.......................................................................................... 20
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2.17 Minute Books....................................................................................... 20
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2.18 Environmental Matters.............................................................................. 20
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2.19 Brokers'and Finders'Fees; Third Party Expenses..................................................... 21
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2.20 Employee Matters and Benefit Plans................................................................. 21
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2.21 Officer Matters.................................................................................... 24
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2.22 Year 2000 Compliance............................................................................... 24
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2.23 Representations Complete........................................................................... 24
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.................................................. 25
3.1 Organization, Standing and Power................................................................... 25
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3.2 Authority.......................................................................................... 25
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TABLE OF CONTENTS
(continued)
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3.3 Capital Structure.................................................................................. 25
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3.4 SEC Documents; Parent Financial Statements......................................................... 26
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3.5 No Material Adverse Change......................................................................... 26
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3.6 Disclosure......................................................................................... 26
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ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME....................................................................... 27
4.1 Conduct of Business of the Company................................................................. 27
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4.2 No Solicitation.................................................................................... 29
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4.3 Conduct of Business of Parent...................................................................... 30
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ARTICLE V ADDITIONAL AGREEMENTS...................................................................................... 31
5.1 Fairness Hearing; Shareholder Approval............................................................. 31
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5.2 Nasdaq Listing..................................................................................... 31
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5.3 Access to Information.............................................................................. 31
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5.4 Confidentiality.................................................................................... 32
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5.5 Expenses........................................................................................... 32
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5.6 Public Disclosure.................................................................................. 32
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5.7 Consents........................................................................................... 32
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5.8 FIRPTA Compliance.................................................................................. 32
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5.9 Reasonable Efforts................................................................................. 32
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5.10 Notification of Certain Matters.................................................................... 33
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5.11 Affiliate Agreements............................................................................... 33
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5.12 Additional Documents and Further Assurances........................................................ 33
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5.13 Employee Benefits.................................................................................. 33
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5.14 Indemnification.................................................................................... 34
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5.15 Stock Options...................................................................................... 34
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ARTICLE VI CONDITIONS TO THE MERGER.................................................................................. 34
6.1 Conditions to Obligations of Each Party to Effect the Merger....................................... 34
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6.2 Additional Conditions to Obligations of the Company................................................ 34
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6.3 Additional Conditions to the Obligations of Parent and Merger Sub.................................. 35
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ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW....................................................... 36
7.1 Survival of Representations and Warranties......................................................... 36
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7.2 Escrow Arrangements................................................................................ 36
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ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER....................................................................... 43
8.1 Termination........................................................................................ 43
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8.2 Effect of Termination.............................................................................. 44
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8.3 Amendment.......................................................................................... 44
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TABLE OF CONTENTS
(continued)
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8.4 Extension; Waiver.................................................................................. 44
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ARTICLE IX GENERAL PROVISIONS........................................................................................ 44
9.1 Notices............................................................................................ 44
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9.2 Interpretation..................................................................................... 46
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9.3 Counterparts....................................................................................... 46
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9.4 Entire Agreement; Assignment....................................................................... 46
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9.5 Severability....................................................................................... 46
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9.6 Other Remedies..................................................................................... 47
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9.7 Governing Law...................................................................................... 47
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9.8 Rules of Construction.............................................................................. 47
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9.9 Specific Performance............................................................................... 47
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9.10 Attorneys'Fees..................................................................................... 47
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of November 19, 1999 among XxXx.xxx, Inc., a Delaware
corporation ("Parent"), Xxx Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), Cadabra Inc., a California
corporation (the "Company"), the undersigned escrow agent (the "Escrow Agent")
and Xxxxxxxx X. Xxxxx (the "Securityholder Agent") (the Escrow Agent and the
Securityholder Agent being parties with respect to Article VII hereof only).
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each Company and their respective
shareholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("Company Capital Stock") and all outstanding
options, warrants or other rights to acquire or receive shares of Company
Capital Stock shall be converted into the right to receive shares of voting
Common Stock of Parent ("Parent Common Stock").
C. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions,
all as set forth in Article VII hereof.
D. It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
E. As a material inducement for Parent to consummate the Merger,
certain key employees of the Company will enter into non-competition agreements
substantially in the form attached hereto as Exhibit A (the "Non-Competition
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Agreement") with Parent, each of which shall become effective as of the
Effective Time (as defined herein).
F. Concurrent with the execution and delivery of this Agreement, as a
material inducement to Parent to enter into this Agreement, certain affiliate
shareholders of the Company are executing and delivering shareholder support
agreements (the "Support Agreements"), substantially in the form attached hereto
as Exhibit B, to Parent.
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G. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California General Corporation Law ("California
Law") and Delaware General Corporation Law ("Delaware Law"), Merger Sub shall be
merged with and into Company, the separate corporate existence of Merger Sub
shall cease and Company shall continue as the surviving corporation. The
surviving corporation after the Merger is sometimes referred to hereinafter as
the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated
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pursuant to Section 8.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than two (2) business days
following satisfaction or waiver of the conditions set forth in Article VI, at
the offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx,
Xxxxxxxxxx, unless another place or time is agreed to in writing by Parent and
the Company. The date upon which the Closing actually occurs is herein referred
to as the "Closing Date." On the Closing Date, the parties hereto shall cause
the Merger to be consummated by filing an Agreement of Merger (the "Agreement of
Merger") with the Secretaries of State of the States of California and Delaware,
in accordance with the relevant provisions of applicable law (the time of
acceptance by the Secretary of State of California of such filing being referred
to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
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Merger shall be as provided in the applicable provisions of California Law and
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
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(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Articles of Incorporation of the Company as in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with California Law and as provided in such Articles of
Incorporation."
(b) Unless otherwise determined by Parent prior to the Effective
Time, the Bylaws of the Company as in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation at the Effective Time,
until thereafter amended in accordance with California Law and as provided in
the Articles of Incorporation of the Surviving Corporation and such Bylaws.
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1.5 Directors and Officers. Unless otherwise determined by Parent
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prior to the Effective Time, the directors of Merger Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation, each to
hold the office of a director of the Surviving Corporation in accordance with
the provisions of California Law and the Articles of Incorporation and Bylaws of
the Surviving Corporation until their successors are duly elected and qualified.
The officers of Merger Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, each to hold office in accordance with
the provisions of the Bylaws of the Surviving Corporation.
1.6 Merger Consideration.
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(a) Certain Definitions. For purposes of this Agreement, the
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following terms shall have the following meanings:
"Aggregate Share Number" shall mean that number of shares of
Parent Common Stock equal to (i) $242,000,000 divided by (ii) the average
closing price of a share of Parent Common Stock for the thirty calendar days
prior to the Effective Time, as reported on the NASDAQ National Market (the "30-
Day Average Price"); provided, however, that if the 30-Day Average Price is
greater than $130.00, Aggregate Share Number shall mean 1,861,539 shares of
Parent Common Stock, and provided further, that if the 30-Day Average Price is
less than $40.00, Aggregate Share Number shall mean 6,050,000 shares of Parent
Common Stock.
"Company Capital Stock" shall mean shares of Company Common Stock,
Company Preferred Stock and any shares of other capital stock of Company.
"Company Common Stock" shall mean shares of common stock of
Company.
"Company Convertible Securities" shall mean the Company Options
and other rights (other than Company Preferred Stock) to acquire or receive
shares of Company Capital Stock.
"Company Options" shall mean all issued and outstanding options to
purchase or otherwise acquire Company Capital Stock (whether or not vested) held
by employees or directors of or consultants to Company (other than Company
Preferred Stock).
"Company Preferred Stock" shall mean shares of Company Series A
Preferred Stock and Company Series B Preferred Stock.
"Company Series A Preferred Stock" shall mean shares of Series A
Preferred Stock of Company.
"Company Series B Preferred Stock" shall mean shares of Series B
Preferred Stock of Company.
"Company Shareholders" shall mean holders of any shares of Company
Capital Stock immediately prior to the Effective Time.
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"Company Warrants" shall mean any outstanding warrants to purchase
shares of Company Common Stock.
"Escrow Amount" shall mean that number of shares of Parent Common
Stock equal to the Aggregate Share Number multiplied by 0.1.
"Exchange Ratio" shall mean a number of shares of Parent Common
Stock equal to the quotient obtained by dividing the Aggregate Share Number by
the Total Outstanding Shares.
"Knowledge" shall mean, with respect to Company or Parent, what is
within the actual knowledge of any of the officers of Company or Parent, as the
case may be.
"Per Share Cash Amount" shall mean an amount of cash equal to the
quotient obtained by dividing $8,000,000 by the Total Outstanding Shares.
"Total Outstanding Shares" shall mean the aggregate number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time plus the aggregate number of shares of Company Common Stock issuable, with
or without the passage of time or satisfaction of other conditions, upon
exercise of or conversion of all Company Convertible Securities and Company
Preferred Stock outstanding immediately prior to the Effective Time.
(b) Shares to be Issued; Cash to be Issued; Effect on Capital
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Stock. The maximum number of shares of Parent Common Stock and cash to be issued
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(including Parent Common Stock to be reserved for issuance upon exercise of any
of the Company's options and warrants to be assumed by Parent) in exchange for
the acquisition by Parent of all outstanding Company Capital Stock and all
unexpired and unexercised options, warrants or other rights to acquire Company
Capital Stock shall be determined immediately prior to the Effective Time and
shall be equal to the Aggregate Share Number plus $8,000,000. Subject to the
terms and conditions of this Agreement, as of the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holder of any shares of the Company Capital Stock, the following shall occur:
(i) Effect on Company Capital Stock. Each share of Company
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Capital Stock issued and outstanding immediately prior to the Effective Time
(other than any Dissenting Shares, as defined in Section 1.7 hereof and any
shares owned by Parent, Merger Sub or Company or any direct or indirect wholly-
owned subsidiary thereof) shall be canceled and extinguished and shall be
converted automatically into the right to receive, upon surrender of the
certificate representing such share of Company Capital Stock and upon the terms
and subject to conditions set forth below and throughout this Agreement, a
combination of (A) shares of Parent Common Stock equal to the Exchange Ratio and
(B) cash equal to the Per Share Cash Amount (collectively, the "Merger
Consideration").
(ii) Assumption of Company Options. Each outstanding Company
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Option issued pursuant to Company's 1998 Stock Plan (the "Option Plan") or
otherwise, whether vested or unvested, will be assumed by Parent in connection
with the Merger. Each Company Option so
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assumed by Parent under this Agreement shall continue to have, and be subject
to, the same terms and conditions set forth in the Option Plan and/or as
provided in the respective option agreements immediately prior to the Effective
Time (including, without limitation, any vesting schedule or repurchase rights),
except that (i) each Company Option will be exercisable for (A) that number of
whole shares of Parent Common Stock equal to the product of the number of shares
of Company Common Stock that were issuable upon exercise of such Company Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock and
(B) cash equal to the Per Share Cash Amount multiplied by the number of shares
of Company Common Stock that were issuable upon exercise of such Company Option,
and (ii) the per share exercise price for the shares of Parent Common Stock
issuable upon exercise of such assumed Company Option will be equal to the
quotient determined by dividing the exercise price per share of Company Capital
Stock at which such Company Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent. The
rights of first refusal with respect to Company Options issued under the Option
Plan, set forth in the form of option agreement, are hereby waived by the
Company and Parent as of the Effective Time.
(iii) Option Status. It is the intention of the parties
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hereto that the Company Options assumed by Parent following the Closing pursuant
to this Section 1.6 will, to the extent permitted by applicable law, qualify as
incentive stock options as defined in Section 422 of the Code, to the extent any
such Company Options qualified as incentive stock options immediately prior to
the Effective Time.
(iv) Assumption of Company Warrants. At the Effective Time,
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each outstanding Company Warrant will be assumed by Parent in connection with
the Merger. Each Company Warrant so assumed by Parent under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
Company Warrant immediately prior to the Effective Time, except that (i) each
Company Warrant will be exercisable for (A) that number of whole shares of
Parent Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Company Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock and
(B) cash equal to the Per Share Cash Amount multiplied by the number of shares
of Company Common Stock that were issuable upon exercise of such Company
Warrant, and (ii) the per share exercise price for the shares of Parent Common
Stock issuable upon exercise of such assumed Company Warrant will be equal to
the quotient determined by dividing the exercise price per share of Company
Capital Stock at which such Company Warrant was exercisable immediately prior to
the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
(v) Fractional Shares. No fractional share of Parent
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Common Stock shall be issued in the Merger. In lieu thereof, any fractional
share shall be paid in cash at the 30 Day Average Price.
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(vi) Cancellation of Parent-Owned and Company-Owned Stock.
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Each share of Company Capital Stock owned by Parent, Merger Sub, Company or any
direct or indirect wholly-owned subsidiary thereof immediately prior to the
Effective Time, shall be cancelled and extinguished without any conversion
thereof.
(vii) Capital Stock of Merger Sub. Each share of capital
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stock of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of common stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
1.7 Dissenting Shares for Holders of Company Capital Stock.
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(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has not
withdrawn or lost appraisal or dissenter rights for such shares in accordance
with California Law and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal rights ("Dissenting Shares"), shall not be
converted into or represent a right to receive Parent Common Stock pursuant to
Section 1.6, but the holder thereof shall only be entitled to such rights as are
granted by California Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of shares of Company Capital Stock shall effectively withdraw or lose
(through failure to perfect or otherwise) the right to appraisal, then, as of
the later of the Effective Time and the occurrence of such event, such holder's
shares shall automatically be converted into and represent only the right to
receive the Merger Consideration as provided in Section 1.6 (and subject to the
provisions of Section 7.2 hereof), without interest thereon, upon surrender of
the certificate representing such shares.
