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EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
E.PIPHANY, INC.,
TROUT ACQUISITION CORPORATION,
AND
eCLASS DIRECT, INC.
APRIL 13, 2000
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of April 13, 2000, by and among E.piphany, Inc., a Delaware
corporation ("Buyer"), Trout Acquisition Corporation, a California corporation
("Merger Sub"), and wholly owned subsidiary of Buyer, and eClass Direct, Inc., a
California corporation ("Company").
RECITALS
A. The Boards of Directors of Company, Buyer and Merger Sub believe it
is in the best interests of their respective companies and the shareholders of
their respective companies that Company and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into Company (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, at the Effective Time (as
defined in Section 2.1), the outstanding shares of Common Stock of Company
("Company Common Stock") and preferred Stock of Company ("Company Preferred
Stock", and collectively with Company Common Stock, "Company Capital Stock")
shall be converted into the right to receive the Merger Consideration (as
defined in Section 2.6(a)) upon the terms and subject to the conditions set
forth herein.
C. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code.
D. Concurrent with the execution and delivery of this Agreement, as a
material inducement to Buyer and Merger Sub to enter into this Agreement, all of
the shareholders who are officers or directors of Company and all of the
shareholders of Company affiliated with such directors or officers of Company
are entering into a Shareholder Voting Agreement with Buyer.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
1. Definitions. For all purposes of this Agreement, the following
terms shall have the following respective meanings:
1.1 "Affiliate" shall have the meaning set forth in the rules and
regulations promulgated by the Commission pursuant to the Securities Act.
1.2 "Alliant Fees" shall mean the fees to be paid by Company to
Alliant Partners in connection with the Merger.
1.3 "Ancillary Documents" shall mean the agreements, instruments
and certificates that are exhibits to this Agreement.
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1.4 "Average Buyer Common Stock Price" shall mean the average of
the per share closing price of Buyer Common Stock as quoted on the NASDAQ
National Market System for the twenty (20) consecutive days ending two trading
days (such average to include the closing price per share of Buyer Common Stock
of the first day of such two trading days) immediately prior to date hereof,
that is $147.3938.
1.5 "Buyer Common Stock" shall mean shares of common stock of
Buyer.
1.6 "Capital Stock Consideration" shall mean $107,999,996.
1.7 "Capital Stock Exchange Ratio" shall mean the quotient
obtained by dividing (x) Capital Stock Consideration by (y) Total Capital Stock
Share Number and further by (z) Average Buyer Common Stock Price.
1.8 "Closing Date" shall have the meaning set forth in Section
2.2 hereof.
1.9 "Commission" shall mean the United States Securities and
Exchange Commission.
1.10 "Company Transaction Fees" shall mean the fees and expenses
to be paid by Company fees in connection with the Merger, including, but not
limited to, the fees owing to Company's counsel, and accountants, but
specifically excluding $25,000 of the Info Comm Fee and the entirety of the
Alliant Fees.
1.11 "Escrow Shares" shall mean the number of shares equal to the
value (based on the Average Buyer Common Stock Price) of ten (10) percent of the
Total Consideration.
1.12 "Excess Transaction Fees" shall mean the amount of the
Company Transaction Fees in excess of $600,000.
1.13 "Governmental Entity" means any (i) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or
other government; or (iii) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
official, organization, and any court or other tribunal).
1.14 "Info Comm Fee" shall mean the license fee of $500,000 due
upon exercise of the "option to expand license" prior to the Closing Date
pursuant to the Software License and Maintenance Agreement dated December 12,
1997 between Xxxx Xxxxxxxxx (Info Comm) and Company, as amended on the date
hereof, of which (i) $475,000 shall be paid as a Company Transaction Fee and
(ii) $25,000 shall be paid as restricted shares of Company Common Stock pursuant
to Section 6.19 hereof.
1.15 "material" shall mean with respect to any entity or group of
entities any material event, change, condition or effect related to the
financial condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities.
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1.16 "Material Adverse Effect" shall mean with respect to Buyer
or Company, as the case may be, any event, change or effect that is materially
adverse to the financial condition, properties, assets, liabilities, business,
operations, results of operations, or prospects of such entity or group of
entities, as the case may be, taken as a whole, but shall not include any of the
following in and of themselves, either alone or in combination: (i) any effect
or change occurring as a result of (A) general economic or financial conditions
or (B) other developments that are not unique to Buyer or Company, as the case
may be, but also affect other persons who participate or are engaged in the
lines of business in which Buyer or Company, as the case may be, participates or
is engaged (ii) any change in or effect on the business, financial condition,
assets (including intangible assets) or results of operations of Buyer or
Company, as the case may be, following the date of this Agreement resulting from
a delay or, reduction in or cancellation or change in the terms of purchases
from or other transactions with a person or any of its subsidiaries,
demonstrated to be proximately caused by the pendency or announcement of this
Agreement or the transactions contemplated hereby, to the extent so proximately
caused; (iii) failure in itself, but not any cause thereof, of Buyer's or
Company's, as the case may be, results of operations to meet any internal or
external predictions, projections, estimates or expectations; or (iv) as to
Buyer only, change in market price or trading volume of Buyer Common Stock.
1.17 "Preferred Exchange Ratios Discrepancy" shall mean the
exchange ratio amount representing the difference of (i) the Preferred
Liquidation Preference Average Exchange Ratio from (ii) the Preferred
Liquidation Preference Closing Exchange Ratio.
1.18 "Preferred Liquidation Cash Discrepancy" shall mean the cash
amount representing the difference of (i) the product obtained by multiplying
the Preferred Liquidation Preference Average Exchange Ratio by the Preferred
Liquidation Preference Closing Price from (ii) $6.00.
1.19 "Preferred Liquidation Preference Average Exchange Ratio"
shall mean the quotient obtained by dividing (x) $6.00 by (y) the Preferred
Liquidation Preference Average Price.
1.20 "Preferred Liquidation Preference Closing Exchange Ratio"
shall mean the quotient obtained by dividing (x) $6.00 by (y) the Preferred
Liquidation Preference Closing Price.
1.21 "Preferred Liquidation Preference Average Price" shall mean
the average of the per share closing price of Buyer Common Stock as quoted on
the NASDAQ National Market System for the thirty (30) consecutive days ending on
the trading day three (3) business days prior to the Closing Date.
1.22 "Preferred Liquidation Preference Closing Price" shall mean
the per share closing price of Buyer Common Stock as quoted on the NASDAQ
National Market System on the day immediately prior to the Closing Date.
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1.23 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
1.24 "Total Capital Stock Share Number" shall mean the total
number of shares of Company Common Stock outstanding immediately prior to the
Effective Time, including the shares of Company Common Stock issuable upon (i)
conversion of all outstanding shares of Company Preferred Stock and (ii)
exercise of all outstanding vested and unvested options and any other rights to
acquire shares of Company Capital Stock, immediately prior to the Effective
Time.
1.25 "Total Consideration" shall mean $110,000,000.
2. The Merger.
2.1 The Merger. Subject to the provisions of this Agreement and
in accordance with the California General Corporation Law (the "CGCL"), Merger
Sub shall be merged with and into Company. The Merger shall become effective
(the time of such effectiveness referred hereto as the "Effective Time") upon
the filing of an Agreement of Merger in the form attached hereto as Exhibit A
(the "Agreement of Merger") with the Secretary of State of the State of
California. On the Closing Date (as defined in Section 2.2), the parties hereto
shall cause the Merger to be consummated by filing the Agreement of Merger with
the Secretary of the State of California. As a result of the Merger, the
separate corporate existence of Merger Sub shall cease and Company shall
continue as the Surviving Corporation. Company as the Surviving Corporation is
hereinafter sometimes referred to as the "Surviving Corporation."
2.2 Closing. The closing of the transactions contemplated hereby
(the "Closing") shall take place as soon as practicable, but no later than two
(2) business days, after the satisfaction or waiver of each of the conditions
set forth in Section 7 hereof, or at such other time as the parties hereto agree
(the "Closing Date"). The Closing shall take place at the offices of Xxxx Xxxx
Xxxx & Freidenrich LLP, 000 Xxxxxxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000, or at
such other location as the parties hereto agree.
2.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Agreement of Merger and
the applicable provisions of the CGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
2.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of Incorporation
of the Merger Sub, as in effect immediately prior to the Effective Time shall be
the Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by such Articles of Incorporation and the CGCL.
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(b) The Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by such Bylaws of the Surviving Corporation
and the CGCL. 2.5 Directors and Officers. At the Effective Time, the directors
and officers of Merger Sub immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified.
2.6 Merger Consideration; Effect on Capital Stock.
(a) Conversion of Company Capital Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of Company,
Merger Sub or Company's shareholders (the "Shareholders"), each share of Company
Capital Stock issued and outstanding immediately prior to the Effective Time
(other than shares to be canceled pursuant to Section 2.6(b) hereof and any
Dissenting Shares (to the extent provided in Section 2.10 hereof)) will be
canceled and extinguished and shall be converted automatically into the right to
receive, upon surrender of the certificate representing such share of Company
Capital Stock in the manner provided in and subject to Section 2.7, the
following (the "Merger Consideration"):
(i) Each share of Company Capital Stock shall have
the right to receive the number of shares of Buyer Common Stock equal to the
Capital Stock Exchange Ratio.
(ii) In addition to the Merger Consideration set
forth in clause (i) above, each share of Company Preferred Stock (as adjusted
for any stock dividends, combinations or splits) shall have the right to receive
the following:
(A) To the extent that the product obtained
by multiplying the Preferred Liquidation Preference Average Exchange Ratio by
the Preferred Liquidation Preference Closing Price is less than $6.00, then the
Preferred Liquidation Preference Average Exchange Ratio plus the Preferred
Exchange Ratios Discrepancy; provided, however, that the Buyer, at its sole
option, may pay the Preferred Liquidation Cash Discrepancy rather than the
Preferred Exchange Ratios Discrepancy; and
(B) To the extent that the product obtained
by multiplying the Preferred Liquidation Preference Average Exchange Ratio by
the Preferred Liquidation Preference Closing Preference Price is equal to or
greater than $6.00, then (A) the Preferred Liquidation Preference Average
Exchange Ratio or (B) $6.00 in cash, between which Buyer may choose to give at
its sole option.
(b) Cancellation of Company Capital Stock Owned by Buyer.
At the Effective Time, each share of Company Capital Stock owned by Buyer or any
direct or indirect wholly owned subsidiary of Buyer immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Common Stock of Merger Sub. At the Effective Time,
each share of Common Stock of Merger Sub issued and outstanding immediately
prior to the Effective Time
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shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(d) Adjustments to Exchange Ratios. The Capital Stock
Exchange Ratio, the Preferred Liquidation Preference Average Exchange Ratio, and
the Preferred Liquidation Preference Closing Exchange Ratio shall each be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Buyer Common Stock or Company Common Stock), reorganization, recapitalization or
other like change with respect to Buyer Common Stock or Company Capital Stock
occurring after the date hereof and prior to the Effective Time.
(e) Fractional Shares. No fraction of a share of Buyer
Common Stock will be issued, but in lieu thereof each Shareholder of Company
Capital Stock who would otherwise be entitled to a fraction of a share of Buyer
Common Stock (after aggregating all fractional shares of Buyer Common Stock to
be received by such holder) shall receive from Buyer an amount of cash (rounded
to the nearest whole cent) equal to the product of (i) such fraction, multiplied
by (ii) the Average Buyer Common Stock Price. The fractional share interests of
each Shareholder shall be aggregated, so that no Shareholder shall receive cash
in respect of fractional share interests in an amount greater than the value of
one full share of Buyer Common Stock.
(f) Assumption of Options. At the Effective Time, each
outstanding option ("Company Option"), whether vested or unvested, granted under
the Company's 1998 Stock Option Plan (the "Company Stock Plan") shall be deemed
to constitute an option (an "Assumed Option") to acquire, on the same terms and
conditions as were applicable under the Company Option, a number of shares of
Buyer Common Stock equal to the number of shares of Company Common Stock that
could have been purchased under the Company Option multiplied by the Capital
Stock Exchange Ratio (with the resulting number of shares being rounded to the
nearest whole share), at a price per share of Buyer Common Stock equal to the
option exercise price (rounded up to the nearest whole cent) of the Company
Option divided by the Capital Stock Exchange Ratio; provided, however, that in
the case of any Option to which Section 422 of the Code applies ("Incentive
Stock Options"), the option price, the number of shares purchasable pursuant to
such option and the terms and conditions of exercise of such options shall be
determined in order to comply with Section 424(a) of the Code.
(g) Escrow. Notwithstanding the provisions in this Section
2.6, subject to and in accordance with the provisions of Section 9 hereof, Buyer
shall cause to be deposited in Escrow (as defined in Section 9.1(a) below),
within two (2) business days after the Closing Date, the Escrow Shares for
purposes set forth in Section 9 of this Agreement.
2.7 Surrender of Certificates.
(a) Exchange Agent. Fleet National Bank shall act as
exchange agent (the "Exchange Agent") in the Merger.
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(b) Irrevocable Instruction to Issue Shares. At the
Closing, the Exchange Agent shall confirm that Buyer has given it an irrevocable
instruction to issue shares of Buyer Common Stock after the Effective Time
pursuant to the applicable terms of this Agreement.
(c) Buyer to Provide Common Stock and Cash. Within five
(5) business days after the Effective Time, Buyer shall supply or cause to be
supplied to the Exchange Agent for exchange in accordance with this Section 2
through such reasonable procedures as Buyer may adopt (i) certificates
evidencing the shares of Buyer Common Stock issuable pursuant to Section 2.6(a)
in exchange for shares of Company Capital Stock outstanding immediately prior to
the Effective Time, less the Escrow Shares to be deposited into an escrow fund
pursuant to the requirements of Section 2.6(g) and Section 9 and (ii) cash in an
amount sufficient to permit payment of cash in lieu of fractional shares
pursuant to Section 2.6(e) (collectively, (i) and (ii) shall be referred to as
the "Exchange Fund").
