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EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
QUINTUS CORPORATION,
RIBEYE ACQUISITION CORP.,
ACUITY CORP. AND
THE UNDERSIGNED STOCKHOLDERS OF ACUITY CORP.
SEPTEMBER 10, 1999
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TABLE OF CONTENTS
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ARTICLE I THE MERGER......................................................................................... 1
1.1 The Merger...................................................................................... 1
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
1.6 Effect on Capital Stock......................................................................... 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 Consequences............................................................................... 7
1.11 Exemption from Registration.................................................................... 8
1.12 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............................................................................ 10
2.5 Absence of Certain Changes...................................................................... 11
2.6 Absence of Undisclosed Liabilities.............................................................. 11
2.7 Accounts Receivable............................................................................. 11
2.8 Litigation...................................................................................... 12
2.9 Restrictions on Business Activities............................................................. 12
2.10 Governmental Authorization..................................................................... 12
2.11 Title to Property.............................................................................. 12
2.12 Intellectual Property.......................................................................... 13
2.13 Environmental Matters.......................................................................... 13
2.14 Taxes.......................................................................................... 14
2.15 Employee Benefit Plans......................................................................... 16
2.16 Employees and Consultants...................................................................... 18
2.17 Related-Party Transactions..................................................................... 19
2.18 Insurance...................................................................................... 20
2.19 Compliance with Laws........................................................................... 20
2.20 Brokers' and Finders' Fees..................................................................... 20
2.21 Voting Agreement; Irrevocable Proxies.......................................................... 20
2.22 Vote Required.................................................................................. 20
2.23 Trade Relations................................................................................ 20
2.24 Customers and Suppliers........................................................................ 20
2.25 Material Contracts............................................................................. 21
2.26 No Breach of Material Contracts................................................................ 22
2.27 Third-Party Consents........................................................................... 22
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2.28 Minute Books................................................................................... 22
2.29 Complete Copies of Materials................................................................... 23
2.30 Year 2000 Compliance........................................................................... 23
2.32 Representations Complete....................................................................... 23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB........................................ 23
3.1 Organization, Good Standing and Qualification................................................... 24
3.2 Capitalization and Voting Rights................................................................ 24
3.3 Subsidiaries.................................................................................... 25
3.4 Authority....................................................................................... 25
3.5 Litigation...................................................................................... 26
3.6 Proprietary Information and Employee Stock Purchase Agreements.................................. 26
3.7 Patents and Trademarks.......................................................................... 26
3.8 Compliance with Other Instruments............................................................... 27
3.9 Agreements; Action.............................................................................. 27
3.10 Related Party Transactions..................................................................... 27
3.11 Permits........................................................................................ 28
3.12 Environmental and Safety Laws.................................................................. 28
3.13 Manufacturing and Marketing Rights............................................................. 28
3.14 Registration Rights............................................................................ 28
3.15 Title to Property and Assets................................................................... 28
3.16 Financial Statements........................................................................... 28
3.17 Changes........................................................................................ 29
3.18 Employee Benefit Plans......................................................................... 30
3.19 Tax Returns, Payments and Elections............................................................ 31
3.20 Insurance...................................................................................... 31
3.21 Labor Agreements and Actions................................................................... 32
3.22 Real Property Holding Company.................................................................. 32
3.23 Representations Complete....................................................................... 32
3.24 Brokers' and Finders' Fees..................................................................... 32
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................................................... 32
4.1 Conduct of Business of Target and Acquiror...................................................... 32
4.2 Conduct of Business of Target................................................................... 33
4.3 Notices......................................................................................... 35
ARTICLE V ADDITIONAL AGREEMENTS.............................................................................. 36
5.1 No Solicitation................................................................................. 36
5.2 Preparation of Information Statement............................................................ 36
5.3 Stockholders Meeting or Consent Solicitation.................................................... 37
5.4 Access to Information........................................................................... 37
5.5 Confidentiality................................................................................. 37
5.6 Public Disclosure............................................................................... 38
5.7 Consents........................................................................................ 38
5.8 Update Disclosure; Breaches..................................................................... 38
5.9 Voting Agreement................................................................................ 38
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5.10 Legal Requirements............................................................................. 41
5.11 Tax-Free Reorganization........................................................................ 41
5.12 Stock Options.................................................................................. 41
5.13 Fairness Hearing............................................................................... 42
5.14 Escrow Agreement............................................................................... 42
5.15 Additional Agreements; Best Efforts............................................................ 42
5.16 Employee Benefits.............................................................................. 42
5.17 Market Stand-Off Agreement..................................................................... 42
5.18 Delivery of Financial Information.............................................................. 43
5.19 Koz Inc. Stock Distribution.................................................................... 43
ARTICLE VI CONDITIONS TO THE MERGER.......................................................................... 44
6.1 Conditions to Obligations of Each Party to Effect the Merger.................................... 44
6.2 Additional Conditions to Obligations of Target.................................................. 45
6.3 Additional Conditions to the Obligations of Acquiror............................................ 45
ARTICLE VII TERMINATION, EXPENSES, AMENDMENT AND WAIVER...................................................... 47
7.1 Termination..................................................................................... 47
7.2 Effect of Termination........................................................................... 48
7.3 Expenses and Termination Fees................................................................... 48
7.4 Amendment....................................................................................... 48
7.5 Extension; Waiver............................................................................... 48
ARTICLE VIII ESCROW AND INDEMNIFICATION...................................................................... 48
8.1 Survival of Representations, Warranties and Covenants........................................... 48
8.2 Indemnity....................................................................................... 49
8.3 Escrow Fund..................................................................................... 49
8.4 Damage Threshold................................................................................ 50
8.5 Escrow Period................................................................................... 50
8.6 Claims upon Escrow Fund......................................................................... 50
8.7 Objections to Claims............................................................................ 51
8.8 Resolution of Conflicts; Arbitration............................................................ 51
8.9 Stockholders' Agent............................................................................. 52
8.10 Distribution Upon Termination of Escrow Period................................................. 53
8.11 Actions of the Stockholders' Agent............................................................. 53
8.12 Third-Party Claims............................................................................. 53
8.13 Maximum Liability and Remedies................................................................. 54
ARTICLE IX GENERAL PROVISIONS................................................................................ 54
9.1 Notices......................................................................................... 54
9.2 Interpretation.................................................................................. 55
9.3 Counterparts.................................................................................... 56
9.4 Entire Agreement; No Third Party Beneficiaries.................................................. 56
9.5 Severability.................................................................................... 56
9.6 Remedies Cumulative............................................................................. 56
9.7 Governing Law................................................................................... 56
9.8 Assignment...................................................................................... 57
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9.9 Rules of Construction........................................................................... 57
SCHEDULES
Target Disclosure Letter
Acquiror Disclosure Letter
Option Schedule
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EXHIBITS
Exhibit A - Certificate of Merger
Exhibit B - Compensation Agreement
Exhibit C - Escrow Agreement
Exhibit D - Acquiror's Legal opinion
Exhibit E - Target's Legal opinion
Exhibit F - FIRPTA Notice
Exhibit G - Target Notice to Internal Revenue Service
Exhibit H Restated Certificate of Incorporation
Exhibit I Investors Rights Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into as of September 10, 1999, by and among Quintus Corporation, a
Delaware corporation ("Acquiror"), Ribeye Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Acquiror ("Merger Sub"), Acuity
Corp., a Delaware corporation ("Target"), Andrew Busey as "Stockholders'
Representative," and each of the undersigned affiliates of Target (each an
"Affiliate" and collectively the "Affiliates").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub
believe it is in the best interests of their respective companies and the
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").
B. Pursuant to the Merger, among other things, each outstanding
share of capital stock of Target ("Target Capital Stock"), shall be converted
into shares of capital stock of Acquiror ("Acquiror Capital Stock"), as set
forth below.
C. Target, Acquiror, Merger Sub and the Affiliates 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.
F. Concurrent with the execution of this Agreement and as an
inducement to Acquiror to enter into this Agreement, certain of the stockholders
of Target are entering into an agreement to vote the shares of Target's Capital
Stock owned by such person to approve the Merger and against any competing
proposals.
NOW, THEREFORE, in consideration of the covenants and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
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
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surviving corporation. Target as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (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 in Menlo
Park, California, or at such other location as the parties hereto agree. On the
Closing Date, the parties hereto shall cause the Merger to be consummated by
filing the Certificate of Merger, together with the required officers'
certificates, 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 and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Target and
Merger Sub 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.
(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 as such officers resign, are removed or their respective successors are
duly elected or appointed and qualified.
1.6 Effect on Capital Stock. By virtue of the Merger and without any
action on the part of Acquiror, Merger Sub, Target or the holders of any of
Target's securities:
(a) Conversion of Target Capital Stock. The "Total
Consideration" shall equal the number of shares of Acquiror Capital Stock to be
issued pursuant to this Section 1.6 plus the number of shares of Acquiror
Capital Stock to be reserved for issuance upon exercise of unexpired and
unexercised (whether vested or unvested and assuming the satisfaction of any
conditions to exercisability, including, without limitation, the passage of
time) Target Options (the "Target Option Reserve") and Target Warrants (each as
defined below) following
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consummation of the Merger. The Total Consideration shall equal the product of
(i) 0.2195121 and (ii) the sum of (A) the total number of outstanding shares of
Acquiror Capital Stock on an as-if-converted basis ("Acquiror Outstanding
Stock") as of the Exchange Ratio Date (as defined below) and (B) the total
number of shares of Acquiror Capital Stock issuable pursuant to the exercise of
outstanding options or other rights to acquire by purchase, exchange, conversion
or otherwise Acquiror Stock ("Acquiror Options") and outstanding warrants for
Acquiror Stock ("Acquiror Warrants") as of the Exchange Ratio Date. The "Total
Target Consideration" shall equal the product of (0.985) and the Total
Consideration. The "Financial Advisor Fee" shall equal the product of (0.015)
and the Total Consideration. The "Exchange Ratio" shall equal that number
derived by dividing the Total Target Consideration by the sum of the total
number of shares of Target Common Stock (as defined below) outstanding on an
as-if-converted basis ("Target Outstanding Stock") as of the Exchange Ratio Date
and the number of shares of Target Common Stock issuable pursuant to the
exercise of the Target Options and Target Warrants outstanding as of the
Exchange Ratio Date. The Exchange Ratio Date shall be the business day
immediately preceding the Effective Date.
At the Effective Time, each share of Target Capital Stock issued and
outstanding immediately prior to the Effective Time (other than (i) shares of
Target Capital Stock to be cancelled pursuant to Section 1.6(b) and (ii) shares
of Target Capital Stock held by persons who have not approved by vote or written
consent the Merger and with respect to which shares such persons remain entitled
to exercise dissenters' rights in accordance with Section 262 of the Delaware
Law (collectively, the "Dissenting Shares")) will be converted automatically
into the right to receive shares of Acquiror Capital Stock as follows:
- each share of common stock of Target ("Target Common Stock")
issued and outstanding will be converted automatically into the
right to receive that fraction of one share of Acquiror Common
Stock equal to the Exchange Ratio;
- each share of Series A Preferred Stock of Target ("Target Series
A Stock") issued and outstanding will be converted automatically
into the right to receive that fraction of one share of Acquiror
Series G-1 Preferred Stock equal to the Exchange Ratio;
- each share of Series B-1 Preferred Stock of Target ("Target
Series B-1 Stock") issued and outstanding will be converted
automatically into the right to receive that fraction of one
share of Acquiror Series G-2 Preferred Stock equal to the
Exchange Ratio
- each share of Series B-2 Preferred Stock Preferred Stock of
Target ("Target Series B-2 Stock") issued and outstanding will be
converted automatically into the right to receive that fraction
of one share of Acquiror Series G-3 Preferred Stock equal to the
Exchange Ratio
- each share of Series C Preferred Stock of Target ("Target Series
C Stock") issued and outstanding will be converted automatically
into the right to receive that fraction of one share of Acquiror
Series G-4 Preferred Stock equal to the Exchange Ratio;
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- each share of Series D Preferred Stock of Target ("Target Series
D Stock") and Series E Preferred Stock of Target ("Target Series
E Stock") issued and outstanding will be converted automatically
into the right to receive that fraction of one share of Acquiror
Series G-5 Preferred Stock equal to the Exchange Ratio; and
- each share of Series F Preferred Stock of Target ("Target Series
F Stock") issued and outstanding will be converted automatically
into the right to receive that fraction of one share of Acquiror
Series G-6 Preferred Stock equal to the Exchange Ratio.