(c) Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Capital Stock, withdrawals of
such demands, and any other instruments served pursuant to California Law and
received by Company and (ii) the opportunity to participate in all negotiations
and proceedings with respect to demands for appraisal under California Law.
Company shall not, except with the prior written consent of Parent, voluntarily
make any payment with respect to any demands for appraisal of capital stock of
Company or offer to settle or settle any such demands. Parent shall have full
recourse to the Escrow Fund (as defined in Section 7.2(a)) for the amount, if
any, paid by Company or Parent in respect of any Dissenting Shares in excess of
the Merger Consideration (with the Exchange Ratio being valued at the 30 Day
Average Price).
1.8 Surrender of Certificates.
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(a) Exchange Agent. The transfer agent of Parent (or another
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entity reasonably acceptable to Parent and Company and determined prior to the
Closing) shall serve as exchange agent (the "Exchange Agent") in the Merger.
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(b) Parent to Provide Parent Common Stock. Prior to the Closing,
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Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I the shares of Parent Common Stock and cash issuable to
Company Shareholders pursuant to Section 1.6 in exchange for outstanding shares
of Company Capital Stock, less the Escrow Amount which Parent shall deposit into
the Escrow Fund (as defined in Section 7.2(a) hereof) on behalf of the Company
Shareholders. The portion of the Escrow Amount contributed on behalf of each
Company Shareholder shall be in proportion to the aggregate number of shares of
Parent Common Stock each such Company Shareholder would otherwise be entitled to
receive in the Merger (excluding any shares of Parent Common Stock issuable upon
exercise of any assumed Company Options) by virtue of ownership of outstanding
shares of Company Capital Stock immediately prior to the Effective Time.
(c) Exchange Procedures. As soon as practicable following the
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Closing, Parent shall cause to be mailed to each Company Shareholder (i) a
letter of transmittal (which shall be in such form and contain such provisions
as Parent may reasonably specify and shall specify that delivery shall be
effected, and risk of loss and title to the certificates (the "Certificates")
which immediately prior to the Effective Time represent outstanding shares of
Company Capital Stock whose shares are converted into the right to receive such
Company Shareholder's pro rata portion of the Merger Consideration pursuant to
Section 1.6, shall pass, only upon delivery of the Certificates to the Exchange
Agent at the Closing) and (ii) instructions for use in effecting the surrender
at the Closing of the Certificates in exchange for certificates representing
such Company Shareholder's pro rata portion of the Merger Consideration. Upon
surrender of a Certificate at the Closing for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Parent, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the Company Shareholder shall be entitled to
receive, and the Exchange Agent shall promptly deliver in exchange therefor, a
certificate representing the number of whole shares of Parent Common Stock (less
the number of shares of Parent Common Stock to be deposited in the Escrow Fund
on such holder's behalf pursuant to Section 1.8(b) and Article 7 hereof) and the
cash to which such holder is entitled pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Article VII hereof, Parent shall cause to be distributed to the Escrow Agent
(as defined in Article VII) a certificate or certificates representing that
number of shares of Parent Common Stock equal to the Escrow Amount which shall
be registered in the name of the Escrow Agent. Such shares shall be beneficially
owned by the holders on whose behalf such shares were deposited in the Escrow
Fund and shall be available to compensate Parent as provided in Article VII.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Capital Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of Parent
Common Stock and cash into which such shares of Company Capital Stock shall have
been so converted, except that no interest shall accrue or be payable with
respect to the cash portion of the Merger Consideration.
(d) Distributions With Respect to Unexchanged Shares. No
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dividends or other distributions declared or made after the Effective Time with
respect to Parent Common Stock with a
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record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock and cash issued in
exchange therefor, plus the amount of dividends or other distributions (without
interest) with a record date after the Effective Time theretofore paid with
respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of
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Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Common Stock in any name other than that of the registered
holder of the Certificate surrendered.
(f) Lost, Stolen or Destroyed Certificates. In the event any
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Certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the delivery by the holder thereof of an
affidavit of that fact by the holder thereof containing customary
indemnification provisions.
(g) No Liability. Notwithstanding anything to the contrary in
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this Section 1.8, neither Parent nor any party hereto shall be liable to a
holder of shares of Parent Common Stock or Company Capital Stock for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(h) No Further Ownership Rights in Company Capital Stock. The
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shares of Parent Common Stock issued in accordance with the terms hereof shall
be deemed to be full satisfaction of all rights pertaining to shares of Company
Capital Stock outstanding prior to the Effective Time, and there shall be no
further registration of transfers on the records of Parent of shares of Company
Capital Stock that were outstanding prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Parent for any reason, they shall
be canceled and exchanged as provided in this Article I.
(i) Taking of Necessary Action; Further Action. If, at any time
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after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company, Parent and Merger Sub, the officers and directors of
Company, Parent and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As of the date hereof and as of the Closing Date, the Company
represents and warrants to Parent and Merger Sub, subject to such exceptions as
are clearly disclosed in the disclosure letter (referencing the appropriate
section number) supplied by the Company to Parent (the "Company Disclosure
Letter") and dated as of the date hereof, as follows:
2.1 Organization of the Company. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would be material. The Company has
delivered a true and correct copy of its Articles of Incorporation and Bylaws,
each as amended to date, to Parent.
2.2 Company Capital Structure.
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(a) The authorized capital stock of the Company consists of
40,000,000 shares of authorized Common Stock, of which 3,598,750 shares are
issued and outstanding as of the date hereof, and 3,000,000 shares of authorized
Preferred Stock, 1,550,000 of which are designated Series A Preferred Stock, of
which 1,537,966 shares are issued and outstanding as of the date hereof and
1,450,000 of which are designated Series B Preferred Stock, of which 1,432,948
shares are issued and outstanding as of the date hereof. The Company Capital
Stock is held of record by the persons, with the addresses of record and in the
amounts set forth on Section 2.2(a) of the Company Disclosure Letter. All
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outstanding shares of Company Capital Stock are duly authorized, validly issued,
fully paid and non-assessable and not subject to preemptive rights created by
statute, the Articles of Incorporation or Bylaws of the Company or any agreement
to which the Company is a party or by which it is bound.
(b) The Company has reserved 2,750,000 shares of Common Stock for
issuance to directors, officers, employees and consultants pursuant to the
Option Plan, of which 350,000 shares are subject to outstanding, unexercised
options as of the date hereof and 1,793,250 shares remain available for future
grant as of the date hereof. The Company has reserved no shares of Common Stock
for issuance upon exercise of outstanding Company Options granted outside the
Option Plan. There are no outstanding Company Warrants as of the date hereof.
Section 2.2(b) of the Company Disclosure Letter sets forth for each outstanding
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Company Option, the name of the holder of such option, the number of shares of
Common Stock subject to such option, the exercise price of such option and the
vesting schedule for such option, including the extent vested to the date hereof
and whether the exercisability of such option will be accelerated and become
exercisable by reason of the transactions contemplated by this Agreement. Except
for the Company Options described in Section 2.2(b) of the Company Disclosure
--------------
Letter, there are no options, warrants, calls, rights, commitments or agreements
of any character, written or oral, to which the Company is a party or by which
it is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the
-9-
Company or obligating the Company to grant, extend, accelerate the vesting of,
change the price of, otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. The holders of Company Options have been
or will be given, or shall have properly waived, any required notice prior to
the Merger, and all such rights will be terminated at or prior to the Effective
Time. As a result of the Merger, Parent will be the record and sole beneficial
owner of all capital stock of the Company and rights to acquire or receive such
capital stock.
2.3 Subsidiaries. The Company does not have and has never had any
------------
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority. Subject only to the requisite approval of the Merger
---------
and this Agreement by the Company's shareholders, the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The vote required of the Company's
shareholders to duly approve the Merger and this Agreement is a majority of the
outstanding shares of Company Common Stock and a majority of the outstanding
shares of Company Preferred Stock (collectively, the "Required Shares"). Company
Shareholders who hold the Required Shares have executed the Support Agreements.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the approval of the
Merger by the Company's shareholders. The Company's Board of Directors has
unanimously approved the Merger and this Agreement. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms. Subject
only to the approval of the Merger and this Agreement by the Company's
shareholders, the execution and delivery of this Agreement by the Company does
not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
the Articles of Incorporation or Bylaws of the Company or (ii) any material
mortgage, indenture, lease, contract or other material agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party (so as not to trigger any Conflict) in connection with a material
mortgage, indenture, lease, contract or other material agreement is required by
or with respect to the Company in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing of the Agreement of Merger with the California
Secretary of State, (ii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and (iii) such other consents,
waivers, authorizations, filings, approvals and registrations which are set
forth on Section 2.4 of the Company Disclosure Letter.
-----------
-10-
2.5 Company Financial Statements. Section 2.5 of the Company
---------------------------- -----------
Disclosure Letter sets forth (i) the Company's unaudited financial statements
for the year ended December 31, 1998, and (ii) the Company's unaudited balance
sheet as of October 31, 1999 (the "Balance Sheet") and the related unaudited
statements of operations and cash flows for the ten-month period then ended ((i)
and (ii) collectively, the "Company Financials"). The Company Financials are
correct in all material respects and have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a basis consistent
throughout the periods indicated and consistent with each other, subject to the
absence of notes and, in the case of the Balance Sheet, to normal recurring
year-end adjustments. The Company Financials present fairly the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein, subject, in the case of the financial statements for
such ten-month period, to normal year-end adjustments, which such adjustments
will not be material in amount or significance. At no time has the Company
factored its accounts receivable or otherwise sold or transferred the right to
collect any of its accounts receivable. In addition, at no time has the Company,
or any assets of the Company, been placed into receivership or otherwise been
subject to any bankruptcy, insolvency or liquidation proceeding.
2.6 No Undisclosed Liabilities. The Company does not have any
--------------------------
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with GAAP), which individually or in the aggregate, (i)
has not been reflected in the Balance Sheet, or (ii) has not arisen in the
ordinary course of the Company's business since the date of the Balance Sheet,
consistent with past practices.
2.7 No Changes. Since September 30, 1999 and until the date hereof,
----------
there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on the date of the Balance Sheet and consistent with past
practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $50,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) event or condition that has or would be reasonably expected
to have a Material Adverse Effect (as defined in Section 9.2 hereof) on the
Company;
-11-
(g) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(h) revaluation by the Company of any of its assets;
(i) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(j) increase in the salary or other compensation payable or to
become payable to any of its officers or directors, or the declaration, payment
or commitment or obligation of any kind for the payment of a bonus or other
additional salary or compensation to any such person except as otherwise
contemplated by this Agreement;
(k) material sale, lease, license or other disposition of any of
the assets or properties of the Company, except in the ordinary course of
business as conducted on that date and consistent with past practices;
(l) amendment or termination (other than pursuant to its terms)
of any material contract, agreement or license to which the Company is a party
or by which it is bound;
(m) material loan by the Company to any person or entity,
incurring by the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others, except for advances to employees
for travel and business expenses in the ordinary course of business, consistent
with past practices;
(n) material waiver or release of any right or claim of the
Company, including any write-off or other compromise of any account receivable
of the Company;
(o) issuance or sale by the Company of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities other than the grant or exercise of stock
options in the ordinary course of business;
(p) change in pricing or royalties set or charged by the Company
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Intellectual Property (as defined in Section 2.11) to
the Company; or
(q) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (p) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
-12-
2.8 Tax and Other Returns and Reports.
---------------------------------
(a) Definition of Taxes. For the purposes of this Agreement,
-------------------
"Tax" or, collectively, "Taxes," means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) The Company as of the Effective Time will have
prepared and filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to any and
all Taxes concerning or attributable to the Company or its operations and such
Returns are true and correct and have been completed in accordance with
applicable law.
(ii) The Company as of the Effective Time: (A) will have
paid or accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company is currently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against in accordance with GAAP on the Balance Sheet or accrued in the ordinary
course of business consistent with past practice, whether asserted or
unasserted, contingent or otherwise, and the Company has no Knowledge of any
basis for the assertion of any such liability attributable to the Company, its
assets or operations.
(vi) The Company has provided to Parent copies of all
federal and state income and all state sales and use Tax Returns for all periods
since the date of Company's incorporation.
(vii) There are (and as of immediately following the
Effective Date there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("Liens") on the assets of the
Company relating to or attributable to Taxes.
-13-
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as "tax-
exempt use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 162 of the
Code.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiii) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiv) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
2.9 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
reasonably would be expected to have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company or the conduct of business by the Company. Without
limiting the foregoing, the Company has not entered into any agreement under
which the Company is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
------------------------------------------------------
(a) The Company owns no real property, nor has it ever owned any
real property. Section 2.10(a) of the Company Disclosure Letter sets forth a
--------------
list of all real property currently leased by the Company, the name of the
lessor, the date of the lease and each amendment thereto and the aggregate
annual rental and/or other fees payable under any such lease. All such current
leases are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default on the part of the Company or event of default on
-14-
the part of the Company (or event which with notice or lapse of time, or both,
would constitute such a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens (as defined in Section 2.8(b)(vii)),
except as reflected in the Company Financials and except for liens for taxes not
yet due and payable and such imperfections of title and encumbrances, if any,
which are not material in character, amount or extent, and which do not
materially detract from the value, or materially interfere with the present use,
of the property subject thereto or affected thereby.
2.11 Intellectual Property.
---------------------
For the purposes of this Agreement, the following terms have the
following definitions:
"Intellectual Property" shall mean any or all of the following
and all rights in, arising out of, or associated therewith: (i)
all United States, international and foreign patents and
applications therefor and all reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part
thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing;
(iii) all copyrights, copyrights registrations and applications
therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and
applications therefor throughout the world; (v) all trade names,
logos, URLs, common law trademarks and service marks, trademark
and service xxxx registrations and applications therefor
throughout the world; (vi) all databases and data collections and
all rights therein throughout the world; (vii) all moral and
economic rights of authors and inventors; and (viii) any similar
or equivalent rights to any of the foregoing anywhere in the
world.