(d) Exchange Procedures. Within five (5) business days
after the Effective Time, the Surviving Corporation shall cause to be mailed to
each holder of record of a certificate or certificates (the "Certificates")
which immediately prior to the Effective Time represented outstanding shares of
Company Capital Stock, whose shares were converted into the right to receive
shares of Buyer Common Stock (and cash in lieu of fractional shares) pursuant to
Section 2.6, (i) a letter of transmittal (which, among other customary terms and
terms in accordance and consistent with the provisions of Section 2, shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon receipt of the Certificates by the Exchange
Agent), the form of which shall be approved by Company, (ii) such other
customary documents as may be required pursuant to such instructions, and (iii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Buyer Common Stock (and cash in lieu of
fractional shares). Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Buyer,
together with such letter of transmittal and other documents, duly completed and
validly executed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor (A) a certificate
representing the number of whole shares of Buyer Common Stock to which the
holder is entitled pursuant to Section 2.6(a) less the number of shares of Buyer
Common Stock to be deposited in the Escrow Fund on such holder's behalf pursuant
to Sections 2.6(g) and 9 hereof, (B) any dividends or other distributions to
which such holder is entitled pursuant to Section 2.7(e), and (C) cash (without
interest) in respect of fractional shares as provided in Section 2.6(e) and the
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding Certificate that, prior to the Effective Time, represented
shares of Company Capital Stock will be deemed from and after the Effective
Time, for all corporate purposes, other than the payment of dividends, to
evidence the ownership of the number of full shares of Buyer Common Stock into
which such shares of Company Capital Stock shall have been so converted and the
right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 2.6.
(e) Company Restricted Stock. Notwithstanding the
foregoing, to the extent that any holder of unvested shares of Company Common
Stock subject to a right of repurchase by Company ("Company Restricted Stock")
outstanding immediately prior to the Effective Time, and as to which after the
Effective Time Buyer will be assigned such Company's
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rights pursuant to Section 6.14, and subject to the surrender of the Certificate
or Certificates representing such shares of the Company Restricted Stock in
accordance with the foregoing terms of this Section 2.7, the portion of the
Merger Consideration payable in exchange for such shares of Company Restricted
Stock shall be held by the Exchange Agent until the expiration of the right of
repurchase to which such shares of Company Restricted Stock were subject and
Buyer shall cause the Exchange Agent to pay such amounts to the former holder of
the Company Restricted Stock from time to time and at such time as such right of
repurchase expires.
(f) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Buyer Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Buyer Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Buyer Common Stock issued in exchange
therefor, without interest at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable (but for the provisions of this Section 2.7(d)) with respect
to such shares of Buyer Common Stock.
(g) Transfers of Ownership. At the Effective Time, the
stock transfer books of the Company shall be closed and there shall be no
further registration of transfers of Company Common Stock or Company Preferred
Stock thereafter on the records of the Company. If any certificate for shares of
Buyer Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Buyer or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Buyer Common Stock is in any name other than that of the
registered holder of the Certificate surrendered, or established to the
satisfaction of Buyer or any agent designated by it that such tax has been paid
or is not payable.
(h) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the Shareholders of Company one
year after the Effective Time shall be delivered to Buyer, upon demand, and any
Shareholders of Company who have not previously complied with this Section 2.7
shall thereafter look only to Buyer for payment of their claim for the Merger
Consideration and any dividends or distributions with respect to Buyer Common
Stock.
(i) No Liability. Notwithstanding anything to the contrary
in this Section 2.7, none of the Exchange Agent, the Surviving Corporation or
any party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(j) Dissenting Shares. The provisions of this Section 2.7
shall also apply to Dissenting Shares (defined in Section 2.10) that lose their
status as such, except that the obligations of Buyer under this Section 2.7
shall commence on the date of loss of such status and
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the holder of such shares shall be entitled to receive in exchange for such
shares the Merger Consideration to which such holder is entitled pursuant to
Section 2.6 hereof.
2.8 No Further Ownership Rights in Company Capital Stock. The
Merger Consideration delivered upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof (including any
dividends, distributions or cash paid in lieu of fractional shares) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Section 2.
2.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof such Merger
Consideration (and dividends, distributions and cash in lieu of fractional
shares) as may be required pursuant to Section 2.6; provided, however, that
Buyer may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct and will indemnify it
against any claim that may be made against Buyer, the Surviving Corporation
and/or the Exchange Agent with respect to the Certificates alleged to have been
lost stolen or destroyed.
2.10 Dissenters' Rights. Dissenting Shares, if any, shall not be
converted into the Merger Consideration but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to the CGCL. Company shall give Buyer prompt
notice of any demand received by Company to require Company to purchase shares
of Common Stock of Company, and Buyer shall have the right to direct (in
consultation with Company prior to the Closing Date) and to participate in all
negotiations and proceedings with respect to such demand. Company agrees that,
except with the prior written consent of Buyer, which Buyer shall not
unreasonably withhold or delay, or as required under the CGCL, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such purchase demand. Each holder of Dissenting Shares ("Dissenting
Shareholder") who, pursuant to the provisions of CGCL, becomes entitled to
payment of the fair value for shares of Company Capital Stock shall receive
payment therefor (but only after the value therefor shall have been agreed upon
or finally determined pursuant to such provisions). If, after the Effective
Time, any Dissenting Shares shall lose their status as Dissenting Shares, Buyer
shall issue and deliver, upon surrender by such shareholder of a certificate or
certificates representing shares of Company Capital Stock, the Merger
Consideration to which such shareholder would otherwise be entitled under
Section 2.6 and the Agreement of Merger less the Merger Consideration allocable
to such shareholder that has been deposited in the Escrow Fund (as defined in
Section 9.1(a)) in respect of such shares of Company Common Stock pursuant to
Section 2.6(g) and Section 9 hereof.
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2.11 Tax and Accounting Consequences. It is intended by the
parties hereto that the Merger shall constitute a reorganization within the
meaning of Section 368(a) of the Code and shall be accounted for as a
"purchase."
2.12 Taking of Necessary Action; Further Action. Each of Buyer,
Merger Sub and Company will take all such reasonable and lawful action as may be
necessary or desirable in order to effectuate the Merger in accordance with this
Agreement as promptly as possible. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
Company and Merger Sub, the officers and directors of Company and Merger Sub are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
3. Representations and Warranties of Company. Company hereby represents
and warrants to Buyer that the statements contained in this Section 3 are true
and correct, except as set forth in the disclosure schedule delivered by Company
to Buyer on or before the date of this Agreement (the "Company Disclosure
Schedule"). The Company Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Section
3 and shall qualify only the corresponding paragraph in this Section 3 and any
other Section hereof where it is reasonably clear, upon a reading of such
disclosure without any independent knowledge on the part of the reader regarding
the matter disclosed, that the disclosure is intended to apply to such other
Section.
3.1 Organization, Standing and Power. Company is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Company has the corporate power to own its
properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a Material
Adverse Effect on Company. Company has delivered a true and correct copy of the
Articles of Incorporation and Bylaws or other charter documents, as applicable,
of Company, each as amended to date, to Buyer. Company is not in violation of
any of the provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents. Company does not directly or indirectly own any equity
or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity. Company does
not have, nor has it ever had, any subsidiaries.
3.2 Authority. Company has all requisite corporate power and
authority to enter into this Agreement and the Ancillary Documents and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement, the Ancillary Documents and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Company subject only to the approval of the Merger by Company's
shareholders as contemplated by Section 6.2. The affirmative vote of the holders
of a majority of the shares of each of the Company Common Stock and Company
Preferred Stock, voting separately as classes, outstanding on the record date
for the Written Consent of Shareholders relating to this Agreement, is the only
vote of the holders of any of Company's Capital Stock necessary under the
Articles of Incorporation, as amended to date, and the CGCL
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to approve this Agreement and the transactions contemplated hereby. The Board of
Directors of Company (i) has unanimously approved this Agreement, the Agreement
of Merger, and the Merger and determined that in its opinion the Merger is in
the best interests of the Shareholders and is on terms that are fair to such
Shareholders and (ii) will recommend that the Shareholders approve this
Agreement, the Agreement of Merger, and the Merger. This Agreement has been duly
executed and delivered by Company and constitutes the valid and binding
obligation of Company enforceable against Company in accordance with its terms,
except that such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally, and is subject to general principles of equity. The execution and
delivery of this Agreement by Company does not, and the consummation of the
transactions contemplated hereby will not conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any material obligation or loss of any material benefit under (i) any provision
of the Articles of Incorporation or Bylaws of Company, as amended, or (ii) any
material mortgage, indenture, lease, contract or other agreement or instrument
to which Company is a party or by which its assets or properties are bound or
any permit, concession, franchise, license, judgment, order, decree, or, to
Company's knowledge, any statute, law, ordinance, rule or regulation applicable
to Company or any of its properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Company in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Agreement of Merger in
California as provided in Section 2.1; (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
and (iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Company and would not prevent, or materially alter or delay any of the
transactions contemplated by this Agreement.
3.3 Governmental Authorization. Company has obtained each
federal, state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to which
Company currently operates or holds any interest in any of its properties or
(ii) that is required for the operation of Company's business or the holding of
any such interest and all of such authorizations are in full force and effect
except where the failure to obtain or have any such authorizations could not
reasonably be expected to have a Material Adverse Effect on Company.
3.4 Financial Statements. Company has delivered to Buyer its
unaudited financial statements for the fiscal years ended December 31, 1999 and
its unaudited financial statements (balance sheet, statement of operations and
statement of cash flows) on a consolidated basis as at and for the two-month
period ended February 29, 2000 (collectively, the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared, to the best knowledge of Company, in accordance with generally
accepted accounting principles (except that the Financial Statements do not have
notes thereto) applied on a consistent basis throughout the periods indicated
and with each other. The Financial Statements fairly and accurately present the
consolidated financial condition and operating results of Company as of the
dates, and for the periods, indicated therein, (subject to normal year-end audit
adjustments). Company maintains and will continue, prior to the Effective Time,
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to maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles consistent with prior
practice.
3.5 Capital Structure. The authorized capital stock of Company
consists of 10,000,000 shares of Company Common Stock, of which there are
4,041,417 issued and outstanding shares as of the close of business on April 6,
2000 and 583,334 shares of Company Preferred Stock, of which there are issued on
the date hereof 333,334 shares of Series A Preferred Stock. All outstanding
shares of Company Common Stock and Company Preferred Stock are duly authorized,
validly issued, fully paid and non-assessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, and are not subject to preemptive rights or rights of first
refusal created by statute, the Articles of Incorporation or Bylaws of Company
or any agreement to which Company is a party or by which it is bound. Company
maintains the Company Stock Plan, pursuant to which there are outstanding on
April 6, 2000 708,896 options to purchase shares of Company Common Stock and has
reserved an additional 257,750 shares of the Company Common Stock for issuance
pursuant to options to be granted to employees, consultants and directors of
Company. Section 3.5 of the Company Disclosure Schedule sets forth a schedule
delivered by Company to Buyer of a true and complete list as of April 6, 2000 of
(i) all holders of outstanding Company Options under the Company Stock Plan,
including the number of shares of Company Common Stock subject to each such
Company Option, the vesting schedule, the exercise price per share and the terms
of each such Company Option and (ii) all holders of Company Restricted Stock,
including the vesting schedule, the number of shares subject to repurchase by
the Company, and terms of each Company Restricted Stock. The Company shall
provide the information on the Company's capital structure contained in the
foregoing paragraph in this Section 3.5 which is updated as of the date hereof
within five (5) days after the date hereof. Except for the rights disclosed in
Section 3.5 of the Company Disclosure Schedule and subject to the changes due to
the updating of information as set forth in the preceding sentence, there are no
other options, warrants, calls, rights, commitments or agreements of any
character to which Company is a party or by which it is bound obligating Company
to issue, deliver, sell, repurchase or redeem or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of Company Capital Stock or obligating
Company to grant, extend, accelerate the vesting of, change the price of, or
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. There are no other contracts, commitments or agreements relating
to voting, purchase or sale of Company Capital Stock (i) between or among
Company and any of its Shareholders and (ii) between or among any of its
Shareholders. All shares of outstanding Company Capital Stock were issued in
compliance with all applicable federal and state securities laws.
3.6 Absence of Certain Changes. Since February 29, 2000, (the
"Company Balance Sheet Date"), Company has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or might reasonably be expected to result in, a Material Adverse
Effect to Company; (ii) any acquisition, sale or transfer of any material asset
of Company other than in the ordinary course of business and consistent with
past practice; (iii) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by Company or any
revaluation by Company assets; (iv) any declaration, setting aside, or payment
of a dividend or other distribution with respect to the shares of Company or any
direct or indirect redemption, purchase or other acquisition by Company of any
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of its shares of capital stock; (v) any material contract entered into by
Company, other than in the ordinary course of business and as provided to Buyer,
or any material amendment or termination of, or default under, any material
contract to which Company is a party or by which it is bound; (vi) any amendment
or change to the Articles of Incorporation or Bylaws of Company; (vii) any
increase in or modification of the compensation or benefits payable or to become
payable by Company to any of its directors or employees other than customary
cost-of-living and customary merit increases in the ordinary course of business
consistent with past practice or (viii) any negotiation or agreement by Company
to do any of the things described in the preceding clauses (i) through (vii)
(other than negotiations with Buyer and its representatives regarding the
transactions contemplated by this Agreement). At the Effective Time, there will
be no accrued but unpaid dividends on shares of Company Capital Stock.
3.7 Absence of Undisclosed Liabilities. Company has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet for the period ended February 29, 2000 (the "Company Balance
Sheet"), (ii) those incurred in the ordinary course of business and not required
to be set forth in the Company Balance Sheet under generally accepted accounting
principles, (iii) those incurred in the ordinary course of business since the
Company Balance Sheet Date and consistent with past practice; and (iv) those
incurred in connection with the execution of this Agreement. Notwithstanding the
foregoing, Company has made available or delivered to Buyer a list of all of its
accounts payable (invoiced or otherwise) and other liabilities outstanding as of
the date hereof.
3.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Company, threatened
against Company or any of its properties or any of its officers or directors (in
their capacities as such) or, to the knowledge of Company's officers, any
reasonable basis therefor. There is no judgment, decree or order against
Company, or, to the knowledge of Company, any of its directors or officers (in
their capacities as such), that could prevent, enjoin, or materially alter or
delay any of the transactions contemplated by this Agreement, or that could
reasonably be expected to have a Material Adverse Effect on Company. All
litigation to which Company is a party (or, to the knowledge of Company,
threatened to become a party) is disclosed in the Company Disclosure Schedule.
3.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Company which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current business practice of Company, any acquisition of property by Company
or the conduct of business by Company as currently conducted by Company.
3.10 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual
Property" means:
(i) all issued patents, reissued or reexamined
patents, revivals of patents, utility models, certificates of invention,
registrations of patents and extensions thereof, regardless of country or formal
name (collectively, "Issued Patents");
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(ii) all published or unpublished nonprovisional
and provisional patent applications, reexamination proceedings, invention
disclosures and records of invention (collectively "Patent Applications" and,
with the Issued Patents, the "Patents");
(iii) all copyrights, copyrightable works,
semiconductor topography and mask work rights, including all rights of
authorship, use, publication, reproduction, distribution, performance
transformation, moral rights and rights of ownership of copyrightable works,
semiconductor topography works and mask works, and all rights to register and
obtain renewals and extensions of registrations, together with all other
interests accruing by reason of international copyright, semiconductor
topography and mask work conventions (collectively, "Copyrights");
(iv) trademarks, registered trademarks,
applications for registration of trademarks, service marks, registered service
marks, applications for registration of service marks, trade names, registered
trade names and applications for registrations of trade names, logos, registered
logos and applications for registration of logos (collectively, "Trademarks");
and
(v) all technology, ideas, inventions, designs,
proprietary information, manufacturing and operating specifications, know-how,
formulae, trade secrets, technical data, computer programs, hardware, software
and processes.
