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EXHIBIT 2.01
Agreement and Plan of Reorganization dated as of November 9, 1996 by
and among Registrant, ▇▇▇▇▇▇ Software, Inc. and the ▇▇▇▇▇▇
Shareholders.
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Certain portions of this exhibit have been omitted based upon a
request for confidential treatment. Such nonpublic information has
been filed with the Securities and Exchange Commission.
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is
entered into as of this 9th day of November 1996, by and between Worldtalk
Communications Corporation, a Delaware corporation doing business as Worldtalk
Corporation ("Worldtalk"), and ▇▇▇▇▇▇ Software, Inc., a Washington corporation
("▇▇▇▇▇▇"), and the holders of all outstanding shares of ▇▇▇▇▇▇ capital stock
(the "▇▇▇▇▇▇ Shareholders").
RECITALS
A. The parties intend that, subject to the terms and conditions
of this Agreement, a new Washington corporation that will be organized as a
wholly owned subsidiary of Worldtalk ("Newco") will merge with and into ▇▇▇▇▇▇
in a reverse triangular merger (the "Merger"), with ▇▇▇▇▇▇ to be the surviving
corporation of the Merger, all pursuant to the terms and conditions of this
Agreement and an Agreement and Plan of Merger substantially in the form of
Exhibit A (the "Agreement of Merger") and the applicable provisions of the laws
of the State of Washington. Upon the effectiveness of the Merger, all the
outstanding capital stock of ▇▇▇▇▇▇, consisting only of ▇▇▇▇▇▇ Common Stock,
$0.0001 par value (the "▇▇▇▇▇▇ Stock"), will be converted into capital stock of
Worldtalk (the "Worldtalk Stock"), as provided in this Agreement and the
Agreement of Merger.
B. The Merger is intended to be treated as a tax-free
reorganization pursuant to the provisions of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"), by virtue of the
provisions of Section 368(a)(2)(E) of the Code.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. PLAN OF REORGANIZATION.
1.1 THE MERGER. Subject to the terms and conditions of
this Agreement, Newco will be merged with and into ▇▇▇▇▇▇ pursuant to this
Agreement and the Agreement of Merger and in accordance with applicable
provisions of the laws of the State of Washington as follows:
1.1.1 Conversion of Shares. Holders of shares of
▇▇▇▇▇▇ Stock issued and outstanding immediately prior to the filing of the
Agreement of Merger with the Secretary of State of Washington (the "Effective
Time") will receive in exchange for all of their shares of ▇▇▇▇▇▇ Stock, by
virtue of the Merger, at the Effective Time and without further action on the
part of any holder thereof:
(a) an aggregate cash payment to all of
such shareholders of $225,000 (the "Cash Payment"), plus
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(b) a number of fully paid and
nonassessable shares of Worldtalk Common Stock, $0.01 par value
("Worldtalk Common Stock"), that is determined by dividing the amount of
the Cash Payment by the Average Price (defined below) of the Worldtalk
Common Stock and then subtracting the quotient obtained from the number
of Initial Shares (the "Stock Payment").
For purposes of this calculation, the "Average Price" will mean the average of
the closing sale prices of Worldtalk's Common Stock reported in the Western
Edition of The Wall Street Journal or, if not published therein, The San ▇▇▇▇
Mercury News, on the basis of information provided by the Nasdaq National
Market for each of the ten (10) trading days immediately preceding the day
prior to the date upon which the Closing described in Section 6.1 is held (the
"Closing Date"). The number of "Initial Shares" shall be (a) 565,000 if the
Average Price is greater than or equal to $9.00 but less than or equal to
$15.00, (b) 452,000 if the Average Price is greater than $15.00 and (c) 753,333
if the Average Price is less than $9.00.
1.1.2 Payment to each ▇▇▇▇▇▇ Shareholder. Each
▇▇▇▇▇▇ Shareholder has elected to receive a proportion of the Cash Payment.
Accordingly, each ▇▇▇▇▇▇ Shareholder will be entitled to receive (a) a cash
payment equal to the amount set forth in the last column of the table below,
titled "Cash Payment to be Received," plus (b) the number of shares of
Worldtalk Common Stock that is determined by dividing the amount of such
person's cash payment by the Average Price of the Worldtalk Common Stock and
then subtracting the quotient obtained from the applicable number of Initial
Shares obtained for such person from the table below.
INITIAL SHARES INITIAL SHARES INITIAL SHARES
IF AP IS BETWEEN IF AP IS IF AP IS LESS
$15.00 AND $9.00 GREATER THAN THAN $9.00 PER CASH PAYMENT
NAME OF SHAREHOLDER PER SHARE $15.00 PER SHARE SHARE TO BE RECEIVED
------------------- ---------------- ---------------- -------------- --------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 114,142 91,313 152,189 $ 96,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 222,574 178,061 296,766 0
▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. 114,142 91,313 152,189 64,500
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 114,142 91,313 152,189 64,500
------- ------- ------- --------
Totals: 565,000 452,000 753,333 $225,000
Each of the parties hereto agrees that the value of each ▇▇▇▇▇▇ Shareholder's
portion of the Stock Payment plus the Cash Payment to each such shareholder as
a percentage of the total value of the Stock Payment plus Cash Payment to be
received by all such shareholders, is equal to the percent of ▇▇▇▇▇▇ Stock held
by such shareholder.
1.1.3 Adjustments in Number of Shares. If, prior to
the Merger, Worldtalk or ▇▇▇▇▇▇ recapitalizes through a split-up of its
outstanding shares into a greater number, or a combination of its outstanding
shares into a lesser number, reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number of shares of other
classes (other than through a split-up or combination of shares provided for in
the previous clause), or declares a dividend on its outstanding shares payable
in shares or securities convertible into shares, the number of shares of
Worldtalk Common Stock into which the shares of ▇▇▇▇▇▇ Stock are to be
converted will be adjusted appropriately so as to maintain the proportionate
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interests of the holders of the shares of ▇▇▇▇▇▇ Stock and the holders of the
shares of Worldtalk Common Stock.
1.1.4 Cash Payment. The Cash Payment to each ▇▇▇▇▇▇
Shareholder will be made on January 2, 1997 by Worldtalk's delivery to each
▇▇▇▇▇▇ shareholder, by personal delivery or by deposit in the United States
mail, postage prepaid, of a check made payable to such shareholder in the full
amount of the portion of the Cash Payment to be received by such shareholders
on the date of each payment.
1.1.5 ▇▇▇▇▇▇ Shareholder Approval; Dissenting Shares.
Each ▇▇▇▇▇▇ Shareholder hereby votes for, and approves, the terms of this
Agreement and the transactions contemplated hereby and such vote and approval
shall be deemed an action by unanimous written consent of the ▇▇▇▇▇▇
Shareholders and of the Board of Directors of ▇▇▇▇▇▇. As a result, no "fair
value" rights shall apply to the transactions contemplated hereby under RCW
23B.13 et seq. of the Washington Business Corporation Act (the "Washington
Law") and no holder of ▇▇▇▇▇▇ Stock shall be a "Dissenter" thereunder.
1.2 FRACTIONAL SHARES. No fractional shares of Worldtalk
Common Stock will be issued in connection with the Merger, but in lieu thereof
each holder of ▇▇▇▇▇▇ Stock who would otherwise be entitled to receive a
fraction of a share of Worldtalk Common Stock will receive from Worldtalk,
promptly after the Effective Time, an amount of cash equal to the Average Price
multiplied by the fraction of a share of Worldtalk Common Stock to which such
holder would otherwise be entitled.
1.3 ESCROW AGREEMENT. At the Closing of the Merger,
Worldtalk will withhold 15% of the shares of Worldtalk Common Stock to be
issued to the ▇▇▇▇▇▇ Shareholders in accordance with Section 1.1 (rounded up to
the nearest whole number of shares to be issued to each ▇▇▇▇▇▇ Shareholder),
and deliver such shares (the "Escrow Shares") to ▇▇▇▇▇▇ Trust and Savings Bank
(the "Escrow Agent"), as escrow agent, to be held by Escrow Agent as collateral
for ▇▇▇▇▇▇'▇ indemnification obligations under Section 10.2 and pursuant to the
provisions of an escrow agreement (the "Escrow Agreement") in substantially the
form of Exhibit 1.3. The Escrow Shares will be represented by a certificate or
certificates issued in the name of the Escrow Agent and will be held by the
Escrow Agent from the Closing, assuming no claim is made against such shares,
until one (1) year after the Closing Date (the "Escrow Period"). In the event
that the Merger is approved by the ▇▇▇▇▇▇ Shareholders as provided herein, the
▇▇▇▇▇▇ Shareholders shall, without any further act of any ▇▇▇▇▇▇ Shareholder,
be deemed to have consented to and approved (a) the use of the Escrow Shares as
collateral for ▇▇▇▇▇▇'▇ indemnification obligations under Section 10.2 in the
manner set forth in the Escrow Agreement, (b) the appointment of ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, III, as the representative of the ▇▇▇▇▇▇ Shareholders (the
"Representative") under the Escrow Agreement and as the attorney-in-fact and
agent for and on behalf of each ▇▇▇▇▇▇ Shareholder, and the taking by the
Representative of any and all actions and the making of any decisions required
or permitted to be taken by him under the Escrow Agreement (including, without
limitation, the exercise of the power to: authorize delivery to Worldtalk of
Escrow Shares in satisfaction of claims by Worldtalk; agree to, negotiate,
enter into settlements and compromises of and demand arbitration and comply
with
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orders of courts and awards of arbitrators with respect to such claims; resolve
any claim made pursuant to Section 10.2; and take all actions necessary in the
judgment of the Representative for the accomplishment of the foregoing) and (c)
to all of the other terms, conditions and limitations in the Escrow Agreement.
1.4 EFFECTS OF THE MERGER. At the Effective Time: (a) the
separate existence of Newco will cease and Newco will be merged with and into
▇▇▇▇▇▇, and ▇▇▇▇▇▇ will be the surviving corporation, pursuant to the terms of
the Agreement of Merger, (b) the Certificate of Incorporation and Bylaws of
▇▇▇▇▇▇ will continue, unchanged, to be the Certificate of Incorporation and
Bylaws of the surviving corporation, (c) each share of Newco Common Stock
outstanding immediately prior to the Effective Time will continue to be an
identical outstanding share of Common Stock of ▇▇▇▇▇▇ as the surviving
corporation, (d) the Board of Directors and officers of Worldtalk will remain
unchanged, the directors of Newco immediately prior to the Effective Time will
become the directors of the surviving corporation and the officers of Newco
immediately prior to the Effective Time will become the officers of the
surviving corporation, (e) each share of ▇▇▇▇▇▇ Stock outstanding immediately
prior to the Effective Time will be converted as provided in Sections 1.1 and
1.2; and (f) the Merger will, from and after the Effective Time, have all of
the effects provided by applicable law.
1.5 FURTHER ASSURANCES. ▇▇▇▇▇▇ agrees that if, at any time
before or after the Effective Time, Worldtalk considers or is advised that any
further deeds, assignments or assurances are reasonably necessary or desirable
to vest, perfect or confirm in Worldtalk or ▇▇▇▇▇▇ title to any property or
rights of ▇▇▇▇▇▇, Worldtalk and its proper officers and directors may execute
and deliver all such proper deeds, assignments and assurances and do all other
things necessary or desirable to vest, perfect or confirm title to such
property or rights in Worldtalk or ▇▇▇▇▇▇ and otherwise to carry out the
purpose of this Agreement, in the name of ▇▇▇▇▇▇ or otherwise.
1.6 TAX FREE REORGANIZATION. The parties intend to adopt
this Agreement as a tax-free plan of reorganization and to consummate the
Merger in accordance with the provisions of Section 368(a)(1)(A) of the Code.
The parties believe that the value of the Worldtalk Stock to be received in the
Merger, plus cash, is equal, in each instance, to the value of the ▇▇▇▇▇▇ Stock
to be surrendered in exchange therefor. The Worldtalk Stock and cash issued in
the Merger will be issued solely in exchange for the ▇▇▇▇▇▇ Stock, and no other
transaction other than the Merger represents, provides for or is intended to be
an adjustment to, the consideration paid for the ▇▇▇▇▇▇ Stock. Except for the
Cash Payment and cash paid in lieu of fractional shares or for Dissenting
Shares, no consideration that could constitute "other property" within the
meaning of Section 356 of the Code is being paid by Worldtalk for the ▇▇▇▇▇▇
Stock in the Merger. The parties shall not take a position on any tax returns
inconsistent with this Section 1.6. In the event that such characterization is
contested by the Internal Revenue Service or other governmental authority, the
parties shall cooperate with one another in resisting any contrary position
concerning the characterization of the transaction asserted by the Internal
Revenue Service or other governmental authority in the course of such contest.
In addition, Worldtalk represents now, and as of the Closing Date, that it
presently intends to continue ▇▇▇▇▇▇'▇ historic business or use a significant
portion of ▇▇▇▇▇▇'▇ business assets in a business. The provisions and
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representations contained or referred to in this Section 1.6 shall survive
until the expiration of the applicable statute of limitations.
1.7 PURCHASE ACCOUNTING. The parties intend that the
Merger be treated as a purchase for accounting purposes.
2. REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇▇ AND THE ▇▇▇▇▇▇
SHAREHOLDERS. Each of ▇▇▇▇▇▇ and the ▇▇▇▇▇▇ Shareholders, jointly and
severally, hereby represents and warrants, except as set forth on the ▇▇▇▇▇▇
Schedule of Exceptions delivered to Worldtalk herewith as Exhibit 2.0, as
follows. As used herein, the term "knowledge" shall mean the actual knowledge
of the ▇▇▇▇▇▇ Shareholders after reasonable inquiry.
