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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG:
ACCRUE SOFTWARE, INC.,
A DELAWARE CORPORATION;
NEOVISTA ACQUISITION CORP.,
A CALIFORNIA CORPORATION; AND
NEOVISTA SOFTWARE, INC.,
A CALIFORNIA CORPORATION;
AND
---------------------------
DATED AS OF NOVEMBER 17, 1999
---------------------------
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TABLE OF CONTENTS
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1. Description of Transaction....................................................1
1.1 Merger of Merger Sub into the Company.........................................2
1.2 Effect of the Merger..........................................................2
1.3 Closing; Effective Time.......................................................2
1.4 Articles of Incorporation and Bylaws; Directors and Officers..................2
1.5 Conversion of Shares..........................................................3
1.6 Employee Stock Options........................................................4
1.7 Company Warrants..............................................................5
1.8 Closing of the Company's Transfer Books.......................................6
1.9 Exchange of Certificates......................................................7
1.10 Dissenting Shares.............................................................8
1.11 Holdback Shares...............................................................8
1.12 Tax Consequences..............................................................9
1.13 Accounting Treatment..........................................................9
1.14 Further Action................................................................9
2. Representations and Warranties of the Company and the Company Executives......9
2.1 Due Organization; No Subsidiaries; Etc........................................9
2.2 Articles of Incorporation and Bylaws; Records................................10
2.3 Capitalization, Etc..........................................................10
2.4 Financial Statements.........................................................13
2.5 Absence of Changes...........................................................13
2.6 Title to Assets..............................................................15
2.7 Bank Accounts; Receivables...................................................16
2.8 Equipment; Leasehold.........................................................16
2.9 Proprietary Assets...........................................................16
2.10 Contracts....................................................................18
2.11 Liabilities..................................................................20
2.12 Compliance with Legal Requirements...........................................21
2.13 Governmental Authorizations..................................................21
2.14 Tax Matters..................................................................21
2.15 Employee and Labor Matters; Benefit Plans....................................23
2.16 Environmental Matters........................................................25
2.17 Insurance....................................................................26
2.18 Related Party Transactions...................................................26
2.19 Legal Proceedings; Orders....................................................27
2.20 Authority; Binding Nature of Agreement.......................................27
2.21 Non-Contravention; Consents..................................................27
2.22 Brokers......................................................................29
2.23 Compliance with the Hart-Scott-Rodino Act....................................29
2.24 Permit Application; Information Statement....................................29
2.25 Affiliate and Voting Agreements..............................................30
2.26 Vote Required................................................................30
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2.27 Board Approval...............................................................30
2.28 Customers and Suppliers......................................................30
2.29 [Intentionally Left Blank]...................................................31
2.30 No Commitments Regarding Future Products.....................................31
2.31 Full Disclosure..............................................................31
3. [Intentionally Left Blank]...................................................31
4. Representations and Warranties of Parent and Merger Sub......................31
4.1 Organization; Good Standing; Qualification and Power.........................32
4.2 Parent Capitalization........................................................32
4.3 No Conflict; Required Filings and Consents...................................33
4.4 SEC Filings; Financial Statements............................................33
4.5 Absence of Undisclosed Liabilities...........................................34
4.6 Absence of Certain Changes...................................................34
4.7 Litigation...................................................................34
4.8 Governmental Authorization...................................................35
4.9 Compliance With Laws.........................................................35
4.10 Accounting and Tax Matters...................................................35
4.11 Authority; Binding Nature of Agreement.......................................35
4.12 Valid Issuance...............................................................35
5. Certain Covenants of the Company.............................................36
5.1 Access and Investigation.....................................................36
5.2 Operation of the Company's Business..........................................36
5.3 Notification; Updates to the Company Disclosure Schedule.....................38
5.4 Non-Solicitation.............................................................39
6. Additional Covenants of the Parties..........................................40
6.1 Filings and Consents.........................................................40
6.2 Public Announcements.........................................................40
6.3 Affiliate Agreements.........................................................40
6.4 Commercially Reasonable Efforts..............................................40
6.5 Noncompetition Agreements....................................................40
6.6 FIRPTA Matters...............................................................41
6.7 Advice of Changes............................................................41
6.8 Reorganization Treatment.....................................................41
6.9 Certain Employee Benefits Matters............................................41
6.10 Section 16 Matters...........................................................42
6.11 Shareholder Approval.........................................................42
6.12 Company Shareholders Meeting.................................................43
6.13 Line of Credit...............................................................43
7. Conditions Precedent to Obligations of Parent and Merger Sub.................43
7.1 Accuracy of Representations..................................................43
7.2 Performance of Covenants.....................................................44
7.3 Dissenters' Rights; Conversion of Preferred..................................44
7.4 Consents.....................................................................44
7.5 Agreements and Documents.....................................................44
7.6 Exemption from Applicable Securities Laws....................................45
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7.7 No Restraints................................................................45
7.8 No Legal Proceedings.........................................................45
7.9 No Material Adverse Change...................................................45
8. Conditions Precedent to Obligations of the Company...........................46
8.1 Accuracy of Representations..................................................46
8.2 Performance of Covenants.....................................................46
8.3 Documents....................................................................46
8.4 Listing......................................................................46
8.5 No Restraints................................................................46
8.6 No Material Adverse Change...................................................47
8.7 Tax Opinion..................................................................47
9. Termination..................................................................47
9.1 Termination..................................................................47
9.2 Effect of Termination........................................................48
10. Indemnification, Etc.........................................................48
10.1 Survival of Representations, Etc.............................................48
10.2 Indemnification..............................................................48
10.3 Exclusive Remedy.............................................................49
10.4 No Contribution..............................................................49
10.5 Defense of Third Party Claims................................................50
11. Miscellaneous Provisions.....................................................51
11.1 Restrictions on Transfer.....................................................51
11.2 Shareholders' Agent..........................................................53
11.3 Further Assurances...........................................................54
11.4 Fees and Expenses............................................................54
11.5 Attorneys' Fees..............................................................55
11.6 Notices......................................................................55
11.7 [Intentionally Left Blank]...................................................56
11.8 Time of the Essence..........................................................56
11.9 Headings.....................................................................56
11.10 Counterparts.................................................................56
11.11 Governing Law................................................................56
11.12 Successors and Assigns.......................................................56
11.13 Waiver of Jury Trial.........................................................57
11.14 Remedies Cumulative; Specific Performance....................................57
11.15 Waiver.......................................................................57
11.16 Amendments...................................................................57
11.17 Severability.................................................................57
11.18 Parties in Interest..........................................................58
11.19 Entire Agreement.............................................................58
11.20 Construction.................................................................58
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EXHIBITS
Exhibit A - Certain Definitions
Exhibit B - Form of Escrow Agreement
Exhibit C-1 - Persons to Execute Affiliate Agreements
Exhibit C-2 - Form of Affiliate Agreement
Exhibit D-1 - Persons to Sign Noncompetition Agreements
Exhibit D-2 - Form of Noncompetition Agreement
Exhibit E - Form of Legal Opinion of Venture Law Group
Exhibit F-1 - Persons to Sign Voting Agreement
Exhibit F-2 - Voting Agreement
Exhibit G - Form of Opinion of Orrick, Herrington & Sutcliffe LLP
<PAGE> 6
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization ("AGREEMENT") is
made and entered into as of November 17, 1999 by and among: Accrue Software,
Inc., a Delaware corporation ("PARENT"); NeoVista Acquisition Corp., a
California corporation and a wholly owned subsidiary of Parent ("MERGER SUB");
and NeoVista Software, Inc., a California corporation (the "COMPANY"). Certain
other capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub with and into the Company in accordance with this Agreement and the
California General Corporation Law (the "MERGER"). Upon consummation of the
Merger, Merger Sub will cease to exist, and the Company will become a wholly
owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"). For accounting purposes, it is intended that the Merger be
treated as a "purchase."
C. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company.
D. The holders of all the outstanding capital stock of the Company (the
"SHAREHOLDERS") own a total of (A) 3,457,095 shares of the Common Stock (no par
value per share) of the Company ("COMPANY COMMON STOCK") and 19,598,969 shares
of the Preferred Stock (no par value per share) of the Company ("COMPANY
PREFERRED STOCK") consisting of (i) 548,847 shares of Series I Preferred Stock
("SERIES I PREFERRED STOCK"), (ii) 1,200,000 shares of Series II Preferred Stock
("SERIES II PREFERRED STOCK"), (iii) no shares of Series II-A Preferred Stock
("SERIES II-A PREFERRED STOCK"), (iv) 4,391,175 shares of Series III Preferred
Stock ("SERIES III PREFERRED STOCK"), (v) no shares of Series III-A Preferred
Stock ("SERIES III-A PREFERRED STOCK"), (vi) no shares of Series IV Preferred
Stock ("SERIES IV PREFERRED STOCK"), (vii) no shares of Series IV-A Preferred
Stock ("SERIES IV-A PREFERRED STOCK"), (viii) 2,981,852 shares of Series V
Preferred Stock ("SERIES V PREFERRED STOCK"), (ix) 10,477,095 shares of Series
VI Preferred Stock ("SERIES VI PREFERRED STOCK"), (all such series of Preferred
Stock together with the Company Common Stock, are referred to as the "COMPANY
STOCK"), which shares are all of the issued and outstanding shares of capital
stock of the Company.
AGREEMENT
For good and valuable consideration, the receipt of which is hereby
acknowledged, the parties to this Agreement agree as follows:
1. DESCRIPTION OF TRANSACTION.
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1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation after the Merger (the "SURVIVING CORPORATION").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the California General
Corporation Law.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of Venture Law Group, A Professional Corporation, 2775 Sand Hill Road, Menlo
Park, California 94025 at 10:00 a.m. on December 15, 1999, or at such other time
and date as Parent and the Company may agree. The date on which the Closing
actually takes place is referred to in this Agreement as the "Closing Date."