"Company Intellectual Property" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, the
Company.
"Registered Intellectual Property" means all United States,
international and foreign: (i) patents and patent applications
(including provisional applications); (ii) registered trademarks,
applications to register trademarks, intent-to-use applications,
or other registrations or applications related to trademarks;
(iii) registered copyrights and applications for copyright
registration; and (iv) any other Intellectual Property that is
the subject of an application, certificate, filing, registration
or other similar document issued, filed with, or recorded by any
state, government or other public legal authority.
"Company Registered Intellectual Property" means all of the
Registered Intellectual Property owned by, or filed in the
name of, the Company.
-15-
(a) No material Company Intellectual Property or product or
service of the Company is subject to any proceeding or outstanding decree,
order, judgment, agreement or stipulation restricting in any manner the use,
transfer, or licensing thereof by the Company, or which may affect the validity,
use or enforceability of such Company Intellectual Property.
(b) Section 2.11(b) of the Company Disclosure Letter is a
---------------
complete and accurate list of all Company Registered Intellectual Property and
specifies, where applicable, the jurisdictions in which each such item of
Company Registered Intellectual Property has been issued or registered or in
which an application for such issuance and registration has been filed,
including the respective registration or application numbers. As of the date
hereof, each material item of Company Registered Intellectual Property is valid
and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Registered Intellectual Property have been
made and all necessary documents, recordations and certificates in connection
with such Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, noted for the purposes of maintaining such Registered
Intellectual Property.
(c) The Company owns and has good and exclusive title to,
or has license (sufficient for the conduct of its business as currently
conducted and as currently proposed to be conducted) to, each material item of
Company Intellectual Property or other Intellectual Property used by the Company
free and clear of any lien or encumbrance (excluding licenses and related
restrictions); and the Company is the exclusive owner of all trademarks and
trade names used in connection with the operation or conduct of the business of
the Company, including the sale of any products or the provision of any services
by the Company.
(d) The Company owns exclusively, and has good title to,
all copyrighted works or which the Company otherwise expressly purports to own.
The Company owns exclusively, and has good title to, all source-code and object-
code used in or incorporated in the Company's products or services.
(e) To the extent that any material Intellectual Property
has been developed or created by a third party for the Company, the Company has
a written agreement with such third party with respect thereto and the Company
thereby either (i) has obtained ownership of, and is the exclusive owner of or
(ii) has obtained a license (sufficient for the conduct of its business as
currently conducted and as currently proposed to be conducted) to all such third
party's Intellectual Property in such work, material or invention by operation
of law or by valid assignment, to the fullest extent it is legally possible to
do so.
(f) The Company has not transferred ownership of, or
granted any exclusive license with respect to, any Intellectual Property that is
material to the Company Intellectual Property, to any third party.
(g) Section 2.11(g) of the Company Disclosure Letter lists
--------------
all material contracts, licenses and agreements to which the Company is a party
(i) with respect to the Company Intellectual Property licensed or transferred to
any third party (other than end-user licenses in the
-16-
ordinary course); or (ii) pursuant to which a third party has licensed or
transferred any material Intellectual Property to the Company.
(h) All material contracts, licenses and agreements relating to
Company Intellectual Property are in full force and effect. The consummation of
the transactions contemplated by this Agreement will neither violate nor result
in the breach, modification, cancellation, termination or suspension of such
contracts, licenses and agreements. The Company is in material compliance with,
and has not materially breached any term any of such contracts, licenses and
agreements and, to the Knowledge of the Company, all other parties to such
contracts, licenses and agreements are in compliance with, and have not
materially breached any term of, such contracts, licenses and agreements.
Following the Closing Date, the Surviving Corporation will be permitted to
exercise all of the Company's rights under such contracts, licenses and
agreements to the same extent the Company would have been able to had the
transactions contemplated by this Agreement not occurred and without the payment
of any additional amounts or consideration other than ongoing fees, royalties or
payments which the Company would otherwise be required to pay.
(i) The operation of the business of the Company as such
business currently is conducted, including the Company's design, development,
marketing and sale of the products or services of the Company (including with
respect to products and services currently under development) has not, does not
and will not infringe or misappropriate the Intellectual Property of any third
party or constitute unfair competition or trade practices under the laws of any
jurisdiction.
(j) The Company has not received notice from any third party
that the operation of the business of the Company or any act, product or service
of the Company, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction.
(k) To the Knowledge of the Company, no person has or is
infringing or misappropriating, in any respect materially adverse to the
Company, any Company Intellectual Property.
(l) The Company has taken reasonable steps to protect the
Company's rights in the Company's confidential information and trade secrets
that it wishes to protect or any trade secrets or confidential information of
third parties provided to the Company, and, without limiting the foregoing, the
Company has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality and invention assignment
agreement and all current and former employees and contractors of the Company
have executed such an agreement, except where the failure to do so is not
reasonably expected to be material to the Company.
2.12 Agreements, Contracts and Commitments.
-------------------------------------
(a) As of the date hereof, the Company does not have, is not a
party to nor is it bound by:
(i) any collective bargaining agreements,
-17-
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides material services to the Company,
(v) any 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 increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
individually in excess of $15,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person,
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000,
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside of the ordinary course of the Company's business,
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof,
(xiii) any construction contracts,
(xiv) any distribution, joint marketing or development
agreement,
(xv) any agreement pursuant to which the Company has
granted or may grant in the future, to any party, a source-code license or
option or other right to use or acquire source-code,
-18-
(xvi) any agreement, arrangement, joint venture,
partnership, license or other relationship with any Governmental Entity whereby
the United States Government or any other Governmental Entity has an ownership
interest in or otherwise has the right to exploit in any manner any Company
Intellectual Property or any other assets of the Company, or
(xvii) any other agreement, contract or commitment that
involves $25,000 or more or is not cancelable without penalty within thirty (30)
days.
(b) Except for such alleged breaches, violations and defaults
and events that would constitute a breach, violation or default with the lapse
of time, giving of notice, or both, as are all noted in Section 2.12(b) of the
---------------
Disclosure Letter, the Company has not breached, violated or defaulted
under, or received notice that it has breached, violated or defaulted under, any
of the terms or conditions of any material agreement, contract or commitment
required to be set forth on Section 2.12(a) of the Company Disclosure Letter or
---------------
Section 2.11(g) of the Company Disclosure Letter (any such agreement, contract
---------------
or commitment, a "Contract"). Each Contract is in full force and effect and is
not subject to any default thereunder of which the Company has Knowledge by any
party obligated to the Company pursuant thereto.
2.13 Interested Party Transactions. No officer, director or
-----------------------------
shareholder of the Company (nor any ancestor, sibling, descendant or spouse of
any of such persons, or any trust, partnership or corporation in which any of
such persons has or has had an interest), has or has had, directly or
indirectly, (i) an economic interest in any entity which furnished or sold, or
furnishes or sells, services or products that the Company furnishes or sells, or
proposes to furnish or sell, (ii) an economic interest in any entity that
purchases from or sells or furnishes to, the Company, any goods or services or
(iii) a beneficial interest in any contract or agreement set forth in Section
--------
2.12(a) of the Company Disclosure Letter or Section 2.11(g) of the Company
------- ---------------
Disclosure Letter; provided, that ownership of no more than one percent (1%) of
the outstanding voting stock of a publicly traded corporation shall not be
deemed an "economic interest in any entity" for purposes of this Section 2.13.
2.14 Compliance with Laws. The Company has complied in all material
--------------------
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation.
2.15 Litigation. As of the date hereof, there is no action, suit or
----------
proceeding of any nature pending or to the Company's knowledge threatened
against the Company or its properties. There is no action, suit or proceeding of
any nature pending or, to the Company Knowledge, threatened against any of its
officers or directors, in their respective capacities as such. To the Company's
Knowledge, as of the date hereof, there is no investigation pending or
threatened against the Company, its properties or any of its officers or
directors by or before any governmental entity. Section 2.15 of the Company
------------
Disclosure Letter sets forth, with respect to any pending or threatened action,
suit, proceeding or investigation as of the date hereof, the forum, the parties
thereto, the subject matter thereof and the amount of damages claimed or other
remedy requested. To the Company's Knowledge, as of the date hereof, no
governmental entity has at any time challenged or questioned the legal right of
the Company to manufacture, offer or sell any of its products or services
-19-
in the present manner or style thereof. Nothing contained in this Section shall
limit any other representation and warranty made by the Company in this
Agreement.
2.16 Insurance. With respect to the insurance policies and fidelity
---------
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company, there is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and the Company is otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). The Company has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
2.17 Minute Books. The minute books of the Company made available to
------------
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and shareholders or actions by written consent since the time of incorporation
of the Company until the date hereof.
2.18 Environmental Matters.
---------------------
(a) Hazardous Material. The Company has not operated any
------------------
underground storage tanks, and has no Knowledge of the existence, at any time,
of any underground storage tank (or related piping or pumps), at any property
that the Company has at any time owned, operated, occupied or leased. The
Company has not released any amount of any substance that has been designated by
any Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, oil and petroleum
products, urea-formaldehyde and all substances listed as a "hazardous
substance," "hazardous waste," "hazardous material" or "toxic substance" or
words of similar import, under any law, including but not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended; the Resource Conservation and Recovery Act of 1976, as amended; the
Federal Water Pollution Control Act, as amended; the Clean Air Act, as amended,
and the regulations promulgated pursuant to said laws (a "Hazardous Material").
No Hazardous Materials are present as a result of the actions or omissions of
the Company, or, to the Company's Knowledge, as a result of any actions of any
third party or otherwise, in, on or under any property, including the land and
the improvements, ground water and surface water thereof, that the Company has
at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not
------------------------------
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Effective Time, nor has the Company disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (any or all of
the foregoing being collectively referred to as "Hazardous Materials
Activities") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
-20-
(c) Permits. The Company currently holds all environmental
-------
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and businesses
are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's Knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental liability.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Except as set
------------------------------------------------
forth on Section 2.19 of the Company Disclosure Letter, the Company has not
------------
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby. Section 2.19 of the
------------
Company Disclosure Letter sets forth the principal terms and conditions of any
agreement, written or oral, with respect to such fees. Section 2.19 of the
------------
Company Disclosure Letter also sets forth the Company's current reasonable
estimate of all Third Party Expenses (as defined in Section 5.5) expected to be
incurred by the Company in connection with the negotiation and effectuation of
the terms and conditions of this Agreement and the transactions contemplated
hereby.
2.20 Employee Matters and Benefit Plans.
----------------------------------
(a) Definitions. With the exception of the definition of
-----------
"Affiliate" set forth in Section 2.20(a)(i) below (which definition shall apply
only to this Section 2.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean, for purposes of this Section
2.20, any other person or entity under common control with the Company within
the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations
thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether formal or informal, funded or unfunded and whether or not
legally binding, including without limitation, each "employee benefit plan",
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any "Employee" (as defined below), and pursuant to
which the Company or any Affiliate has or may have any material liability
contingent or otherwise;
-21-
(iv) "Employee" shall mean any current, former, or retired
employee, officer or director of the Company or any Affiliate;
(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan"
(as defined below) which is a "multiemployer plan", as defined in Section 3(37)
of ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee
Plan which is an "employee pension benefit plan", within the meaning of Section
3(2) of ERISA.
(b) Disclosure. Section 2.20(b) of the Company Disclosure Letter
---------- ---------------
contains an accurate and complete list of each Company Employee Plan and each
Employee Agreement. The Company does not have any plan or commitment, whether
legally binding or not, to establish any new Company Employee Plan or Employee
Agreement, to modify any Company Employee Plan or Employee Agreement (except to
the extent required by law or to conform any such Company Employee Plan or
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to Parent in writing, or as required by this Agreement), or
to enter into any Company Employee Plan or Employee Agreement, nor does it have
any intention or commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent (i) correct
---------
and complete copies of all documents embodying or relating to each Company
Employee Plan and each Employee Agreement including all amendments thereto and
written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the three
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each Company Employee Plan
or related trust; (iv) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets; (v) the most
recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Company Employee Plan; (vi) all IRS determination letters and rulings relating
to Company Employee Plans and copies of all applications and correspondence to
or from the IRS or the Department of Labor ("DOL") with respect to any Company
Employee Plan; (vii) all communications material to any Employee or Employees
relating to any Company Employee Plan and any proposed Company Employee Plans,
in each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any material liability to the
Company; and (viii) all registration statements and prospectuses prepared in
connection with each Company Employee Plan.
(d) Employee Plan Compliance. (i) The Company has performed in
------------------------
all material respects all obligations required to be performed by it under each
Company Employee Plan, and
-22-
each Company Employee Plan has been established and maintained in all material
respects in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) no "prohibited transaction," within the meaning of
Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to
any Company Employee Plan; (iii) as of the date hereof, there are no actions,
suits or claims pending, or, to the knowledge of the Company, threatened or
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; and (iv) each
Company Employee Plan can be amended, terminated or otherwise discontinued after
the Effective Time in accordance with its terms, without liability to the
Company, Parent or any of its Affiliates (other than ordinary administration
expenses typically incurred in a termination event); (v) as of the date hereof,
there are no inquiries or proceedings pending or, to the knowledge of the
Company or any affiliates, threatened by the IRS or DOL with respect to any
Company Employee Plan; and (vi) neither the Company nor any Affiliate is subject
to any material penalty or tax with respect to any Company Employee Plan under
Section 502(i) of ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever,
-------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to or been
-------------------
requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. No Company Employee Plan provides, or
------------------------------
has any liability to provide, life insurance, medical or other employee benefits
to any Employee upon his or her retirement or termination of employment for any
reason, except as may be required by statute, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) Effect of Transaction.
