Exhibit 2.01
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
CONCUR TECHNOLOGIES, INC.,
CANOE ACQUISITION CORP.,
CAPTURA SOFTWARE, INC.
AND
FRED HARMAN, AS REPRESENTATIVE
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is entered
into as of July 31, 2002 (the "Agreement Date") by and among Concur
Technologies, Inc., a Delaware corporation ("Acquirer"), Canoe Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of Acquirer ("Sub"),
Captura Software, Inc., a Delaware corporation ("Company"), and Fred Harman, as
Representative (as defined in Section 2.4(c)).
RECITALS
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, Sub will merge with and into Company (the "Merger"), with
Company to be the surviving corporation of the Merger, all pursuant to the terms
and conditions of this Agreement, the Certificate of Merger (as defined in
Section 1.1) and the applicable provisions of the laws of the State of Delaware.
The parties do not intend for the Merger to be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
B. The Boards of Directors of Acquirer, Sub and Company have determined
that the Merger is in the best interests of their respective companies and
stockholders, have approved and declared advisable this Agreement and,
accordingly, have agreed to effect the Merger provided for herein upon the terms
and conditions of this Agreement.
C. Concurrently with the execution and delivery of this Agreement, and
as a condition and inducement for the parties' willingness to enter into this
Agreement, Acquirer, Company, and certain of the Company Stockholders are
executing and delivering voting agreements in the form attached hereto as
Exhibit A (the "Voting Agreement").
D. In connection with this Agreement, each of the Company Stockholders
that is listed on the Schedule of Major Stockholders included in the Company
Disclosure Letter (as defined below) is executing and delivering to Acquirer an
investment representation letter in the form attached hereto as Exhibit B-1 (the
"Major Stockholder Investment Representation Letter"), each other Company
Stockholder that will receive Acquirer Common Stock (as defined below) pursuant
to the Merger is executing to Acquirer and delivering an investment
representation letter in the form attached hereto as Exhibit B-2 (the "Other
Stockholder Investment Representation Letter"), and each Unaccredited Company
Stockholder (as defined below) is executing and delivering to Acquirer a letter
agreement in the form attached hereto as Exhibit B-3 (the "Letter Agreement" and
together with the Major Stockholder Investment Representation Letters and the
Other Stockholder Investment Representation Letters, the "Investment
Representation Letters").
E. Acquirer, Sub and Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and to
prescribe various conditions to the Merger.
1
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
Certain Definitions
1.1 As used herein, the following terms will have the meanings set forth
below:
"Acquirer Business" means the business of Acquirer and its Subsidiaries as
presently conducted.
"Acquisition Proposal" means any offer or proposal by a Person relating to:
(a) any acquisition or purchase of Company Capital Stock or Company Rights from
Company by any Person or "group" (as defined under Section 13(d) of the Exchange
Act representing more than a twenty percent (20%) voting interest in the total
outstanding voting securities of Company or any of its Subsidiaries; (b) any
tender offer or exchange offer that, if consummated, would result in any Person
or "group" (as defined under Section 13(d) of the Exchange Act) beneficially
owning Company Capital Stock or Company Rights representing twenty percent (20%)
or more of the voting interest in the total outstanding voting securities of
Company or any of its Subsidiaries; (c) any merger, consolidation, business
combination or similar transaction involving Company pursuant to which the
stockholders of Company immediately preceding such transaction hold less than
eighty percent (80%) of the equity interests (or voting power) in the surviving
or resulting entity of such transaction; (d) any sale, lease, exchange,
transfer, license, acquisition or disposition of more than fifty percent (50%)
of the assets of Company or any Subsidiary; (e) any sale, lease, exchange,
transfer, license or disposition to a Person of the Company Business; or (f) any
initial public offering of capital stock or other securities of Company pursuant
to a registration statement filed under the Securities Act.
"Acquirer Ancillary Agreements" means all agreements (other than this
Agreement) and documents to which Acquirer is or will be a party that are
required to be executed by Acquirer pursuant to this Agreement.
"Acquirer Average Price Per Share" means $2.121.
"Acquirer Common Stock" means the common stock, $0.001 par value per share,
of Acquirer.
"Affiliate" means an "affiliate" within the meaning of Rule 144 or Rule
405 promulgated under the Securities Act.
"Applicable Law" means all foreign, federal, state, local, municipal or
other laws, ordinances, regulations, rules and other provisions having the force
or effect of law, and all judicial and administrative orders, writs,
injunctions, awards, judgments, decrees and determinations, applicable to a
specified Person or to such Person's assets, properties or business.
"Cash Consideration" means an amount of cash equal to $1,917,000 minus the
Consideration Reduction Amount; provided that the "Cash Consideration" shall not
be less than $0.
2
"Certificate of Merger" means a certificate of merger in the form of
Exhibit C.
"Closing" means the closing of the transactions provided for herein.
"Closing Capitalization Certificate" means a certificate executed on
behalf of Company by its President and Chief Financial Officer setting forth the
same information as is set forth on Schedule 3.4(a), Schedule 3.4(b)-1, Schedule
3.4(b)-2 and Schedule 3.4(b)-3 of the Company Disclosure Letter, but updated to
be true and correct as of the Closing Date.
"Closing Certificate" means a certificate dated as of the Closing Date and
executed on behalf of Company by its President and its Chief Financial Officer
setting forth Company's unaudited balance sheet as of the Closing Date, its
unaudited income statement and statement of cash flows for the year through the
Closing Date, an unaudited detailed reconciliation by general ledger account for
the Balance Sheet as of the Closing Date, an unaudited working capital schedule
by general ledger account as of the Closing Date, and an unaudited schedule of
recurring revenue billable to customers by month (ASP, hosting and maintenance)
as of the Closing Date.
"Closing Date" means the first business day after all of the conditions to
Closing set forth in Article 8 and Article 9 have been satisfied and/or waived
in accordance with this Agreement, or at such other place, time or date as
Acquirer and Company may mutually agree.
"Company Ancillary Agreements" means all agreements (other than this
Agreement) and documents to which Company is or will be a party that are
required to be executed by Company pursuant to this Agreement.
"Company Business" means the business of Company and its Subsidiaries as
presently conducted.
"Company Capital Stock" means the outstanding shares of Company Common
Stock, Company Preferred Stock and any other classes and series of common and
preferred stock of Company that may exist, in each case on a fully diluted,
as-converted basis, including all shares of such stock that are issuable upon
the exercise of any outstanding convertible stock, convertible debt, options,
warrants and other rights thereto (whether or not such rights are vested or
exercisable).
"Company Common Stock" means the common stock, $0.001 par value per share,
of Company.
"Company Common Stockholders" means the record holders of issued and
outstanding shares of Company Common Stock on the Agreement Date, the Record
Date or the Closing Date, as applicable.
"Company Option" means each outstanding option to purchase shares of
Company Common Stock.
3
"Company Preferred Stock" means the Company Series 1 Preferred Stock, the
Company Series 2 Preferred Stock, the Company Series 2-A Preferred Stock, the
Company Series 3 Preferred Stock and the Company Special Junior Preferred Stock.
"Company Preferred Stockholders" means the record holders of issued and
outstanding shares of Company Preferred Stock on the Agreement Date, the Record
Date or the Closing Date, as applicable.
"Company Rights" means all stock appreciation rights, options, warrants,
calls, rights, commitments, subscriptions, conversion privileges or preemptive
or other rights or agreements outstanding to purchase or otherwise acquire any
Company Capital Stock or any securities or debt convertible into or exchangeable
for Company Capital Stock or obligating Company to grant, extend or enter into
any such option, warrant, call, right, commitment, subscription, conversion
privilege or preemptive or other right or agreement.
"Company Senior Preferred Stock" means the Company Series 1 Preferred
Stock, the Company Series 2 Preferred Stock, the Company Series 2-A Preferred
Stock and the Company Series 3 Preferred Stock.
"Company Series 1 Preferred Stock" means the Series 1 Preferred Stock,
$0.001 par value per share, of Company.
"Company Series 2 Preferred Stock" means the Series 2 Preferred Stock,
$0.001 par value per share, of Company.
"Company Series 2-A Preferred Stock" means the Series 2-A Preferred Stock,
$0.001 par value per share, of Company.
"Company Series 3 Preferred Stock" means the Series 3 Preferred Stock,
$0.001 par value per share, of Company.
"Company Special Junior Preferred Stock" means the Special Junior Preferred
Stock, $0.001 par value per share, of Company.
"Company Share Number" means the aggregate number of shares of Company
Series 3 Preferred Stock on an as converted to Company Common Stock basis, that
are issued and outstanding immediately prior to the Effective Time.
"Company Stockholders" means the Company Common Stockholders and the
Company Preferred Stockholders.
"Company Stockholder's Pro Rata Share" means, with respect to a Company
Stockholder, the quotient obtained by dividing (a) the number of shares of
Company Series 3 Preferred Stock held by such Company Stockholder immediately
prior to the Effective Time, by (b) the total number of shares of Company Series
3 Preferred Stock that are issued and outstanding immediately prior to the
Effective Time.
4
"Company Stock Plan" means Company's 1997 Stock Plan.
"Company Warrant" means each outstanding warrant to purchase shares of
Company Common Stock or Company Preferred Stock.
"Consideration Reduction Amount" means the sum of (A) the amount of cash
paid (in lieu of Acquirer Common Stock) to "Unaccredited Company Stockholders"
pursuant to Section 2.9(b) plus (B) the aggregate amount payable by Company or
Acquirer pursuant to Company's Employee Retention Bonus Plan (the "Bonus Plan
Amount"), plus (C) the amount by which Company Transaction Expenses (as defined
in Section 9.18) exceeds $200,000 ("Excess Transaction Expenses"), plus (D) the
amount that the aggregate amount payable to Silicon Valley Bank pursuant to the
"success fee" provisions of the Amended and Restated Loan and Security Agreement
between Company and Silicon Valley Bank exceeds $100,000 (the "Excess SVB
Amount").
"Contract" means any contract, agreement, arrangement, commitment,
undertaking, instrument, permit, mortgage, license, letter of intent, quotation
or purchase order (whether verbal or in writing).
"Delaware Law" means the Delaware General Corporation Law.
"Dissenting Shares" means any shares of Company Common Stock and Company
Preferred Stock that (a) are outstanding immediately before the Effective Time
and (b) with respect to which dissenters' rights to obtain payment for or
appraisal of such dissenting shares in accordance with Delaware Law have been
duly and properly exercised and perfected in connection with the Merger.
"Effective Time" means the date and time on which the Merger first becomes
legally effective under the laws of the State of Delaware as a result of the
filing with the Delaware Secretary of State of the Certificate of Merger
pursuant to, and in conformity with, the requirements of Section 251 of the
Delaware Law.
"Encumbrance" means, with respect to any asset, any mortgage, deed of
trust, lien, pledge, charge, security interest, title retention device,
conditional sale or other security arrangement, collateral assignment, claim,
charge, adverse claim of title, ownership or right to use, restriction or other
encumbrance of any kind in respect of such asset (including, but not limited to,
any restriction on (a) the voting of any security, any restriction on the
transfer of any security or other asset, (b) the receipt of any income derived
from any asset, (c) the use of any asset, and (d) the possession, exercise or
transfer of any other attribute of ownership of any asset), but excluding
non-exclusive licenses or other non-exclusive rights to use Intellectual
Property Rights.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any entity which is a member of any of the
following which includes Company or any of its Subsidiaries: (a) a "controlled
group of corporations," as defined in Section 414(b) of the Code; (b) a group of
entities under "common control," as defined in Section 414(c) of the Code; or
(c) an "affiliated service group," as defined in Section 414(m) of the Code or
any treasury regulations promulgated under Section 414(o) of the Code.
5
"Escrow Cash Amount" means the sum of (a) $191,700 plus (b) ten percent
(10%) of the amount of cash paid (in lieu of Acquirer Common Stock) to
"Unaccredited Company Stockholders" pursuant to Section 2.10(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"GAAP" means United States generally accepted accounting principles.
"Governmental Authority" means any court, administrative agency, commission
or other governmental authority.
"Hold Back Amount" means 1,102,500 shares of Acquirer Common Stock.
"Hold Back Release Date" means September 30, 2002.
"Intellectual Property Rights" means, collectively, all worldwide
industrial and intellectual property rights, including rights arising in or
under patents, patent applications, patent rights, trademarks, trademark
registrations and applications therefor, trade dress rights, trade names,
service marks, service mark registrations and applications therefor, Internet
domain names, Internet and World Wide Web URLs or addresses, copyrights,
copyright registrations and applications therefor, moral rights, franchises,
licenses, inventions, trade secrets and know-how.
"knowledge" means, with respect to any fact, circumstance, event or other
matter in question, the knowledge of such fact, circumstance, event or other
matter after reasonable inquiry of (a) an individual, if used in reference to an
individual, or (b) with respect to any Person that is not an individual, any
officer, director, partner, member, executor, trustee or other similar
representative of such Person, as applicable, provided that with respect to
directors of a Person that is not an individual, knowledge is limited to the
actual knowledge of such directors. Any such individual, officer, partner,
member, executor, trustee or other similar representative (other than a
director) of any Person that is not an individual will be deemed to have
knowledge of a particular fact, circumstance, event or other matter if (a) such
fact, circumstance, event or other matter is reflected in one (1) or more
documents (whether written or electronic, including electronic mails sent to or
by such individual, officer, director, partner, member, executor, trustee or
other similar representative) in, or that have been in, the possession of such
individual, officer, director, partner, member, executor, trustee or other
similar representative, including his or its personal files, or (b) such fact,
circumstance, event or other matter is reflected in one (1) or more documents
(whether written or electronic) contained in books and records of such Person
that would reasonably be expected to be reviewed by an individual who has the
duties and responsibilities of such individual, officer, director, partner,
member, executor, trustee or other similar representative in the customary
performance of such duties and responsibilities.
6
"Liabilities" means any debt, liability and obligation, whether accrued
or fixed, absolute or contingent, matured or unmatured, determined or
determinable, known or unknown, including those arising under any law, action or
governmental order and those arising under any Contract.
"Material Adverse Change" or "Material Adverse Effect," when used with
reference to any Person, means any event, change, violation, inaccuracy,
circumstance or effect that, either individually or in the aggregate, is
materially adverse, or that could reasonably be expected to be materially
adverse, to the condition (financial or otherwise), properties, assets
(including intangible assets), business, operations or results of operations of
such entity and its Subsidiaries, taken as a whole; except to the extent that
any such event, change, violation, inaccuracy, circumstance or effect results
from (a) changes in the price or trading volume of the Acquirer Common Stock,
(b) execution or performance of the Employee Transition Plan, (c) changes in
general economic conditions, or (d) changes generally affecting the industry in
which such Person operates (if such changes do not affect such Person in a
substantially disproportionate manner); provided that a change or changes in the
market price or trading volume of the Acquirer Common Stock, in and of
themselves, shall not be deemed to be a Material Adverse Effect or Material
Adverse Change with respect to Acquirer.
"Permitted Lien" means any mechanics', carriers', warehousemen's and
other similar liens arising in the ordinary course of business, consistent with
past practice, including liens for taxes not yet due and payable.
"Person" means any individual, corporation (including any
not-for-profit corporation), general or limited partnership, limited liability
partnership, joint venture, estate, trust, firm, company (including any limited
liability company or joint stock company), association, organization, entity or
Governmental Authority.
"Release Date" means the September 30, 2003.
"Retention Bonus Recapture Cash Amount" means an amount of cash equal
to the amount, if any, of any bonus under Company's Employee Retention Bonus
Plan payable to a Continuation Employee after the Closing Date (which bonus is
specified in the Schedule of Retention Bonus Allocation included in the Company
Disclosure Letter) that is forfeited to (or otherwise is not required to be paid
by) Acquirer or the Surviving Corporation pursuant to the terms of such plan.
"Per Share Retention Bonus Recapture Amount" means the quotient
obtained by dividing (a) the Retention Bonus Recapture Cash Amount, by (b) the
Company Share Number.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series 3 Preferred Cash Amount" means the quotient (calculated to the
seventh decimal place) obtained by dividing (a) the Cash Consideration, by (b)
the Company Share Number.
7
"Series 3 Preferred Conversion Number" means the quotient (calculated to
the seventh decimal place) obtained by dividing (a) the Stock Consideration by
(b) the Company Share Number.
"Stock Consideration" means 5,205,678 shares of Acquirer Common Stock less
a number of shares of Acquirer Common Stock equal to the quotient obtained by
dividing (i) the amount (if any) by which the Consideration Reduction Amount
exceeds $1,917,000, by (ii) the Acquirer Average Price Per Share; rounded down
to the nearest whole share.
"Sub Ancillary Agreements" means all agreements (other than this Agreement)
and documents to which Sub is or will be a party that are required to be
executed by Sub pursuant to this Agreement.
"Subsidiary" of a specified entity means any corporation, partnership,
limited liability company, joint venture or other entity of which the specified
entity (either alone or through or together with any other subsidiary) owns,
directly or indirectly, fifty percent (50%) or more of the stock or other equity
or partnership interests the holders of which are generally entitled to vote for
the election of the Board of Directors or other governing body of such
corporation or other legal entity.
"tax" and "taxes" mean all income, gains, franchise, excise, property,
sales, use, employment, license, payroll, services, occupation, recording, value
added or transfer taxes, governmental charges, fees, levies, assessments or
other taxes (whether payable directly or by withholding), and, with respect to
such taxes, any estimated tax, interest, penalties, fines or additions to tax
and interest on such penalties, fines and additions to tax.
"Termination Date" means August 5, 2002.
"Total Consideration" means (i) the Cash Consideration, plus (ii) the Stock
Consideration, plus (iii) the Bonus Plan Amount, plus (iv) the Excess SVB
Amount.
ARTICLE 2
Plan of Reorganization
2.1 The Merger. The Certificate of Merger will be filed with the Delaware
Secretary of State as soon as practicable after the Closing. The effective time
of the Merger (the "Effective Time") will be the time of filing of the
Certificate of Merger, unless otherwise specified in the Certificate of Merger,
which will occur on the Closing Date at 10:00 a.m., Pacific Time, or at such
other date or time as Acquirer and Company may mutually agree. Subject to the
terms and conditions of this Agreement, at the Effective Time Sub will be merged
with and into Company in a statutory merger, the separate existence of Sub will
cease with Company to be the surviving corporation in the Merger (the "Surviving
Corporation"), all pursuant to the Certificate of Merger and in accordance with
applicable provisions of Delaware Law.
8
2.2 Conversion and Exchange of Shares.
(a) Conversion of Sub Stock. At the Effective Time, each share of Sub
common stock that is issued and outstanding immediately before the Effective
Time will be converted into one (1) validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation. Each certificate evidencing
ownership of shares of Sub common stock will evidence ownership of such shares
of common stock of the Surviving Corporation.
(b) Conversion of Company Capital Stock.
(i) Conversion of Company Series 3 Preferred Stock. Subject to
the terms and conditions of this Agreement, at the Effective Time, each share of
Company Series 3 Preferred Stock that is issued and outstanding immediately
prior to the Effective Time will, by virtue of the Merger and without any
further action on the part of Acquirer, Company or the holder thereof (except as
expressly provided herein) and in accordance with the provisions of Article 5,
Section 2 of Company's certificate of incorporation, be converted into and
represent the right to receive (A) the number of shares of Acquirer Common Stock
that is equal to the Series 3 Preferred Conversion Number, (B) an amount of cash
equal to the Series 3 Preferred Cash Amount and (C) an amount of cash equal to
the Per Share Retention Bonus Recapture Amount, provided that the right to
receive cash pursuant to this Section 2.2(b)(i)(C) shall be subject to the
provisions of Section 6.5 hereof. The shares of Acquirer Common Stock issued
upon conversion of shares of Company Series 3 Preferred Stock pursuant to this
Section 2.2(b)(i) are referred to herein as the "Merger Shares." The number of
Merger Shares to be issued to each Company Stockholder pursuant to this Section
2.2(b)(i) will be computed after aggregating all Merger Shares to be received by
such Company Stockholder. The preceding provisions of this Section 2.2(b)(i) are
subject to the provisions of Section 2.2(e) (regarding the elimination of
fractional shares of Acquirer Common Stock), Section 2.2(d) (regarding the
continuation of vesting and repurchase rights), Section 2.3 (regarding rights of
holders of Dissenting Shares), Section 2.4 (regarding the withholding of the
Escrow Fund, as defined in Section 2.5) and Section 2.9 (regarding securities
law issues).
(ii) Cancellation of Company Common Stock and other Company
Preferred Stock. Subject to the terms and conditions of this Agreement and in
accordance with the provisions of Article 5, Section 2 of Company's certificate
of incorporation, at the Effective Time, each share of Company Common Stock,
Company Series 1 Preferred Stock, Company Series 2 Preferred Stock, Company
Series 2-A Preferred Stock and Company Special Junior Preferred Stock that is
issued and outstanding immediately prior to the Effective Time will, by virtue
of the Merger and without any further action on the part of Acquirer, Company or
the holder thereof, be cancelled and extinguished without any conversion thereof
and without the issuance or payment of any consideration therefor.
(c) Cancellation of Company-Owned Stock. Notwithstanding Section 2.2
(b), each share of Company Series 3 Preferred Stock held by Company or any of
its Subsidiaries immediately prior to the Effective Time will be canceled and
extinguished without any conversion thereof and without the issuance or payment
of any consideration therefor.
9
(d) Continuation of Vesting and Repurchase Rights. If any shares
of Company Series 3 Preferred Stock outstanding immediately prior to the
Effective Time are unvested or subject to a repurchase option or any other
condition providing that such shares may be forfeited to or repurchased by
Company or any Affiliate of Company, as the case may be, upon any termination of
the employment, directorship or other relationship with Company or any Affiliate
of Company of the holder of such shares under the terms of any restricted stock
purchase agreement, stock option agreement or other agreement with Company (such
shares being referred to herein as "Unvested Company Shares"), then such
repurchase option or other condition will be assigned to Acquirer and the shares
of Acquirer Common Stock issued upon the conversion of such Unvested Company
Shares in the Merger will (a) be unvested shares (such shares being referred to
herein as "Unvested Acquirer Shares"), (b) be converted into Acquirer Common
Stock in accordance with Section 2.2(b), and (c) continue to be subject to the
same repurchase options or other conditions, as applicable, immediately
following the Effective Time as the Unvested Company Shares for which such
shares of Acquirer Common Stock were exchanged were subject to immediately prior
to the Effective Time. The certificates representing Unvested Acquirer Shares
will accordingly be marked with appropriate legends noting such repurchase
options or other conditions. Company will take all actions that may be necessary
to ensure that, from and after the Effective Time, Acquirer (or its assignee) is
entitled to exercise any such repurchase option or other right set forth in any
such restricted stock purchase agreement, stock option agreement or other
agreement.