Contemporaneously with or as promptly as practicable after the Closing, a
properly executed agreement of merger conforming to the requirements of Chapter
11 of the California General Corporation Law shall be filed with the Secretary
of State of the State of California. The Merger shall become effective at the
time such agreement of merger is filed with the Secretary of State of the State
of California (the "EFFECTIVE TIME").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
otherwise determined by Parent and the Company prior to the Effective Time:
(a) At the Effective Time, the Articles of Incorporation of
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 California law and such Articles of Incorporation; provided,
however, that Article I of the Articles of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation is
NeoVista Software, Inc."
(b) At the Effective time, 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 California law, the Articles
of Incorporation of the Surviving Corporation and such Bylaws.
(c) At the Effective Time, the directors of Merger Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, and the officers of Merger Sub immediately prior to the Effective
Time, shall be the officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and qualified.
1.5 CONVERSION OF SHARES.
(a) Subject to Sections 1.9, 1.10 and 1.11 at the Effective Time,
by virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any Shareholder:
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(i) each share of Company Common Stock outstanding
immediately prior to the Effective Time (including the shares of Company Common
Stock issued upon conversion of all shares of the Company's Preferred Stock)
shall be converted into the right to receive the "Applicable Fraction" (as
defined in Section 1.5(b)) of a share of the common stock (par value $.001 per
share) of Parent ("PARENT COMMON STOCK"); and
(ii) each share of the common stock (par value $.001 per
share) of Merger Sub outstanding immediately prior to the Effective Time shall
be converted into one share of common stock of the Surviving Corporation.
(b) For purposes of this Agreement:
(i) the "APPLICABLE FRACTION" shall be calculated by
dividing the Net Merger Shares (as defined below) by the sum of (i) aggregate
number of outstanding shares of Company Common Stock (after giving effect to the
conversion of all outstanding shares of the Company's Preferred Stock into
Common Stock) and (ii) the aggregate number of shares of Company Common Stock
represented by Company Options (as defined in Section 1.6), Company Common
Warrants (as defined in Section 1.7(a)) and Company Preferred Warrants (as
defined in Section 1.7(b)), in each case as of the Effective Time;
(ii) the term "TOTAL MERGER SHARES" shall mean 2,400,000
shares of Parent Common Stock;
(iii) the term "NET MERGER SHARES" shall mean the Total
Merger Shares less the number of Expense Shares (as defined below); and
(iv) the term "EXPENSE SHARES" shall mean the number of
shares of Parent Common Stock calculated by dividing the sum of (i) the amount
of the Company Expenses reflected on the Schedule of Expenses delivered pursuant
to Section 7.5(g) and (ii) all principal and accrued interest outstanding under
loans made by shareholders of the Company to the Company after September 30,
1999, which principal and accrued interest totaled approximately $1 million as
of the date of this Agreement by the Stipulated Value (as used herein,
"STIPULATED VALUE" shall mean the average of the closing prices per share of
Parent Common Stock on the Nasdaq Stock Market, as reported in The Wall Street
Journal, or if not reported therein, any other authoritative source, on each of
the ten business days immediately prior to the Effective Time).
(c) The Applicable Fraction shall be adjusted to reflect fully
the effect of any stock split, stock dividend (including any dividend or
distribution of stock convertible into Parent Common Stock or Company Common
Stock), reorganization, recapitalization or other similar change with respect to
Parent Common Stock or Company Common Stock after the date hereof and prior to
the Effective Time.
(d) If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the
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<PAGE> 9
Company contained in any applicable restricted stock agreement or other
agreement with the Company, then the shares of Parent Common Stock issued in
exchange for such shares of Company Common Stock will also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Parent Common Stock may
accordingly be marked with appropriate legends.
1.6 EMPLOYEE STOCK OPTIONS. At the Effective Time, each stock option
that is then outstanding under the Company's 1991 Incentive Stock Option Plan
(the "COMPANY ISO PLAN") and the 1991 Non-Qualified Stock Option/Stock Issuance
Plan (the "COMPANY NSO PLAN") (the "COMPANY OPTION PLANS"), whether vested or
unvested (a "COMPANY OPTION"), shall be assumed by Parent in accordance with the
terms (as in effect as of the date of this Agreement) of the Company Option
Plans and the stock option agreement by which such Company Option is evidenced.
All rights with respect to Company Common Stock under outstanding Company
Options shall thereupon be converted into rights with respect to Parent Common
Stock. Accordingly, from and after the Effective Time, (a) each Company Option
assumed by Parent may be exercised solely for shares of Parent Common Stock, (b)
the number of shares of Parent Common Stock subject to each such assumed Company
Option shall be equal to the number of shares of Company Common Stock that were
subject to such Company Option immediately prior to the Effective Time
multiplied by the Applicable Fraction, rounded down to the nearest whole number
of shares of Parent Common Stock (collectively, the "OPTION SHARES"), (c) the
per share exercise price for the Parent Common Stock issuable upon exercise of
each such assumed Company Option shall be determined by dividing the exercise
price per share of Company Common Stock subject to such Company Option, as in
effect immediately prior to the Effective Time, by the Applicable Fraction, and
rounding the resulting exercise price up to the nearest whole cent, and (d) all
restrictions on the exercise of each such assumed Company Option shall continue
in full force and effect, and the term, exercisability, vesting schedule and
other provisions of such Company Option shall otherwise remain unchanged;
provided, however, that each such assumed Company Option shall, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction effected by Parent after the Effective Time. The Company and
Parent shall take all action that may be necessary (under the Company Option
Plans and otherwise) to effectuate the provisions of this Section 1.6. It is the
intention of the parties that the Company Options assumed by Parent qualify
following the Effective Time as incentive stock options as defined in Section
422 of the Code to the extent such Company Options qualified as incentive stock
options prior to the Effective Time, and this Section 1.6 shall be interpreted
consistent with such intent. Following the Closing, Parent will send to each
holder of an assumed Company Option a written notice setting forth (i) the
number of shares of Parent Common Stock subject to such assumed Company Option,
and (ii) the exercise price per share of Parent Common Stock issuable upon
exercise of such assumed Company Option. No later than February 1, 2000, Parent
shall file a registration statement on Form S-8 for the shares of Parent Common
Stock issuable with respect to assumed Company Options that are eligible for
inclusion on Form S-8 and shall maintain the effectiveness of such registration
statement thereafter for so long as any such options or other rights remain
outstanding. The Company has not taken, and shall not take, any action that
would result in the accelerated vesting, exercisability or payment of the
Company Options as a consequence of the execution of, or consummation of the
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<PAGE> 10
transactions contemplated by, this Agreement. Consistent with the terms of the
Company Option Plans and the documents governing the outstanding options under
the Company Option Plans, the Merger will not terminate any of the outstanding
Company Options or accelerate the vesting, exercisability or payment of any
Company Options or the shares of Parent Common Stock which will be subject to
those options upon the Parent's assumption of the Company Options in the Merger.
1.7 COMPANY WARRANTS.
(a) At the Effective Time, each warrant to purchase Company
Common Stock that is then outstanding, whether vested or unvested (a "COMPANY
COMMON WARRANT"), shall be assumed by Parent in accordance with the terms (as in
effect as of the date of this Agreement) of the applicable warrant agreement by
which such Company Common Warrant is evidenced. All rights with respect to
Company Common Stock under outstanding Company Common Warrants shall thereupon
be converted into rights with respect to Parent Common Stock. Accordingly, from
and after the Effective Time, (a) each Company Common Warrant assumed by Parent
may be exercised solely for shares of Parent Common Stock, (b) the number of
shares of Parent Common Stock subject to each such assumed Company Common
Warrant shall be equal to the number of shares of Company Common Stock that were
subject to such Company Common Warrant immediately prior to the Effective Time
multiplied by the Applicable Fraction, rounded down to the nearest whole number
of shares of Parent Common Stock (collectively, the "COMMON WARRANT SHARES"),
(c) the per share exercise price for the Parent Common Stock issuable upon
exercise of each such assumed Company Common Warrant shall be determined by
dividing the exercise price per share of Company Common Stock subject to such
Company Common Warrant, as in effect immediately prior to the Effective Time, by
the Applicable Fraction, and rounding the resulting exercise price up to the
nearest whole cent, and (d) all restrictions on the exercise of each such
assumed Company Common Warrant shall continue in full force and effect, and the
term, exercisability, vesting schedule and other provisions of such Company
Common Warrant shall otherwise remain unchanged; provided, however, that each
such assumed Company Common Warrant shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, reverse
stock split, stock dividend, recapitalization or other similar transaction
effected by Parent after the Effective Time. The Company and Parent shall take
all action that may be necessary to effectuate the provisions of this Section
1.7(a). Following the Closing, Parent will send to each holder of an assumed
Company Common Warrant a written notice setting forth (i) the number of shares
of Parent Common Stock subject to such assumed Company Common Warrant, and (ii)
the exercise price per share of Parent Common Stock issuable upon exercise of
such assumed Company Common Warrant. Notwithstanding the foregoing, Parent shall
not be required to assume any Company Common Warrant which by its terms has
terminated as of the Effective Time of the Merger.
(b) At the Effective Time, each warrant to purchase Company
Preferred Stock that is then outstanding, whether vested or unvested (a "COMPANY
PREFERRED WARRANT"), shall be assumed by Parent in accordance with the terms (as
in effect as of the date of this Agreement) of the applicable warrant agreement
by which such Company Preferred Warrant is evidenced. All rights with respect to
Company Preferred Stock under outstanding Company Preferred Warrants
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<PAGE> 11
shall thereupon be converted into rights with respect to Parent Common Stock.