(b) Company owns and has good and marketable title to, or
possess legally enforceable rights to use, all Intellectual Property used in the
business of Company as currently conducted by Company. The Intellectual Property
owned by or licensed to Company collectively constitutes all of the Intellectual
Property necessary to enable Company to conduct its business as such business is
currently being conducted.
(c) With respect to each item of Intellectual Property
incorporated into any product of Company or otherwise used in the business of
Company (except "off the shelf" or other software widely available through
regular commercial distribution channels at a cost not exceeding $10,000 per
item on standard terms and conditions, as modified for Company's operations)
("Company Intellectual Property"), Section 3.10(c) of the Company Disclosure
Schedule lists:
(i) all Issued Patents and Patent Applications and
all registered trademarks, and trademark applications and all registered
copyrights, including the jurisdictions in which each such Intellectual Property
has been issued or registered or in which any such application for such issuance
and registration has been filed; and
(ii) the following agreements relating to each of
the products of Company (the "Company Products") or other Company Intellectual
Property: all (A) agreements granting any right to distribute or sublicense a
Company Product on any exclusive basis, (B) any exclusive licenses of
Intellectual Property to or from Company, (C) agreements pursuant to which the
amounts actually paid or payable under firm commitments to Company for $10,000
or more, (D) joint development agreements, (E) any agreement by which Company
grants any ownership right to any Company Intellectual Property owned by
Company, (F) any purchase
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order relating to Company Intellectual Property, (G) any option relating to any
Company Intellectual Property, and (H) agreements pursuant to which any party is
granted any rights to access source code or to use source code to create
derivative works of Company Products.
(d) Section 3.10(d) of the Company Disclosure Schedule
contains an accurate list as of the date of this Agreement of all licenses,
sublicenses and other agreements to which Company is a party and pursuant to
which Company is authorized to use any Intellectual Property owned by any third
party excluding "off the shelf" or other software widely available through
regular commercial distribution channels at a cost not exceeding $10,000 per
item on standard terms and conditions as modified for Company's operations
("Third Party Intellectual Property"). Company has not been subject to an audit
by the Software Publishers Association as to any of its Third Party Intellectual
Property.
(e) There is no unauthorized use, disclosure, infringement
or misappropriation of any Company Intellectual Property by any third party,
including any employee or former employee of Company. Company has not entered
into any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification provisions
contained in standard sales or license agreements to end users arising in the
ordinary course of business, the forms of which have been delivered to Buyer or
its counsel. There are no royalties, fees or other payments payable by Company
to any Person by reason of the ownership, use, sale or disposition of
Intellectual Property.
(f) Company has not breached, or received in writing any
claim or threat that it has breached (i) any license, sublicense or other
agreement (the "License Agreements") to which it is a party relating to Company
Intellectual Property or Third Party Intellectual Property involving more than
$10,000 in consideration in each such case, or (ii) any License Agreement in
such a manner as would permit any other party to cancel or terminate the same
(with or without notice of passage of time) or would provide a basis for any
other party to claim money damages (either individually or in the aggregate with
all other such claims) from Company or give rise to a right of acceleration of
any material obligation or loss of any material benefit under any such License
Agreement, which could reasonably be expected to have a Material Adverse Effect
on Company. Neither the execution, delivery or performance of this Agreement or
any ancillary agreement contemplated hereby nor the consummation of the Merger
or any of the transactions contemplated by this Agreement will contravene or
conflict with the Surviving Corporation's right to own or use any Company
Intellectual Property in the manner used by Company without any infringement of
any third-party rights in any Intellectual Property.
(g) All patents, registered trademarks, service marks and
copyrights held by Company are valid and subsisting. All maintenance and annual
fees have been fully paid and all fees paid during prosecution and after
issuance of any patent comprising or relating to such item have been paid in the
correct entity status amounts. Company is not infringing, misappropriating or
making unlawful use of any Intellectual Property owned or used by any third
party (except that with respect to any third-party patents, such warranty is
limited to Company's knowledge), and Company has received no notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of any proprietary
asset owned or used by any third party. There is no proceeding pending or, to
the knowledge of Company, threatened, nor has any claim or demand been made,
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which challenges the legality, validity, enforceability or ownership of any item
of Company Intellectual Property or Third Party Intellectual Property or alleges
a claim of infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third party.
Company has not brought a proceeding alleging infringement of Company
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(h) All current and former officers and employees of
Company who have or had access to Company's Intellectual Property have executed
and delivered to Company an agreement regarding the protection of proprietary
information and the assignment to Company of any Intellectual Property arising
from services performed for Company by such persons, the form of which has been
supplied to Buyer, and such form contains no exceptions or exclusions from the
scope of its coverage. All current and former consultants and independent
contractors to Company involved in the development or modification of Company's
products (including those involved in supporting those products), and/or Company
Intellectual Property have executed and delivered to Company an agreement in the
form delivered to Buyer, and such form contains no exceptions or exclusions from
the scope of its coverage. To Company's knowledge, no employee or independent
contractor of Company is in violation of any term of any patent disclosure
agreement or employment contract or any other contract or agreement relating to
the relationship of any such employee or independent contractor with Company. No
current or former officer, director, shareholder, employee, consultant or
independent contractor has any right, claim or interest in or with respect to
any Company Intellectual Property.
(i) Company has taken commercially reasonable and
customary measures and precautions as necessary to protect and maintain the
confidentiality of all Company Intellectual Property (except such Company
Intellectual Property whose value would be unimpaired by public disclosure) and
otherwise to maintain and protect the full value of all material Intellectual
Property it owns or uses. Company has not disclosed, either directly or through
a third party, Intellectual Property not otherwise protected by patents, patent
applications or copyright ("Confidential Information") owned by Company to third
parties for use or appropriation by such third parties except pursuant to the
terms of a written agreement between Company and such third parties and, to
Company's knowledge, no disclosure, use or appropriation by or for a third party
has occurred, either through Company or through a third party, without Company's
consent. All use, disclosure or appropriation by Company of Confidential
Information not owned by Company has been pursuant to the terms of a written
agreement between Company and the owner of such Confidential Information, or is
otherwise lawful.
(j) No product liability claims have been communicated in
writing to or, to the knowledge of Company, threatened against Company.
(k) A complete list of each of the Company Products and
Company's proprietary software currently in present commercial release ("Company
Software"), is set forth in Section 3.10(k) of the Company Disclosure Schedule.
The Company Software and Company Products conform in all material respects to
any published specification, documentation, or performance standards developed
or made available by Company, provided with respect thereto by or on behalf of
Company.
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(l) Company is not subject to any proceeding or
outstanding decree, order, judgment, or stipulation restricting in any manner
the use, transfer, or licensing thereof by Company, or which may affect the
validity, use or enforceability of such Company Intellectual Property. Company
is not subject to any agreement which restricts in any material respect the use,
transfer, or licensing by Company of the Company Intellectual Property or
Company Products.
(m) All of Company's products in the versions which are in
present commercial release, as listed on Section 3.10(k) of the Company
Disclosure Schedule (i) accept input and provide output of data involving dates
or portions of dates before, during and after January 1, 2000 in a consistent,
defined, disclosed and unambiguous manner as to the appropriate century, (ii)
manage, store, manipulate, sort, sequence and perform calculations with respect
to data involving dates or portions of dates before, during and after January 1,
2000, consistently and accurately, (iii) recognize, to the extent that such
products contain functionality which requires the recognition of leap years
generally, the year 2000 as a leap year and (iv) operate continuously without
material error, malfunction or interruption caused by or resulting from the
change of the centuries from 1999 to 2000, and will record, store, process,
calculate and present calendar dates falling on and after (and if applicable,
spans of time including) January 1, 2000 (collectively, "Year 2000 Compliant").
(n) To Company's knowledge, all of Company's Information
Technology (as defined below) is Year 2000 Compliant, and has not caused a
material interruption in the ongoing operations of Company's business as it is
presently conducted. For purposes of the foregoing, the term "Information
Technology" shall mean and include all software, hardware, firmware,
telecommunications systems, network systems, embedded systems and other systems,
components and/or services (other than general utility services including gas,
electric, telephone and postal) that are owned or used by Company in the conduct
of its business.
3.11 Interested Party Transactions. Company is not indebted to
any director, officer, employee or agent of Company (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to Company. There have been no transactions which would
require disclosure if Company were subject to disclosure under Item 404 of
Regulation S-K under the Securities Act.
3.12 Minute Books. The minute books of Company made available to
Buyer contain a complete and accurate summary of actions taken by the board of
directors and the Shareholders, whether at a meeting or by written consent since
the time of incorporation of Company through the date of this Agreement, except
for such actions, if any, the omission of which is not material to Company, its
Shareholders or its business, and reflect all transactions referred to in such
minutes accurately in all material respects.
3.13 Complete Copies of Materials. Company has delivered or made
available true and complete copies of each document which separately, or
together with other documents, is material to the legal and accounting review of
Company and its subsidiaries which has been requested by Buyer or its counsel in
connection with such legal and accounting review.
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3.14 Material Contracts. All the Material Contracts (as hereafter
defined) to which Company is a party are listed in Section 3.14 of the Company
Disclosure Schedule hereto. With respect to each agreement so listed: (i) the
agreement is legal, valid, binding and enforceable and in full force and effect,
and to Company's knowledge is legal, valid, binding, enforceable and in full
force and effect with respect to each other party thereto, including, without
limitation, any and all organizations, affiliates, subsidiaries, and/or any
other third parties to which Company is providing services pursuant to a
Material Contract, in either case subject to the effect of bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and except as the availability of equitable remedies
may be limited by general principles of equity; (ii) the agreement will continue
to be legal, valid, binding and enforceable and in full force and effect with
respect to Company immediately following the Closing in accordance with the
terms thereof as in effect prior to the Closing, subject to the effect of
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and except as the availability of
equitable remedies may be limited by general principles of equity; and (iii)
neither Company nor, to Company's knowledge, any other party, is in breach or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or default by Company or, to Company's knowledge, by any
such other party, or permit termination, modification or acceleration, under the
agreement. Company is not a party to any oral contract, agreement or other
arrangement. "Material Contract" means any contract, agreement or commitment to
which Company is a party (i) involving more than $10,000 in consideration in
each such case, or (ii) which if breached by Company in such a manner as would
permit any other party to cancel or terminate the same (with or without notice
of passage of time) or would provide a basis for any other party to claim money
damages (either individually or in the aggregate with all other such claims
under that contract) from Company or give rise to a right of acceleration of any
material obligation or loss of any material benefit under any such contract,
agreement or commitment which, if exercised, could reasonably be expected to
have a Material Adverse Effect on Company.
3.15 Inventory. The inventories shown on the Financial Statements
or thereafter acquired by Company, were acquired and maintained in the ordinary
course of business, are of good and merchantable quality, and consist of items
of a quantity and quality usable or salable in the ordinary course of business.
Since the Company Balance Sheet Date, Company has continued to replenish
inventories in a normal and customary manner consistent with past practices.
Company has not received notice that it will experience in the foreseeable
future any difficulty in obtaining, in the desired quantity and quality and at a
reasonable price and upon reasonable terms and conditions, the raw materials,
supplies or component products required for the manufacture, assembly or
production of its products. The values at which inventories are carried reflect
the inventory valuation policy of Company, which is consistent with its past
practice and in accordance with generally accepted accounting principles applied
on a consistent basis. Company is not under any liability or obligation with
respect to the return of any material item of inventory in the possession of
wholesalers, retailers or other customers.
3.16 Accounts Receivable. Subject to any reserves set forth in
the Financial Statements, the accounts receivable shown on the Financial
Statements are valid and genuine, have arisen solely out of bona fide sales and
deliveries of goods, performance of services, and other business transactions in
the ordinary course of business consistent with past practices
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in each case with persons other than affiliates, are not subject to any prior
assignment, lien or security interest and are not subject to valid defenses,
set-offs or counter claims.
3.17 Customers and Suppliers. As of the date hereof, no customer
which individually accounted for more than 5% of Company's gross revenues during
the 12 month period preceding the date hereof and no supplier of Company, has
canceled or otherwise terminated, or made any written threat to Company to
cancel or otherwise terminate its relationship with Company or has at any time
on or after the Company Balance Sheet Date, decreased materially its services or
supplies to Company in the case of any such supplier, or its usage of the
services or products of Company in the case of such customer, and to Company's
knowledge, no such supplier or customer has indicated either orally or in
writing that it will cancel or otherwise terminate its relationship with Company
or to decrease materially its services or supplies to Company or its usage of
the services or products of Company, as the case may be.
Section 3.17 of the Company Disclosure Schedule sets forth all customers
which individually account for 5% or more of Company's gross revenues during the
12 month period (the "Revenue Period") preceding February 29, 2000, specifically
setting forth opposite such customers' respective names (i) their gross revenue
amounts during such Revenue Period and (ii) the percentage of gross revenues
attributable to such customers during such Revenue Period.
3.18 Employees and Consultants. Section 3.18 of the Company
Disclosure Schedule or a letter previously delivered by Company to Buyer
contains a list of the names of all present employees and consultants of Company
and their respective salaries or wages, other compensation and dates of
employment or engagement.
3.19 Title to Property. Company has good and marketable title to
all of its respective properties, interests in properties and assets, real and
personal, reflected in the Company Balance Sheet or acquired after the Company
Balance Sheet Date (except properties, interests in properties and assets sold
or otherwise disposed of since the Company Balance Sheet Date in the ordinary
course of business), or with respect to leased properties and assets, valid
leasehold interests therein, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien of current
taxes not yet due and payable, (ii) such imperfections of title, liens and
easements as do not and will not materially detract from or materially interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the Company Balance Sheet. The plants,
property and equipment of Company that are used in the operations of their
businesses are in all material respects in good operating condition and repair,
subject to normal wear and tear. All properties used in the operations of
Company are reflected in the Company Balance Sheet to the extent generally
accepted accounting principles require the same to be reflected. All leases to
which Company is a party are in full force and effect and are valid, binding and
enforceable on Company and, to Company's knowledge, on the other party, in
accordance with their respective terms, except as such enforceability may be
limited by (i) bankruptcy laws and other similar laws affecting creditors'
rights generally and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or at law. True and correct copies of all
such leases have been provided to Buyer. Company owns no real property.