---------------------
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by the Company or
Parent or any of their respective affiliates with respect to any Employee will
be characterized as an "excess parachute payment", within the meaning of Section
280G(b)(1) of the Code.
-23-
(i) Employment Matters. The Company (i) is in compliance in all
------------------
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to Employees; (iii) is not
liable for any material arrears of wages or any taxes or any material penalty
for failure to comply with any of the foregoing; and (iv) is not liable for any
payment to any trust or other fund or to any governmental or administrative
authority, with respect to unemployment compensation benefits, social security
or other benefits or obligations for Employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against the Company is
-----
pending or, to the best knowledge of the Company, threatened. The Company is not
involved in or, to the Knowledge of the Company, threatened with, any labor
dispute, grievance, or litigation relating to labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of unfair
labor practices or discrimination complaints, which, if adversely determined,
would, individually or in the aggregate, result in liability to the Company.
Neither the Company nor any of its subsidiaries has engaged in any unfair labor
practices within the meaning of the National Labor Relations Act which would,
individually or in the aggregate, directly or indirectly result in a liability
to the Company. The Company is not presently, nor has it been in the past, a
party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
2.21 Officer Matters. To the Company's Knowledge, no officer of the Company
---------------
has ever been convicted of a felony or been the subject of a governmental
investigation. To the Company's Knowledge, no company of which any officer of
the Company is or was an officer has ever been subject to any bankruptcy or
insolvency proceeding.
2.22 Year 2000 Compliance. As of the date hereof, to the Company's
--------------------
Knowledge the Company's products, services and internal systems have been
designed to ensure date and time entry recognition, calculations that
accommodate same century and multi-century formulas and date values, leap year
recognition and calculations, and date data interface values that reflect the
century. As of the date hereof, to the Company's Knowledge the Company's
products, services and internal systems manage and manipulate data involving
dates and times, including single century formulas and multi-century formulas,
and do not cause an abnormal ending scenario within the application or generate
incorrect values or invalid results involving such dates.
2.23 Representations Complete. As of the date hereof, none of the
------------------------
representations or warranties made by the Company (as modified by the Company
Disclosure Letter), nor any statement made in any schedule or certificate
furnished by the Company pursuant to this Agreement, or furnished in or in
connection with documents mailed or delivered to the shareholders of the Company
in connection with soliciting their consent to this Agreement and the Merger,
contains or will contain at the Effective Time, any untrue statement of a
material fact, or omits or will omit at
-24-
the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As of the date hereof and as of the Closing Date, Parent and Merger Sub
represent and warrant to the Company as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of Parent and
Merger Sub has the corporate power to own its properties operate and use its
assets and to carry on its business as now being conducted and is duly qualified
to do business as a foreign corporation and is in good standing under the laws
of each jurisdiction in which the failure to be so qualified would be material
to Parent and Merger Sub as a whole.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
---------
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. No vote of the Parent's stockholders is required with
respect to the Merger and the other transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub. This Agreement has been
duly executed and delivered by Parent and Merger Sub and constitutes the valid
and binding obligations of Parent and Merger Sub, enforceable in accordance with
its terms. As of the Effective Times, the consummation of the transactions
contemplated by this Agreement will not Conflict with (i) any provision of the
Certificate of Incorporation or Bylaws of Parent, (ii) any agreement to which
Parent is a party that it has filed or that is required to be filed with the
Securities and Exchange Commission or (iii) any permit, license, judgment,
order, decree, statute, law, ordinance, rule or regulation of any Governmental
Entity applicable to Parent or its properties or assets, except such Conflicts
which would not result in a Material Adverse Effect on Parent.
3.3 Capital Structure.
-----------------
(a) As of the date hereof, the authorized stock of Parent consists of
(i) 200,000,000 shares of Common Stock, of which 45,532,469 shares were issued
and outstanding as of September 30, 1999, and 10,000,000 shares of Preferred
Stock, none of which was issued or outstanding as of September 30, 1999, and
(ii) options and warrants to purchase fewer than 2,600,000 shares of Parent
Common Stock as of September 30, 1999. The authorized capital stock of Merger
Sub consists of 1,000 shares of Common Stock, 1,000 shares of which, as of the
date hereof, are issued and outstanding and are held by Parent. All such shares
have been duly authorized, and all such issued and outstanding shares have been
validly issued, are fully paid and nonassessable.
-25-
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger, when issued, will be duly authorized, validly issued, fully paid, non-
assessable and issued in compliance with applicable federal and state securities
laws.
3.4 SEC Documents; Parent Financial Statements. Parent has furnished or
------------------------------------------
made available to the Company true and complete copies of all reports or
registration statements filed by it with the Securities and Exchange Commission
(the "SEC") since June 17, 1999, all in the form so filed (all of the foregoing
being collectively referred to as the "SEC Documents"). As of their respective
filing dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933 (the "Securities Act") or the
Securities Exchange Act of 1934 (the "Exchange Act") as the case may be, and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, in any such case except to the extent corrected by a
document subsequently filed with the SEC. The financial statements of Parent,
including the notes thereto, included in the SEC Documents (the "Parent
Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles consistently applied (except as may be indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) and present fairly the consolidated financial position of
Parent at the dates thereof and the consolidated results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal audit adjustments). As of the date hereof, there has been
no change in Parent accounting policies except as described in the notes to the
Parent Financial Statements; provided, however, the Parent may have restated or
may restate one or more of the Parent Financial Statements to reflect
acquisitions entered into subsequent to the respective dates thereof.
3.5 No Material Adverse Change. Since the date of the balance sheet
--------------------------
included in Parent's most recently filed report on Form 10-Q until the date
hereof, Parent has conducted its business in the ordinary course of business and
there has not occurred: (a) any material adverse effect on the business, assets
(including intangible assets), financial condition, capitalization or results of
operations of Parent ("Material Adverse Effect on Parent"); (b) any amendment or
change in the Certificate of Incorporation or Bylaws of Parent (other than
restatements of the Certificate of Incorporation which did not require
shareholders' approval) except as disclosed in the SEC Documents; or (c) any
damage to, destruction or loss of any assets of Parent (whether or not covered
by insurance) that materially and adversely affects the financial condition or
business of Parent.
3.6 Disclosure. No statement made or furnished by Parent to the Company or
----------
contained in the information regarding Parent in the Information Statement (or
any other document) prepared or provided by Parent for use in connection with
soliciting approval of the Merger by the Company's shareholders contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained therein not misleading in light of the
circumstances under which they were made.
-26-
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
----------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use commercially reasonable efforts consistent with past practice and policies
to preserve intact its present business organization, keep available the
services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. The
Company shall promptly notify Parent of any event or occurrence or emergency not
in the ordinary course of its business, and any material event involving or
adversely affecting the Company or its business. Except as expressly
contemplated by this Agreement, the Company shall not, without the prior written
consent of Parent:
(a) Enter into any transaction exceeding $100,000 or any commitment
or transaction of the type described in Section 2.12(a) hereof not in the
ordinary course of business;
(b) Transfer to any person or entity any rights to any Company
Intellectual Property (other than pursuant to end-user licenses in the ordinary
course of business) or enter into any agreement with respect to Company
Intellectual Property with any person or entity other than in the ordinary
course of business consistent with past practice;
(c) Terminate any employees other than for cause or encourage any
employees to resign from the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Disclosure Letter;
(e) Commence or settle any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor) except for (i)
repurchases of Company Capital Stock upon the termination of service of any
service providers of Company in accordance with the standard terms set forth in
the agreements governing such repurchases, all of which agreements have been
provided
-27-
or made available to Parent, (ii) conversion of Company Preferred Stock and
(iii) exercises or conversion of Company Convertible Securities;
(g) Except for the issuance of shares of Company Capital Stock upon
exercise or conversion of presently outstanding Company Options or Warrants,
issue, sell, grant, contract to issue, grant or sell, or authorize the issuance,
delivery, sale or purchase of any shares of Company Capital Stock or securities
convertible into, or exercisable or exchangeable for, shares of Company Capital
Stock, or any securities, warrants, options or rights to purchase any of the
foregoing, except for (i) issuances of Company Capital Stock upon the exercise
thereof or upon exercise or conversion of Company Convertible Securities or
Company Preferred Stock outstanding as of the date of this Agreement and (ii)
issuances of Company Options in the ordinary course of business consistent with
past practice and in consultation with Parent, with an exercise price of fair
market value of Company Common Stock (considering the Merger Consideration and
the Merger), but in no event Company Options to purchase more than 25,000 shares
(in any one case) or 125,000 shares (in the aggregate);
(h) Cause or permit any amendments to its Articles of Incorporation
or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(j) Sell, lease, license or otherwise dispose of any of the assets or
properties of Company which are not Company Intellectual Property other than in
the ordinary course of business and consistent with past practices, including
but not limited to the performance of obligations under contractual arrangements
listed on the Company Disclosure Letter existing as of the date hereof, or
create any security interest in such assets or properties;
(k) Grant any loan to any person or entity, incur any indebtedness or
guarantee any indebtedness, issue or sell any debt securities, guarantee any
debt securities of others, purchase any debt securities of others or amend the
terms of any outstanding agreements related to borrowed money, except for
advances to employees for travel and business expenses in the ordinary course of
business consistent with past practices;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any employee or consultant, except payments made pursuant to
standard written agreements outstanding as of the date hereof and disclosed on
Section 4.1(m) of the Company Disclosure Letter, or increase in the salary or
--------------
other compensation payable or to become payable by Company to any of its
officers, directors, employees or advisors, or declare, pay or make any
commitment or obligation of any kind for the payment by Company of a bonus or
other additional salary or compensation to any such person, or adopt or amend
any employee benefit plan or enter into any employment contract;
-28-
(m) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business and consistent with past practice;
(n) Take any action to accelerate the vesting schedule of any of the
outstanding Company Options or Company Capital Stock;
(o) Pay, discharge or satisfy, in an amount in excess of $30,000 (in
any one case) or $150,000 (in the aggregate) any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and in
a manner consistent with past practice;
(p) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(q) Enter into any strategic alliance, affiliate agreement, data or
software licensing agreement (other than off-the-shelf, commercially-available,
shrink-wrap, inbound software (e.g., MS Word, Excel), or joint development or
joint marketing arrangement or agreement;
(r) Fail to pay or otherwise satisfy its monetary obligations as they
become due, except such as are being contested in good faith;
(s) Waive or commit to waive any rights with a value in excess of
$30,000 (in any one case) or $100,000 (in the aggregate);
(t) Cancel, materially amend or renew any insurance policy other than
in the ordinary course of business;
(u) Implement any Company Employee Plan;
(v) Alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business entity in which
the Company directly or indirectly holds any interest on the date hereof; or
(w) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (v) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time and the date
---------------
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, shareholders, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, initiate or encourage any proposals
or offers from, or conduct
-29-
discussions with or engage in negotiations with, any person relating to any
possible acquisition of the Company or any of its subsidiaries (whether by way
of merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its capital stock or assets or any equity interest in the
Company or any of its subsidiaries, (b) provide information with respect to its
business, technologies or properties to any person, other than Parent, relating
to, or otherwise cooperate with, facilitate or encourage any effort or attempt
by any such person with regard to, any possible acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its capital stock or assets or any equity
interest in the Company or any of its subsidiaries, (c) enter into an agreement
with any person, other than Parent, providing for the acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its capital stock or assets or any equity
interest in the Company or any of its subsidiaries, or (d) make or authorize any
statement, recommendation or solicitation in support of any possible acquisition
of the Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its
capital stock or assets or any equity interest in the Company or any of its
subsidiaries by any person, other than by Parent. The Company shall immediately
cease and cause to be terminated any such contacts or negotiations with third
parties relating to any such transaction or proposed transaction. In addition to
the foregoing, if the Company receives prior to the Effective Time or the
termination of this Agreement any offer or proposal relating to any of the
above, the Company shall immediately notify Parent thereof, including
information as to the identity of the offeror or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be, and such other information related thereto as Parent may reasonably request
(subject to the requirements of nondisclosure agreements of the Company as exist
as of the date hereof and are then in force).
4.3 Conduct of Business of Parent. During the period from the date hereof
-----------------------------
and continuing until the earlier of the termination of this Agreement or the
Effective Date, Parent shall not (without the prior written consent of the
Company) declare, accrue, set aside or pay any extraordinary dividend or any
other extraordinary distribution in respect of any shares of its capital stock
or take any other action with respect to its Certificate of Incorporation or
Bylaws, if in such case, the action would have the effect of being materially
adverse to Company Shareholders as compared with the then existing stockholders
of Parent as a group.
-30-
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Fairness Hearing; Shareholder Approval.
--------------------------------------
(a) As soon as reasonably practicable following the execution of this
Agreement, Parent and Company shall prepare the necessary documents and Parent
shall apply to obtain a permit (a "California Permit") from the Commissioner of
Corporations of the State of California (after a hearing before such
Commissioner) pursuant to Section 25121 of the California Corporate Securities
Law of 1968, so that the issuance of Parent Common Stock in the Merger shall be
exempt from registration under Section 3(a)(10) of the Securities Act. Company
and Parent will respond to any comments from the California Department of
Corporations and use their commercially reasonable efforts to have the
California Permit granted as soon as practicable after such filing. As promptly
as practical after the date of this Agreement, Parent shall prepare and make
such filings as are required under applicable Blue Sky laws relating to the
transactions contemplated by this Agreement. Company shall use reasonable and
good faith efforts to assist Parent as may be necessary to comply with the
securities and blue sky laws relating to the transactions contemplated by this
Agreement.