Accordingly, from and after the Effective Time, (a) each Company Preferred
Warrant assumed by Parent may be exercised solely for shares of Parent Common
Stock, (b) the number of shares of Parent Common Stock subject to each such
assumed Company Preferred Warrant shall be equal to the number of shares of
Company Common Stock into which the Company Preferred Stock that were subject to
such Company Preferred Warrant could then be converted immediately prior to the
Effective Time multiplied by the Applicable Fraction, rounded down to the
nearest whole number of shares of Parent Common Stock (collectively, the
"PREFERRED WARRANT SHARES"), (c) the per share exercise price for the Parent
Common Stock issuable upon exercise of each such assumed Company Preferred
Warrant shall be determined by dividing the exercise price per share of Company
Common Stock into which the Company Preferred Stock subject to such Company
Preferred Warrant could then be converted, as in effect immediately prior to the
Effective Time, by the Applicable Fraction, and rounding the resulting exercise
price up to the nearest whole cent, and (d) all restrictions on the exercise of
each such assumed Company Preferred Warrant shall continue in full force and
effect, and the term, exercisability, vesting schedule and other provisions of
such Company Preferred Warrant shall otherwise remain unchanged; provided,
however, that each such assumed Company Preferred Warrant shall, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction effected by Parent after the Effective Time. The Company and
Parent shall take all action that may be necessary to effectuate the provisions
of this Section 1.7(b). Following the Closing, Parent will send to each holder
of an assumed Company Preferred Warrant a written notice setting forth (i) the
number of shares of Parent Common Stock subject to such assumed Company
Preferred Warrant, and (ii) the exercise price per share of Parent Common Stock
issuable upon exercise of such assumed Company Preferred Warrant.
Notwithstanding the foregoing, Parent shall not be required to assume any
Company Preferred Warrant which by its terms has terminated as of the Effective
Time of the Merger.
1.8 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "COMPANY STOCK CERTIFICATE") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.9.
1.9 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, Parent
will send to the holders of Company Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify, and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for certificates representing
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<PAGE> 12
Parent Common Stock. Upon surrender of a Company Stock Certificate to Parent for
exchange, together with a duly executed letter of transmittal and such other
documents as may be reasonably requested by Parent, the holder of such Company
Stock Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Common Stock (and
cash in lieu of any fractional share of Parent Common Stock in accordance with
Section 1.9(c)) that such holder has the right to receive pursuant to the
provisions of this Section 1, and the Company Stock Certificate so surrendered
shall be canceled. Until surrendered as contemplated by this Section 1.9, each
Company Stock Certificate shall be deemed, from and after the Effective Time, to
represent only the right to receive upon such surrender a certificate
representing shares of Parent Common Stock (and cash in lieu of any fractional
share of Parent Common Stock in accordance with Section 1.9(c)) as contemplated
by this Section 1. If any Company Stock Certificate shall have been lost, stolen
or destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Parent Common Stock, require the owner
of such lost, stolen or destroyed Company Stock Certificate to provide an
appropriate affidavit and to deliver a bond (in such sum as Parent may
reasonably direct) as indemnity against any claim that may be made against
Parent or the Surviving Corporation with respect to such Company Stock
Certificate.
(b) No dividends or other distributions declared or made with
respect to Parent Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Parent Common Stock represented thereby and no cash
payment in lieu of any fractional share shall be paid to any such holder, until
such holder surrenders such Company Stock Certificate in accordance with this
Section 1.9 (at which time such holder shall be entitled to receive all such
dividends and distributions and such cash payment without interest).
(c) No fractional shares of Parent Common Stock shall be issued
in connection with the Merger and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any holder of capital stock
of the Company who would otherwise be entitled to receive a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock issuable to such holder) shall, upon surrender of such holder's Company
Stock Certificate(s), be paid in cash the dollar amount (rounded to the nearest
whole cent), without interest, determined by multiplying such fraction by the
Stipulated Value).
(d) Parent and the Surviving Corporation shall be entitled to
deduct and withhold from any consideration payable or otherwise deliverable to
any holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required to
deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
(e) Neither Parent nor the Surviving Corporation shall be liable
to any holder or former holder of capital stock of the Company for any shares of
Parent Common Stock (or dividends or distributions with respect thereto) or for
any cash amounts if, on or after the
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<PAGE> 13
expiration of one (1) year after the Effective Time, such shares are delivered
to any public official pursuant to any applicable abandoned property, escheat or
similar law.
1.10 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of capital stock of the Company that, as of the Effective
Time, are or may become held by a "dissenting shareholder" within the meaning of
Chapter 13 of the California General Corporation Law shall not be converted into
or represent the right to receive Parent Common Stock in accordance with Section
1.5 (or cash in lieu of fractional shares in accordance with Section 1.9(c)),
and the holder or holders of such shares shall be entitled only to such rights
as may be granted to such holder or holders in Chapter 13 of the California
General Corporation Law; provided, however, that if the status of any such
holder as a "dissenting shareholder" shall not be perfected, or if such holder
shall lose his, her or its status as a "dissenting shareholder," then, as of the
later of the Effective Time or the time of the failure to perfect such status or
the loss of such status, such shares shall automatically be converted into and
shall represent only the right to receive (upon the surrender of the certificate
or certificates representing such shares) Parent Common Stock in accordance with
Section 1.5 (and cash in lieu of fractional shares in accordance with Section
1.9(c)).
(b) The Company shall give Parent (i) prompt notice of any
written demand received by the Company prior to the Effective Time to require
the Company to purchase shares of capital stock of the Company pursuant to
Chapter 13 of the California General Corporation Law and of any other demand,
notice or instrument delivered to the Company prior to the Effective Time
pursuant to the California General Corporation Law, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to any such demand,
notice or instrument. The Company shall not make any payment (unless such
payment is pursuant to a court order in which event the Company shall give
Parent notice of any such court order or request therefor as soon as
practicable) or settlement offer prior to the Effective Time with respect to any
such demand unless Parent shall have consented in writing to such payment or
settlement offer.
1.11 HOLDBACK SHARES.
(a) Parent shall establish and maintain an escrow (the "ESCROW
ACCOUNT") comprised of ten percent (10%) of the remainder of the Net Merger
Shares less the Option Shares less the Common Warrant Shares less the Preferred
Warrant Shares (the "HOLDBACK SHARES"). Parent shall designate and appoint U.S.
Stock Transfer Corporation or such other third party escrow agent that is
mutually and reasonably acceptable to Parent and the Shareholders' Agent (as
hereinafter defined) in connection therewith (the "ESCROW AGENT") to serve in
accordance with the Escrow Agreement substantially in the form attached as
Exhibit B hereto (the "ESCROW AGREEMENT") to be entered into among Parent, the
Escrow Agent and the Shareholders' Agent at Closing. Such escrow of the Holdback
Shares shall be maintained for purposes of satisfying claims brought pursuant to
Section 10 and for the period of time set forth in such Section 10.1 (the
"HOLDBACK PERIOD").
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<PAGE> 14
(b) The right to receive the Holdback Shares upon expiration of
the Holdback Period (i) is an integral part of the consideration in the Merger,
and (ii) shall be transferable or assignable only upon submission of evidence of
such transfer or assignment reasonably satisfactory to Parent and the Escrow
Agent. The value of any shares of Parent Common Stock ultimately retained by
Parent hereunder shall be treated for purposes of this Agreement as a reduction
of the consideration paid to the Shareholders in the Merger.
1.12 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.13 ACCOUNTING TREATMENT. For accounting purposes, the Merger is
intended to be treated as a "purchase."
1.14 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be reasonably necessary or desirable
to carry out the purposes of this Agreement or to vest the Surviving Corporation
or Parent with full right, title and possession of and to all rights and
property of Merger Sub and the Company, the officers and directors of the
Surviving Corporation and Parent shall be fully authorized (in the name of
Merger Sub, in the name of the Company and otherwise) to take such action.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY EXECUTIVES.
The Company represents and warrants, to and for the benefit of the
Indemnitees, that, except as set forth in the Company Disclosure Schedule:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of California and has all necessary
corporate power and authority to: (i) conduct its business in the manner in
which its business is currently being conducted; (ii) own and use its assets in
the manner in which its assets are currently owned and used; and (iii) perform
its obligations under all Company Contracts.
(b) The Company has not conducted any business under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or other name, other than the names "NeoVista Software, Inc." and
"Maspar Computer Corporation."
(c) The Company is not, and has not been required to be,
qualified, authorized, registered or licensed to do business as a foreign
corporation in any jurisdiction other than the jurisdictions identified in Part
2.1(c) of the Company Disclosure Schedule, except where the failure to be so
qualified, authorized, registered or licensed has not had and could not
reasonably be expected to result in a Company Material Adverse Effect. The
Company is in good standing as a foreign corporation in each of the
jurisdictions identified in Part 2.1(c) of the Company Disclosure Schedule.
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<PAGE> 15
(d) Part 2.1(d) of the Company Disclosure Schedule accurately
sets forth (i) the names of the members of the Company's board of directors,
(ii) the names of the members of each committee of the Company's board of
directors, and (iii) the names and titles of the Company's officers.