At the Effective Time, the Acquiror shall deliver that number of
shares of Acquiror Series G-3 Preferred Stock equal to the Financial Advisor Fee
to Dain Rauscher Wessels, financial advisor to Target, pursuant to a
compensation agreement attached hereto as Exhibit B ("Compensation Agreement").
The rights, preferences and privileges of the Acquiror Series G Preferred Stock
shall be as stated in the Acquiror Restated Certificate of Incorporation, the
form of which is attached hereto as Exhibit H (the "Acquiror Restated
Certificate").
(b) 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.
(c) Target Stock Option Plans. At the Effective Time, the
Target 1995 Stock Option Plan, as amended (the "Target Stock Option Plan") shall
be terminated and all options to purchase Target Common Stock ("Target Options")
then outstanding under the Target Stock Option Plan shall be converted into
options to purchase shares of Acquiror Common Stock in accordance with Section
5.12.
(d) Target Warrants. At the Effective Time, each outstanding
warrant to purchase shares of Target Capital Stock (the "Target Warrants") shall
be assumed by Acquiror. Each such warrant so assumed by Acquiror under this
Agreement shall continue to have, and be subject to, the same terms and
conditions as those that existed immediately prior to the Effective Time, except
that (i) such warrant shall be exercisable for that number of whole shares of
Acquiror Capital Stock of such class and series as set forth in Section 1.6(a)
equal to the product of the number of shares of Target Capital Stock that were
issuable upon exercise of such option immediately prior to the Effective Time
multiplied by the Exchange Ratio and rounded down to the nearest whole number of
shares of Acquiror Capital Stock, and (ii) the per share exercise price for the
shares of Acquiror Capital Stock issuable upon exercise of such assumed warrant
shall be equal to the quotient determined by dividing the exercise price per
share of Target Capital Stock at which such warrant was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent.
(e) Capital Stock of Merger Sub. At the Effective Time, each
share of Common Stock 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
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issued, fully paid and nonassessable share of Common Stock of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio 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.
(g) Fractional Shares. No fraction of a share of Acquiror
Capital 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 Capital Stock (after aggregating all fractional shares of Acquiror
Capital 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 fair market value of one share of Acquiror
Common Stock on the Closing Date, as determined by the Acquiror's Board of
Directors.
(h) Dissenters' Rights. Any Dissenting Shares shall not be
converted into Acquiror Capital Stock but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to Delaware Law. Target agrees that, except
with the prior written consent of Acquiror, or as required under Delaware Law,
it will not voluntarily make any payment with respect to, or settle or offer to
settle, any such purchase demand. Each holder of Dissenting Shares ("Dissenting
Stockholder") who, pursuant to the provisions of Delaware law, becomes entitled
to payment of the fair value for shares of Target Capital Stock shall receive
payment therefor (but only after the value therefor shall have been agreed upon
or finally determined pursuant to such provisions). If, after the Effective
Time, any Dissenting Shares shall lose their status as Dissenting Shares,
Acquiror shall issue and deliver, upon surrender by such stockholder of the
certificate or certificates representing shares of Target Capital Stock, the
number of shares of Acquiror Capital Stock to which such stockholder would
otherwise be entitled under this Section 1.6 and the Certificate of Merger less
the number of shares allocable to such stockholder that have been or will be
deposited in the Escrow Fund (as defined below) in respect of such shares of
Acquiror Capital Stock pursuant to Section 1.7(b) and Article VIII hereof.
1.7 Surrender of Certificates.
(a) Acquiror to Provide Common Stock and Cash. Promptly after
the Effective Time, Acquiror shall make available in accordance with this
Article I, through such reasonable procedures as Acquiror may adopt, (i) the
shares of Acquiror Capital Stock issuable pursuant to Section 1.6 in exchange
for shares of Target Capital Stock outstanding immediately prior to the
Effective Time less the number of shares of Acquiror Capital 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(g).
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(b) Exchange Procedures. Promptly after the Effective Time,
the Surviving Corporation shall cause to be mailed to each holder of record
("Former Target Stockholders") 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 Capital Stock (and cash in lieu of
fractional shares) pursuant to Section 1.6, (i) a letter of transmittal and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Acquiror Capital Stock (and cash in lieu
of fractional shares). Upon surrender of a Certificate for cancellation to
Acquiror or such 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 Capital Stock less the number of shares of Acquiror Capital
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, including the payment of dividends, to evidence the
ownership of the number of full shares of Acquiror Capital 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 the Total Escrow Shares
(as defined below) 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.
The "Total Escrow Shares" shall be that number of shares of Acquiror Capital
Stock to be obtained by Former Target Stockholders in the Merger equal to ten
percent (10%) of the Total Target Consideration (excluding Target Option
Reserve). 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.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Acquiror Capital 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 Capital 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 Capital Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
which would have been previously payable (but for the provisions of this Section
1.7(c)) with respect to such shares of Acquiror Capital Stock.
(d) Transfers of Ownership. If any certificate for shares of
Acquiror Capital 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
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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 Capital 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.
(e) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, neither the Surviving Corporation nor 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.
(f) 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 Capital
Stock to which such holder is entitled pursuant to Section 1.6 hereof.
1.8 No Further Ownership Rights in Target Capital Stock. After the
Effective Time, 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 (other than certificates representing Dissenting
Shares) 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 Acquiror 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 Capital
Stock (and cash in lieu of fractional shares) as may be required pursuant to
Section 1.6; provided, however, that if the number of shares represented by a
lost Certificate exceeds 10,000, 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 or the Surviving Corporation with respect to the Certificates alleged
to have been lost, stolen or destroyed.
1.10 Tax 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 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 Exemption from Registration. The parties hereto expect that the
shares of Acquiror Capital Stock to be issued in connection with the Merger will
be issued in a transaction exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), by reason of Section 3(a)(10) thereof,
and that the issuance of the Acquiror Capital Stock and Acquiror's substitution
of Target Option hereunder will be qualified under the securities laws of the
State of California pursuant to Section 25121 thereof, after a fairness hearing
(the "Fairness Hearing") has been held pursuant to the authority granted by
Section 25142 of such law. Each of
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Acquiror, Merger Sub and Target shall use their respective best efforts (a) to
file an application for such hearing and qualification as soon as reasonably
practicable after the date of this Agreement and (b) to obtain such
qualification.
1.12 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 or the Transaction
Documents (as defined below).
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, and the
disclosure in any paragraph shall qualify only the corresponding paragraph in
this Article II; provided, however, that any item disclosed under any paragraph
of the Target Disclosure Letter shall be deemed to be disclosed with respect to
every other applicable paragraph if the disclosure in respect of such one
paragraph of the Target Disclosure Letter is sufficient on its face to
reasonably inform the reader of the Target Disclosure Letter of the information
required to be disclosed in respect of other paragraphs of the Target Disclosure
Letter. 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 herein) on Target. Target has
delivered to Acquiror a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Target,
each as amended to date. Target is not in violation of any of the provisions of
its Certificate of Incorporation or Bylaws or equivalent organizational
documents. 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.
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2.2 Capital Structure. The authorized capital stock of Target
consists of 20,727,164 shares of Common Stock, 4,900,471 of which are issued and
outstanding, and 10,306,127 shares of Preferred Stock, 750,000 shares of which
are designated Target Series A Stock, all of which are issued and outstanding,
1,868,994 shares of which are designated Target Series B-1 Stock, all of which
are issued and outstanding, 1,305,000 shares of which are designated Target
Series B-2 Stock, all of which are issued and outstanding, 2,256,650 shares of
Target Series C Stock, all of which are issued and outstanding, 2,500,000 shares
of which are designated Target Series D Stock, 2,071,430 of which are issued and
outstanding, 1,142,858 shares of which are designated Target Series E Stock,
785,715 of which are issued and outstanding, and 482,625 shares of Target Series
F Stock, none of which are issued and outstanding. There are no other
outstanding shares of capital stock or voting securities and no outstanding
commitments obligating Target to issue any shares of capital stock or voting
securities after the date of this Agreement other than pursuant to the exercise
of (i) outstanding Target Warrants and (ii) options outstanding as of the date
of this Agreement under the Target Stock Option Plan. 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 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) 10,306,127 shares of Common
Stock for issuance upon conversion of the Preferred Stock, and (ii) 4,950,000
shares of Common Stock for issuance to employees, directors and consultants
pursuant to the Target Stock Option Plan, of which 3,030,794 shares are subject
to outstanding, unexercised options, (iii) 1,016,501 shares of Common Stock for
issuance upon exercise of outstanding Target Warrants and (iv) 20,080 shares of
Target Series E Stock for issuance upon exercise of outstanding Target Warrants.
Except for (i) the rights created pursuant to this Agreement and (ii) Target's
right to repurchase any unvested shares under the Target Stock Option Plan,
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 Target's knowledge, among
any of Target's stockholders or between any of Target's stockholders and any
third party, except for the stockholders delivering Irrevocable Proxies (as
defined below). The terms of the Target Stock Option Plan permit the assumption
of such Target Stock Option Plan by Acquiror or the substitution of options to
purchase Acquiror Common Stock as provided in this Agreement, without the
consent or approval of the holders of the outstanding options, the Former 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 Plan 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 Common Stock, Target Series
A Stock, Target Series B-1 Stock, Target Series B-2
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Stock, Target Series C Stock, Target Series D Stock, Target Series E Stock and
Target Series F Stock was 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 Certificate of Merger (collectively, the
"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 Target, subject only to the approval of the Merger by Target's
stockholders as contemplated by Section 6.2(a). This Agreement and the other
Transaction Documents to which Target is a party have been duly executed and
delivered by Target and constitute the valid and binding obligations of Target
enforceable against Target in accordance with their terms.
(b) 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) to which Target is bound, or (iii) any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its properties or
assets.
(c) 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 by or with respect to Target in connection with the
execution and delivery by Target of this Agreement and the other Transaction
Documents to which Target is a party or the consummation of the transactions
contemplated hereby or thereby, except for (i) the filing of the Certificate of
Merger, together with the required officers' certificates, as provided in
Section 1.2; and (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the securities laws of any foreign
country.
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 years ended
December 31, 1996, December 31, 1997 and December 31, 1998 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 7-month period ended July 31, 1999 (collectively, the "Target
Financial Statements"). The Target Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") (except that
the unaudited financial statements do not have notes thereto and subject to
year-end adjustments) applied on a consistent basis throughout the periods
indicated and with each other. The Target 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 financing
statements, to normal year-end audit
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adjustments. Target maintains a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
2.5 Absence of Certain Changes. Since July 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 (as defined
in Section 9.2) 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 Capital Stock, or any direct or indirect redemption,
purchase or other acquisition by Target of any of its shares of Target Capital
Stock; (v) any Material Contract entered into by Target, other than as provided
to Acquiror, 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,
(viii) capital expenditures or capital commitments by Target exceeding $25,000
individually or $100,000 in the aggregate; (ix) destruction of, damage to or
loss of any material assets, business or customer of Target (whether or not
covered by insurance); (x) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action; or (xi) any negotiation or agreement by
Target to do any of the things described in the preceding clauses (i) through
(xi) (other than 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 for the period ended July 31, 1999 (the "Target Balance Sheet"),
and (ii) 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. To Target's knowledge,
allowances for doubtful accounts and returns are adequate and have been prepared
in accordance with the past practices of Target. The accounts receivable of
Target arising after the date of the Target Balance Sheet and prior to the date
hereof arose, 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 the past practices of Target. 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
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domestic, or, to the knowledge of Target, threatened 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 business practice of Target, any acquisition of property by Target or
the conduct of business by Target as currently conducted.
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 (i) pursuant to which Target
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Target's business or the holding of any such
interest ((i) and (ii) herein collectively called "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 arising by operation of law or
statutory liens, (iii) liens securing debt that are reflected on the Target
Balance Sheet and (iv) liens which do not materially detract from or interfere
with the use of the properties subject thereto. All material plants, property
and equipment of Target that are used in the operations of its business are in
good operating condition and repair. All properties used in the operations of
Target are reflected in the Target Balance Sheet to the extent generally
accepted accounting principles require the same to be reflected. The Target
Disclosure Letter identifies each parcel of real property owned by Target.
