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AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
ARIBA, INC.
APACHE MERGER CORPORATION
AND
TRADEX TECHNOLOGIES, INC.
DECEMBER 16, 1999
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TABLE OF CONTENTS
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Page
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ARTICLE I THE MERGER.............................................................................................2
1.1 The Merger..........................................................................................2
1.2 Closing; Effective Time.............................................................................2
1.3 Effect of the Merger................................................................................2
1.4 Certificate of Incorporation; Bylaws................................................................2
1.5 Directors and Officers..............................................................................2
1.7 Surrender of Certificates...........................................................................5
1.8 No Further Ownership Rights in Target Capital Stock.................................................7
1.9 Lost, Stolen or Destroyed Certificates..............................................................7
1.10 Tax and Accounting Consequences....................................................................7
1.11 Taking of Necessary Action; Further Action.........................................................8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET..............................................................8
2.1 Organization, Standing and Power....................................................................8
2.2 Capital Structure...................................................................................9
2.3 Authority..........................................................................................10
2.4 Financial Statements...............................................................................11
2.5 Absence of Certain Changes.........................................................................11
2.6 Absence of Undisclosed Liabilities.................................................................12
2.7 Accounts Receivable................................................................................12
2.8 Litigation.........................................................................................12
2.9 Restrictions on Business Activities................................................................12
2.10 Governmental Authorization........................................................................12
2.11 Title to Property.................................................................................13
2.12 Intellectual Property.............................................................................13
2.13 Environmental Matters.............................................................................15
2.14 Taxes.............................................................................................15
2.15 Employee Benefit Plans............................................................................17
2.16 Employees and Consultants.........................................................................19
2.17 Related-Party Transactions........................................................................20
2.18 Insurance.........................................................................................21
2.19 Compliance with Laws..............................................................................21
2.20 Brokers'and Finders' Fees.........................................................................21
2.21 Stockholder Agreement.............................................................................21
2.22 Vote Required.....................................................................................21
2.23 Trade Relations...................................................................................21
2.24 Customers and Suppliers...........................................................................22
2.25 Material Contracts................................................................................22
2.26 No Breach of Material Contracts...................................................................23
2.27 Third-Party Consents..............................................................................23
2.28 Minute Books......................................................................................23
2.29 Complete Copies of Materials......................................................................24
2.30 Representations Complete..........................................................................24
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB...........................................24
3.1 Organization, Standing and Power...................................................................24
3.2 Capital Structure..................................................................................25
3.3 Authority..........................................................................................25
3.4 SEC Documents; Financial Statements................................................................26
3.5 Litigation.........................................................................................27
3.6 Compliance with Laws...............................................................................27
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..................................................................27
4.1 Conduct of Business of Target and Acquiror.........................................................27
4.2 Notices............................................................................................30
ARTICLE V ADDITIONAL AGREEMENTS.................................................................................30
5.1 No Solicitation....................................................................................30
5.2 Securities Issuances...............................................................................31
5.3 Stockholders Meeting or Consent Solicitation.......................................................32
5.4 Access to Information..............................................................................33
5.5 Confidentiality....................................................................................33
5.6 Public Disclosure..................................................................................33
5.7 Consents; Cooperation..............................................................................33
5.8 Update Disclosure; Breaches........................................................................34
5.9 Stockholder Agreements.............................................................................35
5.10 Legal Requirements................................................................................35
5.11 Tax Deferred Reorganization.......................................................................35
5.12 Blue Sky Laws.....................................................................................35
5.13 Stock Options.....................................................................................35
5.14 Escrow Agreement..................................................................................36
5.15 Listing of Additional Shares......................................................................36
5.16 Additional Agreements; Reasonable Best Efforts....................................................36
5.17 Employee Benefits.................................................................................36
5.18 Parachute Payments................................................................................37
5.19 Necessary Actions.................................................................................37
5.20 Director and Officer Indemnification..............................................................37
5.21 Settlement of Lawsuits............................................................................37
5.22 Strategic Investment..............................................................................38
5.23 Proprietary Information Agreement.................................................................38
ARTICLE VI CONDITIONS TO THE MERGER.............................................................................38
6.1 Conditions to Obligations of Each Party to Effect the Merger.......................................38
6.2 Additional Conditions to Obligations of Target.....................................................39
6.3 Additional Conditions to Obligations of Acquiror...................................................40
ARTICLE VII TERMINATION, EXPENSES, AMENDMENT AND WAIVER.........................................................42
7.1 Termination........................................................................................42
7.2 Effect of Termination..............................................................................43
7.3 Expenses...........................................................................................43
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7.4 Amendment..........................................................................................43
7.5 Extension; Waiver..................................................................................43
ARTICLE VIII ESCROW AND INDEMNIFICATION.........................................................................43
8.1 Survival of Representations, Warranties and Covenants..............................................43
8.2 Indemnity..........................................................................................44
8.3 Escrow Fund........................................................................................44
8.4 Damage Threshold...................................................................................44
8.5 Escrow Period......................................................................................44
8.6 Claims upon Escrow Fund............................................................................44
8.7 Objections to Claims...............................................................................45
8.8 Resolution of Conflicts; Arbitration...............................................................45
8.9 Shareholders' Agent................................................................................46
8.10 Distribution Upon Termination of Escrow Period....................................................47
8.11 Actions of the Shareholders' Agent................................................................47
8.12 Third-Party Claims................................................................................47
8.13 Maximum Liability and Remedies....................................................................48
ARTICLE IX GENERAL PROVISIONS...................................................................................48
9.1 Notices............................................................................................48
9.2 Interpretation.....................................................................................49
9.3 Counterparts.......................................................................................50
9.4 Entire Agreement; No Third Party Beneficiaries.....................................................50
9.5 Severability.......................................................................................50
9.6 Remedies Cumulative................................................................................50
9.7 Governing Law......................................................................................51
9.8 Assignment.........................................................................................51
9.9 Rules of Construction..............................................................................51
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SCHEDULES
---------
Target Disclosure Letter
Acquiror Disclosure Letter
Option Schedule
Schedule 2.3 List of Target Subsidiaries
Schedule 2.11 Target Real Property
Schedule 2.12 Target Intellectual Property
Schedule 2.15 Target Employee Plans
Schedule 2.18 Target Insurance
Schedule 2.21 List of Principal Stockholders
Schedule 2.25 List of Material Contracts
Schedule 2.27 Third Party Consents
Schedule 6.3 Key Target Employees
EXHIBITS
--------
Exhibit A Intentionally Left Blank
Exhibit B Intentionally Left Blank
Exhibit C Stockholder Agreement
Exhibit D Escrow Agreement
Exhibit E Intentionally Left Blank
Exhibit F Waiver Agreement
Exhibit G Intentionally Left Blank
Exhibit H FIRPTA Notice
iv
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of December 16, 1999, by and among Ariba, Inc., a Delaware
corporation ("Acquiror"), Apache Merger Corporation, a Delaware corporation
("Merger Sub"), and Tradex Technologies Inc., a Delaware corporation ("Target").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub
believe it is in the best interests of their respective companies and
stockholders of their respective companies that Target and Merger Sub combine
into a single company through the statutory merger of Merger Sub with and into
Target (the "Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, each outstanding
share of capital stock of Target, $0.01 value ("Target Capital Stock"), shall be
converted into shares of Common stock of Acquiror, $0.002 par value ("Acquiror
Common Stock"), at the rate set forth herein. Acquiror will assume all
outstanding stock options of the Target and all outstanding warrants of the
Target, whether or not exercisable prior to the Closing Date.
C. Target, Acquiror and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
E. Concurrent with the execution of this Agreement and as an
inducement to Acquiror to enter into this Agreement, selected insiders and other
principal Stockholders of Target (the "Principal Stockholders"), representing
the majority of outstanding common shares and common share equivalents, are
entering into an agreement (the "Stockholders Agreement"), which provides, among
other things, that such Principal Stockholders shall vote the shares of Target's
Common Stock owned by such person to approve the Merger and against any
competing proposals.
F. In addition, as an inducement to Acquiror to enter into this
Agreement certain key employees of Target (listed on SCHEDULE 6.3) ("Key Target
Employeees") have agreed to enter into a new Waiver Agreement.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
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ARTICLE I
THE MERGER
----------
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement, the
Certificate of Merger attached hereto as EXHIBIT A (the "Certificate of Merger")
and the applicable provisions of the Delaware General Corporation Law ("Delaware
Law"), Merger Sub shall be merged with and into Target, the separate corporate
existence of Merger Sub shall cease and Target shall continue as the surviving
corporation and as a wholly owned subsidiary of the Acquiror. Target as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
1.2 CLOSING; EFFECTIVE TIME. Unless the Agreement is earlier
terminated pursuant to Article VII, the closing of the transactions contemplated
hereby (the "Closing") will take place as soon as practicable after the
satisfaction or waiver of each of the conditions set forth in Article VI hereof,
but in any event no later than April 30, 2000 (the date on which the Closing
shall occur, the "Closing Date"). The Closing shall take place at the offices of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, 155 Constitution
Drive, Menlo Park, California 94025. On the Closing Date, the parties hereto
shall cause the Merger to be consummated by filing the Certificate of Merger
with the Secretary of State of the State of Delaware, in accordance with the
relevant provisions of Delaware Law (the time and date of such filing being the
"Effective Time" and the "Effective Date," respectively).
