1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
INCYTE GENOMICS, INC.,
DONNER ACQUISITION CORPORATION
AND
PROTEOME, INC.
December 20, 2000
2
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER........................................................................1
1.1 The Merger...................................................................1
1.2 Closing......................................................................1
1.3 Effective Time...............................................................1
1.4 Corporate Organization.......................................................2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY.........................2
2.1 Effect on Company Shares.....................................................2
2.2 Conversion of Stock Options..................................................6
2.3 Escrow Consideration.........................................................6
2.4 Surrender and Payment........................................................6
2.5 Dissenting Shares............................................................8
2.6 Adjustments..................................................................8
2.7 Fractional Shares............................................................8
2.8 Withholding Rights...........................................................8
2.9 Lost Certificates............................................................9
ARTICLE III THE SURVIVING CORPORATION.......................................................9
3.1 Certificate of Incorporation.................................................9
3.2 Bylaws.......................................................................9
3.3 Directors and Officers.......................................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................9
4.1 Organization and Qualification...............................................9
4.2 Capital Structure...........................................................10
4.3 Subsidiaries; Equity Investments............................................11
4.4 Authority...................................................................12
4.5 No Conflict with Other Instruments..........................................12
4.6 Governmental Consents.......................................................12
4.7 Financial Statements........................................................13
4.8 Absence of Changes..........................................................13
4.9 Properties..................................................................15
4.10 Environmental Matters.......................................................15
4.11 Taxes.......................................................................16
4.12 Employees and Employee Benefit Plans........................................17
4.13 Labor Matters...............................................................18
4.14 Compliance with Law.........................................................18
4.15 Litigation..................................................................18
4.16 Contracts...................................................................19
4.17 No Default..................................................................19
4.18 Proprietary Rights..........................................................20
4.19 Insurance...................................................................21
-i-
3
4.20 Brokers or Finders..........................................................21
4.21 Related Parties.............................................................22
4.22 Certain Advances............................................................22
4.23 Underlying Documents........................................................22
4.24 No Misleading Statements....................................................22
4.25 Information Statement.......................................................22
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY...................23
5.1 Organization................................................................23
5.2 Authority...................................................................23
5.3 No Conflict with Other Instruments..........................................23
5.4 Governmental Consents.......................................................24
5.5 SEC Documents...............................................................24
5.6 Shares of Parent Common.....................................................24
5.7 No Material Adverse Change..................................................24
5.8 Brokers or Finders..........................................................24
5.9 Financial Statements........................................................24
5.10 Litigation..................................................................25
ARTICLE VI CONDUCT PRIOR TO THE EFFECTIVE TIME.............................................25
6.1 Conduct of Business of the Company..........................................25
6.2 No Solicitation.............................................................27
6.3 Conduct of Business of Parent...............................................27
ARTICLE VII ADDITIONAL AGREEMENTS..........................................................28
7.1 Approval of the Company Stockholders........................................28
7.2 Access to Information; Interim Financial Information........................29
7.3 Confidentiality.............................................................29
7.4 Expenses....................................................................29
7.5 Public Disclosure...........................................................29
7.6 FIRPTA Compliance...........................................................29
7.7 Reasonable Efforts..........................................................30
7.8 Conduct; Notification of Certain Matters....................................30
7.9 Tax-Free Reorganization.....................................................30
7.10 Lock-Up Agreements..........................................................30
7.11 Stockholder Agreements......................................................30
7.12 Sale of Shares..............................................................31
7.13 Blue Sky Laws...............................................................31
7.14 Company Employee Benefit Plans; Form S-8....................................31
7.15 HSR Filings; Antitrust and Other Legal Compliance...........................31
7.16 Registration Rights Agreement...............................................32
7.17 Additional Documents and Further Assurances.................................32
7.18 Indemnification.............................................................32
ARTICLE VIII CONDITIONS TO THE MERGER......................................................33
8.1 Conditions to Obligations of Each Party to Effect the Merger................33
8.2 Additional Conditions to Obligations of the Company.........................33
8.3 Additional Conditions to the Obligations of Parent and Merger Subsidiary....34
-ii-
4
ARTICLE IX INDEMNIFICATION AND ESCROW......................................................35
9.1 Survival of Representations and Warranties..................................35
9.2 Indemnification and Escrow Arrangements.....................................35
ARTICLE X TERMINATION, AMENDMENT, WAIVER, CLOSING..........................................39
10.1 Termination.................................................................39
10.2 Effect of Termination.......................................................40
10.3 Amendment or Supplement.....................................................40
10.4 Extension of Time; Waiver...................................................40
ARTICLE XI GENERAL.........................................................................41
11.1 Notices.....................................................................41
11.2 Headings....................................................................42
11.3 Counterparts................................................................42
11.4 Entire Agreement; Assignment................................................42
11.5 Severability................................................................42
11.6 Other Remedies..............................................................43
11.7 Governing Law...............................................................43
11.8 Absence of Third-Party Beneficiary Rights...................................43
Exhibit A Form of Lock-Up Agreement
Exhibit B Form of Stockholder Agreement
Exhibit C Form of Investment Representations
Exhibit D Form of Registration Rights Agreement
Exhibit E Form of Non Competition and Non Solicitation Agreement
Exhibit F Form of Opinion of Pillsbury Madison & Sutro LLP
Exhibit G Form of Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C.