2.1 ORGANIZATION AND GOOD STANDING. ▇▇▇▇▇▇ is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, has the corporate power and authority
to own, operate and lease its properties and to carry on its business as now
conducted and is qualified as a foreign corporation in each jurisdiction in
which a failure to be so qualified could reasonably be expected to have a
material adverse effect on its present or expected operations or financial
condition.
2.2 POWER, AUTHORIZATION AND VALIDITY.
2.2.1 ▇▇▇▇▇▇ has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and
all agreements to which ▇▇▇▇▇▇ is or will be a party that are required to be
executed pursuant to this Agreement (the "▇▇▇▇▇▇ Ancillary Agreements"). The
execution, delivery and performance of this Agreement and the ▇▇▇▇▇▇ Ancillary
Agreements have been duly and validly approved and authorized by ▇▇▇▇▇▇'▇ Board
of Directors.
2.2.2 No filing, authorization or approval,
governmental or otherwise, is necessary to enable ▇▇▇▇▇▇ to enter into, and to
perform its obligations under, this Agreement and the ▇▇▇▇▇▇ Ancillary
Agreements, except for (a) the filing of the Agreement of Merger with the
Washington Secretary of State and the filing of appropriate documents with the
relevant authorities of other states in which ▇▇▇▇▇▇ is qualified to do
business, if any, and (b) such filings as may be required to comply with
federal and state securities laws.
2.2.3 This Agreement and the ▇▇▇▇▇▇ Ancillary
Agreements are, or when executed by ▇▇▇▇▇▇ will be, valid and binding
obligations of ▇▇▇▇▇▇ enforceable in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally, (b) rules of law governing
specific performance, injunctive relief and other equitable remedies and (c)
the enforceability of provisions requiring indemnification in connection with
the offering, issuance or sale of securities; provided, however, that the
Agreement of Merger will not be effective until filed with the Washington
Secretary of State.
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2.3 CAPITALIZATION.
2.3.1 The authorized capital stock of ▇▇▇▇▇▇ consists
of 26,000,000 shares of Common Stock, $0.0001 par value, of which 495,000
shares are issued and outstanding, and 24,000,000 shares of Preferred Stock,
$0.0001 par value, none of which are issued and outstanding. All issued and
outstanding shares of ▇▇▇▇▇▇ Stock have been duly authorized and validly
issued, are fully paid and nonassessable, are not subject to any right of
rescission, and have been offered, issued, sold and delivered by ▇▇▇▇▇▇ in
compliance with all registration or qualification requirements (or applicable
exemptions therefrom) of applicable federal and state securities laws.
2.3.2 There are no options, warrants, calls,
commitments, conversion privileges or preemptive or other rights or agreements
outstanding to purchase any of ▇▇▇▇▇▇'▇ authorized but unissued capital stock
or any securities convertible into or exchangeable for shares of ▇▇▇▇▇▇ Stock
or obligating ▇▇▇▇▇▇ to ▇▇▇▇▇, extend, or enter into any such option, warrant,
call, right, commitment, conversion privilege or other right or agreement, and
there is no liability for dividends accrued but unpaid. There are no voting
agreements, rights of first refusal or other restrictions (other than normal
restrictions on transfer under applicable federal and state securities laws)
applicable to any of ▇▇▇▇▇▇'▇ outstanding securities. ▇▇▇▇▇▇ is not under any
obligation to register under the Securities Act of 1933, amended (the "1933
Act"), any of its presently outstanding securities or any securities that may
be subsequently issued.
2.3.3 A list of all ▇▇▇▇▇▇ Shareholders and the
number of shares held by each has been delivered by ▇▇▇▇▇▇ to Worldtalk
herewith as Exhibit 2.3. Each ▇▇▇▇▇▇ Shareholder has good, valid and
marketable title to the issued and outstanding ▇▇▇▇▇▇ Stock held by such
shareholder, free and clear of all liens, claims, pledges, options, security
interests, adverse claims, assessments or charges of any nature whatsoever, and
has full right, capacity and authority to vote such ▇▇▇▇▇▇ Stock in favor of
the Merger and any other transactions contemplated by the Agreement of Merger.
2.4 SUBSIDIARIES. ▇▇▇▇▇▇ does not have any subsidiaries or
any interest, direct or indirect, in any corporation, partnership, joint
venture or other business entity.
2.5 NO VIOLATION OF EXISTING AGREEMENTS. Neither the
execution and delivery of this Agreement nor any ▇▇▇▇▇▇ Ancillary Agreement,
nor the consummation of the transactions contemplated hereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of (a) any provision of the
Certificate of Incorporation or Bylaws of ▇▇▇▇▇▇, as currently in effect, (b)
in any material respect, any material instrument or contract to which ▇▇▇▇▇▇ is
a party or by which ▇▇▇▇▇▇ is bound or (c) any federal, state, local or foreign
judgment, writ, decree, order, statute, rule or regulation applicable to ▇▇▇▇▇▇
or its assets or properties. The consummation of the Merger will not require
the consent of any third party.
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2.6 LITIGATION. There is no action, proceeding, claim or
investigation pending against ▇▇▇▇▇▇ before any court or administrative agency
that if determined adversely to ▇▇▇▇▇▇ may reasonably be expected to have a
material adverse effect on the present or future operations or financial
condition of ▇▇▇▇▇▇, nor, to ▇▇▇▇▇▇'▇ knowledge, has any such action,
proceeding, claim or investigation been threatened. There is, to ▇▇▇▇▇▇'▇
knowledge, no reasonable basis for any shareholder or former shareholder of
▇▇▇▇▇▇, or any other person, firm, corporation or entity, to assert a claim
against ▇▇▇▇▇▇ or Worldtalk based upon: (a) ownership or rights to ownership of
any shares of ▇▇▇▇▇▇ Stock, (b) any rights as a ▇▇▇▇▇▇ Shareholder, including
any option or preemptive rights or rights to notice or to vote or (c) any
rights under any agreement among ▇▇▇▇▇▇ and its shareholders.
2.7 TAXES. ▇▇▇▇▇▇ has filed all federal, state, local and
foreign tax returns required to be filed, has paid all taxes required to be
paid in respect of all periods for which returns have been filed, has
established an adequate accrual or reserve for the payment of all taxes payable
in respect of the periods subsequent to the periods covered by the most recent
applicable tax returns, has made all necessary estimated tax payments, and has
no material liability for taxes in excess of the amount so paid or accruals or
reserves so established. ▇▇▇▇▇▇ is not delinquent in the payment of any tax
nor delinquent in the filing of any tax returns, and no deficiencies for any
tax have been threatened, claimed, proposed or assessed. No tax return of
▇▇▇▇▇▇ has ever been audited by the Internal Revenue Service or any state
taxing agency or authority. For the purposes of this Section 2, the terms
"tax" and "taxes" include all federal, state, local and foreign income, gains,
franchise, excise, property, sales, use, employment, license, payroll,
occupation, recording, value added or transfer taxes, governmental charges,
fees, levies or assessments (whether payable directly or by withholding), and,
with respect to such taxes, any estimated tax, interest and penalties or
additions to tax and interest on such penalties and additions to tax.
2.8 ▇▇▇▇▇▇ FINANCIAL STATEMENTS. ▇▇▇▇▇▇ has delivered to
Worldtalk as Exhibit 2.8 ▇▇▇▇▇▇'▇ unaudited balance sheet as of November 5,
1996 (the "Balance Sheet") and profit and loss statements for the period
between January 1, 1996 and November 8, 1996 (collectively the "Financial
Statements"). The Financial Statements (a) are in accordance with the tax
books and records of ▇▇▇▇▇▇, and (b) fairly present the financial condition of
▇▇▇▇▇▇ on a tax basis at the date therein indicated and the results of
operations for the period therein specified. ▇▇▇▇▇▇ has no material debt,
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not reflected or reserved
against in the Financial Statements, except for those that may have been
incurred after the date of the Financial Statements in the ordinary course of
its business, consistent with past practice and that are not material in amount
either individually or collectively.
2.9 TITLE TO PROPERTIES. ▇▇▇▇▇▇ has good and marketable
title to all of its assets as shown on the Balance Sheet, free and clear of all
liens, charges, restrictions or encumbrances (other than for taxes not yet due
and payable). All machinery and equipment included in such properties is in
good condition and repair, normal wear and tear excepted, and all leases of
real or personal property to which ▇▇▇▇▇▇ is a party are fully effective and
afford ▇▇▇▇▇▇ peaceful and undisturbed possession of the subject matter of the
lease. ▇▇▇▇▇▇ is not in ▇▇▇▇▇-
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tion of any zoning, building, safety or environmental ordinance,
regulation or requirement or other law or regulation applicable to the
operation of owned or leased properties (the violation of which would have a
material adverse effect on its business) or has received any notice of
violation with which it has not complied.
2.10 ABSENCE OF CERTAIN CHANGES. Since the date of the
Balance Sheet, there has not been with respect to ▇▇▇▇▇▇:
(a) any change in the financial condition,
properties, assets, liabilities, business or operations thereof which
change by itself or in conjunction with all other such changes, whether
or not arising in the ordinary course of business, has had or will have a
material adverse effect thereon;
(b) any contingent liability incurred thereby as
guarantor or otherwise with respect to the obligations of others;
(c) any mortgage, pledge, encumbrance, lien or
other security interest placed on any of the properties thereof;
(d) any material obligation or liability incurred
thereby;
(e) any purchase or sale or other disposition, or
any agreement or other arrangement for the purchase, sale or other
disposition, of any of the properties or assets thereof other than in the
ordinary course of business;
(f) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties,
assets or business thereof;
(g) any declaration, setting aside or payment of
any dividend on, or the making of any other distribution in respect of,
the capital stock thereof, any split, combination or recapitalization of
the capital stock thereof or any direct or indirect redemption, purchase
or other acquisition of the capital stock thereof;
(h) any labor dispute or claim of unfair labor
practices, any change in the compensation payable or to become payable to
any of its officers, employees or agents, or any bonus payment or
arrangement made to or with any of such officers, employees or agents;
(i) any change with respect to the management,
supervisory or other key personnel of ▇▇▇▇▇▇;
(j) any payment or discharge of a material lien or
liability thereof which lien was not either shown on the Balance Sheet;
or
(k) any obligation or liability incurred thereby to
any of its officers, directors or shareholders or any loans or advances
made thereby to any of its officers, directors or shareholders except
normal compensation and expense allowances payable to officers.
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2.11 CONTRACTS AND COMMITMENTS. Except as set forth on
Exhibit 2.0, ▇▇▇▇▇▇ has no contract, obligation or commitment which is material
to the business of ▇▇▇▇▇▇ or which involves a potential commitment in excess of
$25,000 or any stock redemption or purchase agreement, financing agreement,
license, lease or franchise. A copy of each agreement or document listed on
Exhibit 2.0 has been delivered to Worldtalk's counsel. ▇▇▇▇▇▇ is not in
default in any material respect under any contract, obligation or commitment
listed on Exhibit 2.0 or that is otherwise material to the business of ▇▇▇▇▇▇.
▇▇▇▇▇▇ is not a party to any contract or arrangement which has had or could
reasonably be expected to have a material adverse effect on its business or
prospects.
2.12 INTELLECTUAL PROPERTY.
2.12.1 As used herein, the term "Intellectual Property
Rights" shall mean all worldwide industrial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark applications, trade names, service marks, service ▇▇▇▇
applications, copyright, copyright applications, franchises, licenses,
inventories, know-how, trade secrets, customer lists, proprietary processes and
formulae, all source and object code, algorithms, architecture, structure,
display screens, layouts, inventions, development tools and all documentation
and media constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records.
2.12.2 ▇▇▇▇▇▇ owns, or has the right to use, sell or
license all material Intellectual Property Rights necessary or required for the
conduct of its business as presently conducted (such Intellectual Property
Rights being hereinafter collectively referred to as the "▇▇▇▇▇▇ IP Rights")
and such rights to use, sell or license are reasonably sufficient for such
conduct of its business.
2.12.3 The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
constitute a material breach of any instrument or agreement governing any
▇▇▇▇▇▇ IP Right (the "▇▇▇▇▇▇ IP Rights Agreements"), will not cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any ▇▇▇▇▇▇ IP Right or materially impair the right of ▇▇▇▇▇▇ to use, sell or
license any ▇▇▇▇▇▇ IP Right or portion thereof (except where such breach,
forfeiture or termination would not have a material adverse effect on ▇▇▇▇▇▇).
There are no royalties, honoraria, fees or other payments payable by ▇▇▇▇▇▇ to
any person by reason of the ownership, use, license, sale or disposition of the
▇▇▇▇▇▇ IP Rights.
2.12.4 Neither the manufacture, marketing, license,
sale or intended use of any product currently licensed or sold by ▇▇▇▇▇▇ or
currently under development by ▇▇▇▇▇▇ violates any license or agreement between
▇▇▇▇▇▇ and any third party or infringes any Intellectual Property Right of any
other party (provided that such representation and warranty as to violation or
infringement of patents or patent rights is made only to the knowledge of
▇▇▇▇▇▇ and the ▇▇▇▇▇▇ Shareholders); and there is no pending or, to the
knowledge of ▇▇▇▇▇▇, threatened claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any ▇▇▇▇▇▇ IP Right nor,
to the knowledge of ▇▇▇▇▇▇, is there any basis for any such
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11
claim. ▇▇▇▇▇▇ has not received any notice asserting that any ▇▇▇▇▇▇ IP Right
or the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, nor, to the knowledge of ▇▇▇▇▇▇,
is there any basis for any such assertion.