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Target shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by Delaware Law and such Certificate of
Incorporation; provided, however, that Article I of the Certificate of
Incorporation shall be amended to read as follows: "The name of the corporation
is Apache Merger Corporation."
(b) The Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors
of Merger Sub immediately prior to the Effective Time shall be the directors of
the Surviving Corporation, to hold office until such time as such directors
resign, are removed or their respective successors are duly elected or appointed
and qualified. The officers of Merger Sub immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, to hold office until
such time
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as such officers resign, are removed or their respective successors are duly
elected or appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK. The total number of shares of
Acquiror Common Stock to be issued pursuant to this Agreement ("Total Acquiror
Shares") shall be determined pursuant to Section 1.6(b) below. Except as
provided herein, no adjustment shall be made in the number of shares of Acquiror
Common Stock issued in the Merger, including, without limitation, as a result of
(x) any increase or decrease in the market price of Acquiror Common Stock prior
to the Effective Time, or (y) any cash proceeds received by Target from the date
hereof to the Closing Date pursuant to the exercise of currently outstanding
Target Options. By virtue of the Merger and without any action on the part of
Acquiror, Merger Sub, at the Effective Time, Target or the holders of any of
Target's securities:
(a) CONVERSION OF TARGET PREFERRED STOCK. Pursuant to the
Target's Certificate of Incorporation, all outstanding shares of Target
Preferred Stock (as defined below) shall convert into shares of Target Common
Stock prior to the Effective Time;
(b) ACQUIROR COMMON STOCK ISSUABLE. The Total Acquiror
Shares to be issued pursuant to this Agreement shall include the following:
(A) 8,300,000 shares of Acquiror Common Stock
shall be issued in respect of Currently Outstanding Target Shares (as defined
below); plus
(B) a number of shares of Acquiror Common Stock
shall be issued in respect of Subsequently Issued Shares (as defined below)
equal to
the number of Subsequently Issued Shares x 8,300,000
----------------------------------------
Currently Outstanding Target Shares.
; plus
(C) a number of shares of Acquiror Common Stock
shall be issued in respect of the Strategic Investment equal to
$ amount of the aggregate Strategic Investment x 8,300,000
----------------------------------------------
$650 million
(c) "CURRENTLY OUTSTANDING TARGET SHARES" shall be equal
to the sum of (i) the aggregate number of shares of Target Common Stock
outstanding as of immediately prior to the execution of this Agreement, (ii) the
aggregate number of shares of Target Common Stock issuable, immediately prior to
the execution of this Agreement, upon conversion of all of the shares of Target
Preferred Stock then outstanding pursuant to the terms of the Target Certificate
of Incorporation, (iii) the aggregate number of shares of Target Common Stock
issuable upon the exercise of any option, warrant, subscription or right to
purchase shares of Target Common Stock, whether or not contingent or earned,
outstanding immediately prior to the execution of this Agreement and (iv) the
aggregate number of shares of Target Common Stock issuable pursuant to any other
agreement of Target to issue or grant any such shares, options, warrants,
subscriptions or rights to purchase shares of Target Common Stock, whether or
not contingent or earned, in effect immediately prior to the execution of this
Agreement;
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(d) "SUBSEQUENTLY ISSUED SHARES" shall be equal to (A)
the sum of (i) the aggregate number of shares of Target Common Stock outstanding
immediately prior to the Effective Time, (ii) the aggregate number of shares of
Target Common Stock issuable, immediately prior to the Effective Time, upon
conversion of all of the shares of Target Preferred Stock then outstanding
pursuant to the terms of the Target Certificate of Incorporation, (iii) the
aggregate number of shares of Target Common Stock issuable upon the exercise of
any option, warrant, subscription or right to purchase shares of Target Common
Stock, whether or not contingent or earned, outstanding immediately prior to the
Effective Time and (iv) the aggregate number of shares of Target Common Stock
issuable pursuant to any other agreement of Target to issue or grant any such
shares, options, warrants, subscriptions or rights to purchase shares of Target
Common Stock, whether or not contingent or earned, in effect immediately prior
to the Effective Time; minus (B) the sum of (i) the number of Currently
Outstanding Target Shares and (ii) the number of shares of Target Common Stock
to be issued in the Strategic Investment;
(e) CONVERSION OF TARGET COMMON STOCK/EXCHANGE RATIO. At
the Effective Time, each Currently Outstanding Target Share, each Subsequently
Issued Share and each Target Share issued in respect of the Strategic Investment
shall be exchanged into the number of shares of Acquiror Common Stock determined
by dividing (i) the Total Acquiror Shares BY (ii) the number of Currently
Outstanding Target Shares, Subsequently Issued Shares and Target Shares issued
in respect of the Strategic Investment (the "Exchange Ratio").
(f) DISSENTING SHARES.
(A) Notwithstanding any provision of this
Agreement to the contrary, any shares of Target Capital Stock held by a holder
who has demanded and perfected appraisal or dissenters' rights for such shares
in accordance with Delaware Law and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal or dissenters' rights ("DISSENTING
SHARES") shall not be converted into or represent a right to receive Acquiror
Common Stock pursuant to Section 1.6, but the holder thereof shall only be
entitled to such rights as are granted by Delaware Law.
(B) Notwithstanding the provisions of subsection
(a), if any holder of shares of Target Stock who demands appraisal of such
shares under Delaware Law shall effectively withdraw or lose (through failure to
perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
Acquiror Common Stock and cash in lieu of fractional shares as provided in
Section 1.6, without interest thereon, upon surrender of the certificate
representing such shares.
(C) The Target shall give Acquiror (i) prompt
notice of any written demands for appraisal of any shares of Target Stock,
withdrawals of such demands, and any other instruments served pursuant to
Delaware Law and received by the Target and (ii) Target agrees that, except with
the prior written consent of Acquiror, or as required under Delaware Law, it
will not make any payment with respect to, or settle or offer to settle any
claim, demand, or other liability with respect to any Dissenting Shares.
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(g) CANCELLATION OF TARGET CAPITAL STOCK OWNED BY
ACQUIROR OR TARGET. At the Effective Time, all shares of Target Capital Stock
that are owned by Target as treasury stock, each share of Target Capital Stock
owned by Acquiror or any direct or indirect wholly owned subsidiary of Acquiror
or of Target immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(h) TARGET STOCK OPTION PLANS. At the Effective Time, the
Target Stock Option Plans (as defined below) and all options to purchase Target
Common Stock then outstanding under the Target Stock Option Plans, whether or
not exercisable, shall be assumed by Acquiror in accordance with Section 5.13.
(i) TARGET WARRANTS. At the Effective Time, all
outstanding Target Warrants, whether or not exercisable, which do not terminate
by their terms shall be converted into warrants to acquire Acquiror Common Stock
in accordance with their terms.
(j) CAPITAL STOCK OF MERGER SUB. At the Effective Time,
each share of Common Stock, $.01 par value, of Merger Sub ("Merger Sub Common
Stock"), issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, $.01 par value, of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(k) ADJUSTMENTS TO EXCHANGE RATIO. The number of shares
to be issued pursuant to Section 1.6 shall be adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any dividend
or distribution of securities convertible into Acquiror Common Stock or Target
Capital Stock), reorganization, recapitalization or other like change with
respect to Acquiror Common Stock or Target Capital Stock occurring after the
date hereof and prior to the Effective Time.
(l) FRACTIONAL SHARES. No fraction of a share of Acquiror
Common Stock will be issued, but in lieu thereof each holder of shares of Target
Capital Stock who would otherwise be entitled to a fraction of a share of
Acquiror Common Stock (after aggregating all fractional shares of Acquiror
Common Stock to be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the average of the closing price for a share
of Acquiror Common Stock as quoted on the Nasdaq National Market for the twenty
(20) trading days immediately preceding and ending on the day before the Closing
Date (the "Closing Price").
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Bank Boston, N.A. shall act as
exchange agent (the "Exchange Agent") in the Merger.
(b) ACQUIROR TO PROVIDE COMMON STOCK AND CASH. Promptly
after the Effective Time, but in any event within three (3) business days,
Acquiror shall make available to the Exchange Agent for exchange in accordance
with this Article I, through such reasonable procedures as Acquiror may adopt,
(i) the shares of Acquiror Common Stock issuable pursuant
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to Section 1.6(a) in exchange for shares of Target Capital Stock outstanding
immediately prior to the Effective Time less the number of shares of Acquiror
Common Stock to be deposited into an escrow fund (the "Escrow Fund") pursuant to
the requirements of Article VIII hereof and (ii) cash in an amount sufficient to
permit payment of cash in lieu of fractional shares pursuant to Section 1.6(h).