(e) Fractional Shares. No fractional shares of Acquirer Common
Stock will be issued in connection with the Merger. In lieu thereof, each holder
of shares of Company Series 3 Preferred Stock who would otherwise be entitled to
receive a fraction of a share of Acquirer Common Stock pursuant to Section
2.2(b), computed after aggregating all shares of Acquirer Common Stock to be
received by such holder pursuant to Section 2.2(b), will instead receive from
Acquirer, upon surrender of such holder's Certificates (as defined in Section
7.2(b)) pursuant to Article 7, an amount of cash (rounded to the nearest cent)
equal to the product obtained by multiplying (a) the Acquirer Average Price Per
Share by (b) the fraction of a share of Acquirer Common Stock that such holder
would otherwise have been entitled to receive. The aggregate amount of cash to
be received by each Company Stockholder will be computed after aggregating all
cash to be received by such Company Stockholder pursuant to the foregoing and
pursuant to Section 2.2(b)(i)(B), rounded to the nearest whole cent.
2.3 Dissenting Shares. Holders of Dissenting Shares (if any) will be
entitled to appraisal rights under Section 262 of Delaware Law with respect to
such Dissenting Shares, and such Dissenting Shares will not be converted into
shares of Acquirer Common Stock in the Merger; provided, however, that nothing
in this Section 2.3 is intended to remove, release, waive, alter or affect any
of the conditions to Acquirer's and Sub's obligations to consummate the Merger
set forth in Section 9.11 or in any other provision of this Agreement relating
to Dissenting Shares. Shares of Company Series 3 Preferred Stock that are
outstanding immediately before the Effective Time and with respect to which
dissenting stockholders' rights of appraisal under Delaware Law have either (i)
not been properly exercised and perfected or (ii) with the consent of Company
and Acquirer, been withdrawn, will, when such dissenting stockholders' rights of
appraisal can no longer be legally exercised under Delaware Law, be converted
into cash and shares of Acquirer Common Stock as provided in Section 2.2(b).
10
2.4 Escrow and Hold Back.
(a) Escrow. At the Effective Time, Acquirer will withhold from
the shares of Acquirer Common Stock issuable, and from the cash payable, to each
Company Stockholder in the Merger upon the conversion of such Company
Stockholder's Company Series 3 Preferred Stock pursuant to Section 2.2(b), such
Company Stockholder's Pro Rata Share of ten percent (10%) of the Total
Consideration, provided that such withholding of shares of Acquirer Common Stock
and cash shall be effected in a manner such that the total amount of cash so
withheld from all Company Stockholders shall not exceed the Escrow Cash Amount,
with Acquirer Common Stock constituting the remainder of such withheld Total
Consideration (such cash withheld, the "Escrow Cash" and such shares of Acquirer
Common Stock withheld, the "Escrow Shares"); and provided further that (a) the
number of shares of Acquirer Common Stock so withheld from each Company
Stockholder shall be rounded down to the nearest whole share and the amount of
cash so withheld from each Company Stockholder shall be rounded up to the
nearest whole cent, and (b) subject to the foregoing, the proportion of shares
of Acquirer Common Stock and cash so withheld from a Company Stockholder shall
be the same for each Company Stockholder. Any cash dividends, shares of Acquirer
Common Stock or other equity securities or other rights issued or distributed by
Acquirer (including shares issued upon a stock split, stock dividend or similar
event) in respect of Escrow Shares (the "New Escrow Shares") will also be
withheld. The Escrow Cash, the Escrow Shares and any New Escrow Shares are
collectively referred to herein as the "Escrow Fund." If a Company Stockholder
holds both (a) vested shares of Company Series 3 Preferred Stock and (b)
Unvested Company Shares, then to the extent possible, with respect to such
Company Stockholder, upon conversion of shares of Company Series 3 Preferred
Stock held by such Company Stockholder into shares of Acquirer Common Stock, the
shares of Acquirer Common Stock which are not Unvested Acquirer Shares will be
withheld and placed in escrow prior to withholding any Unvested Acquirer Shares
in escrow.
(b) Escrow Agreement. At or prior to the Closing, Acquirer, the
Representative (as defined below) and State Street Bank and Trust Company of
California, N.A., a national banking association, as escrow agent, or such other
escrow agent as is appointed by Acquirer, subject to the approval of Company,
which approval shall not be unreasonably withheld or delayed (the "Escrow
Agent"), shall enter into an escrow agreement, effective as of the Closing, in
substantially the form of Exhibit D, together with such changes thereto as are
reasonably requested by the Escrow Agent (the "Escrow Agreement"). Acquirer
shall cause the Escrow Fund to be deposited into an escrow account held by the
Escrow Agent (the "Escrow Account") on or about the Closing Date. The Escrow
Fund shall be held in the Escrow Account for the sole purpose of securing
Acquirer's indemnification rights under Article 11. The Acquirer Common Stock in
the Escrow Fund will be represented by certificates issued in the names of each
Company Stockholder in proportion to the amounts of Acquirer Common Stock
withheld from each Company Stockholder as specified in the first sentence of
this Section 2.4 and, together with the Escrow Cash, will be held by the Escrow
Agent, subject to the terms and conditions of Article 11 and the Escrow
Agreement.
(c) Representative. In the event that the Merger is approved by
the Company Stockholders as provided herein, the Company Stockholders shall,
without the need for any further act of any Company Stockholder, be deemed to
have consented to and approved (i) the
11
use of the Escrow Shares as collateral for Company's indemnification obligations
under Section 11.2 in the manner set forth in the Escrow Agreement, (ii) the
appointment of Fred Harman as the representative of the Company Stockholders
(the "Representative") under the Escrow Agreement and as the attorney-in-fact
and agent for and on behalf of each Company Stockholder (other than holders of
Dissenting Shares), and the taking by the Representative of any and all actions
and the making of any decisions required or permitted to be taken by him under
Articles 11 and 12 hereof and the Escrow Agreement (including, without
limitation, the exercise of the power to: authorize delivery to Acquirer of
Escrow Shares in satisfaction of claims by Acquirer; 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; resolve
any claim made pursuant to Section 11.2; and take all actions necessary in the
judgment of the Representative for the accomplishment of the foregoing) and
(iii) to all of the other terms, conditions and limitations in the Escrow
Agreement, including but not limited to the powers and rights of the
Representative under the Escrow Agreement.
(d) Hold Back. In addition to the foregoing, at the Effective
Time, Acquirer will withhold from the Merger Consideration issuable to each
Company Stockholder in the Merger upon the conversion of Company Series 3
Preferred Stock pursuant to Section 2.2(b), such Company Stockholder's Pro Rata
Share of the Hold Back Amount of shares of Acquirer Common Stock (the "Hold Back
Shares"). Any cash dividends, shares of Acquirer Common Stock or other equity
securities or other rights issued or distributed by Acquirer (including shares
issued upon a stock split, stock dividend or similar event) in respect of Hold
Back Shares (the "New Hold Back Property") will also be withheld. The Hold Back
Shares and any New Hold Back Property are collectively referred to herein as the
"Hold Back Fund." Any cash in the Hold Back Fund will not be subject to interest
(or similar earnings). The Hold Back Fund will be held by Acquirer, subject to
the terms and conditions of Article 12.
2.5 Company Stock Options. At the Effective Time, all Company Options
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without any further action on the part of Acquirer, Company or any
holder thereof, be terminated and cancelled without any conversion or assumption
thereof. Company will take all actions that are necessary, under the Company
Stock Plan to make effective the transactions contemplated by this Section 2.5.
2.6 Other Rights. At the Effective Time, all outstanding Company
Warrants and other rights to acquire shares of Company Common Stock or Company
Preferred Stock will, by virtue of the Merger and without any further action on
the part of Acquirer, Company or any holder thereof, be terminated and cancelled
without any conversion or assumption thereof.
2.7 Effects of the Merger.
(a) General. At the Effective Time, the effect of the Merger will
be as provided in this Agreement and the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, at the Effective Time all of
the property, rights, privileges, powers and franchises of Company and Sub will
vest in the Surviving Corporation, and all Liabilities and duties of Company and
Sub will become the Liabilities and duties of the Surviving Corporation.
12
(b) Certificate of Incorporation and Bylaws. At the Effective
Time, the Certificate of Incorporation and Bylaws of Sub will continue unchanged
(other than the name of the Surviving Corporation) and be the Certificate of
Incorporation and Bylaws of the Surviving Corporation immediately after the
Effective Time.
(c) Directors and Officers. At the Effective Time, the initial
directors of the Surviving Corporation will be the directors of Sub immediately
prior to the Effective Time, until their respective successors are duly elected
or appointed and qualified. At the Effective Time, the initial officers of the
Surviving Corporation will be the officers of Sub immediately prior to the
Effective Time, until their respective successors are duly appointed.
2.8 Further Assurances. Company agrees that if, at any time after
the Effective Time, Acquirer considers or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable to vest,
perfect, confirm or continue in the Surviving Corporation, Sub or Acquirer,
title to any property or rights of Company as provided herein, Acquirer and any
of its officers are hereby authorized by Company to execute and deliver all such
proper deeds, assignments and assurances and do all other things necessary or
desirable to vest, perfect, confirm or continue title to such property or rights
in the Surviving Corporation, Sub or Acquirer, and otherwise to carry out the
purposes of this Agreement, in the name of Company or otherwise.
2.9 Securities Law Issues; Registration Rights.
(a) Based in part on the representations of the Company
Stockholders made in the Investment Representation Letters, the shares of
Acquirer Common Stock to be issued in the Merger will be issued pursuant to an
exemption from registration under Section 4(2) of the Securities Act and/or Rule
506 of Regulation D promulgated under the Securities Act and exemptions from
qualification under applicable state securities laws. At the Closing, Acquirer
will enter into a Declaration of Registration Rights in the form attached hereto
as Exhibit E (the "Declaration of Registration Rights") with respect to the
shares of Acquirer Common Stock to be issued to the Company Stockholders.
Subject to compliance by Acquirer with its obligations under the Declaration of
Registration Rights, holders of shares of Acquirer Common Stock to be issued in
the Merger will be wholly responsible for compliance with all federal and state
securities laws regarding the sale, transfer or other disposition of such
shares.
(b) Company agrees that if Acquirer considers or is advised that,
in order for the issuance of equity securities by Acquirer pursuant to this
agreement to comply with Section 4(2) of the Securities Act and/or Rule 506 of
Regulation D promulgated under the Securities Act and exemptions from
qualification under applicable state securities laws, it is reasonably necessary
or desirable to pay cash to Company Stockholders that are not "accredited
investors" as defined in Rule 501 of Regulation D promulgated under the
Securities Act (each an "Unaccredited Company Stockholder"), in lieu of
conversion of their shares of Company Series 3 Preferred Stock into the right to
receive Acquirer Common Stock and cash provided in Section 2.2(b), Acquirer may
elect, in its discretion, to convert any Company Series 3 Preferred
13
Stock held by an Unaccredited Company Stockholder into the right to receive an
amount of cash equal to (i) the product of the number of shares of Acquirer
Common Stock that would otherwise be issuable to such Unaccredited Company
Stockholder pursuant to Section 2.2(b) multiplied by the Acquirer Average Price
Per Share, plus (ii) the amount of cash to which such Unaccredited Company
Stockholder would have been entitled to receive under Section 2.2(b).
2.10 Reorganization. The parties do not intend that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
ARTICLE 3
Representations and Warranties of Company
Company represents and warrants to Acquirer that, except as set forth
in the letter addressed to Acquirer by Company that is executed by the Chief
Executive Officer and the Chief Financial Officer of Company and dated as of the
Agreement Date, (including all schedules thereto) which has been delivered by
Company to Acquirer concurrently herewith (the "Company Disclosure Letter"),
each of the representations, warranties and statements contained in the
following sections of this Article 3 is true and correct as of the Agreement
Date and will be true and correct on and as of the Closing Date. For all
purposes of this Agreement, the statements contained in the Company Disclosure
Letter will also be deemed to be representations and warranties made and given
by Company under this Article 3.
3.1 Organization and Good Standing. Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Company has the corporate power and authority to own, operate and
lease its properties and to carry on the Company Business and is duly qualified
or licensed to do business and is in good standing in each jurisdiction where
the character of its properties owned or leased or the nature of its activities
make such qualification or licensing necessary (each such jurisdiction being
listed on Schedule 3.1 of the Company Disclosure Letter), except where the
failure to be so qualified could not reasonably be expected to have a Material
Adverse Effect on the Company. Company is not in violation of its Certificate of
Incorporation or Bylaws.
3.2 Subsidiaries. Except as set forth in Schedule 3.2 of the Company
Disclosure Letter, Company has no Subsidiaries or any equity interest, direct or
indirect, in, or loans to, any corporation, partnership, limited liability
company, joint venture or other entity. Company is not obligated to make, nor
bound by any agreement or obligation to make, any investment in, or capital
contribution in or on behalf of any other Person. Schedule 3.2 of the Company
Disclosure Letter sets forth, with respect to each Subsidiary of Company, (a)
its jurisdiction of incorporation or organization, (b) a correct and complete
list of all jurisdictions in which it is qualified to do business, and (c) the
address of its principal executive offices. Each of the Subsidiaries listed on
Schedule 3.2 of the Company Disclosure Letter is duly organized, validly
existing and in good standing (or appropriately recognized as legally in
existence and active under the laws of its jurisdiction) under the laws of the
jurisdiction of incorporation or organization identified on Schedule 3.2 of the
Company Disclosure Letter, and has the requisite power and authority to conduct
its business as it is presently being conducted. No other corporate proceedings
on the part of any Subsidiary of Company are necessary to authorize this
Agreement, the Company
14
Ancillary Agreements and the transactions contemplated hereby and thereby. Each
Subsidiary of Company is duly qualified or licensed to do business and is in
good standing in each jurisdiction where the character of its properties owned
or leased or the nature of its activities make such qualification or licensing
necessary, except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect on such Subsidiary. Neither Company
nor any of its Subsidiaries is a general or limited partner of any general
partnership, limited partnership or other entity.
3.3 Power, Authorization and Validity.
(a) Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement and all Company
Ancillary Agreements. The execution, delivery and performance by Company of this
Agreement and the Company Ancillary Agreements, and the Merger, have been duly
and validly approved and authorized by the Board of Directors of Company
(subject only to approval of this Agreement and the Merger by the stockholders
of Company), and this Agreement has been duly executed and delivered by Company.
(b) No governmental filing, authorization, consent or approval is
necessary to enable Company to enter into, and to perform its obligations under,
this Agreement and the Company Ancillary Agreements, except for the filing of
the Certificate of Merger with the Delaware Secretary of State.
(c) This Agreement and the Company Ancillary Agreements are, or
when executed by Company will be, valid and binding obligations of Company
enforceable against Company in accordance with their respective terms.
3.4 Capitalization.
(a) Authorized and Outstanding Capital Stock of Company. The
authorized capital stock of Company consists solely of 150,000,000 shares of
Company Common Stock and 117,180,000 shares of Company Preferred Stock,
consisting of 36,000,000 shares designated as Company Series 1 Preferred Stock,
25,000,000 shares designated as Company Series 2 Preferred Stock, 19,000,000
shares designated as Company Series 2-A Preferred Stock, 30,000,000 shares
designated as Company Series 3 Preferred Stock, and 7,180,000 shares designated
as Company Special Junior Preferred Stock. A total of 360,830 shares of Company
Common Stock are issued and outstanding as of the Agreement Date. A total of
29,448,514 shares of Company Series 1 Preferred Stock, 10,267,139 shares of
Company Series 2 Preferred Stock, 8,120,113 shares of Company Series 2-A
Preferred Stock, 24,320,311 shares of Company Series 3 Preferred Stock and
7,177,921 shares of Company Special Junior Preferred Stock, are issued and
outstanding as of the Agreement Date. The numbers of issued and outstanding
shares of Company Common Stock and Company Preferred Stock held by each Company
Stockholder are set forth in Schedule 3.4(a) of the Company Disclosure Letter,
and no shares of Company Common Stock or Company Preferred Stock are issued or
outstanding as of the Agreement Date that are not set forth in Schedule 3.4(a)
of the Company Disclosure Letter and no such shares will be issued or
outstanding as of the Closing Date that are not set forth in Schedule 3.4(a) of
the Company
15
Disclosure Letter except for shares of Company Common Stock issued pursuant to
the exercise of Company Options listed in Schedule 3.4(b)-1 of the Company
Disclosure Letter that are outstanding as of the Agreement Date. The information
set forth on the Closing Capitalization Certificate with respect to the
information set forth on Schedule 3.4(a) of the Company Disclosure Letter will
be, as of the Closing Date, true and correct. All issued and outstanding shares
of Company Common Stock and Company Preferred Stock have been duly authorized
and validly issued, are fully paid and nonassessable, are not subject to any
right of rescission, right of first refusal or preemptive right, and have been
offered, issued, sold and delivered by Company in compliance in all material
respects with all Applicable Laws and all requirements set forth in applicable
Contracts. There is no Liability for dividends accrued and unpaid by Company.
(b) Options, Warrants and Rights. Company has reserved an
aggregate of 6,570,000 shares of Company Common Stock for issuance pursuant to
the Company Stock Plan (including shares subject to outstanding Company
Options). Company has granted no options outside of the Company Stock Plan. A
total of 5,544,112 shares of Company Common Stock are subject to outstanding
Company Options as of the Agreement Date and as of the Closing Date. Schedule
3.4(b)-1 of the Company Disclosure Letter sets forth, for each Company Option,
(i) the name of the holder of such Company Option, (ii) the exercise price per
share of such Company Option, and (iii) the number of shares covered by such
Company Option. The terms of the Company Plan permit the termination of the
Company Options as provided in this Agreement, without the consent or approval
of the holders of such Company Options, the Company Stockholders. Schedule
3.4(b)-2 of the Company Disclosure Letter sets forth, for each Company Warrant,
(i) the name of the holder of such Company Warrant, (ii) the exercise price per
share of such Company Warrant, (iii) the number of shares covered by such
Company Warrant, (iv) whether such Company Warrant by its terms is required to
be assumed or exchanged by Acquirer in connection with the Merger, and, if
applicable, (v) the vesting schedule for such Company Warrant, (vi) the extent
such Company Warrant is vested as of the Agreement Date, and (vii) whether the
exercisability (or other vesting) of such Company Warrant will be accelerated in
any manner by any of the transactions contemplated by this Agreement or by any
Company Ancillary Agreement or upon any other event or condition and the extent
of acceleration, if any. Schedule 3.4(b)-3 of the Company Disclosure Letter sets
forth all holders of Unvested Company Shares, and for each such holder, the
number of Unvested Company Shares held, the terms of Company's rights to
repurchase such Unvested Company Shares, the schedule on which such rights lapse
and whether such repurchase rights lapse in full or in part as a result of the
Merger or upon any other event. The information set forth on each of the Closing
Capitalization Certificate with respect to the information set forth on Schedule
3.4(b)-1, Schedule 3.4(b)-2 and Schedule 3.4(b)-3 of the Company Disclosure
Letter will be, as of the Closing Date, true and correct. A true and correct
copy of the Company Stock Plan, the standard agreement under the Company Stock
Plan and each agreement for each Company Option that does not conform to the
standard agreement under the Company Stock Plan have been delivered by Company
to Acquirer or Acquirer's legal counsel. The vesting or exercisability (or any
other material terms) of any Company Option or Unvested Company Share, will not
accelerate or otherwise change as a result of the execution and delivery of this
Agreement or the consummation of the Merger or the transactions contemplated
hereby or the occurrence of any subsequent event (such as the termination of
employment of the option holder following consummation of the Merger). All
16
outstanding Company Options and Company Warrants have been issued and granted in
compliance in all material respects with all requirements of Applicable Laws and
all requirements set forth in applicable agreements or instruments. Except for
Company Options, Company Warrants and the conversion rights of the Company
Preferred Stock, there are no Company Rights outstanding.
(c) No Voting Arrangements or Registration Rights. Except as
contemplated by this Agreement, there are no voting agreements or proxies
applicable to any outstanding shares of Company Capital Stock, any Company
Options or any Company Warrants or to the conversion of any shares of Company
Capital Stock in the Merger pursuant to any Contract to which Company is a party
or, to Company's knowledge, pursuant to any other Contract. Company is not under
any obligation to register under the Securities Act any of its presently
outstanding shares of stock or other securities or any stock or other securities
that may be subsequently issued.
(d) Subsidiaries. Schedule 3.4(d) of the Company Disclosure
Letter sets forth, with respect to each Subsidiary of Company, the number of
authorized and the number of issued and outstanding shares of each class of its
capital stock (or other description of other equity interest) and the identity
of each holder thereof. Company owns good and marketable record and beneficial
title to all of the issued and outstanding capital or other stock or other
equity interests of each Subsidiary set forth on Schedule 3.4(d) of the Company
Disclosure Letter free and clear of any Encumbrance. All such issued and
outstanding capital or other stock or other equity interests have been duly
authorized and validly issued, are fully paid and nonassessable, are not subject
to or in violation of any right of rescission, right of first refusal or
preemptive right, and have been offered, issued, sold and delivered by the
relevant Subsidiary in compliance in all material respects with all requirements
of Applicable Law and all requirements set forth in applicable agreements or
instruments. There are no stock appreciation rights, options, warrants, calls,
rights, commitments, conversion privileges or preemptive or other rights or
agreements outstanding to purchase or otherwise acquire any capital or other
stock or other equity interest of any Subsidiary of Company or any securities or
debt convertible into or exchangeable for such capital or other stock or other
equity interest or obligating such Subsidiary to grant, extend or enter into any
such option, warrant, call, right, commitment, conversion privilege or
preemptive or other right or agreement.
3.5 No Conflict. The execution and delivery of this Agreement and the
Company Ancillary Agreements by Company, and the consummation of transactions
contemplated hereby or thereby, will not (i) conflict with or result in any
violation of (with or without notice or lapse of time or both) any provision of
the Certificate of Incorporation or Bylaws of Company, or (ii) conflict with or
violate any Applicable Law, judgment, order or decree applicable to Company or
any of its material assets or properties, or (iii) require the consent,
approval, assignment, notice, release, waiver, authorization or other
certificate of any third party to ensure that, following the Effective Time, any
agreement, contract, undertaking, understanding, letter of intent, memorandum of
understanding, binding commitment, material instrument (including any note,
bond, mortgage or indenture), lease, license, permit, franchise, assignment,
transaction, obligation or Company Material Agreement (as defined in Section
3.11) to which the Company is a party or by which Company or any of its material
assets or properties are bound or affected in
17
order to continue to be in full force and effect without any breach or violation
thereof. Neither Company's entering into this Agreement nor the consummation of
the Merger or any other transaction contemplated by this Agreement or any
Company Ancillary Agreement will give rise to, or trigger the application of,
any rights of any third party under any Contract to which Company or any of its
Subsidiaries is a party that would come into effect upon the consummation of the
Merger.