Exhibit H Form of Escrow Agreement
-iii-
5
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated as of the
20th day of December, 2000, by and among INCYTE GENOMICS, INC., a Delaware
corporation ("PARENT"), DONNER ACQUISITION CORPORATION, a Delaware corporation
and a wholly owned subsidiary of Parent ("MERGER SUBSIDIARY"), and PROTEOME,
INC., a Delaware corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary and the
Company deem it advisable and in the best interests of their respective
stockholders to effect the merger hereafter provided for, in which the Company
would merge with and into Merger Subsidiary and Merger Subsidiary would remain a
wholly owned subsidiary of Parent (the "MERGER"); and
WHEREAS, it is intended that the Merger qualify as a tax-free
reorganization within the meaning of section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE"):
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants herein contained, Parent, Merger Subsidiary
and the Company hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3), upon
the terms and subject to the conditions of this Agreement, the Company shall be
merged with and into Merger Subsidiary in accordance with the General
Corporation Law of the State of Delaware (the "DGCL"), whereupon the separate
existence of the Company shall cease, and Merger Subsidiary shall be the
surviving corporation (the "SURVIVING CORPORATION").
1.2 Closing. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Pillsbury Madison &
Sutro LLP, 2550 Hanover Street, Palo Alto, California as soon as practicable
following satisfaction or waiver of all of the conditions to the obligations of
the parties to consummate the transactions contemplated hereby in accordance
with this Agreement or at such other time, place and date as is mutually agreed
to by the parties hereto. The date of the Closing is referred to in this
Agreement as the "CLOSING DATE."
1.3 Effective Time. As soon as practicable after satisfaction or, to the
extent permitted hereunder, waiver of all conditions to the Merger, the Company
and Merger Subsidiary shall file a certificate of merger (the "CERTIFICATE OF
MERGER") with the Secretary of State of the State of Delaware and make all other
filings or recordings required by the DGCL in connection with the Merger. The
Merger shall become effective at such time as the Certificate of Merger is duly
filed with the Secretary of State of the State of Delaware or at such later time
as is specified in the Certificate of Merger (the "EFFECTIVE TIME").
1
6
1.4 Corporate Organization. At and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises and be subject to all of the restrictions, liabilities and duties of
the Company and Merger Subsidiary, all as provided under the DGCL.
ARTICLE II
EFFECT OF THE MERGER ON THE
CAPITAL STOCK OF THE COMPANY
2.1 Effect on Company Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders of any securities of
Parent, the Company or Merger Subsidiary:
(a) Conversion of Company Common Stock. Each share of Common Stock of
the Company, par value $.001 per share ("COMPANY COMMON STOCK"), issued and
outstanding immediately prior to the Effective Time (other than any Company
Shares (as defined below) to be canceled pursuant to Section 2.1(c) ("EXCLUDED
SHARES") and any Dissenting Shares (as such term is defined in and to the extent
provided in Section 2.5)), shall be converted into the right to receive (the
"COMMON MERGER CONSIDERATION"):
(i) that number of shares of common stock, $.001 par value per
share, of Parent ("PARENT COMMON") as is equal to the Common Stock
Exchange Amount (as defined in Section 2.1(d) below); and
(ii) cash equal to the Common Cash Exchange Amount (as defined
in Section 2.1(d) below).