(c) EXCHANGE PROCEDURES. Promptly after the Effective
Time in any event no later than ten (10) business days after the Closing Date,
Acquiror shall cause to be mailed to each holder of record of a certificate or
certificates (the "Certificates") which immediately prior to the Effective Time
represented outstanding shares of Target Capital Stock, whose shares were
converted into the right to receive shares of Acquiror Common Stock (and cash in
lieu of fractional shares) pursuant to Section 1.6, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon receipt of the Certificates by the
Exchange Agent, and shall be in such form and have such other customary
provisions as Acquiror may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Acquiror Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Acquiror, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing the number of whole
shares of Acquiror Common Stock less the number of shares of Acquiror Common
Stock to be deposited in the Escrow Fund on such holder's behalf pursuant to
Article VIII hereof and payment in lieu of fractional shares which such holder
has the right to receive pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Target
Capital Stock will be deemed from and after the Effective Time, for all
corporate purposes, other than the payment of dividends, to evidence the
ownership of the number of full shares of Acquiror Common Stock into which such
shares of Target Capital Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6. As soon as practicable after the Effective Time,
and subject to and in accordance with the provisions of Section 8.3 hereof,
Acquiror shall cause to be delivered to the Escrow Agent (as defined in Section
8.3 hereof) a certificate or certificates representing ten percent (10%) of
Acquiror Common Stock to be issued pursuant to Sections 1.6 (b)(A) and (B)
("Escrow Shares") which shall be registered in the name of the Escrow Agent as
nominee for the holders of Certificates cancelled pursuant to this Section 1.7.
Such shares shall be beneficially owned by such holders and shall be held in
escrow and shall be available to compensate Acquiror for certain damages as
provided in Article VIII. To the extent not used for such purposes, such shares
shall be released, all as provided in Article VIII hereof.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate surrenders
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Acquiror Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of
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any such dividends or other distributions with a record date after the Effective
Time which would have been previously payable (but for the provisions of this
Section 1.7(d)) with respect to such shares of Acquiror Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares
of Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Certificate so surrendered is
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the
contrary in this Section 1.7, none of the Exchange Agent, the Surviving
Corporation or any party hereto shall be liable to any person for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(g) DISSENTING SHARES. The provisions of this Section 1.7
shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of Acquiror under this Section 1.7 shall commence on the
date of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the number of shares of Acquiror Common
Stock to which such holder is entitled pursuant to Section 1.6 hereof.
1.8 NO FURTHER OWNERSHIP RIGHTS IN TARGET CAPITAL STOCK. All
shares of Acquiror Common Stock issued upon the surrender for exchange of shares
of Target Capital Stock in accordance with the terms hereof (including any cash
paid in lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Target Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Target Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of
Acquiror Common Stock (and cash in lieu of fractional shares) as may be required
pursuant to Section 1.6; provided, however, that Acquiror may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Acquiror, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368 of the Code. No
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party shall take any action which would, to such party's knowledge, cause the
Merger to fail to qualify as a reorganization within the meaning of Section 368
of the Code.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Target, the officers and directors of Target and Merger
Sub are fully authorized in the name of their respective corporations or
otherwise to take, and shall take, all such lawful and necessary action, so long
as such action is not inconsistent with this Agreement.
1.12 WAIVER AGREEMENTS. As of the date hereof, the Key Target
Employees identified on Schedule 6.3 shall have entered into waiver agreements
substantially in the form of EXHIBIT F attached hereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to Acquiror and Merger Sub that the
statements contained in this Article II are true and correct, except as set
forth in the disclosure letter delivered by Target to Acquiror prior to the
execution and delivery of this Agreement (the "Target Disclosure Letter"). The
Target Disclosure Letter shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article II. Any reference in
this Article II to an agreement being "enforceable" shall be deemed to be
qualified to the extent such enforceability is subject to (i) laws of general
application relating to bankruptcy, insolvency, moratorium and the relief of
debtors, and (ii) the availability of specific performance, injunctive relief
and other equitable remedies. In the remainder of this Article II, "Target" will
be deemed to include (and each representation and warranty will apply separately
and collectively to) Target and each of Target's subsidiaries, unless the
context otherwise requires.
2.1 ORGANIZATION, STANDING AND POWER. Target is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect (as defined in Section 9.2) on Target.
Target has delivered to Acquiror a true and correct copy of the Certificate of
Incorporation and Bylaws of Target, each as amended to date. Target is not in
violation of any of the provisions of its Certificate of Incorporation or
Bylaws. Target is the owner of all outstanding shares of capital stock of each
of its subsidiaries and all such shares are duly authorized, validly issued,
fully paid and nonassessable. All of the outstanding shares of capital stock of
each such subsidiary are owned by Target free and clear of any liens, charges,
claims or encumbrances or rights of others. There are no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or
convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of any such
subsidiary, or otherwise obligating Target or any such subsidiary to issue,
transfer, sell, purchase, redeem or otherwise acquire any
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such securities. Target does not directly or indirectly own any equity or
similar interest in, or any interest convertible or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity.
2.2 CAPITAL STRUCTURE. The authorized capital stock of Target
consists of 30,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock, of which there were issued and outstanding as of the date of this
Agreement, 5,342,713 shares of Common Stock, 119,965 shares of Series A-1
Preferred Stock (the "Series A-1 Preferred"), 92,500 shares of Series A-2
Preferred Stock (the "Series A-2 Preferred") and 45,000 shares of Series A-3
Preferred Stock (the "Series A-3 Preferred" and together with the Series A-1
Preferred and Series A-2 Preferred, the "Series A Preferred"), 566,658 shares of
Series B Preferred Stock (the "Series B Preferred") and 8,284,651 shares of
Series C Preferred Stock (the "Series C Preferred," together with the Series A
Preferred and Series B Preferred, the "Target Preferred Stock"). There are no
other outstanding shares of capital stock or voting securities and no
outstanding commitments to (i) issue any shares of capital stock or voting
securities after the date of this Agreement other than pursuant to the exercise
of options outstanding as of the date of this Agreement under the Target Stock
Option Plan, (ii) Target Warrants or (iii) pursuant to the Strategic Investment
(as defined below). All outstanding shares of Target Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and are free of any
liens or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof, and except as set forth in that certain Fourth Amended
and Restated Stockholders' Agreement dated as of July 19, 1999 by and among
Target and the other parties thereto ("Target Stockholders Agreement") are not
subject to preemptive rights, rights of first refusal, rights of first offer or
similar rights created by statute, the Certificate of Incorporation or Bylaws of
Target or any agreement to which Target is a party or by which it is bound. As
of the date of this Agreement, Target has reserved (i) 2,059,720 shares of
Common Stock for issuance upon conversion of the Series A Preferred, (ii)
4,533,265 shares of Common Stock for issuance upon conversion of the Series B
Preferred, (iii) 8,450,322 shares of Common Stock for issuance upon conversion
of the Series C Preferred, (iv) 4,568,250 shares of Common Stock for issuance to
employees, directors and consultants pursuant to the Target's 1997 Employee
Stock Option Plan, Target's 1997 Non-Employee Stock Option Plan and the Target's
1999 Employee Stock Option/Issuance Plan (together, "Target Stock Option
Plans"), (of which 423,500 shares have been issued pursuant to option exercises
or direct stock purchases, and 3,217,450 shares are subject to outstanding,
unexercised options), (v) 91,248 shares issuable upon exercise of the Target
Warrants, (vi) 409,127 shares of Common Stock for issuance under stock option
agreements and warrants (in addition to those set forth in the preceding
sentence) and (vii) 165,671 shares of Series C Preferred for issuance under
certain bridge warrants issued on February 26, 1999. Except for (i) the rights
created pursuant to this Agreement, (ii) Target's right to repurchase any
unvested shares under each of the Target Stock Option Plans, and (iii) the
rights under Target Warrants, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Target is a party or
by which it is bound obligating Target to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of Target Capital Stock or obligating Target to grant, extend, accelerate
the vesting of, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. There are no contracts,
commitments or agreements relating to the voting, purchase or sale of Target
Capital Stock (i) between or among Target and any of its stockholders and (ii)
to the best of Target's knowledge, among any of Target's stockholders or between
any of Target's stockholders and any
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third party, except for the stockholders delivering the Stockholder Agreement
and those stockholders of Target who are parties to the Target Stockholders
Agreement. The terms of the Target Stock Option Plans permit the assumption of
such Target Stock Option Plans by Acquiror provided in this Agreement, without
the consent or approval of the holders of the outstanding options, the Target
stockholders, or otherwise and without any acceleration of the exercise schedule
or vesting provisions in effect for such options. True and complete copies of
all agreements and instruments relating to or issued under the Target Stock
Option Plans have been made available to Acquiror, 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 from
the form made available to Acquiror. All outstanding shares of Target Capital
Stock and options to purchase shares of Target Capital Stock were issued in
compliance with all applicable federal and state securities laws.
2.3 AUTHORITY.
(a) Target has all requisite corporate power and
authority to enter into this Agreement and the Escrow Agreement (collectively,
the "Transaction Documents") and to consummate the transactions contemplated
hereby and thereby. The execution and delivery this Agreement and the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Target, subject only to the approval of the Merger by Target's
stockholders as contemplated by Section 6.1(a). This Agreement and the other
Transaction Documents have been duly executed and delivered by Target, assuming
the due authorization, execution and delivery by the other parties hereto and
thereto, and constitute the valid and binding obligations of Target enforceable
against Target in accordance with their terms.
(b) Each subsidiary of Target has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business and is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on such
subsidiary of the Target. Attached hereto as SCHEDULE 2.3 is a list of each
subsidiary of Target.
(c) The execution and delivery of this Agreement and the
other Transaction Documents by Target do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any benefit under (i) any provision of the
Certificate of Incorporation or Bylaws of Target, as amended, (ii) any Material
Contract (as defined in Section 2.25), permit, concession, franchise, license,
judgment, orders or decree, or (iii) to Target's knowledge, any statute, law,
ordinance, rule or regulation applicable to Target or any of its properties or
assets subject to obtaining the approval and adoption of the Agreement and the
Merger by the stockholders of Target and compliance with the requirements of
subsection (d) below.