3.6 Litigation. There is no action, suit, arbitration, mediation,
proceeding, claim or investigation pending or, to its knowledge, threatened
against Company or any Subsidiary (or against any officer, director, employee,
agent or other similar representative of Company or any of its Subsidiaries in
their capacity as such or relating to their employment, services or relationship
with Company or any of its Subsidiaries) before any court, Governmental
Authority or arbitrator, nor, to Company's knowledge, has any such action, suit,
arbitration, mediation, proceeding, claim or investigation been threatened, nor,
to Company's knowledge, is there any reasonable basis therefor. There is no
judgment, decree, injunction, rule or order of any court, Governmental Authority
or arbitrator outstanding against Company or any of its Subsidiaries. There is
no action, suit, arbitration, mediation, proceeding, claim or investigation
pending, or to Company's knowledge, threatened related to the prior employment
of any of Company's employee or consultants, their use in connection with
Company's business, products or services of any information, technology or
techniques allegedly proprietary to any of the former employers, clients or
other parties, or their obligations under any agreements with prior employees,
clients or other parties, nor, to Company's knowledge, is there any reasonable
basis therefor.
3.7 Company Financial Statements. Company has delivered to Acquirer
its audited balance sheets as of December 31, 2001 and December 31, 2000 and its
audited income statements and statements of cash flows for the years then ended,
and its unaudited balance sheet (the "Balance Sheet") as of July 31, 2002 (the
"Balance Sheet Date"), its unaudited income statement and statement of cash
flows for the seven (7) month period then ended, the month then ended and the
quarter ended June 30, 2002, an unaudited detailed reconciliation by general
ledger account for the Balance Sheet as of the Balance Sheet Date, an unaudited
working capital schedule by general ledger account as of the Balance Sheet Date
(collectively, the "Financial Statements"), and an unaudited schedule of
recurring revenue billable to customers by month (ASP, hosting and maintenance)
as of the Balance Sheet Date (the "MRR Schedule"), a copy of each of which is
included as Schedule 3.7 of the Company Disclosure Letter. The Financial
Statements (a) fairly present the financial condition of Company at the
respective dates specified therein and the results of operations for the
respective periods specified therein in conformity with GAAP applied on a
consistent basis; and (b) have been prepared in accordance with GAAP applied on
a basis consistent with prior periods except, with respect to unaudited
Financial Statements, for any absence of notes thereto and subject to normal
year-end audit adjustments which are not material in any individual case and do
not exceed $25,000 in the aggregate. Company has no Liability, except for (a)
those set forth in the Financial Statements, (b) those incurred in the ordinary
course of Company's business, consistent with past practice, that are not
material in amount either individually or collectively and do not result from
any breach of contract, tort or violation of law, and (c) Liabilities incurred
pursuant to the performance of its obligations pursuant to this Agreement;
provided that if such Liability was incurred before the
18
Balance Sheet Date, it is not required under GAAP to be set forth in the
Financial Statements. The MRR Schedule is accurate, correct and complete in all
respects. There has been no change in Company's accounting policies other than
as specifically described in the notes to the Financial Statements. All reserves
established by Company that are set forth or reflected on the Balance Sheet are
adequate and have been established in accordance with GAAP.
3.8 Intentionally Omitted.
3.9 Taxes.
(a) Company and each of its Subsidiaries have timely filed all
material returns, reports, estimates and information statements relating to
taxes (the "Returns") required to be filed by Company or such Subsidiary. All
such Returns are true, complete and correct in all material respects. Company
and each of its Subsidiaries have paid when due all material taxes required to
be paid in respect of all periods for which Returns have been filed, have made
all necessary estimated tax payments, and have no Liability for taxes for any
period or portion of a period prior to the Effective Time in excess of the
amount so paid, except to the extent (i) adequate reserves therefor have been
established in the Financial Statements, or (ii) such Liability was incurred
after the Balance Sheet Date in the ordinary course of business and consistent
with prior practice. No deficiencies for any tax have been threatened, claimed,
proposed or assessed against Company or any of its Subsidiaries which have not
been settled or paid. No Return of Company or any of its Subsidiaries has ever
been audited by the Internal Revenue Service or any other taxing agency or
authority, no such audit is in progress and neither Company nor any of its
Subsidiaries has been notified of any request for such an audit or other
examination. No adjustment relating to any Returns filed by Company or any of
its Subsidiaries has been proposed in writing by any tax authority to Company or
any of its Subsidiaries (or any representative thereof). There is not in effect
any waiver by Company or any of its Subsidiaries of any statute of limitations
with respect to any taxes or agreement to any extension of time for filing any
Return which has not been filed, and Company has not consented to extend to a
date later than the Agreement Date the period in which any tax may be assessed
or collected by any taxing authority. Company is not a party to, and does not
owe any amount under, any tax-sharing, tax allocation or tax indemnity
agreement. Company has not been a member of an affiliated group filing a
consolidated federal income tax return (other than a group the common parent of
which was Company) and has no Liability for the taxes of any Person (other than
Company) under Section 1.1502-6 of the Treasury Regulations issued under the
Code (the "Regulations") (or any similar provision of state, local or foreign
law) as a transferee or successor, by contract or otherwise. Company has not
incurred a dual consolidated loss within the meaning of Section 1503 of the
Code.
(b) Company and its Subsidiaries have complied with all Applicable
Laws relating to the payment and withholding of taxes (including withholding of
taxes pursuant to Sections 1441, 1442, 1445 and 1446 of the Code or similar
provisions under any foreign law), has, within the time and in the manner
prescribed by law, withheld from employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over
under all applicable laws, including federal and state income taxes, FICA,
Medicare and FUTA, and has timely filed all withholding tax returns.
19
(c) Since its inception, Company has not been a "United States real
property holding corporation," as defined in Section 897(c)(2) of the Code and
in Section 1.897-2(b) of the Regulations, and Company has filed with the
Internal Revenue Service all statements, if any, which are required under
Section 1.897-2(h) of the Regulations.
(d) No benefit payable or which may become payable by Company or any
of its Subsidiaries pursuant to any Employee Plan (as defined in Section 3.18(b)
of the Agreement) or as a result of or arising under this Agreement or the
Certificate of Merger will constitute an "excess parachute payment" (as defined
in Section 280G(b)(1) of the Code) which is subject to the imposition of an
excise tax under Section 4999 of the Code or which would not be deductible by
reason of Section 280G of the Code.
(e) Neither Company nor any of its Subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by Company.
(f) Company has not constituted either a "distributing corporation" or
a "controlled corporation" in a distribution of stock qualifying or intended to
qualify for tax-free treatment under Section 355 of the Code either in the two
(2) years prior to the date of this Agreement or in a distribution which could
otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.
3.10 Title to Assets and Properties; Condition of Equipment and Property.
Company and each of its Subsidiaries has good and marketable title to or, in the
case of leased properties and assets, valid leasehold interests in, all of its
assets (other than Company IP Rights) and properties used in the Company
Business or as shown on the Balance Sheet included in the Financial Statements,
free and clear of any Encumbrance (other than Permitted Liens and such
imperfections of title and encumbrances, if any, as are not material in
character, amount or extent and which do not materially detract from the value
thereof or materially interfere with the use thereof or the use affected thereby
(as currently used by Company)). Such assets are sufficient for the continued
operation of the business of Company consistent with its current practice. All
leases of real or personal property to which Company or any of its Subsidiaries
is a party are fully effective in accordance with their respective terms.
Company is not in violation of any zoning, building, safety or environmental
ordinance, regulation or requirement or other law or regulation applicable to
the operation of its owned or leased properties, nor has Company received any
notice of violation of law with which it has not complied. Company does not own
any real property. Schedule 3.10 to the Company Disclosure Letter sets forth a
complete and accurate list and a brief description of all personal property
owned or leased by Company with an individual value of $2,500 or greater per
item.
20
3.11 Absence of Certain Changes. Since the Balance Sheet Date, Company has
carried on its business in the ordinary course in accordance with the procedures
and practices in effect on the Balance Sheet Date, and there has not been with
respect to Company or any of its Subsidiaries:
(a) any Material Adverse Change;
(b) any Liability incurred as guarantor or surety with respect to the
obligations of others;
(c) any Liability incurred other than in the ordinary course of
business, consistent with past practice, or any borrowing of moneys;
(d) any making of any loan, advance or capital contribution to, or
investment in, any Person other than loans or advances to employees for travel
and other reimbursable expenses made in the ordinary course of business,
consistent with past practice;
(e) any Encumbrance placed on any of its properties or granted with
respect to any of its assets other than Permitted Liens;
(f) any purchase, license, sale or other disposition, or any Contract
for the purchase, license, sale or other disposition or transfer, of any
properties, assets or goodwill of Company other than a license of any product or
products of Company in the ordinary course of business consistent with past
practice;
(g) any material damage, destruction or loss, whether or not covered
by insurance, affecting properties, assets or business;
(h) any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, its capital stock, any
split, stock dividend, combination or recapitalization of its capital stock or
any direct or indirect redemption, purchase or other acquisition by it of its
capital stock;
(i) any entry into, amendment of, relinquishment, termination or
nonrenewal by it of any Contract or other right or obligation other than in the
ordinary course of business, consistent with past practice, but in no event
involving obligations (contingent or otherwise) of, or payments to it in excess
of, $25,000 individually or $100,000 in the aggregate;
(j) any payment or discharge of an Encumbrance or Liability on any of
its assets or properties, which Encumbrance or Liability was not either (i)
shown on the Balance Sheet included in the Financial Statements or (ii) incurred
in the ordinary course of business, consistent with past practice, after the
Balance Sheet Date;
(k) any Liability incurred by it to any of its officers, directors or
stockholders;
(l) any amendment or change in its Certificate of Incorporation or
Bylaws or similar charter documents;
(m) any deferral of the payment of any accounts payable outside the
ordinary course of business or in an amount which is material, or any discount,
accommodation or other concession made outside the ordinary course of business
in order to accelerate or induce the collection of any receivable;
21
(n) any material change in the manner in which it extends discounts,
credits or warranties to customers or otherwise deals with its customers;
(o) any labor dispute or claim of unfair labor practices;
(p) any change with respect to the Persons listed on the Schedule of
Key Employees included in the Company Disclosure letter (the "Key Employees"),
the Persons listed on the Schedule of Continuation Employees included in the
Company Disclosure Letter (the "Continuation Employees") or the management and
supervisory personnel of the Company (the "Management Employees");
(q) any termination of employment of a material number of its
employees;
(r) any sale, issuance, creation, grant or authorization of the
issuance or grant of (i) any shares of its capital stock of any class or series
or other security (other than (A) options issued to its employees in the
ordinary course of business, consistent with past practice, and identified in
Schedule 3.4(b)-1 of the Company Disclosure Letter (all of which had been
granted as of the Agreement Date), or (B) pursuant to the exercise of
outstanding Company Options and Company Warrants identified on Schedule 3.4(b)-1
and Schedule 3.4(b)-2 of the Company Disclosure Letter); (ii) any option, call,
warrant, obligation, subscription or other right to acquire any capital stock or
any other security, except for Company Options and Company Warrants identified
on Schedule 3.4(b)-1 and Schedule 3.4(b)-2 of the Company Disclosure Letter; or
(iii) any instrument convertible into or exchangeable for any capital stock or
other security;
(s) any material (materiality for this purpose to be determined with
respect to the affected individual) modification of the benefits payable, or to
become payable, to any of its officers, directors or employees, or any material
(materiality for this purpose to be determined with respect to the affected
individual) increase in the compensation (including severance compensation)
payable, or to become payable, to any of its officers, directors or employees,
or any bonus payment or arrangement made to or with any of such officers,
directors or employees, except salary increases (not in excess of ten percent
(10%) for any individuals who are not its officers or directors) in the ordinary
course of business, consistent with past practice, in connection with promotions
or annual performance evaluations;
(t) any material (materiality for this purpose to be determined with
respect to the affected individual or in the aggregate) increase in or
modification of any bonus, pension, insurance or other employee benefit plan,
payment or arrangement (including the granting of stock options, restricted
stock awards or stock appreciation rights) made to, for or with any of its
officers, directors or employees;
(u) any modification or change to the right to exercise or convert, to
the exercise or purchase prices of, any of its capital stock or other
securities, or any acceleration or other modification of (i) the vesting of or
right to exercise any option, warrant or other right to purchase any of its
capital stock or other securities or (ii) the vesting or release of any shares
of its capital stock or other securities from any repurchase options or rights
of refusal held by it or any other party or any other restrictions;
22
(v) any Contract made by it to do any of the foregoing or to take any
action in the future which, if taken before the Agreement Date, would have made
any representation or warranty set forth in Article 3 untrue or incorrect as of
the date when made;
(w) any waiver by Company of a valuable right or of any material debt
owed to it; or
(x) any agreement or commitment by Company to do any of the things
described in (a)-(w) above.
3.12 Contracts and Commitments/Licenses and Permits. Schedule 3.12 to the
Company Disclosure Letter sets forth a list of (i) each of the written or oral
contracts, agreements, commitments or other instruments to which Company is a
party or to which Company or any of its assets or properties is bound that are
described below in this Section 3.12 and (ii) each of the licenses and permits
held by Company that are described below in this Section 3.12 (separately listed
for each of the following items):
(a) any distribution, marketing, sales representative or similar
agreement under which any third party is authorized to sell, sublicense, lease,
distribute, market or take orders for, any product, service or technology owned,
marketed, licensed or provided by Company;
(b) any continuing contract, arrangement or commitment for the future
purchase, sale, license, provision or manufacture of products, material,
supplies, equipment or services requiring payment to or from Company in an
amount in excess of $25,000 per annum which is not terminable on ninety (90) or
fewer days' notice without cost or other liability to Company;
(c) any contract, arrangement or commitment in which Company has
granted or received most favored customer pricing provisions, exclusive sales,
distribution, marketing or on-line distribution rights, rights of refusal,
rights of first negotiation or similar rights with respect to any product,
service, technology or Intellectual Property Rights that is now or hereafter
owned by, provided to, or provided by, Company;
(d) any grant, authorization, contract or agreement between Company
and any Governmental Authority;
(e) any contract, arrangement or commitment providing for the
development of any software, content (including without limitation textual
content and visual or graphics content), technology or Intellectual Property
Rights by or for (or for the benefit or use of) Company;
(f) Intentionally Omitted;
(g) any contract, arrangement or commitment pursuant to which Company
has sold, leased or licensed any rights in or to any software, content
(including without limitation textual content and visual or graphics content),
data (including electronically stored data),
23
technology or Intellectual Property Rights to any third party, including but not
limited to any agreement, contract or arrangement regarding Company Source Code
described in Section 3.14(i), if such contract, arrangement or commitment (i)
involves or involved a payment to or from Company of $25,000 or more; or (ii) is
not a Company IP Rights Agreement and either (A) grants any exclusive rights,
including but not limited to any exclusivity with respect to any product,
market, industry, field of use or geographic territory; (B) requires the ongoing
payment of any royalties or periodic fees or payments by or to Company; (C) is
material to Company's business, Intellectual Property or technology and is not
otherwise disclosed in Schedule 3.12 to the Company Disclosure Letter; or (D)
grants any third party any rights or licenses (whether currently effective or
contingent) with respect to any Company Source Code;
(h) any joint venture or partnership contract, arrangement or
commitment, any contract, arrangement or commitment relating to a limited
liability company, or any other agreement which has involved, or is reasonably
expected to involve, a sharing of revenues, profits, cash flows, expenses or
losses by Company with any other party;
(i) any contract, arrangement or commitment for or relating to the
employment or hiring for services of any officer, director, employee, consultant
or independent contractor of Company or any other type of contract or
understanding with any director, officer, employee or consultant of Company that
is not immediately terminable by Company without cost or other liability,
including but not limited to any contract or agreement requiring Company to make
a payment to any officer, director, employee, consultant or independent
contractor on account of the Merger or any transaction contemplated by this
Agreement or agreement that is an exhibit to this Agreement;
(j) any indenture, mortgage or trust deed encumbering any asset or
property of Company, any promissory note of Company, any credit line, credit
facility, loan agreement or other contract, arrangement or commitment for the
borrowing of money pursuant to which Company may borrow or loan funds, any
security agreement encumbering any asset or property of Company, any security
agreement encumbering any asset or property of a third party for the benefit of
Company, any guarantee or indemnity by Company of any obligation or indebtedness
of another party or any guarantee of any obligation or indebtedness or Liability
of Company, and any contract, arrangement or commitment for a leasing
transaction of a type required to be capitalized in accordance with Statement of
Financial Accounting Standards No. 13 of the Financial Accounting Standards
Board;
(k) any lease or other contract, arrangement or commitment under which
Company is lessee of or holds or operates any items of tangible personal
property or real property owned by any third party and under which payments to
such third party exceed $25,000 per annum, and any agreement for the sale,
purchase or disposition of any real property;
(l) any contract, arrangement or commitment for the sale, licensing or
leasing by or to Company of any assets, properties, products, services
(including network access or network services) or rights having a value in
excess of $25,000 or which is material to Company's business as currently
conducted;
24
(m) any agreement that restricts Company (including by the grant of
exclusive rights) from engaging in any aspect of its business, from engaging,
participating or competing in any line of business or market or that restricts
Company from engaging in any business in any market, with any customer(s) or in
any geographic area;
(n) any Company IP Rights Agreement (as defined in Section 3.14) if
such Company IP Rights Agreement (i) involves or involved a payment to or from
Company of $25,000 or more, (ii) grants any exclusive rights, including but not
limited to any exclusivity with respect to any product, service, market,
industry, field of use or geographic territory; (iii) requires the ongoing
payment of any royalties or periodic fees or payments by Company; or (iv) is
material to Company's business, to Company's Intellectual Property or technology
or to any of Company's current or proposed products or services;
(o) any application hosting, application management, application
usage, website hosting, website linking, consent or data sharing, data feed,
information exchange, advertising, fee sharing, lead or customer referral,
commerce, co-branding, framing, service, order or transaction processing or
similar agreement relating to any aspect or element of any of the Company
Websites or any other website or use of the public internet, or the extranet or
intranet of any Person;
(p) any agreement or plan (including but not limited to any stock
option, stock purchase and/or stock bonus plan) relating to the sale, issuance,
grant, exercise, award, purchase, repurchase or redemption of any shares of
capital stock or any other securities of Company or any options, warrants,
convertible notes or other rights to purchase or otherwise acquire any such
shares of stock, other securities or options, warrants or other rights therefor;
(q) any contract, arrangement or commitment under which Company
provides any advice or services to any third party, including, without
limitation any consulting, professional or software implementation, deployment
or development services (including, for each such contract, arrangement or
commitment, a description of the percentage of completion and expected
additional hours, resources and costs to complete such services);
(r) any contract with or commitment to any labor union or any
collective bargaining agreement or similar agreement with employees of Company;
(s) any agreement pursuant to which Company has acquired a business or
entity, or assets of a business or entity, whether by way of merger,
consolidation, purchase of stock, purchase of assets, license or otherwise;
(t) any other instrument, agreement, contract, undertaking,
understanding, understanding or commitment (whether verbal or in writing) to
which Company is a party or by which Company or any of its assets or properties
are bound that is (i) material to Company's business, operations, assets,
properties, operating results or financial condition or (ii) that involves a
future financial commitment by Company in excess of $50,000; and
(u) any Governmental Permit (as defined in Section 3.16).
25
A true and complete copy of each agreement or document required by
subsections (a) through (u) of this Section to be listed on Schedule 3.12 to the
Company Disclosure Letter (such agreements and documents being collectively
referred to in this Agreement as the "Material Agreements") and a copy of each
Governmental Permit required by subparagraph (u) of this Section to be listed on
Schedule 3.12 to the Company Disclosure Letter, has been delivered to Acquirer's
counsel, Fenwick & West LLP. All Material Agreements are in full force and
effect. With respect to each Company Material Agreement required to be described
pursuant to subparagraph (a), (b), (c), (e), (f), (g), (l), (o) or (q) of this
Section 3.12, Schedule 3.12 to the Company Disclosure Letter shall set forth, as
part of the description of such Material Agreement, a true and complete listing
of each product or service of Company that is licensed or provided (whether for
end-use, distribution, resale or otherwise) under such agreement or that is
subject to such agreement.
3.13 No Default; No Restrictions.
(a) Company and its Subsidiaries are not, nor to Company's knowledge
is any other party, in material breach or default under any Material Agreement.
No event has occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) will, or would reasonably be expected to, (i)
result in a violation or breach of any of the provisions of any Material
Agreement, or (ii) to Company's knowledge, give any third party (A) the right to
declare a default or exercise any remedy under any Material Agreement, (B) the
right to a chargeback, refund, credit, penalty or change in delivery schedule
under any Material Agreement, (C) the right to accelerate the maturity or
performance of any obligation of Company or any of its Subsidiaries under any
Material Agreement, or (D) the right to cancel, terminate or modify any Material
Agreement. Neither Company nor any of its Subsidiaries has received any notice
or other communication regarding any actual or possible violation or breach of,
or default under, any Material Agreement. Company nor any of its Subsidiaries
has any material Liability for renegotiation of government Contracts or
subcontracts, if any.
(b) Neither Company nor any of its Subsidiaries is a party to, and no
asset or property of Company or any of its Subsidiaries is bound or affected by,
any judgment, injunction, order, decree, contract, agreement, arrangement,
commitment or undertaking (noncompete or otherwise) that restricts or prohibits,
or purports to restrict or prohibit, Company or any of its Subsidiaries or,
following the Effective Time, the Surviving Corporation, from freely engaging in
the Company Business, from competing anywhere in the world (including any
judgments, injunctions, orders, decrees or Contracts restricting the geographic
area in which Company or any of its Subsidiaries may sell, license, market,
distribute or support any products or technology or provide services or
restricting the markets, customers or industries that Company or any of its
Subsidiaries may address in operating the Company Business or restricting the
prices which Company or any of its Subsidiaries may charge for their respective
products, technology or services), or includes any grants by Company or any of
its Subsidiaries of exclusive rights or licenses.
26
3.14 Intellectual Property.
(a) Company (i) owns, or (ii) has the requisite right or license to,
all Intellectual Property Rights used in the conduct of the Company Business
(such Intellectual Property Rights being hereinafter collectively referred to as
the "Company IP Rights"). Except as set forth in Schedule 3.14(a) of the Company
Disclosure Letter, such Company IP Rights are sufficient for such conduct of the
Company Business. The consummation of the Merger and the other transactions
contemplated by this Agreement and the Company Ancillary Agreements will not
result in any termination or other material restriction being imposed on any of
the Company IP Rights. As used in this Agreement, "Company-Owned IP Rights"
means Company IP Rights which are owned by Company and "Company-Licensed IP
Rights" means Company IP Rights which are not Company-Owned IP Rights.