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3.20 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental Laws" shall mean any applicable
foreign, federal, state or local governmental laws (including common laws),
statutes, ordinances, codes, regulations, rules, policies, permits, licenses,
certificates, approvals, judgments, decrees, orders, directives, or requirements
that pertain to the protection of the environment, protection of public health
and safety, or protection of worker health and safety, or that pertain to the
handling, use, manufacturing, processing, storage, treatment, transportation,
discharge, release, emission, disposal, re-use, recycling, or other contact or
involvement with Hazardous Materials (defined below), including, without
limitation, the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601, et seq., as amended ("CERCLA"),
and the federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., as amended ("RCRA").
(ii) "Hazardous Materials" shall mean any material,
chemical, compound, substance, mixture, or by-product that is identified,
defined, designated, listed, restricted or otherwise regulated under
Environmental Laws (defined above) as a "hazardous constituent," "hazardous
substance," "hazardous material," "acutely hazardous material," "extremely
hazardous material," "hazardous waste," "hazardous waste constituent," "acutely
hazardous waste," "extremely hazardous waste," infectious waste," "medical
waste," "biomedical waste," "pollutant," "toxic pollutant," or "contaminant," or
any other formulation or terminology intended to classify or identify
substances, constituents, materials, or wastes by reason of properties that are
deleterious to the environment, natural resources, worker health and safety, or
public health and safety, including, without limitation, ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, and reproductive toxicity.
The term "Hazardous Materials" shall include, without limitation, any "hazardous
substances" as defined, listed, designated or regulated under CERCLA, any
"hazardous wastes" or "solid wastes" as defined, listed, designated or regulated
under RCRA, any asbestos or asbestos-containing materials, any polychlorinated
biphenyls, and any petroleum or hydrocarbonic substance, fraction, distillate,
or by-product.
(b) Company is and has been in compliance with all
Environmental Laws relating to the properties or facilities used, leased, or
occupied by Company at any time (collectively, "Company's Facilities;" such
properties or facilities currently used, leased, or occupied by Company are
defined herein as "Company's Current Facilities"), and no discharge, emission,
release, leak, or spill of Hazardous Materials has occurred at any of Company's
Facilities which may or will give rise to liability of Company under
Environmental Laws. To Company's knowledge, there are no Hazardous Materials
(including, but not limited to, asbestos) present in the surface waters,
structures, groundwaters, or soils of or beneath any of Company's Current
Facilities. To Company's knowledge, there neither are nor have been any
aboveground or underground storage tanks for Hazardous Materials at Company's
Current Facilities. To Company's knowledge, no Company employee or other person
has claimed that Company is liable for alleged injury or illness resulting from
an alleged exposure to a Hazardous Material. No civil, criminal or
administrative action, proceeding or investigation is pending against
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Company, or to Company's knowledge, threatened against Company, with respect to
Hazardous Materials or Environmental Laws.
3.21 Taxes. As used in this Agreement, the terms "Tax" and,
collectively, "Taxes" mean any and all federal, state and local taxes of any
country, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, stamp transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(a) Company has prepared and timely filed all returns,
estimates, information statements and reports required to be filed with any
taxing authority ("Returns") relating to any and all Taxes concerning or
attributable to Company or its operations with respect to Taxes for any period
ending on or before the Closing Date and such Returns are true and correct in
all material respects and have been completed in accordance with applicable law.
(b) Company, as of the Closing Date: (i) will have paid
all Taxes shown to be payable on such Returns covered by Section 3.21(a) and
(ii) will have withheld with respect to its employees all Taxes required to be
withheld.
(c) There is no Tax deficiency outstanding or assessed or,
to the best of Company's knowledge, proposed against Company that is not
reflected as a liability on the Company Balance Sheet nor has Company executed
any agreements or waivers extending any statute of limitations on or extending
the period for the assessment or collection of any Tax.
(d) Company has no liabilities for unpaid Taxes that have
not been accrued for or reserved on the Company Balance Sheet, whether asserted
or unasserted, contingent or otherwise.
(e) Company is not a party to any tax-sharing agreement or
similar arrangement with any other party, and Company has not assumed to pay any
Tax obligations of, or with respect to any transaction relating to, any other
person or agreed to indemnify any other person with respect to any Tax.
(f) Company's Returns have never been audited by a
government or taxing authority, nor is any such audit in process or pending, and
Company has not been notified of any request for such an audit or other
examination.
(g) Company has never been a member of an affiliated group
of corporations filing a consolidated federal income tax return.
(h) Company has disclosed to Buyer (i) any Tax exemption,
Tax holiday or other Tax sparing arrangement that Company has in any
jurisdiction, including the nature, amount and lengths of such Tax exemption,
Tax holiday or other Tax-sparing arrangement and (ii) any expatriate tax
programs or policies affecting Company. Company is in compliance with all terms
and conditions required to maintain such Tax exemption, Tax holiday
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or other Tax-sparing arrangement or order of any governmental entity and the
consummation of the transactions contemplated hereby will not have any adverse
effect on the continuing validity and effectiveness of any such Tax exemption,
Tax holiday or other Tax-sparing arrangement or order.
(i) Company has made available to Buyer copies of all
Returns filed by Company for all periods since their inception.
(j) Company has never filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) apply to any
disposition of assets owned by Company.
(k) Company has never been a United States Real Property
Holding Corporation within the meaning of Section 897(c)(2) of the Code.
(l) Company has not made any payments and is not required
to make any payment that will not be fully deductible due to the provisions of
Section 162(m) of the Code.
3.22 Employee Benefit Plans.
(a) Section 3.22 of the Company Disclosure Schedule
contains a complete and accurate list of each "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") which is or has been sponsored, maintained, contributed to,
or required to be contributed to by Company and any trade or business (whether
or not incorporated) which is treated as a single employer with Company within
the meaning of Section 414(b), (c), (m) or (o) of the Code (an "ERISA
Affiliate), for the benefit of any person who performs or who has performed
services for Company or with respect to which Company or ERISA Affiliate has or
may have any liability or obligation (collectively, the "Company Employee
Plans"). Section 3.22 of the Company Disclosure Schedule lists each Company
Employee Plan that has been adopted or maintained by Company, whether formally
or informally, for the benefit of employees outside the United States ("Company
International Employee Plans"). There has been no amendment to, written
interpretation or announcement by Company or ERISA Affiliate which would
materially increase the expense of maintaining any Company Employee Plan above
the level of expense incurred with respect to such Company Employee Plan for the
most recent fiscal year included in Company's financial statements.
(b) Documents. Company has made available to Buyer true
and complete copies of documents embodying each of the Company Employee Plans
and related plan documents for the last three plan years, standard COBRA forms
and related notices, registration statements and prospectuses, and, to the
extent still in its possession, any material employee communications relating
thereto. With respect to each Company Employee Plan which is subject to ERISA
reporting requirements, Company has provided copies of the Form 5500 reports
filed for the last three (3) plan years. Company has furnished Buyer with the
most recent Internal Revenue Service determination or opinion letter issued with
respect to each such Company Employee Plan, and nothing material has occurred
since the issuance of each
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such letter which could reasonably be expected to cause the loss of the
tax-qualified status of any Company Employee Plan subject to Code Section
401(a).
(c) Compliance. (i) Each Company Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code) which are applicable to it, except as would not
have, in the aggregate, a Material Adverse Effect; (ii) any Company Employee
Plan intended to be qualified under Section 401(a) of the Code has either
obtained from the Internal Revenue Service a favorable determination, opinion
advisory or notification letter, as applicable, to its qualified status under
the Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has applied to the Internal Revenue Service
for such a determination letter, if applicable, prior to the expiration of the
requisite period under applicable Treasury Regulations or Internal Revenue
Service pronouncements in which to apply for such determination letter and to
make any amendments necessary to obtain a favorable determination, or has been
established under a standardized prototype plan for which an Internal Revenue
Service opinion letter has been obtained by the plan sponsor and is valid as to
the adopting employer; (iii) none of the Company Employee Plans promises or
provides retiree medical benefits to any person other than as required by law,
(iv) there has been no "prohibited transaction," (other than exempt prohibited
transactions) as such term is defined in Section 406 of ERISA and Section 4975
of the Code, with respect to any Company Employee Plan, which could reasonably
be expected to have, in the aggregate, a Material Adverse Effect; (v) neither
Company nor any ERISA Affiliate is subject to any material liability or penalty
under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to
any of the Company Employee Plans; (vi) all contributions required to be made by
Company or ERISA Affiliate to any Company Employee Plan have been made on or
before their due dates and a reasonable amount has been accrued, in accordance
with the Company's ordinary business procedures, for contributions to each
Company Employee Plan as applicable for the current plan years; (vii) with
respect to each Company Employee Plan, no "reportable event" within the meaning
of Section 4043 of ERISA (excluding any such event for which the thirty (30) day
notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA has
occurred; (viii) each Company Employee Plan subject to ERISA, has prepared in
good faith and timely filed all requisite governmental reports (which were true
and correct as of the date filed) and has properly and timely filed and
distributed or posted all notices and reports to employees required to be filed,
distributed or posted with respect to each such Company Employee Plan; and (ix)
no suit, administrative proceeding, action or other litigation has been brought,
or to the knowledge of Company is threatened, against or with respect to any
such Company Employee Plan, including any audit or inquiry by the IRS or United
States Department of Labor.
(d) No Title IV or, Multiemployer Plan. Neither Company
nor any ERISA Affiliate has ever maintained, established, sponsored,
participated in, contributed to, or otherwise incurred any obligation or
liability (including without limitation, contingent liability) under any
"multiemployer plan" (as defined in Section 3(37) of ERISA) or to any "pension
plan" (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA or
Section 412 of the Code. Neither Company nor any ERISA Affiliate has any actual
or potential withdrawal liability (including without limitation, any contingent
liability) for any complete or partial withdrawal (as defined in Sections 4203
and 4205 of ERISA) from any multiemployer plan.
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(e) COBRA, FMLA, HIPAA, CANCER RIGHTS. With respect to
each Company Employee Plan, Company has complied with (i) the applicable health
care continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the regulations thereunder; (ii) the
applicable requirements of the Family and Medical Leave Act of 1993 and the
regulations thereunder; (iii) the Health Insurance Portability and
Accountability Act ("HIPAA") and (iv) the Cancer Rights Act of 1998, except to
the extent that such failure to comply with all such acts would not in the
aggregate, have a Material Adverse Effect. Company has no material unsatisfied
obligations to any employees, former employees, or qualified beneficiaries
pursuant to COBRA, HIPAA, or any state law governing health care coverage
extension or continuation.
(f) Effect of Transaction. The consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee or other service provider of Company or any ERISA Affiliate to
severance benefits or any other payment (including, without limitation,
unemployment compensation, golden parachute bonus or benefits under any Company
Employee Plan), except as expressly provided in this Agreement or (ii)
accelerate the time of payment or vesting of any such benefits, or increase the
amount of compensation due any such employee or service provider (other than
full or partial vesting as a result of the actions required under the
Agreement). No benefit payable or which may become payable by Company pursuant
to any Company Employee Plan or as a result of or arising under this Agreement
shall constitute an "excess parachute payment" (as defined in Section 280G(b)(1)
of the Code) which is subject to the imposition of an excise Tax under Section
4999 of the Code or the deduction for which would not be disallowed by reason of
Section 280G of the Code. Each Company Employee Plan can be amended, terminated
or otherwise discontinued after the Effective Time in accordance with its terms,
without material liability to Acquirer or Company (other than ordinary
administration expenses typically incurred in a termination event).
(g) No International Employee Plans. Company does not now,
nor has it ever, had the obligation to, maintain, establish, sponsor,
participate in, or contribute to, any Company Employee Plan for the benefit of
employees outside the United States.
(h) Medical Reimbursement Program. Company has not
received any (i) written requests, (ii) or to the Company's knowledge, received
any oral requests, for the summary plan description of the medical reimbursement
program, (iii) or any request for further information concerning the medical
reimbursement program which would have entitled employees to receipt of a
summary plan description. Company has timely reimbursed employees for medical
reimbursements in accordance with its normal procedures and policies under the
program and no such reimbursements are due or owing under the program to
eligible employees.
3.23 Employee Matters. Company is in compliance with all
currently applicable laws and regulations respecting terms and conditions of
employment including, without limitation, applicant and employee background
checking, immigration laws, discrimination laws, verification of employment
eligibility, employee leave laws, classification of workers as employees and
independent contractors, wage and hour laws, and occupational safety and health
laws, except for such noncompliance that neither has, nor reasonably would be
expected to have, a Material Adverse Effect on Company. There are no proceedings
pending or, to Company's knowledge, threatened, between Company, on the one
hand, and any or all of its
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current or former employees, on the other hand, which proceedings have, or would
reasonably be expected to have, a Material Adverse Effect on Company, including,
but not limited to, any claims for actual or alleged harassment or
discrimination based on race, national origin, age, sex, sexual orientation,
religion, disability, or similar tortious conduct, breach of contract, wrongful
termination, defamation, intentional or negligent infliction of emotional
distress, interference with contract or interference with actual or prospective
economic disadvantage. There are no claims pending, or, to Company's knowledge,
threatened, against Company under any workers' compensation or long term
disability plan or policy. Company is not a party to any collective bargaining
agreement or other labor union contract, nor does Company know of any activities
or proceedings of any labor union to organize its employees. Company has
provided all employees with all wages, benefits, relocation benefits, stock
options, bonuses and incentives, and all other compensation earned up through
the date of this Agreement, except for those accrued and not yet due.
3.24 Insurance. Section 3.24 of the Company Disclosure Schedule
includes a summary description of all policies of insurance and bonds of any
nature covering the assets, business, equipment, properties, operations,
employees, officers and the directors of Company. There is no material claim
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been paid
and Company is otherwise in compliance with the terms of such policies and
bonds. Company has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
3.25 Compliance With Laws. Company has complied with, is not in
violation of and has not received any notices of violation with respect to, any
federal state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business.
3.26 Brokers' and Finders' Fees. Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated hereby.
3.27 Bank Accounts. Section 3.27 of the Company Disclosure
Schedule sets forth the names and locations of all banks and other financial
institutions at which Company maintains accounts of any nature, the type of
accounts maintained at each such institution and the names of all persons
authorized to draw thereon or make withdrawals therefrom.
3.28 Indemnification Claims. Section 3.28 of the Company
Disclosure Schedule sets forth a list of all persons who are parties to
director, officer and/or employee indemnification agreements with Company (the
"Indemnification Agreements"). Except as set forth in Section 3.28 of the
Company Disclosure Schedule, there are no outstanding claims under any of the
Indemnification Agreements or under any indemnification rights granted pursuant
to the Certificate of Incorporation or Bylaws of Company (as currently in
effect).