(d) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required to be obtained or made by or with respect
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to Target in connection with the execution and delivery of this Agreement and
the other Transaction Documents or the consummation of the transactions by
Target contemplated hereby or thereby, except for (i) the filing of the
Certificate of Merger, as provided in Section 1.2; (ii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal or state securities laws and the
securities laws of any foreign country; (iii) such filings as may be required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
("HSR"); (iv) the filing of an application for qualification by permit with the
California Department of Corporations pursuant to Section 5.2 hereof or a
Registration Statement to the extent such permit is not issued, and (iv) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Target and
would not prevent, materially alter or delay any of the transactions
contemplated by this Agreement or the other Transaction Documents.
2.4 FINANCIAL STATEMENTS. Target has delivered to Acquiror its
audited financial statements (balance sheet, statement of operations, statement
of stockholders' equity and statement of cash flows) for the fiscal year ended
March 31, 1999 and its unaudited financial statements (balance sheet, statement
of operations, statement of stockholders' equity and statement of cash flows) on
a consolidated basis as at, and for the seven (7) month period ended October 31,
1999 (collectively, the "Financial Statements"). The Financial Statements have
been prepared in accordance with generally accepted accounting principles as in
effect on the date hereof ("GAAP") (except that the unaudited financial
statements do not have notes thereto) applied on a consistent basis throughout
the periods indicated and with each other including without limitation
compliance with the revenue recognition standards contained in SOP 97-02. The
Financial Statements fairly present the financial condition and operating
results of Target as of the dates, and for the periods, indicated therein,
subject, in the case of the unaudited financial statements, to normal year-end
audit adjustments which are not material in the aggregate. Target maintains a
standard system of accounting established and administered in accordance with
GAAP.
2.5 ABSENCE OF CERTAIN CHANGES. Since October 31, 1999, (the
"Target Balance Sheet Date"), Target has conducted its business in the ordinary
course consistent with past practice and there has not occurred: (i) any change,
event or condition (whether or not covered by insurance) that has resulted in,
or might reasonably be expected to result in, a Material Adverse Effect on
Target; (ii) any acquisition, sale or transfer of any material asset of Target;
(iii) any change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Target or any revaluation by
Target of any of its assets; (iv) any declaration, setting aside, or payment of
a dividend or other distribution with respect to the shares of Target, or any
direct or indirect redemption, purchase or other acquisition by Target of any of
its shares of capital stock; (v) any Material Contract entered into by Target,
other than as set forth in Schedule 2.27 or any material amendment or
termination of, or default under, any Material Contract to which Target is a
party or by which it is bound; (vi) any amendment or change to the Certificate
of Incorporation or Bylaws of Target; (vii) any increase in or modification of
the compensation or benefits payable or to become payable by Target to any of
its directors, employees or consultants other than stock options granted to
Target employees in the ordinary course of business consistent with past
practices; or (viii) any negotiation or agreement by Target to do any of the
things described in the preceding clauses (i) through (vii) (other than
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negotiations with Acquiror and its representatives regarding the transactions
contemplated by this Agreement).
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet as of the Target Balance Sheet Date (the "Target Balance Sheet"),
(ii) those incurred in the ordinary course of business prior to the Target
Balance Sheet Date and not required to be set forth in the Target Balance Sheet
under GAAP, (iii) those incurred in the ordinary course of business since the
Target Balance Sheet Date in amounts consistent with prior periods, and (iv)
those incurred in connection with the execution of this Agreement.
2.7 ACCOUNTS RECEIVABLE. The accounts receivable shown on the
Target Balance Sheet arose in the ordinary course of business and have been
collected or are collectible in the book amounts thereof, less the allowance for
doubtful accounts and returns provided for in such balance sheet. Allowances for
doubtful accounts and returns are adequate and have been prepared in accordance
with GAAP and consistent with past practices. The accounts receivable of Target
arising after the date of the Target Balance Sheet and prior to the date hereof
arose, and the accounts receivable arising prior to the Effective Time will
arise, in the ordinary course of business and have been collected or are
collectible in the book amounts thereof, less allowances for doubtful accounts
and returns determined in accordance with GAAP and consistent with past
practices. None of the accounts receivable are subject to any material claim of
offset or recoupment, or counterclaim and Target has no knowledge of any
specific facts that would be reasonably likely to give rise to any such claim.
No material amount of accounts receivable are contingent upon the performance by
Target of any obligation. No agreement for deduction or discount has been made
with respect to any accounts receivable.
2.8 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target, threatened
(including allegations that could form the basis for future action) against
Target or any of its properties or officers or directors (in their capacities as
such), nor does Target have any reason to expect that any such activity, threat
or allegation will be forthcoming. There is no judgment, decree or order against
Target, or, to the knowledge of Target, any of its directors or officers (in
their capacities as such), that could prevent, enjoin, or materially alter or
delay any of the transactions contemplated by this Agreement, or that could
reasonably be expected to have a Material Adverse Effect on Target. All
litigation to which Target is a party (or, to the knowledge of Target,
threatened to become a party) is disclosed in the Target Disclosure Letter.
Target does not have any plans to initiate any litigation, arbitration or other
proceeding against any third party.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Target that has or could
reasonably be expected to have the effect of prohibiting or impairing any
current or future business practice of Target, any acquisition of property by
Target or the conduct of business by Target as currently conducted or as
proposed to be conducted by Target.
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2.10 GOVERNMENTAL AUTHORIZATION. Target has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity that is required for the operation
of Target's business or the holding of any such interest in any of its
properties ("Target Authorizations"), and all of such Target Authorizations are
in full force and effect, except where the failure to obtain or have any such
Target Authorizations could not reasonably be expected to have a Material
Adverse Effect on Target.
2.11 TITLE TO PROPERTY. Target has good and marketable title to all
of its properties, interests in properties and assets, real and personal,
necessary for the conduct of its business as presently conducted or which are
reflected in the Target Balance Sheet or acquired after the Target Balance Sheet
Date (except properties, interests in properties and assets sold or otherwise
disposed of in the ordinary course of business since the Target Balance Sheet
Date), or with respect to leased properties and assets, valid leasehold
interests therein, in each case free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien of current
taxes not yet due and payable, (ii) liens securing debt that are reflected on
the Target Balance Sheet and (iii) imperfections of title and encumbrances, if
any, which are not material in character or amount. The plants, property and
equipment of Target that are used in the operations of its business are in good
operating condition and repair, reasonable wear and tear excepted. All
properties used in the operations of Target are reflected in the Target Balance
Sheet to the extent GAAP require the same to be reflected. SCHEDULE 2.11
identifies each interest of real property owned by Target.
2.12 INTELLECTUAL PROPERTY.
(a) Target owns or is licensed for, and in any event
possesses sufficient and legally enforceable rights with respect to, all
Intellectual Property (defined below) that is (or is proposed to be) used,
exercised, or exploited ("Used") in, or that may be necessary for, its business
as currently conducted or as proposed to be conducted ("Target Intellectual
Property," which term will also include all other Intellectual Property owned by
or licensed to Target now or in the past) without any conflict with or
infringement or misappropriation of any rights or property of others
("Infringement"). Such ownership, licenses and rights are exclusive (A) except
with respect to Inventions (defined below) in the public domain that are not
important differentiators of Target's business or proposed business and (B)
except with respect to standard, generally commercially available,
"off-the-shelf" third party products that are not part of any current or
proposed product, service or Intellectual Property offering of Target. No Target
Intellectual Property (excluding Intellectual Property licensed to Target only
on a nonexclusive basis) was conceived or developed directly or indirectly with
or pursuant to government funding or a government contract. "Intellectual
Property" means (i) inventions (whether or not patentable); trade names, trade
marks, service marks, logos and other designations ("Marks"); works of
authorship; mask works; data; technology, know-how, trade secrets, ideas and
information; designs; formulas; algorithms; processes; schematics; computer
software (in source code and/or object code form); and all other intellectual
and industrial property of any sort ("Inventions") and (ii) patent rights; Mark
rights; copyrights; mask work rights; SUI GENERIS database rights; trade secret
rights; moral rights; and all other intellectual and industrial property rights
of any sort throughout the world, and all applications, registrations, issuances
and the like with respect thereto ("IP Rights"). All copyrightable matter within
Target Intellectual Property
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has been created by persons who were employees of Target at the time of creation
and no third party has or will have "moral rights" or rights to terminate any
assignment or license with respect THERETO. Target has not received any
communication alleging or suggesting that or questioning whether Target has been
or may be (whether in its current or proposed business or otherwise) engaged in,
liable for or contributing to any Infringement, nor does Target have any reason
to expect that any such communication will be forthcoming.
(b) To the extent included in Target Intellectual
Property, SCHEDULE 2.12 lists (by name, number, jurisdiction, owner and, where
applicable, the name and address of each inventor) all patents and patent
applications; all registered and unregistered Marks; and all registered and, if
material, unregistered copyrights and mask works; and all other issuances,
registrations, applications and the like with respect to those or any other IP
Rights. No cancellation, termination, expiration or abandonment of any of the
foregoing (except natural expiration or termination at the end of the full
possible term, including extensions and renewals) is anticipated by Target.