(b) As promptly as practicable after the receipt of a California
Permit, the Company shall submit this Agreement and the transactions
contemplated hereby to its shareholders for approval and adoption as provided by
California Law and its Articles of Incorporation and Bylaws. The Company shall
use its best efforts to solicit and obtain the consent of its shareholders
sufficient to approve the Merger and this Agreement (and the other matters set
forth in Section 1.1(ii) of the Support Agreements) and to enable the Closing to
occur as promptly as practicable following the date hereof and, in any event,
within 15 days following the receipt of the California Permit. The materials
submitted to the Company's shareholders shall be subject to reasonable review
and approval by Parent and include information regarding the Company, the terms
of the Merger and this Agreement and the unanimous recommendation of the Board
of Directors of the Company in favor of the Merger and this Agreement, and the
transactions contemplated hereby.
5.2 Nasdaq Listing. Parent shall use reasonable efforts to ensure that at
--------------
the Effective Time, the shares of Parent Common Stock to be delivered to the
Company Shareholders pursuant to this Agreement shall have been accepted for
quotation on the National Association of Securities Dealers Automated Quotation
National Market System.
5.3 Access to Information. Each party shall afford the others and its
---------------------
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, commitments, records and auditors, and (b) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request, subject, in the case of Parent, to reasonable limits on access to its
technical and other nonpublic information. No information or knowledge obtained
in any investigation pursuant to this Section 5.3 shall affect or be deemed to
modify any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
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5.4 Confidentiality. Each of the parties hereto hereby agrees to keep the
---------------
terms of this Agreement (except to the extent contemplated hereby, including as
required in connection with the California Permit required pursuant to Section
5.1) and such information or knowledge obtained in any investigation pursuant to
Section 5.3, or pursuant to the negotiation and execution of this Agreement or
the effectuation of the transactions contemplated hereby, confidential;
provided, however, that the foregoing shall not apply to information or
knowledge which (a) a party can demonstrate was already lawfully in its
possession prior to the disclosure thereof by the other party, (b) is generally
known to the public and did not become so known through any violation of law,
(c) became known to the public through no fault of such party, (d) is later
lawfully acquired by such party without confidentiality restrictions from other
sources, (e) is required to be disclosed by order of court or government agency
with subpoena powers (provided that such party shall have provided the other
party with prior notice of such order and an opportunity to object or take other
available action) or (f) which is disclosed in the course of any litigation
between any of the parties hereto.
5.5 Expenses. Whether or not the Merger is consummated, all fees and
--------
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses.
5.6 Public Disclosure. Unless otherwise required by law (including,
-----------------
without limitation, federal and state securities laws) or, as to Parent, by the
rules and regulations of the National Association of Securities Dealers, Inc.,
prior to the Effective Time, no disclosure (whether or not in response to an
inquiry) of the subject matter of this Agreement shall be made by any party
hereto unless approved by Parent and the Company prior to release, provided that
such approval shall not be unreasonably withheld.
5.7 Consents. The Company shall use commercially reasonable efforts to
--------
obtain the consents, waivers and approvals under any of the Contracts as may be
required in connection with the Merger (all of such consents, waivers and
approvals are set forth in Company Disclosure Letter) so as to preserve all
rights of and benefits to the Company thereunder.
5.8 FIRPTA Compliance. On or prior to the Closing Date, the Company shall
-----------------
deliver to Parent a properly executed statement in a form reasonably acceptable
to Parent for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use its reasonable efforts to
ensure that its representations and warranties remain true and correct in all
material respects, and to take promptly, or cause to be taken, all actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings, and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the
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purpose of securing to the parties hereto the benefits contemplated by this
Agreement; provided that Parent shall not be required to agree to any
divestiture by Parent or the Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or of any business, assets or property of
Parent or its subsidiaries or affiliates or the Company or its affiliates, or
the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock.
5.10 Notification of Certain Matters. The Company shall give prompt notice
-------------------------------
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent, respectively, contained in this Agreement to be untrue or inaccurate at
or prior to the Effective Time and (ii) any failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; such that the conditions set
forth in Section 6.2(a) or (b) or Section 6.3(a) or (b) would not be satisfied;
provided, however, that the delivery of any notice pursuant to this Section 5.10
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
5.11 Affiliate Agreements. Section 5.11 of the Company Disclosure Letter
-------------------- ------------
sets forth those persons who, in the Company's reasonable judgment, are or may
be "affiliates" of the Company within the meaning of Rule 145 (each such person
a "Company Affiliate") promulgated under the Securities Act ("Rule 145"). The
Company shall provide Parent such information and documents as Parent shall
reasonably request for purposes of reviewing such list. The Company shall
deliver or cause to be delivered to Parent, concurrently with the execution of
this Agreement (and in any case prior to the Closing) from each of the Company
Affiliates, an executed Affiliate Agreement in the form attached hereto as
Exhibit C. Parent shall be entitled to place appropriate legends on the
---------
certificates evidencing any Parent Common Stock to be received by such Company
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for Parent Common Stock,
consistent with the terms of such Affiliate Agreements.
5.12 Additional Documents and Further Assurances. Each party hereto, at the
-------------------------------------------
request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.13 Employee Benefits. It is Parent's intent to use reasonable efforts to
-----------------
attempt to ensure that: (a) as soon as practicable after the Effective Time,
Parent's benefit plans and benefit arrangements will provide benefits to the
Continuing Employees (as defined below) that are comparable to the non-
discretionary, non-cash benefits generally provided to similarly situated
employees of Parent and (b) to the extent practicable, Parent's benefit plans
and benefit arrangements give full credit to each Continuing Employee for such
Continuing Employee's period of service with Company prior to the Effective Time
for all purposes for which such service was recognized under the plans prior to
the Effective Time. For purposes of this Section, "Continuing Employee" shall
mean any employee of the Company who continues as an employee of the Surviving
Corporation or Parent after the Effective Time.
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5.14 Indemnification. After the Effective Time, the Surviving Corporation
---------------
shall indemnify and hold harmless each Person who has at any time prior to the
Effective Time been an officer or director of the Company pursuant to its
Articles of Incorporation and Bylaws as they are currently in effect on the date
hereof to the same extent as provided in such Articles of Incorporation and
Bylaws, but to no greater extent than that provided in Parent's Certificate of
Incorporation and Bylaws; provided, that it is understood that the foregoing
--------
undertaking shall not grant to any such officers or directors rights of
indemnity against either Parent or Surviving Corporation more extensive than
those such Persons may currently have against the Company.
5.15 Stock Options. Parent shall take all corporate action necessary to
-------------
reserve for issuance of a sufficient number of Parent Common Stock for delivery
upon the exercise of each Company Option assumed pursuant to Section 1.6(b)
hereof. As soon as practicable after the Effective Time, and not more than ten
business days thereafter, Parent shall file registration statement on Form S-8
(or any successor or other appropriate form), with respect to the shares of
Parent Common Stock subject to such options.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have
--------------------
been approved and adopted by the shareholders of the Company by the requisite
vote under applicable law and the Company's Articles of Incorporation.
(b) California Permit. The Commissioner of Corporations for the State
-----------------
of California shall have approved the terms and conditions of the transactions
contemplated by this Agreement, and the fairness of such terms and conditions
following a hearing for such purpose, and shall have issued a California Permit.
(c) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
6.2 Additional Conditions to Obligations of the Company. The obligations
---------------------------------------------------
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and
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as of the Closing Date, except for those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct in all material respects as of such date), with the same force and
effect as if made on and as of the Closing Date, except in all such cases in the
aggregate as would not have a Material Adverse Effect on Parent and Merger Sub,
as applicable, and the Company shall have received a certificate to such effect
signed on behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
------------------------
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and the Company shall have received a certificate to such
effect signed by a duly authorized officer of Parent.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
-----------------------------------------------------------------
obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in this Agreement shall have been true and
correct in all material respects on and as of the date hereof. In addition, the
representations and warranties of the Company shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as if made on and as of the Closing Date, except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct in all material respects as of such date) and except for
inaccuracies in the representations and warranties contained in Sections 2.6,
2.7, 2.8, 2.10, 2.16, 2.18 and 2.21 of this Agreement arising after the date
hereof (unless such inaccuracies in such Sections in the aggregate constitute a
Business Adverse Effect (as defined in Section 9.2)). Parent and Merger Sub
shall have received a certificate to such effect signed on behalf of the Company
by the chief executive officer and chief financial officer of the Company;
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate to
such effect signed by a duly authorized officer of the Company;
(c) Third Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Section 6.3(c) of the Company Disclosure
Letter.
(d) Legal Opinion. Parent shall have received a legal opinion from
-------------
Fenwick & West LLP, legal counsel to the Company, in substantially the form
attached hereto as Exhibit D.
---------
(e) Affiliate Agreements. Each of the parties identified by the
--------------------
Company as being a Company Affiliate shall have delivered to Parent an executed
Affiliate Agreement which shall be in full force and effect.
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(f) Non-Competition Agreements. Each of the persons listed in Exhibit
--------------------------
L of the Company Disclosure Schedule shall have executed and delivered to Parent
a Non-Competition Agreement in substantially the form of Exhibit A, and all of
the Non-Competition Agreements shall be in full force and effect.
(g) Employee Agreements. Each Employee Agreement shall have been
-------------------
terminated in accordance with its terms, other than consulting agreements with
outside software engineers and those agreements identified in Section 7.3(g) of
the Company Disclosure Letter.
(h) No Dissenters. Holders of no more than 5% of the outstanding
-------------
shares of Company Capital Stock shall have exercised, or have any continued
right to exercise, appraisal, dissenters' or similar rights under applicable law
with respect to their shares by virtue of the Merger.
(i) Termination of Investors' Rights Agreements. The following
-------------------------------------------
agreements shall have been terminated in accordance with their respective terms:
(i) the Restated and Amended Investors' Rights Agreement dated as of March 10,
1999 among the Company and certain investors; (ii) the Restated and Amended
Right of First Refusal and Co-Sale Agreement dated as of March 10, 1999 among
the Company and certain investors; and (iii) any other similar agreements
between the Company and any of the Company Shareholders.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of the Company's
------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Disclosure Letter)
shall survive the Merger and continue until 5:00 p.m., California time, on the
date which is one year following the Closing Date (the "Expiration Date") at
which time they shall expire.
7.2 Escrow Arrangements.
-------------------
(a) Escrow Fund. At the Effective Time, the Company Shareholders will
-----------
be deemed to have received and deposited with the Escrow Agent (as defined
below) the Escrow Amount (plus any additional shares as may be issued upon any
stock split, stock dividend or recapitalization effected by Parent after the
Effective Time) without any act of any Company Shareholder. As soon as
practicable after the Effective Time, the Escrow Amount, without any act of any
Company Shareholder, will be deposited with an institution reasonably acceptable
to Parent and the Securityholder Agent (as defined in Section 7.2(g) below), as
Escrow Agent (the "Escrow Agent"), such deposit to constitute an escrow fund
(the "Escrow Fund") to be governed by the terms set forth herein and at Parent's
cost and expense. The Escrow Fund shall be available to compensate Parent and
its affiliates for any claims, losses, liabilities, damages, deficiencies, costs
and expenses, including reasonable attorneys' fees and expenses, and expenses of
investigation and defense (hereinafter individually a "Loss" and collectively
"Losses") incurred by Parent, its officers, directors, or affiliates (including
the Surviving Corporation) directly or indirectly as a result of any
-36-
inaccuracy or breach of a representation or warranty of the Company (as modified
by the Company Disclosure Letter), or any failure by the Company to perform or
comply with any covenant contained herein. Parent may not receive any shares
from the Escrow Fund unless and until Officer's Certificates (as defined in
paragraph (d) below) identifying Losses, the aggregate amount of which exceed
$250,000 have been delivered to the Escrow Agent as provided in paragraph (e);
in such case, Parent may recover from the Escrow Fund the total of its Losses,
not including the first $250,000. The Escrow Fund shall be the sole and
exclusive remedy for all such Losses, provided that nothing herein shall limit
any remedy for fraud or willful noncompliance with covenants and nothing herein
shall limit the liability of the Company for any breach of any representation,
warranty or covenant if the Merger does not close.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
--------------------------------------------------------------
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
California time, on the Expiration Date (the "Escrow Period") at which time the
remaining Escrow Fund shall be released and shall be delivered by the Escrow
Agent to the Company Shareholders; provided that (i) the Escrow Period shall not
--------
terminate and the Escrow Fund shall not be released with respect to such amount
(or some portion thereof), that together with the aggregate amount remaining in
the Escrow Fund is necessary in the reasonable judgment of Parent, subject to
the objection of the Securityholder Agent and the subsequent arbitration of the
matter in the manner provided in Section 7.2(f) hereof, to satisfy any
unsatisfied claims concerning facts and circumstances existing prior to the
termination of such Escrow Period specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period, and
(ii) upon release of any portion of the Escrow Fund, the Securityholder Agent
may properly deduct from such released amounts any administrative costs,
expenses, attorneys' fees and costs incurred in connection with the its duties
under this Agreement. As soon as all such claims have been resolved, the Escrow
Agent shall deliver to the Company Shareholders the remaining portion of the
Escrow Fund and not required to satisfy such claims. Deliveries of Escrow
Amounts to the Company Shareholders pursuant to this Section 7.2(b) shall be
made in proportion to their respective original contributions to the Escrow Fund
as determined pursuant to Section 1.8(b).
(c) Protection of Escrow Fund.
-------------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Parent and shall
hold and dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split) ("New Shares") in respect of Parent Common Stock in the Escrow Fund which
have not been released from the Escrow Fund shall be added to the Escrow Fund
and become a part thereof. New Shares issued in respect of shares of Parent
Common Stock which have been released from the Escrow Fund shall not be added to
the Escrow Fund but shall be distributed to the recordholders thereof. Cash
dividends on Parent
-37-
Common Stock shall not be added to the Escrow Fund but shall be distributed to
the recordholders thereof.