3.29 Power of Attorney. Company has not granted to any person a
power of attorney or similar authorization that is currently in effect.
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3.30 Permit Application, Information Statement. The information
supplied by Company for inclusion in the application (the "Permit Application")
for issuance of a permit (the "Permit") pursuant to Section 25121 of the
California Securities Act and information statement to be sent to the holders of
Company Capital Stock to consider the Merger (such information statement as
amended or supplemented is referred to herein as the "Information Statement"),
will not, on the date the fairness hearing is held pursuant to Section 25142 of
the California Securities Act (the "Fairness Hearing"), on the date the
Information Statement is first mailed to the Shareholders, or at the Effective
Time, contain any statement which at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect to any
material fact, or shall omit to state any material fact necessary in order to
make the statements made therein not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the Permit Application or the consent solicitation which has
become false or misleading. If at any time prior to the Effective Time any event
relating to Company or any of its respective affiliates, officers or directors
should be discovered by Company which should be set forth in an amendment or a
supplement to the Permit Application or the Information Statement, Company shall
promptly inform Buyer and Merger Sub. Notwithstanding the foregoing, Company
makes no representation or warranty with respect to any information supplied by
Buyer or Merger Sub which is contained in any of the foregoing documents.
3.31 Representations Complete. None of the representations or
warranties made by Company herein or in any Schedule or Exhibit hereto,
including the Company Disclosure Schedule, or certificate furnished by Company
pursuant to this Agreement when all such documents are read together in their
entirety, contains any untrue statement of a material fact, or omits to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
4. Representations and Warranties of Buyer. Except as otherwise set
forth in the "Buyer Disclosure Schedule" provided to Company on or before the
date hereof (the "Buyer Disclosure Schedule"), Buyer represents and warrants to
Company that the statements contained in this Section 4 are true and correct as
set forth below. The Buyer Disclosure Schedule shall be arranged in paragraphs
contained in this Section 4 and shall qualify only the corresponding paragraph
in this Section 4 and any other Section hereof where it is reasonably clear,
upon a reading of such disclosure without any independent knowledge on the part
of the reader regarding the matter disclosed, that the disclosure is intended to
apply to such other Section.
4.1 Organization, Standing and Power. Each of Buyer and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. Each of Buyer and Merger Sub has
the corporate power to own its properties and to carry on its business as now
being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on Buyer.
Buyer has made available a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Buyer and
Merger Sub, each as amended to date, to Company. Neither Buyer nor Merger Sub is
in violation of any of the provisions of its Certificate of Incorporation or
Bylaws or equivalent organizational documents.
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4.2 Authority. Buyer and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been, or will
have been by the Closing, duly authorized by all necessary corporate action on
the part of Buyer and Merger Sub. The Boards of Directors of Buyer and Merger
Sub have (i) unanimously approved this Agreement and the Merger and (ii)
determined that in their respective opinions the Merger is in the best interests
of the shareholders of Buyer and Merger Sub, respectively. This Agreement has
been duly executed and delivered by Buyer and Merger Sub and constitutes the
valid and binding obligations of Buyer and Merger Sub, enforceable against each
of them in accordance with its terms, except that such enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to creditors' rights generally, and is subject to general principles of
equity. The execution and delivery of this Agreement do not and the consummation
of the transactions contemplated hereby will not conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any material obligation or loss of a material benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of Buyer or any of its subsidiaries,
as amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Buyer or any
of its subsidiaries or any of their properties or assets. No consent approval,
order or authorization of or registration, declaration or filing with any
Governmental Entity is required by or with respect to Buyer or any of its
subsidiaries in connection with the execution and delivery of this Agreement by
Buyer and Merger Sub or the consummation by Buyer and Merger Sub of the
transactions contemplated hereby, except for (i) the Agreement of Merger in
California as provided in Section 2.1, (ii) the filing by Buyer of an
application for qualification by permit with the State of California pursuant to
section 25121 of the California Securities Act, (iii) the filing, if any, of a
Form 8-K with the Commission and National Association of Securities Dealers
("NASD"), (iv) the issuance of a permit qualifying the issuance of the Buyer
Common Stock and the assumption of the Assumed Options after a Fairness Hearing
before the California Department of Corporations, (v) the filing by Buyer of a
registration statement on Form S-8 with the Commission, (vi) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the securities laws
of any foreign country, (vii) the filing with the NASDAQ National Market of a
Notification Form for Listing of Additional Shares with respect to the shares of
Buyer Common Stock issuable upon conversion of the Company Common Stock in the
Merger, and (viii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Buyer and would not prevent, materially alter or delay any of the
transactions contemplated by this Agreement.
4.3 Commission Documents; Financial Statements. Buyer has made
available to Company all statements, reports, registration statements and other
filings filed with the Commission by Buyer since July 14, 1999 ("XXXXX
Filings"), and, prior to the Effective Time, Buyer will have made available to
Company any additional XXXXX Filings prior to the Effective Time (collectively
together with the documents described in the following sentence, the "Buyer
Commission Documents") and will promptly make available to Company all exhibits
to any additional Buyer Commission Documents filed prior to the Effective Time.
All
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documents required to be filed as exhibits to the Buyer Commission Documents
have been so filed, and all material contracts so filed as exhibits are in full
force and effect except those which have expired in accordance with their terms,
and neither Buyer nor any of its subsidiaries is in default thereunder. As of
their respective filing dates, the Buyer Commission Documents complied in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the Securities Act and none of the Buyer
Commission Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed Buyer Commission Document prior to the date hereof. Buyer has filed each
Buyer Commission Document on or before the applicable filing deadline for such
document and Buyer is not currently and, immediately prior to the Effective
Time, will not be untimely in its filing of any document which is required to be
filed with the Commission or otherwise not in compliance with any Commission
filing or reporting requirement. The financial statements of Buyer, including
the notes thereto, included in the Buyer Commission Documents (the "Buyer
Financial Statements"), complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the Commission with respect thereto as of their respective dates, and have
been prepared in accordance with generally accepted accounting principles
applied on a basis consistent throughout the periods indicated and consistent
with each other (except as may be indicated in the notes thereto or, in the case
of unaudited statements included in Quarterly Reports on Form 10-Qs, as
permitted by Form 10-Q of the Commission). The Buyer Financial Statements fairly
present the consolidated financial condition and operating results of Buyer and
its subsidiaries at the dates and during the periods indicated therein (subject,
in the case of unaudited statements, to normal, recurring yearend adjustments).
There has been no change in Buyer accounting policies except as described in the
notes to the Buyer Financial Statements. Since the last filing by Buyer of
either a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K,
whichever was filed later, there has been no event that has caused or resulted
in or would cause or result in a Material Adverse Effect to Buyer.
4.4 Capital Structure. The authorized capital stock of the Buyer
is (i) 100,000,000 shares of Common Stock and (ii) no shares of preferred stock,
and as of the close of business on March 15, 2000, 32,282,531 shares of Buyer
Common Stock, and no shares of Buyer preferred stock, were issued and
outstanding. There are no other outstanding shares of capital stock or voting
securities of Buyer other than shares of Buyer Common Stock issued after March
15, 2000, upon the exercise of stock options under Buyer's Stock Option and
Stock Purchase Plans (the "Buyer Plans"). The authorized capital stock of Merger
Sub consists of 1000 shares of Common Xxxxx, 0000 of which are issued and
outstanding and all of which are held by Buyer. As of the close of business on
February 29, 2000, Buyer has reserved 11,134,401 shares of Buyer Common Stock
pursuant to the Buyer Plans, of which 4,061,994 shares are subject to
outstanding, unexercised options. Except as set forth above, there are no other
options, warrants, calls, rights, commitments or agreements of any character to
which Buyer or Merger Sub is a party or by which either of them is bound
obligating Buyer or Merger Sub to issue, deliver, sell, repurchase or redeem or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of Buyer or Merger Sub or obligating Buyer or Merger Sub to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement.
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The shares of Buyer Common Stock to be issued pursuant to the Merger will be
duly authorized, validly issued, fully paid and unassessable.
4.5 Interim Operations of Merger Sub. Merger Sub was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement, has engaged in no other business activities and has conducted its
operations only as contemplated by this Agreement.
4.6 Permit Application; Information Statement. The information
supplied by Buyer for inclusion in the Permit Application and the Information
Statement, will not, on the date of the Fairness Hearing, on the date the
Information Statement is first mailed to the Shareholders, or at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the Permit Application or the consent solicitation
which has become false or misleading. If at any time prior to the Effective Time
any event relating to Buyer or any of its respective affiliates, officers or
directors should be discovered by Buyer which should be set forth in an
amendment or a supplement to the Permit Application or the Information
Statement, Buyer shall promptly inform Company. Notwithstanding the foregoing,
Buyer makes no representation or warranty with respect to any information
supplied by Company which is contained in any of the foregoing documents.
4.7 Representations Complete. None of the representations or
warranties made by Buyer or Merger Sub herein or in any Schedule hereto,
including the Buyer Disclosure Schedule, or certificate furnished by Buyer or
Merger Sub pursuant to this Agreement, or the Buyer Commission Documents, or any
written statement furnished to Company pursuant hereto or in connection with the
transactions contemplated hereby, when all such documents are read together in
their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
4.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Buyer, threatened
against Buyer or any of its properties or any of its officers or directors (in
their capacities as such) or, to the knowledge of Buyer's officers, any
reasonable basis therefor. There is no judgment, decree or order against Buyer,
or, to the knowledge of Buyer, any of its directors or officers (in their
capacities as such), that could prevent, enjoin, or materially alter or delay
any of the transactions contemplated by this Agreement, or that could reasonably
be expected to have a Material Adverse Effect on Buyer. All litigation to which
Buyer is a party (or, to the knowledge of Buyer, threatened to become a party)
and has not been disclosed in the XXXXX Filings, is disclosed in the Buyer
Disclosure Schedule.
5. Conduct Prior To The Effective Time.
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5.1 Conduct of Business of Company. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, Company agrees, except to the extent that
Buyer shall otherwise consent in writing, to carry on Company's or its
subsidiaries' business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay the debts and
Taxes of Company and its subsidiaries when due, to pay or perform other
obligations when due, and, to the extent consistent with such business, use its
reasonable best efforts consistent with past practice and policies to preserve
intact Company's and its subsidiaries' present business organizations, keep
available the services of Company's and its subsidiaries' present officers and
key employees and preserve Company's and its subsidiaries' relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired Company's
and its subsidiaries' goodwill and ongoing businesses at the Effective Time.
Company shall promptly notify Buyer of any event or occurrence or emergency not
in the ordinary course of business of Company or its subsidiaries and any
material event involving Company or its subsidiaries. Except as expressly
contemplated by this Agreement as set forth in Section 5.1 of the Company
Disclosure Schedule, Company shall not, and shall not permit its subsidiaries
to, without the prior written consent of Buyer:
(a) Material Contracts. Enter into any material contract
or commitment, or violate, amend or otherwise modify or waive any of the terms
of any of its material contracts, other than in the ordinary course of business
consistent with past practice, except amend the Restricted Stock Agreements (as
defined in Section 6.14 below) pursuant to Section 6.14 and Section 7.2(m)
hereof.
(b) Issuance of Securities. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement;
(c) Intellectual Property. Transfer to any person or
entity any rights to its Intellectual Property other than in the ordinary course
of business consistent with past practice;
(d) Exclusive Rights. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of Company Products or
Company Intellectual Property;
(e) Dispositions. Sell, lease, license or otherwise
dispose of or encumber any of its properties or assets which are material
individually or in the aggregate, to its and its parent's/subsidiaries'
business, taken as a whole, except in the ordinary course of business consistent
with past practice;
(f) Indebtedness. Incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt
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securities or guarantee any debt securities of others. provided, however, that
Company may allow holders of options under the Company Stock Option Plan to
purchase Company Common Stock upon exercise thereof with interest bearing
promissory notes;
(g) Agreements. Enter into, terminate or amend, in a
manner which will adversely affect the business of Company (i) any agreement
involving an obligation to pay or the right to receive $10,000 or more, (ii) any
agreement relating to the license, transfer or other disposition or acquisition
of Intellectual Property rights or rights to market or sell Company Products, or
(iii) any other agreement which is material to the business or prospects of
Company;
(h) Payment of Obligations. Pay, discharge or satisfy in
an amount in excess of $10,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the payment,
discharge or satisfaction of liabilities reflected or reserved against in the
Company Financial Statements;
(i) Capital Expenditures. Make any capital expenditures,
capital additions or capital improvements except in the ordinary course of
business and consistent with past practice;
(j) Insurance. Materially reduce the amount of any
material insurance coverage provided by existing insurance policies;
(k) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(l) Employee Benefit Plans; New Hires; Pay Increases.
Adopt or amend any Company Employee Plan or hire any new officer level employee,
pay any special bonus, special remuneration or special noncash benefit (except
payments and benefits made pursuant to written agreements outstanding on the
date hereof), or increase the benefits, salaries or wage rates of its employees
except in the ordinary course of business in accordance with its standard past
practice;
(m) Severance Arrangements. Grant any severance or
termination pay or benefits (i) to any director or officer or (ii) to any other
employee except (A) payments made pursuant to written agreements outstanding on
the date hereof or (B) grants which are made in the ordinary course of business
in accordance with its standard past practice;
(n) Lawsuits. Commence a lawsuit other than (i) for the
routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with Buyer prior
to the filing of such a suit, or (iii) for a breach of this Agreement;
(o) Acquisitions. Acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial portion of the assets of,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets which are material individually or in the
aggregate, to its and its parent's/subsidiaries' business, taken as a whole;
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(p) Taxes. Other than in the ordinary course of business,
make or change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement, settle any
material claim or assessment in respect of Taxes, or consent to any extension or
waiver of the limitation period applicable to any material claim or assessment
in respect of Taxes;
(q) Revaluation. Revalue any of its assets, including
without limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
(r) Charter Documents. Amend its Articles of Incorporation
or its Bylaws; or
(s) Other. Take or agree in writing or otherwise to take,
any of the actions described in Sections 5.1(a) through (r) above, or any action
which would cause a material breach of its representations or warranties
contained in this Agreement or prevent it from materially performing or cause it
not to materially perform its covenants hereunder.
5.2 Advice of Changes. Company will promptly advise Buyer in
writing (i) of any event occurring subsequent to the date of this Agreement
which would render any representation or warranty contained in this Agreement,
if made on or as of the date of such event or the Closing Date, untrue or
inaccurate in any material report and (ii) of any material adverse changes in
Company's business, taken as a whole.