Target is not aware of any questions or challenges (or any specific basis
therefor) with respect to the validity of any of the foregoing issued or
registered IP Rights (or any part or claim thereof) or with respect to the
patentability of any claim of any of the foregoing patent applications.
(c) There is, to the knowledge of Target, no unauthorized
Use, disclosure, infringement or misappropriation of any Target Intellectual
Property by any third party, including, without limitation, any employee or
former employee of Target.
(d) Target has taken all necessary and appropriate steps
to protect and preserve the confidentiality of all Target Intellectual Property
that is not otherwise disclosed in published patents or patent applications or
registered copyrights ("Target Confidential Information"). All use by and
disclosure to employees or others of Target Confidential Information has been
pursuant to the terms of valid and binding written confidentiality and
nonuse/restricted-use agreements. Except as set forth in SCHEDULE 2.12, Target
has not disclosed or delivered to any third party, or permitted the disclosure
or delivery to any escrow holder or other person any part of any Source
Materials (defined in Section 2.25(m)).
(e) Each current and former employee and contractor of
Target has executed and delivered (and to the knowledge of Target is in
compliance with) an enforceable agreement in substantially the form of Target's
standard Proprietary Information and Inventions Agreement (in the case of an
employee) or Target's standard Consulting Agreement (in the case of a
contractor) which agreement provides valid written assignments of all title and
rights to any Target Intellectual Property conceived or developed thereunder, or
otherwise in connection with his or her consulting or employment, but not
already owned by Target by operation of law.
(f) To Target's knowledge, Target is not Using, and it
will not be necessary to Use, (i) any Inventions of any of its past or present
employees or contractors (or people currently intended to be hired) made prior
to or outside the scope of their employment by Target or (ii) any confidential
information or trade secrets of any former employer of any such person.
(g) Target represents and warrants that the following are
Year 2000 Compliant (as defined below): (1) Target's internal software,
firmware, hardware, systems and
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similar technology, whether created by Target or acquired from third parties,
(2) all products currently offered by Target for sale, license, sublicense,
distribution, sub-distribution, resale or use by third parties, whether created
by Target or acquired from third parties, and (3) all products sold,
sublicensed, distributed or otherwise delivered by Target to a third party prior
to the Effective Date. "Year 2000 Compliant" means the ability of software,
firmware, hardware, systems and similar technology to provide all of the
following functions: (i) handle date information before, during and after
January 1, 2000, including but not limited to properly accounting for leap
years, accepting date input, providing date output, and performing calculations
on dates or portions of dates; (ii) function accurately and without interruption
before, during and after January 1, 2000, without any change in operations
associated with the advent of the new century; (iii) respond to two-digit
year-date input in a way that resolves the ambiguity as to century in a
disclosed, defined and predetermined manner; and (iv) store and provide output
of date information in ways that are unambiguous as to century.
2.13 ENVIRONMENTAL MATTERS. Target is and has at all times operated
its business in material compliance with all Environmental Laws and to the best
of Target's knowledge, no material expenditures are or will be required in order
to comply with such Environmental Laws. "Environmental Laws" means all
applicable statutes, rules, regulations, ordinances, orders, decrees, judgments,
permits, licenses, consents, approvals, authorizations, and governmental
requirements or directives or other obligations lawfully imposed by governmental
authority under federal, state or local law pertaining to the protection of the
environment, protection of public health, protection of worker health and
safety, the treatment, emission and/or discharge of gaseous, particulate and/or
effluent pollutants, and/or the handling of hazardous materials, including
without limitation, the Clean Air Act, 42 U.S.C. Section 7401, et seq., the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. Section 9601, et seq., the Federal Water Pollution Control
Act, 33 U.S.C. Section 1321, et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq. ("RCRA"), and the Toxic Substances Control
Act, 15 U.S.C. Section 2601, et seq.
2.14 TAXES.
(a) All Tax returns, statements, reports, declarations
and other forms and documents (including without limitation estimated Tax
returns and reports and material information statements, returns and reports)
required to be filed with any Tax authority with respect to any Taxable period
ending on or before the Effective Time, by or on behalf of Target (collectively,
"Tax Returns" and individually a "Tax Return"), have been or will be completed
and filed when due (including any extensions of such due date) and all amounts
shown due on such Tax Returns on or before the Effective Time have been or will
be paid on or before such date. The Target Balance Sheet (i) fully accrues all
actual and contingent liabilities for Taxes with respect to all periods through
the Target Balance Sheet Date, and Target has not and will not incur any Tax
liability in excess of the amount reflected on such Target Balance Sheet with
respect to such periods (excluding any amount thereof that reflects timing
differences between the recognition of income for purposes of GAAP and for Tax
purposes), and (ii) properly accrues in accordance with GAAP all material
liabilities for Taxes payable after the Target Balance Sheet Date with respect
to all transactions and events occurring on or prior to such date. All
information set forth in the notes to the Target Financial Statements relating
to Tax matters is
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true, complete and accurate in all material respects. No material Tax liability
since the Target Balance Sheet Date has been or will be incurred by Target other
than in the ordinary course of business, and adequate provision has been made by
Target for all Taxes since that date in accordance with GAAP on at least a
quarterly basis.
(b) Target has previously provided or made available to
Acquiror true and correct copies of all Tax Returns. Target has withheld and
paid to the applicable financial institution or Tax authority all amounts
required to be withheld. To the best knowledge of Target, Tax Returns filed with
respect to Taxable years of Target through the Taxable year ended March 31, 1998
in the case of the United States, have been examined and closed. Target (or any
member of any affiliated or combined group of which Target has been a member)
has not granted any extension or waiver of the limitation period applicable to
any Tax Returns that is still in effect. There is no material claim, audit,
action, suit, proceeding, or (to the knowledge of Target) investigation now
pending or (to the knowledge of Target) threatened against or with respect to
Target in respect of any Tax or assessment. No notice of deficiency or similar
document of any Tax authority has been received by Target, and there are no
liabilities for Taxes (including liabilities for interest, additions to Tax and
penalties thereon and related expenses) with respect to the issues that have
been raised (and are currently pending) by any Tax authority that could, if
determined adversely to Target, materially and adversely affect the liability of
Target for Taxes. There are no liens for Taxes (other than for current Taxes not
yet due and payable) upon the assets of Target. Target has never been a member
of an affiliated group of corporations, within the meaning of Section 1504 of
the Code. Target is in compliance in all material respects with all the terms
and conditions of any Tax exemptions or other Tax-sharing agreement or order of
a foreign government and the consummation of the Merger will not have any
adverse effect on the continued validity and effectiveness of any such Tax
exemption or other Tax-sharing agreement or order. Neither Target nor any person
on behalf of Target has entered into or will enter into any agreement or consent
pursuant to the collapsible corporation provisions of Section 341(f) of the Code
(or any corresponding provision of state, local or foreign income tax law) or
agreed to have Section 341(f)(2) of the Code (or any corresponding provision of
state, local or foreign income tax law) apply to any disposition of any asset
owned by Target. None of the assets of Target directly or indirectly secures any
debt the interest on which is tax-exempt under Section 103(a) of the Code. None
of the assets of Target is "tax-exempt use property" within the meaning of
Section 168(h) of the Code. Target has not made and will not make a deemed
dividend election under Treas. Reg. Section1.1502-32(f)(2) or a consent dividend
election under Section 565 of the Code. Target has never been a party (either as
a distributing corporation or as a corporation that has been distributed) to any
transaction intended to qualify under Section 355 of the Code or any
corresponding provision of state law. Target has not participated in (and will
not participate in) an international boycott within the meaning of Section 999
of the Code. No Target stockholder is other than a United States person within
the meaning of the Code. Target does not have and has not had a permanent
establishment in any foreign country, as defined in any applicable tax treaty or
convention between the United States of America and such foreign country and
Target has not engaged in a trade or business within any foreign country. Target
has never elected to be treated as an S-corporation under Section 1362 of the
Code or any corresponding provision of federal or state law. All material
elections with respect to Target's Taxes made during the fiscal years ending,
March 31, 1996, 1997 and 1998 are reflected on the Target Tax Returns for such
periods the extent required to be reflected, copies of which have been provided
or made available to
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Acquiror. After the date of this Agreement, no material election with respect to
Taxes will be made without the prior written consent of Acquiror, which consent
will not be unreasonably withheld or delayed. Target is not party to any joint
venture, partnership, or other arrangement or contract which could be treated as
a partnership for federal income tax purposes. Target is not currently and never
has been subject to the reporting requirements of Section 6038A of the Code.
There is no agreement, contract or arrangement to which Target is a party that
could, individually or collectively, result in the payment of any amount that
would not be deductible by reason of Sections 280G (as determined without regard
to Section 280G(b)(4)), 162(a) (by reason of being unreasonable in amount), 162
(b) through (p) or 404 of the Code. Target is not a party to or bound by any Tax
indemnity, Tax sharing or Tax allocation agreement (whether written or unwritten
or arising under operation of federal law as a result of being a member of a
group filing consolidated Tax returns, under operation of certain state laws as
a result of being a member of a unitary group, or under comparable laws of other
states or foreign jurisdictions) which includes a party other than Target, nor
does Target owe any amount under any such Agreement. Target is not, and has not
been, a United States real property holding corporation (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. Other than by reason of the Merger, Target has not
been and will not be required to include any material adjustment in Taxable
income for any Tax period (or portion thereof) pursuant to Section 481 or 263A
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions, events or accounting methods employed prior to the
Merger.