(b) Conversion of Company Preferred Stock. Each share of Series A
Preferred Stock of the Company, $.01 par value per share ("COMPANY PREFERRED
STOCK" and, together with the Company Common Stock, "COMPANY SHARES"), issued
and outstanding immediately prior to the Effective Time (other than any Excluded
Shares, any shares of Company Preferred Stock that are converted into shares of
Company Common Stock immediately prior to the Effective Time and any Dissenting
Shares), shall be converted into the right to receive (the "PREFERRED MERGER
CONSIDERATION" and, together with the Common Merger Consideration, the "MERGER
CONSIDERATION").
(i) that number of shares of Parent Common as is equal to the
Preferred Stock Exchange Amount (as defined in Section 2.1(d) below);
and
(ii) cash equal to the Preferred Cash Exchange Amount (as
defined in Section 2.1(d) below).
(c) Each Company Share held by the Company as treasury stock shall
automatically be canceled and no payment shall be made with respect thereto.
(d) Definitions.
2
7
(i) "APPLICABLE PARENT TRADING PRICE" shall mean the average of
the closing prices per share of Parent Common on Nasdaq for the twenty
(20) Trading Day period ending on the Trading Day immediately prior to
the Closing Date. The Applicable Parent Trading Price shall be expressed
as a decimal carried out to five places.
(ii) "CASH CONSIDERATION" means $38,500,000 less the Cash
Adjustment.
(iii) "CASH ADJUSTMENT" means the Parent Share Increase
multiplied by the Applicable Parent Trading Price.
(iv) "COMMON AMOUNT" means the Common Equivalents Per Share
Amount multiplied by the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time, expressed as a
decimal carried out to two places.
(v) "COMMON CASH EXCHANGE AMOUNT" means the quotient obtained by
dividing (i) the product of the Cash Consideration and the Common Ratio
by (ii) the number of shares of Company Common Stock outstanding
immediately prior to the Effective Time, expressed as a decimal carried
out to five places.
(vi) "COMMON EQUIVALENTS AMOUNT" means $77,000,000 less the
Preferred Liquidation Amount.
(vii) "COMMON EQUIVALENTS PER SHARE AMOUNT" means the Common
Equivalents Amount divided by the Common Equivalents Share Number,
expressed as a decimal carried out to five places.
(viii) "COMMON EQUIVALENTS SHARE NUMBER" means the sum of the
Option Share Number, the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time and the number of
shares of Company Common Stock issuable upon conversion of all shares of
Company Preferred Stock outstanding immediately prior to the Effective
Time.
(ix) "COMMON RATIO" means the Common Amount divided by the
Stockholder Amount, expressed as a decimal carried out to five places.
(x) "COMMON STOCK EXCHANGE AMOUNT" means the quotient obtained
by dividing (i) the product of the Stockholder Parent Share Number and
the Common Ratio by (ii) the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time, expressed as a
decimal carried out to five places.
(xi) "COMMON SECURITYHOLDER" shall mean a holder of Company
Common Stock.
(xii) "FAIR MARKET VALUE" shall mean the quotient obtained by
dividing (x) the sum of (A) the highest sale price per share for Parent
Common on Nasdaq on the Closing Date (or, if the Closing Date shall not
be a Trading Day, the Trading Day immediately prior to the Closing Date)
and (B) the lowest sale price of Parent Common on Nasdaq on the Closing
Date (or, if the Closing Date shall not be a Trading Day, the Trading
Day
3
8
p immediately prior to the Closing Date), by (y) two (2), expressed as a
decimal carried out to five places.
(xiii) "MERGER CONSIDERATION SPREADSHEET" shall mean the
spreadsheet attached hereto as Schedule 2.1, as the same may be amended
on the Closing Date.
(xiv) "NASDAQ" means the Nasdaq National Market.
(xv) "OPTION EXCHANGE RATIO" means the Common Equivalents Per
Share Amount divided by the Applicable Parent Trading Price, expressed
as a decimal carried out to five places.