2.12 Intellectual Property.
(a) Target is the sole and exclusive owner of all Target
Intellectual Property (defined below) free of all contingent and noncontingent
liens, restrictions, interests, rights of reversion or termination, and all
other encumbrances of any nature. The conduct of Target's business as currently
conducted will not infringe, misappropriate or violate any
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Intellectual Property (defined below) of others. All Target Intellectual
Property is free from any challenge (or threat thereof) and Target is not aware
of any specific basis therefor. With respect to patent rights, moral rights and
Mark rights (defined below), the foregoing representations and warranties of
this paragraph are made only to Target's knowledge. Target has not licensed any
Target Intellectual Property to any third party, except for object code licenses
in the ordinary course of business. Target is not a party to any license of
Intellectual Property belonging to any third party, except licenses for readily
available commercial software.
(b) All Target Intellectual Property that is the subject of
any application, registration or issuance with or from any governmental entity
is identified on the Target Disclosure Letter. All such applications,
registrations and issuances have been properly maintained. Target has adequately
protected all other Target Intellectual Property through the use of
confidentiality agreements and otherwise and Target is not aware of any use,
exercise or exploitation of any Target Intellectual Property, except as
authorized by Target. Target has not disclosed any source code to any third
party.
(c) Each current and former employee and contractor of Target
has executed and delivered (and to Target's knowledge, 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 assignment 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).
(d) "Intellectual Property" means patent rights; trade name,
trademark, service mark and similar 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. "Target Intellectual Property" means all Intellectual Property that has
been or is owned by Target, or used in Target's business as currently conducted.
2.13 Environmental Matters. To Target's knowledge, Target is and has
at all times operated its business in material compliance with all Environmental
Laws and 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.
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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 returns and reports) required to be filed
with any Tax authority with respect to any Taxable period ending on or before
the Closing, 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 Financial Statements (i) fully accrue 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 the Target Balance Sheet included
in the Target Financial Statements with respect to such periods (excluding any
amount thereof that reflects a timing difference between book and taxable
income) and (ii) properly accrues in accordance with GAAP all material
liabilities for Taxes payable after 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 true, complete and accurate in all material respects. No material Tax
liability since the Target Balance Sheet Date has been 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 income, franchise, and sales Tax
Returns, and, as reasonably requested by Acquiror, prior to or following the
date hereof, presently existing information statements and reports. 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, no Tax Returns
filed with respect to Taxable years of Target through the Taxable year ended
December 31, 1995 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 full compliance
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
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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 is property that Target is required to treat as
being owned by any other person pursuant to the so-called "safe harbor lease"
provisions of former Section 168(f)(8) of the Code. 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. Section
1.1502-32(f)(2) or a consent dividend election under Section 565 of the Code.
Target has never been a party to any transaction intended to qualify under
Section 355 of the Internal Revenue 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 1361 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, December 31, 1998, 1997 and
1996 are reflected on the Target Tax Returns for such periods, copies of which
have been provided or made available to 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 (other than 162(a)) 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 has previously provided to Acquiror true and correct copies of
all income, franchise, and sales Tax Returns, and, as reasonably requested by
Acquiror, prior to or following the date hereof, presently existing information
statements and reports. 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,
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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 are employees or former employees of Target and its ERISA
Affiliates and their dependents or survivors do not receive benefits under, any
of the following (whether or not set forth in a written document):
(i) Any employee benefit plan, as defined in section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA");
(ii) 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
(iii) 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") or applicable state law.
(b) Neither Target nor any ERISA Affiliate has, since January
1, 1993, 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:
(i) The text (including amendments) of each of the
Plans, to the extent reduced to writing;
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(ii) A summary of each of the Plans, to the extent
not previously reduced to writing;
(iii) With respect to each Plan that is an
employee benefit plan (as defined in section 3(3) of ERISA), the following:
(1) The most recent summary plan description, as
described in section 102 of ERISA;
(2) 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 (1) above; and
(3) 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; and
(iv) With respect to each Plan that is intended to
qualify under section 401(a) of the Code the most recent determination letter
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 in all material respects.
(e) With respect to each Plan that is subject to COBRA, the
requirements of COBRA applicable to such Plan have been satisfied in all
material respects.
(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 in all material respects.
(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 as of the date hereof have been fully paid or
adequately provided for on
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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 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 employment agreements, consulting
agreements or termination or severance agreements to which Target is a party.
(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 (including without limitation the
acceleration of vesting under any stock option, stock purchase, or stock
restriction agreement to which such person is a party), (iii) the forgiveness of
any indebtedness of any employee, director or independent contractor of Target
or (iv) to Target's knowledge, any cost 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) To the knowledge of Target, 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 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.
(g) Target has not received or been notified in writing of any
complaint by any employee, applicant, union or other party of any discrimination
or other conduct forbidden by law or contract.
(h) Target's action in complying with the terms of this
Agreement will not violate any agreements with any of Target's employees.
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(i) To Target's knowledge, 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 and the United States
Department of Labor. Target has filed and shall file any such reports and
information that are required to be filed prior to the Closing Date.
(j) Target is not aware that any of its employees or
contractors is obligated under any agreement, commitments, judgment, decree,
order or otherwise (an "Employee Obligation") that would interfere with the use
of his or her reasonable efforts to promote the interests of Target or that
would conflict with any of Target's business as conduct or proposed to be
conducted. Neither the execution nor delivery of this Agreement nor the conduct
of Target's business as conducted, 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 other than advances for reasonable business expenses in the ordinary
course of business consistent with past practices. To Target's knowledge, none
of such persons owns directly or indirectly more than one percent (1%) of the
equity securities of any firm or corporation with which Target is affiliated or
with which Target has a material 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 own
stock in publicly traded companies that may compete with Target.
2.18 Insurance. Target has policies of insurance and bonds of the
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those 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, to its
knowledge, 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. To its knowledge, 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 could not be
reasonably expected to 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.
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2.21 Voting Agreement. All of the persons and/or entities deemed
"Affiliates" of Target within the meaning of Rule 145 promulgated under the
Securities Act have agreed in writing to vote for approval of the Merger by
executing this Agreement.
2.22 Vote Required. The affirmative vote of the holders of at least
(i) seventy-five percent (75%) of the outstanding Target Preferred Stock, voting
separately as class and (ii) a majority of the outstanding shares of the Target
Capital Stock, in each case outstanding on the record date set for the special
meeting of Target stockholders (or any written consent in lieu thereof), is the
only vote (or consent) of the holders of any Target Capital Stock necessary to
approve this Agreement and the transactions contemplated hereby (the "Required
Target Stockholder Approval").
2.23 Trade Relations. Target has not within the past three 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 Twenty Thousand Dollars
($20,000) over any consecutive twelve (12) month period. 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 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.
2.24 Customers and Suppliers. As of the date hereof, no customer
which individually accounted for more than 5% of Target's gross revenues during
the twelve (12) month period preceding the date hereof, and no material supplier
of Target, has canceled or otherwise terminated, or made any written threat to
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 December 31, 1998 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 the Target Disclosure Letter (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 $20,000 over the life of the contract;
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(c) any contract that expires or may be renewed at the option
of any person other than the Target so as to expire more than one year after the
date of this Agreement;
(d) 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;
(e) any contract for capital expenditures in excess of $20,000
in the aggregate;
(f) 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 Exchange Act, as defined herein, or any confidentiality, secrecy
or non-disclosure contract;
(g) any contract pursuant to which Target leases any real
property;
(h) any contract pursuant to which the Target is a lessor of
any machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
(i) any contract with any person with whom the Target does not
deal at arm's length within the meaning of the Code;
(j) 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;
(k) 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;
(l) any license, sublicense or other agreement pursuant to
which Target has been or may be assigned or authorized to Use, or has incurred
any obligation in connection with, (A) any third party Intellectual Property
that is incorporated in or forms a part of any current product, service or
Intellectual Property offering of Target or (B) any Target Intellectual
Property;
(m) 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
(n) 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.
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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 accrued
benefits under, and to Target's knowledge is not alleged to be in default with
respect to, 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, would (A) become a default or event of default under
any Material Contract, which default or event of default would have a Material
Adverse Effect on Target 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. The Target Disclosure Letter lists all
Material Contracts that require a novation or consent to assignment, as the case
may be, prior to the Effective Time so that Acquiror shall be made a party in
place of Target or as assignee (the "Contracts Requiring Novation or Consent to
Assignment").
2.28 Minute Books. The minute books of Target made available to
Acquiror contain a complete and accurate summary of all meetings of directors
and stockholders or actions by written consent since the time of incorporation
of Target through the date of this Agreement, and accurately reflect all actions
taken by the directors and the stockholders in such minutes 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 Year 2000 Compliance. All of the Target's products (including
products currently under development) are able to record, store, process and
calculate and present calendar dates falling on and after January 1, 2000, and
are able to calculate any information dependent on or relating to such dates in
the same manner and with the same functionality, data integrity and performance
as the products are able to record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively "Year 2000 Compliant").
(a) All of the Target material products lose no functionality
with respect to the introduction of records containing dates falling on or after
January 1, 2000.
(b) All of the Target's internal computer systems, including
without limitation, its accounting systems, are Year 2000 Compliant.
2.31 Representations Complete. None of the representations or
warranties made by Target herein or in any Schedule hereto, including the Target
Disclosure Letter, or certificate furnished by Target pursuant to this
Agreement, when all such documents are read together in their entirety, contains
any untrue statement of a material fact, or omits to state any
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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 Letter"). The
Acquiror Disclosure Letter 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; provided, however, that any item disclosed under any paragraph
of the Acquiror Disclosure Letter shall be deemed to be disclosed with respect
to every other applicable paragraph if the disclosure in respect of such one
paragraph of the Acquiror Disclosure Letter is sufficient on its face to
reasonably inform the reader of the Acquiror Disclosure Letter of the
information required to be disclosed in respect of other paragraphs of the
Acquiror Disclosure Letter. 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, Good Standing and Qualification. Acquiror is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted. Acquiror is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to so
qualify would have a Material Adverse Effect on Acquiror.
3.2 Capitalization and Voting Rights. The authorized capital of
Acquiror consists, or will consist immediately prior to the Closing, of:
(a) The authorized capital stock of the Acquiror consists of
9,100,000 shares of Series A Preferred Stock ("Acquiror Series A Preferred
Stock"), all of which are issued and outstanding, 1,000,000 shares of Series B
Preferred Stock ("Acquiror Series B Preferred Stock"), of which 768,140 are
issued and outstanding, 3,000,000 shares of Series C Preferred Stock ("Acquiror
Series C Preferred Stock"), 2,647,778 of which are issued or outstanding,
1,455,000 shares of Series D Preferred Stock ("Acquiror Series D Preferred
Stock"), 1,454,996 of which are issued or outstanding, 3,000,000 shares of
Series E Preferred Stock ("Acquiror Series E Preferred Stock"), 2,604,601 of
which are issued or outstanding, 1,500,000 shares of Series F Preferred Stock
("Acquiror Series F Preferred Stock"), 1,363,334 of which are issued or
outstanding, and 40,000,000 shares of Common Stock ("Acquiror Common Stock"),
4,282,843 of which are issued or outstanding. The outstanding shares of Acquiror
Series A Preferred Stock, Acquiror Series B Preferred Stock, Acquiror Series C
Preferred Stock, Acquiror Series D Preferred Stock, Acquiror Series E Preferred
Stock, Acquiror Series F Preferred Stock and Acquiror Common Stock are duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of
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the Act, and any relevant state securities laws or pursuant to valid exemptions
therefrom. Except for (A) the conversion privileges of the outstanding shares of
Acquiror Series A Preferred Stock, Acquiror Series B Preferred Stock, Acquiror
Series C Preferred Stock, Acquiror Series D Preferred Stock, Acquiror Series E
Preferred Stock, and Acquiror Series F Preferred Stock (B) the conversion
privileges of the Acquiror Series G Preferred Stock to be issued in the Merger,
(C) the rights provided in Section 2.2 of the Acquiror's Amended and Restated
Investors Rights Agreement dated August 26 1999, (D) currently outstanding
warrants to purchase (i) 192,262 shares of Acquiror Series B Preferred Stock,
(ii) 775,043 shares of Acquiror Common Stock and (iii) 55,340 shares of Acquiror
Series C Preferred Stock, and (E) currently outstanding options to purchase
2,627,917 shares of Acquiror Common Stock to certain of Acquiror's directors,
officers, employees and consultants, there are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from Acquiror of any shares of its capital stock. In
addition to the aforementioned options, Acquiror has reserved an aggregate of an
additional 45,365 shares of Acquiror Common Stock for purchase upon exercise of
options to be granted in the future under Acquiror's 1995 Stock Option Plan and
1995 Special Performance Option Grant Plan.
(b) Other than as set forth above and the commitment to issue
shares of Acquiror Capital 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 Acquiror Capital 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 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 Subsidiaries. Acquiror does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. Acquiror is not a participant in any joint venture,
partnership, or similar arrangement.