(c) For purposes of this Agreement, the following terms
have the following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means any and all taxes including, without limitation, (i) any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, value added, net worth, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "Tax authority") responsible for the
imposition of any such tax (domestic or foreign), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period or as the result of being a transferee or successor thereof and (iii) any
liability for the payment of any amounts of the type described in (i) or (ii) as
a result of any express or implied obligation to indemnify any other person. As
used in this Section 2.14, the term "Target" means Target and any entity
included in, or required under GAAP to be included in, any of the Target
Financial Statements.
2.15 EMPLOYEE BENEFIT PLANS.
(a) For all purposes under this Section 2.15, "ERISA
Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) that,
together with Target, is treated as a single employer under Section 4001(b) of
ERISA or Section 414 of the Code. Except for the plans and agreements listed in
SCHEDULE 2.15 (collectively, the "Plans"), Target and its ERISA Affiliates do
not maintain, are not a party to, do not contribute to and are not obligated to
contribute to, and employees or former employees of Target and its ERISA
Affiliates and their
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dependents or survivors do not receive benefits under, any of the following
(whether or not set forth in a written document):
(A) Any employee benefit plan, as defined in
section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA");
(B) Any bonus, deferred compensation, incentive,
restricted stock, stock purchase, stock option, stock appreciation right,
phantom stock, supplemental pension, executive compensation, cafeteria benefit,
dependent care, director or employee loan, fringe benefit, sabbatical,
severance, termination pay or similar plan, program, policy, agreement or
arrangement; or
(C) Any plan, program, agreement, policy,
commitment or other arrangement relating to the provision of any benefit
described in section 3(1) of ERISA to former employees or directors or to their
survivors, other than procedures intended to comply with the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA").
(b) Neither Target nor any ERISA Affiliate has, since
January 1, 1996, terminated, suspended, discontinued contributions to or
withdrawn from any employee pension benefit plan, as defined in section 3(2) of
ERISA, including (without limitation) any multiemployer plan, as defined in
section 3(37) of ERISA.
(c) Target has provided to Acquiror complete, accurate
and current copies of each of the following:
(A) The text (including amendments) of each of
the Plans, to the extent reduced to writing;
(B) A summary of each of the Plans, to the
extent not previously reduced to writing;
(C) With respect to each Plan that is an
employee benefit plan (as defined in section 3(3) of ERISA), the following:
(i) The most recent summary plan
description, as described in section 102 of ERISA;
(ii) Any summary of material
modifications that has been distributed to participants but has not been
incorporated in an updated summary plan description furnished under Subparagraph
(i) above; and
(iii) The annual report, as described in
section 103 of ERISA, and (where applicable) actuarial reports, for the three
most recent plan years for which an annual report or actuarial report has been
prepared.
(D) With respect to each Plan that is intended
to qualify under section 401(a) of the Code the most recent determination,
opinion, notification or advisory letter,
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as applicable, concerning the Plan's qualification under section 401(a) of the
Code, as issued by the Internal Revenue Service, and any subsequent
determination letter application.
(d) With respect to each Plan that is an employee benefit
plan (as defined in section 3(3) of ERISA), the requirements of ERISA applicable
to such Plan have been satisfied.
(e) With respect to each Plan that is subject to COBRA,
the requirements of COBRA applicable to such Plan have been satisfied.
(f) With respect to each Plan that is subject to the
Family Medical Leave Act of 1993, as amended, the requirements of such Act
applicable to such Plan have been satisfied.
(g) Each Plan that is intended to qualify under section
401(a) of the Code meets the requirements for qualification under section 401(a)
of the Code and the regulations thereunder, except to the extent that such
requirements may be satisfied by adopting retroactive amendments under section
401(b) of the Code and the regulations thereunder. Each such Plan has been
administered in accordance with its terms (or, if applicable, such terms as will
be adopted pursuant to a retroactive amendment under section 401(b) of the Code)
and the applicable provisions of ERISA and the Code and the regulations
thereunder.
(h) Neither Target nor any ERISA Affiliate has any
accumulated funding deficiency under section 412 of the Code or any termination
or withdrawal liability under Title IV of ERISA.
(i) All contributions, premiums or other payments due
from the Target to (or under) any Plan have been fully paid or adequately
provided for on the books and financial statements of Target. All accruals
(including, where appropriate, proportional accruals for partial periods) have
been made in accordance with prior practices.
2.16 EMPLOYEES AND CONSULTANTS.
(a) Target has provided Acquiror with a true and complete
list of all individuals employed by the Target as of the date hereof and the
position and base compensation payable to each such individual. The Target
Disclosure Letter contains a description of any written or oral employment
agreements, consulting agreements or termination or severance agreements to
which Target is a party. Except as set forth on the Target Disclosure Letter, no
employee has entered into any employment agreement which varies in any material
terms from the Target's standard form agreement as provided to Acquiror.
(b) Target is not a party to or subject to a labor union
or a collective bargaining agreement or arrangement and is not a party to any
labor or employment dispute.
(c) The consummation of the transactions contemplated
herein will not result in (i) any amount becoming payable to any employee,
director or independent contractor of Target, (ii) the acceleration of payment
or vesting of any benefit, option or right to which any employee, director or
independent contractor of Target may be entitled, (iii) the forgiveness of any
indebtedness of any employee, director or independent contractor of Target or
(iv) any cost
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becoming due or accruing to Target or the Acquiror with respect to any employee,
director or independent contractor of Target.
(d) Target is not obligated and upon consummation of the
Merger will not be obligated to make any payment or transfer any property that
would be considered a "parachute payment" under section 280G(b)(2) of the Code.
(e) No employee of Target has been injured in the work
place or in the course of his or her employment except for injuries which are
covered by insurance or for which a claim has been made under workers'
compensation or similar laws.
(f) Target has complied in all material respects with the
verification requirements and the record-keeping requirements of the Immigration
Reform and Control Act of 1986 ("IRCA"); to the best knowledge of Target, the
information and documents on which Target relied to comply with IRCA are true
and correct; and there have not been any discrimination complaints filed against
Target pursuant to IRCA, and to the knowledge of Target, there is no basis for
the filing of such a complaint. Target has provided Acquiror with a true and
complete list of all employees who are not U.S. citizens, along with a
description of the legal status under which each such individual is permitted to
work in the United States.
(g) Target has not received or been notified of any
complaint by any employee, applicant, union or other party of any discrimination
or other conduct forbidden by law or contract, nor to the knowledge of Target,
is there a basis for any complaint.
(h) Target's action in complying with the terms of this
Agreement will not violate any agreements with any of Target's employees.
(i) Target has filed all required reports and information
with respect to its employees that are due prior to the Closing Date and
otherwise has complied in its hiring, employment, promotion, termination and
other labor practices with all applicable federal and state law and regulations,
including without limitation those within the jurisdiction of the United States
Equal Employment Opportunity Commission, United States Department of Labor and
state and local human rights or civil rights agencies. Target has filed and
shall file any such reports and information that are required to be filed prior
to the Closing Date.
(j) To the knowledge of Target, after reasonable
investigation, none of Target's employees or contractors is obligated under any
agreement, commitments, judgment, decree, order or otherwise (an "Employee
Obligation") that could reasonably be expected to interfere with the use of his
or her best efforts to promote the interests of Target or that could reasonably
be expected to conflict with any of Target's business as conducted or proposed
to be conducted. Neither the execution nor delivery of this Agreement nor the
conduct of Target's business as conducted or proposed, will, to Target's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any Employee Obligation.
2.17 RELATED-PARTY TRANSACTIONS. No employee, officer, or director
of Target or member of his or her immediate family is indebted to Target, nor is
Target indebted (or committed to make loans or extend or guarantee credit) to
any of them. To the best of Target's
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knowledge, none of such persons has any direct or indirect ownership interest in
any firm or corporation with which Target is affiliated or with which Target has
a business relationship, or any firm or corporation that competes with Target,
except to the extent that employees, officers, or directors of Target and
members of their immediate families (i) own stock in publicly traded companies,
(ii) own less than 1% of the stock of a private company that will compete with
Target or (iii) investments of members of the Board of Directors of Target in
such person's capacity as principals of venture capital funds that may compete
with the Company. No member of the immediate family of any officer or director
of Target is directly or indirectly interested in any material contract with
Target.
2.18 INSURANCE. Attached hereto as SCHEDULE 2.18 is a list of
policies of insurance and bonds of Target. There is no material claim pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and Target is
otherwise in compliance with the terms of such policies and bonds. Target has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.19 COMPLIANCE WITH LAWS. Target has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as will not have a Material Adverse
Effect on Target.
2.20 BROKERS' AND FINDERS' FEES. Target has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.21 STOCKHOLDER AGREEMENT. Principal Stockholders of Target (as
set forth in Schedule 2.21), representing the majority of outstanding common
shares and common share equivalents have agreed in writing to vote for approval
of the Merger pursuant to voting agreements attached hereto as EXHIBIT C
("Stockholder Agreement").
2.22 VOTE REQUIRED. The affirmative vote of the holders of a
majority of each class of the shares of Target Capital Stock outstanding on the
record date set for the Target Stockholders Meeting or Target Stockholder
Consent is the only vote of the holders of any of Target's Capital Stock
necessary to approve this Agreement and the transactions contemplated hereby.