(iii) Each Company Shareholder shall have voting rights with respect
to the shares of Parent Common Stock contributed to the Escrow Fund by such
Company Shareholder (and on any voting securities added to the Escrow Fund in
respect of such shares of Parent Common Stock).
(d) Claims Upon Escrow Fund.
-----------------------
(i) Upon receipt by the Escrow Agent at any time on or before the
last day of the Escrow Period of a certificate signed by any officer of Parent
(an "Officer's Certificate"): (A) stating that Parent has paid or properly
accrued or reasonably anticipates that it will have to pay or accrue Losses, and
(B) specifying in reasonable detail the individual items of Losses included in
the amount so stated, the date each such item was paid or properly accrued, or
the basis for such anticipated liability (including a current good faith
estimate of actual Losses of any reasonably anticipated accrual or Loss), and
the nature of the misrepresentation, breach of warranty or covenant to which
such item is related, the Escrow Agent shall, subject to the provisions of
Section 7.2(e) hereof, deliver to Parent out of the Escrow Fund, as promptly as
practicable, shares of Parent Common Stock held in the Escrow Fund in an amount
equal to such Losses.
(ii) For the purposes of determining the number of shares of Parent
Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 7.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at
the 30-Day Average Price.
(e) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent (as defined in Section 7.2(g)) and for a
period of thirty (30) days after such delivery, the Escrow Agent shall make no
delivery to Parent of any Escrow Amounts pursuant to Section 7.2(d) hereof
unless the Escrow Agent shall have received written authorization from the
Securityholder Agent to make such delivery. After the expiration of such thirty
(30)-day period, the Escrow Agent shall make delivery of shares of Parent Common
Stock from the Escrow Fund in accordance with Section 7.2(d) hereof, provided
that no such payment or delivery may be made if the Securityholder Agent shall
object in a written statement to the claim made in the Officer's Certificate,
and such statement shall have been delivered to the Escrow Agent prior to the
expiration of such thirty (30)-day period.
(f) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Securityholder Agent shall so object in writing to
any claim or claims made in any Officer's Certificate, the Securityholder Agent
and Parent shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the Securityholder
Agent and Parent should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties and shall be furnished to the
Escrow Agent. The
-38-
Escrow Agent shall be entitled to rely on any such memorandum and distribute
shares of Parent Common Stock from the Escrow Fund in accordance with the terms
thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Securityholder Agent may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by three
arbitrators. Parent and the Securityholder Agent shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The arbitrators shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrators, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel or limit discovery
and shall have the authority to impose sanctions, including attorneys' fees and
costs, to the extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.2(e) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa Xxxxx County, California under the rules then in effect of the American
Arbitration Association. For purposes of this Section 7.2(f), in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Parent shall be deemed to be the Non-Prevailing Party
in the event that the arbitrators award Parent less than the sum of one-half
(1/2) of the disputed amount plus any amounts not in dispute; otherwise, the
shareholders of the Company as represented by the Securityholder Agent shall be
deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative costs of the arbitration and the expenses, including without
limitation, reasonable attorneys' fees and costs, incurred by the other party to
the arbitration.
(g) Securityholder Agent of the Shareholders; Power of Attorney.
-----------------------------------------------------------
(i) In the event that the Merger is approved, effective upon such
vote, and without further act of any Company Shareholder, Xxxxxxxx X. Xxxxx
shall be appointed as agent and attorney-in-fact (the "Securityholder Agent")
for each Company Shareholder (except such shareholders, if any, as shall have
perfected their appraisal or dissenters' rights under California Law), for and
on behalf of the Company Shareholders, to give and receive notices and
communications, to authorize delivery to Parent of shares of Parent Common Stock
from the Escrow
-39-
Fund in satisfaction of claims by Parent, to object to such deliveries, to agree
to, negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of
Securityholder Agent for the accomplishment of the foregoing. Such agency may be
changed by the Company Shareholders from time to time upon not less than thirty
(30) days prior written notice to Parent; provided that the Securityholder Agent
may not be removed unless holders of a two-thirds interest of the Escrow Fund
agree to such removal and to the identity of the substituted agent. Any vacancy
in the position of Securityholder Agent may be filled by approval of the holders
of a majority in interest of the Escrow Fund. No bond shall be required of the
Securityholder Agent, and the Securityholder Agent shall not receive
compensation for his or her services. Notices or communications to or from the
Securityholder Agent shall constitute notice to or from each of the Company
Shareholders.
(ii) The Securityholder Agent shall not be liable for any act done or
omitted hereunder as Securityholder Agent while acting in good faith and in the
exercise of reasonable judgment. The Company Shareholders on whose behalf the
Escrow Amount was contributed to the Escrow Fund shall severally indemnify the
Securityholder Agent and hold the Securityholder Agent harmless against any
loss, liability or expense incurred without gross negligence or bad faith on the
part of the Securityholder Agent and arising out of or in connection with the
acceptance or administration of the Securityholder Agent's duties hereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Securityholder Agent.
(h) Actions of the Securityholder Agent. A decision, act, consent or
-----------------------------------
instruction of the Securityholder Agent shall constitute a decision of all the
shareholders for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of such Company Shareholder, and the Escrow Agent and Parent may rely upon
any such decision, act, consent or instruction of the Securityholder Agent as
being the decision, act, consent or instruction of each such Company
Shareholder. The Escrow Agent and Parent are hereby relieved from any liability
to any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Securityholder Agent.
(i) Third-Party Claims. In the event Parent becomes aware of a third-party
------------------
claim which Parent believes may result in a demand against the Escrow Fund,
Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent, as representative for the shareholders of the Company,
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that except with the consent of the Securityholder
Agent, no settlement of any such claim with third-party claimants shall alone be
determinative of the amount of any claim against the Escrow Fund. In the event
that the Securityholder Agent has consented to any such settlement and agrees
that the amount of such settlement should be rightfully deducted from the Escrow
Fund, the Securityholder Agent shall have no power or authority to object under
any provision of this Article VII to the amount of any claim by Parent against
the Escrow Fund with respect to such settlement.
-40-
(j) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Parent and the
Securityholder Agent, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow Agent
while acting in good faith and in the exercise of reasonable judgment, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to comply with
and obey orders, judgments or decrees of any court of law, notwithstanding any
notices, warnings or other communications from any party or any other person to
the contrary. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court, the Escrow Agent shall not be liable to any of
the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on account
of the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow Agent
shall not be liable to any party for damages, losses, or expenses, except for
gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or permitted by him/her in good faith in accordance
with the advice of counsel. The Escrow Agent is not responsible for determining
and verifying the authority of any person acting or purporting to act on behalf
of any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
-41-
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon initiating
such action, the Escrow Agent shall be fully released and discharged of and from
all obligations and liability imposed by the terms of this Agreement.
(vii) The Company, Parent and Merger Sub and their respective
successors and assigns agree jointly and severally to indemnify and hold Escrow
Agent harmless against any and all losses, claims, damages, liabilities, and
expenses, including reasonable costs of investigation, counsel fees, and
disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in
connection with the performance of his/her duties under this Agreement,
including but not limited to any litigation arising from this Agreement or
involving its subject matter. The parties agree that any liability of the
Company hereunder may be satisfied out of the Escrow Fund.
(viii) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to the parties; provided, however, that no such
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: the parties shall use their best
efforts to mutually agree on a successor escrow agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the State of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. The Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(k) Fees. All fees of the Escrow Agent for performance of its duties
----
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
-----------
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred before 5:00 p.m. (Pacific time) on March 15, 2000 (the "End Date")
(provided that the right to terminate this Agreement under this Section
8.1(b)(i) shall not be available to any party whose willful failure to fulfill
any obligation hereunder has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date); (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any governmental entity that would make consummation of the Merger
illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of all or any portion of the business of
the Company or (ii) compel Parent or the Company to dispose of or hold separate
all or a portion of the business or assets of the Company or Parent as a result
of the Merger;
(d) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b) would not be satisfied as of the time of such breach or as of the time
such representation or warranty shall have become untrue, provided that if any
such inaccuracy in the Company's representations and warranties or breach by the
Company is curable by the Company through the exercise of its commercially
reasonable efforts, then Parent may not terminate this Agreement under this
Section 8.1(d) prior to the End Date, provided the Company continues to exercise
commercially reasonable efforts to cure such breach (it being understood that
Parent may not terminate this Agreement pursuant to this Section 8.1(d) if it
shall have materially breached this Agreement or if such breach by the Company
is cured prior to the End Date);
(e) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or if
any representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if any such
inaccuracy in Parent's representations and warranties or breach by Parent is
curable by Parent through the exercise of its commercially reasonable efforts,
then the Company may not terminate this Agreement under this Section 8.1(e)
prior to the End Date, provided Parent continues to exercise commercially
reasonable efforts to cure such breach (it being understood that the Company may
not terminate this
-43-
Agreement pursuant to this Section 8.1(e) if it shall have materially breached
this Agreement or if such breach by the Company is cured prior to the End Date).
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub or the
Company, or their respective officers, directors or shareholders, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further that, the provisions of Sections 5.5 and 5.6
and Articles VIII and IX of this Agreement shall remain in full force and effect
and survive any termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after the
---------
shareholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent and
-----------------
Merger Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
-44-
(i) if to Parent or Merger Sub, to:
XxXx.xxx, Inc.
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx &
Xxxxxx, Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Xxxxxx Xxxxxxx, Esq.
Xxxxxxx X. Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(ii) if to the Company, to:
Cadabra Inc.
0000 Xxxxxxx Xx., Xxxxx 000
Xxx Xxxxx, XX 00000
Attention: Xxxxxxxx X. Xxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx, Esq.
Xxxxx X. Xxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
-45-
(c) if to the Securityholder Agent:
Xxxxxxxx X. Xxxxx
00 Xxxxxx Xx.
Xxxx Xxxx Xxx, XX 00000
Telephone No.: (000) 000-0000
9.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." As used herein, the term "Material Adverse Effect" shall mean a
substantial material adverse effect on the business, assets (including
intangible assets), financial condition, capitalization or results of operations
of the Company. As used herein, the term "Business Adverse Effect" shall mean
(i) a material impairment in the Surviving Corporation's ability to continue to
offer after Closing the Company's products and services offered prior to
Closing, (ii) a material impairment in the Surviving Corporation's ability to
use the Intellectual Property used by the Company prior to Closing or (iii) any
other liability of the Company that would be reasonably likely to have a
Material Adverse Effect on Parent. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart and that the Escrow Agent need not
sign this Agreement for it to be effective among the other parties.
9.4 Entire Agreement; Assignment. This Agreement, the Company Disclosure
----------------------------
Letter and Exhibits hereto, and the documents and instruments and other
agreements among the parties hereto referenced herein: (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder; and (c) shall not
be assigned by operation of law or otherwise except as otherwise specifically
provided, except that Parent and Merger Sub may assign their respective rights
and delegate their respective obligations hereunder to their respective
affiliates.
9.5 Severability. In the event that any provision of this Agreement or the
------------
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
-46-
9.6 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.8 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 Specific Performance. The parties hereto agree that irreparable damage
--------------------
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
9.10 Attorneys' Fees. If any action or other proceeding relating to the
---------------
enforcement of any provision of this Agreement is brought by any party hereto,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs, and disbursements (in addition to any other relief to which the
prevailing party may be entitled); provided, that in the event the Company is
--------
liable for such fees hereunder, Parent shall not be restricted to satisfying
such liability out of the Escrow Fund.
(Remainder of page intentionally left blank.)
-47-
IN WITNESS WHEREOF, Parent, Merger Sub, the Company and, with respect
to Article VII only, the Escrow Agent and the Securityholder Agent, and have
caused this Agreement to be signed by their duly authorized respective officers,
all as of the date first written above.
CADABRA INC. XXXX.XXX, INC.
By:_____________________________ By:_____________________________________
Name:___________________________ Name:___________________________________
Title:__________________________ Title:__________________________________
SECURITYHOLDER AGENT XXX ACQUISITION CORP.
(with respect to Article VII):
________________________________ By:_____________________________________
Name
Name:___________________________________
Title:__________________________________
ESCROW AGENT
(with respect to Article VII):
________________________________
Name
***REORGANIZATION AGREEMENT***
EXHIBITS
--------
EXHIBIT A FORM OF NON-COMPETITION AGREEMENT
EXHIBIT B FORM OF SUPPORT AGREEMENT
EXHIBIT C FORM OF COMPANY AFFILIATE AGREEMENT
EXHIBIT D FORM OF OPINION OF FENWICK & WEST LLP
EXHIBIT A
---------
NON-COMPETITION AGREEMENT
This Non-Competition Agreement is entered into by and among XxXx.xxx, Inc., a
Delaware corporation ("Parent"), Cadabra Inc., a California corporation (the
"Company") and Xxxxx Xxx ("Employee") as of November __, 1999.