(b) Except as set forth in Schedule 3.14(b) of the Company Disclosure
letter, neither the execution, delivery and performance of this Agreement the
Company Ancillary Agreements nor the consummation of the Merger and the other
transactions contemplated by this Agreement the Company Ancillary Agreements
will: (i) constitute a material breach of or default under any Contract
governing any Company IP Right (collectively, the "Company IP Rights
Agreements"); (ii) cause the forfeiture or termination of, or give rise to a
right of forfeiture or termination of, any Company IP Right; or (iii) materially
impair the right of Company or the Surviving Corporation to use, possess, sell
or license any Company IP Right or portion thereof. Except as set forth in
Schedule 3.14(b) of the Company Disclosure Letter, there are no royalties,
honoraria, fees or other payments payable by Company or any of its Subsidiaries
to any Person (other than salaries payable to employees, consultants and
independent contractors not contingent on or related to use of their work
product and fees of less than $25,000 per annum in any single instance and not
more than $100,000 per annum in the aggregate for non-exclusive object code
licenses of software generally available to the public) as a result of the
ownership, use, possession, license-in, sale, marketing, advertising or
disposition of any Company IP Rights by Company or any of its Subsidiaries and
none will become payable as a result of the consummation of the transactions
contemplated by this Agreement or the Company Ancillary Agreements.
(c) Neither the use, development, manufacture, marketing, license,
sale, furnishing or intended use of any product or service currently licensed,
utilized, sold, provided or furnished by Company or any of its Subsidiaries
materially breaches or defaults any Contract between Company or any of its
Subsidiaries and any other Person or infringes or misappropriates any
Intellectual Property Right of any other Person. Neither Company nor any of its
Subsidiaries has received any notice asserting that any Company IP Right or the
proposed use, sale, license or disposition thereof conflicts or will conflict
with the rights of any other Person, nor, to Company's knowledge, is there any
legitimate basis for any such assertion.
(d) To the knowledge of Company and except as set forth in Schedule
3.14(d) of the Company Disclosure Letter, no current or former employee or
independent contractor of Company or any of its Subsidiaries: (i) is in material
breach of or default under any term or covenant of any Contract with Company or
any of its Subsidiaries relating to employment, patent disclosure, invention
assignment, non-disclosure or non-competition or of any Contract with a
27
third party by virtue of such employee's or independent contractor's being
employed by, or performing services for, Company or any of its Subsidiaries or
using trade secrets or proprietary information of others without permission; or
(ii) has developed any technology, software or other copyrightable, patentable
or otherwise proprietary work for Company or any of its Subsidiaries that is
subject to any agreement under which such employee or independent contractor has
assigned or otherwise granted to any Person any rights (including Intellectual
Property Rights) in or to such technology, software or other copyrightable,
patentable or otherwise proprietary work. To the knowledge of Company, the
employment of any employee of Company or any of its Subsidiaries or the use by
Company or any of its Subsidiaries of the services of any independent contractor
does not subject Company or any of its Subsidiaries to any Liability to any
other Person for improperly soliciting such employee or independent contractor
to work for Company or any of its Subsidiaries, whether such Liability is based
on contractual or other legal obligations to such other Person.
(e) Except as set forth in Schedule 3.14(e) of the Company
Disclosure Letter, Company has taken reasonable and adequate steps to protect,
preserve and maintain the secrecy and confidentiality of Company's trade
secrets, know-how, customer lists, supplier lists, proprietary processes and
formulae, software source code and other information from which Company could
derive value based on its confidentiality or secrecy. All current and former
officers, employees and independent contractors of Company and its Subsidiaries
having access to proprietary information of Company or any of its Subsidiaries,
their respective customers or business partners have executed and delivered to
Company an agreement regarding the protection of such proprietary information to
Company (in the case of proprietary information of Company's and its
Subsidiaries' customer and business partners, to the extent required by such
customers and business partners); and true, correct and complete copies of all
such agreements have been delivered to Acquirer or Acquirer's legal counsel.
Company has secured valid written assignments from all of Company's and its
Subsidiaries' current and former employees and independent contractors who were
involved in, or who contributed to, the creation or development of any
Company-Owned IP Rights, of the rights to such contributions that may be owned
by such Persons, or that Company or any of its Subsidiaries do not already own
by operation of law. No current or former employee, officer, director,
consultant or independent contractor of Company or any of its Subsidiaries has
any right, title, license, claim or interest whatsoever in or with respect to
any Company-Owned IP Rights.
(f) Schedule 3.14(f) of the Company Disclosure Letter contains a
true and complete list of all worldwide registrations and applications made by
or filed in the name of Company or any of its Subsidiaries to obtain, record,
register or otherwise secure any Intellectual Property Rights with any
governmental or quasi-governmental authority, including Internet domain name
registrars to secure, perfect or protect its interest in Company IP Rights,
including all patent applications, copyright applications, and applications for
registration of trademarks and service marks. To the knowledge of Company, all
registered Company-Owned IP Rights are valid, enforceable and subsisting.
(g) Company owns all Company-Owned IP Rights, and owns such
rights free and clear of all Encumbrances and licenses (other than licenses and
rights listed on Schedule 3.14(g)(i) of the Company Disclosure Letter). The
licenses or other rights of Company
28
or a Subsidiary of Company in and to all Company-Licensed IP Rights are each
free and clear of all Encumbrances and sublicenses (other than licenses and
rights listed on Schedule 3.14(g)(ii) of the Company Disclosure Letter).
(h) Schedule 3.14(h) of the Company Disclosure Letter contains a
true and complete list of (i) all Contracts as to which Company is a party and
pursuant to which any Person is licensed or otherwise authorized to use any
Company IP Rights, and (ii) all Contracts as to which Company is a party and
pursuant to which Company is authorized to use any Intellectual Property Rights
owned by any Person other than Company (other than non-exclusive object code
licenses of software generally available to the public at a per copy license fee
of less than $5,000). Company's standard form(s) of end user license are listed
in Schedule 3.14(h) of the Company Disclosure Letter and have been delivered to
Acquirer's counsel.
(i) Except as set forth in Schedule 3.14(i) of the Company
Disclosure Letter, neither Company nor any of its Subsidiaries nor any other
Person acting on their behalf has disclosed or delivered to any Person, or
permitted the disclosure or delivery to any escrow agent or other Person of, any
Company Source Code (as defined below). Except as set forth in Schedule 3.14(i)
of the Company Disclosure Letter, no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time, or both) will,
or would reasonably be expected to, result in the disclosure or delivery by
Company or any of its Subsidiaries or any Person acting on their behalf to any
Person of any Company Source Code. Schedule 3.14(i) of the Company Disclosure
Letter identifies each Contract pursuant to which Company or any of its
Subsidiaries has deposited, or is or may be required to deposit, with an
escrowholder or any other Person, any Company Source Code, and describes whether
the execution of this Agreement and the Company Ancillary Agreements or the
consummation of the Merger or any of the other transactions contemplated by this
Agreement and the Company Ancillary Agreements, in and of itself, would
reasonably be expected to result in the release from escrow of any Company
Source Code. As used in this Section 3.14(i), "Company Source Code" means,
collectively, any software source code, any material portion or aspect of the
software source code, or any material proprietary information or algorithm
contained in or relating to any software source code, of any Company IP Rights.
(j) To the knowledge of the Company, there is no unauthorized
use, disclosure, infringement or misappropriation of any Company Owned IP Rights
(including for purposes of this Subsection Company IP Rights exclusively
licensed to Company) by any Person, including any employee or former employee of
Company or any of its Subsidiaries. Except as provided in Company's standard
end-user agreements (each of which is listed in Schedule 3.14(j) to the Company
Disclosure Letter), neither Company nor any of its Subsidiaries has agreed to
indemnify any Person for any infringement of any Intellectual Property Rights of
any Person by any product or service that has been sold, supplied, marketed,
distributed, licensed, leased or provided by Company or any of its Subsidiaries.
(k) All software developed by or for Company or any of its
Subsidiaries and licensed by Company or any of its Subsidiaries to customers,
all other products sold, licensed, leased or delivered by Company to customers,
and all services provided by or through Company or any of its Subsidiaries to
customers on or prior to the Closing Date conform in all material
29
respects to applicable contractual commitments, warranties and any
representations (within the knowledge of Company) provided to customers. Neither
Company nor any of its Subsidiaries has any material Liability (and, to
Company's knowledge, there is no legitimate basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against Company or any of its Subsidiaries giving rise to any material
Liability relating to the foregoing Contracts) for replacement or repair thereof
or other damages in connection therewith in excess of any reserves therefor
reflected on the Balance Sheet.
(l) No government funding, facilities of a university, college,
other educational institution or research center; or funding from any Person
(other than funds received in consideration for Company Common Stock or Company
Preferred Stock) was used in the development of the computer software programs
or applications owned by Company or any of its Subsidiaries. No current or
former employee or independent contractor of Company or any of its Subsidiaries,
who was involved in, or who contributed to, the creation or development of any
Company IP Rights, has performed services for the government or a university,
college or other educational institution or research center during a period of
time during which such employee or independent contractor was also performing
services for Company or any of its Subsidiaries.
(m) No Public Software (as defined below) forms part of any
product or service of the Company or was or is used in connection with the
development of any Company-Owned IP Right, that has been incorporated in whole
or in part, or that has been distributed, in whole or in part, in conjunction
with any Company-Owned IP Right. As used in this Section 3.14(m), "Public
Software" means any software that contains, or is derived in any manner (in
whole or in part) from, any software that is distributed as open source software
(e.g., Linux) or similar licensing or distribution models, including software
licensed or distributed under any of the following licenses or distribution
models, or licenses or distribution models similar to any of the following: (i)
GNU's General Public License (GPL) or Lesser/Library GPL (LGPL); (ii) the
Artistic License (e.g., PERL); (iii) the Mozilla Public License; (iv) the
Netscape Public License; (v) the Sun Community Source License (SCSL); (vi) the
Sun Industry Standards License (SISL); (vii) the BSD License; and (viii) the
Apache License.
3.15 Privacy. Neither Company nor any of its Subsidiaries has
collected any personally identifiable information from any third parties except
as described in Schedule 3.15 of the Company Disclosure Letter. Company and its
Subsidiaries have complied with all Applicable Laws and their respective
internal privacy policies relating to (a) the privacy of users of their products
and services and all Internet websites owned, maintained or operated by Company
or any of its Subsidiaries (the "Company Websites"), and (b) the collection,
storage and transfer of any personally identifiable information collected by
Company, any of its Subsidiaries or by third parties having authorized access to
the records of Company or any of its Subsidiaries. Each of the Company Websites
and all materials distributed or marketed by Company or any of its Subsidiaries
have at all times made all disclosures to users or customers required by
Applicable Laws and none of such disclosures made or contained in any Company
Website or in any such materials have been inaccurate, misleading or deceptive
or in violation of any Applicable Laws.
30
3.16 Compliance with Laws. Company and each of its Subsidiaries
have complied and will be as of the Closing Date in compliance in all material
respects, with all Applicable Laws applicable to Company, such Subsidiary of
Company or to their respective assets, properties and business. Company and each
of its Subsidiaries have received all permits and approvals from, and have made
all filings with, third parties, including government agencies and authorities,
that are necessary to the conduct of the Company Business ("Governmental
Permits"), and there exists no current default under or violation of any such
permit or approval. Schedule 3.16 of the Company Disclosure Letter includes a
summary of all violations of any Applicable Law and all allegations of any such
violations, since July 1, 2000 of which Company or any of its Subsidiaries (i)
has knowledge, or (ii) has received notice from any third party, including any
governmental agency and authority, since Company's inception.
3.17 Certain Transactions and Agreements. No Person who is an
officer or director of Company or any of its Subsidiaries (or to the knowledge
of the Company, any stockholder), or a member of any such officer's or
director's (or to the knowledge of the Company, any stockholder's) immediate
family, (a) has any direct or indirect ownership interest in any firm or
corporation that competes with Company (except with respect to any interest of
less than one percent (1%) of the outstanding voting shares of any corporation
whose stock is publicly traded), (b) is or ever has been directly or indirectly
interested in any Contract with Company or any of its Subsidiaries, except for
normal compensation for services as an officer, director or employee of Company
or any of its Subsidiaries, or (c) has or ever had any interest in any property,
real or personal, tangible or intangible, used in the Company Business, except
for the normal rights of a stockholder.
3.18 Employees.
(a) Neither Company nor any of its Subsidiaries: (i) has
ever been or is now subject to a union organizing effort; (ii) is subject to any
collective bargaining agreement with respect to any of its employees; (iii) is
subject to any other Contract with any trade or labor union, employees'
association or similar organization; and (iv) has any current labor disputes or
has had any material labor disputes or claims of unfair labor practices. Company
and it Subsidiaries each has good labor relations, and Company has no knowledge
of any facts indicating that the consummation of the transactions provided for
herein will have a material adverse effect on its labor relations or those of
any of its Subsidiaries, and Company has no knowledge that any of the
Continuation Employees, the Key Employees or Management Employees, or any
significant number of other employees, intends to leave Company's employ or the
employ of any of its Subsidiaries. There are no strikes, material slowdowns,
work stoppages or lockouts, or, to the knowledge of the Company threats thereof,
by or with respect to any employees of Company or any of its Subsidiaries.
Company and its Subsidiaries are in compliance in all material respects with all
applicable laws regarding employment practices, terms and conditions of
employment, and wages and hours, the Worker Adjustment Retraining and
Notification ("WARN") Act, as amended, or any similar state or local law) and
has correctly classified employees as exempt employees and nonexempt employees
under the Fair Labor Standards Act. Neither Company nor any of its Subsidiaries
has employment or consulting agreements currently in effect that are not
terminable at will (other than agreements with the sole purpose of providing for
the confidentiality of proprietary information or assignment of inventions). All
independent contractors have been properly classified as independent contractors
for purposes of federal and applicable state tax laws, laws applicable to
employee
31
benefits and other applicable laws. All employees of Company or any of its
Subsidiaries are legally permitted to be employed by Company or such Subsidiary
in the jurisdiction in which such employee is employed. Neither Company nor any
of its Subsidiaries will have any Liability to any employee or to any
organization or other entity as a result of the termination of any employee
leasing arrangement.
(b) Schedule 3.18(b) of the Company Disclosure Letter contains a
list of all employment and consulting agreements, pension, retirement,
disability, medical, dental or other health plans, life insurance or other death
benefit plans, deferred compensation agreements, profit sharing, stock, option,
bonus or other incentive plans, vacation, sick, holiday or other paid leave
plans, severance plans or other similar employee benefit plans maintained by
Company and its Subsidiaries (the "Employee Plans"), including all "employee
benefit plans" as defined in Section 3(3) of the Employment Retirement Income
Security Act of 1974, as amended ("ERISA") under which Company may incur any
Liability. Company has delivered to Acquirer or Acquirer's counsel true and
complete copies or descriptions of the Employee Plans. Each of the Employee
Plans and its operation and administration are in all material respects in
compliance with all Applicable Laws, including the requirements of ERISA and the
Code. Each Employee Plan that is an employee pension benefit plan (as defined in
Section 3(2) of ERISA) which is intended to qualify under Section 401(a) of the
Code has received a favorable opinion, advisory, notification and/or
determination letter, as applicable, that such plan satisfied the requirements
of the Tax Reform Act of 1986 and the GUST amendments (a copy of which letter(s)
has been delivered to Acquirer and its counsel), or has a remaining period of
time to apply for such letter and make any amendments necessary to obtain a
favorable determination as to the qualified status of each such Employee Plan.
Company has delivered to Acquirer or Acquirer's counsel a true and complete copy
of, to the extent applicable, (i) each trust agreement related to the Employee
Plans, (ii) the most recent summary plan description and any employee booklets
for each Employee Plan for which such a description is required, (iii) insurance
policies on Contracts relating to any Employee Plan, and (iv) any material
communications relating to any Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or is, to the knowledge
of the Company threatened against, with respect to any Employee Plan, including
any audit or inquiry by the Internal Revenue Service or the U.S. Department of
Labor. In addition, neither Company nor any of its Subsidiaries has ever been a
participant in any "prohibited transaction" within the meaning of Section 406 of
ERISA or Section 4975 of the Code with respect to any employee pension benefit
plan (as defined in Section 3(2) of ERISA) which was not otherwise exempt
pursuant to Section 408 of ERISA, or which could result in an excise tax under
the Code. There has been no amendment to, written interpretation or announcement
(whether or not written) by Company relating to, or change in employee
participation or coverage under, any Employee Plan that would increase
materially the expense of maintaining such Employee Plan above the level of
expense incurred in respect thereof during the calendar year 2001. No Employee
Plans will be subject to any surrender fees or service fees upon termination
other than the normal and reasonable administrative fees associated with the
termination of benefit plans. Company has never contributed to or been required
to contribute to any multi-employer pension plan as defined in Section 3(37) of
ERISA, and will not have any contingent withdrawal Liability under ERISA. All
Employee Plans, to the extent applicable, are in compliance in all material
respects with (i) the continuation coverage
32
requirements of Section 4980B of the Code and Sections 601 through 608 of ERISA,
(ii) the Americans with Disabilities Act of 1990, as amended, and the
regulations thereunder, (iii) the Health Insurance Portability and
Accountability Act of 1996, as amended, (iv) the Women's Health and Cancer
Rights Act of 1998, and (v) the Family Medical Leave Act of 1993, as amended,
and the regulations thereunder. As of the Effective Time, there will be no
material outstanding, uncorrected violations under the Consolidation Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), with respect to any
Employee Plan, covered employees or qualified beneficiaries. All individuals
who, pursuant to the terms of any Employee Plan, are entitled to participate in
the Employee Plans, currently are participating in such Employee Plans or have
been offered an opportunity to do so. Company and its Subsidiaries have timely
filed and delivered to Acquirer's counsel annual reports (Form 5500) for each
Employee Plan which is subject to ERISA or Code reporting requirements. To the
Company's knowledge, nothing has occurred since the issuance of such
determination letter which would reasonably be expected to cause the loss of the
tax-qualified status of any Employee Plan subject to Section 401(a) of the Code.
(c) No employee of Company or any of its Subsidiaries is in
material violation of any term of any employment Contract or any other Contract
or any restrictive covenant, relating to the right of any such employee to be
employed by Company or any of its Subsidiaries or to use trade secrets or
proprietary information of others, and the employment of any employee by Company
or any of its Subsidiaries does not subject it to any Liability to any third
party.
(d) Neither Company nor any of its Subsidiaries is a party to any
(i) agreement with any employee (A) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving Company in the nature of any of the transactions contemplated by this
Agreement, (B) providing any term of employment or compensation guarantee, or
(C) providing severance benefits or other benefits after the termination of
employment of such employee regardless of the reason for such termination of
employment, or (ii) Contract or plan, including any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the benefits of which
will be materially increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement. Neither Company
nor any of its Subsidiaries has any obligation to pay any amount or provide any
benefits to any former employee or officer, other than obligations (i) for which
Company has established a reserve for such amount on the Balance Sheet, and (ii)
pursuant to Contracts entered into after the Balance Sheet Date and disclosed on
Schedule 3.12(r) of the Company Disclosure Letter.
(e) A list of all employees, consultants and independent
contractors of Company and its Subsidiaries and their current compensation and
benefits as of the Agreement Date is set forth on Schedule 3.18(e) of the
Company Disclosure Letter.
(f) All contributions due from Company or any of its Subsidiaries
with respect to any of the Employee Plans and all employee social security
contributions have been timely made or accrued on the Financial Statements, and
no further contributions will be due or will have accrued thereunder as of the
Closing Date, other than contributions accrued in the ordinary course of
business, consistent with past practice, after the Balance Sheet Date as a
result of the operations of Company and its Subsidiaries after the Balance Sheet
Date, all of which have been paid.
33
(g) Each plan that has been adopted or maintained by Company or
any of its Subsidiaries, whether informally or formally, for the benefit of
employees outside the United States (each, an "International Employee Plan") has
been established, maintained and administered in material compliance with its
terms and conditions and with the requirements prescribed by Applicable Laws.
3.19 Books and Records. The books, records and accounts of Company and
its Subsidiaries (a) are in all material respects true and complete, and (b)
accurately and fairly reflect the basis for the Financial Statements.
3.20 Insurance. All policies of insurance and bonds (the "Insurance
Policies") now held by Company and each of its Subsidiaries are set forth in
Schedule 3.20 of the Company Disclosure Letter, together with the name of the
insurer under each Insurance Policy, the type of policy or bond, the coverage
amount and any applicable deductible of the Insurance Policy, and other
applicable provisions, as of the Agreement Date. All premiums due and payable
under all Insurance Policies have been timely paid. Company or such Subsidiary
is in compliance in all material respects with the terms of the Insurance
Policies, and all Insurance Policies are in full force and effect. Company has
no knowledge of any threatened termination of, or material premium increase with
respect to, any Insurance Policy. Schedule 3.20 of the Company Disclosure Letter
sets forth all material claims made under the Insurance Policies since June 30,
2000. There is no claim pending under any the Insurance Policies as to which
coverage has been questioned, denied or disputed by the underwriters of the
Insurance Policies.
3.21 Environmental, Health and Safety Matters.
(a) Company and its Subsidiaries are in compliance in all
material respects, with all applicable Environmental, Health and Safety
Requirements (as defined below), which compliance includes the possession by
Company and its Subsidiaries of all permits and other governmental
authorizations required under applicable Environmental, Health and Safety
Requirements, and compliance with the terms and conditions thereof. All permits
and other governmental authorizations currently held by Company or any of its
Subsidiaries pursuant to any Environmental, Health and Safety Requirements are
identified on Schedule 3.21(a) of the Company Disclosure Letter. Company and its
Subsidiaries have not received any written notice or, to Company's knowledge,
other communication, that Company is not in compliance with any Environmental,
Health and Safety Requirements. No material expenditures are or will be required
in order for Company to comply with any Environmental, Health and Safety
Requirement.
(b) For purposes of this Section 3.21, "Environmental, Health and
Safety Requirements" means (i) all foreign, federal, state, local, municipal or
other laws, ordinances, regulations, rules and other provisions having the force
or effect of law, and judicial and administrative orders, writs, injunctions,
awards, judgments, decrees and determinations, and (ii) all contractual
obligations concerning public health and safety, worker health and safety, and
pollution
34
or protection of the environment, including all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control or cleanup of any hazardous materials, substances or
wastes, chemical substances or mixtures, pesticides, pollutants, contaminants,
toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, each as amended and as now or hereafter in
effect.