2.23 TRADE RELATIONS. Target has not within the past two years
terminated its relationship with or refused to ship products to any dealer,
distributor, OEM, third party marketing entity or customer which had theretofore
paid or been obligated to pay Target in excess of One Hundred Thousand Dollars
($100,000) over any consecutive twelve month period. All of the prices charged
by Target in connection with the marketing or sale of any products or services
have been in compliance with all applicable laws and regulations. No claims have
been communicated or, to Target's knowledge, threatened against Target with
respect to wrongful termination of any dealer, distributor or any other
marketing entity, discriminatory pricing, price
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fixing, unfair competition, false advertising, or any other material violation
of any laws or regulations relating to anti-competitive practices or unfair
trade practices of any kind, and, to Target's knowledge, no specific situation,
set of facts, or occurrence provides any valid basis for any such claim.
2.24 CUSTOMERS AND SUPPLIERS. As of the date hereof, no customer
which individually accounted for more than one percent (1%) of Target's gross
revenues during the twelve month period preceding the date hereof, and no
supplier of Target, has canceled or otherwise terminated, or provided any
written notice threatening Target to cancel or otherwise terminate its
relationship with Target for any reason including, without limitation the
consummation of the transactions contemplated hereby, or has at any time on or
after the Target Balance Sheet Date 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. 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.
2.25 MATERIAL CONTRACTS. Except for the material contracts
described in Schedule 2.25 (collectively, the "Material Contracts"), Target is
not a party to or bound by any material contract, including without limitation:
(a) any distributor, sales, advertising, agency or
manufacturer's representative contract;
(b) any continuing contract for the purchase of
materials, supplies, equipment or services involving in the case of any such
contract more than $25,000 over the life of the contract;
(c) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
(d) any contract for capital expenditures in excess of
$50,000 in the aggregate;
(e) any contract limiting the freedom of the Target to
engage in any line of business or to compete with any other Person as that term
is defined in the Securities Exchange Act of 1934, as amended (the "Exchange
Act") ;
(f) any contract pursuant to which Target leases any real
property;
(g) any contract pursuant to which the Target is a lessor
of any machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
(h) any contract with any person who is an Affiliate of
the Target;
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(i) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person other than (i) software licensees or
professional services contracts entered in the ordinary course of business and
(ii) agreements with employees providing certain indemnification obligations in
connection with relocation;
(j) any license, sublicense or other agreement to which
Target is a party (or by which it or any Target Intellectual Property is bound
or subject) and pursuant to which any person has been or may be assigned,
authorized to Use, or given access to any Target Intellectual Property;
(k) any license, sublicense or other agreement pursuant
to which Target has been or may be assigned or authorized to Use, or has or may
incurred any obligation in connection with, (A) any third party Intellectual
Property that is incorporated in or form a part of any current or proposed
product, service or Intellectual Property offering of Target or (B) any Target
Intellectual Property;
(l) any agreement pursuant to which Target has deposited
or is required to deposit with an escrow holder or any other person or entity,
all or part of the source code (or any algorithm or documentation contained in
or relating to any source code) of any Target Intellectual Property ("Source
Materials"); and
(m) any agreement to indemnify, hold harmless or defend
any other person with respect to any assertion of personal injury, damage to
property or Intellectual Property infringement, misappropriation or violation or
warranting the lack thereof.
2.26 NO BREACH OF MATERIAL CONTRACTS. The Target has performed all
of the obligations required to be performed by it and is entitled to all
benefits under, and is not alleged to be in default in respect of any Material
Contract. Each of the Material Contracts is in full force and effect, unamended,
and there exists no default or event of default or event, occurrence, condition
or act, with respect to Target or to Target's knowledge with respect to the
other contracting party, or otherwise that, with or without the giving of
notice, the lapse of the time or the happening of any other event or conditions,
could reasonably be expected to (A) become a default or event of default under
any Material Contract or (B) result in the loss or expiration of any right or
option by Target (or the gain thereof by any third party) under any Material
Contract or (C) the release, disclosure or delivery to any third party of any
part of the Source Materials (as defined in Section 2.25(m)). True, correct and
complete copies of all Material Contracts have been delivered to the Acquiror.
2.27 THIRD-PARTY CONSENTS. Schedule 2.27 lists all contracts that
require (a) a novation or consent to assignment, as the case may be, prior to
the Effective Time so that the Surviving Corporation shall be made a party in
place of Target or as assignee or (b) a consent of any third party to the Merger
or any change of control of Target. Such list is complete and accurate.
2.28 MINUTE BOOKS. The minutes and consents of Target made
available to Acquiror contain a complete and accurate summary in all material
respects of all meetings of directors and
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stockholders or actions by written consent since the time of incorporation of
Target through the date of this Agreement, and reflect all transactions referred
to in such minutes accurately in all material respects.
2.29 COMPLETE COPIES OF MATERIALS. Target has delivered or made
available true and complete copies of each document, which has been requested by
Acquiror or its counsel in connection with their legal and accounting review of
Target.
2.30 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Target herein (as modified by the Target Disclosure Letter)
or in any Schedule hereto, including the Target Disclosure Schedule, or
certificate furnished by Target pursuant to this Agreement, when all such
documents are read together in their entirety, contains or will contain at the
Effective Time any untrue statement of a material fact, or omits or will omit at
the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
---------------------------------------------------------
Acquiror and Merger Sub represent and warrant to Target that the
statements contained in this Article III are true and correct, except as set
forth in the disclosure schedule delivered by Acquiror to Target prior to the
execution and delivery of this Agreement (the "Acquiror Disclosure Schedule").
The Acquiror Disclosure Schedule shall be arranged in paragraphs corresponding
to the numbered and lettered paragraphs contained in this Article III, and the
disclosure in any paragraph shall qualify only the corresponding paragraph in
this Article III. Any reference in this Article III to an agreement being
"enforceable" shall be deemed to be qualified to the extent such enforceability
is subject to (i) laws of general application relating to bankruptcy,
insolvency, moratorium and the relief of debtors, and (ii) the availability of
specific performance, injunctive relief and other equitable remedies.
3.1 ORGANIZATION, STANDING AND POWER. Each of Acquiror and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of Acquiror
and its subsidiaries has the corporate power to own its properties and to carry
on its business as now being conducted and as proposed to be conducted and is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a Material
Adverse Effect on Acquiror. Acquiror has delivered a true and correct copy of
the Certificate of Incorporation and Bylaws of Acquiror and Merger Sub, each as
amended to date, to Target. Neither Acquiror nor Merger Sub (or any other
subsidiary) is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws. Acquiror is the owner of all outstanding shares of
capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by Acquiror free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating
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Acquiror or any such subsidiary to issue, transfer, sell, purchase, redeem or
otherwise acquire any such securities.
3.2 CAPITAL STRUCTURE. The authorized capital stock of Acquiror
consists of (a) 200,000,000 shares of Acquiror Common Stock and (b) 20,000,000
shares of preferred stock, par value $0.002 per share ("Acquiror Preferred
Stock"). As of October 31, 1999, (i) 45,805,129 shares of Acquiror Common Stock
are issued and outstanding, all of which are validly issued, fully paid and
non-assessable, (ii) no shares of Acquiror Common Stock are held in the treasury
of Acquiror or by Acquiror Subsidiaries and (iii) 2,548,342 shares are reserved
for future issuance pursuant to stock options. As of the date of this Agreement,
no shares of Acquiror Preferred Stock were issued and outstanding. Except for
stock options granted pursuant to the stock option plans of Acquiror (the
"ACQUIROR STOCK OPTION PLANS") and for warrants to purchase 14,544 shares of
Acquiror Common Stock, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of Acquiror or any Acquiror Subsidiary or obligating
Acquiror or any Acquiror Subsidiary or obligating Acquiror or any Acquiror
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, Acquiror or any Acquiror Subsidiary. All shares of Acquiror Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, full paid and non-assessable. Except
for 6,907,820 shares acquired prior to Acquiror's initial public offering which
are subject to repurchase by Acquiror, there are no outstanding contractual
obligations of Acquiror or any Acquiror Subsidiary to repurchase, redeem or
otherwise acquire any shares of Acquiror Common Stock or any capital stock of
any Acquiror Subsidiary. Other than as set forth above and the commitment to
issue shares of Common Stock pursuant to this Agreement; there are no other
options, warrants, calls, rights, commitments or agreements of any character to
which Acquiror or Merger Sub is a party or by which either of them is bound
obligating Acquiror 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 Acquiror or Merger Sub or obligating Acquiror or Merger Sub
to grant, extend or enter into any such option, warrant, call, right, commitment
or agreement. The shares of Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid, and non-assessable, will
not be subject to any preemptive or other statutory right of stockholders, will
be issued in compliance with applicable U.S. Federal and state securities laws
and will be free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. There are no
contracts, commitments or agreements relating to voting, registration, purchase
or sale of Acquiror's capital stock (i) between or among Acquiror and any of its
stockholders or (ii) to the best of Acquiror's knowledge, between or among any
of Acquiror's stockholders or between any of Acquiror's stockholders and any
third party.