RECITALS
A. Pursuant to that certain Agreement and Plan of Reorganization (the "Merger
Agreement") dated as of November 19, 1999 by and between Parent, Xxx Acquisition
Corp. ("Merger Sub"), a Delaware corporation and wholly-owned subsidiary of
Parent, the Company and certain other parties, pursuant to which Merger Sub will
merge with and into the Company (the "Merger") and any shares of Company Capital
Stock owned by Employee will be exchanged for Parent Common Stock and cash and
any options to acquire Company Common Stock will be assumed by Parent and become
options to acquire Parent Common Stock and cash (as adjusted in accordance with
the terms and conditions contained in the Merger Agreement);
B. Employee owns an equity interest in the Company (whether through
outstanding capital stock or options to purchase capital stock), has served as a
key employee at the Company and has gained substantial knowledge and expertise
in connection with the Company's products, services, organization, customers,
distribution partners and other proprietary matters related to the Company's
business;
C. Parent and Employee acknowledge that it would be detrimental to Parent if
Employee would compete with Parent following the Merger;
D. It is a condition to the obligation of Parent to consummate the Merger
that certain key employees of the Company, including Employee, enter into this
Agreement;
E. As inducement to Parent to consummate the Merger, and in consideration of
shares of Parent Common Stock paid to Company Shareholders under the Merger
Agreement and the options to purchase Company Common Stock assumed by Parent
under the Merger Agreement, Employee desires to agree with Parent as further
provided herein; and
F. Capitalized terms used herein and not defined shall have the meaning
ascribed to them in the Merger Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
NON-COMPETITION.
Non-Competition.
Employee acknowledges that the promises and restrictive covenants that Employee
is providing in this Agreement are reasonable and necessary to the protection of
Parent's business and its legitimate interests in Parent's acquisition of the
Company (including the preservation of the Company's goodwill) pursuant to the
Merger Agreement.
The parties understand and agree that this Agreement is entered into in
connection with the Merger. The parties further understand and agree that
Employee is a key and significant member of the Company, owns a significant
number of shares of Company Capital Stock or rights to acquire such stock and
that the Merger is contingent upon Employee entering into this Agreement,
including this non-competition provision. Employee further acknowledges that
Parent and the
Company following the Merger will continue conducting their respective business
in all parts of the Geographic Scope of the Business (as defined below).
During the period commencing at the Effective Time and ending three years
following the Effective Time (the "Termination Date"), without the prior written
consent of the Chief Executive Officer of Parent, Employee shall not either as
an individual or as an employee, agent, consultant, advisor, independent
contractor, general partner, officer, director, shareholder or investor of any
person, firm, corporation, partnership or other entity:
participate or engage in the business conducted or in development by Parent or
its majority-owned subsidiaries or the Company as of either the date hereof or
prior to the date of termination of Employee's employment with Parent or the
Company (if, in the case of business in development by Parent, Employee has
knowledge of such business in development) (the "Business") within the
Geographic Scope of the Business;
induce or attempt to induce any person who at the time of such inducement is an
employee of the Company or Parent or any of their majority-owned subsidiaries to
perform work or services for any other person or entity other than the Company
or Parent or any of their majority-owned subsidiaries; or
permit the name of Employee to be used in connection with a business that
competes with the Business.
Notwithstanding the foregoing, Employee may own, directly or indirectly,
solely as passive investment, up to one percent (1%) of any class of "publicly
traded securities" of any person or entity which owns a competitive Business,
and up to three percent (3%) of the outstanding securities that are not
"publicly traded securities" of any person or entity which owns a competitive
Business. For the purposes of this Section 1(a), the term "publicly traded
securities" shall mean securities that are traded on a national securities
exchange or listed on the Nasdaq National Market, and the term "passive
investment" shall include an investment through a mutual fund, limited
partnership or other investment vehicle which is engaged in the business of
portfolio investments.
Savings Clause. If any restriction set forth in Section 1 above is held to be
unreasonable or unenforceable, then Employee agrees, and hereby submits, to the
reduction and limitation of such prohibition to such area or period as shall be
deemed reasonable.
No impairment of At-Will Employment Relationship. Nothing in this Section 1
shall be deemed or construed to alter any employment relationship between Parent
or the Company and Employee, which shall be "at-will."
MISCELLANEOUS.
Successors, Assigns, Merger. This Agreement shall be binding upon and shall
inure to the benefit of Parent, the Company and their affiliates, successors and
assigns. This Agreement shall be binding upon Employee and shall inure to his
benefit and to the benefit of his or her heirs, executors, administrators and
legal representatives, but shall not be assignable by Employee.
Independence of Obligations. The covenants and obligations of Employee set
forth in this Agreement shall be construed as independent of any other agreement
or
arrangement between Employee, on the one hand, and the Company or Parent or any
affiliate thereof, on the other.
Specific Performance. Employee agrees that in the event of any breach by
Employee of any covenant, obligation or other provision contained in this
Agreement, Parent shall be entitled (in addition to any other remedy that may be
available to it) to the extent permitted by applicable law (a) a decree or order
of specific performance to enforce the observance and performance of such
covenant, obligation or other provision and (b) an injunction restraining such
breach or threatened breach.
Non-Exclusivity. The rights and remedies of Parent hereunder are not exclusive
of or limited by any other rights or remedies which Parent may have, whether at
law, in equity, by contract or otherwise, all of which shall be cumulative (and
not alternative). Without limiting the generality of the foregoing, the rights
and remedies of Parent hereunder, and the obligations and liabilities of
Employee hereunder, are in addition to their respective rights, remedies,
obligations and liabilities under the law of unfair competition,
misappropriation of trade secrets and the like.
Entire Agreement. This Agreement (including the exhibits hereto) constitutes
the entire agreement between Parent, the Company and Employee relating to his or
her employment and the additional matters herein provided for. This Agreement
supersedes and replaces any prior verbal or written agreements between the
parties. This Agreement may be amended or altered only in a writing signed by
the President and Chief Executive Officer of Parent and Employee.
Applicable Law; Severability. This Agreement shall be construed and interpreted
in accordance with the laws of the State of California without regard to
conflicts of laws and principles. Each provision of this Agreement is severable
from the others, and if any provision hereof shall be to any extent
unenforceable it and the other provisions hereof shall continue to be
enforceable to the full extent allowable, as if such offending provision had not
been a part of this Agreement.
Amendments and Modifications. This Non-Competition Agreement may not be
amended, modified, altered or supplemented other than by means of a written
instrument duly executed and delivered on behalf of Parent and Employee.
Effectiveness. This Agreement shall become effective at the Effective Time.
(Signature Page Follows)
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the date first written above.
PARENT
By:_____________________________________
Title:____________________________________
Print Name:______________________________
COMPANY
By:_____________________________________
Title:____________________________________
Print Name:______________________________
EMPLOYEE
By:_____________________________________
Print Name:______________________________
*** NON-COMPETITION AGREEMENT ***
EXHIBIT B
---------
SUPPORT AGREEMENT
This Support Agreement ("Agreement") is made and entered into as of
November __, 1999, between Xxxx.xxx, Inc., a Delaware corporation ("Parent"),
and the undersigned shareholder ("Shareholder") of Cadabra Inc., a California
corporation (the "Company").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the Company
and Xxx Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Parent ("Merger Sub"), are entering into an Agreement and Plan of
Reorganization (the "Merger Agreement") which provides for the merger (the
"Merger") of Merger Sub and the Company. Pursuant to the Merger, shares of
capital stock of the Company will be converted into Common Stock of Parent and
cash on the basis described in the Merger Agreement.
B. Shareholder is the record holder of the number of outstanding shares
of capital stock of the Company indicated on Annex I to this Agreement.
C. As a material inducement to enter into the Merger Agreement, Parent
desires the Shareholder to agree, and in consideration of good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
Shareholder is willing to agree, to vote the Shares and New Shares (as defined
below) so as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Agreement to Vote Shares; Additional Purchases; Transfers and
-------------------------------------------------------------
Encumbrance.
-----------
1.1 Agreement to Vote Shares. At every meeting of the shareholders of
------------------------
the Company called with respect to any of the following, and at every
adjournment thereof, and on every action or approval by written consent of the
shareholders of the Company with respect to any of the following, Shareholder
shall cause the Shares and any New Shares (as defined below) to be voted and
shall otherwise consent to:
(i) in favor of approval of the Merger and the adoption and
approval of the Merger Agreement including all actions contemplated thereby;
(ii) in favor of the conversion of all shares of preferred stock of
the Company into shares of Common Stock immediately prior to, and contingent
upon, the Closing of the Merger and the termination of any shareholders
agreements to which the Shareholder is a party including, without limitation,
the Restated and Amended Investors' Rights Agreement and the Restated and
Amended Right of First Refusal and Co-Sale Agreement, each dated as of March 10,
1999;
(iii) against approval of any proposal made in opposition to, or in
competition with, consummation of the Merger and the Merger Agreement; and
(iv) against any of the following actions (other than those actions
that relate to the Merger and are contemplated by the Merger Agreement): (A) any
merger, consolidation, business combination, sale of assets, reorganization or
recapitalization of the Company with any party; (B) any dissolution, liquidation
or winding up of the Company; (C) any joint venture or material strategic
relationship with any party; (D) any material change in the capitalization of
the Company or the Company's capital structure, except as contemplated by
Section 1.1(ii) and Section 3 hereof or the Merger Agreement; or (E) any other
action that is intended, or could reasonably be expected to impede, interfere
with, delay, postpone, discourage or adversely affect the Merger or any of the
transactions contemplated by the Merger Agreement.
1.2 Definition. For purposes of this Agreement, "Shares" shall mean
----------
all issued and outstanding shares of capital stock of the Company for which
Shareholder is the beneficial owner or over which Shareholder has voting
control, including any securities convertible into, or exercisable or
exchangeable for shares of the Company's capital stock, all as set forth on
Annex I attached hereto.
1.3 Additional Purchases. Shareholder agrees that any shares of
--------------------
capital stock of the Company that Shareholder purchases or with respect to which
Shareholder otherwise acquires beneficial ownership or voting control after the
execution of this Agreement and prior to the date of termination of this
Agreement ("New Shares") shall be subject to the terms and conditions of this
Agreement to the same extent as if they constituted Shares.
1.4 Transfer and Encumbrance. Without the prior written consent of
------------------------
Parent, Shareholder agrees not to transfer, sell, exchange, pledge, gift, or
otherwise dispose of or encumber (collectively, "Transfer") any of the Shares or
--------
any New Shares or to discuss, negotiate, or make any offer or agreement relating
thereto. Shareholder acknowledges that the intent of the foregoing sentence is
to ensure that Parent retains the right under the Proxy (as defined in Section 2
hereof) to vote the Shares and any New Shares in accordance with the terms of
the Proxy.
2. Irrevocable Proxy. Concurrently with the execution of this Agreement,
-----------------
Shareholder agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "Proxy") with respect to the Shares and New Shares, which,
subject to Section 7 hereof, shall be irrevocable to the fullest extent
permitted by applicable law.
3. Election to Convert Preferred Stock into Common Stock. Effective
-----------------------------------------------------
immediately prior to the Effective Time (as defined in the Merger Agreement) of
the Merger, Shareholder hereby irrevocably elects to convert all shares of all
series of preferred stock of the Company held by Shareholder into shares of
Common Stock of the Company in accordance with the Company's Articles of
Incorporation.
4. Representations and Warranties of the Shareholder.
-------------------------------------------------
(i) With respect to the Shares owned by Shareholder, Shareholder is
the owner of the Shares free and clear of any liens, claims, options, charges or
other encumbrances.
(ii) Shareholder (A) has full authority to vote and direct the voting
of the Shares; (B) does not beneficially own any securities of the Company other
than the Shares indicated on the final page of this Agreement; and (C) has full
power and authority to make, enter into and carry out the terms of this
Agreement and the Proxy.
5. Additional Documents; Shareholder Agreement. Shareholder and Parent
-------------------------------------------
hereby covenant and agree to execute and deliver any additional documents
necessary or desirable, in the reasonable opinion of Parent or Shareholder, as
the case may be, to carry out the intent of this Agreement.
6. Consent and Waiver. Shareholder hereby gives any consents or waivers
------------------
that are reasonably required for the consummation of the Merger under the terms
of any agreements to which Shareholder is a party or pursuant to any rights
Shareholder may have.
7. Termination. This Agreement and the Proxy shall terminate and shall
-----------
have no further force or effect as of the earlier to occur of (i) such date and
time as the Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement or (ii) such date and time as the Merger
Agreement shall have been terminated in accordance with its terms.
8. Miscellaneous.
-------------
8.1 Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
8.2 Binding Effect and Assignment. This Agreement and all of the
-----------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns and any person or
entity to which legal or beneficial ownership of such Shares or New Shares shall
pass whether by operation of law or otherwise, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of the
parties without prior written consent of the other.
8.3 Amendments and Modification. This Agreement may not be modified,
---------------------------
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
8.4 Specific Performance; Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity.
8.5 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and sufficient if delivered in
person or sent by overnight courier by a reputable carrier (prepaid) to the
respective parties as follows:
If to Parent: XxXx.xxx, Inc.
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx Xxxxxx
With a copy to: Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
Xxxxxxx X. Xxxxxxxx, Esq
If to the Shareholder: To the address for notice set forth on the
signature page hereof.
With a copy to: Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx, Esq.
Xxxxx X. Xxxx, Esq.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
8.6 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the internal laws of the State of
California (without regard to the principles of conflict of laws thereof).
8.7 Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
8.8 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
8.9 Effect of Headings. The section headings herein are for
------------------
convenience only and shall not affect the construction or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Support Agreement to be
duly executed on the date and year first above written.
PARENT
By:______________________
Name: Xxxx Xxxxxx
Title: Chief Financial Officer
SHAREHOLDER:
By:_____________________
Name:___________________
Title:__________________
Shareholder's Address for Notice:
___________________________
___________________________
___________________________
[Signature Page to Support Agreement]
ANNEX I
Shareholder beneficially owns and has voting control over the following
capital stock of the Company:
Common Stock
1. _____ shares of Common Stock of the Company.
Preferred Stock
2. _____ shares of Series A Preferred Stock of the Company.
3. _____ shares of Series B Preferred Stock of the Company.
Options, Warrants and Other Convertible Securities
4. ____ shares of __________ Stock issuable upon exercise of Stock
Options.
5. ____ shares of __________ Stock issuable upon exercise of
Warrants.