2.12.5 ▇▇▇▇▇▇ has taken reasonable and practicable
steps designed to safeguard and maintain the secrecy and confidentiality of,
and its proprietary rights in, all ▇▇▇▇▇▇ IP Rights. All officers, employees
and consultants of ▇▇▇▇▇▇ have executed and delivered to ▇▇▇▇▇▇ an agreement
regarding the protection of proprietary information and the assignment to
▇▇▇▇▇▇ of all Intellectual Property Rights arising from the services performed
for ▇▇▇▇▇▇ by such persons. Exhibit 2.0 contains a list of all applications,
registrations, filings and other formal actions made or taken pursuant to
federal, state and foreign laws by ▇▇▇▇▇▇ to perfect or protect its interest in
▇▇▇▇▇▇ IP Rights, including, without limitation, all patents, patent
applications, trademarks, trademark applications and service marks.
2.13 COMPLIANCE WITH LAWS. ▇▇▇▇▇▇ has complied, or prior to
the Closing will have complied, and is or will be at the Closing in full
compliance, in all material respects, with all applicable laws, ordinances,
regulations and rules, and all orders, writs, injunctions, awards, judgments
and decrees applicable to it or to the assets, properties and business thereof
(the violation of which would have a material adverse effect upon its
business), including, without limitation: (a) all applicable federal and state
securities laws and regulations, (b) all applicable federal, state and local
laws, ordinances, regulations and all orders, writs, injunctions, awards,
judgments and decrees pertaining to (i) the sale, licensing, leasing, ownership
or management of its owned, leased or licensed real or personal property,
products and technical data, (ii) employment and employment practices, terms
and conditions of employment, wages and hours and (iii) safety, health, fire
prevention, environmental protection, toxic waste disposal, building standards,
zoning and other similar matters (c) the Export Administration Act and
regulations promulgated thereunder and all other laws, regulations, rules,
orders, writs, injunctions, judgments and decrees applicable to the export or
re-export of controlled commodities or technical data and (d) the Immigration
Reform and Control Act. ▇▇▇▇▇▇ has received all permits and approvals from,
and has made all filings with, third parties, including government agencies and
authorities, that are necessary in connection with its present business. There
are no legal or administrative proceedings or investigations pending or to
▇▇▇▇▇▇'▇ knowledge threatened, that, if enacted or determined adversely to
▇▇▇▇▇▇, would result in any material adverse change in the present or future
operations or financial condition thereof.
2.14 CERTAIN TRANSACTIONS AND AGREEMENTS. None of the
officers of ▇▇▇▇▇▇, nor any member of their immediate families, has any direct
or indirect ownership interest in any firm or corporation that competes with
▇▇▇▇▇▇ (except with respect to any interest in less than one percent of the
stock of any corporation whose stock is publicly traded). None of said
officers or directors, or any member of their immediate families, is directly
or indirectly interested in any contract or informal arrangement with ▇▇▇▇▇▇,
except for normal compensation for services as an officer, director or employee
thereof. None of said officers or directors or family members has any interest
in any property, real or personal, tangible or intangible, including
inventions, patents, copyrights, trademarks or trade names or trade secrets,
used in or pertaining to the business of ▇▇▇▇▇▇, except for the normal rights
of a shareholder.
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12
2.15 EMPLOYEES, ERISA AND OTHER COMPLIANCE.
2.15.1 ▇▇▇▇▇▇ has no employment contract or consulting
agreement currently in effect that is not terminable at will (other than
agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions). All officers, employees
and consultants of ▇▇▇▇▇▇ having access to proprietary information have
executed and delivered to ▇▇▇▇▇▇ an agreement regarding the protection of such
proprietary information and the assignment of inventions to ▇▇▇▇▇▇; copies of
the form of all such agreements have been delivered to Worldtalk's counsel.
2.15.2 ▇▇▇▇▇▇ has no (a) "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), nor (b) any other written or formal plans or agreements
involving direct or indirect compensation or benefits (including any employment
agreements entered into between ▇▇▇▇▇▇ and any employee of ▇▇▇▇▇▇, but
excluding workers' compensation, unemployment compensation and other
government-mandated programs) currently or previously maintained, contributed
to or entered into by ▇▇▇▇▇▇ under which ▇▇▇▇▇▇ or any ERISA Affiliate (as
defined below) thereof has any present or future obligation or liability
(collectively, the "▇▇▇▇▇▇ Employee Plans"). For purposes of this Section
2.15, "ERISA Affiliate" shall mean any entity which is a member of (a) a
"controlled group of corporations," as defined in Section 414(b) of the Code,
(b) a group of entities under "common control," as defined in Section 414(c) of
the Code, or (c) an "affiliated service group," as defined in Section 414(m) of
the Code, or treasury regulations promulgated under Section 414(o) of the Code,
any of which includes ▇▇▇▇▇▇.
2.15.3 Exhibit 2.0 lists each employment, severance or
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization benefits, retirement
benefits, deferred compensation, profit-sharing, bonuses or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
for employees, consultants or directors which (a) is entered into, maintained
or contributed to, as the case may be, by ▇▇▇▇▇▇ and (b) covers any employee or
former employee of ▇▇▇▇▇▇. Each such arrangement or plan has been maintained
in substantial compliance with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations which are applicable
thereto. ▇▇▇▇▇▇ has delivered to Worldtalk or its counsel a complete and
correct copy or description of each such arrangement or plan. ▇▇▇▇▇▇ has no
current labor disputes and has no knowledge that any of its key employees
intends to leave its employ.
2.15.4 ▇▇▇▇▇▇ is in compliance in all material
respects with all applicable laws, agreements and contracts relating to
employment, employment practices, wages, hours, and terms and conditions of
employment, including, but not limited to, employee compensation matters.
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13
2.15.5 No employee of ▇▇▇▇▇▇ is in violation of any
term of any employment contract, patent disclosure agreement, noncompetition
agreement, or any other contract or agreement, or any restrictive covenant
relating to the right of any such employee to be employed thereby, or to use
trade secrets or proprietary information of others, and the employment of such
employees does not subject ▇▇▇▇▇▇ to any liability.
2.15.6 ▇▇▇▇▇▇ is not a party to any (a) agreement with
any executive officer or other key employee thereof (i) the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving ▇▇▇▇▇▇ in the nature of any of the
transactions contemplated by this Agreement and the Agreement of Merger, (ii)
providing any term of employment or compensation guarantee, or (iii) providing
severance benefits or other benefits after the termination of employment of
such employee regardless of the reason for such termination of employment, or
(b) agreement or plan, any of the benefits of which will be materially
increased, or the vesting of benefits of which will be materially accelerated,
by the occurrence of any of the transactions contemplated by this Agreement and
the Agreement of Merger 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 and the Agreement of Merger.
2.16 CORPORATE DOCUMENTS. ▇▇▇▇▇▇ has made available to
Worldtalk for examination all documents and information listed in the ▇▇▇▇▇▇
Schedule of Exceptions or other Exhibits called for by this Agreement or which
has been requested by Worldtalk's legal counsel, including, without limitation,
the following: (a) copies of ▇▇▇▇▇▇'▇ and its predecessor's Certificate of
Incorporation and Bylaws as currently in effect; (b) its and its predecessor's
Minute Book containing all records of all proceedings, consents, actions, and
meetings of the shareholders, the board of directors and any committees
thereof; (c) its and its predecessor's stock ledger, journal and other records
reflecting all stock issuances and transfers; and (d) all permits, orders, and
consents issued by any regulatory agency with respect to ▇▇▇▇▇▇, or any
security of ▇▇▇▇▇▇ and its predecessor, and all applications for any such
permits, orders and consents.
2.17 NO BROKERS. Neither ▇▇▇▇▇▇ nor any of the ▇▇▇▇▇▇
Shareholders is obligated for the payment of fees or expenses of any investment
banker, broker or finder in connection with the origin, negotiation or
execution of this Agreement or the Agreement of Merger or in connection with
any transaction contemplated hereby or thereby.
2.18 MATERIAL AGREEMENTS. All oral or written material
agreements and commitments to which ▇▇▇▇▇▇ is a party or subject to are listed
on Exhibit 2.0 hereto including, but not limited to any:
(a) Contract providing for payments by or to ▇▇▇▇▇▇
in an aggregate amount of $25,000 or more;
(b) License agreement as licensor or licensee
(except for standard non-exclusive hardware and software licenses granted
to end-user customers in the ordinary course of business the form of which
has been provided to Worldtalk's counsel);
(c) Material agreement for the lease of real or
personal property;
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14
(d) Joint venture contract or arrangement or any
other agreement that involves a sharing of profits with other persons;
(e) Instrument evidencing or related in any way to
indebtedness for borrowed money by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, guarantee, or
otherwise, except for trade indebtedness incurred in the ordinary course
of business, and except as disclosed in the Financial Statements; or
(f) Contract containing covenants purporting to
limit ▇▇▇▇▇▇'▇ freedom to compete in any line of business in any
geographic area.
All agreements, contracts, plans, leases, instruments, arrangements, licenses
and commitments listed in Exhibit 2.0 are valid and in full force and effect.
▇▇▇▇▇▇ is not, nor, to the knowledge of ▇▇▇▇▇▇, is any other party thereto, in
breach or default in any material respect under the terms of any such
agreement, contract, plan, lease, instrument, arrangement, license or
commitment, which breach or default may reasonably be expected to have a
material adverse effect on ▇▇▇▇▇▇.
2.19 BOOKS AND RECORDS. The books, records and accounts of
▇▇▇▇▇▇ (a) are in all material respects true, complete and correct, (b) have
been maintained in accordance with good business practices on a basis
consistent with prior years, (c) are stated in reasonable detail and accurately
and fairly reflect the transactions and dispositions of the assets of ▇▇▇▇▇▇,
and (d) accurately and fairly reflect the basis for the Financial Statements.
2.20 ENVIRONMENTAL MATTERS.
2.20.1 During the period that ▇▇▇▇▇▇ has leased or
owned its properties or owned or operated any facilities, there have been no
disposals, releases or threatened releases of Hazardous Materials (as defined
below) on, from or under such properties or facilities. ▇▇▇▇▇▇ has no
knowledge of any presence, disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such properties or facilities,
which may have occurred prior to ▇▇▇▇▇▇ having taken possession of any of such
properties or facilities. For the purposes of this Agreement, the terms
"disposal," "release," and "threatened release" shall have the definitions
assigned thereto by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA").
For the purposes of this Agreement "Hazardous Materials" shall mean any
hazardous or toxic substance, material or waste which is or becomes prior to
the Closing regulated under, or defined as a "hazardous substance,"
"pollutant," "contaminant," "toxic chemical," "hazardous materials," "toxic
substance" or "hazardous chemical" under (1) CERCLA; (2) any similar federal,
state or local law; or (3) regulations promulgated under any of the above laws
or statutes.
2.20.2 None of the properties or facilities of
▇▇▇▇▇▇ is in violation of any federal, state or local law, ordinance,
regulation or order relating to industrial hygiene or to the environmental
conditions on, under or about such properties or facilities, including, but not
limited to, soil and ground water condition. During the time that ▇▇▇▇▇▇ has
owned or leased its properties and facilities, ▇▇▇▇▇▇ has not, nor, to ▇▇▇▇▇▇'▇
knowledge, any third party, used,
- 13 -
15
generated, manufactured or stored on, under or about such properties or
facilities or transported to or from such properties or facilities any
Hazardous Materials.
2.21 INTERESTED PARTY TRANSACTIONS. No officer or director
of ▇▇▇▇▇▇ or any "affiliate" or "associate" (as those terms are defined in Rule
405 promulgated under the ▇▇▇▇ ▇▇▇) of any such person has had, either
directory or indirectly, a material interest in: (a) any person or entity
which purchases from or sells, licenses or furnishes to ▇▇▇▇▇▇ any goods,
property, technology or intellectual or other property rights or services; or
(b) any contract or agreement to which ▇▇▇▇▇▇ is a party or by which it may be
bound or affected.
2.22 INVESTMENT REPRESENTATIONS.
2.22.1 Purchase for Own Account for Investment. Each
▇▇▇▇▇▇ Shareholder is acquiring the Worldtalk Common Stock for such ▇▇▇▇▇▇
Shareholder's own account for investment purposes only and not with a view to,
or for sale in connection with, a distribution of the Worldtalk Common Stock
within the meaning of the 1933 Act. Each ▇▇▇▇▇▇ Shareholder has no present
intention of selling or otherwise disposing of all or any portion of the
Worldtalk Common Stock and no one other than such ▇▇▇▇▇▇ Shareholder has any
beneficial ownership of any of the Worldtalk Common Stock.
2.22.2 Access to Information. Each ▇▇▇▇▇▇ Shareholder
has had access to all information regarding Worldtalk and its present and
prospective business, assets, liabilities and financial condition that such
▇▇▇▇▇▇ Shareholder reasonably considers important in making the decision to
purchase the Worldtalk Common Stock, and such ▇▇▇▇▇▇ Shareholder has had ample
opportunity to ask questions of Worldtalk's representatives concerning such
matters and this investment.
2.22.3 Understanding of Risks. Each ▇▇▇▇▇▇
Shareholder is fully aware of: (i) the highly speculative nature of the
investment in the Worldtalk Common Stock; (ii) the financial hazards involved;
(iii) the lack of liquidity of the Worldtalk Common Stock and the restrictions
on transferability of the Worldtalk Common Stock (e.g., that such Shareholder
may not be able to sell or dispose of the Worldtalk Common Stock or use them as
collateral for loans); (iv) the qualifications and backgrounds of the
management of Worldtalk; and (v) the tax consequences of investment in the
Worldtalk Common Stock.