3.22 Customers. Company has no outstanding material disputes
concerning its products and/or services with any customer who, in the year ended
December 31, 2001 or the six (6) months ended June 30, 2002 was one of the
twenty (20) largest sources of revenue for Company in such periods, based on
revenue invoiced or invoiceable in accordance with GAAP (each, a "Significant
Customer"), and Company has no knowledge of any dissatisfaction on the part of
any Significant Customer. Schedule 3.22 of the Company Disclosure Letter sets
forth a list of all current customers of Company broken down by products or
service. Company has not received any information from any Significant Customer
that such customer will not continue as a customer of Company (or the Surviving
Corporation) after the Closing or that any such customer intends to terminate or
materially modify existing Contracts with Company (or the Surviving Corporation)
or reduce the amount paid to Company for products and services. Company has not
had any of its products returned by a customer thereof except for normal
warranty returns consistent with past history and those returns that would not
result in a reversal of any revenue by Company.
3.23 Accounts Receivable. The accounts receivable shown on the Balance
Sheet will be collected by Acquirer or the Surviving Corporation by October 31,
2002; provided that amounts collected from any Person will first be applied to
any account receivable from such Person shown on the Balance Sheet (as of the
date hereof); provided further that notwithstanding any provision of Article 11
or any other provision of this Agreement, the amount of any indemnification by
Company Stockholders for a failure of the representation and warranty contained
in this sentence to be true and correct shall be equal to the amount, if any,
that (a) the amount of such accounts receivable that remain uncollected at 7:00
p.m. (Pacific Time) on October 31, 2002 exceeds (b) the amount reserved in
Company's general ledger account #2015 for undetermined liabilities as of such
time, without giving effect to the Basket (as defined in Section 11.3(a)). None
of the accounts receivable of Company or any of its Subsidiaries is subject to
any material claim of offset, recoupment, setoff or counter-claim, and Company
has no knowledge of any specific facts or circumstances (whether asserted or
unasserted) that could give rise to any such claim. No material amount of
accounts receivable is contingent upon the performance by Company or any of its
Subsidiaries of any obligation or Contract other than normal warranty repair and
replacement. No Person has any lien on any of such accounts receivable (except
Permitted Liens), and no agreement for deduction or discount has been made with
respect to any of such accounts receivable. Schedule 3.23 of the Company
Disclosure Letter sets forth an aging of Company's accounts receivable in the
aggregate and by customer, and indicates the amounts of allowances for doubtful
accounts and warranty returns and the amounts of accounts receivable which are
subject to asserted warranty claims. Schedule 3.23 of the Company Disclosure
Letter sets forth such amounts of accounts receivable of Company and its
Subsidiaries which are subject to asserted warranty claims by customers and
reasonably detailed information regarding asserted warranty claims made within
the last year, including the type and amounts of such claims.
35
3.24 Directors and Officers. Schedule 3.24 of the Company Disclosure
Letter accurately identifies all of the directors, officers or similar
representatives of Company and each of its Subsidiaries.
3.25 Intentionally Omitted.
3.26 Bank Accounts. Schedule 3.26 of the Company Disclosure Letter
sets forth the names and locations of all banks, trust companies, savings and
loan associations and other financial institutions at which Company and its
Subsidiaries maintain accounts of any nature and the names of all persons
authorized to draw thereon or make withdrawals therefrom.
3.27 Debt. Schedule 3.27 of the Company Disclosure Letter accurately
lists all indebtedness of Company and its Subsidiaries for money borrowed
("Debt"), including, for each item of Debt, the interest rate, maturity date and
any assets securing such Debt. All Debt may be prepaid at the Closing without
penalty under the terms of the agreements governing the Debt.
3.28 Corporate Documents. Company has provided to Acquirer's counsel
complete and correct copies of all documents identified in the Company
Disclosure Letter and each of the following: (a) copies of the Certificate of
Incorporation and Bylaws or similar charter documents of Company and each of its
Subsidiaries, each as currently in effect; (b) copies of the minute book
containing records of all proceedings, consents, actions and meetings of the
Board of Directors, committees of the Board of Directors and stockholders of
Company and each of its Subsidiaries; (c) copies of the stock ledger, journal
and other records reflecting all stock issuances and transfers and all stock
option grants and agreements of Company and each of its Subsidiaries; and (d)
all permits, orders and consents issued by any regulatory agency with respect to
Company and each of its Subsidiaries, or any securities of Company and each of
its Subsidiaries, and all applications for such permits, orders and consents.
3.29 No Brokers. Neither Company nor, to the knowledge of Company, any
Affiliate of Company is obligated for the payment of any fees or expenses of any
investment banker, broker, finder or similar party in connection with the
origin, negotiation or execution of this Agreement or in connection with the
Merger or any other transaction contemplated by this Agreement, and Acquirer
will not incur any Liability, either directly or indirectly, to any such
investment banker, broker, finder or similar party as a result of this
Agreement, the Merger or any act or omission of Company, any of its Affiliates
or any of their respective employees, officers, directors, stockholders or
agents.
3.30 Board Actions. The Board of Directors of Company (a) has
unanimously determined that the Merger is in the best interests of Company and
the Company Stockholders and is on terms that are fair to the Company
Stockholders, approved this Agreement, and a recommendation of this Agreement
and the Merger to the Company Stockholders, and (b) voted to submit the Merger,
this Agreement, each Company Ancillary Agreement and all other agreements,
transactions and actions contemplated hereby and thereby to the vote and
approval of the Company Stockholders and recommend such approval.
36
3.31 Disclosure. Neither this Agreement, its Exhibits and Schedules
and the Company Disclosure Letter, nor any Company Ancillary Agreements
delivered to Acquirer under this Agreement, when taken together, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein and therein, in light
of the circumstances under which such statements were made, not misleading.
There is no fact not disclosed to Acquirer in this Agreement and the Company
Disclosure Letter and of which Company is aware which could have a Material
Adverse Effect on Company or any of its Subsidiaries.
ARTICLE 4
Representations and Warranties of Acquirer and Sub
Acquirer represents and warrants to Company that, except as set forth
in the letter addressed to Company by Acquirer that is executed by an officer of
Acquirer and dated as of the Agreement Date, which has been delivered by
Acquirer to Company concurrently herewith (the "Acquirer Disclosure Letter"),
each of the representations, warranties and statements contained in the
following Sections of this Article 4 is true and correct as of the Agreement
Date and will be true and correct on and as of the Closing Date. For all
purposes of this Agreement, the statements contained in the Acquirer Disclosure
Letter and its schedules shall also be deemed to be representations and
warranties made and given by Acquirer under Article 4 of this Agreement.
4.1 Organization. Acquirer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the power and authority to own, operate and lease its properties and to carry on
its business as now conducted and as proposed to be conducted, and is qualified
to transact business, and is in good standing, as a foreign corporation in each
jurisdiction in which its failure to be so qualified would have a Material
Adverse Effect on Acquirer. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Sub is a
wholly-owned subsidiary of Acquirer, formed solely for the purpose of engaging
in the transactions contemplated hereby and pursuant to the Merger and has no
material liabilities. Neither Acquirer nor Sub is in violation of its
Certificate of Incorporation or Bylaws.
4.2 Power, Authorization and Validity.
(a) Acquirer has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement and each of the
Acquirer Ancillary Agreements. The execution, delivery and performance of this
Agreement and the Acquirer Ancillary Agreements, and the Merger, have been duly
and validly approved and authorized by Acquirer in compliance with Applicable
Law, and this Agreement has been duly executed and delivered by Acquirer. Sub
has the requisite corporate power and authority to enter into and perform its
obligations under this Agreement and all Sub Ancillary Agreements. The issuance
of shares of Acquirer Common Stock in the Merger does not require the approval
of Acquirer's stockholders. Sub has the requisite corporate power and authority
to enter into, execute, deliver and perform its
37
obligations under this Agreement, and each of the Sub Ancillary Agreements. The
execution, delivery and performance of this Agreement and all other Sub
Ancillary Agreements by Sub have been duly and validly approved and authorized
by Sub's Board of Directors and by Acquirer as the sole stockholder of Sub in
compliance with applicable law (including without limitation the DGCL) and Sub's
Certificate of Incorporation and Bylaws, each as amended.
(b) No filing, authorization, consent or approval, governmental or
otherwise, is necessary to enable Acquirer and Sub to enter into, and to perform
their respective obligations under, this Agreement, the Acquirer Ancillary
Agreements or the Sub Ancillary Agreements, except for: (i) such post-closing
filings as may be required to comply with United States federal and state
securities laws; (ii) the filing with the SEC and the effectiveness of any
registration statement under the Securities Act that is required to be filed by
Acquirer after the Effective Time pursuant to the terms and conditions of this
Agreement or the Declaration of Registration Rights; (iii) the filing by
Acquirer of such reports and information with the SEC under the Exchange Act,
and the rules and regulations promulgated by the SEC thereunder, as may be
required in connection with this Agreement, the Merger and the other
transactions contemplated by this Agreement; and (iv) such other consents,
approvals, permits, orders, authorizations, registrations, declarations and
filings, if any, that if not made or obtained by Acquirer or Sub would not be
material to Acquirer's or Sub's ability to consummate the Merger or to perform
their respective obligations under this Agreement, the Acquirer Ancillary
Agreements and the Sub Ancillary Agreements, respectively.
(c) This Agreement and the Acquirer Ancillary Agreements are, or when
executed by Acquirer will be, valid and binding obligations of Acquirer
enforceable against Acquirer in accordance with their respective terms. This
Agreement and the Sub Ancillary Agreements are, or when executed by Sub will be,
valid and binding obligations of Sub enforceable against Sub in accordance with
their respective terms.
4.3 No Conflict. The execution and delivery of this Agreement and the
Acquirer Ancillary Agreements do not, and the consummation of the transactions
contemplated hereby will not, (i) conflict with or result in any violation of
(with or without notice or lapse of time or both) any provision of the
Certificate of Incorporation or Bylaws of Acquirer or Sub; (ii) conflict with or
violate any Applicable Law, judgment, order, or decree applicable to Acquirer or
Sub, or (iii) conflict with or result in any violation of or default (with or
without notice or lapse of time or both) under, or give rise to a right of
termination, cancellation, or acceleration under any material agreement, lease,
mortgage, indenture, lease, contract, instrument, permit, concession, franchise
or license to which Acquirer is a party or by which it is bound, other than in
connection with subsections (ii) or (iii) above, any such conflicts, violations,
defaults, terminations, cancellations, or accelerations which individually or in
the aggregate would not (A) have a material adverse effect on the ability of
Acquirer or Sub to consummate the Merger or (B) reasonably be expected to have a
Material Adverse Effect on Acquirer.
4.4 Absence of Certain Changes. Since March 31, 2002, Acquirer has
conducted its business in the ordinary course consistent with past practice, and
there has not been (i) any Material Adverse Change to Acquirer or (ii) any
amendment or change in the Certificate of Incorporation or Bylaws of Acquirer.
38
4.5 Disclosure. Acquirer has furnished or made available to Company
true and complete copies of Acquirer's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001, all Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K and amendments thereto filed by Acquirer with the SEC since
September 30, 2001 and up to the Agreement Date, if any, and any proxy materials
distributed to Acquirer's stockholders since September 30, 2001 and up to the
Agreement Date, (the "SEC Documents"). The SEC Documents (a) complied in all
material respects, with the requirements of the Securities Act and the Exchange
Act, and (b) did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading, except to the extent corrected by a document subsequently filed with
the SEC. Such SEC Documents, this Agreement, the Acquirer Ancillary Agreements,
the exhibits and schedules hereto and the certificates or documents to be
delivered by Acquirer to Company pursuant to this Agreement, when taken
together, do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which such statements
were made, not misleading. There is no fact not disclosed to Company in the SEC
Documents, this Agreement, the exhibits and schedules hereto and the
certificates or documents to be delivered by Acquirer to Company pursuant to
this Agreement, when taken together, and of which Company is aware which could
have a Material Adverse Effect on Acquirer or any of its Subsidiaries, taken as
a whole. The consolidated financial statements of Acquirer, including the notes
thereto, included in the SEC Documents (the "Acquirer Financial Statements")
complied as to form with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q of the SEC), and fairly and accurately present the consolidated financial
position of Acquirer and its results of operations as of the respective dates
and for the periods indicated thereon (subject in the case of unaudited
statements to normal year-end audit adjustments, which are not material in
amount). Since September 30, 2001, there has been no material change in
Acquirer's accounting policies except as described in the notes to the Acquirer
Financial Statements or in any SEC Document, and Acquirer is not currently
considering any, future change in Acquirer's accounting policies that would
reasonably be expected to have a Material Adverse Effect on Acquirer's financial
condition or results of operations.
4.6 Shares of Acquirer Common Stock. The shares of Acquirer Common
Stock to be issued pursuant to the Merger will be duly authorized, and when the
share certificates in respect of such shares of Acquirer Common Stock are issued
in accordance with the terms hereof, will be validly issued, fully paid and
nonassessable.
4.7 No Undisclosed Liabilities. Acquirer has no Liabilities, except for
(i) those set forth in the Acquirer Financial Statements and (ii) those incurred
in the ordinary course of business since March 31, 2002, consistent with past
practice and liabilities incurred in connection with this Agreement.
4.8 Litigation. Other than those described in the SEC Documents, there
is no action, suit, or proceeding of any nature pending or, to Acquirer's
knowledge, threatened against Acquirer or any Subsidiary, except as could not
reasonably be expected to result in a Material Adverse Effect on Acquirer.
39
4.9 Intellectual Property. To the knowledge of Acquirer, the
Intellectual Property Rights owned by Acquirer or licensed to Acquirer in the
conduct of the Acquirer Business (the "Acquirer IP Rights") are sufficient for
such conduct of the Acquirer Business, and the consummation of the Merger and
the other transactions contemplated by this Agreement and the Acquirer Ancillary
Agreements will not result in any termination of or other material restriction
being imposed on any of the Acquirer IP Rights, except as could not reasonably
be expected to result in a Material Adverse Effect on Acquirer. To the knowledge
of Acquirer, the use, development, manufacture, marketing, license, or sale of
any product or service currently licensed, utilized, sold, provided or furnished
by Acquirer or any of its Subsidiaries (i) does not constitute a material breach
of or default under any Contract between Acquirer or its Subsidiaries and any
other Person and (ii) does not infringe or misappropriate any Intellectual
Property Right of any other Person.
4.10 Customers. Acquirer has no outstanding material disputes
concerning its products and/or services with any customer who, in the year ended
September 30, 2001 or the nine months ended June 30, 2002 was on of the twenty
(20) largest sources of revenue invoiced or invoiceable for Acquirer in such
periods (an "Acquirer Significant Customer"). Company has not as of the date of
this Agreement been informed by any Acquirer Significant Customer that such
customer will not continue as a customer of Acquirer or that any such customer
intends to terminate or materially modify existing Contracts with Acquirer.
4.11 Capitalization. The authorized capital stock of Acquirer consists
solely of 60,000,000 shares of Acquirer Common Stock and 5,000,000 shares of
Acquirer Preferred Stock. As of July 29, 2002, a total of 26,153,827 shares of
Acquirer Common Stock are issued and outstanding. As of the Agreement Date,
there are no shares of Acquirer Preferred Stock issued and outstanding. As of
July 29, 2002, a total of 14,968,953 shares of Acquirer Common Stock are
reserved for issuance upon the exercise or conversion of outstanding convertible
stock, convertible debt, options, warrants or other rights thereto (whether or
not such rights are vested or exercisable), including any shares of Acquirer
Common Stock reserved for issuance under Acquirer's stock plans that are not
subject to outstanding grants. In addition, Acquirer has adopted the Rights
Agreement by and between Acquirer and Wells Fargo N.A., as rights agent, dated
as of April 20, 2001 (as it may have been amended through the date hereof, the
"Stockholder Rights Plan"). Since July 29, 2002, there has been no material
increase in the aggregate number of shares of Acquirer Common Stock outstanding
or reserved for issuance upon the exercise or conversion of outstanding
convertible stock, convertible debt, options, warrants or other rights thereto
(whether or not such rights are vested or exercisable) or pursuant to Acquirer's
stock plans.
40
ARTICLE 5
Pre-Closing Covenants of Company
Company covenants and agrees with Acquirer and Sub that, except as may
be consented to by Acquirer in a writing signed by an officer of Acquirer,
during the time period from the Agreement Date until the earlier to occur of (a)
the Effective Time, or (b) the termination of this Agreement in accordance with
the provisions of Article 10:
5.1 Advice of Changes. Company will promptly advise Acquirer in
writing of (a) any event occurring after the Agreement Date that would render
any representation or warranty of Company contained in this Agreement that (i)
is qualified by materiality to be untrue or inaccurate and (ii) is not qualified
by materiality to be untrue or inaccurate in any material respect, in either
case if made on or as of the date of such event or the Closing Date; (b) any
breach of any covenant or obligation of Company pursuant to this Agreement, any
Company Ancillary Agreement; and (c) any event, change, violation, inaccuracy,
circumstance or effect that has or can reasonably be expected to have a Material
Adverse Effect on Company and its Subsidiaries, taken as a whole.
5.2 Maintenance of Business. The parties hereto understand and
acknowledge that it is their intent to work closely together during the time
period from the Agreement Date until the Closing Date. If Company becomes aware
of a material deterioration in the relationship with any Significant Customer,
Key Employee, Continuation Employee, Management Employee or significant number
of other employees of Company or any of its Subsidiaries, it will promptly bring
such information to the attention of Acquirer in writing and, if requested by
Acquirer, will exert all reasonable efforts to restore and retain the
relationship.
5.3 Conduct of Business. Company will continue to conduct its business
in the ordinary course, consistent with past practice and, to the extent
consistent therewith, use all reasonable efforts to carry on and preserve intact
its current business organization, keep available the services of its current
officers and employees and preserve its relationship with customers, suppliers,
licensors, licensees, distributors and others with whom Company or any of its
Subsidiaries have contractual or other commercial relations in substantially the
same manner as they have prior to the Agreement Date consistent with past
practices. Without limiting the foregoing, before the Closing, Company and its
Subsidiaries will not, without the prior written consent of Acquirer's Chief
Executive Officer enter into any transaction or Contract, make any payment or
take any action out of the ordinary course of business, consistent with past
practice, including:
(a) incur any Liability as guarantor or surety with respect to any
obligation except for the endorsement of checks and other negotiable instruments
in the ordinary course of business, consistent with past practice, which are not
material in amount;
(b) incur any Liability (other than Liabilities incurred in order
for Company to perform its obligations under this Agreement and which will not
have a Material Adverse Effect on Company) other than in the ordinary course of
business, consistent with past practice or incur indebtedness for borrowed
money;
41
(c) make any loan, advance or capital contribution to, or invest
in, any Person, other than travel loans or advances or other reimbursable
expenses or advances made to employees in the ordinary course of business,
consistent with past practice and consistent with Company's expense
reimbursement policy as previously disclosed to Acquirer (which expenses will be
documented by receipts for the claimed amounts in accordance with past
practice);
(d) place any Encumbrance on any of its properties or grant any
Encumbrance with respect to any of its assets;
(e) sell, transfer or otherwise dispose of any of its assets;
(f) declare, set aside or pay any dividend on, or make any other
distribution in respect of, its capital stock, split, combine or recapitalizes
its capital stock or directly or indirectly redeem, purchase or otherwise
acquire its capital stock;
(g) amend, terminate or not renew any Contract or other right or
obligation except for (i) those amended or terminated in the ordinary course of
Company's business, consistent with its past practices, or (ii) those amended to
enable Company to satisfy any condition to the consummation of the Merger set
forth in Article 8 or 9 which shall not have any material impact on Company's
business or financial condition;
(h) enter into any Contract for the purchase or sale of any
property, real or personal, tangible or intangible or license any of its
technology or Intellectual Property except for licenses of products made in the
ordinary course of Company's business on terms consistent with Company's past
practices, or acquire any Intellectual Property (or any license thereto) from
any third party;
(i) pay or discharge any Encumbrance or Liability outside the
ordinary course of business, consistent with past practice;
(j) incur any Liability to any of its officers, directors or
stockholders;
(k) amend or change its Certificate of Incorporation or Bylaws or
similar charter documents;
(l) defer the payment of any accounts payable outside the ordinary
course of business or in an amount which is material, or provide any discount,
accommodation or other concession outside the ordinary course of business in
order to accelerate or induce the collection of any account receivable;
(m) terminate the employment of any Key Employee or Continuation
Employee;
(n) sell, issue, create, grant or authorize the issuance or grant
of (i) any shares of its capital stock of any class or series or other security
(other than pursuant to the exercise of outstanding Company Options and Company
Warrants outstanding on the Agreement Date and identified on Schedule 3.4(b)-1
and Schedule 3.4(b)-2 of the Company Disclosure Letter), (ii) any option, call,
warrant, obligation, subscription or other right to acquire any capital stock or
any other security, or (iii) any instrument convertible into or exchangeable for
any capital stock or other security;
42
(o) pay any bonus, royalty, increased salary, severance or special
remuneration or incur any Liability to any officer, director, employee,
consultant or independent contractor (except as is already accrued or pursuant
to existing Contracts disclosed in the Company Disclosure Letter) or amend any
existing or enter into any new employment, consulting or severance agreement
with any such person, or enter into any new Contract or plan of the type
described in Section 3.18(b);
(p) increase or modify any bonus, pension, insurance or other
employee benefit plan, payment or arrangement (including the grant of stock
options, restricted stock awards or stock appreciation rights) made to, for or
with any of its officers, directors, employees, consultants or independent
contactors;
(q) modify or change the exercise or conversion rights or exercise
or purchase prices of any of its capital stock or other securities, or
accelerate or otherwise modify (i) the vesting of or right to exercise any
option, warrant or other right to purchase any of its capital stock or other
securities or (ii) the vesting or release of any shares of its capital stock or
other securities from any repurchase options or rights of refusal held by it or
any other party or any other restrictions;
(r) subdivide or split or combine or reverse split the outstanding
shares of its capital stock of any class or series or enter into any
recapitalization affecting the number of outstanding shares of its capital stock
of any class or series or affecting any other of its securities;
(s) change accounting methods or policies or revalue, write off
or write up the value of any inventory, accounts receivable or other assets;
(t) declare, set aside or pay any cash or stock dividend or other
distribution in respect of its capital stock; redeem, repurchase or otherwise
acquire any of its capital stock or other securities (except as required by this
Agreement for the repurchase of stock from employees, directors, consultants or
contractors of Company in connection with the termination of their services with
Company at the original purchase price of such stock); pay or distribute any
cash or property to any of its stockholders or security holders or make any
other cash payment to any of its stockholders or security holders (except for
the payment of salaries in the ordinary course of business, consistent with past
practice, to employees who are Company Stockholders);
(u) waive or release any material right or claim;
(v) merge, consolidate or reorganize with, or acquire, any Person;
(w) make or change any material election in respect of taxes,
adopt or change any accounting method in respect of taxes, enter into any
closing agreement, settle any claim or assessment in respect of taxes, or
consent to the extension or waiver of the limitation period applicable to any
claim or assessment in respect of taxes;
(x) change any insurance coverage or issue any certificates of
insurance (except for the planned renewal of existing policies on terms not
materially different from those in effect on the Agreement Date);
43
(y) commence a lawsuit other than (i) for the routine collection
of bills, or (ii) in such cases where it in good faith determines that failure
to commence suit would result in the material impairment of a valuable aspect of
the Company Business; provided that it consults with Acquirer before the filing
of such a suit; or
(z) agree, or enter into any negotiations, discussions or
agreement, to do any of the things described in the preceding clauses 5.3(a)
through 5.3(z).