(e) Except as set forth in Part 2.1(e) of the Company Disclosure
Schedule, the Company does not own any controlling interest in any Entity and
the Company has never owned, beneficially or otherwise, any shares or other
securities of, or any direct or indirect equity interest in, any Entity. The
Company has not agreed and is not obligated to make any future investment in, or
capital contribution to, any Entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate, complete and up-to-date copies of: (a) the
Company's articles of incorporation and bylaws, including all amendments
thereto; (b) the stock records of the Company; and (c) the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the shareholders of the
Company, the board of directors of the Company and all committees of the board
of directors of the Company since the date of the Company's incorporation. There
have been no formal meetings or other proceedings of the shareholders of the
Company, the board of directors of the Company or any committee of the board of
directors of the Company that are not fully reflected in such minutes or other
records. There has not been any violation of any of the provisions of the
Company's articles of incorporation or bylaws, and the Company has not taken any
action that is inconsistent in any material respect with any resolution adopted
by the Company's shareholders, the Company's board of directors or any committee
of the Company's board of directors. The books of account, stock records, minute
books and other records of the Company are accurate, up-to-date and complete in
all material respects, and have been maintained in accordance with prudent
business practices.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (A)
50,000,000 shares of Common Stock, of which 3,457,095 shares have been issued
and are outstanding as of the date of this Agreement; and (B) 37,399,827 shares
of Preferred Stock, 19,598,969 shares of which are issued and outstanding as of
the date of this Agreement, (i) 548,847 of which have been designated "Series I
Preferred Stock," all of which shares have been issued and are outstanding as of
the date of this Agreement and are convertible into an aggregate of 548,847
shares of Common Stock, (ii) 1,200,000 of which have been designated "Series II
Preferred Stock," all of which shares have been issued and are outstanding as of
the date of this Agreement and are convertible into an aggregate of 1,200,000
shares of Common Stock, (iii) 1,200,000 of which have been designated "Series
II-A Preferred Stock," none of which shares have been issued and are outstanding
as of the date of this Agreement, (iv) 5,882,353 of which have been designated
"Series III Preferred Stock," of which 4,391,175 shares have been issued and are
outstanding as of the date of this Agreement and are convertible into an
aggregate of 6,426,586 shares of Common Stock, (v) 5,882,353 of which have been
designated "Series III-A Preferred Stock," none of which shares have been issued
and are outstanding as of the date of this
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<PAGE> 16
Agreement, (vi) 1,176,470 of which have been designated "Series IV Preferred
Stock," none of which shares have been issued and are outstanding as of the date
of this Agreement, (vii) 1,176,470 of which have been designated "Series IV-A
Preferred Stock," none of which shares have been issued and are outstanding as
of the date of this Agreement, (viii) 7,000,000 of which have been designated
"Series V Preferred Stock," of which 2,981,852 shares have been issued and are
outstanding as of the date of this Agreement and are convertible into an
aggregate of 3,681,294 shares of Common Stock, and (ix) 13,333,334 of which have
been designated "Series VI Preferred Stock," of which 10,477,095 shares have
been issued and are outstanding as of the date of this Agreement and are
convertible into an aggregate of 19,644,538 shares of Common Stock. All of the
outstanding shares of Company Stock have been duly authorized and validly
issued, and are fully paid and non-assessable. Part 2.3 of the Company
Disclosure Schedule (i) sets forth the name of each Shareholder of the Company
and the number and type of all shares of Company Common Stock and Company
Preferred Stock held by such Shareholder and (ii) provides an accurate and
complete description of the terms of each repurchase option which is held by the
Company and to which any of such shares is subject.
(b) The Company has reserved 12,764,396 shares of Company Common
Stock for issuance under the Company Option Plans. As of the date of this
Agreement, of such reserved shares of Company Common Stock, options to purchase
11,973,518 shares have been granted and are outstanding (which includes options
to purchase 6,185,117 shares of Common Stock granted at the Company's September
27, 1999 Board meeting), 260,259 shares have been granted and exercised and
530,619 shares remain available for issuance to officers, directors, employees
and consultants pursuant to the Company Option Plans. Part 2.3(b) of the Company
Disclosure Schedule accurately sets forth, with respect to each Company Option
that is outstanding as of the date of this Agreement: (i) the name of the holder
of such Company Option; (ii) the total number of shares of Company Common Stock
that are subject to such Company Option and the number of shares of Company
Common Stock with respect to which such Company Option is immediately
exercisable; (iii) the date on which such Company Option was granted and the
term of such Company Option; (iv) the vesting schedule for such Company Option;
(v) the exercise price per share of Company Common Stock purchasable under such
Company Option; and (vi) whether such Company Option has been designated an
"incentive stock option" as defined in Section 422 of the Code. Each Company
Option designated as an "incentive stock option" as defined in Section 422 of
the Code on the applicable books and records of the Company qualified as an
"incentive stock option" within the meaning of Section 422 of the Code on the
date of grant of such Company Option. In addition, as of the date of this
Agreement, there are warrants outstanding to purchase 1,669,353 shares of the
Company's Common Stock, and warrants outstanding to purchase 60,000 shares of
the Company's Series III Preferred Stock, which are convertible upon exercise
into 70,750 shares of the Company's Common Stock. Part 2.3(b) of the Company
Disclosure Schedule accurately sets forth, with respect to each warrant that is
outstanding as of the date of this Agreement: (i) the name of the Warrant
holder; (ii) the total number of shares of Company capital stock subject to such
warrant; (iii) the date on which each warrant was granted and the term of such
warrant; and (iv) the exercise price per share of Company capital stock
purchasable under such warrant. Except as set forth in Part 2.3(b) of the
Company Disclosure Schedule, there is no: (i) outstanding subscription, option,
call, warrant or right (whether or not currently exercisable) to acquire any
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<PAGE> 17
shares of the capital stock or other securities of the Company; (ii) outstanding
security, instrument or obligation that is or may become convertible into or
exchangeable for any shares of the capital stock or other securities of the
Company; (iii) Contract under which the Company is or may become obligated to
sell or otherwise issue any shares of its capital stock or any other securities;
or (iv) to the knowledge of the Company, condition or circumstance that may give
rise to or provide a basis for the assertion of a claim by any Person to the
effect that such Person is entitled to acquire or receive any shares of capital
stock or other securities of the Company.
(c) All outstanding shares of Company Stock and all outstanding
Company Options and Company Common Warrants and Company Preferred Warrants have
been issued and granted in compliance with (i) all applicable securities laws
and other applicable Legal Requirements, and (ii) all requirements set forth in
applicable Contracts.
(d) Except as set forth in Part 2.3(d) of the Company Disclosure
Schedule, the Company has never repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities of the Company. All securities
so reacquired by the Company were reacquired in compliance with (i) the
applicable provisions of the California General Corporation Law and all other
applicable Legal Requirements, and (ii) all requirements set forth in applicable
restricted stock purchase agreements and other applicable Contracts.
(e) The terms of the Company Option Plans permit the assumption
or substitution of options to purchase Parent Common Stock and the assignment of
the Company's repurchase rights and rights of first refusal under stock purchase
agreements, the terms of the Company Common Warrants and the Company Preferred
Warrants permit the assumption or substitution of warrants to purchase Parent
Common Stock, and the terms of all other agreements between the Company and its
securities holders under which the Company's securities have been issued to such
securities holders permit the assignment of the Company's repurchase rights and
rights of first refusal under such agreements, without the consent or approval
of the holders of such securities, the Company's shareholders, or otherwise and
without any acceleration of the exercise schedule or vesting provisions in
effect for those options, warrants or other securities. True and complete copies
of all agreements and instruments relating to or issued under the Company Option
Plans have been made available to Parent and such agreements and instruments
have not been amended, modified or supplemented, and there are no agreements to
amend, modify or supplement such agreements or instruments in any case from the
form made available to Parent. All amendments to the 1991 ISO Plan have been
approved by the Company's shareholders, including amendments made from time to
time to increase the number of shares reserved for issuance thereunder.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the following financial
statements and the notes, if any, thereto (collectively, the "COMPANY FINANCIAL
STATEMENTS"):
(i) The audited balance sheets of the Company as of December
31, 1997 and 1998, and the related audited income statements, statements of
shareholders' equity
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<PAGE> 18
and statements of cash flows of the Company for the years then ended, together
with the notes thereto and the unqualified report and opinion of Deloitte &
Touche LLP relating thereto; and
(ii) the unaudited balance sheet of the Company as of
September 30, 1999, (the "UNAUDITED INTERIM BALANCE SHEET"), and the related
unaudited income statement, statement of shareholder's equity and statement of
cash flows of the Company for the ten months then ended.
(b) The Company Financial Statements are accurate and complete in
all material respects and present fairly the financial position of the Company
as of the respective dates thereof and the results of operations and cash flows
of the Company for the periods covered thereby. The Company Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except that the
financial statements referred to in Section 2.4(a)(ii) do not contain footnotes
and are subject to normal and recurring year end audit adjustments, which will
not, individually or in the aggregate, be material in magnitude).
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Company
Disclosure Schedule, since September 30, 1999:
(a) there has not been any material adverse change in the
Company's business, condition, assets, liabilities, operations, financial
performance or prospects, and, to the knowledge of the Company, no event has
occurred that will or could reasonably be expected to result in a Company
Material Adverse Effect;
(b) there has not been any material loss, damage or destruction
to, or any material interruption in the use of, any of the Company's assets
(whether or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of its capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
its capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance
of (i) any shares of its capital stock or other security (except for Company
Common Stock issued upon the exercise of outstanding Company Options), (ii) any
option or right to acquire any shares of its capital stock or any other security
(except for Company Options described in Part 2.3(b) of the Company Disclosure
Schedule), or (iii) any instrument convertible into or exchangeable for any
capital stock or other security;
(e) the Company has not amended or waived any of its rights
under, or modified the vesting provisions under, (i) any provision of the
Company Option Plan, (ii) any provision of any agreement evidencing any
outstanding Company Option, or (iii) any restricted stock purchase agreement;
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<PAGE> 19
(f) there has been no amendment to the Company's articles of
incorporation or bylaws, and the Company has not effected or been a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(g) the Company has not formed any subsidiary or acquired any
equity interest or other interest in any other Entity;
(h) the Company has not made any capital expenditure which, when
added to all other capital expenditures made on behalf of the Company since
October 31, 1999, exceeds $50,000;
(i) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)), or (ii) amended
or prematurely terminated, or waived any material right or remedy under, any
such Contract;
(j) the Company has not (i) acquired, leased or licensed any
right or other asset from any other Person, (ii) sold or otherwise disposed of,
or leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;
(k) the Company has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable or
other indebtedness;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with the Company's past practices and Permitted Liens;
(m) the Company has not (i) lent money to any Person (other than
pursuant to routine advances for business expenses made to employees in the
ordinary course of business), or (ii) incurred or guaranteed any indebtedness
for borrowed money;
(n) the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar payment
to, or increased the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its directors,
officers, employees or consultants, or (iii) hired any new employee;
(o) the Company has not changed any of its methods of accounting
or accounting practices in any respect;
(p) the Company has not made any Tax election;
(q) the Company has not commenced or settled any Legal
Proceeding;
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<PAGE> 20
(r) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(s) increase in the salary or other compensation payable or to
become payable by the Company to any officers, directors, employees or advisors
of the Company, except in the ordinary course of business consistent with past
practice, or the declaration, payment, or commitment or obligation of any kind
for the payment by the Company of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement, or other than as set forth in Section 2.16 below, the establishment
of any bonus, insurance, deferred compensation, pension, retirement, profit
sharing, stock option (including without limitation, the granting of stock
options, stock appreciation rights, performance awards), stock purchase or other
employee benefit plan;
(t) change in pricing or royalties set or charged by the Company
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Intellectual Property to the Company;
(u) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(t)" above.