3.4 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 each of Acquiror and Merger Sub. This Agreement and the other Transaction
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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, together
with the required officers' certificates, as provided in Section 1.2 or (ii) any
filings as may be required under applicable state securities laws and the
securities laws of any foreign country.
3.5 Litigation. There is no action, suit, proceeding or
investigation pending or, to Acquiror's knowledge, currently threatened against
Acquiror or any of its properties or officers or directors (in their capacities
as such) that questions the validity of the Transaction Documents, or the right
of Acquiror to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any Material Adverse Effect on Acquiror, or any change in the
current equity ownership of Acquiror. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
involving the prior employment of any of Acquiror's employees, their use in
connection with Acquiror's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. Acquiror is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by Acquiror currently pending or that Acquiror intends to
initiate.
3.6 Proprietary Information and Employee Stock Purchase Agreements.
Each employee of Acquiror has executed Acquiror's standard form Proprietary
Information and Inventions Agreement. Acquiror, after reasonable investigation,
is not aware that any of such employees are in violation thereof.
3.7 Patents and Trademarks. To the knowledge of Acquiror (but
without having conducted any special investigation or patent search) with
respect to patents, trademarks, service marks and trade names only, Acquiror has
sufficient title and ownership of all patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted without any conflict with or
infringement of the rights of others. There are no outstanding options,
licenses, or agreements of
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any kind relating to the foregoing, nor is Acquiror bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
Acquiror has not received any written communications alleging that Acquiror has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. Acquiror is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her reasonable efforts to promote the interests
of Acquiror or that would conflict with Acquiror's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement or the other
Transaction Documents, nor the carrying on of Acquiror's business by the
employees of Acquiror, nor the conduct of Acquiror's business as proposed, will,
to Acquiror's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.
Acquiror does not believe it is or will be necessary to utilize any inventions
of any of its employees (or people it currently intends to hire) made prior to
their employment by Acquiror.
3.8 Compliance with Other Instruments. Acquiror is not in violation
or default of any provision of its Restated Certificate or Bylaws, or in any
material respect of any instrument, judgment, order, writ, decree or contract to
which it is a party or by which it is bound, or, to its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to
Acquiror. The execution, delivery and performance of the Transaction Documents,
and the consummation of the transactions contemplated hereby and thereby will
not result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event that results in the creation of any lien, charge or encumbrance upon any
assets of Acquiror or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to Acquiror, its business or operations or any of its assets or
properties.
3.9 Agreements; Action.
(a) Except for the Transaction Documents, there are no
agreements, understandings or proposed transactions between Acquiror and any of
its officers, directors, affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
Acquiror is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to Acquiror in excess of, $100,000, or
(ii) the license of any patent, copyright, trade secret or other proprietary
right to or from Acquiror, or (iii) provisions restricting or affecting the
development, manufacture or distribution of Acquiror's products or services.
(c) Acquiror has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital
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stock, (ii) incurred any indebtedness for money borrowed or any other
liabilities individually in excess of $100,000 or, in the case of indebtedness
and/or liabilities individually less than $100,000, in excess of $500,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
3.10 Related-Party Transactions. No employee, officer, or director
of Acquiror or member of his or her immediate family is indebted to Acquiror,
nor is Acquiror indebted (or committed to make loans or extend or guarantee
credit) to any of them. To Acquiror's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which
Acquiror is affiliated or with which Acquiror has a business relationship, or
any firm or corporation that competes with Acquiror, except that employees,
officers, or directors of Acquiror and members of their immediate families may
own stock in publicly traded companies that may compete with Acquiror. No member
of the immediate family of any officer or director of Acquiror is directly or
indirectly interested in any material contract with Acquiror.
3.11 Permits. Acquiror has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of Acquiror, and
Acquiror believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. Acquiror
is not in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
3.12 Environmental and Safety Laws. To its knowledge, Acquiror is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to the best of its knowledge,
no material expenditures are or will be required in order to comply with any
such existing statute, law or regulation.
3.13 Manufacturing and Marketing Rights. Acquiror has not granted
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person and is not bound by any agreement that affects Acquiror's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
3.14 Registration Rights. Except as provided in the Investors Rights
Agreement, Acquiror has not granted or agreed to grant any registration rights,
including piggyback rights, to any person or entity.
3.15 Title to Property and Assets. Acquiror owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
(i) the lien of current taxes not yet due and payable, (ii) liens arising by
operation of law or statutory liens, (iii) liens securing debt that are
reflected on the Acquiror Financial Statements and (iv) liens which do not
materially detract from or interfere with the use of the properties subject
thereto. With respect to the property and assets it leases, Acquiror is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
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3.16 Financial Statements. Acquiror has delivered or made available
to Target its audited financial statements (balance sheet and profit and loss
statement, statement of stockholders' equity and statement of cash flows,
including notes thereto) at March 31, 1999 and for the fiscal year then ended,
and its unaudited financial statements (balance sheet and profit and loss
statement) as at and for the three month period ended June 30, 1999 ("the
Acquiror Financial Statements"). The Acquiror Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated and with each other, except
that the Acquiror Financial Statements for the three month period ended June 30,
1999 (the "Interim Acquiror Financial Statements") may not contain all footnotes
required by generally accepted accounting principles. The Acquiror Financial
Statements fairly present the financial condition and operating results of
Acquiror as of the dates, and for the periods, indicated therein, subject in the
case of Interim Acquiror Financial Statements to normal year end audit
adjustments. Except as set forth in the Acquiror Financial Statements, Acquiror
has no material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to June 30, 1999 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Acquiror Financial Statements, which, in both cases,
individually or in the aggregate, are not material to the financial condition or
operating results of Acquiror. Except as disclosed in the Acquiror Financial
Statements, Acquiror is not a guarantor or indemnitor of any indebtedness of any
other person, firm or corporation. Acquiror maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
3.17 Changes. Since June 30, 1999 there has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of Acquiror from that reflected in the Acquiror Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of Acquiror (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver by Acquiror of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by Acquiror, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results or business of Acquiror (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract or
arrangement by which Acquiror or any of its assets or properties is bound or
subject;
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(f) any material change in any compensation arrangement or
agreement with any employee;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key
officer of Acquiror;
(i) any mortgage, pledge, transfer of a security interest in,
or lien, created by Acquiror, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(j) any loans or guarantees made by Acquiror to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other
distribution in respect of any of Acquiror's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by
Acquiror;
(l) to Acquiror's knowledge, any other event or condition of
any character that might materially and adversely affect the assets, properties,
financial condition, operating results or business of Acquiror (as such business
is presently conducted and as it is proposed to be conducted); or
(m) any agreement or commitment by Acquiror to do any of the
things described in this Section 3.17.
3.18 Employee Benefit Plans.
(a) Neither Acquiror nor any ERISA Affiliate has, since
January 1, 1993, 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.
(b) With respect to each employee benefit plan (as defined in
section 3(3) of ERISA) of Acquiror, the requirements of ERISA applicable to such
plan have been satisfied.
(c) With respect to each plan of Acquiror that is subject to
COBRA, the requirements of COBRA applicable to such plan have been satisfied.
(d) With respect to each plan of Acquiror 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.
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(e) Each plan of Acquiror 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 of
Acquiror 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.
(f) Neither Acquiror 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.
(g) All contributions, premiums or other payments due from the
Acquiror to (or under) any plan of Acquiror have been fully paid or adequately
provided for on the books and financial statements of Acquiror. All accruals
(including, where appropriate, proportional accruals for partial periods) have
been made in accordance with prior practices.
3.19 Tax Returns, Payments and Elections. Each Tax Return required
to be filed with any Tax authority by or on behalf of Acquiror, has been or will
be completed and filed when due (including any extensions of such due date) and
all amounts shown due on each such Tax Return has been or will be paid on or
before such date. Acquiror has withheld and paid to the applicable financial
institution or Tax authority all amounts required to be withheld. No material
Tax liability since June 30, 1999 has been incurred by Acquiror other than in
the ordinary course of business. There is no material claim, audit, action,
suit, proceeding, or (to the knowledge of Acquiror) investigation now pending or
(to the knowledge of Acquiror) threatened against or with respect to Acquiror in
respect of any Tax or assessment. No notice of deficiency or similar document of
any Tax authority has been received by Acquiror, 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 Acquiror, materially and adversely affect the liability of Acquiror
for Taxes. There are no liens for Taxes (other than for current Taxes not yet
due and payable) upon the assets of Acquiror. Acquiror is in full compliance
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. Acquiror 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. Acquiror 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 Acquiror nor does Acquiror owe any amount under any
such Agreement. Acquiror has not elected pursuant to the Code, to be treated as
a Subchapter S corporation or a collapsible corporation pursuant to Section
1362(a) or Section 341(f) of the Code, nor has it made any other elections
pursuant to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that would have a material effect
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on Acquiror, its financial condition, its business as presently conducted or
proposed to be conducted or any of its properties or material assets.
3.20 Insurance. Acquiror has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
3.21 Labor Agreements and Actions. Acquiror is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to Acquiror's knowledge, has sought to represent any of the
employees, representatives or agents of Acquiror. There is no strike or other
labor dispute involving Acquiror pending, or to the best of Acquiror's
knowledge, threatened, that could have a Material Adverse Effect on Acquiror (as
such business is presently conducted and as it is proposed to be conducted), nor
is Acquiror aware of any labor organization activity involving its employees. To
its knowledge, Acquiror has complied in all material respects with all
applicable state and federal equal employment opportunity and other laws related
to employment.
3.22 Real Property Holding Company. Acquiror is not a real property
holding company within the meaning of Section 897 of the Code.
3.23 Representations Complete. None of the representations,
warranties or statements made by Acquiror herein or in any Schedule hereto,
including the Acquiror Disclosure Letter, or certificate furnished by Acquiror
pursuant to this Agreement, when all such documents are read together in their
entirety, contains any untrue statement of a material fact, or omits to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
3.24 Brokers' and Finders' Fees. Acquiror 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.
ARTICLE IV.
CONDUCT PRIOR TO THE EFFECTIVE TIME
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 and Acquiror each
agree (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) subject to Acquiror's consent to the filing of
material Tax Returns if applicable, to pay or perform other obligations when
due, and (iii) to use all reasonable efforts consistent with past practice and
policies to preserve intact its and its subsidiaries' present business
organizations, use commercially
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reasonable efforts to 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 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 reasonably be expected to have a Material Adverse
Effect on Target. Without limiting the foregoing, except as expressly
contemplated by this Agreement, neither Target nor Acquiror shall 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 the other:
(a) Dividends; Changes in Capital Stock. 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 (other than any issuance of capital stock upon exercise of
outstanding options, warrants or rights therefor), 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;
(b) Other. Take, or agree in writing or otherwise to take, any
of the actions described above, or any action which would make any of its
representations or warranties contained in this Agreement untrue or incorrect or
prevent it from performing or cause it not to perform its covenants hereunder.
4.2 Conduct of Business of Target During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, 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 of Incorporation or Bylaws other than the amendment of Target's
Certificate of Incorporation contemplated by Section 6.3(i) hereof;
(b) 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;
(c) 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;
(d) 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
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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 options to purchase up to 20,000 shares of
Target Common Stock in any one instance or up to 50,000 shares of Target Common
Stock in the aggregate, so long as such issuances are in the ordinary course of
business and consistent with past practice and the exercise price per share of
each such option is equal to the then fair market value of Target's Common Stock
as determined by Acquiror and (iii) the issuance of up to 482,625 shares of
Target Series F Stock and warrants to purchase up to 482,625 shares of Common
Stock;
(e) 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;
(f) Exclusive Rights. Enter into or amend any 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;
(g) 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, other
than the sale of licenses of Target's products that are in the ordinary course
of business and consistent with past practice, other than the Koz Distribution
so long as the Koz Distribution is effected in accordance with Section 5.19
hereof.