5.4 Regulatory Approvals. Company will, and Company will cause each of
its Subsidiaries to, promptly execute and file, or join in the execution and
filing of, any application, notification or other document that may be necessary
in order to obtain the authorization, approval or consent of any Governmental
Authority which may be reasonably required, or which Acquirer may reasonably
request, in connection with the consummation of the transactions provided for
herein. Company will use all reasonable efforts to obtain, or assist Acquirer in
obtaining, all such authorizations, approvals and consents.
5.5 Necessary Consents. Company will use all reasonable efforts to
obtain such written consents and authorizations from third parties (including
those listed in Schedule 3.3 and Schedule 3.5 of the Company Disclosure Letter),
give notices to third parties and take such other actions as may be necessary or
appropriate, in addition to those set forth in this Article 5, to facilitate and
effect the consummation of the transactions provided for herein and to
facilitate and allow Acquirer and the Surviving Corporation to carry on the
Company Business after the Effective Time and to keep in effect and avoid the
breach, violation of, termination of, or adverse change to any Contract to which
Company or any of its Subsidiaries is a party or is bound or by which any of
their respective assets are bound.
5.6 Litigation. Company will notify Acquirer in writing promptly after
learning of any claim, action, suit, arbitration, mediation, proceeding or
investigation by or before any Governmental Authority initiated by or against it
or any of its Subsidiaries, or known by Company to be threatened against
Company, any of its Subsidiaries or any of their respective officers, directors,
employees or stockholders in their capacity as such.
5.7 No Other Negotiations.
(a) Company and its Subsidiaries will not, nor will they authorize
or permit any of their respective officers, directors, affiliates or employees
or any investment banker, attorney or other advisor or representative retained
by any of them to, directly or indirectly, (i) solicit, initiate, encourage or
induce the making, submission or announcement of any Acquisition Proposal (as
defined below) or take any other action that could reasonably be expected to
lead to an Acquisition Proposal, (ii) consider any inquiry, offer or proposal
concerning any Acquisition Proposal (other than to respond to such inquiry,
offer or proposal by indicating that Company and its Subsidiaries are not
interested in any Acquisition Proposal); (iii) furnish any information regarding
Company or any of its Subsidiaries to any Person (other than Acquirer) in
connection with or in response to any inquiry, offer or proposal for or
regarding an Acquisition Proposal (other than to respond to any inquiry, offer
or proposal by indicating that Company and its Subsidiaries are not interested
in any Acquisition Proposal); (iv) participate in
44
any discussions or negotiations regarding, or furnish to any Person any
information with respect to, or take any other action to facilitate any
inquiries or the making of, any Acquisition Proposal, (v) cooperate with,
facilitate or encourage any effort or attempt by any Person (other than
Acquirer) to effect any Acquisition Proposal; (vi) approve, endorse or recommend
any Acquisition Proposal; or (vii) execute, enter into or become bound by any
letter of intent or similar document or any Contract contemplating or otherwise
relating to any Acquisition Proposal; provided, however, that notwithstanding
the foregoing, before the approval of this Agreement and the Merger by the
Company Stockholders, this Section 5.7(a) will not prohibit Company from
furnishing nonpublic information regarding Company and its Subsidiaries to, or
entering into discussions or negotiations with, any Person or group who has
submitted (and not withdrawn) to Company an unsolicited, written, bona fide
Acquisition Proposal that Company's Board of Directors reasonably and in good
faith concludes (after consultation with a financial advisor of national
standing) may constitute a Superior Offer (as defined below) if (A) neither
Company nor any representative of Company or any of its Subsidiaries will have
violated any of the restrictions set forth in this Section 5.7, (B) Company's
Board of Directors concludes in good faith, after consultation with its outside
legal counsel, that such action is required in order for Company's Board of
Directors to comply with its fiduciary obligations to the Company Stockholders
under Applicable Law, (C) before furnishing any such nonpublic information to,
or entering into any such discussions or negotiations with, such Person or
group, Company gives Acquirer at least two (2) business days advance written
notice of (i) the identity of such Person or group and all of the material terms
and conditions of such Acquisition Proposal and of Company's intention to
furnish nonpublic information to, or enter into discussions or negotiations
with, such Person or group, and Company receives from such Person or group an
executed confidentiality agreement containing terms at least as restrictive with
regard to Company's confidential information as the Confidentiality Agreement
and (ii) its intent to furnish such nonpublic information or enter into such
discussions or negotiations, and (D) contemporaneously with furnishing any such
nonpublic information to such Person or group, Company furnishes such nonpublic
information to Acquirer (to the extent such nonpublic information has not been
previously furnished by Company to Acquirer). Company and its Subsidiaries will
immediately cease any and all existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any Acquisition Proposal.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in this Section 5.7(a) by any officer, director,
affiliate or employee of Company or any of its Subsidiaries or any investment
banker, attorney or other advisor or representative of Company or any of its
Subsidiaries will be deemed to be a breach of this Section 5.7(a) by Company.
(b) In addition to the obligations of Company set forth in Section
5.7(a), Company as soon as reasonably practicable (and in no event more than one
(1) business day thereafter) will advise Acquirer orally and in writing of any
Acquisition Proposal or of any request for nonpublic information which Company
reasonably believes could lead to an Acquisition Proposal, or any inquiry with
respect to or which Company reasonably should believe would lead to any
Acquisition Proposal, the material terms and conditions of such Acquisition
Proposal, request or inquiry, and the identity of the Person or group making any
such request, Acquisition Proposal or inquiry. Company will keep Acquirer
informed as promptly as reasonably practicable in all material respects of the
status and details (including material amendments or proposed amendments) of any
such Acquisition Proposal, request or inquiry.
45
(c) Nothing herein will prevent Company's Board of Directors from
withholding, withdrawing, amending or modifying its recommendation in favor of
the Merger if (i) a Superior Offer is made to Company and is not withdrawn, (ii)
Company will have provided two (2) business days advance written notice to
Acquirer (a "Notice of Superior Offer") advising Acquirer that Company has
received a Superior Offer, specifying all of the material terms and conditions
of such Superior Offer and identifying the Person making such Superior Offer,
(iii) Acquirer will not have, within ten (10) business days of Acquirer's
receipt of the Notice of Superior Offer, made an offer that Company's Board of
Directors by a majority vote reasonably determines in its good faith judgment
(after consultation with a financial advisor of national standing) to be at
least as favorable to the Company Stockholders as such Superior Offer (it being
agreed that Company's Board of Directors will convene a meeting to consider any
such offer by Acquirer promptly following the receipt thereof), (iv) Company's
Board of Directors concludes in good faith, after consultation with its outside
counsel that, in light of such Superior Offer, the withholding, withdrawal,
amendment or modification of such recommendation is required in order for
Company's Board of Directors to comply with its fiduciary obligations to the
Company Stockholders under applicable law, and (v) Company will not have
violated any of the restrictions set forth in Section 5.7(a) or this Section
5.7(c). Company will provide Acquirer with at least two (2) business days prior
written notice of any meeting of Company's Board of Directors at which Company's
Board of Directors is reasonably expected to consider any Acquisition Proposal
to determine whether such Acquisition Proposal is a Superior Offer. Nothing
contained in this Section 5.7 will limit Company's obligation to hold and
convene the Company Stockholders Meeting (or to solicit the Company Stockholder
Vote by written consent), regardless of whether the recommendation of Company's
Board of Directors will have been withdrawn, amended or modified.
For purposes of this Agreement, the term "Superior Offer"
means an unsolicited, bona fide written offer made by a Person to consummate any
of the following transactions: (i) a merger or consolidation involving Company
pursuant to which the stockholders of Company immediately preceding such
transaction hold less than fifty percent (50%) of the equity interests in the
surviving or resulting entity of such transaction, or (ii) the acquisition by
any Person or group (including by way of a tender offer or an exchange offer or
a two-step transaction involving a tender offer followed with reasonable
promptness by a merger involving Company), directly or indirectly, of ownership
of one hundred percent (100%) of the then outstanding shares of Company Common
Stock and Company Preferred Stock, on terms that Company's Board of Directors
determines, in its reasonable judgment (after consultation with a financial
advisor of national standing), to be more favorable to the Company Stockholders
than the terms of the Merger; provided, however, that any such offer will not be
deemed to be a "Superior Offer" if any financing required to consummate the
transaction contemplated by such offer is not committed and is not likely in the
reasonable judgment of Company's Board of Directors (after consultation with a
financial advisor of national standing) to be obtained by such Person on a
timely basis.
46
5.8 Access to Information. Company will provide Acquirer and its agents
with full access at reasonable times to the files, books, records, technology,
assets, Contracts, personnel and offices of Company and its Subsidiaries,
including any and all information relating to taxes, commitments, Contracts,
real, personal and intangible property, Liabilities and financial condition.
Company will cause its accountants to cooperate with Acquirer and its agents in
making available all financial information reasonably requested by Acquirer,
including all working papers pertaining to all financial statements prepared or
audited by such accountants.
5.9 Satisfaction of Conditions Precedent. Company will use all reasonable
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Article 9 as promptly as reasonably possible, and will use all
reasonable efforts to cause the transactions provided for herein to be
consummated as promptly as reasonably possible.
5.10 Securities Laws. Company will use all commercially reasonable efforts
to assist Acquirer, to the extent necessary, to comply with the securities laws
of all jurisdictions applicable in connection with the Merger; provided,
however, that Acquirer will be responsible for all costs and expenses associated
with such compliance (whether occurring before or after the Closing).
5.11 Employees. Company will use its best efforts to promptly implement and
perform the Employee Transition Plan that has been previously developed with,
and approved by, Acquirer (the "Employee Transition Plan") in full accordance
with the schedule contemplated therein. Company will use all reasonable efforts
to retain the employment of the Continuation Employees and to secure their
continued employment after the Closing by Acquirer, and Company will promptly
notify Acquirer if it becomes aware that any Continuation Employee intends to
leave the employ of Company or any of its Subsidiaries. Company will use all
reasonable efforts to cause each of the Key Employees to execute and deliver to
Acquirer a non-competition agreement in the form attached hereto as Exhibit F
(the "Noncompetition Agreement").
5.12 Employee Plans. Company will terminate, effective at least one day
before the Closing, any and all Employee Plans intended to include a Code
Section 401(k) arrangement. Upon Acquirer's written request provided no later
than two (2) days prior to the Effective Time, Company will terminate,
immediately before the Effective Time, any and all leased employee arrangements.
5.13 Intentionally Omitted.
5.14 Approval of the Company Stockholders.
(a) Promptly after the Agreement Date, Company will take all action
necessary in accordance with Delaware Law and its Certificate of Incorporation
and Bylaws to call, notice, convene, hold and conduct a meeting of the Company
Stockholders (the "Company Stockholders Meeting") to be held as soon as
practicable, and in no event later than July 30, 2002 for the purpose of voting
upon approval and adoption of this Agreement and approval of the Merger. In lieu
of the Company Stockholders Meeting, such approval by the Company
47
Stockholders may be obtained by the written consent of the Company Stockholders
by no later than July 30, 2002 (the "Company Stockholders Vote") where
authorized by Delaware Law and the Certificate of Incorporation and Bylaws of
Company.
(b) Subject to Section 5.7(c), Company's Board of Directors will
recommend that the Company Stockholders vote in favor of and approve and adopt
this Agreement and approve the Merger at the Company Stockholders Meeting or in
the Company Stockholders Vote. Subject to Section 5.7(c), the Information
Statement will include a statement to the effect that Company's Board of
Directors has recommended that the Company Stockholders vote in favor of and
approve and adopt this Agreement and approve the Merger at the Company
Stockholders Meeting or in the Company Stockholders Vote.
(c) Company will solicit from the Company Stockholders proxies in
favor of the approval and adoption of this Agreement and the approval of the
Merger, and will use all reasonable efforts to take all other action necessary
to secure the vote or consent of the Company Stockholders required by Delaware
Law to obtain such approvals. Company will ensure that, as applicable, (i) the
Company Stockholders Meeting is called, noticed, convened, held and conducted in
accordance with Applicable Laws and Company's certificate of incorporation and
bylaws, each as amended, before and separate from any meeting of the Company
Stockholders at which any Acquisition Proposal is considered or voted upon or
(ii) the Company Stockholder Vote is properly solicited and obtained in
accordance with Applicable Laws and Company's certificate of incorporation and
bylaws, each as amended. All proxies solicited by Company in connection with the
Company Stockholders Meeting will be solicited in compliance with Delaware Law,
its certificate of incorporation and bylaws, and all other applicable legal
requirements. Company's obligation to call, give notice of, convene, hold and
conduct the Company Stockholders Meeting in accordance with this Section 5.14
(or to solicit the Company Stockholder Vote by written consent) will not be
limited to or otherwise affected by the commencement, disclosure, announcement
or submission to Company of any Acquisition Proposal (including a Superior
Offer) or by any withdrawal, amendment or modification of the recommendation of
Company's Board of Directors to the Company Stockholders to approve this
Agreement and the Merger.
(d) Company will use commercially reasonable efforts to have any
payment or benefit under any Contract, including those entered into in
connection with this Agreement, the Merger and the transactions contemplated
hereby approved by such percentage of Company's outstanding voting securities as
is required by the terms of Section 280G(b)(5)(B) of the Code to avoid the
treatment of such payment or benefit, as a parachute payment under the federal
tax laws, and to cause such stockholder approval to have been obtained in a
manner which satisfies all applicable requirements of Section 280G(b)(5)(B) of
the Code and the proposed Treasury Regulations thereunder, including Q-7 of
Section 1.280G-1 of such proposed regulations.
(e) Company will use its best efforts to have the bonus payments
pursuant to Company's Employee Retention Bonus Plan approved by such number of
Company's outstanding voting securities as would be required to amend Company's
certificate of incorporation to add such Employee Retention Bonus Plan as
liquidation preference senior to the Company Series 3 Preferred Stock.
48
(f) Company will use its best efforts to have the payment of cash to
Unaccredited Company Stockholders in lieu of Acquirer Common Stock pursuant to
Section 2.9(b) approved by each Company Stockholder that will receive Acquirer
Common Stock pursuant to this Agreement and the Merger.
5.15 Closing Capitalization Certificate. At least one (1) day prior to the
Closing Date, Company will deliver the Closing Capitalization Certificate to
Acquirer.
5.16 Closing Certificate. At least one (1) day prior to the Closing Date,
Company will deliver a draft of the Closing Certificate to Acquirer.
5.17 Investment Representation Letters. Company shall use reasonable
efforts to cause each Company Stockholder to deliver an Investment
Representation Letter to Acquirer prior to the Closing Date.
ARTICLE 6
Covenants of Acquirer
6.1 Pre-Closing Covenants. Acquirer covenants to and agrees with Company
that, except as may be consented to by Company in a writing signed by an officer
of Company, during the period from the Agreement Date until the earlier to occur
of (i) the Effective Time, or (ii) the termination of this Agreement in
accordance with the provisions of Article 10:
(a) Advice of Changes. Acquirer will promptly advise Company in
writing of (a) any event occurring after the Agreement Date that would render
any representation or warranty of Acquirer or Sub contained in this Agreement
that (i) is qualified by materiality to be untrue or inaccurate and (ii) is not
qualified by materiality to be untrue or inaccurate in any material respect, in
either case if made on or as of the date of such event or the Closing Date; (b)
any material breach of any covenant or obligation of Acquirer under this
Agreement or any Acquirer Ancillary Agreement; and (c) any Material Adverse
Change in Acquirer.
(b) Regulatory Approvals. Acquirer will promptly execute and file, or
join in the execution and filing of, any application, notification or other
document that may be necessary in order to obtain the authorization, approval or
consent of any Governmental Authority which may be reasonably required, or which
Company may reasonably request, in connection with the consummation of the
transactions provided for herein and will use all reasonable efforts to obtain
all such authorizations, approvals and consents. Acquirer will use all
reasonable efforts to obtain, or assist Company in obtaining, all such
authorizations, approvals and consents.
(c) Necessary Consents. Acquirer will use all reasonable efforts to
obtain such written consents and authorizations from third parties, if any, and
take such other actions as may be necessary or appropriate, in addition to those
set forth in Article 6, to facilitate and allow the consummation of the
transactions provided for herein.
(d) Satisfaction of Conditions Precedent. Acquirer will use all
reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Article 8 as promptly as reasonably possible,
and will use all reasonable efforts to cause the transactions provided for
herein to be consummated as promptly as reasonably possible.
49
(e) Conduct of Business. Neither Acquirer nor any Subsidiary of
Acquirer will:
(i) incur any material indebtedness for borrowed money;
(ii) amend or change its Certificate of Incorporation or Bylaws
or similar charter documents;
(iii) declare, set aside, or pay any cash or stock dividend or
other distribution in respect of its capital stock; redeem, repurchase or
otherwise acquire any of its capital stock or other securities (except for the
repurchase of stock from employees, directors, consultants, or contractors of
Company in connection with the termination of their services with Company at the
original purchase price of such stock); pay or distribute any cash or property
to any of its stockholders or security holders or make any other cash payment to
any of its stockholders or security holders (except for the payment of salaries
or bonuses in the ordinary course of business, consistent with past practice, to
employees who are Company Stockholders); provided that the restrictions
contained in this Section 6.5 shall not apply to the actions pursuant to the
Rights Agreement by and between Acquirer and Wells Fargo N.A., as rights agent,
dated as of April 20, 2001 (as it may have been amended through the date
hereof); and
(iv) agree to do any of the things described in the preceding
Sections 6.1(e)(i) through 6.1(e)(iii).
6.2 Employee Benefit Arrangements. As soon as practicable after the
Agreement Date, Company and Acquirer shall confer and work together in good
faith to agree upon mutually acceptable employee benefit and compensation
arrangements. Following the Effective Time, Acquirer, in its sole discretion,
shall either (i) continue (or cause the Surviving Corporation to continue) to
maintain the employment agreements, pension, retirement, disability, medical,
dental or other health plans, life insurance or other death benefit plans,
deferred compensation agreements, profit sharing plans, bonus plans, vacation,
sick, holiday or other paid leave plans, severance plans or other similar
employee benefit plans maintained by Company and its Subsidiaries, including all
"employee benefit plans" as defined in Section 3(3) of ERISA (the "Employee
Benefit Arrangements") on substantially the same terms in the aggregate as in
effect immediately prior to the Effective Time for the participants that
continue as employees of Company or become employees of Acquirer after the
Effective Time, provided that nothing herein shall be deemed to require Acquirer
to continue any Employee Benefit Arrangement required by the terms of this
Agreement to be terminated prior to the Effective Time, or (ii) arrange for each
participant in the Company Employee Benefit Arrangements that continues as an
employee of the Surviving Corporation or becomes an employee of Acquirer after
the Effective Time ("Company Participants") to participate in any similar plans
of the Acquirer ("Acquirer Plans") on terms no less favorable than those offered
to similarly situated employees of Acquirer, or (iii) arrange for a combination
of clauses (i) and (ii). Each Company Participant who continues to be employed
by the Surviving Corporation or Acquirer or any of its subsidiaries
50
immediately following the Effective Time shall, to the extent permitted by law
and applicable tax qualification requirements, and subject to any generally
applicable break in service or similar rule, receive credit for purposes of
eligibility to participate and vesting under the Acquirer Plans, including
vacation accruals, for years of service with Company. To the extent consistent
with law and applicable tax qualification requirements, Acquirer shall use
commercially reasonable efforts to cause any and all pre-existing condition
limitations, eligibility waiting periods and evidence of insurability
requirements under any group health plans to be waived with respect to such
Company Participants and their eligible dependents and shall provide them with
credit for any co-payments and deductibles prior to the Effective Time for
purposes of satisfying any applicable deductible, out-of-pocket, or similar
requirements under any Acquirer Plans in which they are eligible to participate
immediately after the Effective Time. Notwithstanding any of the foregoing to
the contrary, none of the provisions contained herein shall operate to duplicate
any benefit provided to any employee of Company or the funding of and such
benefit. In the event that Acquirer determines to terminate any of the former
Company employees providing transition services to Acquirer without payment of
severance, the Acquirer will review such determination with Mr. Vetras. In the
event that Mr. Vetras disagrees with such determination, such determination will
be reviewed by Messrs. Fogelsong and Harman.
6.3 Indemnification. From and after the Effective Time, Acquirer and/or the
Surviving Corporation shall fulfill the obligations of Company to indemnify each
person who is or was a director or officer of Company against losses such person
may incur based upon matters existing or occurring prior to the Effective Time
pursuant to (and subject to the terms and conditions hereof) any applicable
indemnification agreements and any indemnification provision of the certificate
of incorporation or bylaws of Company as each is in effect on the date hereof.
For a period of two years after the Effective Time, Acquirer will cause the
Surviving Company to use commercially reasonable efforts to maintain in effect,
if available, directors' and officers' liability insurance covering those
persons who are currently covered by Company's directors' and officers'
liability insurance policy solely for claims arising from acts or omission
occurring before the Effective Time on terms comparable to those applicable to
the current directors and officers of Company, provided that Company, Acquirer
or the Surviving Corporation shall not be required to pay an aggregate premium
therefor (covering both years) in excess $74,000 but shall, in such event,
maintain such coverage as can be purchased for such amount.
6.4 Nasdaq Listing. Within five (5) days of the Closing Date, Acquirer
shall file a Notification of Additional Shares with NASDAQ regarding the shares
of Acquirer Common Stock to be issued in connection with the Merger.
6.5 Retention Bonus Recapture. In the event that any bonus under Company's
Employee Retention Bonus Plan payable to a Continuation Employee after the
Closing Date (which bonus is specified in the Schedule of Retention Bonus
Allocation included in the Company Disclosure Letter) is forfeited to,or
otherwise is not required to be paid by, Acquirer or the Surviving Corporation
pursuant to the terms of such plan, 190 days following the Effective Time,
Acquirer will make available to Wells Fargo, N.A. (or such other Person as
Acquirer appoints) cash in an amount equal to the Retention Bonus Recapture Cash
Amount. Acquirer will cause Wells Fargo, N.A. (or such other Person) to mail to
each holder of record (at the Effective Time) of a Certificate (as defined in
Section 7.2(b)) which represented shares that were
51
converted into the right to receive, inter alia, cash pursuant to Section
2.2(b)(i)(C), a check payable in an amount equal to the portion of the Retention
Bonus Recapture Cash Amount payable to such Company Stockholder. The aggregate
amount of cash to be received by each Company Stockholder will be computed after
aggregating all cash to be received by such Company Stockholder pursuant to
Section 2.2(b)(i)(C) in accordance with the foregoing, rounded down to the
nearest whole cent.