5.3 No Solicitation. Until the earlier of (i) the Effective Time,
or (ii) the date of termination of this Agreement pursuant to the provisions of
Section 8 hereof, Company shall not (nor shall Company permit, as applicable,
any of Company's officers, directors, employees, Shareholders, agents,
representatives or affiliates to), directly or indirectly, take any of the
following actions with any party other than Buyer and its designees: (a)
solicit, encourage, initiate or participate in any inquiry, negotiations or
discussions, or enter into any agreement, with respect to any offer or proposal
to acquire all or any material part of Company's or its subsidiaries' business,
properties or technologies, or any material amount of Company's Capital Stock or
any of its subsidiaries' capital stock (whether or not outstanding), whether by
merger, purchase of assets, tender offer or otherwise, or effect any such
transaction, (b) disclose any information not customarily disclosed to any
person concerning Company's or its subsidiaries' business, technologies or
properties, or afford to any person or entity access to its properties,
technologies, books or records, not customarily afforded such access, (c) assist
or cooperate with any person to make any proposal to purchase all or any
material part of Company Capital Stock, any of its subsidiaries' capital stock
or assets of either the Company or the Subsidiary, other than inventory in the
ordinary course of business, or (d) enter into any agreement with any person
providing for the acquisition of Company or its subsidiaries, whether by merger,
purchase of assets, tender offer or otherwise. In the event that Company, or any
of the Company's affiliates shall receive, prior to the Effective Time or the
termination of this Agreement, any offer, proposal, or request, directly or
indirectly, of the type referenced in clause (a) or (c) above, or any request
for disclosure or access pursuant to clause (b) above, Company shall immediately
notify Buyer, but not later than 24 hours thereof, including information as to
the identity of the
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offeror or the party making any such offer or proposal and the specific terms of
such offer or proposal, as the case may be, and such other information related
thereto as Buyer may reasonably request. The parties hereto agree that
irreparable damage would occur in the event that the provisions of this Section
5.3 were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed by the parties hereto that Buyer shall be
entitled to seek an injunction or injunctions to prevent breaches of the
provisions of this Section 5.3 and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which Buyer may be
entitled at law or in equity.
6. Additional Agreements.
6.1 Preparation of Permit Application/Information Statement.
(a) As soon as practicable after the execution of this
Agreement, Company shall prepare, with the full cooperation of Buyer, an
Information Statement for the shareholders of Company to approve this Agreement,
the Certificate of Merger and the transactions contemplated hereby and thereby.
The Information Statement shall constitute a disclosure document for the offer
and issuance of the shares of Buyer Common Stock to be received by the holders
of Company Capital Stock in the Merger. Buyer and Company shall each use
reasonable commercial efforts to cause the Information Statement to comply with
applicable federal and state securities laws requirements. Each of Buyer and
Company agrees to provide promptly to the other such information concerning its
business and financial statements and affairs as, in the reasonable judgment of
the providing party or its counsel, may be required or appropriate for inclusion
in the Information Statement, or in any amendments or supplements thereto, and
to cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Information Statement. Company will promptly
advise Buyer, and Buyer will promptly advise Company, in writing if at any time
prior to the Effective Time either Company or Buyer shall obtain knowledge of
any facts that might make it necessary or appropriate to amend or supplement the
Information Statement in order to make the statements contained or incorporated
by reference therein not misleading or to comply with applicable law. The
Information Statement shall contain the recommendation of the Board of Directors
of Company that the Company Shareholders approve the Merger and this Agreement
and the conclusion of the Board of Directors that the terms and conditions of
the Merger are fair and reasonable to the Shareholders of Company. Anything to
the contrary contained herein notwithstanding, Company shall not include in the
Information Statement any information with respect to Buyer or its affiliates or
associates, the form and content of which information shall not have been
approved by Buyer prior to such inclusion.
(b) As soon as practicable after the execution of this
Agreement, Buyer shall prepare, with the full cooperation of Company, and file
the Permit Application with the Department of Corporations of the State of
California (the "Department"). Buyer and Company shall each use reasonable
commercial efforts to cause the Permit Application to comply with the
requirements of applicable federal and state laws. Each of Buyer and Company
agrees to provide promptly to the other such information concerning its business
and financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for inclusion in
the Permit Application, or in any amendments or
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supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Permit Application.
Company will promptly advise Buyer, and Buyer will promptly advise Company, in
writing if at any time prior to the Effective Time either Company or Buyer shall
obtain knowledge of any facts that might make it necessary or appropriate to
amend or supplement the Permit Application in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. Anything to the contrary contained herein notwithstanding, Buyer
shall not include in the Permit Application any information with respect to
Company or its affiliates or associates, the form and content of which
information shall not have been approved by Company prior to such inclusion.
(c) Notwithstanding the foregoing, Buyer and Company shall
exercise reasonable commercial efforts to prepare and file the Permit
Application and the Information Statement as an exhibit to the Permit
Application within three (3) business days after the execution of this
Agreement.
(d) Buyer shall schedule, with the cooperation of Company,
the Fairness Hearing on the first date that is offered by the Department.
6.2 Approval of Shareholders. Company shall promptly after the
date hereof take all action necessary in accordance with the CGCL and its
Articles of Incorporation and Bylaws to obtain by written consent, the approval
of the Company shareholders of the Merger as soon as practicable after the
Permit is issued. Subject to Section 6.1, Company shall use its reasonable best
efforts to solicit from shareholders of Company the vote or consent in favor of
the Merger and shall take all other action necessary or advisable to secure the
vote or consent of shareholders required to effect the Merger.
6.3 Due Diligence; Access to Information.
(a) Company shall afford Buyer and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (i) all of Company's and
its subsidiaries' properties, personnel books, contracts, commitments and
records, and (ii) all other information concerning the business, properties and
personnel of Company and its subsidiaries as Buyer may reasonably request. Buyer
shall likewise provide Company with reasonable access customarily associated
with seller-side due diligence in connection with a merger where the merger
consideration includes shares of the acquiring entity.
(b) Subject to compliance with applicable law, from the
date hereof until the Effective Time, each of Buyer and Company shall confer on
a regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any
investigation pursuant to this Section 6.3 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
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6.4 Confidentiality. The terms of that certain Confidentiality
Agreement, previously executed by the parties as of February 25, 2000 (the
"Confidentiality Agreement") shall remain in effect pursuant to its terms during
the term hereof.
6.5 Public Disclosure. Unless otherwise permitted by this
Agreement, Buyer and Company shall consult with each other before issuing any
press release or otherwise making any public statement or making any other
public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
exchange or with the NASD. The foregoing shall not be construed as prohibiting
Company from indicating in general terms in response to inquiries from third
parties concerning a potential acquisition that it is under a contractual
obligation not to discuss such matters.
6.6 Consents; Cooperation.
(a) Each of Buyer and Company shall promptly apply for or
otherwise seek, and use reasonable efforts to obtain, all consents and approvals
required to be obtained by it from Governmental Authorities for the consummation
of the Merger and all necessary consents, waivers and approvals pursuant to an
agreement listed in Sections 3.2, 3.3, 3.10, 3.14, 3.22 and 3.24 of the Company
Disclosure Schedule (except for such agreements which are to be terminated at or
before Closing pursuant to the terms hereof) and Section 4.2 of the Buyer
Disclosure Schedule in connection with the Merger for the assignment thereof or
otherwise.
(b) Notwithstanding anything to the contrary in Section
6.6(a), neither Buyer nor any of it subsidiaries shall be required to divest any
of their respective businesses, product lines or assets, or to take or agree to
take any other action or agree to any limitation that could reasonably be
expected to have a Material Adverse Effect on Buyer or on Buyer combined with
the Surviving Corporation after the Effective Time.
6.7 Exemption from Federal Registration; California Blue Sky. The
parties expect that the Buyer Common Stock to be issued in connection with the
Merger will be issued in a transaction exempt from registration under the
Securities Act by reason of Section 3(a)(10) thereof, and that the Buyer Common
Stock and the assumption of the Assumed Options hereunder will be qualified
under the California Securities Act, pursuant to Section 25121 thereof, after
the Fairness Hearing has been held pursuant to the authority granted by Section
25142 of such California Securities Act. After the issuance of the Permit, each
share of Buyer Common Stock shall be issued without any legend restricting the
transfer of such shares except as relates to restrictions on the transfer of
shares by Affiliates of Company and Buyer pursuant to Rule 144 itself or Rule
145 of the Securities Act, as applicable.
6.8 Securityholder Agreement; Lock-Up. Company shall use its
reasonable best efforts to cause each securityholder of Company receiving Buyer
Common Stock as Merger Consideration and/or having Company Options converted
into Assumed Options pursuant to the Merger (the "Securityholders"), prior to
the Closing Date, to execute and deliver a
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Securityholder Agreement in the form attached as Exhibit B hereto (the
"Securityholder Agreement") and , if the Closing occurs on or prior to April 20,
2000, the "lock-up" agreement with Buyer and Credit Suisse First Boston, in the
form attached as Exhibit A thereto (the "Lock-Up Agreement").
6.9 Legal Requirements. Each of Buyer, Merger Sub and Company
will, and will cause their respective subsidiaries to, take all reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on them with respect to the consummation of the transactions
contemplated by this Agreement and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of or any registration,
declaration or filing with, any Governmental Entity or other person, required to
be obtained or made in connection with the taking of any action contemplated by
this Agreement.
6.10 Escrow Agreement. On or before the Effective Time, Buyer,
Escrow Agent (defined below) and the Shareholders' Agent (as defined in Section
9 hereto) will execute the Escrow Agreement contemplated by Section 9 in the
form attached hereto as Exhibit C ("Escrow Agreement").
6.11 Assumed Options; Commission Filing. Buyer shall take all
corporate action necessary to reserve for issuance a sufficient number of shares
of Buyer Common Stock for delivery under the Assumed Options. As soon as
practicable after the Effective Time, Buyer shall file a registration statement
on Form S-8 (or any successor or other appropriate forms), or another
appropriate form, with respect to the shares of Buyer Common Stock subject to
the Assumed Options and shall use its best efforts to maintain the effectiveness
of such registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses in connection therewith) for so
long as the Assumed Options remain outstanding. Notwithstanding the foregoing,
Buyer shall exercise commercial reasonable efforts to effect the filing of such
registration statement within ten (10) business days after the Closing Date.
6.12 Reorganization. Buyer and Company shall each use its
reasonable best efforts to cause the business combination to be effected by the
Merger to be qualified as a "reorganization" described in Section 368 of the
Code and Company shall obtain the opinion of its counsel contemplated by Section
7.3(c). Company shall make such representations as its counsel shall reasonably
request to enable them to render such opinion.
6.13 Listing of Additional Shares. Prior to the Effective Time,
Buyer shall file with the NASDAQ National Market a Notification Form for Listing
of Additional Shares with respect to the shares of Buyer Common Stock issuable
upon conversion of the Company Common Stock in the Merger and upon exercise of
the options under the Company Stock Plan assumed by Buyer to the effect that
such shares may be traded immediately after the Effective Time.
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6.14 Assignment of Restricted Stock Repurchase Rights. With
respect to any restricted stock purchase agreements entered into between the
Company and the Shareholders which are listed on Schedule 6.14 and shall be
amended pursuant to Section 7.2(m) and in accordance with the terms set forth in
Exhibit D hereof (each in amended form a "Restricted Stock Agreement"), Company
hereby assigns to Buyer, effective at the Effective Time, Company's right,
pursuant to Section 11(c) of each such Restricted Stock Agreement, to repurchase
unvested shares of Common Stock issued pursuant to such agreement.
6.15 Expenses; Transaction Fees. Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expense, provided, however, that to the extent that the Merger closes,
Buyer shall pay the Company Transaction Fees up to $600,000, of which $475,000
shall be allocated to payment of the InfoComm Fee. The parties agree that any
Excess Transaction Fees which are payable towards Company's counsel shall be
paid out-of-pocket by Xxxx Xxxxxxxxx, in his individual capacity, and Buyer
shall not be responsible for any such payments. Any other Excess Transaction
Fees that are not payable by Xxxx Xxxxxxxxx shall be paid out of the Escrow Fund
(as defined in Section 9.1(a)) pursuant to Section 9 hereof, except without
regard to, or application of, any provisions relating to the Basket Amount (as
defined in Section 9.1) or the right by the Shareholders' Agent (as defined in
Section 9.7) to object pursuant to Section 9.5 hereof. Company shall cause the
pre-Closing determination of the amount and source of any Excess Transaction
Fees and provide such information to Buyer no less than three (3) business days
prior to the Closing Date.
6.16 Termination of SIMPLE XXX Participation. Company and its
ERISA Affiliates, as applicable, each agrees to terminate its participation in
the SIMPLE XXX sponsored and maintained by Company immediately prior to Closing.
The Buyer shall receive from Company evidence that Company's and each ERISA
Affiliate's (as applicable) participation in the SIMPLE XXX has been terminated
pursuant to resolutions of each such entity's Board of Directors (the form and
substance of which resolutions shall be subject to review and approval of
Buyer), effective as of the day immediately preceding the Closing.
6.17 Grant of Employee Options. In accordance with the letter of
understanding (the "XXX") dated March 16, 2000 between Company and Buyer,
Company shall have granted options to its employees and new hires to purchase up
to an aggregate of 450,000 shares of Company Common Stock at an exercise price
of no greater than $0.80 per share, the allocation of such grants which shall
have been determined by Buyer (in consultation with the chief executive officer
of Company). Such options shall be subject to standard terms, including vesting
terms, under the Company Stock Plan.
6.18 Participation in Buyer's Employee Benefit Plans. Following
the Effective Time, Buyer and its ERISA Affiliates (as defined in Section
3.22(a) (collectively, "Buyer" for purposes of this Section 6.18), in its sole
and absolute discretion, shall for at least one (1) full calendar year either:
(a) continue (or cause Surviving Corporation to continue) the Company Employee
Plans (as defined in Section 3.22(a)) (the "Company Employee Plans") on
substantially the same terms in the aggregate as in effect immediately prior to
the Effective Time, or (b) arrange for each participant in the Company Employee
Plans ("Company Participants") to participate in any substantially similar plans
of the Buyer ("Buyer Plans"), on a
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plan-by-plan basis, on terms no less favorable than those offered to employees
of Buyer, or (c) a combination of clauses (a) and (b). Each Company Participant
who continues to be employed by Company, Buyer or any of its subsidiaries
immediately following the Effective Time shall, to the extent permitted by law
and applicable tax qualification requirements, and subject to any generally
applicable break in service or similar rule, receive credit for purposes of
eligibility to participate and vesting under the Buyer Plans for years of
service with Company or its subsidiaries (or, if applicable, predecessor
entities) prior to the Effective Time. Subject to the approval of any insurance
carrier, which Buyer shall make its best efforts to obtain, and to the extent
consistent with law and applicable tax qualification requirements, Buyer shall
cause any and all pre-existing condition limitations, eligibility waiting
periods and evidence of insurability requirements under any group health plans
to be waived with respect to such Company Participants and their eligible
dependents and beneficiaries and shall provide them with credit for any
co-payments, deductibles or similar expenses prior to the Effective Time for
purposes of satisfying any applicable deductible, out-of-pocket, or similar
requirements under any Buyer Plans in which they are eligible to participate
after the Effective Time.