(h) 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 accounts
payable arising in the ordinary course of business and consistent with past
practice;
(i) Leases. Enter into any single operating lease requiring
payments in excess of $5,000 per month;
(j) Payment of Obligations. Pay, discharge or satisfy in an
amount in excess of $20,000 in any one case or $50,000 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;
(k) Capital Expenditures. Incur or commit to incur any
capital expenditures in excess of $50,000 in the aggregate;
(l) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
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(m) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(n) 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,
(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;
(o) Lawsuits. Commence a lawsuit or arbitration proceeding
other than (i) for the routine collection of bills, or (ii) for a breach of this
Agreement;
(p) 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;
(q) 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, except as required by law;
(r) 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
(s) Other. Take or agree in writing or otherwise to take, any
of the actions described in Sections 4.2(a) through (r) above, or any action
which would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not to
perform its covenants hereunder.
4.3 Notices. Target shall give all notices and other information
required to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable government
authority under the National Labor Relations Act, the Internal Revenue Code, the
Consolidated Omnibus Budget Reconciliation Act, and other applicable law in
connection with the transactions provided for in this Agreement.
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ARTICLE V.
ADDITIONAL AGREEMENTS
5.1 No Solicitation.
(a) From and after the date of this Agreement until the
earlier of (x) the termination of this Agreement in accordance with Section 7.1
or (y) the Effective Time, Target shall not, directly or indirectly, through any
officer, director, employee, representative or agent, (i) solicit, initiate, or
encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, business
combination, sale of all or substantially all of the assets, sale of shares of
capital stock (including without limitation by way of a tender offer) or similar
transactions involving Target, other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as a "Takeover Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Takeover Proposal, or (iii) agree to, approve or recommend any
Takeover Proposal.
(b) Without limiting the foregoing, it is understood that any
violations of the restrictions set forth in this paragraph by any officer,
director, employee, financial advisor, attorney, representative or agent,
whether or not acting on behalf of Target, shall be deemed to be a breach of
this Section 5.1 by Target.
(c) Target shall notify Acquiror immediately (and no later
than 24 hours) after receipt by Target (or its advisors or agents) of any
Takeover Proposal or any request for information in connection with a Takeover
Proposal or for access to the properties, books or records of Target by any
person or entity that informs Target that it is considering making, or has made,
a Takeover Proposal. Such notice shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact.
5.2 Preparation of Information Statement. As soon as practicable
after the execution of this Agreement, Target and Acquiror shall prepare an
Information Statement for the stockholders of Target to approve this Agreement,
the Certificate of Merger and the transactions contemplated hereby and thereby.
The Information Statement shall constitute a disclosure document for the offer
and issuance of the shares of Acquiror Common Stock to be received by the
holders of Target Capital Stock in the Merger. Acquiror and Target shall each
use its best efforts to cause the Information Statement to comply with
applicable federal and state securities laws requirements. Each of Acquiror and
Target agrees to provide promptly to the other such information concerning its
business and financial statements and affairs as, in the reasonable judgment of
the providing party or its counsel, may be required or appropriate for inclusion
in the Information Statement, or in any amendments or supplements thereto, and
to cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Information Statement. Target will promptly
advise Acquiror, and Acquiror will promptly advise Target, in writing if at any
time prior to the Effective Time either Target or Acquiror shall obtain
knowledge of any facts that might make it necessary or appropriate to amend or
supplement the Information Statement in order to make the statements contained
or incorporated
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by reference therein not misleading or to comply with applicable law. The
Information Statement shall contain the recommendation of the Board of Directors
of Target that the Target stockholders approve the Merger and this Agreement and
the conclusion of the Board of Directors that the terms and conditions of the
Merger as contained herein are fair and reasonable to the stockholders of
Target. Anything to the contrary contained herein notwithstanding, Target shall
not include in the Information Statement any information with respect to
Acquiror or its affiliates or associates, the form and content of which
information shall not have been approved by Acquiror prior to such inclusion.
5.3 Stockholders Meeting or Consent Solicitation. As soon as
permitted by the Commissioner (as defined in Section 5.13), Target shall
promptly take all actions necessary to either (i) call a meeting of its
stockholders to be held for the purpose of voting upon this Agreement and the
Merger or (ii) commence a consent solicitation to obtain such approvals in order
to effect consummation of the Merger on or before November 10, 1999, or as soon
thereafter as is practicable. Target will, through its Board of Directors,
recommend to its stockholders approval of such matters as soon as practicable
after the date hereof. Target shall use all reasonable efforts to solicit from
its stockholders proxies or consents in favor of such matters.
5.4 Access to Information.
(a) Target shall afford Acquiror and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of Target's and its
subsidiaries' properties, books, contracts, commitments and records, and (ii)
all other information concerning the business, properties and personnel of
Target and its subsidiaries as Acquiror may reasonably request. Target agrees to
provide to Acquiror and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.4 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.5 Confidentiality. The parties each agree that all information
provided by one party to the other in the course of pursuing this transaction
that is marked or otherwise identified as confidential will be deemed
confidential and proprietary to the providing party, and will not be disclosed
to any other person or entity (other than the receiving party's attorneys,
accountants, or other advisers subject to similar confidentiality restrictions),
and such information will not be used by the receiving party except for the
limited purpose of evaluating the desirability of completing this proposed
transaction; provided, however, that these confidentiality restrictions will not
apply to information that the receiving party can demonstrate is publicly
available or was already known by the receiving party through a third party with
no
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confidentiality obligations to the other party. All documents and other written
information (and all copies thereof, including copies on electronic media)
received by one party from the other shall promptly be returned to the
disclosing party upon the written request of the disclosing party. The parties
further acknowledge that the provisions of this Section 5.5 shall be in addition
to, and not in substitution for, the provisions of the non-disclosure agreement
dated April 27, 1999 between Target and Acquiror (the "Non-Disclosure
Agreement"), and that to the extent there is a conflict between this Section 5.5
and the Non-Disclosure Agreement, the provisions of this Section 5.5 shall
prevail.
5.6 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or required by Acquiror
to comply with the rules and regulations of the SEC or to comply with disclosure
obligations under applicable securities laws.
5.7 Consents. Each of Acquiror and Target shall promptly apply for
or otherwise seek, and use its reasonable commercial efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
Merger, and shall use commercially reasonable efforts to obtain all necessary
consents, waivers and approvals under any of its material contracts in
connection with the Merger for the assignment thereof or otherwise.
5.8 Update Disclosure; Breaches. From and after the date of this
Agreement until the Effective Time, Target and Acquior shall promptly notify the
other party, by written update to the Target Disclosure Letter or Acquiror
Disclosure Letter, as applicable, of (i) the occurrence or non-occurrence of any
event which would be likely to cause any condition to the obligations of any
party to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied, or (ii) the failure of Target or Acquiror, as the
case may be, to comply with or satisfy any covenant, condition or agreement
required to be complied with or satisfied by it pursuant to this Agreement which
would be likely to result in any condition to the obligations of any party to
effect the Merger and the other transactions contemplated by this Agreement not
to be satisfied. The delivery of any notice pursuant to this Section 5.8 shall
not cure any breach of any covenant, representation or warranty requiring
disclosure of such matter prior to the date of this Agreement or otherwise limit
or affect the remedies available hereunder to the party receiving such notice.
5.9 Voting Agreement.
(a) Transfer of Shares.
(i) Definitions.
(1) "Shares" shall mean all issued and outstanding
shares of Target Capital Stock owned of record or beneficially (over which
beneficially-owned
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shares the Affiliate exercises voting power) by the Affiliate as of the record
date for persons entitled (A) to receive notice of, and to vote at the meeting
of the stockholders of Target called for the purpose of voting on the matter
referred to in subsection 5.9(b), or (B) to take action by written consent of
the stockholders of Target with respect to the matter referred to in subsection
5.9(b).
(2) "Subject Securities" shall mean: (i) all
securities of the Target (including all shares of Target Capital Stock and all
options, warrants and other rights to acquire shares of Target Capital Stock)
beneficially owned by Affiliate as of the date of this Agreement; and (ii) all
additional securities of Target (including all additional shares of Target
Capital Stock and all additional options, warrants and other rights to acquire
shares of Target Capital Stock) of which Affiliate acquires ownership during the
period from the date of this Agreement through the Expiration Date. As used
herein, the term "Expiration Date" shall mean the earlier to occur of (i) the
Effective Time and (ii) the date on which this Agreement shall be terminated in
accordance with Article VII hereof.
(3) A person shall be deemed to have effected
a "Transfer" of a security if such person directly or indirectly: (i) sells,
pledges, encumbers, grants an option with respect to, transfers or disposes of
such security or any interest in such security; or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein.
(4) "Opposing Proposal" shall mean (i) any
proposal made in opposition to or in competition with consummation of the
Merger; (ii) any merger, consolidation, sale of assets, reorganization or
recapitalization, with any party other than with Acquiror and its affiliates; or
(iii) any liquidation or winding up of Target.
(ii) Additional Purchases. The Affiliate agrees that
any shares of Target Capital Stock that the Affiliate shall purchase or with
respect to which the Affiliate shall otherwise acquire beneficial ownership
after the execution of this Agreement and prior to the Expiration Date ("New
Shares") shall be subject to the terms and conditions of this Agreement to the
same extent as if they constituted Shares.
(iii) Transferee of Subject Securities to be Bound by
this Agreement. Affiliate agrees that, during the period from the date of this
Agreement through the Expiration Date, Affiliate shall not cause or permit any
Transfer of any of the Subject Securities to be effected unless each person to
which any of such Subject Securities, or any interest in any of such Subject
Securities, is or may be transferred shall have: (a) executed a counterpart of
this Agreement (with such modifications as Acquiror may reasonably request); and
(b) agreed in writing to hold such Subject Securities (or interest in such
Subject Securities) subject to all of the terms and provisions of this
Agreement.
(b) Agreement to Vote Shares and Grant Proxy. At every meeting
of the stockholders of Target called with respect to any of the following, and
on every action or approval by written consent of the stockholders of Target
with respect to any of the following, the Affiliate agrees to vote the Shares
and any New Shares in favor of approval of this
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Agreement and the Merger and any matter necessary to facilitate the Merger. In
order to effectuate the foregoing, the Affiliate does hereby constitute and
appoint Acquiror, or any nominee of Acquiror, with full power of substitution,
from the date hereof to the Expiration Date, as its true and lawful proxy, for
and in its name, place and stead, including the right to sign its name (as
stockholder) to any consent, certificate or other document relating to Target
that the laws of the State of Delaware may permit or require, to cause the
Shares and any New Shares to be voted in the manner contemplated by this
subsection 5.9(b). The parties and proxies named above shall not exercise this
proxy on any other matter except as provided above. The parties acknowledge that
the proxy provided for here is irrevocable and coupled with an interest.
(c) Representations, Warranties and Covenants of each
Affiliate. Each Affiliate represents, warrants and covenants to Acquiror and
Merger Sub as follows:
(i) Ownership of Shares. Affiliate (together with
such Affiliate's spouse, if applicable) (i) is the sole beneficial and record
owner and holder of the Shares and has full voting power with respect thereto,
and (ii) does not own any shares of capital stock of Target other than the
Shares (excluding shares as to which Affiliate currently disclaims beneficial
ownership).
(ii) Authority; Due Execution. Affiliate has full
power and authority to make, enter into and carry out the terms of this
Agreement. Affiliate has duly executed and delivered this Agreement and
(assuming the due authorization, execution and delivery of this Agreement by
Acquiror) this Agreement constitutes a valid and binding obligation of such
Affiliate.
(iii) No Proxy Solicitations. Affiliate will not, and
will not permit any entity under such Affiliate's control to (i) solicit proxies
or become a "participant" in a "solicitation," as such terms are defined in
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to an Opposing Proposal; (ii) initiate a
stockholder's vote or action by consent of Target stockholders with respect to
an Opposing Proposal; or (iii) become a member of a "group" (as such term is
used in Section 13(d) of the Exchange Act) with respect to any voting securities
of Target with respect to an Opposing Proposal.