2.6 TITLE TO ASSETS.
(a) The Company owns, and has good and valid title to, all assets
purported to be owned by it, including: (i) all assets reflected on the
Unaudited Interim Balance Sheet; (ii) all assets referred to in Parts 2.7(b) and
2.9 of the Company Disclosure Schedule; and (iii) all other assets reflected in
the Company's books and records as being owned by the Company. Except as set
forth in Part 2.6(a) of the Company Disclosure Schedule, all of said assets are
owned by the Company free and clear of any liens or other Encumbrances, except
for Permitted Liens.
(b) Part 2.6(b) of the Company Disclosure Schedule identifies all
assets that are material to the business of the Company and that are being
leased or licensed to the Company.
2.7 BANK ACCOUNTS; RECEIVABLES.
(a) Part 2.7(a) of the Company Disclosure Schedule provides
accurate information with respect to each account maintained by or for the
benefit of the Company at any bank or other financial institution.
(b) Part 2.7(b) of the Company Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts receivable, notes
receivable and other receivables of the Company as of October 31, 1999. Except
as set forth in Part 2.7(b) of the Company Disclosure Schedule, all existing
accounts receivable of the Company (including the accounts receivable reflected
on the Unaudited Interim Balance Sheet that have not yet been collected and
those accounts receivable that have arisen since October 31, 1999 and have not
yet been
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<PAGE> 21
collected) (i) represent valid obligations of customers of the Company arising
from bona fide transactions entered into in the ordinary course of business, and
(ii) are current and, except to the extent of a reserve which the Company has
established specifically for doubtful accounts receivable (which reserve is set
forth on the Unaudited Interim Balance Sheet, is reasonable under the
circumstances and is consistent with the Company's past practice) will be
collected in full when due, without any counterclaim or set off.
2.8 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets
owned by or leased to the Company are adequate for the uses to which they are
being put, are in good condition and repair (ordinary wear and tear excepted)
and constitute all of the material items of equipment and other tangible assets
reasonably necessary for the conduct of the Company's business in the manner in
which such business is currently being conducted.
(b) The Company does not own any real property or any interest in
real property, except for the leasehold created under the real property lease
identified in Part 2.10 of the Company Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth,
with respect to each Company Proprietary Asset registered with any Governmental
Body or for which an application has been filed with any Governmental Body, (i)
a brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.9(a)(ii) of the Company Disclosure Schedule identifies and provides a brief
description of all other Company Proprietary Assets owned by the Company that
are material to the Company's business. Part 2.9(a)(iii) of the Company
Disclosure Schedule identifies and provides a brief description of each
Proprietary Asset licensed to the Company by any Person (except for any
Proprietary Asset that is licensed to the Company under any third party software
license generally available to the public at a cost of less than $10,000), and
identifies the license agreement under which such Proprietary Asset is being
licensed to the Company. Part 2.9(a)(iv) of the Company Disclosure Schedule
identifies all licenses, sublicenses and other agreements to which the Company
is a party and pursuant to which any person is authorized to use any Company
Proprietary Assets (except for licenses of Company Proprietary Assets to
customers under the Company's standard end-user license agreements, the forms of
which have been provided to Parent and its legal counsel. Except as set forth in
Part 2.9(a)(v) of the Company Disclosure Schedule, the Company has good and
valid title to all of the Company Proprietary Assets identified in Parts
2.9(a)(i) and 2.9(a)(ii) of the Company Disclosure Schedule, free and clear of
all liens and other Encumbrances other than Permitted Liens, and has a valid
right to use all Proprietary Assets identified in Part 2.9(a)(iii) of the
Company Disclosure Schedule. Except as set forth in Part 2.9(a)(vi) of the
Company Disclosure Schedule, the Company is not obligated to make any payment to
any Person for the use of any Company Proprietary Asset. Except as set forth in
Part 2.9(a)(vii) of the Company Disclosure Schedule, the Company has not
developed
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<PAGE> 22
jointly with any other Person any Company Proprietary Asset with respect to
which such other Person has any rights.
(b) The Company has taken all reasonable steps to protect and
maintain the confidentiality and secrecy of all Company Proprietary Assets and
otherwise to maintain and protect the value of all Company Proprietary Assets.
Except as set forth in Part 2.9(b) of the Company Disclosure Schedule, the
Company has not (other than pursuant to license agreements identified in Part
2.10(a)(iv) of the Company Disclosure Schedule) disclosed or delivered to any
Person, or permitted the disclosure or delivery to any Person of, the source
code, or any portion or aspect of the source code, of any Company Proprietary
Asset.
(c) None of the Company Proprietary Assets infringe or conflict
with any Proprietary Asset owned or used by any other Person. The Company is not
infringing, misappropriating or making any unlawful use of, and the Company has
not at any time, including with respect to the Former Hardware Business (as
defined in Section 2.10) infringed, misappropriated or made any unlawful use of,
or received any written notice (including written notices in electronic form) of
any actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To the
knowledge of the Company, no other Person is infringing, misappropriating or
making any unlawful use of, and no Proprietary Asset owned or used by any other
Person infringes or conflicts with, any Company Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Company Disclosure
Schedule: (i) each Company Proprietary Asset conforms in all material respects
with any specification, documentation, performance standard, representation or
statement made or provided with respect thereto by or on behalf of the Company;
and (ii) there has not been any written claim (including written claims in
electronic form) by any customer or other Person alleging that any Company
Proprietary Asset (including each version thereof that has ever been licensed or
otherwise made available by the Company to any Person) does not conform in all
material respects with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of the Company,
and, to the knowledge of the Company, there is no basis for any such claim. The
Company has established adequate reserves on the Unaudited Interim Balance Sheet
to cover all costs associated with any obligations that the Company may have
with respect to the correction or repair of programming errors or other defects
in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business is being conducted and as presently proposed to be
conducted. Except as set forth in Part 2.9(e) of the Company Disclosure
Schedule, (i) the Company has not licensed any of the Company Proprietary Assets
to any Person on an exclusive basis, and (ii) the Company has not entered into
any covenant not to compete or Contract limiting its ability to exploit fully
any of its Proprietary Assets or to transact business in any market or
geographical area or with any Person.
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<PAGE> 23
(f) Except as set forth in Part 2.9(f) of the Company Disclosure
Schedule, (i) all current and former employees of the Company have executed and
delivered to the Company an agreement (containing no exceptions to or exclusions
from the scope of its coverage) that is substantially identical to the form of
Proprietary Information and Inventions Agreement previously delivered to Parent,
and (ii) all current and former consultants and independent contractors to the
Company have executed and delivered to the Company an agreement (containing no
exceptions to or exclusions from the scope of its coverage) that is
substantially identical to the form of Consultant Proprietary Information and
Inventions Agreement previously delivered to Parent.
(g) Each item of software and hardware that has been developed by
or for the Company is Year 2000 Compliant and, to the knowledge of the Company,
each other item of software and hardware that is owned or used by the Company is
Year 2000 Compliant.
(h) Each item of software that is or has been distributed by the
Company for use of its customers in its current business has been licensed to
customers pursuant to the Company's standard Software License Agreements or
Professional Services Agreements which remain in full legal force and effect.
Forms of these agreements have been provided to Parent's legal counsel.
2.10 CONTRACTS.
(a) Part 2.10(a) of the Company Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or
the performance of services by, any employee, consultant or independent
contractor;
(ii) each Company Contract relating to the acquisition,
transfer, use, development, sharing or license of any technology or any
Proprietary Asset;
(iii) each Company Contract imposing any restriction on the
Company's right or ability (A) to compete with any other Person, (B) to acquire
any product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or to
transact business or deal in any other manner with any other Person, or (C)
develop or distribute any technology;
(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(v) each Company Contract relating to the acquisition,
issuance or transfer of any securities;
(vi) each Company Contract relating to the creation of any
Encumbrance with respect to any asset of the Company;
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(vii) each Company Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity or any
surety arrangement;
(viii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(ix) each Company Contract relating to the purchase or sale
of any product or other asset by or to, or the performance of any services by or
for, any Related Party (as defined in Section 2.18);
(x) any Company Contract that was entered into outside the
ordinary course of business or was inconsistent with the Company's past
practices and is material to the Company;
(xi) any Company Contract that is material to the Company
and that has a term of more than 60 days and that may not be terminated by the
Company (without penalty) within 60 days after the delivery of a termination
notice by the Company;
(xii) any other Company Contract that is material to the
Company.
For purposes of this Section 2.10, "material" shall mean any Company Contract
that contemplates or involves (A) the payment or delivery of cash or other
consideration in an amount or having a value in excess of $25,000 in the
aggregate, or (B) the performance of services having a value in excess of
$25,000 in the aggregate. Contracts in the respective categories described in
clauses "(i)" through "(xii)" above are referred to in this Agreement as
"Material Contracts."