2.22.4 Shareholder's Qualifications. Each ▇▇▇▇▇▇
Shareholder has a preexisting personal or business relationship with Worldtalk
and/or certain of its officers and/or directors of a nature and duration
sufficient to make such ▇▇▇▇▇▇ Shareholder aware of the character, business
acumen and general business and financial circumstances of Worldtalk and/or
such officers and directors. By reason of Each ▇▇▇▇▇▇ Shareholder's business
or financial experience, such ▇▇▇▇▇▇ Shareholder is capable of evaluating the
merits and risks of this investment, has the ability to protect such ▇▇▇▇▇▇
Shareholder's own interests in this transaction and is financially capable of
bearing a total loss of this investment.
- 14 -
16
2.22.5 No General Solicitation. At no time was any
Shareholder presented with or solicited by any publicly issued or circulated
newspaper, mail, radio, television or other form of general advertising or
solicitation in connection with the offer, sale and purchase of the Worldtalk
Common Stock.
2.22.6 Compliance with Securities Laws. Each ▇▇▇▇▇▇
Shareholder understands and acknowledges that, in reliance upon the
representations and warranties made by such ▇▇▇▇▇▇ Shareholder herein, the
Worldtalk Common Stock are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act or being qualified or registered
under any applicable state securities laws but instead are being issued under
an exemption or exemptions from the registration and qualification requirements
of the 1933 Act and applicable state securities laws which impose certain
restrictions on Shareholder's ability to transfer the Worldtalk Common Stock.
2.22.7 Restrictions on Transfer. Each ▇▇▇▇▇▇
Shareholder understands that such ▇▇▇▇▇▇ Shareholder may not transfer any
Worldtalk Common Stock unless such Worldtalk Common Stock are registered under
the 1933 Act and qualified or registered under applicable state securities laws
or unless, in the opinion of counsel to Worldtalk, exemptions from such
registration and qualification requirements are available. Each ▇▇▇▇▇▇
Shareholder understands that only Worldtalk may file a registration statement
with the SEC or applicable state securities authorities and that Worldtalk is
under no obligation to do so with respect to the Worldtalk Common Stock, except
as set forth in the Shareholders' Agreement and that certain Second Amendment
to the Third Amended and Restated Registration Rights Agreement dated as of
November 8, 1996. Each ▇▇▇▇▇▇ Shareholder has also been advised that
exemptions from registration and qualification may not be available or may not
permit such ▇▇▇▇▇▇ Shareholder to transfer all or any of the Worldtalk Common
Stock in the amounts or at the times proposed by such ▇▇▇▇▇▇ Shareholder. Each
▇▇▇▇▇▇ Shareholder further acknowledges that transfer of the Worldtalk Common
Stock is subject to the restrictions imposed under the Shareholders' Agreement.
2.22.8 Rules 144 and 145. In addition, Shareholder
has been advised that SEC Rule 144 promulgated under the 1933 Act, which
permits certain limited sales of unregistered securities, is not presently
available with respect to the Worldtalk Common Stock by virtue of Rule 145 and,
in any event, requires that the Worldtalk Common Stock be held for a minimum of
two years, and in certain cases three years, after they have been purchased and
paid for (within the meaning of Rule 144), before they may be resold under Rule
145 and Rule 144. Shareholder understands that Rule 145 and Rule 144 may
indefinitely restrict transfer of the Worldtalk Common Stock if Shareholder
remains an "affiliate" of Worldtalk and "current public information" about
Worldtalk (as defined in Rule 144) is not publicly available.
2.22.9 Legends and Stop-Transfer Orders. Each ▇▇▇▇▇▇
Shareholder understands that certificates or other instruments representing any
of the Worldtalk Common Stock acquired by such Shareholder will bear legends
substantially similar to the following, in addition to any other legends
required by federal or state laws:
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17
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER
OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON RESALE AND
TRANSFER AS SET FORTH IN THAT CERTAIN SHAREHOLDERS' AGREEMENT DATED AS OF
NOVEMBER 9, 1996 BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF SUCH SECURITIES
AND THAT CERTAIN THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, AS
AMENDED, BETWEEN THE ISSUER AND CERTAIN OF ITS SECURITYHOLDERS, COPIES OF WHICH
MAY BE OBTAINED AT NO CHARGE FROM THE ISSUER AT ITS PRINCIPAL EXECUTIVE
OFFICES.
The undersigned agrees that, in order to ensure and enforce compliance with the
restrictions imposed by applicable law and those referred to in the foregoing
legends, or elsewhere herein, Worldtalk may issue appropriate "stop transfer"
instructions to its transfer agent, if any, with respect to any certificate or
other instrument representing Worldtalk Common Stock, or if Worldtalk transfers
its own securities, that it may make appropriate notations to the same effect
in Worldtalk's records.
2.23 DISCLOSURE. Neither this Agreement, its exhibits, nor
any of the certificates or documents to be delivered by ▇▇▇▇▇▇ to Worldtalk
under this Agreement, taken together, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make
the statements contained herein and therein, in light of the circumstances
under which such statements were made, not misleading.
3. REPRESENTATIONS AND WARRANTIES OF WORLDTALK. Worldtalk hereby
represents and warrants, except as set forth on the Worldtalk Schedule of
Exceptions delivered to ▇▇▇▇▇▇ as Exhibit 3.0 as follows.
3.1 ORGANIZATION AND GOOD STANDING. Worldtalk is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now conducted.
3.2 POWER, AUTHORIZATION AND VALIDITY.
3.2.1 Worldtalk has the right, power, legal capacity
and authority to enter into and perform its obligations under this Agreement,
and all agreements to which Worldtalk is or will be a party that are required
to be executed pursuant to this Agreement (the
- 16 -
18
"Worldtalk Ancillary Agreements"). The execution, delivery and performance of
this Agreement and the Worldtalk Ancillary Agreements have been duly and
validly approved and authorized by Worldtalk's Board of Directors.
3.2.2 No filing, authorization or approval,
governmental or otherwise, is necessary to enable Worldtalk to enter into, and
to perform its obligations under, this Agreement and the Worldtalk Ancillary
Agreements, except for (a) the filing of the Agreement of Merger with the
Washington Secretary of State, and (b) such filings as may be required to
comply with federal and state securities laws.
3.2.3 This Agreement and the Worldtalk Ancillary
Agreements are, or when executed by Worldtalk will be, valid and binding
obligations of Worldtalk enforceable in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally, (b) rules of law governing
specific performance, injunctive relief and other equitable remedies and (c)
the enforceability of provisions requiring indemnification in connection with
the offering, issuance or sale of securities; provided, however, that the
Agreement of Merger will not be effective until filed with the Washington
Secretary of State.
3.3 NO VIOLATION OF EXISTING AGREEMENTS. Neither the
execution and delivery of this Agreement nor any Worldtalk Ancillary Agreement,
nor the consummation of the transactions contemplated hereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of (a) any provision of the
Certificate of Incorporation or Bylaws of Worldtalk, as currently in effect,
(b) in any material respect, any material instrument or contract to which
Worldtalk is a party or by which Worldtalk is bound, or (c) any federal, state,
local or foreign judgment, writ, decree, order, statute, rule or regulation
applicable to Worldtalk or its assets or properties. The consummation of the
Merger on the part of Worldtalk will not require the consent of any third
party.
3.4 DISCLOSURE. Worldtalk has made available to ▇▇▇▇▇▇ an
investor disclosure package consisting of Worldtalk's Registration Statement on
Forms S-1, and all Forms 10-Q filed by Worldtalk with the SEC since the
effective date of such Registration Statement and up to the date of this
Agreement and to be filed with respect to the period ended September 30, 1996
(the "Worldtalk Disclosure Package"). The Worldtalk Disclosure Package, this
Agreement, the exhibits and schedules hereto, and any certificates or documents
to be delivered to ▇▇▇▇▇▇ pursuant to this Agreement, when taken together, do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which such statements were made,
not misleading.
3.5 ABSENCE OF CERTAIN CHANGES. Since the date of the
financial statements included in the Form 10-Q filed with the SEC for the
period ended June 30, ▇▇▇▇, (▇▇▇ "▇▇▇▇▇▇▇ ▇▇▇") and except as disclosed in the
Worldtalk Disclosure Package, there has not been any change in the financial
condition, properties, assets, liabilities, business or operations of World-
- 17 -
19
talk which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has had or will have
a material adverse effect thereon.
3.6 NO BROKERS. Worldtalk is not obligated for the payment
of fees or expenses of any investment banker, broker or finder in connection
with the origin, negotiation or execution of this Agreement or the Agreement of
Merger or in connection with any transaction contemplated hereby or thereby.
4. ▇▇▇▇▇▇ PRECLOSING COVENANTS. During the period from the date of
this Agreement until the Effective Time, ▇▇▇▇▇▇ covenants and agrees as
follows:
4.1 ADVICE OF CHANGES. ▇▇▇▇▇▇ will promptly advise
Worldtalk in writing (a) of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty of ▇▇▇▇▇▇ contained
in this Agreement, if made on or as of the date of such event or at the
Closing, untrue or inaccurate in any material respect and (b) of any material
adverse change in ▇▇▇▇▇▇'▇ business, results of operations or financial
condition.
4.2 MAINTENANCE OF BUSINESS. ▇▇▇▇▇▇ will use its best
efforts to carry on and preserve its business and its relationships with
customers, suppliers, employees and others in substantially the same manner as
it has prior to the date hereof. If ▇▇▇▇▇▇ becomes aware of a material
deterioration in the relationship with any customer, supplier or key employee,
it will promptly bring such information to the attention of Worldtalk in
writing and, if requested by Worldtalk, will exert its best efforts to restore
the relationship.
4.3 CONDUCT OF BUSINESS. ▇▇▇▇▇▇ will continue to conduct
its business and maintain its business relationships in the ordinary and usual
course and will not, without the prior written consent of the President of
Worldtalk:
(a) borrow any money;
(b) enter into any transaction not in the ordinary
course of business;
(c) encumber or permit to be encumbered any of its
assets except in the ordinary course of its business consistent with past
practice and to an extent which is not material;
(d) dispose of any of its assets except in the
ordinary course of business consistent with past practice and to an extent
that is not material;
(e) enter into any material lease or contract for
the purchase or sale of any property, real or personal, except in the
ordinary course of business consistent with past practice;
(f) fail to maintain its equipment and other assets
in good working condition and repair according to the standards it has
maintained to the date of this Agreement, subject only to ordinary wear
and tear;
(g) pay any bonus, increased salary or special
remuneration to any officer, employee or consultant (except for normal
salary increases consistent with past prac-
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20
tices not to exceed 5% per year and except pursuant to existing
arrangements previously disclosed to and approved in writing by Worldtalk)
or enter into any new employment or consulting agreement with any such
person;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock
dividend or other distribution in respect of capital stock, or redeem or
otherwise acquire any of its capital stock except through a contribution
of stock to ▇▇▇▇▇▇ in cancellation thereof resulting in the percentage
ownership set forth in Section 1.1 hereof;
(j) amend or terminate any contract, agreement or
license to which it is a party except those amended or terminated in the
ordinary course of business, consistent with past practice, and which are
not material in amount or effect;
(k) lend any amount to any person or entity, other
than advances for travel and expenses which are incurred in the ordinary
course of business consistent with past practice, not material in amount
and documented by receipts for the claimed amounts;
(l) guarantee or act as a surety for any obligation
except for the endorsement of checks and other negotiable instruments in
the ordinary course of business, consistent with past practice, which are
not material in amount or effect;
(m) waive or release any material right or claim;
(n) issue or sell any shares of its capital stock of
any class, or any other of its securities, or issue or create any
warrants, obligations, subscriptions, options, convertible securities, or
other commitments to issue shares of capital stock or accelerate the
vesting of any outstanding security;
(o) split or combine the outstanding shares of its
capital stock of any class or enter into any recapitalization affecting
the number of outstanding shares of its capital stock of any class or
affecting any other of its securities;
(p) merge, consolidate or reorganize with, or
acquire any entity;
(q) amend its Certificate of Incorporation or
Bylaws;
(r) license any of its technology or intellectual
property except in the ordinary course of business consistent with past
practice;
(s) agree to any audit assessment by any tax
authority or file any federal or state income or franchise tax return
unless copies of such returns have been delivered to Worldtalk for its
review prior to filing; or
(t) agree to do, or permit any Subsidiary to do or
agree to do, any of the things described in the preceding clauses 4.3(a)
through 4.3(s).
4.4 REGULATORY APPROVALS. ▇▇▇▇▇▇ will execute and file, or
join in the execution and filing of, any application or other document that may
be necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign which may be reasonably
required, or which Worldtalk may reasonably request, in connection
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21
with the consummation of the transactions contemplated by this Agreement.
▇▇▇▇▇▇ will use its best efforts to obtain all such authorizations, approvals
and consents.
4.5 NECESSARY CONSENTS. ▇▇▇▇▇▇ will use its best efforts
to obtain such written consents and take such other actions as may be necessary
or appropriate in addition to those set forth in Section 4.4 to allow the
consummation of the transactions contemplated hereby and to allow Worldtalk to
carry on ▇▇▇▇▇▇'▇ business after the Closing.
4.6 LITIGATION. ▇▇▇▇▇▇ will notify Worldtalk in writing
promptly after learning of any material action, suit, proceeding or
investigation by or before any court, board or governmental agency, initiated
by or against it, or known by it to be threatened against it.