(d) Specific Performance; Injunctive Relief. Each Afiliate
acknowledges that Acquiror will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
the Affiliate set forth in this Section 5.9. Therefore, it is agreed that, in
addition to any other remedies that may be available to Acquiror upon any such
violation, Acquiror shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Acquiror at law or in equity.
(e) Termination. This Section 5.9 shall terminate and shall
have no further force or effect as of the Expiration Date.
5.10 Legal Requirements. Each of Acquiror and Target will, and will
cause their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all
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legal requirements which may be imposed on them with respect to the consummation
of the transactions contemplated by this Agreement and will promptly cooperate
with and furnish information to any party hereto necessary in connection with
any such requirements imposed upon such other party in connection with the
consummation of the transactions contemplated by this Agreement and will take
all reasonable actions necessary to obtain (and will cooperate with the other
parties hereto in obtaining) any consent, approval, order or authorization of,
or any registration, declaration or filing with, any Governmental Entity or
other person, required to be obtained or made in connection with the taking of
any action contemplated by this Agreement.
5.11 Tax-Free Reorganization. Neither Target, Acquiror nor Merger
Sub will, either before or after consummation of the Merger, take any action
which, to the knowledge of such party, would cause the Merger to fail to
constitute a "reorganization" within the meaning of Code Section 368.
5.12 Stock Options.
(a) All Target Options outstanding, whether or not
exercisable, whether or not vested, and whether or not performance-based, at the
Effective Time under the Target Stock Option Plan, shall by virtue of the Merger
and without any further action on the part of Target or the holder thereof, be
converted into an option to purchase Acquiror Common Stock pursuant to the terms
of the Quintus Corporation 1999 Stock Plan ("Quintus 1999 Stock Plan") in such
manner that Acquiror (i) is "assuming a stock option in a transaction to which
Section 424(a) applied" within the meaning of Section 424 of the Code, or (ii)
to the extent that Section 424 of the Code does not apply to any such Target
Options, would be a transaction within Section 424 of the Code. Each Target
Option converted by Acquiror shall be exercisable upon the same terms and
conditions as under the Target Stock Option Plan and the applicable option
agreement issued thereunder, except that (A) each such Target Option shall be
exercisable for that whole number of shares of Acquiror Common Stock (rounded
down to the nearest whole share) into which the number of shares of Target
Common Stock subject to such Target Option immediately prior to the Effective
Time would be converted under Section 1.6(a), and (B) the option price per share
of Acquiror Common Stock shall be an amount equal to the option price per share
of Target Common Stock subject to such Target Option in effect immediately prior
to the Effective Time divided by the Exchange Ratio (the option price per share,
as so determined, being rounded downward to the nearest full cent). Acquiror
shall (i) on or prior to the Effective Time, reserve for issuance the number of
shares of Acquiror Common Stock that will become subject to Target Options
pursuant to this Section 5.12, (ii) from and after the Effective Time, upon
exercise of the Target Options in accordance with the terms thereof, make
available for issuance all shares of Acquiror Common Stock covered thereby and
(iii) as promptly as practicable after the Effective Time, issue to each holder
of an outstanding Target Option a document evidencing the foregoing conversion
by Acquiror.
(b) Acquiror shall comply with the terms of the Target Stock Option
Plan and ensure, to the extent required by, and subject to the provisions of,
such Target Stock Option Plan, that Target Stock Options which qualified as
incentive stock options prior the Effective Time continue to quality as
incentive stock options after the Effective Time.
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(c) Without limiting the foregoing, Acquiror shall take all
corporate action necessary to reserve and make available for issuance a
sufficient number of shares of Acquiror Common Stock for delivery under Target
Stock Options assumed in accordance with this Section 5.12.
5.13 Fairness Hearing. Acquiror will as promptly as practicable
after execution hereof, file (i) a permit application under Section 25121 of
California Law with the California Commissioner of Corporations (the
"Commissioner") and (ii) a request for a hearing to be held by the Commissioner
to consider the terms, conditions and fairness of the transactions contemplated
by this Agreement and the Certificate of Merger pursuant to Section 25142 of
California Law ("Fairness Hearing"). As soon as permitted by the Commissioner,
Target shall cause the mailing of the hearing notice to all holders of
securities entitled to receive such notice pursuant to the requirements of the
rules of the Commissioner and California Law. Target shall furnish to Acquiror
such data and information as is reasonably necessary for Acquiror' preparation
and filing of the permit application, the request for the hearing and the
hearing notice.
5.14 Escrow Agreement. Upon execution of this Agreement, each
Affiliate agrees to execute and deliver to Acquiror the Escrow Agreement in the
form attached hereto as Exhibit C ("Escrow Agreement") (it being understood by
the parties hereto that each Former Target Stockholder shall have shares
deposited into the Escrow Fund, not just the Affiliates).
5.15 Additional Agreements. Each of Target, Acquiror and Merger Sub
agrees to use its reasonable commercial efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, subject to the appropriate vote
of stockholders of Target described in Section 5.3, including cooperating fully
with the other party, including by provision of information. In case at any time
after the Effective Time reasonable further action is necessary or desirable to
carry out the purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of either Target or Merger Sub of the proper officers and directors
of each party to this Agreement shall take such necessary action.
5.16 Employee Benefits. Acquiror shall take such reasonable actions,
to the extent permitted by Acquiror's benefits program, as are necessary to
allow eligible employees of Target to participate in the benefit programs of
Acquiror, or alternative benefits programs in the aggregate substantially
comparable to those applicable to employees of Acquiror on similar terms, as
soon as practicable after the Effective Time of the Merger.
5.17 Market Stand-Off Agreement. Each Affiliate hereby agrees that
during a period not to exceed one hundred eighty (180) days following the
effective date of the IPO (as defined in Section 8.6(b)) and during periods not
to exceed ninety (90) days following the effective date of registration
statements (other than a registration statement relating either to sale of
securities to employees of the Company pursuant to its stock option, stock
purchase or similar plan or a SEC Rule 145 transaction) of Acquiror filed under
the Securities Act within two (2) years of the effective date of the IPO, such
periods to be specified by Acquiror and an underwriter of Acquiror Common Stock
or other securities of Acquiror (or such lesser period of
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time as negotiated with the underwriter) it shall not, to the extent requested
by Acquiror and such underwriter, (x) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Acquiror Common Stock or any
securities convertible into or exercisable or exchangeable for Acquiror Common
Stock (including, without limitation, shares of Acquiror Common Stock or
securities convertible into or exercisable or exchangeable for Acquiror Common
Stock which may be deemed to be beneficially owned by such Affiliate in
accordance with the rules and regulations of the Securities and Exchange
Commission) or (y) enter into any swap or other arrangement that transfers all
or a portion of the economic consequences associated with the ownership of any
Acquiror Common Stock (regardless of whether any of the transactions described
in clause (x) or (y) is to be settled by the delivery of Acquiror Common Stock,
or such other securities, in cash or otherwise); provided, however, that all
officers and directors of Acquiror and holders of at least one percent (1%) of
then-outstanding Acquiror Common Stock enter into similar agreements. In order
to enforce the foregoing covenant, Acquiror may impose stop-transfer
instructions with respect to such Affiliate's shares of Acquiror Capital Stock
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period. Each Affiliate agrees that the
managing underwriters of the IPO will be third party beneficiaries of this
Section 5.17.
5.18 Delivery of Financial Information. Acquiror shall deliver to
each Affiliate, as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of Acquiror, an income statement for such
fiscal year, a balance sheet of Acquiror and a statement of stockholders' equity
as of the end of such year, and a statement of cash flows for such year, such
year-end financial reports to be audited and certified by independent public
accountants of nationally recognized standing selected by Acquiror; provided,
that the requirement that such financial statements be audited and certified may
be waived by action of the Board of Directors of Acquiror if all members of the
Board vote in favor of such waiver. The obligations of Acquiror under this
Section 5.18 shall terminate and be of no further force or effect upon the
earlier to occur of (i) the effectiveness of the IPO, (ii) when the Company
first becomes subject to the periodic reporting requirements of Sections 12(g)
or 15(d) of the Exchange Act or (iii) the one-year anniversary of the date of
this Agreement.
5.19 Koz Inc. Stock Distribution. Target agrees that if Target
distributes or sells the shares of capital stock of Koz Inc. ("Koz") currently
held by Target to certain of Target's stockholders (the "Koz Distribution"),
such transaction will: (i) contain indemnification provisions (which such
indemnity shall survive for at least three years following the closing of the
Koz Distribution) in which each of the purchasers or distributees of the Koz
stock agrees in writing to indemnify Target and Target's successors and assigns
for any Damages (as defined in Section 8.2) arising out of or related to the Koz
Distribution; (ii) close on or before September 30, 1999; (iii) comply with (a)
all applicable laws, including without limitation the Delaware General
Corporation Law, (b) the certificate or articles of incorporation of Koz, (c)
the bylaws of Koz, (d) any Koz shareholder agreement or other agreement that
affects the transferability of the shares, (e) Target's certificate of
incorporation, (f) Target's bylaws and (g) any Target shareholder agreement or
other agreement that affects the transferability of the shares; (iv) contain a
minimum aggregate purchase price for the Koz stock of $535,000; and
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(v) not cause, in the reasonable judgment of Acquiror or counsel to Acquiror,
the Merger to fail to constitute a "reorganization" within the meaning of Code
Section 368.
ARTICLE VI.
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(b) Governmental Approval. Acquiror and Target and their
respective subsidiaries shall have timely obtained from each Governmental Entity
all approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the transactions contemplated hereby, including
such approvals, waivers and consents as may be required under the Securities
Act.
(c) Tax Opinion. Each of Target and Acquiror shall have
received a written opinion from its respective counsel to the effect that the
Merger will constitute a reorganization within the meaning of Section 368 of the
Code. In preparing the Target and the Acquiror tax opinions, counsel may rely on
reasonable assumptions and may also rely on (and to the extent reasonably
required, the parties shall make) reasonable representations related thereto.
(d) Fairness Hearing. The Commissioner of Corporations for the
State of California shall have approved the terms and conditions of the
transactions contemplated by this Agreement and the Certificate of Merger and
the fairness of such terms and conditions pursuant to Section 25142 of the
California Statute following a fairness hearing and shall have issued a Permit
under Section 25121 of the California securities laws for the issuance of (i)
the Acquiror Common Stock and Acquiror Series G Preferred Stock to be issued in
the Merger, (ii) the options to purchase Acquiror Common Stock issuable to
former holders of Target Stock Options, (iii) the Acquiror Common Stock issuable
on exercise of the Target Stock Options to be assumed by Acquiror, (iv) the
warrants to purchase Acquiror Capital Stock issuable to former holders of Target
Warrants and (v) the Acquiror Capital Stock issuable on exercise of the Target
Warrants to be assumed by Acquiror.
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6.2 Additional Conditions to Obligations of Target. The obligations
of Target to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Target:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the holders of at least (i) seventy-five
percent (75%) of the outstanding Target Preferred Stock, voting separately as
class, and (ii) a majority of the outstanding shares of the Target Capital Stock
outstanding as of the record date set for the Target Stockholders Meeting or
solicitation of stockholder consents.
(b) Legal Opinion. Target shall have received a legal opinion
from Acquiror's legal counsel substantially in the form attached as Exhibit D
hereto.
(c) Injunctions or Restraints on Merger and Conduct of
Business. No proceeding brought by any administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking to
prevent the consummation of the Merger shall be pending. In addition, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target and its subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(d) Investors Rights Agreement. Acquiror and the holders of at
least a majority of the Registrable Securities (as defined in Section 1.1(b) of
Acquiror's Amended and Restated Investors Rights Agreement dated August 26,
1999) of Acquiror then outstanding shall have executed the Amended and Restated
Investors Rights Agreement in the form attached hereto as
Exhibit I.
6.3 Additional Conditions to the Obligations of Acquiror. The
obligations of Acquiror to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Acquiror:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the holders of at least ninety-five percent
(95%) of the shares of Target Capital Stock outstanding as of the record date
set for the Target Stockholders Meeting or solicitation of stockholder consents.
(b) Third Party Consents. Acquiror shall have been furnished
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
the contracts of Target set forth on Schedule 6.3(c) hereto.