(b) The Company has delivered to Parent accurate and complete
copies of all written Contracts identified in Part 2.10(a) of the Company
Disclosure Schedule, including all amendments thereto. Part 2.10(a) of the
Company Disclosure Schedule provides an accurate description of the terms of
each Material Contract that is not in written form. Each Material Contract
identified in Part 2.10(a) of the Company Disclosure Schedule is valid and in
full force and effect and is enforceable by the Company in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10(c) of the Company Disclosure
Schedule:
(i) the Company has not violated or breached, in any
material respect, or committed any material default under, any Material Contract
and, to the knowledge of the Company, no other Person has violated or breached,
in any material respect, or committed any material default under, any Material
Contract;
(ii) to the knowledge of the Company, no event has occurred,
and no circumstance or condition exists, that (with or without notice or lapse
of time) will, or could reasonably be expected to, (A) result in a material
violation or breach of any of the provisions of
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any Material Contract, (B) give any Person the right to declare a default or
exercise any other material remedy under any Material Contract, (C) give any
Person the right to accelerate the maturity or performance of any Material
Contract, or (D) give any Person the right to cancel, terminate or modify any
Material Contract;
(iii) the Company has not received any written notice
(including written notices in electronic form) regarding any actual or possible
violation or breach of, or default under, any Material Contract; and
(iv) the Company has not waived any of its material rights
under any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the
terms of any Company Contract to renegotiate, any amount paid or payable to the
Company under any Material Contract or any other material term or provision of
any Material Contract.
(e) Part 2.10(e) of the Company Disclosure Schedule separately
identifies: (i) each Company Contract under which the Company is obligated to
perform services, maintenance or support, or has warranty or indemnification
obligations to customers of the Company's discontinued computer hardware line of
business (the "FORMER HARDWARE BUSINESS"); and (ii) each other Contract relating
to the Company's Former Hardware Business under which the Company has any
liabilities (accrued, contingent or otherwise of any nature, either matured or
unmatured) or owes obligations to any third party. The disclosure of Contracts
pursuant to this Section 2.10(e) shall not limit the Company's obligation to
provide disclosure under other relevant subsections of this Section 2.10.
(f) The Material Contracts identified in Part 2.10(a) of the
Company Disclosure Schedule collectively constitute all of the Contracts
reasonably necessary to enable the Company to conduct its business in the manner
in which its business is currently being conducted.
2.11 LIABILITIES. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for
liabilities: (a) identified as such in the "liabilities" column of the Unaudited
Interim Balance Sheet; (b) incurred by the Company since October 31, 1999 in the
ordinary course of business and consistent with the Company's past practices;
(c) under the Company Contracts identified in Part 2.10 of the Company
Disclosure Schedule, to the extent the nature of such liabilities can be
specifically ascertained by reference to the text of such Company Contracts; and
(d) identified in Part 2.11 of the Company Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times been, in compliance with all applicable Legal Requirements, except where
the failure to comply with such Legal Requirements has not had and could not
reasonably be expected to result in a Company Material Adverse Effect. Except as
set forth in Part 2.12 of the Company Disclosure Schedule, the Company has not
received any written notice (including written notices in
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electronic form) from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Company Disclosure
Schedule identifies each material Governmental Authorization held by the
Company, and the Company has delivered to Parent accurate and complete copies of
all Governmental Authorizations identified in Part 2.13 of the Company
Disclosure Schedule. The Governmental Authorizations identified in Part 2.13 of
the Company Disclosure Schedule are valid and in full force and effect, and
collectively constitute all Governmental Authorizations reasonably necessary to
enable the Company to conduct its business in the manner in which its business
is currently being conducted. The Company is, and at all times has been, in
compliance with the terms and requirements of the respective Governmental
Authorizations identified in Part 2.13 of the Company Disclosure Schedule,
except where the failure to comply with such Governmental Authorizations has not
had and could not reasonably be expected to result in a Company Material Adverse
Effect. The Company has not received any notice or other communication from any
Governmental Body regarding (a) any actual or possible violation of or failure
to comply with any term or requirement of any Governmental Authorization, or (b)
any actual or possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the
Company (taking into account extensions) with any Governmental Body prior to the
Closing Date (the "COMPANY RETURNS") (i) have been filed or will be filed, and
(ii) have been, or will be when filed, accurately and completely prepared in all
material respects in compliance with all applicable Legal Requirements. All
amounts shown on the Company Returns to be due on or before the Closing Date
have been or will be paid on or before the Closing Date. The Company has
delivered to Parent accurate and complete copies of all Company Returns which
have been requested by Parent. The Company has withheld and paid over all Taxes
required to have been withheld and paid over, and complied with all information
reporting and backup withholding in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party. There are no
liens on any of the assets of the Company with respect to Taxes, other than
liens for Taxes not yet due and payable or for Taxes that the Company is
contesting in good faith through appropriate proceedings. The Company has not
been at any time a member of an affiliated group of corporations filing
consolidated, combined or unitary income or franchise tax returns for a period
for which the statute of limitations for any Tax potentially applicable as a
result of such membership has not expired.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. The Company
will establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period from
October 31, 1999 through the Closing Date and no liabilities for Taxes have been
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incurred (or prior to the Closing will be incurred) since such date other than
in the ordinary course of business.
(c) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, there have been no examinations or audits of any Company Return. The
Company has delivered to Parent accurate and complete copies of all audit
reports and similar documents (to which the Company has access) relating to the
Company Returns. Except as set forth in Part 2.14 of the Company Disclosure
Schedule, no extension or waiver of the limitation period applicable to any of
the Company Returns has been granted that is still in effect (by the Company or
any other Person), and no request for such extension or waiver from the Company
is pending.
(d) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, no claim or Legal Proceeding is pending or has been threatened against
or with respect to the Company in respect of any Tax. There are no unsatisfied
liabilities for Taxes with respect to any notice of deficiency or similar
document received by the Company with respect to any Tax (other than liabilities
for Taxes asserted under any such notice of deficiency or similar document which
are being contested in good faith by the Company and with respect to which
adequate reserves for payment have been established). There are no liens for
Taxes upon any of the assets of the Company except liens for current Taxes not
yet due and payable. The Company has not entered into or become bound by any
agreement or consent pursuant to Section 341(f) of the Code. The Company has not
been, and the Company will not be, required to include any adjustment in taxable
income for any tax period (or portion thereof) pursuant to Section 481 or 263A
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions or events occurring, or accounting methods employed,
prior to the Closing.
(e) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, there is no agreement, plan, arrangement or other Contract covering
any employee or independent contractor or former employee or independent
contractor of the Company that, considered individually or considered
collectively with any other such Contracts, will, or could reasonably be
expected to, give rise directly or indirectly to the payment of any amount that
would not be deductible pursuant to Section 280G or Section 162 of the Code. The
Company is not liable for the Taxes of any other Person.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Company Disclosure Schedule identifies
each salary, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance pay, termination pay, hospitalization,
medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension or retirement plan, program or agreement (collectively,
the "PLANS") sponsored, maintained, contributed to or required to be contributed
to by the Company for the benefit of any employee of the Company ("EMPLOYEE"),
except for Plans which would not require the Company to make payments or provide
benefits having a value in excess of $25,000 in the aggregate.
(b) Except as set forth in Part 2.15(a) of the Company Disclosure
Schedule, the Company does not maintain, sponsor or contribute to, and, to the
knowledge of the Company,
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has not at any time in the past maintained, sponsored or contributed to, any
employee pension benefit plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not
excluded from coverage under specific Titles or Merger Subtitles of ERISA) for
the benefit of Employees or former Employees (a "PENSION PLAN").
(c) The Company maintains, sponsors or contributes only to those
employee welfare benefit plans (as defined in Section 3(1) of ERISA) for the
benefit of Employees or former Employees which are described in Part 2.15(c) of
the Company Disclosure Schedule (the "WELFARE PLANS"), none of which is a
multiemployer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to
Parent:
(i) an accurate and complete copy of such Plan (including
all amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent
summary plan description, together with each Summary of Material Modifications,
if required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating
to such Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
(a) The Company is not required to be, and, to the knowledge of
the Company, has never been required to be, treated as a single employer with
any other Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m)
or (o) of the Code. The Company has never been a member of an "affiliated
service group" within the meaning of Section 414(m) of the Code. To the
knowledge of the Company, the Company has never made a complete or partial
withdrawal from a multiemployer plan, as such term is defined in Section 3(37)
of ERISA, resulting in "withdrawal liability," as such term is defined in
Section 4201 of ERISA
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(without regard to subsequent reduction or waiver of such liability under either
Section 4207 or 4208 of ERISA).
(b) The Company does not have any plan or commitment to create
any additional Welfare Plan or any Pension Plan, or to modify or change any
existing Welfare Plan or Pension Plan (other than to comply with applicable law)
in a manner that would affect any Employee.
(c) Except as set forth in Part 2.15(g) of the Company Disclosure
Schedule, no Welfare Plan provides death, medical or health benefits (whether or
not insured) with respect to any current or former Employee after any such
Employee's termination of service (other than (i) benefit coverage mandated by
applicable law, including coverage provided pursuant to Section 4980B of the
Code, (ii) deferred compensation benefits accrued as liabilities on the
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which are
borne by current or former Employees (or the Employees' beneficiaries)).
(d) With respect to each of the Welfare Plans constituting a
group health plan within the meaning of Section 4980B(g)(2) of the Code, to the
knowledge of the Company, the provisions of Section 4980B of the Code ("COBRA")
have been complied with in all material respects.
(e) To the knowledge of the Company, each of the Plans has been
operated and administered in all material respects in accordance with applicable
Legal Requirements, including but not limited to ERISA and the Code.