4.7 NO OTHER NEGOTIATIONS. From the date hereof until the
earlier of termination of this Agreement or consummation of the Merger, ▇▇▇▇▇▇
will not, and will not authorize or permit any officer, director, employee or
affiliate of ▇▇▇▇▇▇, or any other person, on its behalf, directly or
indirectly, to solicit or encourage any offer from any party or, consider any
inquiries or proposals received from any other party, participate in any
negotiations regarding, or furnish to any person any information with respect
to, or otherwise cooperate with, facilitate or encourage any effort or attempt
by any person (other than Worldtalk), concerning the possible disposition of
all or any substantial portion of ▇▇▇▇▇▇'▇ business, assets or capital stock by
merger, sale or any other means. ▇▇▇▇▇▇ will promptly notify Worldtalk orally
and in writing of any such inquiries or proposals.
4.8 ACCESS TO INFORMATION. Until the Closing, ▇▇▇▇▇▇ will
allow Worldtalk and its agents reasonable access the files, books, records and
offices of ▇▇▇▇▇▇, including, without limitation, any and all information
relating to ▇▇▇▇▇▇'▇ taxes, commitments, contracts, leases, licenses, real,
personal and intangible property and financial condition. ▇▇▇▇▇▇ will cause
its accountants to cooperate with Worldtalk and its agents in making available
all financial information reasonably requested, including without limitation
the right to examine all working papers pertaining to all financial statements
prepared or audited by such accountants.
4.9 SATISFACTION OF CONDITIONS PRECEDENT. ▇▇▇▇▇▇ will use
its best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 8, and ▇▇▇▇▇▇ will use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
4.11 SHAREHOLDER AND EMPLOYMENT AGREEMENTS. ▇▇▇▇▇▇ shall
obtain from each of the ▇▇▇▇▇▇ Shareholders an agreement, in form substantially
as attached hereto as Exhibit 4.11A (the "Shareholders' Agreement"). ▇▇▇▇▇▇
shall also obtain from each of the ▇▇▇▇▇▇ Shareholders Employment Agreements in
substantially the form attached hereto as Exhibit 4.11B (the "Employment
Agreements").
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22
4.12 BLUE SKY LAWS. ▇▇▇▇▇▇ shall use its best efforts to
assist Worldtalk to the extent necessary to comply with the securities and Blue
Sky laws of all jurisdictions which are applicable in connection with the
Merger.
5. WORLDTALK PRECLOSING COVENANTS. During the period from the date
of this Agreement until the Effective Time, Worldtalk covenants and agrees as
follows:
5.1 ADVICE OF CHANGES. Worldtalk will promptly advise
▇▇▇▇▇▇ in writing (a) of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty of Worldtalk
contained in this Agreement, if made on or as of the date of such event or at
the Closing, untrue or inaccurate in any material respect and (b) of any
material adverse change in Worldtalk's business, results of operations or
financial condition.
5.2 REGULATORY APPROVALS. Worldtalk will execute and file,
or join in the execution and filing of, any application or other document that
may be necessary in order to obtain the authorization, approval or consent of
any governmental body, federal, state, local or foreign, which may be
reasonably required, or which ▇▇▇▇▇▇ may reasonably request, in connection with
the consummation of the transactions contemplated by this Agreement. Worldtalk
will use its best efforts to obtain all such authorizations, approvals and
consents.
5.3 SATISFACTION OF CONDITIONS PRECEDENT. Worldtalk will
use its best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 7, and Worldtalk will use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
5.4 BLUE SKY LAWS. Worldtalk shall take such steps as
may be necessary to comply with the securities and Blue Sky laws of all
jurisdictions which are applicable in connection with the Merger.
6. CLOSING MATTERS.
6.1 THE CLOSING. Subject to termination of this Agreement
as provided in Section 9 below, the closing will take place at the offices of
Fenwick & West LLP, Two ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00
a.m., Pacific Standard Time on November 12, 1996, or, if all conditions to
closing have not been satisfied or waived by such date, such other place, time
and date as ▇▇▇▇▇▇ and Worldtalk may mutually select (the "Closing").
Concurrently with the Closing, the Agreement of Merger will be filed in the
office of the Washington Secretary of State. The Merger shall become effective
upon such filing.
6.2 EXCHANGE OF CERTIFICATES.
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23
6.2.1 As of the Effective Time, all shares of ▇▇▇▇▇▇
Stock that are outstanding immediately prior thereto will, by virtue of the
Merger and without further action, cease to exist and will be converted,
subject to Section 1.2, into the right to receive from Worldtalk the number of
shares of Worldtalk Common Stock and cash determined as set forth in Section
1.1.
6.2.2 As soon as practicable after the Effective Time,
each holder of shares of ▇▇▇▇▇▇ Stock will surrender the certificate(s) for
such shares (the "▇▇▇▇▇▇ Certificates"), duly endorsed as requested by
Worldtalk, to Worldtalk for cancellation. Promptly after the Effective Time
and receipt of such ▇▇▇▇▇▇ Certificates, Worldtalk will issue to each tendering
holder a certificate for the number of shares of Worldtalk Common Stock to
which such holder is entitled pursuant to Section 1.1 hereof, less the shares
of Worldtalk Common Stock deposited into escrow pursuant to Section 1.3 hereof,
and distribute any cash payable under Section 1.2.
6.2.3 No dividends or distributions payable to holders
of record of Worldtalk Common Stock after the Effective Time, or cash payable
in lieu of fractional shares or otherwise, will be paid to the holder of any
unsurrendered ▇▇▇▇▇▇ Certificate(s) until the holder of the ▇▇▇▇▇▇
Certificate(s) surrenders such ▇▇▇▇▇▇ Certificate(s). Subject to the effect,
if any, of applicable escheat and other laws, following surrender of any ▇▇▇▇▇▇
Certificate, there will be delivered to the person entitled thereto, without
interest, the amount of any dividends and distributions therefor paid with
respect to Worldtalk Common Stock so withheld as of any date subsequent to the
Effective Time and prior to such date of delivery.
6.2.4 All Worldtalk Common Stock and cash delivered
upon the surrender of ▇▇▇▇▇▇ Stock in accordance with the terms hereof will be
deemed to have been delivered in full satisfaction of all rights pertaining to
such ▇▇▇▇▇▇ Stock. There will be no further registration of transfers on the
stock transfer books of ▇▇▇▇▇▇ or its transfer agent of the ▇▇▇▇▇▇ Stock. If,
after the Effective Time, ▇▇▇▇▇▇ Certificates are presented for any reason,
they will be canceled and exchanged as provided in this Section 6.2.
6.2.5 Until certificates representing ▇▇▇▇▇▇ Stock
outstanding prior to the Merger are surrendered pursuant to Section 6.2.2
above, such certificates will be deemed, for all purposes, to evidence
ownership of the number of shares of Worldtalk Stock into which the ▇▇▇▇▇▇
Stock will have been converted, reduced by the number of shares withheld as
Escrow Shares.
6.2.6 The Cash Payment will be made as specified in
Section 1.1.3 above.
7. CONDITIONS TO OBLIGATIONS OF ▇▇▇▇▇▇. ▇▇▇▇▇▇'▇ obligations
hereunder are subject to the fulfillment or satisfaction, on and as of the
Closing, of each of the following conditions (any one or more of which may be
waived by ▇▇▇▇▇▇, but only in a writing signed by ▇▇▇▇▇▇):
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Worldtalk set forth in Section 3 shall be
true and accurate in every material respect on and as of the Closing with the
same force and effect as if they had been made at the Closing, Worldtalk shall
have performed and complied in all material respects with all of its covenants
- 22 -
24
contained in Section 5 on or before the Closing and ▇▇▇▇▇▇ shall receive a
certificate to such effect executed by Worldtalk's President and Chief
Financial Officer.
7.2 ABSENCE OF MATERIAL ADVERSE CHANGE. There shall not
have been, in the reasonable judgment of the Board of Directors of ▇▇▇▇▇▇, any
material adverse change in the business or financial condition of Worldtalk;
provided, however, that a decline in revenues or profitability due to customer
cancellation or delays in orders or delays in accepting orders or failure to
place orders which are attributable to the public announcement or consummation
of the Merger shall not be deemed to be a material adverse change.
7.3 COMPLIANCE WITH LAW. There shall be no order, decree
or ruling by any court or governmental agency, or threat thereof, or any other
fact or circumstance that would prohibit or render illegal the transactions
contemplated by this Agreement.
7.4 EMPLOYMENT AND SHAREHOLDER AGREEMENTS. Worldtalk shall
have entered into the Employment Agreements and the Shareholder Agreement.
7.5 DOCUMENTS. ▇▇▇▇▇▇ shall have received all written
consents, assignments, waivers, authorizations or other certificates reasonably
deemed necessary by ▇▇▇▇▇▇'▇ legal counsel for ▇▇▇▇▇▇ to consummate the
transactions contemplated hereby.
7.6 CONSENTS. ▇▇▇▇▇▇ shall have received duly executed
copies of all material third-party consents and approvals contemplated by this
Agreement or the ▇▇▇▇▇▇ Schedule of Exceptions in form and substance reasonably
satisfactory to ▇▇▇▇▇▇, except for such consents and approvals as Worldtalk and
▇▇▇▇▇▇ shall have agreed shall not be obtained, as contemplated by the ▇▇▇▇▇▇
Schedule of Exceptions.
7.7 NO LITIGATION. No litigation or proceeding shall be
threatened or pending for the purpose or with the probable effect of enjoining
or preventing the consummation of any of the transactions contemplated by this
Agreement, or which could be reasonably expected to have a material adverse
effect on the present or future operations or financial condition of Worldtalk.
8. CONDITIONS TO OBLIGATIONS OF WORLDTALK. The obligations of
Worldtalk hereunder are subject to the fulfillment or satisfaction, on and as
of the Closing, of each of the following conditions (any one or more of which
may be waived by Worldtalk, but only in a writing signed by Worldtalk):
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of ▇▇▇▇▇▇ set forth in Section 2 shall be true
and accurate in every material respect on and as of the Closing with the same
force and effect as if they had been made at the Closing, ▇▇▇▇▇▇ shall have
performed and complied in all material respects with all of its covenants
contained in Section 4 on or before the Closing and Worldtalk shall receive a
certificate to such effect executed by ▇▇▇▇▇▇'▇ President and Chief Financial
Officer.
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25
8.2 ABSENCE OF MATERIAL ADVERSE CHANGE. There shall not
have been, in the reasonable judgment of the Board of Directors of Worldtalk,
any material adverse change in the business or financial condition of ▇▇▇▇▇▇.
8.3 COMPLIANCE WITH LAW. There shall be no order, decree
or ruling by any court or governmental agency, or threat thereof, or any other
fact or circumstance, that would prohibit or render illegal the transactions
contemplated by this Agreement.
8.4 OPINION OF ▇▇▇▇▇▇'▇ COUNSEL. Worldtalk shall have
received from counsel to ▇▇▇▇▇▇, an opinion substantially in the form of
Exhibit 8.4.
8.5 CONSENTS. Worldtalk shall have received duly executed
copies of all material third-party consents, approvals, assignments, waivers,
authorizations or other certificates contemplated by this Agreement or the
Worldtalk Schedule of Exceptions or reasonably deemed necessary by Worldtalk's
legal counsel to provide for the continuation in full force and effect of any
and all material contracts and leases of ▇▇▇▇▇▇ and for Worldtalk to consummate
the transactions contemplated hereby in form and substance reasonably
satisfactory to Worldtalk, except for such thereof as Worldtalk and ▇▇▇▇▇▇
shall have agreed shall not be obtained, as contemplated by the Worldtalk
Schedule of Exceptions.
8.6 CONSENTS OF WORLDTALK BOARD AND REGISTRATION RIGHTS
HOLDERS. Worldtalk shall have received the approval of its Board of Directors
to this Agreement and the transactions contemplated hereby, as well as the
agreement of the current holders of registration rights to waive such rights,
if any, to participate in the S-3 registration rights to be granted to the
▇▇▇▇▇▇ Shareholders and to include the ▇▇▇▇▇▇ Shareholders in the piggyback
registration rights currently applicable to shares of Worldtalk's Common Stock.
8.7 NO LITIGATION. No litigation or proceeding shall be
threatened or pending for the purpose or with the probable effect of enjoining
or preventing the consummation of any of the transactions contemplated by this
Agreement, or which could be reasonably expected to have a material adverse
effect on the present or future operations or financial condition of ▇▇▇▇▇▇.
8.8 ESCROW. Worldtalk shall have received an Escrow
Agreement, in substantially the form of Exhibit 1.4, executed by ▇▇▇▇▇▇, ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇, III, as the Representative for all ▇▇▇▇▇▇ Shareholders and ▇▇▇▇▇▇
Trust and Savings Bank as the Escrow Agent, providing for the escrow of the
Escrow Shares on the terms and conditions of the Escrow Agreement.
8.9 SHAREHOLDER AND EMPLOYMENT AGREEMENTS. Worldtalk shall
have received copies of the Shareholder Agreement and the Employment Agreements
executed by the ▇▇▇▇▇▇ Shareholders, and any other employment agreements
applicable to the ▇▇▇▇▇▇ Shareholders shall have been terminated.
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26
8.10 SATISFACTORY FORM OF LEGAL AND ACCOUNTING MATTERS.
The form, scope and substance of all legal and accounting matters contemplated
hereby and all closing documents and other papers delivered hereunder shall be
acceptable to Worldtalk's counsel.
9. TERMINATION OF AGREEMENT.
9.1 PRIOR TO CLOSING. This Agreement may be terminated at
any time prior to the Closing by the mutual written consent of each of the
parties hereto. Unless otherwise agreed by the parties hereto, this Agreement
will be terminated if all conditions to the Closing have not been satisfied or
waived on or before January 31, 1997.