6. ____ shares of __________ Stock issuable upon exercise or
conversion of other outstanding securities of the Company.
EXHIBIT A
IRREVOCABLE PROXY
The undersigned Shareholder of Cadabra Inc., a California corporation (the
"Company"), hereby irrevocably appoints the directors on the Board of Directors
of XxXx.xxx, Inc., a Delaware corporation ("Parent"), and each of them, as the
sole and exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to the full extent of the undersigned's rights
with respect to the voting of the Shares and New Shares (as each such term is
defined in the Support Agreement of even date between Parent and the Shareholder
(the "Support Agreement")) on the matters described below (and on no other
matter), until such time as that certain Agreement and Plan of Reorganization
dated as of November 19, 1999 (the "Merger Agreement"), among Parent, Xxx
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Merger Sub"), and the Company, shall be terminated in accordance with
its terms or the Merger (as defined in the Merger Agreement) becomes effective.
Upon the execution hereof, all prior proxies given by the undersigned with
respect to the Shares and any and all other shares or securities issued or
issuable in respect thereof on or after the date hereof are hereby revoked and
no subsequent proxies will be given.
This proxy is irrevocable (to the fullest extent permitted by law and
subject to the termination of the Proxy as set forth in Section 7 of the Support
Agreement), is granted pursuant to the Support Agreement, is granted in
consideration of Parent entering into the Merger Agreement and is coupled with
an interest. The attorneys and proxies named above will be empowered at any
time prior to the earlier of termination of the Merger Agreement and the date on
which the Merger becomes effective to exercise all voting rights (including,
without limitation, the power to execute and deliver written consents with
respect to the Shares and the New Shares) of the undersigned at every annual,
special or adjourned meeting of the Company's shareholders, and in every written
consent in lieu of such a meeting, or otherwise, to vote the Shares and the New
Shares:
(i) in favor of approval of the Merger and the adoption and approval
of the Merger Agreement including all actions contemplated thereby;
(ii) in favor of the conversion of all shares of preferred stock of
the Company into shares of Common Stock immediately prior to, and contingent
upon, the Closing of the Merger;
(iii) against approval of any proposal made in opposition to, or in
competition with, consummation of the Merger and the Merger Agreement; and
(iv) against any of the following actions (other than those actions that
relate to the Merger and are contemplated by the Merger Agreement): (A) any
merger, consolidation, business combination, sale of assets, reorganization or
recapitalization of the Company with any party; (B) any dissolution, liquidation
or winding up of the Company; (C) any joint venture or material strategic
relationship with any party; (D) any material change in the capitalization of
the Company or the Company's capital structure, except as contemplated by the
Merger Agreement and by Section 1.2(ii) and Section 3 of the Support Agreement;
or (E) any other action that is intended, or could reasonably be expected to
impede, interfere with, delay, postpone, discourage or adversely affect the
Merger or any of the transactions contemplated by the Merger Agreement.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares and any New Shares subject hereto at any time prior to the earlier of
termination of the Merger Agreement and the date on which the Merger becomes
effective, at every annual, special or adjourned meeting of the shareholders of
the Company and in every written consent in lieu of such meeting. The
undersigned Shareholder may vote the Shares and New Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable and coupled with an interest.
Dated:
Signature of Shareholder:_________________
Print Name of Shareholder:________________
***PROXY***
EXHIBIT C
---------
COMPANY AFFILIATE AGREEMENT
THIS COMPANY AFFILIATE AGREEMENT (this "Agreement") is made and entered into as
---------
of November ___, 1999, among XxXx.xxx, Inc., a Delaware corporation ("Parent"),
------
and the undersigned stockholder who may be deemed an affiliate ("Affiliate") of
---------
Cadabra Inc., a California corporation ("Company"). Capitalized terms used but
-------
not otherwise defined herein shall have the meanings ascribed to them in the
Reorganization Agreement (as defined below).
RECITALS
--------
A. The Company, Merger Sub (as defined below) and Parent have entered into an
Agreement and Plan of Reorganization (the "Reorganization Agreement") which
------------------------
provides for the merger (the "Merger") of a wholly-owned subsidiary of Parent
------
("Merger Sub") with and into the Company. Pursuant to the Merger, all
------------
outstanding capital stock of the Company (the "Company Capital Stock") shall be
converted into the right to receive Common Stock of Parent;
B. Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of the Company, as the term "affiliate" is used for purposes of Rule
144 of the Rules and Regulations (the "Rules and Regulations") of the Securities
---------------------
and Exchange Commission (the "Commission"); and
----------
C. The execution and delivery of this Agreement by Affiliate is a material
inducement to Parent to enter into the Reorganization Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
Acknowledgments by Affiliate. Affiliate acknowledges and understands that the
----------------------------
representations, warranties and covenants by Affiliate set forth herein shall be
relied upon by Parent, the Company and their respective affiliates, counsel and
accounting firms, and that substantial losses and damages may be incurred by
these persons if Affiliate's representations, warranties or covenants are
breached. Affiliate has carefully read this Agreement and the Reorganization
Agreement and has discussed the requirements of this Agreement with Affiliate's
professional advisors, who are qualified to advise Affiliate with regard to such
matters.
Beneficial Ownership of Company Capital Stock. The Affiliate is the beneficial
---------------------------------------------
owner of shares of Company Capital Stock (the "Shares"). The Shares are not
------
subject to any claim, lien, pledge, charge, security interest or other
encumbrance or to any rights of first refusal of any kind. There are no
options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which the Affiliate is party or by which it is bound
obligating the Affiliate to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any Shares or obligating
the Affiliate to grant or enter into any such option, warrant, call, right,
commitment or agreement. The Affiliate has the sole right to transfer such
Shares. The Shares are not subject to preemptive rights created by any
agreement to which the Affiliate is party. All shares of Company Capital Stock
and common stock of Parent ("Parent Common Stock") acquired by Affiliate in the
Merger) shall be subject to the
provisions of this Agreement as if held by Affiliate as of the date hereof
(excluding Parent Common Stock aquired in the open market).
Compliance with Rule 145 and the Securities Act.
-----------------------------------------------
Affiliate has been advised that (i) the issuance of shares of Parent Common
Stock in connection with the Merger is expected to be effected pursuant to a
fairness hearing under California law, and the resale of such shares shall be
subject to restrictions set forth in Rule 145 promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), and (ii) Affiliate may be deemed
--------------
to be an affiliate of the Company. Affiliate accordingly agrees not to sell,
transfer or otherwise dispose of any Parent Common Stock issued to Affiliate in
the Merger unless (i) such sale, transfer or other disposition is made in
conformity with the requirements of Rule 145(d) promulgated under the Securities
Act, (ii) such sale, transfer or other disposition is made pursuant to an
effective registration statement under the Securities Act or an appropriate
exemption from registration, (iii) Affiliate delivers to Parent a written
opinion of counsel, reasonably acceptable to Parent in form and substance, that
such sale, transfer or other disposition is otherwise exempt from registration
under the Securities Act or (iv) an authorized representative of the Commission
shall have rendered written advice to Affiliate to the effect that the
Commission would take no action, or that the staff of the Commission would not
recommend that the Commission take any action, with respect to the proposed
disposition if consummated.
Parent shall give stop transfer instructions to its transfer agent with respect
to any Parent Common Stock received by Affiliate pursuant to the Merger and
there shall be placed on the certificates representing such Common Stock, or any
substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED IN CONFORMITY WITH RULE
145(d) OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR IN ACCORDANCE WITH A WRITTEN OPINION
OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE, THAT
SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and Parent shall so instruct its transfer
agent, if Affiliate delivers to Parent (i) satisfactory written evidence that
the shares have been sold in compliance with Rule 145 (in which case, the
substitute certificate shall be issued in the name of the transferee), or (ii)
an opinion of counsel, in form and substance reasonably satisfactory to Parent,
to the effect that public sale of the shares by the holder thereof is no longer
subject to Rule 145.
Rule 144/145 Reporting. Parent shall, for a period of two (2) years from the
----------------------
date hereof, use commercially reasonable efforts to: (a) make and keep public
information available (as such terms are understood and defined in Rule 144
under the Securities Act) and (b) file with the Commission in a timely manner
all reports and other documents required of Parent under the Securities Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (c)
------------
furnish to Affiliate promptly upon request a written statement as to its
compliance with reporting requirements of Rule 144.
Termination. This Agreement shall be terminated and shall be of no further
-----------
force and effect in the event of the termination of the Reorganization Agreement
pursuant to Article VIII of the Reorganization Agreement.
Miscellaneous.
-------------
Waiver; Severability. No waiver by any party hereto of any condition or of any
--------------------
breach of any provision of this Agreement shall be effective unless in writing
and signed by each party hereto. In the event that any provision of this
Agreement, or the application of any such provision to any person, entity or set
of circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons, entities or circumstances other than
those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.
Binding Effect and Assignment. This Agreement and all of the provisions hereof
-----------------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of the
parties without prior written consent of the other party hereto.
Amendments and Modification. This Agreement may not be modified, amended,
---------------------------
altered or supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto.
Injunctive Relief. Each of the parties acknowledge that (i) the covenants and
-----------------
the restrictions contained in this Agreement are necessary, fundamental, and
required for the protection of Parent and the Company and to preserve for Parent
the benefits of the Merger; (ii) such covenants relate to matters which are of a
special, unique, and extraordinary character that gives each of such covenants a
special, unique, and extraordinary value; and (iii) a breach of any such
covenants or any other provision of this Agreement shall result in irreparable
harm and damages to Parent and the Company which cannot be adequately
compensated by a monetary award. Accordingly, it is expressly agreed that in
addition to all other remedies available at law or in equity, Parent and the
Company shall be entitled to the immediate remedy of a temporary restraining
order, preliminary injunction, or such other form of injunctive or equitable
relief as may be used by any court of competent jurisdiction to restrain or
enjoin any of the parties hereto from breaching any such covenant or provision
or to specifically enforce the provisions hereof.
Governing Law. This Agreement shall be governed by and construed, interpreted
-------------
and enforced in accordance with the internal laws of the State of California
without giving effect to any choice or conflict of laws provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
Entire Agreement. This Agreement, the Reorganization Agreement and the other
----------------
agreements referred to in the Reorganization Agreement set forth the entire
understanding of Affiliate and Parent relating to the subject matter hereof and
thereof and supersede all prior agreements and understandings between Affiliate
and Parent relating to the subject matter hereof and thereof.
Attorneys' Fees. In the event of any legal actions or proceeding to enforce or
---------------
interpret the provisions hereof, the prevailing party shall be entitled to
reasonable attorneys' fees, whether or not the proceeding results in a final
judgment.
Further Assurances. Affiliate shall execute and/or cause to be delivered to
------------------
Parent such instruments and other documents and shall take such other actions as
Parent may reasonably request to effectuate the intent and purposes of this
Agreement.
Third Party Reliance. Counsel to and independent auditors for Parent and the
--------------------
Company shall be entitled to rely upon this Affiliate Agreement.
Survival. The representations, warranties, covenants and other provisions
--------
contained in this Agreement shall survive the Merger.
Notices. All notices and other communications pursuant to this Agreement shall
-------
be in writing and deemed to be sufficient if contained in a written instrument
and shall be deemed given if delivered personally, telecopied, sent by
nationally-recognized overnight courier or mailed by registered or certified
mail (return receipt requested), postage prepaid, to the parties at the
following address (or at such other address for a party as shall be specified by
like notice):
If to Parent: XxXx.xxx, Inc.
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Xxxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to Affiliate: To the address for notice set forth on the signature
page hereof.
Counterparts. This Agreement shall be executed in one or more counterparts,
------------
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to be duly
executed on the day and year first above written.
XXXX.XXX, INC. AFFILIATE
By:_____________________ By:_______________________
Name: Xxxx Xxxxxx Affiliate's Address for Notice:
Title: Chief Financial Officer ______________________________
______________________________
______________________________
[Signature Page to Affiliate Agreement]
EXHIBIT D
---------
Form of Opinion of Fenwick & West, LLP
[Capitalized terms in this Exhibit have the meanings ascribed
to such terms in the Agreement and Plan of Reorganization]
[Introduction, exceptions, etc.]
1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, and has the requisite
corporate power and authority to own or lease and to operate and use its assets
to carry on its business as now conducted.
2. Immediately prior to the [Effective Time] of the Merger, the Company's
authorized capital stock consisted of __________ shares of Common Stock, of
which to our knowledge ________ shares were issued and outstanding; _________
shares of Series A Preferred Stock, of which to our knowledge ________ shares
were issued and outstanding; and _________ shares of Series B Preferred Stock,
of which to our knowledge ________ shares were issued and outstanding. All of
such issued and outstanding shares have been duly authorized and validly issued,
were fully paid and nonassessable. To our knowledge, except for the conversion
privileges of the Series A Preferred Stock and the Series B Preferred Stock and
as otherwise set forth in the Agreement and the Company Disclosure Letter, there
were immediately prior to the Effective Time of the Merger __________ shares
subject to options and no warrants or conversion privileges or other rights
outstanding to purchase or otherwise acquire any authorized but unissued shares
of the Company's capital stock or other securities convertible into or
exercisable for the Company's capital stock.
3. The Company has the requisite corporate power and authority to execute,
deliver and perform the Agreement and the Agreement. The execution, delivery
and performance by the Company of the Agreement have been duly authorized by all
necessary corporate action and proceedings on the part of the Board of Directors
and shareholders of the Company.
4. The execution, delivery and performance of the Agreement does not and will
not violate or conflict with the Articles of Incorporation or Bylaws of the
Company.
5. To our knowledge, there is no action, suit, proceeding, claim or
investigation pending or overtly threatened against the Company before any court
or administrative agency that questions the validity of the Agreement or that
might result in a Material Adverse Effect on the Company.