(c) Injunctions or Restraints on Merger and Conduct of
Business. No proceeding brought by any administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking to
prevent the consummation of the Merger shall
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be pending. In addition, no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint provision limiting or
restricting Acquiror's conduct or operation of the business of Target and its
subsidiaries, following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other Governmental Entity,
domestic or foreign, seeking the foregoing be pending.
(d) Legal Opinion. Acquiror shall have received a legal
opinion from Target's legal counsel, in substantially the form attached hereto
as Exhibit E.
(e) FIRPTA Certificate. Target shall, prior to the Closing
Date, provide Acquiror with a properly executed FIRPTA Notification Letter,
substantially in the form of Exhibit F attached hereto, which states that shares
of capital stock of Target do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
Acquiror's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such Notification Letter, Target shall
have provided to Acquiror, as agent for Target, a form of notice to the Internal
Revenue Service in accordance with the requirements of Treasury Regulation
Section 1.897-2(h)(2) and substantially in the form of Exhibit G attached hereto
along with written authorization for Acquiror to deliver such notice form to the
Internal Revenue Service on behalf of Target upon the Closing of the Merger.
(f) Resignation of Directors. The directors of Target in
office immediately prior to the Effective Time shall have resigned as directors
of Target effective as of the Effective Time.
(g) Proprietary Information and Inventions Agreements. All of
the employees of Target on September __, 1999 shall have entered into
Proprietary Information and Inventions Agreements in a form reasonably
acceptable to Acquiror.
(h) Compensation Agreement. Dain Rauscher Wessels, financial
advisor to Target, shall have entered into a Compensation Agreement
substantially in the form attached hereto as Exhibit B.
(i) Amendment of Target Certificate of Incorporation. Target
shall have filed an amendment to its Certificate of Incorporation so that the
Merger does not constitute a "liquidation" under Section 3 of the Target's
Certificate of Incorporation.
(j) Escrow Agreement. The parties to the Escrow Agreement
shall have entered into an Escrow Agreement in the form attached hereto as
Exhibit C.
(k) Equity Financing. Target shall have closed an equity
financing with gross proceeds of at least $1,240,000.
(l) Koz Distribution. The Koz Distribution, if any, shall have
complied with each of the requirements set forth in Section 5.19 hereof.
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ARTICLE VII.
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
7.1 Termination.
(a) Termination. This Agreement may be terminated at any time
prior to Closing:
(i) By mutual written consent duly authorized by the
Board of Directors of Acquiror and Target;
(ii) By the Acquiror if there is the failure of a
condition set forth in Section 6.3 hereof to be satisfied (and such condition is
not waived in writing by the Acquiror) on or prior to November 10, 1999 or the
occurrence of any event which results or would result in the failure of a
condition set forth in Section 6.3 hereof; provided that the Acquiror may not
terminate this Agreement prior to such date if (x) the Target has not had an
adequate opportunity to cure such failure or (y) the Target has the right to
terminate this Agreement under clause (iii) of this Section 7.1(a);
(iii) By Target if there is the failure of a
condition set forth in Section 6.2 hereof to be satisfied (and such condition is
not waived in writing by the Company) on or prior to November 10, 1999, or the
occurrence of any event which results or would result in the failure of a
condition set forth in Section 6.2 hereof be satisfied on or prior to such date;
provided that, Target may not terminate this Agreement prior to such date if (x)
Acquiror has not had an adequate opportunity to cure such failure or (y)
Acquiror has the right to terminate this Agreement under clause (ii) of this
Section 7.1(a); or
(iv) By Target if there is a failure of a condition
set forth in Section 6.1 hereof (unless the ability to meet such condition was
within the control of Target) or by Acquiror if there is a failure of a
condition set forth in Section 6.1 hereof (unless the ability to meet such
condition was within the control of Acquiror).
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror or Target
or their respective officers, directors, stockholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties or covenants set forth in this Agreement;
provided that, the provisions of Section 5.5 (Confidentiality), Section 7.3
(Expenses) and this Section 7.2 shall remain in full force and effect and
survive any termination of this Agreement.
7.3 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses of its
advisers, accountants and legal counsel) shall be paid by the party incurring
such expense; provided, however, that any out-of-pocket expenses incurred by
Target in excess of $250,000 for fees and expenses of legal counsel and
accountants shall remain an obligation of Target's stockholders. If Acquiror or
Target receives any invoices for amounts in excess of said amounts, it may, with
Acquiror's written
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approval, pay such fees; provided, however, that such payment shall, if not
promptly reimbursed by the Target stockholders at Acquiror's request, constitute
"Damages" recoverable under the Escrow Agreement and such Damages shall not be
subject to the Escrow Basket (as defined below).
7.4 Amendment. The boards of directors of Acquiror, Merger Sub and
Target may cause this Agreement to be amended at any time only by the execution
of an instrument in writing signed on behalf of each of such parties; provided
that an amendment made subsequent to adoption of the Agreement by the
stockholders of Target shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Target Capital Stock, (ii)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
adversely affect the holders of Target Capital Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII.
ESCROW AND INDEMNIFICATION
8.1 Survival of Representations, Warranties and Covenants.
Notwithstanding any investigation conducted before or after the Closing Date,
and notwithstanding any actual or implied knowledge or notice of any facts or
circumstances which Acquiror or Target may have as a result of such
investigation or otherwise, Acquiror and Target will be entitled to rely upon
the other party's representations, warranties and covenants set forth in this
Agreement. The obligations of Target with respect to its representations,
warranties, agreements and covenants will survive the Closing and continue in
full force and effect until the date 12 months following the Closing Date (the
"Target Termination Date"), at which time, subject to Section 8.5, the
representations, warranties and covenants of Target set forth in this Agreement
and any liability of the Former Target Stockholders with respect to those
representations, warranties and covenants will terminate. The obligations of
Acquiror with respect to its representations, warranties, agreements and
covenants will survive the Closing and continue in full force and effect until
the earlier of (i) the date 12 months following the Closing Date or (ii) the
expiration or early termination of the lock-up restrictions applicable to the
shares of Target Common Stock in connection with the Acquiror's IPO (the
"Acquiror Termination Date"), at which time the representations, warranties and
covenants of Acquiror set forth in this Agreement and any liability of the
Acquiror Stockholders with respect to those representations, warranties and
covenants will terminate.
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8.2 Indemnity. From and after the Closing Date, and subject to the
provisions of this Article VIII, Acquiror and the Surviving Corporation (on or
after the Closing Date) shall be indemnified and held harmless by the Former
Target Stockholders against, and reimbursed for, any actual liability, damage,
loss, obligation, demand, judgment, fine, penalty, cost or expense, other than
any such damages resulting from injunctive relief granted as to an intellectual
property claim), but including reasonable attorneys' fees and expenses, and the
costs of investigation incurred in defending against or settling such liability,
damage, loss, cost or expense or claim therefor and any amounts paid in
settlement thereof) imposed on or reasonably incurred and paid by Acquiror or
the Surviving Corporation as a result of any breach of any representation,
warranty, agreement or covenant on the part of Target under this Agreement
(collectively the "Damages"). "Damages" as used herein is not limited to matters
asserted by third parties, but includes Damages actually incurred or sustained
by Acquiror in the absence of claims by a third party.
8.3 Escrow Fund. As security for the indemnity provided for in
Section 8.2 hereof, shares of Acquiror Capital Stock to be issued to Target
Stockholders pursuant to Section 1.6 ("Acquisition Shares") equal to ten percent
(10%) of the Total Target Consideration (excluding the Target Option Reserve)
shall be deposited by Acquiror in an escrow account with a third party financial
or banking institution mutually reasonably acceptable to Acquiror and Target as
Escrow Agent (the "Escrow Agent"), as of the Closing Date, such deposit to
constitute an escrow fund (the "Escrow Fund") to be governed by the terms set
forth in this Agreement and the provisions of an Escrow Agreement to be executed
and delivered pursuant to Section 5.18. The Escrow Fund shall be allocated among
the Former Target Stockholders receiving Acquiror Capital Stock on a pro-rata
basis in accordance with the number of shares of Acquiror Capital Stock held by
the Former Target Stockholders upon consummation of the Merger (excluding for
purposes of this calculation any Dissenting Shares). Upon compliance with the
terms hereof and subject to the provisions of this Article VIII, Acquiror and
the Surviving Corporation shall be entitled to obtain indemnity from the Escrow
Fund for Damages covered by the indemnity provided for in Section 8.2 of this
Agreement.
8.4 Damage Threshold. Notwithstanding the foregoing, Acquiror may
not receive any shares from the Escrow Fund unless and until an Officer's
Certificate (as defined in Section 8.6 below) identifying Damages the aggregate
amount of which exceeds $250,000 (the "Escrow Basket") has been delivered to the
Escrow Agent as provided in Section 8.6 below and such amount is determined
pursuant to this Article VIII to be payable, in which case Acquiror shall
receive shares equal in value to the full amount of Damages. In determining the
amount of any Damage attributable to a breach, any materiality standard
contained in a representation, warranty or covenant of Acquiror shall be
disregarded.
8.5 Escrow Period. The Escrow Period shall terminate at the
expiration of twelve (12) months after the Effective Time; provided, however,
that a portion of the Escrow Shares, which are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent prior to termination of the Escrow Period with respect to
facts and circumstances existing prior to expiration of the Escrow Period, shall
remain in the Escrow Fund until such claims have been finally resolved.
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8.6 Claims upon Escrow Fund.
(a) Upon receipt by the Escrow Agent on or before the
Termination Date of a certificate signed by the chief financial or chief
executive officer of Acquiror (an "Officer's Certificate") for a claim against
the Escrow Fund:
(i) stating that Acquiror or the Surviving
Corporation has incurred, paid or properly accrued (in accordance with GAAP) or
knows of facts giving rise to a reasonable probability that it will have to
incur, pay or accrue (in accordance with GAAP) Damages in an aggregate stated
amount with respect to which Acquiror or the Surviving Corporation is entitled
to payment from the Escrow Fund pursuant to this Agreement; and
(ii) specifying in reasonable detail the individual
items of Damages included in the amount so stated, the date each such item was
incurred, paid or properly accrued (in accordance with GAAP), or the basis for
such anticipated liability, the specific nature of the breach to which such item
is related, the Escrow Agent shall, subject to the provisions of Sections 8.7
and 8.8 of this Agreement, deliver to Acquiror shares of Acquiror Capital Stock
in an amount necessary to indemnify Acquiror for the Damages claimed. All shares
of Acquiror Capital Stock subject to such claims shall remain in the Escrow Fund
until Damages are actually incurred or paid or the Acquiror determines in its
reasonably good faith judgment that no Damages will be required to be incurred
or paid (in which event such shares shall be distributed to the Former Target
Stockholders in accordance with Section 8.10 below).
(b) For the purpose of compensating Acquiror for its Damages
pursuant to this Agreement, the Acquiror Capital Stock in the Escrow Fund shall
be valued at (i) prior to the closing of a bona fide registered public offering
under the Securities Act (an "IPO"), the following prices per share: (1) the
Acquiror Series G-1 Preferred Stock, G-2 Preferred Stock, G-3 Preferred Stock,
G-4 Preferred Stock, G-5 Preferred Stock and G-6 Preferred Stock shall be valued
at $8.25 per share; and (2) the Common Stock shall be valued at $7.50 per share;
or (ii) after the IPO, the market value of the public stock, as measured by the
average of the closing sales price for a share of Acquiror Common Stock as
quoted on the Nasdaq National Market for the five (5) trading days immediately
preceding and ending on the day of the release of the Acquiror Capital Stock
from the Escrow Fund.
8.7 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agent (defined in Section 8.9 below) and
for a period of thirty (30) days after such delivery to the Escrow Agent, the
Escrow Agent shall make no delivery of Acquiror Common Stock or other property
pursuant to Section 8.6 hereof unless the Escrow Agent shall have received
written authorization from the Stockholders' Agent to make such delivery. After
the expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of the Acquiror Common Stock or other property in the Escrow Fund in
accordance with Section 8.6 hereof, provided that no such payment or delivery
may be made if the Stockholders' Agent shall object in a written statement to
the claim made in the Officer's Certificate (the "Objective Notice"), and
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56
such statement shall have been delivered to the Escrow Agent and to Acquiror
prior to the expiration of such thirty (30) day period.