9.2 AT THE CLOSING. At the Closing, this Agreement may
be terminated and abandoned: (a) by Worldtalk if any of the conditions
precedent to Worldtalk's obligations set forth in Section 8 above have not been
fulfilled or waived at and as of the Closing; or (b) by ▇▇▇▇▇▇ if any of the
conditions precedent to ▇▇▇▇▇▇'▇ obligations set forth in Section 7 above have
not been fulfilled or waived at and as of the Closing. Any termination of this
Agreement under this Section 9.2 will be effective by the delivery of notice of
the terminating party to the other party hereto.
9.3 NO LIABILITY. Any termination of this Agreement
pursuant to this Section 9 will be without further obligation or liability upon
any party in favor of the other party hereto other than the obligations
provided in Sections 10.2 and 11.16 which will survive termination of this
Agreement; provided, however, that nothing herein will limit the obligation of
▇▇▇▇▇▇ and Worldtalk to use their best efforts to cause the Merger to be
consummated, as set forth in Sections 4.11 and 5.3 hereof, respectively.
10. SURVIVAL, INDEMNIFICATION, REMEDIES; CONTINUING COVENANTS.
10.1 SURVIVAL OF REPRESENTATIONS. All representations,
warranties and covenants of Worldtalk contained in this Agreement will remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the parties to this Agreement, until the earlier of the
termination of this Agreement or one (1) year after the Closing Date, whereupon
such representations, warranties and covenants will expire (except for
covenants that by their terms survive for a longer period). Unless otherwise
specified herein, all representations, warranties and covenants of ▇▇▇▇▇▇ and
the ▇▇▇▇▇▇ Shareholders will survive the Effective Time and will continue until
the expiration of the period set forth above and covenants that by their terms
survive thereafter will continue to survive in accordance with their terms.
10.2 AGREEMENT TO INDEMNIFY. Subject to the limitations
set forth in this Section 10, the ▇▇▇▇▇▇ Shareholders, jointly and severally,
hereby indemnify and hold harmless Worldtalk and its officers, directors,
agents and employees, and each person, if any, who controls or may control
Worldtalk within the meaning of the 1933 Act (hereinafter referred to
individually as an "Indemnified Person" and collectively as "Indemnified
Persons") from and against any and all claims, demands, actions, causes of
actions, losses, costs, damages, liabilities and expenses including, without
limitation, reasonable legal fees (hereinafter referred to as "Damages")
arising
- 25 -
27
out of any untruth, misrepresentation or breach of, or default in connection
with, any of the representations, warranties and covenants given or made by
▇▇▇▇▇▇ in this Agreement or any certificate, document or instrument delivered
by or on behalf of ▇▇▇▇▇▇ pursuant hereto.
10.2.1 Except as provided for in Section 11.8 below,
the indemnification provided for in this Section 10.2 shall not apply unless
the aggregate Damages for which one or more Indemnified Persons seeks
indemnification exceeds $100,000 (the "Basket"). The escrow provided for in
Exhibit 8.10 hereto is not exclusive but shall be in addition to any other
rights or remedies available to any Indemnified Person.
10.2.2 In seeking indemnification for Damages under
this Section, the Indemnified Persons shall exercise their remedies with
respect to the Escrow Shares and any other assets deposited in escrow pursuant
to the Escrow Agreement prior to proceeding against any ▇▇▇▇▇▇ Shareholder;
provided, however, that no such claim for Damages will be asserted after the
expiration of one (1) year after the Closing Date. Except for fraud, each
▇▇▇▇▇▇ Shareholder's liability under this Agreement shall be limited to the
value as of the Closing of the Worldtalk Common Stock and cash received by such
shareholder, including, without limitation, the value of the Worldtalk Common
Stock deposited in escrow on his behalf.
10.3 ARBITRATION. Any dispute arising out of or in
connection with this Agreement, the Escrow Agreement, the Shareholders'
Agreement, any Employment Agreement or any of the other documents referred to
herein (the "Merger Documents") will be resolved by binding arbitration subject
to the following rules.
10.3.1 Rules; Jurisdiction. Any such dispute shall
be settled pursuant to an arbitration in the County of Santa Clara, California
and, except as herein specifically stated, in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA Rules") then in
effect, subject to the provisions of Title 9 of the California Code of Civil
Procedure ("Title 9"). To the extent the AAA Rules conflict with, or are
supplemented by, the provisions of Title 9, the provisions of Title 9 shall
govern and be applicable. However, in all events the arbitration provisions of
this Agreement shall govern over any conflicting rules which may now or
hereafter be contained in either the AAA Rules or Title 9. Any judgment upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction of the subject matter thereof. The arbitrators shall have the
authority to grant any claim for damages (other than punitive damages) that
would be available in any judicial proceeding instituted to resolve the dispute
under the Merger Documents. The parties hereto submit to the jurisdiction of
the Superior Court of the State of California and the United States District
Court for the Northern District of California for purposes of obtaining
equitable relief confirming any award for damages and entering into judgment
thereon.
10.3.2 Compensation of Arbitrators. The
arbitrator(s) shall be compensated for his/her/their services at a rate to be
determined by the parties or by the American Arbitration Association, but based
upon reasonable hourly or daily consulting rates for the arbitrator in the
event the parties are not able to agree upon his/her/their rate of
compensation.
- 26 -
28
10.3.3 Selection of Arbitrator. The arbitration
shall be conducted before a single arbitrator if Worldtalk and the
Representative agree on a mutually acceptable arbitrator within ten business
days after the receipt by either party of a written suggestion of an arbitrator
from the other party. If Worldtalk and the Representative are unable to agree
on the arbitrator, the arbitration shall be conducted before a panel of three
arbitrators selected in the following manner: each party will deliver to the
other by that date the name of their designated arbitrator. If any party fails
to deliver the name of such designated arbitrator to the other, then the
arbitrator selected by the party that complied with the terms of this Section
10.3.3 will be the sole arbitrator of the dispute. If Worldtalk and the
Representative deliver the name of their designated arbitrator to each other as
required hereunder, such designated arbitrators will, within ten business days
after being so designated, appoint a third, mutually acceptable arbitrator.
10.3.4 Payment of Costs. Each of Worldtalk on the
one hand and the ▇▇▇▇▇▇ Shareholders on the other hand shall pay one-half (1/2)
of the compensation to be paid to the arbitrator(s) in any such arbitration and
one-half (1/2) of the costs of transcripts and other expenses of the
arbitration proceedings; provided, however, that in the event that the
arbitrator(s) finds that one party has substantially prevailed in the
arbitration, the prevailing party shall be entitled to an award of attorney's
fees and costs, arbitrator's fees and costs, and all other costs of arbitration
to be paid by the losing party.
10.3.5 Burden of Proof. For any claim submitted to
arbitration, the burden of proof shall be as it would be if the claim were
litigated in a judicial proceeding.
10.3.6 Judgment. Upon the conclusion of any
arbitration proceedings hereunder, the arbitrator(s) shall render findings of
fact and conclusions of law and a written opinion setting forth the basis and
reason for any decision reached by him or her and shall deliver such documents
to each party to this Agreement along with a signed copy of the award in
accordance with Section 1283.6 of Title 9.
10.3.7 Intentionally Left Blank.
10.3.8 Exclusive Remedy; Equitable Relief. Except
as specifically provided in this Agreement, arbitration shall be the sole and
exclusive remedy of the parties for any dispute arising out of or in connection
with this Agreement or the agreements and documents referred to in this Section
10.3 above. Notwithstanding the provisions of this Section 10.3, either party
may resort to the U.S. District Court for the Northern District of California
to seek and obtain relief through equitable remedies.
10.3.9 Attorneys' Fees. Should suit be brought in
accordance with the terms of this Agreement to enforce or interpret any part of
the Merger Documents, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including without limitation, costs, expenses and fees
on any appeal). The prevailing party will be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
- 27 -
29
11. GENERAL PROVISIONS.
11.1 GOVERNING LAW. The internal laws of the State of
California (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties hereto.
11.2 ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS.
Neither party hereto may assign any of its rights or obligations hereunder
without the prior written consent of the other party hereto. This Agreement
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
11.3 SEVERABILITY. If any provision of this Agreement, or
the application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such 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 the void or unenforceable provision.
11.4 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which will be an original as regards any party
whose signature appears thereon and all of which together will constitute one
and the same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures
of all parties reflected hereon as signatories.
11.5 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 on such party, and the exercise of any one remedy will not preclude the
exercise of any other.
11.6 AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a writing signed by the party to be
bound thereby. The waiver by a party of any breach hereof or default in the
performance hereof will not be deemed to constitute a waiver of any other
default or any succeeding breach or default. The Agreement may be amended by
the parties hereto at any time before or after approval of the ▇▇▇▇▇▇
Shareholders, but, after such approval, no amendment will be made which by
applicable law requires the further approval of the ▇▇▇▇▇▇ Shareholders without
obtaining such further approval.
11.7 NO WAIVER. The failure of any party to enforce any
of the provisions hereof will not be construed to be a waiver of the right of
such party thereafter to enforce such provisions.
- 28 -
30
11.8 EXPENSES. Each party will bear its respective
expenses and legal fees incurred with respect to this Agreement and the
transactions contemplated hereby; provided, however, that if the Merger is
consummated, ▇▇▇▇▇▇ may pay promptly the reasonable legal and accounting fees
and expenses incurred by ▇▇▇▇▇▇ in this transaction, not to exceed in the
aggregate $38,000. Any such fees and expenses of ▇▇▇▇▇▇ in excess of that
amount shall be recoverable by Worldtalk on ▇▇▇▇▇▇'▇ behalf from the Escrow
Shares in accordance with Section 10.2 and without regard to the Basket.
11.9 NOTICES. Any notice or other communication required
or permitted to be given under this Agreement will be in writing, will be
delivered personally or by certified mail, postage prepaid, return receipt
requested, and will be deemed given upon delivery, if delivered personally, or
three days after deposit in the mails, if mailed, to the following addresses:
If to Worldtalk and/or Newco:
Worldtalk Communications Corporation
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
If to ▇▇▇▇▇▇ and/or the ▇▇▇▇▇▇ Shareholders:
▇▇▇▇▇▇ Software, Inc.
▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 11.10.
11.10 CONSTRUCTION OF AGREEMENT. This Agreement has been
negotiated by the respective parties hereto and their attorneys and the
language hereof will not be construed for or against either party. A reference
to a Section or an exhibit will mean a Section in, or exhibit to, this
Agreement unless otherwise explicitly set forth. The titles and headings
herein are for reference purposes only and will not in any manner limit the
construction of this Agreement, which will be considered as a whole.
11.11 NO JOINT VENTURE. Nothing contained in this
Agreement will be deemed or construed as creating a joint venture or
partnership between any of the parties hereto. No party is by virtue of this
Agreement authorized as an agent, employee or legal representative of any other
party. No party will have the power to control the activities and operations
of any other and their status is, and at all times will continue to be, that of
independent contractors with respect to each other. No party will have any
power or authority to bind or commit any other. No party will hold itself out
as having any authority or relationship in contravention of this Section.
- 29 -
31
11.12 FURTHER ASSURANCES. Each party agrees to cooperate
fully with the other parties and to execute such further instruments, documents
and agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and
purposes of this Agreement.
11.13 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No
provisions of this Agreement are intended, nor will be interpreted, to provide
or create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, shareholder or partner of any party hereto or
any other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely among the
parties to this Agreement.
11.14 PUBLIC ANNOUNCEMENT. Upon execution of this
Agreement Worldtalk and ▇▇▇▇▇▇ will issue a press release approved by both
parties announcing the Merger. Thereafter, Worldtalk may issue such press
releases, and make such other disclosures regarding the Merger, as it
determines are required under applicable securities laws or regulatory rules.
11.15 CONFIDENTIALITY. ▇▇▇▇▇▇ and Worldtalk each recognize
that they have received and will receive confidential information concerning
the other during the course of the Merger negotiations and preparations.
Accordingly, Worldtalk and ▇▇▇▇▇▇ each agrees (a) to use its respective best
efforts to prevent the unauthorized disclosure of any confidential information
concerning the other that was or is disclosed during the course of such
negotiations and preparations, and is clearly designated in writing as
confidential at the time of disclosure, and (b) to not make use of or permit to
be used any such confidential information other than for the purpose of
effectuating the Merger and related transactions. The obligations of this
Section will not apply to the extent the receiving party can document that such
information (i) is part of the public domain, having entered the public domain
without the fault of receiving party or its officers, directors or agents, (ii)
is disclosed by the disclosing party to third parties without restrictions on
disclosure or (iii) is received by the receiving party from a third party
without breach of a nondisclosure obligation to the other party. If this
Agreement is terminated, all copies of documents containing confidential
information shall be returned by the receiving party to the disclosing party.
11.16 ENTIRE AGREEMENT. This Agreement and the exhibits
hereto constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect hereto.
The express terms hereof control and supersede any course of performance or
usage of the trade inconsistent with any of the terms hereof.