ARTICLE 7
Closing Matters
7.1 The Closing. Subject to termination of this Agreement as provided in
Article 10, the Closing will take place at the offices of Fenwick & West LLP,
Two Palo Alto Square, Palo Alto, California 94306 on the Closing Date.
Immediately upon the Closing, the Certificate of Merger will be filed with the
Delaware Secretary of State. Accordingly, the Merger will become effective at
the Effective Time.
7.2 Conversion of Shares and Exchange of Certificates.
(a) As of the Effective Time, all shares of Company Series 3 Preferred
Stock that are outstanding immediately prior thereto will, by virtue of the
Merger and without further action, cease to exist, and all such shares will be
automatically converted into the right to receive from Acquirer, and will be
exchangeable for, the amount of cash and the number of shares of Acquirer Common
Stock as set forth in Section 2.2(b), subject to Sections 2.2(d), 2.2(e), 2.3,
2.4 and 2.9.
(b) At and after the Effective Time, each certificate representing
outstanding shares of Company Series 3 Preferred Stock will represent the right
to receive cash and share certificates covering the number of shares of Acquirer
Common Stock as determined pursuant to Section 2.2(b), subject to Sections
2.2(d), 2.2(e), 2.3, 2.4 and 2.9, for which such shares of Company Series 3
Preferred Stock have been or will be exchanged, and such shares of Acquirer
Common Stock will be registered in the name of the holder of such certificate.
Acquirer will make available to Wells Fargo, N.A. (or such other Person as
Acquirer appoints, subject to approval of the Representative which will not be
unreasonably withheld, as exchange agent prior to the Closing) (the "Exchange
Agent") certificates representing shares of Acquirer Common Stock to be issued
in exchange for outstanding shares of Company Common Stock and cash in an amount
equal to the Cash Consideration plus an amount sufficient to permit the payment
of cash in lieu of fractional shares pursuant to Section 2.2(e). As soon as
practicable after the Effective Time, Acquirer will cause to be mailed to each
holder of record of a certificate or certificates which immediately before the
Effective Time represented outstanding shares of Company Series 3 Preferred
Stock (the "Certificates") and which shares were converted into the right to
receive cash and shares of Acquirer Common Stock pursuant to Section 2.2(b), (i)
a letter of transmittal in customary form (which will specify that delivery will
be effected, and risk of loss and title to the Certificates will pass, only upon
delivery of the Certificates to the Exchange Agent and will be in form and have
such other provisions as Acquirer may reasonably specify and, if such Company
Stockholder has not previously executed and delivered to Acquirer the applicable
Investment Representation Letter, contain an agreement to be bound by the
provisions
52
of the applicable Investment Representation Letters) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Acquirer Common Stock and cash (including cash in lieu of
fractional shares). Upon surrender of a Certificate for cancellation or upon
delivery of an affidavit of lost certificate and an indemnity with respect to
such lost certificate in form and substance satisfactory to Acquirer (the
"Affidavit") (together with any required Form W-9 or Form W-8) to the Exchange
Agent or to such other agent or agents as may be appointed by Acquirer, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the Exchange Agent will (i) issue to
each tendering Series 3 Preferred Stock holder (a "Series 3 Holder") of a
Certificate or an Affidavit (each, a "Tendering Company Holder"), certificates
for the number of shares of Acquirer Common Stock to which such holder is
entitled pursuant to Section 2.2(b), subject to Sections 2.2(d), 2.2(e), 2.3,
2.4 and 2.9, and (ii) pay by check to each Tendering Company Holder cash in the
amount payable to such Tendering Company Holder in accordance with Sections
2.2(b), 2.2(e), 2.4 and 2.9.
(c) All share certificates covering the number of shares of Acquirer
Common Stock and any cash (and, if applicable, cash in lieu of fractional
shares) as determined pursuant to Section 2.2(b), subject to Sections 2.2(d),
2.2(e), 2.3, 2.4 and 2.9, to be delivered upon the surrender of Certificates in
accordance with the terms hereof will be delivered to the registered Series 3
Holders of such Certificates. After the Effective Time, there will be no further
registration on the stock transfer books of Company of transfers of any shares
of Company Capital Stock that were issued or outstanding prior to the Effective
Time.
(d) Subject to Section 7.2(c), until Certificates representing Company
Series 3 Preferred Stock outstanding before the Merger are surrendered pursuant
to Section 7.2(b), such Certificates will be deemed, for all purposes, to
evidence only ownership of (i) the right to receive cash and share certificates
covering the number of shares of Acquirer Common Stock for which the shares of
Company Series 3 Preferred Stock are to be exchanged pursuant to Section 2.2(b)
in accordance with this Article 7, subject to Sections 2.2(d), 2.2(e), 2.3, 2.4
and 2.9, and (ii) if applicable, cash in lieu of fractional shares.
(e) No dividends or distributions payable to holders of record of
shares of Acquirer Common Stock after the Effective Time will be paid to the
holder of any unsurrendered Certificate unless and until the holder of such
unsurrendered Certificate surrenders such Certificate or an Affidavit to
Acquirer as provided above. Subject to the effect, if any, of applicable escheat
and other laws, following surrender of any Certificate or Affidavit, there will
be delivered to the Person entitled thereto, without interest, the amount of any
dividends and distributions theretofore paid with respect to shares of Acquirer
Common Stock so withheld as of any date after the Effective Time and before such
date of delivery.
7.3 Dissenting Shares. If holders of Dissenting Shares are entitled to
appraisal rights pursuant to Delaware Law in connection with the Merger
("Dissenting Stockholders"), any Dissenting Shares will not be converted into
the right to receive shares of Acquirer Common Stock, but will 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. Company will give
Acquirer prompt notice (and in any case, within one (1) business day) of any
demand received by
53
Company for appraisal of Company Common Stock or Company Preferred Stock, and
Acquirer will have the right to control all negotiations and proceedings with
respect to such demand. Company agrees that, except with the prior written
consent of Acquirer, it will not voluntarily make any payment with respect to,
or settle or offer to settle, any such demand for appraisal. If any Dissenting
Stockholder fails to make an effective demand for payment or otherwise loses his
status as a holder of Dissenting Shares, Acquirer will, as of the later of the
Effective Time or ten (10) business days from the occurrence of such event,
issue and deliver, upon surrender by such
Dissenting Stockholder of its Certificate(s), the shares of shares of Acquirer
Common Stock and any cash (including cash payment in lieu of fractional shares),
in each case without interest thereon, to which such Dissenting Stockholder
would have been entitled to under Section 2.3.
ARTICLE 8
Conditions to Obligations of Company
The obligations of Company hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by Company, but only in a writing signed on
behalf of Company by any duly authorized officer thereof):
8.1 Accuracy of Representations and Warranties. The representations and
warranties of Acquirer and Sub set forth in Article 4 (as qualified by the
Acquirer Disclosure Letter) will be true and correct, in each case on and as of
the Closing with the same force and effect as if they had been made on the
Closing Date (except for any such representations and warranties that, by their
terms, speak only as of a specific date or dates, in which case such
representations and warranties will be true and correct, on and as of such
specified date or dates), except where the failure of such representations and
warranties (individually or in the aggregate) to be true and correct has not had
and cannot reasonably be expected to have a Material Adverse Effect on Acquirer
(provided that any such representation or warranty which is itself qualified as
to materiality shall be deemed to be not so qualified for the purposes hereof),
and Company will have received a certificate dated the Closing Date to such
effect executed on behalf of Acquirer and Sub by a duly authorized officer.
8.2 Covenants. Acquirer will have performed and complied in all material
respects with all of its covenants contained in this Agreement and the Acquirer
Ancillary Agreements on or before the Closing (to the extent that such covenants
require performance by Acquirer on or before the Closing), and Company will have
received a certificate dated the Closing Date to such effect executed on behalf
of Acquirer by a duly authorized officer.
8.3 Compliance with Law. There will not be issued, enacted or adopted, or
threatened in writing by any Governmental Authority, any order, decree,
temporary, preliminary or permanent injunction, legislative enactment, statute,
regulation, action or proceeding, or any judgment or ruling by any governmental
authority that prohibits or renders illegal or imposes limitations on the Merger
or any other material transaction contemplated by this Agreement, any Acquirer
Ancillary Agreement or any Sub Ancillary Agreement. No litigation or proceeding
will be pending or threatened which will have the probable effect of enjoining
or preventing the consummation of the Merger or any of the other transactions
contemplated by this Agreement.
54
8.4 Government Consents. There will have been obtained at or before the
Closing Date such permits or authorizations, and there will have been taken such
other actions, as may be required to consummate the Merger by any regulatory
authority having jurisdiction over the parties and the actions herein proposed
to be taken, including satisfaction of all requirements under applicable federal
and state securities laws.
8.5 Absence of Material Change. There will not have been any Material
Adverse Change in Acquirer since March 31, 2002, whether or not resulting from a
breach in any representation, warranty or covenant contained herein, and Company
will have received a certificate dated the Closing Date to such effect executed
on behalf of Acquirer by a duly authorized officer.
8.6 Opinion of Acquirer's Counsel. Company will have received from Fenwick
& West LLP, counsel to Acquirer, an opinion opining to the matters set forth in
Exhibit G.
8.7 Acquirer Board of Directors. Robert Finzi shall have been appointed or
elected as a member of Acquirer's Board of Directors, effective upon the
Effective Time.
ARTICLE 9
Conditions to Obligations of Acquirer and Sub
The obligations of Acquirer and Sub hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Acquirer and Sub, but only
in a writing signed on behalf of Acquirer and Sub by Acquirer's Chief Executive
Officer):
9.1 Accuracy of Representations and Warranties. The representations and
warranties of Company set forth in Article 3 will be true and correct, in each
case on and as of the Closing with the same force and effect as if they had been
made on the Closing Date (except for any such representations or warranties
that, by their terms, speak only as of a specific date or dates, in which case
such representations and warranties will be true and correct, on and as of such
specified date or dates), except where the failure of such representations and
warranties (individually or in the aggregate) to be true and correct has not had
and cannot reasonably be expected to have a Material Adverse Effect on Company
(provided that any such representation or warranty which is itself qualified as
to materiality shall be deemed to be not so qualified for the purposes hereof),
and Acquirer will have received a certificate dated the Closing Date to such
effect executed by Company's President and Chief Executive Officer. The
representations and warranties of each Company Stockholder set forth in such
Company Stockholder's Investment Representation Letter will be true and correct.
9.2 Covenants. Company will have performed and complied in all material
respects with all of its covenants contained in this Agreement and the Company
Ancillary Agreements on or before the Closing (to the extent that such covenants
require performance by Company on or before the Closing), and at the Closing
Acquirer will have received a certificate dated the Closing Date to such effect
executed by Company's President or Chief Executive Officer.
55
9.3 Absence of Material Change. There will not have been any Material
Adverse Change in Company since the Agreement Date, whether or not resulting
from a breach in any representation, warranty or covenant contained herein, and
Acquirer will have received a certificate dated the Closing Date to such effect
executed by Company's President or Chief Executive Officer.
9.4 Compliance with Law; No Legal Restraints. There will not be issued,
enacted or adopted, or threatened in writing by any governmental authority, any
order, decree, temporary, preliminary or permanent injunction, legislative
enactment, statute, regulation, action or proceeding, or any judgment or ruling
by any Governmental Authority that prohibits or renders illegal or imposes
limitations on: (a) the Merger or any other material transaction contemplated by
this Agreement or any Company Ancillary Agreement; or (b) as a result of the
Merger or the other transactions contemplated hereby, Acquirer's right (or the
right of any Subsidiary of Acquirer) to own, retain, use or operate any of its
products, properties or assets (including equity, properties or assets of
Company and its Subsidiaries) on or after consummation of the Merger or seeking
a disposition or divestiture of any such properties or assets.
9.5 Government Consents. There will have been obtained at or before the
Closing Date such consents, approvals, permits, orders, authorizations from, or
registrations, declarations or filings with, and there will have been taken such
other action, as may be required to consummate the Merger by any regulatory
authority having jurisdiction over the parties and the actions herein proposed
to be taken, including satisfaction of all requirements under applicable federal
and state securities laws.
9.6 Documents. Acquirer will have received the consents, assignments,
waivers, authorizations or other certificates necessary to provide for the
continuation in full force and effect of any and all Material Agreements and for
Acquirer to consummate the transactions contemplated hereby, including consents
to the transactions contemplated hereby from each Person identified on Schedule
3.5 of the Company Disclosure Letter.
9.7 No Litigation. No litigation or proceeding will be pending or
threatened which will have the probable effect of enjoining or preventing the
consummation of the Merger or any of the other transactions contemplated by this
Agreement. No litigation or proceeding will be pending which could reasonably be
expected to have a Material Adverse Effect on Company or Acquirer.
9.8 Opinion of Company's Counsel. Acquirer will have received from Wilson
Sonsini Goodrich & Rosati, counsel to Company, an opinion substantially in the
form attached hereto as Exhibit H.
9.9 Requisite Approvals. The principal terms of this Agreement and the
Merger will have been approved and adopted by the requisite vote or written
consent of the Company Stockholders (including Company Stockholders holding at
least 95% of Company Common Stock and Company Preferred Stock outstanding and
including all holders of Company Series 3 Preferred Stock).
56
9.10 Investment Representation Letters. Acquirer (a) will have received an
executed counterpart of the Investment Representation Letter executed by each
Company Stockholder that will receive Acquirer Common Stock pursuant to the
Merger, and (b) must be reasonably satisfied that all such Company Stockholders
are "accredited investors" within the meaning of Regulation D promulgated under
the Securities Act and consequently the issuance of Acquirer Common Stock
pursuant to the Merger will qualify for exemption from registration pursuant to
Rule 506 of such Regulation D.
9.11 Resignations of Directors and Officers. The persons holding the
positions of a director and officer (or comparable position) of Company and each
of its Subsidiaries, in office immediately before the Effective Time, will have
resigned from such positions (or comparable positions) in writing effective as
of the Effective Time.
9.12 Closing Capitalization Certificate. Acquirer will have received the
Closing Capitalization Certificate.
9.13 Closing Certificates. Acquirer will have received the Closing
Certificate and will have countersigned the Closing Certificate; provided,
however, that such countersignature will not be deemed to be an agreement by
Acquirer that the amounts set forth in the Closing Certificate are accurate and
will not be deemed to be an acknowledgement or agreement by Acquirer that the
representations set forth herein related to the subject matter thereto are true
and correct or diminish Acquirer's remedies under this Agreement if the
representations set forth herein related to the subject matter thereto are not
true and correct. Acquirer will have received (a) a copy of the certificate of
incorporation and the Bylaws of Company (as amended through the Closing Date),
certified by the Secretary of Company as true and correct copies thereof as of
the Closing, (b) a copy of the resolutions of the Board of Directors and the
Company Stockholders evidencing the approval of this Agreement, the Company
Ancillary Agreements, the Merger and the other matters contemplated hereby and
thereby, (c) a certificate of the Secretary of Company certifying the names of
the officers of Company authorized to sign this Agreement and the Company
Ancillary Agreements, together with the true signatures of such officers, and
(d) good standing certificates issued by the Delaware Secretary of State and
each of the states or other jurisdictions wherein Company is qualified to do
business dated within ten (10) days of the Closing.
9.14 Intentionally Omitted.
9.15 Termination of Other Rights. All outstanding options (including the
Company Options), all Company Warrants and other rights to acquire shares of
Company Common Stock or Company Preferred Stock will have been terminated.
9.16 Employment Matters. Each of the Key Employees will have executed and
delivered to Acquirer the applicable Noncompetition Agreement and each such
Noncompetition Agreement shall be in full force and effect.
9.17 Bonus Plan and Unaccredited Company Stockholder Cashout Approval.
Company's Employee Retention Bonus Plan and the payment of cash to Unaccredited
Company Stockholders in lieu of Acquirer Common Stock pursuant to Section 2.9(b)
will have been approved by the Company Stockholders as required by Sections
5.14(e) and 5.14(f).
57
9.18 Transaction Expenses. Acquirer will have received a certificate (in
form reasonably satisfactory to Acquirer) executed by Company's President and
Chief Financial Officer setting forth an accurate schedule of the Transaction
Expenses (as defined in Section 13.7) of Company (the "Company Transaction
Expenses").
ARTICLE 10
Termination of Agreement
10.1 Termination. Subject to Section 10.2, this Agreement may be terminated
at any time before the Closing, whether before or after approval of the Merger
by the Company Stockholders:
(a) by the mutual written consent of Acquirer and Company, duly
authorized and approved by each of Company's and Acquirer's boards of directors;
(b) by either Acquirer or Company, if all conditions to such party's
obligations to consummate the transactions contemplated hereby have not been
satisfied or waived, and the Closing has not occurred, on or before the
Termination Date; provided, however, that the right to terminate this Agreement
under this Section 10.1(b) will not be available to any party whose failure to
fulfill any obligation hereunder will have been a principal cause of, or will
have resulted in, the failure of the Closing to occur on or before such date;
(c) by Acquirer (at any time before the adoption and approval of this
Agreement and the Merger by the required vote of the Company Stockholders), if a
Triggering Event (as defined below) will have occurred;
(d) by Company, if there has been a breach by Acquirer of any
representation, warranty, covenant or agreement contained herein on the part of
Acquirer, or if any representation or warranty of Acquirer will have become
untrue, in either case which has or can reasonably be expected to have a
Material Adverse Effect on Acquirer and which Acquirer has failed to cure within
a reasonable time, not to exceed fifteen (15) days, after written notice thereof
has been given to Acquirer by Company (except that no cure period will be
provided for a breach by Acquirer which by its nature cannot be cured);
(e) by Acquirer, if there has been a breach by Company of any
representation, warranty, covenant or agreement contained herein on the part of
Company, or if any representation or warranty of Company will have become
untrue, in either case which has or can reasonably be expected to have a
Material Adverse Effect on Company and which Company has failed to cure within a
reasonable time, not to exceed fifteen (15) days, after written notice thereof
has been given to Company by Acquirer (except that no cure period will be
provided for a breach by Company which by its nature cannot be cured);
58
(f) by either Company or Acquirer, if the approval and adoption of
this Agreement, and the approval of the Merger, by the Company Stockholders will
not have been obtained by reason of the failure to obtain the required vote at
the Company Stockholders Meeting or at any adjournment thereof or by written
consent of the Company Stockholders; provided, however, that the right to
terminate this Agreement under this Section 10.1(f) will not be available to
Company where the failure to obtain the approval of the Company Stockholders
will have been caused by (i) the action or failure to act of Company and such
action or failure to act constitutes a material breach by Company of this
Agreement or (ii) a breach of the Voting Agreement by any party thereto other
than Acquirer; or
(g) by either Company or Acquirer, if (i) the Certificate of Merger is
not filed in the office of the Delaware Secretary of State by the Termination
Date for any reason; provided, however, that the right to terminate this
Agreement under this Section 10.1(g)(i) will not be available to a party whose
action or failure to act has been a principal cause of, or will have resulted
in, the failure of such filing to occur on or before such date, or (ii) a
permanent injunction or other order by any federal or state court which would
make illegal or otherwise restrain or prohibit the consummation of the Merger
will have been issued and will have become final and nonappealable.
Any termination of this Agreement under clauses (b) through (g) of this
Section 10.1 will be effective by the delivery of written notice of the
terminating party to the other party hereto. For the purposes of this Agreement,
a "Triggering Event" will be deemed to have occurred if: (i) Company's Board of
Directors or any committee thereof will for any reason have withdrawn, or will
have amended or modified in a manner adverse to Acquirer, its recommendation in
favor of the adoption and approval of this Agreement or the approval of the
Merger; (ii) Company will have failed to include in the information statement
the recommendation of Company's Board of Directors in favor of the adoption and
approval of this Agreement and the approval of the Merger; (iii) Company's Board
of Directors fails to reaffirm its recommendation in favor of the adoption and
approval of this Agreement and the approval of the Merger within ten (10)
business days after Acquirer requests in writing that such recommendation be
reaffirmed at any time following the public announcement (or other event that
causes that causes a substantial number of Company Stockholders to become aware)
of any Acquisition Proposal; or (iv) Company will have materially breached any
of the provisions of Section 5.7.
10.2 Effect of Termination. If this Agreement is terminated as provided in
Section 10.1, this Agreement will be of no further force or effect; provided,
however, that this Section 10.2 and Article 13 will survive the termination of
this Agreement and will remain in full force and effect. Any termination of this
Agreement in accordance with this Section 10 will be without further obligation
or Liability upon any party in favor of any other party hereto other than the
obligations provided in the Non-Disclosure Agreement (as defined in Section
12.15); provided, however, that the termination of this Agreement will not
relieve any party from any Liability for any willful or intentional breach of
this Agreement; provided further that, prior to any termination pursuant to this
Article 10, nothing herein will limit or modify the obligation of Acquirer or
Company to use the efforts required by this Agreement to cause the Merger to be
consummated.
59
ARTICLE 11
Survival of Representations, Indemnification and Remedies
11.1 Survival of Representations. All representations and warranties of
Company contained in this Agreement and the other agreements, certificates and
documents contemplated hereby will remain operative and in full force and
effect, regardless of any investigation or disclosure made by or on behalf of
any of the parties to this Agreement, until the earlier of (a) the termination
of this Agreement in accordance with its terms and (b) the Release Date;
provided, however, that the representations and warranties of the Company
Stockholders contained in their Investment Representation Letters will remain
operative and in full force and effect until the expiration of the applicable
statute of limitations for claims against the Company Stockholders which seek
recovery of Damages arising out of a breach of such representations or
warranties; provided, further, that Acquirer and any Indemnified Person (as
defined in Section 11.2(a)) will be entitled to seek recovery for fraud, willful
misrepresentation or willful misconduct until the expiration of the applicable
statute of limitations for any claim which seeks recovery of Damages. All
representations and warranties of Acquirer and Sub contained in this Agreement
and the other agreements, certificates and documents contemplated hereby will
remain operative and in full force and effect, regardless of any investigation
or disclosure made by or on behalf of any of the parties to this Agreement,
until the later of (a) the termination of this Agreement in accordance with its
terms and (b) the Release Date. All covenants of the parties will survive
according to their respective terms.