(f) Each of the Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service or has time remaining in which to apply for such favorable
determination within the remedial amendment period under Section 401(b) of the
Code and the regulations thereunder, and the Company is not aware of any reason
why any such determination letter should be revoked or denied.
(g) Except as set forth in Part 2.15(k) of the Company Disclosure
Schedule, neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former Employee or director of
the Company (whether or not under any Plan), or materially increase the benefits
payable under any Plan, or result in any acceleration of the time of payment or
vesting of any such benefits.
(h) Part 2.15(l) of the Company Disclosure Schedule contains a
list of all salaried employees of the Company as of the date of this Agreement,
and correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
All of the Company's employees are "at will" employees.
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(i) Part 2.15(m) of the Company Disclosure Schedule identifies
each Employee who is not fully available to perform work because of disability
or other leave and sets forth the basis of such leave and the anticipated date
of return to full service.
(j) To the knowledge of the Company, the Company is in compliance
in all material respects with all applicable Legal Requirements and Contracts
relating to employment, employment practices, wages, bonuses and terms and
conditions of employment, including employee compensation matters.
(k) Except as set forth in Part 2.15(o) of the Company Disclosure
Schedule, to the knowledge of the Company, the Company has good labor relations
and (i) the consummation of the Merger or any of the other transactions
contemplated by this Agreement could not reasonably be expected to result in a
material adverse effect on the Company's labor relations, and (ii) none of the
Company's employees intends to terminate his or her employment with the Company
as a result of the Merger.
2.16 ENVIRONMENTAL MATTERS. The Company is in compliance with all
applicable Environmental Laws, which compliance includes the possession by the
Company of all permits and other Governmental Authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof, except where the failure to comply with such Environmental Laws has not
had and could not reasonably be expected to result in a Company Material Adverse
Effect. The Company has not received any written notice (including written
notices in electronic form), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that the Company is not in compliance with
any Environmental Law and, to the knowledge of the Company, there are no
circumstances that may prevent or interfere with the Company's compliance with
any Environmental Law in the future. To the knowledge of the Company, no current
or prior owner of any property leased or controlled by the Company has received
any notice or other communication (in writing or otherwise), whether from a
Government Body, citizens group, employee or otherwise, that alleges that such
current or prior owner or the Company is not in compliance with any
Environmental Law. All Governmental Authorizations currently held by the Company
pursuant to Environmental Laws are identified in Part 2.16 of the Company
Disclosure Schedule. For purposes of this Section 2.16: (i) "Environmental Law"
means any federal, state, local or foreign Legal Requirement relating to
pollution or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata), including
any law or regulation relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern; and (ii) "Materials
of Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is regulated by any Environmental Law.
2.17 INSURANCE. Part 2.17 of the Company Disclosure Schedule identifies
all insurance policies maintained by, at the expense of or for the benefit of
the Company and identifies any material claims made thereunder, and the Company
has delivered to Parent
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accurate and complete copies of the insurance policies identified on Part 2.17
of the Company Disclosure Schedule. Each of the insurance policies identified in
Part 2.17 of the Company Disclosure Schedule is in full force and effect. The
Company has not received any notice or other communication regarding any actual
or possible (a) cancellation or invalidation of any insurance policy, (b)
refusal of any coverage or rejection of any claim under any insurance policy, or
(c) material adjustment in the amount of the premiums payable with respect to
any insurance policy.
2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of the
Company Disclosure Schedule, to the knowledge of the Company: (a) no Related
Party has, and no Related Party has at any time had, any direct or indirect
interest in any material asset used in or otherwise relating to the business of
the Company; (b) no Related Party is, or has at any time been, indebted to the
Company; (c) no Related Party has entered into, or has had any direct or
indirect financial interest in, any Material Contract, transaction or business
dealing involving the Company; (d) no Related Party is competing, or has at any
time competed, directly or indirectly, with the Company; and (e) no Related
Party has any claim or right against the Company (other than rights under
Company Options and rights to receive compensation for services performed as an
employee of the Company). For purposes of this Agreement each of the following
shall be deemed to be a "Related Party": (i) each of the Shareholders; (ii) each
individual who is an officer of the Company; (iii) each member of the immediate
family of each of the individuals referred to in clauses (i) and (ii) above; and
(iv) any trust or other Entity (other than the Company) in which any one of the
individuals referred to in clauses (i), (ii) and (iii) above holds (or in which
more than one of such individuals collectively hold), beneficially or otherwise,
a material voting, proprietary or equity interest.
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.19(a) of the Company Disclosure
Schedule, there is no pending Legal Proceeding and, to the knowledge of the
Company, no Person has threatened to commence any Legal Proceeding: (i) that
involves the Company or any of the assets owned or used by the Company,
including assets owned or used by the Company in connection with the Former
Hardware Business, or any Person whose liability the Company has retained or
assumed, either contractually or by operation of law; or (ii) that challenges,
or that may have the effect of preventing, delaying, making illegal or otherwise
interfering with, the Merger or any of the other transactions contemplated by
this Agreement. To the knowledge of the Company, except as set forth in Part
2.19(a) of the Company Disclosure Schedule, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that will, or that could
reasonably be expected to, give rise to or serve as a basis for the commencement
of any such Legal Proceeding.
(b) Except as set forth in Part 2.19(b) of the Company Disclosure
Schedule, no Legal Proceeding has ever been commenced by or has ever been
pending against the Company.
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(c) There is no order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or used by the Company, is
subject. To the knowledge of the Company, no officer or other employee of the
Company is subject to any order, writ, injunction, judgment or decree that
prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to the Company's business.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the
absolute and unrestricted right, power and authority to enter into and, subject
only to the approval by the Company's shareholders of this Agreement, the Merger
and each Related Agreement to which the Company is a party, to perform its
obligations under this Agreement and each Related Agreement to which the Company
is a party and the transactions contemplated hereby and thereby; and the
execution, delivery and, subject only to the approval by the Company's
shareholders of this Agreement and the Merger, performance by the Company of
this Agreement has been duly authorized by all necessary action on the part of
the Company and its board of directors. This Agreement constitutes a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, and the Related Agreements to which the Company is a
party, when executed and delivered by the company, shall be legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
2.21 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.21 of
the Company Disclosure Schedule and subject to the approval of this Agreement
and the Merger by the Company's shareholders, neither (1) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to herein or therein, nor (2) the consummation of the Merger or any of
the other transactions contemplated by this Agreement, will directly or
indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the Company's articles of incorporation or bylaws, or (ii)
any currently effective resolution adopted by the Company's shareholders, the
Company's board of directors or any committee of the Company's board of
directors;
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which the Company, or any of the assets owned or used by the
Company, is subject, other than such contravention, conflict, violation or right
to exercise any remedy that could not be reasonably likely to result in a
Company Material Adverse Effect;
(c) give any Governmental Body or other Person the right to
challenge any of the transactions contemplated by this Agreement;
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(d) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or to any of the assets owned or used by the Company, other than any such
contravention, conflict, violation or right to revoke, withdraw, suspend,
cancel, terminate or modify any such Governmental Authorization which could not
reasonably be expected to result in a Company Material Adverse Effect;
(e) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Material Contract, or
give any Person the right to (i) declare a default or exercise any remedy under
any such Material Contract, (ii) accelerate the maturity or performance of any
such Material Contract, or (iii) cancel, terminate or modify any such Material
Contract; or
(f) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens, pledges, hypothecations, charges, mortgage, and
security interests that will not, individually or in the aggregate, materially
detract from the value of the assets subject thereto or materially impair the
operations of the Company).
Except as set forth in Part 2.21 of the Company Disclosure Schedule and except
for (i) the filing of the Agreement of Merger with the California Secretary of
State and appropriate documents in other states where the Company is qualified
to do business, and (ii) obtaining the approval by the Company's shareholders of
this Agreement and the Merger, the Company is not and will not be required to
make any filing with or give any notice to, or to obtain any Consent from, any
Person in connection with (x) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, or (y)
the consummation of the Merger or any of the other transactions contemplated by
this Agreement.
2.22 BROKERS. The Company has not, nor have any of its directors,
officers, securityholders or employees, employed any broker or finder (other
than Broadview International LLC) or incurred any liability (other than to
Broadview International LLC) for any brokerage fees, commissions or finders'
fees in connection with the transactions contemplated hereby. The Company has
previously furnished to Parent a complete and correct copy of all agreements
between the Company and Broadview International LLC pursuant to which such firm
would be entitled to any payment relating to the transactions contemplated by
this Agreement (collectively, the "BROADVIEW EXPENSES").
2.23 COMPLIANCE WITH THE HART-SCOTT-RODINO ACT. The Company's total
assets and annual net sales do not exceed $10,000,000 within the meaning of, and
calculated in accordance with, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, Section 7A(a)(3) of the Clayton Act, 15 U.S.C. Section 18A,
and the regulations promulgated thereunder.
2.24 PERMIT APPLICATION; INFORMATION STATEMENT. The information supplied
by the Company for inclusion in the application for issuance of a permit
pursuant to Section 25121 of the California Securities Law pursuant to which the
shares of Parent Common Stock to be issued
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in the Merger and the options and warrants to be assumed in the Merger will be
qualified under the California Securities Law (the "PERMIT APPLICATION") shall
not at the time the fairness hearing is held pursuant to Section 25142 of the
California Securities Law and the time the qualification of such securities is
effective under Section 25122 of the California Securities Law contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
information supplied by the Company for inclusion in the information statement
to be sent to the shareholders of the Company in connection with the meeting of
the Company's shareholders to consider the Merger (the "COMPANY SHAREHOLDERS
Meeting") (such information statement as amended or supplemented is referred to
herein as the "INFORMATION STATEMENT") shall not, on the date the Information
Statement is first mailed to the Company's shareholders, at the time of the
Company Shareholders Meeting and at the Effective Time, contain any statement
which, at such time, is false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not false
or misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Shareholders Meeting which has become false or
misleading. Notwithstanding the foregoing, Company makes no representation,
warranty or covenant with respect to any information supplied by Parent or
Merger Sub which is contained in any of the foregoing documents.