3.3 AUTHORITY.
(a) Each of Acquiror and Merger Sub has all requisite
corporate power and authority to enter into this Agreement and the other
Transaction Documents and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of
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each of Acquiror and Merger Sub. This Agreement and the other Transaction
Documents have been duly executed and delivered by each of Acquiror and Merger
Sub and constitute the valid and binding obligations of each of Acquiror and
Merger Sub.
(b) The execution and delivery of this Agreement and the
other Transaction Documents do not, and the consummation of the transactions
contemplated hereby and thereby 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 Acquiror or any of its subsidiaries, as amended,
or (ii) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Acquiror or any of its
subsidiaries or their properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Acquiror or any of its subsidiaries in connection with the
execution and delivery of this Agreement or the other Transaction Documents by
Acquiror or the consummation by Acquiror of the transactions contemplated hereby
or thereby, except for (i) the filing of the Certificate of Merger as provided
in Section 1.2, (ii) any filings as may be required under applicable state
securities laws and the securities laws of any foreign country, (iii) the filing
with the Nasdaq National Market of a Notification Form for Listing of Additional
Shares with respect to the shares of Acquiror Common Stock issuable upon
conversion of the Target Capital Stock in the Merger and upon exercise of the
options under the Target Stock Option Plans assumed by Acquiror and the filing
of a registration statement on Form S-8 covering shares issued upon exercise of
such assumed options, (iv) such filings as may be required under HSR; and (v)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on Acquiror
and would not prevent, materially alter or delay any of the transactions
contemplated by this Agreement or the other Transaction Documents.
3.4 SEC DOCUMENTS. Acquiror has furnished to Target a true and
complete copy of each statement, report, registration statement (with the
prospectus in the form filed pursuant to Rule 424(b) of the Securities Act),
definitive proxy statement, and other filing filed with the SEC by Acquiror
since June 23, 1999, and, prior to the Effective Time, Acquiror will have
furnished Target with true and complete copies of any additional documents filed
with the SEC by Acquiror prior to the Effective Time (collectively, the
"Acquiror SEC Documents"). All documents required to be filed as exhibits to the
Target SEC Documents have been so filed, and all material contracts so filed as
exhibits are in full force and effect, except those which have expired in
accordance with their terms, and neither Acquiror nor any of its subsidiaries is
in default thereunder where default would not reasonably be expected to have a
material adverse effect on Acquiror. As of their respective filing dates, the
Acquiror SEC Documents complied in all material respects with the requirements
of the Exchange Act and the Securities Act, and none of the Acquiror SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed Acquiror
SEC Document. The financial statements of Acquiror, including the notes thereto,
included in the Acquiror SEC Documents (the "Acquiror
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Financial Statements") were complete and correct in all material respects as of
their respective dates, complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto as of their respective dates, and have been
prepared in accordance with GAAP applied on a basis consistent throughout the
periods indicated and consistent with each other (except as may be indicated in
the notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Qs, as permitted by Form 10-Q of the SEC). The Acquiror
Financial Statements fairly present the consolidated financial condition and
operating results of Acquiror and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments). Since the date of the most recent
balance sheet included in an Acquiror SEC Document to the date hereof, there has
been no Material Adverse Effect on Acquiror.
3.5 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acquiror, threatened
against Acquiror or any of its respective properties or any of its respective
officers or directors (in their capacities as such) that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
Acquiror. There is no judgment, decree or order against Acquiror or, to the
knowledge of Acquiror, any of its respective directors or officers (in their
capacities as such) that could prevent, enjoin, or materially alter or delay any
of the transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Acquiror.
3.6 COMPLIANCE WITH LAWS. Acquiror has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not be reasonably expected to
have a Material Adverse Effect on Acquiror.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
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4.1 CONDUCT OF BUSINESS OF TARGET AND ACQUIROR. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Target agrees (except to
the extent expressly contemplated by this Agreement or as consented to in
writing by the other), to carry on its and its subsidiaries' business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted. Target further agrees to (i) pay and to cause its
subsidiaries to pay debts and Taxes when due subject to good faith disputes over
such debts or Taxes, (ii) pay and to cause its subsidiaries to pay all amounts
due or other outstanding obligations owed to suppliers and vendors when due
subject to good faith disputes over such amounts or obligations, (iii) subject
to Acquiror's consent to the filing of material Tax Returns if applicable, to
pay or perform other obligations when due, and (iv) to use all reasonable
efforts consistent with past practice and policies to preserve intact its and
its subsidiaries' present business organizations, keep available the services of
its and its subsidiaries' present officers and key employees and preserve its
and its subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having
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business dealings with it or its subsidiaries, to the end that its and its
subsidiaries' goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Target agrees to promptly notify Acquiror of any event or
occurrence not in the ordinary course of its or its subsidiaries' business, and
of any event which could have a Material Adverse Effect on Target. Without
limiting the foregoing, except as expressly contemplated by this Agreement,
Target shall not do, cause or permit any of the following, or allow, cause or
permit any of its subsidiaries to do, cause or permit any of the following,
without the prior written consent of Acquiror:
(a) CHARTER DOCUMENTS. Cause or permit any amendments to
its Certificate or Certificate of Incorporation or Bylaws except as required
within the Strategic Investment;
(b) DIVIDENDS; CHANGES IN CAPITAL STOCK. Other than
cumulative dividends to be paid on the Series C Preferred, declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
(c) MATERIAL CONTRACTS. Enter into any material contract,
agreement, license or commitment, or violate, amend or otherwise modify or waive
any of the terms of any of its material contracts, agreements or licenses other
than in the ordinary course of business consistent with past practice;
(d) STOCK OPTION PLANS, ETC. Accelerate, amend or change
the period of exercisability or vesting of options or other rights granted under
its stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans (except to amend any option to permit the
immediate exercise of that option, provided that the shares of Target Capital
Stock issued upon exercise of such option shall be subject to a right of
repurchase that is equivalent to any vesting schedule for such option);
(e) ISSUANCE OF SECURITIES. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than (i) the issuance of shares of its Common
Stock pursuant to the exercise of stock options, warrants or other rights
therefor outstanding as of the date of this Agreement, (ii) the issuance of
shares of Target Common Stock issuable upon exercise of Target Warrants, (iii)
the issuance of shares of Target Common Stock issuable upon conversion of Target
Preferred Stock, and (iv) the issuance of securities in the Strategic Investment
(as defined herein).
(f) GRANTS OF STOCK OPTIONS. Grant any options,
subscriptions, rights or warrants to purchase any shares of its capital stock or
securities convertible into its capital stock; provided that Acquiror shall not
unreasonably withhold its consent to any such consent;
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(g) INTELLECTUAL PROPERTY. Transfer to or license any
person or entity or otherwise extend, amend or modify any rights to its
Intellectual Property other than the grant of non-exclusive licenses in the
ordinary course of business consistent with past practice;
(h) EXCLUSIVE RIGHTS. Enter into or amend any material
agreements pursuant to which any other party is granted exclusive marketing,
manufacturing or other exclusive rights of any type or scope with respect to any
of its products or technology;
(i) DISPOSITIONS. Sell, lease, license or otherwise
dispose of or encumber any of its properties or assets which are material,
individually or in the aggregate, to its and its subsidiaries' business, taken
as a whole;
(j) INDEBTEDNESS. Incur or commit to incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or guarantee any debt securities of others (other than
(i) in connection with the financing of ordinary course trade payables or (ii)
in connection with leasing activities in the ordinary course);
(k) LEASES. Enter into any operating lease requiring
payments in excess of $25,000;
(l) PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy in
an amount in excess of $25,000 in any one case or $100,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Target Financial Statements;
(m) CAPITAL EXPENDITURES. Incur or commit to incur any
capital expenditures in any time period in excess of the amount of capital
expenditures for such period in the Target's budget attached as Schedule 4.1(m);
(n) INSURANCE. Materially reduce the amount of any
material insurance coverage provided by existing insurance policies;
(o) EMPLOYEE BENEFITS; SEVERANCE. Take any of the
following actions: (i) increase or agree to increase the compensation payable or
to become payable to its officers or employees, except for increases in salary
or wages of non-officer employees in the ordinary course of business and in
accordance with past practices, (ii) grant any additional severance or
termination pay to, or enter into any employment or severance agreements with,
any officer or employee other than employment agreements in the ordinary course
of business consistent with past practices, (iii) enter into any collective
bargaining agreement, or (iv) establish, adopt, enter into or amend in any
material respect any bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees;
(p) LAWSUITS. Commence a lawsuit or arbitration
proceeding other than (i) for the routine collection of bills or (ii) for a
breach of this Agreement;
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(q) ACQUISITIONS. Acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial portion of the assets of,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to its and its subsidiaries' business, taken as a whole;
(r) TAXES. Make any material tax election other than in
the ordinary course of business and consistent with past practice, change any
material tax election, adopt any tax accounting method other than in the
ordinary course of business and consistent with past practice, change any tax
accounting method, file any tax return (other than any estimated tax returns,
immaterial information returns, payroll tax returns or sales tax returns) or any
amendment to a tax return, enter into any closing agreement, settle any Tax
claim or assessment or consent to any Tax claim or assessment provided that
Acquiror shall not unreasonably withhold or delay approval of any of the
foregoing actions;
(s) REVALUATION. Revalue any of its assets, including
without limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; or
(t) OTHER. Take or agree in writing or otherwise to take,
any of the actions described in Sections 4.1(a) through (s) above, or any action
which would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from perform