- 30 -
32
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
"WORLDTALK" "▇▇▇▇▇▇"
WORLDTALK COMMUNICATIONS ▇▇▇▇▇▇ SOFTWARE, INC. CORPORATION
BY: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ BY: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, III
------------------------------- -----------------------------
VICE PRESIDENT, FINANCE AND
OPERATIONS, CHIEF FINANCIAL
ITS: OFFICER AND SECRETARY ITS: PRESIDENT
------------------------------- -----------------------------
"▇▇▇▇▇▇ SHAREHOLDERS"
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, III
------------------------------------ ----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, III
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------ ----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
LIST OF EXHIBITS AND ATTACHMENTS
EXHIBIT NUMBER TITLE
-------------- -----------------------
A Agreement of Merger
1.3 The Escrow Agreement
2.0 ▇▇▇▇▇▇ Schedule of Exceptions
2.3 List of ▇▇▇▇▇▇ Shareholders
2.8 ▇▇▇▇▇▇ Financial Statements
3.0 Worldtalk Schedule of Exceptions
4.11A Form of Employment Agreements
4.11B The Shareholder Agreement
8.4 Opinion of ▇▇▇▇▇▇'▇ Counsel
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF NOVERMBER 9, 1996]
- 31 -
33
Exhibit 2.0: ▇▇▇▇▇▇ Schedule of Exceptions
34
Certain portions of this exhibit have been omitted based upon a
request for confidential treatment. Such nonpublic information has
been filed with the Securities and Exchange Commission.
Exhibit 2.0
SCHEDULE OF EXCEPTIONS
▇▇▇▇▇▇ SOFTWARE, INC. (THE "COMPANY")
Any disclosures made under the heading of one section of this Schedule may
apply to and/or qualify disclosures made under one or more other sections.
Unless otherwise defined, any capitalized terms in this Schedule shall have the
same meanings assigned to such terms in the Agreement and Plan of
Reorganization entered into as of November 9, 1996 by and among Worldtalk
Communications Corporation, the Company and the Company's shareholders.
Nothing in this Schedule constitutes an admission of any liability or
obligation of the Company to any third party, nor an admission against the
Company's interests.
Section 2.5 The Company has certain agreements that by their terms
[** ] The Company believes that this
transaction will not violate such provisions.
Section 2.8 Off balance sheet liabilities, except in the ordinary course
of business are an approximately $38,000 payment due to RSA
Data Security, Inc., and an approximately $4,000 payment due
to ▇▇▇▇▇▇ ▇▇▇▇▇▇, both of which are reflected in the notes
to the financial statements.
Section 2.11 1. A Software License Agreement between the Company and FTP
Software, dated as of August 22, 1996, grants FTP certain
non- exclusive rights to the Secure Messenger Toolkit.
2. An OEM Master License Agreement between the Company and
RSA Data Security, Inc., dated as of December 29, 1995 and
January 8, 1996, grants the Company a license to use BSAFE
and TIPEM.
3. An agreement between the Company and Secure
Distribution, Inc., dated as of April 25, 1996, grants
certain exclusive and non-exclusive distribution rights to
Secure Distribution. [** ]
4. Non-reimbursable Space Act Agreement between Nasa ▇▇▇▇
Research Center and ▇▇▇▇▇▇ Software for Secure E-mail
collaboration, between the Company and ▇▇▇▇ Research Center,
dated August 19, 1996.
5. An Entrust Software Evaluation Agreement between
Northern Telecom and the Company, dated as of July 29, 1996,
expires in one month.[** ]
Section 2.14 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and his wife, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, are both
signatories to, and guarantors of, the Company's Plaza 520
lease (discussed below).
Section 2.15.3 1. Employment Agreement between the Company and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, dated as of December 12, 1995.
** Confidential treatment has been requested for this portion.
35
2. Employment Agreement between the Company and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, dated as of December 12, 1995.
3. Employment Agreement between the Company and ▇▇▇▇▇
▇▇▇▇▇, Jr., dated as of December 12, 1995.
4. Employment Agreement between the Company and ▇▇▇▇▇
▇▇▇▇▇▇▇▇, dated as of December 12, 1995.
Section 2.18(a) 1. See Section 2.11.
2. Subscription Agreement between the Company and American
United Global, Inc., dated as of August 16, 1996.
Section 2.18(b) 1. Software License Agreement between the Company and FTP
Software, dated as of August 22, 1996, granting FTP certain
non- exclusive rights to the Secure Messenger Toolkit.
2. OEM Master License Agreement between the Company and RSA
Data Security, Inc., dated as of December 29, 1995 and
January 8, 1996, granting the Company a license to use BSAFE
and TIPEM.
3. Agreement between the Company and Secure Distribution,
Inc., dated as of April 25, 1996, granting certain exclusive
and non-exclusive distribution rights to Secure
Distribution. [** ]
4. Software Integration and Technology License Agreement
for SDK Software between the Company and America Online
Inc., dated as of March 11, 1996, granting the Company the
right to use certain AOL software in order to develop a
software product that interfaces with the AOL service. [**]
Section 2.18(c) Lease between ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ III and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
d.b.a. ▇▇▇▇▇▇ Software, Inc., and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, dated as
of February 10, 1996, for property located at ▇▇▇▇▇ ▇.▇.
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. Monthly rent is
$2,983.33, plus operating expenses. Mr. and ▇▇▇. ▇▇▇▇▇▇▇▇▇
are guarantors of the lease pursuant to a guaranty executed
by them on February 10, 1996.
Section 2.18(d) 1. The agreement with Secure Distribution provides for
sharing of profits. [** ]
2. The agreement with AOL provides for sharing of revenues
related to integrated products developed by the Company.
Section 2.18(e) The Company has entered Demand Promissory Notes ("Notes")
with each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Jr., and ▇▇▇▇▇
▇▇▇▇▇▇▇▇. Each of the Notes is dated as of May 9, 1996, for
$1,000.00, with interest at 8% per annum. Craswell, ▇▇▇▇▇
and ▇▇▇▇▇▇▇▇ have been informed that these Notes will be
called due in connection with the Acquisition.
** Confidential treatment has been requested for this portion.
36
Section 2.18(f) 1. The agreement with Secure Distributions contains certain
exclusive rights. [** ]
2. A Software Development and Consulting Agreement, between
the Company and Vista Development Corporation ("Vista"),
dated December 21, 1995, Vista to provide consulting and
software development to the Company contains an agreement by
the Company not to hire any officer, employee, shareholder,
consultant, independent contractor, present or former
employee, independent contractor, consultant, etc., of Vista
or Raima Corporation for two years after the Company's last
payment to Vista for services provided under this agreement.
** Confidential treatment has been requested for this portion.
37
Exhibit 2.3: List of ▇▇▇▇▇▇ Shareholders
38
EXHIBIT 2.3
▇▇▇▇▇▇ SOFTWARE, INC. SHAREHOLDERS
SHAREHOLDER NAME SHARES OF COMMON STOCK
---------------- ----------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 100,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, III 195,000
▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. 100,000
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 100,000
Total: 495,000
39
Exhibit 2.8: ▇▇▇▇▇▇ Financial Statements
40
▇▇▇▇▇▇ SOFTWARE, INC.
PROFIT AND LOSS
JANUARY 1 THROUGH MAY 8, 1996
Jan. 1 - May 8, '96
--------------------------
Ordinary Income/Expense
Income
Consulting Income 369,152.56
Reimbursed Expenses 7,014.13
-----------
Total Income 376,166.69
Expense
Bank Service Charges
Wire Fee 129.00
Bank Service Charges - Other 70.87
---------
Total Bank Service Charges 199.87
Contractor Services 126,624.98
Equipment Rental 2,320.89
Insurance
Dental Insurance 493.60
Health Insurance 3,013.56
Insurance - Other 5,316.12
---------
Total Insurance 8,823.28
Miscellaneous 19,938.12
Office Supplies 200.15
Postage and Delivery 21.00
Printing and Reproduction 530.05
Professional Fees
Public Relations 4,421.55
---------
Total Professional Fees 4,421.55
Rent 12,752.97
Telephone
Internet Access 1,600.00
Telephone - Other 2,584.67
---------
Total Telephone 4,184.67
Travel & Entertainment 7,014.13
Utilities
Gas and Electric 401.60
---------
Total Utilities 401.60
-----------
Total Expense 187,433.26
-----------
Net Ordinary Income 188,733.43
Other Income/Expense
Other Income
Interest Income 24.59
-----------
Total Other Income 24.59
-----------
Net Other Income 24.59
-----------
Net Income 188,758.02
===========
- 1 -
41
▇▇▇▇▇▇ SOFTWARE, INC.
PROFIT AND LOSS
MAY 9 THROUGH NOVEMBER 8, 1996
May 9 - Nov. 8, '96
--------------------------
Ordinary Income/Expense
Income
Consulting Income 9,835.00
Other Regular Income 150,100.00
Reimbursed Expenses 0.00
-----------
Total Income 159,935.00
Expense
Bank Service Charges
Account Setup 445.00
Bank Service Charges - Other 97.75
---------
Total Bank Service Charges 542.75
Dues and Subscriptions 312.95
Insurance
Dental Insurance 1,480.80
Health Insurance 9,040.68
Insurance - Other 5,565.00
---------
Total Insurance 16,086.48
Licenses and Permits 2,364.78
Miscellaneous 1,359.22
Office Supplies 83.93
Payroll Expenses 226,199.17
Postage and Delivery 322.13
Printing and Reproduction 246.04
Professional Fees
Accounting 2,125.00
Legal Fees 8,407.80
Public Relations 12,926.02
---------
Total Professional Fees 23,458.82
Rent 22,698.31
Taxes 3,519.06
Telephone
Internet Access 2,900.00
Telephone - Other 7,516.25
---------
Total Telephone 10,416.25
Travel & Ent
Meals 14.56
Travel & Ent - Other 7,492.96
---------
Total Travel & Ent 7,507.52
Utilities
Gas and Electric 1,008.47
---------
-----------
Total Utilities 1,008.47
-----------
Total Expense 316,125.88
-----------
Net Ordinary Income -156,190.88
-----------
Net Income -156,190.88
===========
- 2 -
42
▇▇▇▇▇▇ SOFTWARE, INC.
PROFIT AND LOSS
JANUARY 1 THROUGH NOVEMBER 8, 1996
Jan. 1 - Nov. 8, 1996
--------------------------
Ordinary Income/Expense
Income
Consulting Income 378,987.56
Other Regular Income 150,100.00
Reimbursed Expenses 7,014.13
----------
Total Income 536,101.69
Expense
Bank Service Charges
Account Setup 445.00
Wire Fee 129.00
Bank Service Charges - Other 168.62
---------
Total Bank Service Charges 742.62
Contractor Services 126,624.98
Dues and Subscriptions 312.95
Equipment Rental 2,320.89
Insurance
Dental Insurance 1,974.40
Health Insurance 12,054.24
Insurance - Other 10,881.12
---------
Total Insurance 24,909.76
Licenses and Permits 2,364.78
Miscellaneous 21,297.34
Office Supplies 284.08
Payroll Expenses 226,199.17
Postage and Delivery 343.13
Printing and Reproduction 776.09
Professional Fees
Accounting 2,125.00
Legal Fees 8,407.80
Public Relations 17,347.57
---------
Total Professional Fees 27,880.37
Rent 35,451.28
Taxes 3,519.06
Telephone
Internet Access 4,500.00
Telephone - Other 10,100.92
Total Telephone 14,600.92
Travel & Ent
Meals 14.56
Travel & Ent - Other 14,507.09
---------
Total Travel & Ent 14,521.65
Utilities
Gas and Electric 1,410.07
---------
----------
Total Utilities 1,410.07
----------
Total Expense 503,559.14
----------
Net Ordinary Income 32,542.55
----------
Other Income/Expense
Other Income
Interest Income 24.59
----------
Total Other Income 24.59
----------
Net Other Income 24.59
----------
Net Income 32,567.14
==========
- 3 -
43
▇▇▇▇▇▇ SOFTWARE, INC.
BALANCE SHEET
AS OF NOVEMBER 5, 1996
November 5, 1996
----------------
ASSETS
Current Assets
Checking/Savings
Business Checking 37,107.18
Personal Checking 153.22
----------
Total Checking/Savings 37,260.40
Other Current Assets
Prepaid Royalties 15,000.00
Software Maintenance 5,000.00
----------
Total Other Current Assets 20,000.00
Total Current Assets 57,260.40
Fixed Assets
Equipment 72,617.26
Fixed Assets 1,077.48
Investment 7,995.00
----------
Total Fixed Assets 81,689.74
Other Assets
Deposit 3,000.00
Organization Costs 295.00
----------
Total Other Assets 3,295.00
TOTAL ASSETS 142,245.14
==========
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Other Current Liabilities
Shareholder Loans 100.00
----------
Total Other Current Liabilities 100.00
----------
Total Current Liabilities 100.00
Long Term Liabilities
Loan Payable 75,000.00
----------
Total Long Term Liabilities 75,000.00
----------
Total Liabilities 75,100.00
Equity
Net Income 67,145.14
----------
Total Equity 67,145.14
TOTAL LIABILITIES & EQUITY 142,245.14
==========
- 4 -
44
▇▇▇▇▇▇ SOFTWARE, INC.
Notes to financial statements (11/5/96):
1. All amounts are preliminary, and none have been reviewed by our
accountants.
2. No categorization of expenses reported here has been reviewed by our
accountants.
3. All numbers here are on a cash basis, not an accrual basis. Also, there
are several cashless transactions and future commitments that are not
represented here.
# There is an outstanding payable to RSA Data Security for roughly $35,000
for trade show participation. This payment has been deferred to
November 30, 1996. We also have a commitment to RSA Place at Fall
COMDEX, which is an additional $10,000 due in January of 1997. We also
have a commitment to legal consulting services (crypto distribution and
export) that will total an additional $4,000.
# On May 9th, 1996, the company received promissory notes from ▇▇. ▇▇▇▇▇,
▇▇. ▇▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇▇▇ in the amount of $1,000 each as payment
for their shares in the company.
# Based on the contemplated redemption plan, ▇▇. ▇▇▇▇▇▇▇▇▇ will hold a
promissory note issued by the company in the amount of $120,000.