2.25 AFFILIATE AND VOTING AGREEMENTS. All of the persons and/or entities
deemed "AFFILIATES" of the Company within the meaning of Rule 145 promulgated
under the Securities Act have agreed in writing to vote for approval of the
Merger pursuant to shareholder agreements attached hereto as Exhibit C-2
("AFFILIATE AGREEMENTS"), and pursuant to Voting Agreements attached hereto as
Exhibit F-2 ("VOTING AGREEMENTS"). Pursuant to the Affiliate Agreements, all of
the Company's Affiliates have also agreed not to sell shares of Parent Common
Stock, or take other actions as set forth therein during the 180 day period
following the effectiveness of Parent's registration statement on Form S-1
declared effective by the Securities and Exchange Commission on July 29, 1999.
The Company shall use its best efforts to obtain such a written agreement from
any other person as soon as practicable after the date on which such person
attains such status as an Affiliate of the Company. In addition, upon the
execution of the Affiliate Agreement by the persons listed on Exhibit C-1, the
Third Amended and Restated Investors' Rights Agreement dated as of August 5,
1998 between the Company and certain investors of the Company, the Amended and
Restated Voting Agreement dated as of August 5, 1998 between the Company and
certain investors of the Company, the Amended and Restated Co-Sale Agreement
dated as of August 5, 1998 between the Company and certain investors of the
Company, and the Investment Agreement dated August 20, 1996 between the Company
and New York Life Insurance Company (collectively, the "PRIOR RIGHTS
AGREEMENTS") will be amended to provide that the Prior Rights Agreements, and
the rights and obligations of the Company and the investors of the Company that
are parties to the Prior Rights Agreements, will terminate immediately prior to
the Effective Time and will thereafter have no further force or effect.
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2.26 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of Company Stock outstanding on the record date set for the Company
Shareholders Meeting plus the affirmative vote of two-thirds of the shares of
the Company Preferred Stock outstanding on the record date set for the Company
Shareholders Meeting are the only votes of the holders of any of the Company's
Stock necessary to approve this Agreement and the transactions contemplated
hereby (except for the conversion of the Company Preferred Stock into Company
Common Stock which may require the affirmative vote of two-thirds of the shares
of each class of Company Preferred Stock, voting separately).
2.27 BOARD APPROVAL. The Board of Directors of the Company has
unanimously (i) approved this Agreement and the Merger, (ii) determined that the
Merger is in the best interests of the shareholders of the Company and is on
terms that are fair to such shareholders and (iii) recommended that the
shareholders of the Company approve this Agreement and the Merger.
2.28 CUSTOMERS AND SUPPLIERS. As of the date hereof, no customer which
individually accounted for more than 5% of the Company's gross revenues during
the 12-month period preceding the date hereof, and no supplier of Target, has
cancelled or otherwise terminated, or made any written threat to Target to
cancel or otherwise terminate its relationship with Target, or has at any time
on or after October 31, 1999 decreased materially its services or supplies to
Target in the case of any such supplier, or its usage of the services or
products of Target in the case of such customer, and to Target's knowledge, no
such supplier or customer intends to cancel or otherwise terminate its
relationship with Target or to decrease materially its services or supplies to
Target or its usage of the services or products of Target, as the case may be.
From and after the date hereof, no customer which individually accounted for
more than 5% of Target's gross revenues during the 12 month period preceding the
Closing Date, has cancelled or otherwise terminated, or made any written threat
to Target to cancel or otherwise terminate, for any reason, including without
limitation the consummation of the transactions contemplated hereby, its
relationship with Target, and to Target's knowledge, no such customer intends to
cancel or otherwise terminate its relationship with Target or to decrease
materially its usage of the services or products of Target. Target has not
knowingly breached, so as to provide a benefit to Target that was not intended
by the parties, any agreement with, or engaged in any fraudulent conduct with
respect to, any customer or supplier of Target.
2.29 [INTENTIONALLY LEFT BLANK].
2.30 NO COMMITMENTS REGARDING FUTURE PRODUCTS. The Company has made no
sales to customers that are contingent upon providing future enhancements of
existing products, to add features not presently available on existing products
or to otherwise enhance the performance of its existing products (other than
beta or similar arrangements pursuant to which the Company's customers from time
to time test or evaluate products). The products the Company has delivered to
customers substantially comply with published specifications for such products
and the Company has not received material complaints from customers about its
products that remain unresolved. Part 2.32 of the Company Disclosure Schedule
accurately sets
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<PAGE> 36
forth a complete list of products in development (exclusive of mere enhancements
to and additional features for existing products).
2.31 FULL DISCLOSURE.
(a) This Agreement (including the Company Disclosure Schedule)
does not, and the Officer's Closing Certificate will not, (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact, or (ii) omit to state any material fact necessary in order
to make the representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading.
(b) In the event that information regarding the Merger is
prepared by the Company and distributed to its shareholders, such information
will not contain any statement that is inaccurate or misleading with respect to
any material fact.
3. [INTENTIONALLY LEFT BLANK].
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.
Parent and Merger Sub jointly and severally represent and warrant to the
Company and the Shareholders as follows:
4.1 ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. Each of Parent
and Merger Sub (i) is a corporation duly organized, validly existing and in good
standing under the laws of its respective state of incorporation and (ii) has
all requisite corporate power and corporate authority to own, lease and operate
its properties and assets and to carry on its business as now being conducted,
to enter into this Agreement and each Related Agreement to which it is a party,
to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby or thereby. Parent has delivered to the Company
true and correct copies of Parent's Certificate of Incorporation and Bylaws and
Merger Sub's Articles of Incorporation and Bylaws, each as amended to date.
Neither Parent nor any of its subsidiaries is in violation of any material
provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents.
4.2 PARENT CAPITALIZATION. The authorized capital stock of Parent
consists of 75,000,000 shares of Common Stock, $.001 par value per share, of
which 24,760,620 shares were issued and outstanding as of the close of business
on October 31, 1999, and 5,000,000 shares of Preferred Stock, $.001 par value
per share, of which no shares were issued and outstanding as of the close of
business on October 31, 1999. As of the close of business on October 31, 1999,
Parent had reserved (a) 6,630,000 shares of Common Stock for issuance to
employees and independent contractors pursuant to Parent's 1996 Stock Option
Plan (the "PARENT EMPLOYEE STOCK OPTION PLAN"), of which, as of October 31,
1999, 4,073,942 shares had been issued pursuant to option exercises and
1,939,774 shares were subject to outstanding, unexercised options (b) 250,000
shares of Common Stock for issuance to directors pursuant to
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<PAGE> 37
Parent's 1999 Directors' Stock Option Plan (the "PARENT DIRECTORS STOCK OPTION
PLAN"), of which, as of October 31, 1999, no shares had been issued pursuant to
option exercises and 50,000 shares were subject to outstanding, unexercised
options and (c) options to purchase 560,267 shares were outstanding under the
Marketwave stock plan assumed by Parent. As of October 31, 1999, 20,000 shares
of Common Stock were issuable pursuant to an outstanding warrant. There are no
other outstanding shares of capital stock or voting securities of Parent other
than shares of Parent Common Stock issued after the date of this Agreement upon
the exercise of options issued under the Parent Employee Stock Option Plan or
the Parent Directors Stock Option Plan. Other than as contemplated under this
Agreement, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Parent or Merger Sub is a party or by which
either of them is bound obligating Parent 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 Parent or Merger Sub or obligating
Parent or Merger Sub to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement.
4.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement and the Related
Agreements 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 obligation or loss of a benefit
under (i) any provision of the Certificate of Incorporation or Bylaws of Parent
or the Articles of Incorporation of Bylaws of Merger Sub, as amended, or (ii)
any material mortgage, indenture, lease, contract or other material agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or Merger Sub
or their properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Body, is required by
or with respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement by Parent and Merger Sub or the consummation by
Parent and Merger Sub of the transactions contemplated hereby, except for (i)
the filing of appropriate merger documents as required by California law, (ii)
the filing of a Form 8-K with the SEC and National Association of Securities
Dealers ("NASD") within 15 days after the Closing Date, (iii) any filings as may
be required under applicable state securities laws and the securities laws of
any foreign country and (iv) the filing with the Nasdaq National Market of a
Notification Form for Listing of Additional Shares with respect to the shares of
Parent Common Stock to be issued to the Shareholders in connection with the
Merger and upon exercise of the options under the Company Stock Option Plan
assumed by Parent, and (vi) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Parent Material Adverse Effect and would not prevent, materially alter or
materially delay any the transactions contemplated by this Agreement.
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<PAGE> 38
4.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has made available to the Company accurate and
complete copies of each report, registration statement (on a form other than
Form S-8 or 8-A) and definitive proxy statement filed by Parent with the SEC
between May 1, 1999 and the date of this Agreement, which are all the documents
(other than preliminary material) that Parent was required to file (or otherwise
did file) with the SEC in accordance with Section 6(a) of the Securities Act or
Sections 13, 14 and 15(d) of the Exchange Act since May 1, 1999 (collectively,
the "PARENT'S SEC DOCUMENTS"). As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing): (i) each of the Parent's SEC Documents complied in all
material respects with the applicable requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations promulgated by
the SEC thereunder; and (ii) none of the Parent's SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(b) The financial statements (including the notes thereto)
contained in the Parent's SEC Documents: (i) complied as to form in all material
respects with the published rules and regulations of the SEC applicable thereto;
(ii) were prepared in accordance with generally accepted accounting principles
appl