6.19 Grant of Restricted Stock; Amendment of Engagement Letter.
Promptly after the execution of this Agreement (but no later than three (3)
business days therefrom and prior to the filing by Buyer of the Permit
Application), for purposes of fully or partially satisfying payment obligations
of Company towards the Info Comm Fee and the Alliant Fees, Company shall grant
and issue to Xxxx Xxxxxxxxx (Info Comm) and Alliant Partners the number of
restricted shares of Company Common Stock (the "Fees Restricted Stock")
sufficient to (i) fully satisfy such obligations as regards Alliant Fee and (ii)
$25,000 of the obligations of the Info Fee. Such Fees Restricted Stock shall (i)
fully accelerate in terms of vesting as to any unvested portion and in its
entirety immediately prior to the Effective Time of the Merger and (ii) be
subject to a right of repurchase by Company upon the termination or this
Agreement or otherwise the non-occurrence of he Merger. Concurrent with, or
prior to, the grant and issuance of Fees Restricted Stock to Alliant Partners,
Company shall cause Alliant Partners to agree in writing with Company (a copy of
such agreement to be furnished to Buyer) that such grant and issuance shall
amend and supersede any prior payment arrangements in connection with the Merger
entered into between Alliant Partners and Company.
7. Conditions to the Merger.
7.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Shareholder Approval. This Agreement and the Merger
shall be approved and adopted by the Shareholders of Company by the requisite
vote under applicable law and the Company's Certificate of Incorporation.
(b) Fairness Hearing. Buyer and Company shall be satisfied
that the Fairness Hearing shall have been held by the Department and a permit
for the issuance of Buyer securities shall have been issued by the State of
California.
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(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be and remain in
effect, nor shall any proceeding brought by an administrative agency or
Commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending, which would have a Material
Adverse Effect on either Buyer or on Buyer combined with the Surviving
Corporation, after the Effective Time, nor shall there be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal.
(d) Governmental Approval. Buyer, Company and Merger Sub
and their respective subsidiaries shall have timely obtained from each
Governmental Entity all approvals, waivers and consents, if any, necessary for
consummation of or in connection with the Merger and the several transactions
contemplated hereby, including such approvals, waivers and consents as may be
required under the Securities Act, and under state blue sky laws, other than
filings and approvals relating to the Merger on any of its properties if failure
to obtain such approval, waiver or consent would not have a Material Adverse
Effect on Buyer or the Surviving Corporation after the Effective Time.
(e) Blue Sky Law. Buyer shall have received all state
securities or blue sky permits and other authorizations necessary to issue
shares of Buyer Common Stock pursuant to the Merger.
7.2 Additional Conditions to the Obligations of Buyer and Merger
Sub. The obligations of Buyer and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Buyer:
(a) Representations, Warranties and Covenants. The
representations and warranties of Company set forth in this Agreement shall be
true and correct in all material respects (except for representations and
warranties qualified by materiality which shall be correct in all respects) as
of the Closing Date (except for representations and warranties that speak
specifically as of the date hereof or as of another specific date, which shall
be true and correct as of such date) as though made on and as of the Closing
Date and Buyer shall have received a certificate executed on behalf of Buyer by
the chief executive officer and chief financial officer of Company to such
effect.
(b) Performance of Obligations. Company shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
it as of the Closing and Buyer shall have received a certificate executed on
behalf of Company by the chief executive officer and chief financial officer of
Company to such effort.
(c) Third Party Consents. All consents or approvals
required to be obtained in connection with the Merger and the other transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect.
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(d) Conversion of Preferred Stock. All shares of Company
Preferred Stock shall have been converted into shares of Company Common Stock.
(e) No Other Litigation. There shall not be pending any
legal proceeding in which there is a reasonable likelihood of an outcome that
would have a Material Adverse Effect on Company or a Material Adverse Effect on
Buyer: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement; (b)
relating to the Merger and seeking to obtain from Buyer or any of its
subsidiaries, or Company, any damages or other relief that would be material to
Buyer; (c) seeking to prohibit or limit in any material respect Buyer's ability
to vote, receive dividends with respect to or otherwise exercise ownership
rights with respect to the stock of Company; or (d) which would affect adversely
the right of Buyer or Company to own the assets or operate the business of
Company.
(f) Escrow Agreement. Buyer, Escrow Agent and the
Shareholders' Agent (as defined in Section 9 hereof) shall have entered into the
Escrow Agreement.
(g) Non-Competition and Non-Solicitation Agreement. Each
of Xxxxxx Xxxxxx and Xxxx Xxxxxxxxx shall have entered into a Non-Competition
and Non-Solicitation Agreement, in the form attached as Exhibit E hereto, with
Buyer.
(h) Securityholder Agreement; Lock-Up Agreement. Each of
the Securityholders of Company shall have executed and delivered a
Securityholder Agreement and, if the Closing occurs on or prior to April 20,
2000, a Lock-Up Agreement.
(i) Dissenters' Rights. Not more than five percent (5%) of
the Company Capital Stock outstanding immediately prior to the Effective Time
shall have voted against the Merger or shall otherwise be eligible as
Dissenters' Shares.
(j) Legal Opinion. Buyer shall have received a legal
opinion from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation
substantially in the form of Exhibit F hereto.
(k) Termination of SIMPLE XXX. Company shall have taken
the actions described in Section 6.16 to terminate Company's SIMPLE XXX Plan.
(l) No Adverse Development. There shall not have been any
Material Adverse Effect to Company since the date of this Agreement.
(m) Amendment to Restricted Stock Agreement. Company and
each of Xxxx Xxxxxxxxx and Xxxxxx Xxxxxx shall have executed and delivered their
respective Amended Restricted Stock Agreement in accordance with the terms set
forth in Exhibit D hereto.
(n) Transaction Fees. Company shall have provided the
information as to amount and source of Excess Transaction Fees to Buyer in
accordance with Section 6.15 hereof.
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7.3 Additional Conditions to Obligations of Company. The
obligations of Company to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Company:
(a) Representations, Warranties and Covenants. The
representations and warranties of Buyer as set forth in this Agreement shall be
true and correct in all material respects (except for representations and
warranties qualified by materiality which shall be correct in all respects) as
of the Closing Date (except for representations and warranties that speak
specifically as of the date hereof or as of another specific date, which shall
be true and correct as of such date) as of the Closing Date as though made on
and as of the Closing Date and Company shall have received a certificate
executed on behalf of Buyer by the chief executive officer or chief financial
officer of Buyer to such effect.
(b) Performance of Obligations. Buyer shall have performed
and complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by them
as of the Closing and Company shall have received a certificate executed on
behalf of Buyer by the chief executive officer or the chief financial officer of
Buyer to such effect.
(c) Tax Opinion. Company shall have received a written
opinion from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, to the
effect that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368 of the Code.
(d) Listing of Additional Shares. The filing with the
NASDAQ National Market of a Notification Form for Listing of Additional Shares
with respect to the shares of Buyer Common Stock issuable upon conversion of
Common Stock in the Merger and upon exercise of options under the Company Stock
Plan assumed by Buyer shall have been made.
(e) Legal Opinion. Company shall have received a legal
opinion from Xxxx Xxxx Xxxx & Freidenrich LLP substantially in the form of
Exhibit G hereto.
8. Termination, Amendment and Waiver.
8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Section 8.1(b) through Section
8.1(d), by written notice by the terminating party to the other party):
(a) by the mutual written consent of Buyer and Company;
(b) by either Buyer or Company if the Merger shall not
have been consummated by July 1, 2000, provided, however, that the right to
terminate this Agreement under this Section 8.1(b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date.
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(c) by either Buyer or Company if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, except, if the party relying on such order, decree or ruling or other
action has not complied with its obligations under this Agreement;
(d) by Buyer or Company, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section 7.1 or 7.2 (in the case of termination by Buyer) or Section 7.1 or 7.3
(in the case of termination by Company) not to be satisfied and (ii) shall not
have been cured within ten (10) business days following receipt by the breaching
party of written notice of such breach from the other party.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, there shall be no liability or obligation
on the part of Buyer, Company, Sub or their respective officers, directors, or
shareholders, except to the extent that such termination results from the breach
by a party of any of its representations, warranties or covenants set forth in
this Agreement; provided that the provisions of Sections 6.4, 6.17, 8.1, 10.3
and 10.7 shall remain in full force and effect and survive any termination of
this Agreement.
8.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
9. Escrow; Survival of Representations, Warranties and Covenants.
9.1 Escrow Fund.
(a) At the Effective Time, the Shareholder will be deemed
to have received and deposited with the Escrow Agent (as defined below) the
Escrow Shares without any act of any Shareholders. Within two (2) business days
after the Closing Date, the Escrow Shares shall be registered in the name of,
and be deposited with, State Street Bank & Trust Company, N.A. (or such other
institution selected by Buyer with the reasonable consent of Company) as escrow
agent (the "Escrow Agent"), the treatment of which shall be governed by the
terms set forth herein ("Escrow"). The foregoing deposit of the Escrow Shares
into an account established by the Escrow Agent shall constitute the escrow fund
(the "Escrow Fund") and will be governed by the terms set forth herein. Buyer
may not receive any proceeds from the Escrow Fund unless and until (i) one or
more Officer's Certificates (as defined in Section 9.3 below) identifying
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Damages (as defined in Section 9.2(b) below) in excess of $100,000 (the "Basket
Amount") has or have been delivered to the Escrow Agent as provided in paragraph
9.4 below and which such Officer's Certificate(s) is not objected to by the
Shareholders' Agent (as defined in Section 9.7 below) pursuant to Section 9.5 or
(ii) to the extent the Shareholders' Agent objects to such Officer's
Certificate(s) pursuant to Section 9.5, the amount of such Damages has been
determined to be in excess of the Basket Amount in the arbitration proceedings
held pursuant to the terms of Section 9.6, in which either case Buyer shall be
entitled to recover for all Damages so identified, including, without
limitation, the Basket Amount. In the event Buyer declares dividends paid in
stock with respect to the Escrow Shares ("Additional Escrow Shares"), such
shares will be issued in the name of the Escrow Agent and delivered to the
Escrow Agent in the same manner as the Escrow Shares are delivered pursuant to
this Section 9.1(a) and become a part of the Escrow Fund.
(b) Except for Additional Escrow Shares, any cash
dividends, dividends payable in securities or other distributions of any kind
made in respect of the Escrow Shares will be delivered to the former
Shareholders on a pro rata basis based on the number of Escrow Shares
contributed to the Escrow Fund by each former Shareholder. Each former
Shareholder will have voting rights with respect to the Escrow Shares deposited
in the Escrow Fund on behalf of such former Shareholder so long as such Escrow
Shares are held in Escrow and Buyer will take all reasonable steps necessary to
allow the exercise of such rights. While the Escrow Shares remain in Escrow
pursuant to this Agreement, the former Shareholder will retain and will be able
to exercise all other incidents of ownership of said Escrow Shares which are not
inconsistent with the terms and conditions of this Agreement.
9.2 Indemnification.
(a) Survival of Representations, Warranties and Covenants.
Buyer will be entitled to rely upon Company's representations, warranties and
covenants set forth in this Agreement (as modified by the Company Disclosure
Schedule) or in any certificate, schedule or exhibit delivered pursuant hereto.
The obligations of Company with respect to such representations, warranties,
agreements and covenants will survive the Closing and continue in full force and
effect until the date twelve (12) months following the Closing Date (the
"Termination Date"), at which time the representations, warranties and covenants
of Company set forth in this Agreement or in any certificate, schedule or
exhibit delivered pursuant hereto will terminate; provided, however, that
thereafter Company will remain liable to the extent set forth below for Damages
provided that a notice of such Damages has been delivered to such party on or
before the Termination Date and until such time as such indemnity claim has been
fully quantified and/or decided, settled or adjudicated.
(b) Indemnification by Company. Subject to the limitations
set forth in this Section 9, the former Shareholders (collectively, the
"Shareholder Indemnitors") will jointly and severally indemnify and hold
harmless Buyer and its respective officers, directors, agents, attorneys and
employees, and each Affiliate, (hereinafter referred to individually as an
"Buyer Indemnified Person" and collectively as "Buyer Indemnified Persons") from
and against any and all any and all debts, obligations and other liabilities,
losses, damages (including any diminution in value of Company or its assets and
all actual, punitive and consequential damages), claims, fines, fees, penalties,
interest obligations, deficiencies, and expenses
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(including, without limitation, amounts paid in settlement, interest, court
costs, reasonable out-of-pocket fees and expenses of investigators, attorneys,
accountants, financial advisors and other experts, and other reasonable
out-of-pocket expenses of litigation, whether or not such litigation is resolved
against Buyer) (individually and collectively, "Damages") directly or indirectly
arising from, or connected to, (i) any misrepresentation or breach of or default
in connection with any of the representations, warranties, covenants and
agreements given or made by Company in this Agreement, the Company Disclosure
Schedules or any schedule to this Agreement; or (ii) any claim by a third party,
which if true, would constitute a misrepresentation or breach of or default in
connection with any of the representations, warranties, covenants and agreements
given or made by Company in this Agreement, the Company Disclosure Schedules or
any schedule to this Agreement.
(c) Maximum Indemnification. In the event the Shareholder
Indemnitors shall have any liability for indemnification or otherwise (including
without limitation, for breach of covenants or otherwise at law or equity) to
any Buyer Indemnified Person under this Agreement, the sole satisfaction of such
liability shall be from the Escrow Fund, provided however, that nothing in this
Agreement shall limit the liability in amount, indemnification period or
otherwise of Company or any Shareholder Indemnitor with respect to fraud or
criminal activity, provided, however, that liability thereto shall be limited to
the participation of any Shareholder Indemnitor in connection with such fraud or
criminal activity and with any indemnification obligations to a Buyer
Indemnified Person limited to such Shareholder Indemnitor.