# There is still $100,000 of income to be earned and recognized under the
FTP Software license agreement. $50,000 is based on our delivery of a
final version of the Secure Messenger Toolkit (with requested API's) and
$50,000 is due upon initial external release (including any public test
release) by FTP Software of any product that uses the toolkit.
# Excise tax returns are currently being prepared for August and September,
and should total between $5,000 and $10,000.
# There are very probably employee expenses that have not yet been
submitted on expense reports. This amount should be less than $5,000 (as
expense reports are submitted regularly and there have been no long-term
deferrals of expense reimbursements).
4. Our payroll for the month of October will be processed on November 6th and
distributed on November 7th at a total expense of approximately $35,000.
5. All current employees of ▇▇▇▇▇▇ were employed as independent contractors
from December 12, 1995 to April 30, 1996. $126,624.98 was paid over that
period, and is classified as "Contractor Services" on our income statement.
The company will be required to issue 1099 income statements at year end
for tax purposes.
- 5 -
45
Exhibit 3.0: Worldtalk Schedule of Exceptions
46
Exhibit 3.0
SCHEDULE OF EXCEPTIONS
WORLDTALK COMMUNICATIONS CORPORATION (THE "COMPANY")
Any disclosures made under the heading of one section of this Schedule may
apply to and/or qualify disclosures made under one or more other sections.
Unless otherwise defined, any capitalized terms in this Schedule shall have the
same meanings assigned to such terms in the Agreement and Plan of
Reorganization entered into as of November 9, 1996 by and among Worldtalk
Communications Corporation, the ▇▇▇▇▇▇ Software, Inc. ("▇▇▇▇▇▇") and ▇▇▇▇▇▇'▇
shareholders. Nothing in this Schedule constitutes an admission of any
liability or obligation of the Company to any third party, nor an admission
against the Company's interests.
Section 3.3 1. Consent of General Bank to enter this Agreement is
required by the Company.
2. Consent of certain of the Company's shareholders is
required to amend the Third Amended and Restated
Registration Rights Agreement to add the ▇▇▇▇▇▇ shareholders
as parties entitled to piggyback registration rights.
47
Exhibit 8.4: Opinion of ▇▇▇▇▇▇'▇ Counsel
48
[▇▇▇▇▇▇ PEPPER & SHEFELMAN LETTERHEAD]
November 12, 1996
Worldtalk Communications Corporation
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Agreement and Plan of Reorganization between Worldtalk
Communications Corporation ("Worldtalk") and ▇▇▇▇▇▇ Software,
Inc.
Ladies and Gentlemen:
We have acted as counsel to Deming Software, Inc., a Washington
corporation ("Deming"), in connection with the transactions contemplated by the
Agreement and Plan of Reorganization dated November 9, 1996 between Worldtalk
Communications Corporation and ▇▇▇▇▇▇ (the "Agreement"). This opinion is
provided pursuant to Section 8.4 of the Agreement. Capitalized terms not
otherwise defined herein shall have the meanings given them in the Agreement.
I.
In connection with this opinion, we have examined the Agreement
(including the Exhibits and Schedules thereto), the ▇▇▇▇▇▇ Ancillary Documents
(as defined below), including without limitation the Shareholders' Agreement
dated November 12, 1996 among Worldtalk, ▇▇▇▇▇▇ and the ▇▇▇▇▇▇ Shareholders
(the "Shareholders' Agreement"), and the Employment Agreements between
Worldtalk and each of the ▇▇▇▇▇▇ Shareholders (the "Employment Agreements"),
and such other agreements, instruments, certificates, documents and records of
▇▇▇▇▇▇ and Newco as we have deemed necessary for purposes of this opinion.
As to certain questions of fact material to the following opinions, we
have relied upon certificates of public officials and upon representations of
officers of ▇▇▇▇▇▇, without independently verifying the accuracy of such
representations.
Where we render an opinion "to our knowledge," our opinion is based
solely upon (i) the conscious awareness of facts or other information, after
reasonable investigation, by the attorneys within the firm who have had active
involvement in representing ▇▇▇▇▇▇, provided that reasonable investigation
shall not include a canvass of all lawyers in the firm or a search of all the
firm's files, and (ii) written certifications of officers of ▇▇▇▇▇▇.
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Worldtalk Communications Corporation
November 12, 1996
Page 2
II.
In connection with the opinions expressed in this letter, we have made
the following assumptions, without making any inquiry into the reasonableness
or validity thereof:
(a) The genuineness of all signatures, authenticity of all
documents provided to us as originals, and the conformity of the authentic
original documents to all documents provided to us as certified, conformed or
photostatic copies or as drafts.
(b) The legal capacity of all individuals executing documents in
their individual capacity or on behalf of the parties to the Agreement.
(c) All parties to the Agreement and the ▇▇▇▇▇▇ Ancillary
Agreements (as defined below) other than ▇▇▇▇▇▇ and Worldtalk Merger Corp., a
Washington corporation ("Newco"), have all requisite power and authority and
have taken all necessary action to execute and deliver such agreements and to
effect the transactions contemplated thereby.
(d) The Agreements and the ▇▇▇▇▇▇ Ancillary Agreements constitute
the valid and binding obligations of, and are enforceable against, each of the
parties thereto other than ▇▇▇▇▇▇ and the ▇▇▇▇▇▇ Shareholders.
III.
Based upon the foregoing, and subject to the further qualifications
set forth below, we are of the opinion that:
1. ▇▇▇▇▇▇ is a corporation duly organized and validly existing
under the laws of the state of Washington. ▇▇▇▇▇▇ has the requisite corporate
power and authority to execute and enter into the Agreement, and all agreements
and instruments to which ▇▇▇▇▇▇ is a party or which ▇▇▇▇▇▇ has executed
pursuant to the Agreement (the "▇▇▇▇▇▇ Ancillary Agreements") and to perform
its obligations thereunder. ▇▇▇▇▇▇ has the requisite corporate power and
authority to own and operate its properties and assets and carry on its
business as currently conducted.
2. To our knowledge, ▇▇▇▇▇▇ does not currently own or control,
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association or other entity, except as disclosed on the
Schedule of Exceptions attached to the Agreement.
3. ▇▇▇▇▇▇ is qualified as a foreign corporation in each
jurisdiction in which a failure to be so qualified could reasonably be expected
to have a material adverse effect on its present or expected operations or
financial condition.
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Worldtalk Communications Corporation
November 12, 1996
Page 3
4. The Agreement of Merger has been duly adopted by all necessary
corporate action on the part of ▇▇▇▇▇▇. The execution, delivery and
performance of the Agreement and each of the ▇▇▇▇▇▇ Ancillary Agreements by
▇▇▇▇▇▇ has been duly authorized by all requisite corporate action of ▇▇▇▇▇▇.
The Agreement and each of the ▇▇▇▇▇▇ Ancillary Agreements has been duly
executed and delivered on behalf of ▇▇▇▇▇▇ and the ▇▇▇▇▇▇ Shareholders.
5. The Shareholders Agreement and the Employment Agreements
constitute the valid and binding obligations of ▇▇▇▇▇▇ and the ▇▇▇▇▇▇
Shareholders who are party thereto, enforceable against ▇▇▇▇▇▇ and such ▇▇▇▇▇▇
Shareholders in accordance with their terms; provided that we render no
opinion as to the enforceability of the Non-Competition provision set forth in
Section 1 of the Shareholders' Agreement to the extent such enforceability is
based upon the reasonableness of the provision as to scope, duration or
geographical extent of the activities restricted. We advise you further that
as a general rule, if a Washington court were to determine, in an action
brought to enforce the Non-Competition Provisions against the ▇▇▇▇▇▇
Shareholders, that any provision thereof was unreasonable, the court would not
hold that such provision was unenforceable in its entirety, but instead would
construe such provision to contain only such terms as the court determined were
reasonable under the circumstances and would enforce such provision to such
extent. The Agreement and each of the ▇▇▇▇▇▇ Ancillary Agreements (other than
the Shareholders Agreement) constitutes the valid and binding obligation of
▇▇▇▇▇▇ and each of the ▇▇▇▇▇▇ Shareholders, enforceable against ▇▇▇▇▇▇ and each
of the ▇▇▇▇▇▇ Shareholders in accordance with its terms.
6. Newco is a corporation duly incorporated and validly existing
under the laws of the state of Washington. Newco has the requisite corporate
power and authority to execute and enter into the all agreements and
instruments to which Newco is a party or which Newco has executed pursuant to
the Agreement (the "Newco Instruments") and to perform its obligations
thereunder.
7. The Agreement of Merger has been duly adopted by all necessary
corporate action on the part of Newco. The execution, delivery and performance
of the Newco Instruments has been duly authorized by all requisite corporate
action of Newco.
8. The execution, delivery and performance of the Agreement and
the ▇▇▇▇▇▇ Ancillary Agreements by ▇▇▇▇▇▇ do not conflict with or violate any
federal or state law, rule or regulation, or any provision of the Articles of
Incorporation or bylaws of ▇▇▇▇▇▇, or to our knowledge, any judgment, order or
decree of any court or arbitrator to which ▇▇▇▇▇▇ is a party or is subject. To
our knowledge, except as disclosed on the Schedules of Exceptions attached to
the Agreement, the consummation of the merger contemplated by the Agreement
(the "Merger") will not require the consent of any third party.
9. The authorized capital stock of ▇▇▇▇▇▇ consists of 26,000,000
shares of Common Stock, $0.0001 par value, of which 495,000 shares are issued
and outstanding immediately
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Worldtalk Communications Corporation
November 12, 1996
Page 4
before the Merger, and 24,000,000 shares of Preferred Stock, $0.0001 par value,
none of which are issued and outstanding. All issued and outstanding shares of
▇▇▇▇▇▇ capital stock have been duly authorized and validly issued, are fully
paid and nonassessable, have been offered, issued, sold and delivered by ▇▇▇▇▇▇
in compliance with all registration or qualification requirements (or
applicable exemptions therefrom) of applicable federal and state securities
laws and, to our knowledge, are not subject to any right of rescission. To our
knowledge, there are not outstanding any options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from ▇▇▇▇▇▇ of any shares of its capital stock or any securities convertible
into or ultimately exchangeable or exercisable for any shares of ▇▇▇▇▇▇'▇
capital stock. To our knowledge, there are no voting agreements, rights of
first refusal or other restrictions (other than normal restrictions on transfer
under applicable federal and state securities laws) applicable to any of
▇▇▇▇▇▇'▇ outstanding shares of capital stock.
10. To our knowledge, there is no suit, action or proceeding
against ▇▇▇▇▇▇ now pending before any court or administrative agency, nor, to
our knowledge, is there any suit, action or proceeding overtly threatened in
writing against ▇▇▇▇▇▇, which if determined adversely to ▇▇▇▇▇▇ would, either
individually or in the aggregate, result in any material adverse change in the
business, prospects, financial condition or assets of ▇▇▇▇▇▇ or in any material
liability of ▇▇▇▇▇▇.
11. No filing, authorization or approval, governmental or
otherwise, is necessary to enable ▇▇▇▇▇▇ to enter into, and to perform its
obligations under, the Agreement and the ▇▇▇▇▇▇ Ancillary Agreements, except
for (a) the filing of the Agreement of Merger with the Washington Secretary of
State and the filing of appropriate documents with the relevant authorities of
other states in which ▇▇▇▇▇▇ is qualified to do business, if any, and (b) such
filings as may be required to comply with federal and state securities laws.
Upon the filing of the Agreement and Plan of Merger with the Secretary of State
of the State of Washington, the Merger will be effective under Washington law.
IV.
In addition to the qualifications, assumptions and other limitations
set forth above, and without limiting the effect of such qualifications,
assumptions and other limitations, our opinion is further qualified as follows:
(a) Enforcement of remedies may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
similar laws affecting the enforcement of creditors' rights generally and
subject to equitable principles (whether such enforcement is considered in a
proceeding in equity or at law). Without limiting the foregoing, we express no
opinion as to the availability of equitable remedies such as specific
performance or injunctive relief.
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Worldtalk Communications Corporation
November 12, 1996
Page 5
(b) The courts of the state of Washington will consider extrinsic
evidence of circumstances surrounding the making of the Agreement and the
Ancillary Agreements to ascertain the intent of the parties in using the
language employed in such agreements, regardless of whether or not the language
used in such agreements is plain and unambiguous on its face, and may
incorporate additional or supplementary terms into such agreements.
(c) We call to your attention that, under Washington law, where a
provision of a contract permits one party to the contract to recover attorneys'
fees, such provision will be construed to permit the prevailing party in any
action to enforce the contract to recover its reasonable attorneys' fees.
(d) With respect to the second sentence of paragraph 5, we have
assumed that the Agreement and each of the ▇▇▇▇▇▇ Ancillary Agreements (other
than the Shareholders Agreement and the Employment Agreements) are governed by
the internal laws of the State of Washington, and we render no opinion
regarding the enforceability of the choice of law provisions of such
agreements.
(e) With respect to paragraph 7, we have assumed that the officers
of Worldtalk who have executed instruments on behalf of Worldtalk in its
capacity as the sole shareholder of Newco, or in their individual capacities as
Directors of Newco, are thereunto duly authorized by Worldtalk.
V.
The opinions expressed in this letter are solely with respect to the
federal laws of the United States and the laws of the state of Washington.
The foregoing opinion is being delivered solely to you in connection
with the execution and delivery of the Agreement and may not be relied on by
you for any other purpose or by any other person for any purpose without our
written consent.
Very truly yours,
▇▇▇▇▇▇ PEPPER & SHEFELMAN