8.8 Resolution of Conflicts; Arbitration.
(a) In case the Stockholders' Agent shall so object in writing
to any claim or claims by Acquiror made in any Officer's Certificate, the
Stockholders' Agent and Acquiror shall attempt in good faith for sixty (60) days
from the date of receipt of the Objection Notice to agree upon the rights of the
respective parties with respect to each of such claims. If the Stockholders'
Agent and Acquiror should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum
and shall distribute the Acquiror Common Stock or other property from the Escrow
Fund in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Acquiror or the Stockholders' Agent may, by written notice
to the other, demand arbitration of the matter unless the amount of the Damage
is at issue in pending litigation with a third party, in which event arbitration
shall not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three arbitrators. Within fifteen (15) days after such written
notice is sent, Acquiror and the Stockholders' Agent shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The decision of the arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement, and notwithstanding anything in Section 8.6 hereof, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara or San Mateo County, California under the commercial rules then in
effect of the American Arbitration Association. There shall be limited discovery
prior to the arbitration hearing as follows: (a) exchange of witness lists and
copies of documentary evidence and documents related to or arising out of the
issues to be arbitrated, (b) depositions of all party witnesses, and (c) such
other depositions as may be allowed by the arbitrator upon a showing of good
cause. The arbitrator shall be required to provide in writing to the parties the
basis for the award or order of such arbitrator, and a court reporter shall
record all hearings, with such record constituting the official transcript of
such proceedings. Any order or award of the arbitrator in accordance with the
foregoing shall be final, binding and conclusive as to the parties to this
Article VIII. For purposes of this Section 8.8, in any arbitration hereunder in
which any claim or the amount thereof stated in the Officer's Certificate is at
issue, Acquiror shall be deemed to be the Non-Prevailing Party unless the
arbitrators award Acquiror more than two-thirds (2/3) of the amount in dispute;
otherwise, the Target Stockholders for whom shares of Acquiror Common Stock
otherwise issuable to them have been deposited in the Escrow Fund shall be
deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and
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the expenses, including without limitation, attorneys' fees and costs,
reasonably incurred by the other party to the arbitration.
8.9 Stockholders' Agent.
(a) Andrew Busey shall be constituted and appointed as agent
("Stockholders' Agent") for and on behalf of the Target stockholders to give and
receive notices and communications, to authorize delivery to Acquiror of the
Acquiror Common Stock or other property from the Escrow Fund in satisfaction of
claims by Acquiror, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Stockholders'
Agent for the accomplishment of the foregoing. Such agency may be changed by the
holders of a majority in interest of the Escrow Fund from time to time upon not
less than ten (10) days' prior written notice to Acquiror. The Stockholder's
Agent may resign upon ten (10) days notice to the parties to this Agreement and
the Former Target Stockholders. No bond shall be required of the Stockholders'
Agent, and the Stockholders' Agent shall receive no compensation for his
services. Notices or communications to or from the Stockholders' Agent shall
constitute notice to or from each of the Target stockholders.
(b) The Stockholders' Agent shall not be liable for any act
done or omitted hereunder as Stockholders' Agent while acting in good faith and
in the exercise of reasonable judgment, and any act done or omitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith. The
Target stockholders shall severally indemnify the Stockholders' Agent and hold
him harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Stockholders' Agent shall have reasonable access to
information about Target and the reasonable assistance of Target's officers and
employees for purposes of performing its duties and exercising its rights
hereunder, provided that the Stockholders' Agent shall treat confidentially and
not disclose any nonpublic information from or about Target to anyone (except on
a need to know basis to individuals who agree to treat such information
confidentially).
(d) The Stockholders' Agent shall be entitled to a
distribution from the Escrow Fund equal to any such indemnity claim which has
not been satisfied; provided, however, that no such distribution shall be made
until all claims of Acquiror set forth in any Officer's Certificate delivered to
the Escrow Agent on or prior to the Termination Date have been resolved.
8.10 Distribution Upon Termination of Escrow Period. Within five (5)
business days following the Termination Date, the Escrow Agent shall deliver to
the Former Target Stockholders all of the shares in the Escrow Fund in excess of
any amount of such shares reasonably necessary to satisfy any unsatisfied or
disputed claims for Damages specified in any Officer's Certificate delivered to
the Escrow Agent on or before the Termination Date and any unsatisfied or
disputed claims by the Stockholder's Agent under Section 8.9. As soon as all
such
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claims have been resolved, the Escrow Agent shall deliver to the Former Target
Stockholders all shares remaining in the Escrow Fund and not required to satisfy
such claims. Deliveries of shares to the Former Target Stockholders pursuant to
this section shall be made in proportion to the allocation set forth in Section
8.3.
8.11 Actions of the Stockholders' Agent. A decision, act, consent or
instruction of the Stockholders' Agent shall constitute a decision of all Target
stockholders for whom shares of Acquiror Common Stock otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each such Target stockholder, and the Escrow Agent and Acquiror may rely upon
any decision, act, consent or instruction of the Stockholders' Agent as being
the decision, act, consent or instruction of each and every such Target
stockholder. The Escrow Agent and Acquiror are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Stockholders' Agent.
8.12 Third-Party Claims. In the event Acquiror becomes aware of a
third-party claim which Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall promptly notify the Stockholders' Agent of such
claim. Acquiror shall have the right to settle any such claim only with the
written consent of the Stockholders' Agent, which consent shall not be
unreasonably withheld; provided, however, that the Stockholders' Agent may, at
his option, direct the settlement negotiations or (ii) disputes or disagreements
with customers of Acquiror or Target. In the event that the Stockholders' Agent
has consented to any such settlement, neither the Former Target Stockholders nor
the Stockholders' Agent shall have any power or authority to object under
Section 8.7 or any other provision of this Agreement to the amount of any claim
by Acquiror against the Escrow Fund for indemnity with respect to such
settlement. If any proceeding is commenced, or if any claim, demand or
assessment is asserted, in respect of which a claim for indemnification is or
might be made against the Escrow Fund the Stockholders' Agent may, at his
option, contest or defend any such action, proceeding, claim, demand or
assessment, with counsel selected by the Stockholder Agent who is reasonably
acceptable to Acquiror; provided, however, that if Acquiror shall reasonably
object to such control, then the Stockholders' Agent and Acquiror shall
cooperate in the defense of such matter; provided further, that the
Stockholders' Agent shall not admit any liability with respect thereto or
settle, compromise, pay or discharge the same without the prior written consent
of Acquiror, which consent shall not be unreasonably withheld. With respect to
any claim for indemnification based on matters relating to the intellectual
property of Target, or customers of Target or Acquiror, Acquiror shall have the
option to defend any such proceeding with counsel reasonably satisfactory to the
Stockholders' Agent; provided, however, that Acquiror shall not admit any
liability with respect thereto or settle, compromise, pay or discharge the same
without the prior written consent of the Stockholders' Agent, which consent
shall not be unreasonably withheld. The Stockholder Agent or Acquiror, whichever
is not controlling the defense of any matter, shall be entitled to participate
in such defense, at Acquiror's or the Former Target Stockholders' expense.
8.13 Maximum Liability and Remedies. The Escrow Fund shall be the
sole and exclusive remedy of Acquiror and the Surviving Corporation after the
Closing with respect to any representation, warranty, covenant or agreement made
by Target under this Agreement and any claim for indemnification with respect
thereto; provided, however, that nothing herein limits
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any potential remedies and liabilities of Acquiror or the Surviving Corporation,
arising under applicable state and federal laws with respect to any intentional
or fraudulent misrepresentations, made in or pursuant to this Agreement. Nothing
in this Agreement shall limit the liability of any Target stockholder in
connection with any breach by such stockholder of the Stockholder Representation
Agreement or the Voting and Proxy Agreement.
ARTICLE IX.
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror or Merger Sub, to:
Quintus Corporation
47212 Mission Falls Court
Fremont, CA 94539
Attention: Chief Financial Officer
Facsimile No.: (510) 624-2895
Telephone No.: (510) 624-2895
with a copy to (which shall not constitute notice):
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attention: Scott C. Dettmer
Facsimile No.: (650) 321-2800
Telephone No.: (650) 321-2400
(b) if to Target, to:
Acuity Corp.
11100 Metric Blvd., Building 7
Austin, TX 78758
Attention: President
Facsimile No.: (512) 719.8225
Telephone No.: (512) 425.2200
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with a copy to (which shall not constitute notice):
Gray Cary Ware & Freidendrich
100 Congress Avenue, Suite 1440
Austin, TX 78701-4042
Attention: Paul E. Hurdlow
Facsimile No.: (512) 457-7070
Telephone No.: (512) 457-7000
(c) if to the Stockholders' Agent, to:
Andrew Busey
---------------------------------
---------------------------------
Facsimile No.:
-----
Telephone No.:
-----
9.2 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such entity and its subsidiaries, taken
as a whole. In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry of officers and
directors of such party and its subsidiaries reasonably believed to have
knowledge of such matters. The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof", and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to the date first above
written. The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; No Third Party Beneficiaries. This Agreement,
the other Transaction Documents and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits, the Schedules, including the Target Disclosure Letter
and the Acquiror Disclosure Letter (a) constitute the entire
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agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, except for the
Confidentiality Agreement, which shall continue in full force and effect, and
shall survive any termination of this Agreement or the Closing, in accordance
with its terms; (b) are not intended to confer upon any other person any rights
or remedies hereunder, except for the rights of the Target Stockholders and
optionholders described herein.
9.5 Severability. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Remedies Cumulative. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without regard to
applicable principles of conflicts of law. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
the State of California, in connection with any matter based upon or arising out
of this Agreement or the matters contemplated herein, agrees that process may be
served upon them in any manner authorized by the laws of the State of California
for such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction and such process.
9.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
9.9 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
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IN WITNESS WHEREOF, Target, Acquiror, Merger Sub and each Affiliate
have caused this Agreement to be executed and delivered by their respective
officers thereunto duly authorized, and the Stockholders' Representative has
executed this Agreement, all as of the date first written above.
"TARGET"
ACUITY CORP.
By: /s/ MARK WHIPPLE SAUL
-------------------------------------
Mark Whipple Saul, Chairman,
Chief Executive Officer and President
"ACQUIROR"
QUINTUS CORPORATION
By: /s/ ALAN K. ANDERSON
-------------------------------------
Alan K. Anderson, Chief
Executive Officer
"MERGER SUB"
RIBEYE ACQUISITION CORP.
By: /s/ ALAN K. ANDERSON
-------------------------------------
Alan K. Anderson,
Chief Executive Officer
"STOCKHOLDERS' REPRESENTATIVE"
/s/ ANDREW BUSEY
--------------------------------------
Andrew Busey
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
63
INVESTORS:
ONSET ENTERPRISE ASSOCIATES II, L.P.
By: OEA II Management, L.P.
its General Partner
By: /s/ THOMAS E. WINTER
-------------------------------------
Thomas E. Winter,
its General Partner
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
VECTOR CAPITAL, L.P.
By: Vector Capital Partners, L.L.C.,
a General Partner
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
64
SONY MUSIC ENTERTAINMENT INC.
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
CURLY H VENTURES, LTD.
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
KECALP, INC.
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
TEA CUSTODIANS (WESTONE) LIMITED
By: /s/
-------------------------------------
(Signature)
Name:
-----------------------------------
Title:
-----------------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
65
/s/ ANDREW BUSEY
-----------------------------------------
Andrew Busey
/s/ MARK WHIPPLE SAUL
-----------------------------------------
Mark Whipple Saul
/s/ JOHN HIME
-----------------------------------------
John Hime
/s/ ANDREW BUSEY
-----------------------------------------
Andrew Busey
/s/ STEVE SMITH
-----------------------------------------
Steve Smith
/s/ ALEX SLUSKY
-----------------------------------------
Alex Slusky
/s/ REG MCHONE
-----------------------------------------
Reg McHone
/s/ DAN FOWKES
-----------------------------------------
Dan Fowkes
/s/ DEAN CRUSE
-----------------------------------------
Dean Cruse
/s/ MICHAEL OSWALD
-----------------------------------------
Michael Oswald
/s/ KURT SOMERHOLTER
-----------------------------------------
Kurt Somerholter
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]