11.2 Agreement to Indemnify.
(a) Each Company Stockholder will severally, and not jointly, based on
each Company Stockholder's Pro Rata Share and in accordance with the provisions
of this Article 11 and the Escrow Agreement, indemnify and hold harmless
Acquirer, the Surviving Corporation and their respective officers, directors,
agents, representatives, stockholders and employees, and each Person, if any,
who controls or may control Acquirer or the Surviving Corporation within the
meaning of the Securities Act or the Exchange Act (each hereinafter referred to
individually as an "Indemnified Person" and collectively as "Indemnified
Persons") from and against any and all claims, demands, suits, actions, causes
of actions, losses, reductions in value, costs, damages, Liabilities and
expenses, including reasonable attorneys' fees, other professionals' and
experts' reasonable fees, and court or arbitration costs (hereinafter
collectively referred to as "Damages") directly or indirectly incurred, paid or
accrued by an Indemnified Person in connection with or resulting from or arising
out of: (i) any inaccuracy, misrepresentation, breach of, or default in, any of
the representations, warranties or covenants given or made by Company in this
Agreement, the Company Disclosure Letter or in any agreement, certificate or
document delivered during the period from the Agreement Date through the
Effective Time (inclusive) by or on behalf of Company or an officer of Company
pursuant hereto or (ii) any payments paid with respect to Dissenting Shares
pursuant to Section 7.3 to the extent that such payments, in the aggregate,
exceed the value of all cash and shares of Acquirer Common Stock (valued at the
Acquirer Average Price Per Share) otherwise issuable pursuant to Section 2.2(b)
upon conversion of such Dissenting Shares; provided, however, that the term
"Damages" will not include any overhead costs of Acquirer personnel and the
amount of Damages incurred by any Indemnified Person will be reduced by the
amount of any insurance proceeds actually received by such
60
Indemnified Person on account of such Damages and the amount of any direct tax
savings actually recognized by such Indemnified Person that are directly
attributable to such Damages, but will include any reasonable costs or expense
incurred by such Indemnified Person to recover such insurance proceeds or to
obtain such tax savings. The Indemnified Persons will use reasonable efforts to
mitigate their Damages.
(b) Each Company Stockholder will severally, and not jointly,
indemnify and hold harmless the Indemnified Persons from and against any and all
Damages directly or indirectly incurred, paid or accrued in connection with or
resulting from or and arising out of any inaccuracy, misrepresentation, breach
of, or default in, any of the representations, warranties or covenants given or
made by such Company Stockholder in such Company Stockholder's Investment
Representation Letter.
11.3 Limitations.
(a) Basket. In seeking indemnification for Damages under Section
11.2(a), the Indemnified Persons will make no claim for Damages unless and until
such Damages aggregate at least $50,000 (the "Basket"), in which event such
Indemnified Persons may make claims for all Damages (including the first $50,000
thereof). Notwithstanding anything contained herein to the contrary, the Basket
will not be applicable to any claim by any Indemnified Person for
indemnification for (i) any inaccuracy, misrepresentation, breach of, or default
in, any of the representations, warranties or covenants given or made by such
Company Stockholder in such Company Stockholder's Investment Representation
Letter, (ii) any Damages arising from fraud, willful misrepresentation or
willful misconduct, or (iii) any Damages for which indemnification may be sought
pursuant to Section 11.2(b).
(b) Limitation on Liability. The aggregate Liability of each Company
Stockholder pursuant to Section 11.2(a) will be limited to that Company
Stockholder's Pro Rata Share of the Escrow Fund (with Acquirer Common Stock
valued at the Acquirer Average Price Per Share). Notwithstanding any other
provision of this Agreement or the Escrow Agreement, no Company Stockholder will
have Liability for indemnification pursuant to Section 11.2(b) for any Damages
directly or indirectly incurred, paid or accrued in connection with or resulting
from or and arising out of any inaccuracy, misrepresentation, breach of, or
default in, any of the representations, warranties or covenants given or made by
any other Company Stockholder in such other Company Stockholder's Investment
Representation Letter. For purposes of this Section 11.3(b), each share of
Acquirer Common Stock issued to the Company Stockholders in the Merger will be
valued at the Acquirer Average Price Per Share. Notwithstanding the foregoing,
the limitations on liability set forth in this Section 11.3(b) will not apply in
the event of fraud, willful misrepresentation or willful misconduct by Company
or such Company Stockholder.
(c) Time Limit for Claims. Except with respect to Claims for Damages
arising from or relating to (i) Company's or any Company Stockholder's fraud,
willful misrepresentation or willful misconduct, or (ii) any inaccuracy,
misrepresentation, breach of, or default in, any of the representations,
warranties or covenants given or made by such Company Stockholder in such
Company Stockholder's Investment Representation Letter, each of which
61
may be brought at any time within the applicable statute of limitations, no
Claim may be asserted or brought by Acquirer against the Company Stockholders
after the Release Date; provided that any Claim asserted by Acquirer against the
Company Stockholders prior to the Release Date may thereafter be resolved in
accordance with the Escrow Agreement and recovery on such Claim may be had by
the Acquirer or any other Indemnified Person as provided herein.
(d) Exclusive Remedy. Except as otherwise provided in, and subject to,
the Escrow Agreement, in seeking indemnification for Damages under Section
11.2(a), the Indemnified Persons shall exercise their remedies solely with
respect to the Escrow Fund deposited in escrow pursuant to the Escrow Agreement.
Notwithstanding the foregoing, the limitations set forth in this Section 11.3(d)
will not apply (i) with respect to any and all Damages directly or indirectly
incurred, paid or accrued in connection with or resulting from or and arising
out of any inaccuracy, misrepresentation, breach of, or default in, any of the
representations, warranties or covenants given or made by such Company
Stockholder in such Company Stockholder's Investment Representation Letter, or
(ii) in the event of fraud, willful misrepresentation or willful misconduct by
Company or such Company Stockholder.
ARTICLE 12
Hold Back
The Hold Back Fund (described in Section 2.4(d)) will be held by Acquirer
for the benefit of the Company Stockholders whose shares of Company Series 3
Preferred Stock have been converted to cash and shares of Acquirer Common Stock
pursuant to Section 2.2(b) or Section 2.3, subject to forfeiture to Acquirer in
accordance with the following provisions (notwithstanding any representation,
warranty, disclosure or covenant of Company in this Agreement, the Company
Ancillary Agreements, or the Company Disclosure Letter).
12.1 Additional Bookings; Forfeiture. At 7:00 p.m. (Pacific Time) on the
Hold Back Release Date, the Converted Bookings Shortfall Amount (as defined
below) shall be forfeited from the Hold Back Fund to Acquirer, without the need
for any further action on the part of Acquirer, Company, Representative or any
Company Stockholder and without the issuance or payment of any consideration
therefore. Mr. Vetras has agreed to use his reasonable best efforts to secure
the Quality Bookings under the direction of the Chief Executive Officer of
Acquirer. In the event of a disagreement regarding whether a contract qualifies
as a Quality Booking (as defined below), the Chief Executive Officer of Acquirer
and Mr. Vetras shall attempt in good faith to agree upon the rights of the
respective parties with respect to such contract. In the event that the Chief
Executive Officer of Acquirer and Mr. Vetras are unable to settle such
disagreement regarding whether a contract qualifies as a Quality Booking (as
defined below), the Norman Fogelsong and Fred Harman shall attempt in good faith
to agree upon the rights of the respective parties with respect to such
contract.
12.2 Recovery of Acquirer Expenses. If, for any reason, Company, Acquirer,
the Surviving Corporation and their respective officers, directors, agents,
representatives, stockholders and employees, and each Person, if any, who
controls or may control Acquirer or the Surviving Corporation within the meaning
of the Securities Act or the Exchange Act, directly or indirectly pays any
reasonable attorneys' fees, other professionals' or experts' reasonable fees,
62
or court or arbitration costs in connection with any rightful forfeiture
pursuant to Section 12.1, or any challenge or contest of such a rightful
forfeiture ("Forfeiture Expenses"), Acquirer will be entitled to be reimbursed
by the Company Stockholders for such payment and, if not so reimbursed, Acquirer
will be entitled to treat the amount of such Forfeiture Expenses as an
additional forfeiture of a portion of the remaining Hold Back Fund (without the
need for any further action on the part of Acquirer, Company, Representative or
any Company Stockholder and without the issuance or payment of any consideration
therefore) or as Damages recoverable under Section 11.2, without giving effect
to the Basket; provided, however, that in the event of a wrongful forfeiture
under this Article 12, the Company Stockholders will be entitled to be
reimbursed by Acquirer for any reasonable attorneys' fees, other professionals'
or experts' reasonable fees, or court or arbitration costs in connection with
such wrongful forfeiture.
12.3 Notice of Forfeiture. Acquirer will give a prompt written notice
(executed by an officer of Acquirer) to the Representative of a forfeiture
pursuant to this Article 12 (a "Notice of Forfeiture"), but not later than the
day that is ten (10) days following the Hold Back Release Date. A delay on the
part of Acquirer in giving the Representative a Notice of Forfeiture will have
no effect on any forfeiture pursuant to this Article 12 or relieve the
Representative or any Company Stockholder from any of its obligations related to
recovery of Forfeiture Expenses as Damages under Section 11.2 (pursuant to
Section 12.2) unless (and then only to the extent that) the Representative or
the Company Stockholders are materially prejudiced thereby.
12.4 Increase in Hold Back Fund. In the event that the Amount of Quality
Bookings (as defined below) exceeds the Bookings Target Amount (as defined
below), Acquirer will add to the Hold Back Fund an amount of cash equal to the
product of (a) the difference obtained by subtracting (i) the Bookings Target
Amount, from (ii) the Amount of Quality Bookings, multiplied by (b) 0.45, which
amount of cash will be distributed to Company Stockholders in accordance with
the provisions of Section 12.5.
12.5 Release of Remaining Hold Back Fund. Within ten (10) days following
the Hold Back Release Date, Acquirer shall deliver to each Company Stockholder
such Company Stockholder's Pro Rata Share of the amounts remaining in the Hold
Back Fund (if any) after all forfeitures, if any, made pursuant to this Article
12, provided that the proportion of shares of Acquirer Common Stock and cash so
delivered to a Company Stockholder shall be the same for each Company
Stockholder, with any cash amount delivered to each Company Stockholder rounded
to the nearest whole cent.
12.6 Definitions. For the purposes hereof, the following terms shall have
their respective meanings as set forth below:
"Converted Bookings Shortfall Amount" means number of shares of Acquirer
Common Stock equal to the quotient resulting from dividing (a) the product of
(i) the Bookings Shortfall Amount, multiplied by (ii) 0.45, by (b) $2.00,
rounded to the nearest whole share.
"Bookings Shortfall Amount" means the amount that Bookings Target Amount
exceeds the Amount of Quality Bookings.
63
"Bookings Target Amount" means $4,900,000.
"Amount of Quality Bookings" means the aggregate amount of all
contractually-bound and non-cancelable fees payable to Acquirer or the Surviving
Corporation under all Quality Bookings entered into between July 26, 2002 and
7:00 p.m. (Pacific Time) on the Hold Back Release Date, for the following: (a)
the license of Company-owned software; (b) the provision of Company ASP
Services; (c) the provision of software maintenance service for Company-owned
software; (d) all set up and implementation services provided in conjunction
with the license of Company-owned software or the provision of Company ASP
Services (and not provided on a stand-alone basis); (e) training fees; and (f)
any additional fees, which additional fees have been approved in advance and in
writing by the Chief Executive Officer of Acquirer.
"Quality Booking" means a transaction with a Person identified in the
Schedule of Potential Bookings (as defined below) in which all of the following
conditions are satisfied in the reasonable judgment of the Chief Executive
Officer of Acquirer: (a) all elements of the transaction shall be made pursuant
to one or more written agreements signed by all parties thereto and delivered to
Acquirer between the Agreement Date and 7:00 p.m. (Pacific Time) on the Hold
Back Release Date; (b) the transaction shall be entered into only between
Acquirer (or Surviving Corporation) and any of the Persons identified in the
Schedule of Potential Bookings; (c) no fee set forth in the transaction shall be
discounted more than (i) 40% off of Company's list pricing therefor as set forth
in Company's pricing models in effect as of July 1, 2002, with respect to
license fees, (ii) 35% off of Company's list pricing therefor as set forth in
Company's pricing models in effect as of July 1, 2002, with respect to fees for
company ASP services, (iii) 10% off of Company's list pricing therefor as set
forth in Company's pricing models in effect as of July 1, 2002, with respect to
fees for professional services, and (iv) 10% off of Company's list pricing
therefor as set forth in Company's pricing models in effect as of July 1, 2002,
with respect to other fees; (d) the transaction is negotiated by or on behalf of
Acquirer (or Surviving Corporation) only by such individuals as approved in
advance and in writing by the Chief Executive Officer of Acquirer; and (e) all
other terms of the transaction must be reasonably acceptable to the Chief
Executive Officer of Acquirer.
"Schedule of Potential Bookings" means the Schedule of Potential
Bookings included in the Company Disclosure Letter, setting forth the identity
of each proposed customer.
"Company ASP Services" means the provision of the following services
performed by Company to a given end-user customer pursuant to the terms of a
written end-user agreement with such customer: (a) the provision of remote
access to Company-owned software through the Internet or other means for such
customer's internal business use; and/or (b) the provision of the application
hosting and application management of such Company-owned software for such
customer, including the management of the enabling application infrastructure
for such software.
ARTICLE 13
General Provisions
13.1 Governing Law; Submission to Jurisdiction. The internal laws of
the State of Delaware, irrespective of its choice of law principles, will govern
the validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
64
13.2 Assignment; Binding Upon Successors and Assigns. No party hereto
may assign any of its rights or obligations hereunder without the prior written
consent of the other parties hereto; except that Acquirer may, without the
consent of any other party hereto, assign this Agreement, the Acquirer Ancillary
Agreements and the Sub Ancillary Agreements to (a) by operation of law, or (b)
in connection with any merger, consolidation or sale of all or substantially all
of its assets or in connection with any similar transaction. This Agreement will
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Any assignment in violation of this
Section 13.2 will be void.
13.3 Severability. If any provision of this Agreement, or the
application thereof, is for any reason held to any extent to be invalid, illegal
or unenforceable, then the remainder of this Agreement will nevertheless remain
in full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any provision is invalid,
illegal or unenforceable, the parties agree to replace such provision with a
valid and enforceable provision that will achieve, to the maximum extent legally
permissible, the economic, business and other purposes of such provision.
13.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories and have been delivered by each
party to each other party (whether in facsimile or original form).
13.5 Other Remedies; Specific Performance. Except as otherwise provided
herein, and subject to Sections 11.1 and 11.3(d), 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 on such
party, and the exercise of any one remedy will not preclude the exercise of any
other. The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that, in addition to any other remedy to which they are entitled at law or in
equity, the parties will be entitled to seek an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction.
13.6 Amendment and Waivers. This Agreement may not be amended or
modified except by an instrument in writing signed by Acquirer, Sub and Company.
This Agreement may be amended by the parties hereto as provided in this Section
13.6 at any time before or after approval of this Agreement by the Company
Stockholders, but, after such approval, no amendment will be made which by
Applicable Law requires the further approval of the Company Stockholders without
obtaining such further approval. Following the Effective Time, this Agreement
may be amended by a written agreement executed by (i) beneficial owners of a
65
majority of the Escrow Fund at such time (with Escrow Shares valued at the
Acquirer Average Price Per Share), and (ii) Acquirer. At any time prior to the
Effective Time, each of Company and Acquirer, by action taken by its Board of
Directors, may, to the extent legally allowed: (a) extend the time for the
performance of any of the obligations or other acts of the other; (b) waive any
inaccuracies in the representations and warranties made to it contained herein
or in any document delivered pursuant hereto; and (c) waive compliance with any
of the agreements or conditions for its benefit contained herein. No such
extension or waiver will be effective unless signed in writing by the party
against whom such extension or waiver is asserted. The waiver by a party of any
breach hereof or default in the performance hereof will not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
The failure of any party to enforce any of the provisions hereof will not be
construed to be a waiver of the right of such party thereafter to enforce such
provisions.
13.7 Expenses. Each party will bear its respective expenses and fees
incurred with respect to this Agreement, the Merger and the transactions
contemplated hereby, including the expenses and fees of its own accountants,
attorneys, investment bankers and other professionals ("Transaction Expenses");
provided that the reasonable fees of Deloitte & Touche LLP for services provided
after the Closing in connection with the inclusion of financial statements of
Company in a Current Report on Form 8-K to be filed with the SEC shall not be
included in "Transaction Expenses" for the purposes this Agreement.
Notwithstanding the foregoing, if the Merger is consummated, Acquirer will pay
the reasonable Transaction Expenses of Company, not to exceed a total of
$200,000. If, for any reason, Acquirer directly or indirectly pays any
Transaction Expenses of Company that are not included in the Excess Transaction
Expenses for purposes of calculating the Consideration Reduction Amount ("Unpaid
Transaction Expenses"), Acquirer will be entitled to be reimbursed by the
Company Stockholders for such payment and, if not so reimbursed, Acquirer will
be entitled to treat the Unpaid Transaction Expenses as Damages recoverable
under Section 11.2, without giving effect to the Basket.
13.8 Attorneys' Fees. Should suit be brought to enforce or interpret
any part of this Agreement, including the provisions of Section 11, the
prevailing party will be entitled to recover, as an element of the costs of suit
and not as damages, reasonable attorneys' fees to be fixed by the court
(including costs, expenses and fees on any appeal). The prevailing party will be
entitled to recover its costs of suit, regardless of whether such suit proceeds
to final judgment.
13.9 Notices. All notices and other communications required or
permitted under this Agreement will be in writing and will be either hand
delivered in person, sent by facsimile, sent by certified or registered first
class mail, postage pre-paid, or sent by nationally recognized express courier
service. Such notices and other communications will be effective upon receipt if
hand delivered or sent by facsimile, three (3) days after mailing if sent by
mail, and one (1) day after dispatch if sent by express courier, to the
following addresses, or such other addresses as any party may have furnished to
the other parties by written notice given in accordance with this Section 13.9:
66
(a) If to Acquirer or Sub:
Concur Technologies, Inc.
6222 185/th/ Ave. N.E.
Redmond, WA 98052
Attention: General Counsel
Phone: (425) 497-7394
Fax: (415) 497-5930
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Matthew P. Quilter, Esq.
Phone: (650) 494-0600
Fax: (650) 494-1417
(b) If to Company:
Captura Software, Inc.
6710 108/th/ Street N.E.
Kirkland, Washington 98033
Attention: President
Phone: (425) 803-6000
Fax: (425) 803-6446
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
5300 Carillon Point
Kirkland, Washington 98033
Attention: Patrick J. Schultheis, Esq.
Robert F. Kornegay, Esq.
Phone: (425) 576-5800
Fax: (425) 576-5899
67
(c) If to the Representative:
Fred Harman
c/o Oak Investment Partners
525 University Avenue, Suite 1300
Palo Alto, California 94301
Tel: (650) 614-3700
Fax: (650) 328-6345
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
5300 Carillon Point
Kirkland, Washington 98033
Attention: Patrick J. Schultheis, Esq.
Robert F. Kornegay, Esq.
Phone: (425) 576-5800
Fax: (425) 576-5899
13.10 Intentionally Omitted.
13.11 Interpretation; Rules of Construction. When a reference is made
in this Agreement to Exhibits, Sections or Articles, such reference will be to
an Exhibit, a Section or an Article, respectively, to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein will be deemed in each case to be followed by the words "without
limitation." The headings contained in this Agreement are for reference purposes
only and will not affect in any way the meaning or interpretation of this
Agreement. When reference is made herein to "the business of" an entity, such
reference will be deemed to include the business of all Subsidiaries of such
entity. The parties hereto agree that they have been represented by legal
counsel during the negotiation and execution of this Agreement and the other
agreements, certificates and documents contemplated hereby and, therefore, waive
the application of any law, regulation, holding or rule of construction
providing that ambiguities in an agreement, certificate or document will be
construed against the party drafting such agreement, certificate or document.
Each reference herein to a law, statute, regulation, document or Contract will
be deemed in each case to include all amendments thereto.
13.12 Absence of Third-Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any
third-party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, partner or employee of any party hereto or any other
Person, unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof will be personal solely between the parties to
this Agreement.
13.13 Public Announcement. Upon or following execution of this
Agreement, Acquirer may issue a press release, previously reviewed by Company
and approved by Company (which approval will not be unreasonably withheld or
delayed), announcing the Merger. Thereafter, Acquirer may issue such press
releases, and make such other disclosures regarding the Merger, as
68
it reasonably and in good faith determines are required under Applicable Laws,
including securities laws or regulatory rules. Prior to the publication of such
initial press release, Company and the Representative will not make any public
announcements relating to this Agreement or the transactions contemplated herein
or otherwise communicate with any news media without the prior written consent
of Acquirer, and Company will use all reasonable efforts to prevent any trading
in Acquirer Common Stock by its officers, directors, employees, stockholders and
agents.
13.14 Time is of the Essence. The parties hereto acknowledge and agree
that time is of the essence in connection with the execution, delivery and
performance of this Agreement, and that they will each utilize all reasonable
efforts to satisfy all the conditions to Closing on or before the Termination
Date.
13.15 Confidentiality. Company and Acquirer each confirm that they have
entered into the Mutual Confidentiality Agreement dated July 8, 2002 (the
"Non-Disclosure Agreement") and that they are each bound by, and will abide by,
the provisions of the Non-Disclosure Agreement. If this Agreement is terminated,
the Non-Disclosure Agreement will remain in full force and effect, and all
copies of documents containing confidential information of a disclosing party
will be returned by the receiving party to the disclosing party or be destroyed,
as provided in the Non-Disclosure Agreement.
13.16 Entire Agreement. This Agreement, the Exhibits and Schedules
hereto, the Company Ancillary Agreements, the Acquirer Ancillary Agreements, the
Sub Ancillary Agreements and the Non-Disclosure Agreement constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties.
13.17 Waiver of Jury Trial. EACH OF ACQUIRER, COMPANY, SUB AND THE
REPRESENTATIVE HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF
ACQUIRER, COMPANY, SUB IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT HEREOF.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
69
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Concur Technologies, Inc. Captura Software, Inc.
By: /s/ Steven Singh By: /s/ Daniel P. Vetras
--------------------------------- ------------------------------
Name: Steven Singh Name: Daniel P. Vetras
Title: President and CEO Title: President and CEO
Canoe Acquisition Corp.
By: /s/ John Adair
---------------------------------
Name: John Adair
Title: Director
Representative
/s/ Fred Harman
- ------------------------------------
Fred Harman
[Signature Page to Agreement and Plan of Reorganization]
70
Exhibit List
Exhibit A Form of Voting Agreement
Exhibit B-1 Form of Investment Representation Letter (Major Stockholders)
Exhibit B-2 Form of Investment Representation Letter (Other Stockholders)
Exhibit B-3 Form of Letter Agreement (Unaccredited Stockholders)
Exhibit C Form of Certificate of Merger
Exhibit D Form of Escrow Agreement
Exhibit E Form of Declaration of Registration Rights
Exhibit F Form of Noncompetition Agreement
Exhibit G Form of Opinion of Counsel to Acquirer
Exhibit H Form of Opinion of Counsel to Company
1