9.3 Escrow Period; Release From Escrow.
(a) The Escrow Period shall terminate upon the Termination
Date, provided, however, that a portion of the Escrow Fund, which, in the
reasonable judgment of Buyer, subject to the objection of the Shareholders'
Agent (as defined in Section 9.7 below) and the subsequent arbitration of the
matter in the manner provided in Section 9.6 hereof, is necessary or reasonably
potentially necessary to satisfy any unsatisfied or unquantified claims
specified in any Officer's Certificate theretofore delivered to the Escrow Agent
prior to termination of the Escrow Period shall remain in the Escrow Fund until
such claims have been quantified or resolved.
(b) Within five (5) business days after the Termination
Date (the "Release Date"), the Escrow Agent shall release from Escrow to the
Shareholder Indemnitors their pro rata portion of the Escrow Fund, less with
respect to each such Shareholder Indemnitor the portion of the Escrow Fund with
a value (as determined pursuant to Section 9.4) equal to (A) such Shareholder
Indemnitor's pro rata portion of any assets in the Escrow Fund delivered to
Buyer in accordance with Section 9.4 in satisfaction of indemnification claims
by a Buyer Indemnified Person and (B) such Shareholder Indemnitor's pro rata
portion of any potential liability in accordance with Section 9.3(a) with
respect to any pending but unquantified or unresolved indemnification claims of
a Buyer Indemnified Person. Any Escrow Shares in the Escrow held as a result of
clause (B) shall be released to the Shareholder Indemnitors or released to Buyer
(as appropriate) promptly upon quantification or resolution of each specific
indemnification claim involved. Escrow Shares in the Escrow shall be released to
the respective Shareholder Indemnitors, in proportion to their respective
percentage interest in the Escrow Fund
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as specified in the Escrow Agreement. Certificates representing Escrow Shares
and Additional Escrow Shares in the Escrow so issued that are subject to resale
restrictions under applicable securities laws will bear a legend to that effect.
Buyer will take such action as may be necessary to cause such certificates to be
issued in the names of the appropriate persons. No fractional shares shall be
released and delivered from Escrow to the Shareholder Indemnitors. In lieu of
any fraction of an Escrow Share to which a Shareholder Indemnitor would
otherwise be entitled, such holder will receive from Buyer an amount of cash
(rounded to the nearest whole cent) equal to the product of such fraction
multiplied by the Average Buyer Common Stock Price.
(c) No part of the Escrow Fund or any beneficial interest
therein may be pledged, sold, assigned or transferred, including by operation of
law, by any Shareholder Indemnitor or be taken or reached by any legal or
equitable process in satisfaction of any debt or other liability of any such
Shareholder Indemnitor prior to the delivery to such Shareholder Indemnitor of
his pro rata portion of the Escrow Fund by the Escrow Agent as provided herein.
(d) The Escrow Agent is hereby granted the power to effect
any transfer of Escrow Shares contemplated by this Agreement. Buyer will
cooperate with the Escrow Agent in promptly issuing stock certificates to effect
such transfers.
9.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on
or before the Release Date of a certificate signed by the Chief Executive
Officer, President or Chief Financial Officer of Buyer (an "Officer's
Certificate") stating that with respect to the indemnification obligations of
the Shareholder Indemnitors in Section 9.2, Damages exist and specifying in
reasonable detail the individual items of such Damages included in the amount so
stated, the date each such item was paid, or properly accrued or arose, and the
nature of the misrepresentation, breach of warranty, default of a covenant or
other agreement or claim to which such item is related, the Escrow Agent shall,
subject to the provisions of this Section 9, deliver to Buyer out of the Escrow
Fund, as promptly as practicable after the claim is determined to be undisputed
or any dispute concerning the claim is resolved as set forth in this Section 9,
Buyer Common Stock, cash or other assets held in the Escrow Fund having a value
equal to such Damages, provided, however, that if the claim is based on a
third-party claim that has not been fully adjudicated or settled or is not
otherwise reasonably quantifiable by objective means (an "Unquantifiable
Claim"), then the Officer's Certificate shall so state and briefly describe the
circumstances that affect the quantifiability of the claimed amount. For the
purpose of compensating Buyer for its Damages pursuant to this Agreement, the
Escrow Shares shall be valued at the Average Buyer Common Stock Price.
9.5 Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's
Certificate shall be delivered to the Shareholders' Agent (defined in Section
9.7 below) and for a period of thirty (30) days after such delivery, the Escrow
Agent shall make no delivery of Escrow Shares pursuant to Section 9.4 hereof
unless the Escrow Agent shall have received written authorization from the
Shareholders' Agent to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the Escrow Shares in
the Escrow Fund in accordance with Section 9.4 hereof, provided that no such
payment or delivery may be made if the Shareholders' Agent shall object in a
written statement to the claim made in the Officer's Certificate.
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9.6 Resolution of Conflicts and Arbitration.
(a) In case the Shareholders' Agent (as defined in Section
9.7 below) shall so object in writing to any claim or claims by Buyer made in
any Officer's Certificate, including a claim by Buyer in connection with any
settlements pursuant to Section 9.9(b) hereof without having received the
Shareholder Agent's consent, Buyer shall have thirty (30) days to respond in a
written statement to the objection of the Shareholders' Agent. If after such
thirty (30) day period there remains a dispute as to any claims, the
Shareholders' Agent and Buyer shall attempt in good faith for sixty (60) days to
agree upon the rights of the respective parties with respect to each of such
claims. If the Shareholders' Agent and Buyer should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. With respect to an Unquantifiable Claim,
such memorandum may provide that the amount of liability with respect to the
Unquantifiable Claim shall be determined by mutual agreement of the parties
after the third party claim has been reduced to judgment or settled or until the
claim has otherwise become reasonably quantifiable by objective reasons. The
Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Buyer Common Stock or other property from the Escrow Fund in
accordance with the terms thereof. Buyer shall have no obligation to respond to
objections to Unquantifiable Claims deemed made pursuant to Section 9.5.
(b) If no such agreement can be reached after good faith
negotiation, either Buyer or the Shareholders' Agent may, by written notice to
the other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by one arbitrator. Buyer and the Shareholders'
Agent shall agree on the arbitrator, provided that if Buyer and the
Shareholders' Agent cannot agree on such arbitrator, either Buyer or
Shareholders' Agent can request that Judicial Arbitration and Mediation Services
("JAMS") select the arbitrator. The arbitrator shall set a limited time period
and establish procedures designed to reduce the cost and time for discovery
while allowing the parties an opportunity, adequate in the sole judgment of the
arbitrator, to discover relevant information from the opposing parties about the
subject matter of the dispute. The arbitrator shall rule upon motions to compel
or limit discovery and shall have the authority to impose sanctions, including
attorneys' fees and costs, to the same extent as a court of competent law or
equity, should the arbitrator determine that discovery was sought without
substantial justification, that discovery was refused or objected to without
substantial justification, or that a party has engaged in any other practice
that would justify the imposition of sanctions if the dispute were being
litigated in Superior Court in the county in which the arbitration is being
held. The decision of the arbitrator shall be written, shall be in accordance
with applicable law and with this Agreement, and shall be supported by written
findings of fact and conclusion of law which shall set forth the basis for the
decision of the arbitrator. The decision of the arbitrator as to the validity
and amount of any claim in such Officer's Certificate shall be binding and
conclusive upon the parties to this Agreement, and notwithstanding anything in
Section 9.5 hereof, the Escrow Agent shall be entitled to act in accordance with
such decision and make or withhold payments out of the Escrow Fund in accordance
therewith. Notwithstanding any other provision of this Section 9.6, if the claim
is an Unquantifiable Claim at the time when the arbitration proceeding is
scheduled to commence, then either party shall have the right to delay the
arbitration proceeding as to the
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amount of the liability has been reduced to judgment or settled or until the
claim has otherwise become reasonably quantifiable by objective means. Any
dispute as to the quantifiability of the claim shall be settled by binding
arbitration in accordance with the procedures set forth herein.
(c) Judgment upon any award rendered by the arbitrator may
be entered in any court having jurisdiction. Any such arbitration shall be held
in San Mateo County, California under the commercial rules then in effect of the
American Arbitration Association. For purposes of this Section 9.6(c), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Buyer shall be deemed to be the
Non-Prevailing Party unless the arbitrators award Buyer more than one-half (1/2)
of the amount in dispute, plus any amounts not in dispute; otherwise, the
Shareholder Indemnitors for whom the Escrow Shares have been deposited in the
Escrow Fund shall be deemed to be the Non-Prevailing Party. The Non-Prevailing
Party to an arbitration shall pay its own expenses, the fees of the arbitrator,
any administrative fee of JAMS, and the expenses, including attorneys' fees and
costs, reasonably incurred by the other party to the arbitration.
9.7 Shareholders' Agent.
(a) Xxxxxx X. Xxxxxx shall be constituted and appointed as
agent ("Shareholders' Agent") for and on behalf of the Shareholder Indemnitors
to give and receive notices and communications, to authorize delivery to Buyer
of the Escrow Shares from the Escrow Fund in satisfaction of claims by Buyer, to
object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Shareholders' Agent for the
accomplishment of the foregoing. Such agency may be changed by the holders of a
majority in interest of the Escrow Fund from time to time upon not less than ten
(10) days' prior written notice to Buyer. No bond shall be required of the
Shareholders' Agent, and the Shareholders' Agent shall receive no compensation
for his services, provided, however that the Shareholder Agent shall be entitled
to reimbursement of all reasonable out-of-pocket expenses incurred in serving in
this capacity from the Escrow Fund. Notices or communications to or from the
Shareholders' Agent shall constitute notice to or from each of the Shareholder
Indemnitors.
(b) The Shareholders' Agent shall not be liable for any
act done or omitted hereunder as Shareholder' Agent while acting in good faith
and in the exercise of reasonable judgment and any act done or omitted pursuant
to the advice of counsel shall be conclusive evidence of such good faith. The
Shareholder Indemnitors shall severally indemnify the Shareholders' Agent and
hold him harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Shareholders' Agent shall have reasonable access
to information about the Surviving Corporation, and Buyer will not preclude the
Shareholders' Agent from relevant discussions with former officers and other
employees of Company, provided that the Shareholders' Agent shall treat
confidentially and not disclose any nonpublic information from or about the
Surviving Corporation to anyone (except on a need to know basis to individuals
who agree to treat such information confidentially).
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9.8 Actions of the Shareholders' Agent. A decision, act, consent
or instruction of the Shareholders' Agent shall constitute a decision of all
Shareholder Indemnitors for whom Escrow Shares are deposited in the Escrow Fund
and shall be final, binding and conclusive upon each such Shareholder
Indemnitor, and the Escrow Agent and Buyer may rely upon any decision, act,
consent or instruction of the Shareholders' Agent as being the decision, act,
consent or instruction of each and every such Shareholder Indemnitor. The Escrow
Agent and Buyer are hereby relieved from any liability to any person for any
acts done by them in accordance with such decision, act, consent or instruction
of the Shareholders' Agent.
9.9 Third-Party Claims; Settlements. In the event Buyer becomes
aware of a third-party claim which Buyer believes may result in a claim against
the Escrow Fund, Buyer shall promptly notify the Shareholders' Agent of such
claim, and the Shareholder's Agent and the Shareholder Indemnitors shall be
entitled, at their expense, to participate in any defense of the claim;
provided, however, that no delay on the part of Buyer in notifying the
Shareholders' Agent shall relieve the Shareholder Indemnitors of any liability
or obligation hereunder except to the extent of any damage, loss, cost or
expense or liability arising out of such failure. Buyer shall have the right to
settle any such claim. In the event that the Shareholders' Agent has consented
to the specific terms of any such settlement, such consent not to be
unreasonably withheld, including, but not limited to, the dollar amount of such
settlement, neither the Shareholder Indemnification nor the Shareholders' Agent
shall have any power or authority to object under Section 9.5 or any other
provision of this Agreement to the amount of any claim by Buyer against the
Escrow Fund for indemnity that is consistent with such settlement. Any disputes
arising out of an objection by the Shareholders' Agent for such settlement by
Buyer shall be resolved pursuant to the arbitration procedures set forth in
Section 9.6(b).
10. General Provisions.
10.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed duly delivered if delivered personally
(upon receipt), or three (3) business days after being mailed by registered or
certified mail, postage prepaid (return receipt requested), or one (1) business
day after it is sent by commercial overnight courier service, or upon
transmission, if sent via facsimile (with confirmation of receipt) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
(a) if to Buyer or Merger Sub, to:
E.piphany, Inc.
0000 X. Xxxxxxx Xxxxxx
Xxxxx 000
Xxx Xxxxx, XX 00000
Attn: Xxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich LLP
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000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(b) if to Company, to:
000 Xxxxxxxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxx Xxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000-0000
Attn: Xxxx Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(c) if to Shareholders' Agent, to:
Xxxxxx X. Xxxxxx
000 Xxxxxxxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxx Xxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000-0000
Attn: Xxxx Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
10.2 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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10.3 Entire Agreement; Nonassignability; Parties in Interest.
This Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto (including the
Exhibits, the Schedules, including the Company Disclosure Schedule and the Buyer
Disclosure Schedule) (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, including the XXX and except for the Confidentiality
Agreement, which shall continue in full force and effect, and shall survive any
termination of this Agreement or the Closing, in accordance with its terms; (b)
are not intended to confer upon any other person any rights or remedies
hereunder, and shall not be assigned by operation of law or otherwise without
the written consent of the other party.
10.4 Severability. In the event that any provision of this
Agreement, or the application thereof becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
10.5 Remedies Cumulative. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
10.6 Arbitration.
(a) Subject to paragraph (b) below and the limitations set
forth in the provisions of Section 10 hereof, the parties shall endeavor to
resolve all disputes by agreement and to that end shall each provide the other
with sufficient descriptions and information regarding its position to permit
informed assessments and decisions. Any disagreement, claim, demand,
controversy, or dispute which arises after the Closing in any way relating to
this Agreement and the performance or alleged breach by the parties, whether
involving questions of law or fact or both and regardless of the nature thereof
or the remedy therefor, which is not settled by agreement of the parties shall
be resolved consistent with the arbitration provisions in Section 9.6 of the
Agreement.
(b) Any party hereto may request a court of competent
jurisdiction to grant provisional injunctive relief to such party until an
arbitrator can render an award on the matter in question and such award can be
confirmed by a court having jurisdiction thereof.
10.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of California regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
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10.8 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
BUYER: COMPANY:
E.PIPHANY, INC. eCLASS DIRECT, INC.
By: /s/ XXXXX X. XXXXXX By: /s/ XXXXXX XXXXXX
------------------------------- ---------------------------------
Title: Chief Executive Officer Title: President
---------------------------- ------------------------------
MERGER SUB:
TROUT ACQUISITION CORPORATION
By: /s/ XXXXX X. XXXXXX
-------------------------------
Title: Chief Financial Officer
----------------------------
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