(xvi) "OPTION SHARE NUMBER" means the number of shares of
Company Common Stock issuable upon exercise of all Company Options (as
defined in Section 2.2) outstanding immediately prior to the Effective
Time (without regard to vesting or other limitations on exercisability).
(xvii) "PARENT SHARE INCREASE" means the greater of zero and the
number determined by the following formula (expressed as a decimal
carried out to five places):
[(0.45)(38,500,000)-(0.55)(P(c))(N)]
------------------------------------
0.55P(c)+0.45P(1)
Where:
P(1) = Applicable Parent Trading Price
P(c) = Fair Market Value
N = Tentative Stockholder Parent Share Number
(xviii) "PREFERRED AMOUNT" means the product obtained by
multiply (x) the sum of the Preferred Liquidation Amount Per Share and
the Common Equivalents Per Share Amount by (y) the number of shares of
Company Preferred Stock outstanding immediately prior to the Effective
Time, expressed as a decimal carried out to two places.
(xix) "PREFERRED CASH EXCHANGE AMOUNT" means the quotient
obtained by dividing (i) the product of the Cash Consideration and the
Preferred Ratio by (ii) the number of shares of Company Preferred Stock
outstanding immediately prior to the Effective Time, expressed as a
decimal carried out to five places.
(xx) "PREFERRED LIQUIDATION AMOUNT" means the product obtained
by multiplying the Preferred Liquidation Amount Per Share by the number
of shares of Company Preferred Stock outstanding immediately prior to
the Effective Time, expressed as a decimal carried out to two places.
(xxi) "PREFERRED LIQUIDATION AMOUNT PER SHARE" means $1.03602.
(xxii) "PREFERRED RATIO" means the Preferred Amount divided by
the Stockholder Amount, expressed as a decimal carried out to five
places.
4
9
(xxiii) "PREFERRED SECURITYHOLDER" shall mean a holder of
Company Preferred Stock.
(xxiv) "PREFERRED STOCK EXCHANGE AMOUNT" means the quotient
obtained by dividing (i) the product of the Stockholder Parent Share
Number and the Preferred Ratio by (ii) the number of shares of Company
Preferred Stock outstanding immediately prior to the Effective Time,
expressed as a decimal carried out to five places.
(xxv) "SECURITYHOLDER" shall mean a Common Securityholder or a
Preferred Securityholder.
(xxvi) "STOCKHOLDER AMOUNT" means the Preferred Amount plus the
Common Amount.
(xxvii) "STOCKHOLDER PARENT SHARE NUMBER" means the Tentative
Stockholder Parent Share Number plus the Parent Share Increase.
(xxviii) "TENTATIVE PARENT SHARE NUMBER" means $38,500,000
divided by the Applicable Parent Trading Price, expressed as a decimal
carried out to five places.
(xxix) "TENTATIVE STOCKHOLDER PARENT SHARE NUMBER" means the
Tentative Parent Share Number less the product of the Option Share
Number and the Option Exchange Ratio, expressed as a decimal carried out
to five places.
(xxx) "TRADING DAY" shall mean a day on which securities are
traded on Nasdaq.
(e) Merger Consideration Spreadsheet.
(i) The Merger Consideration Spreadsheet sets forth:
(A) the name of each Securityholder and the amount of
cash and number of shares of Parent Common such Securityholder
is entitled to receive pursuant to this Section 2.1, together
with the cash amount in lieu of fractional shares in accordance
with Section 2.7, with respect to the Company Shares held by
such Securityholder as of the Effective Time, based on the
assumptions set forth therein, including the Applicable Parent
Trading Price set forth therein;
(B) with respect to holders of Company Options, the
aggregate number of shares of Parent Common for which all
Converted Company Options (as defined in Section 2.2) will be
exercisable (without giving effect to any rounding of any
individual Converted Company Option pursuant to Section 2.2).
(ii) At the Closing, the Company shall deliver to Parent an
updated Merger Consideration Spreadsheet setting forth the final
calculations of the amounts due to each Securityholder holder and of
Company Options, calculated in accordance with the provisions of this
Article II.
5
10
2.2 Conversion of Stock Options.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each unexpired and unexercised option
to purchase Company Shares (a "COMPANY OPTION") granted under the Company's 1998
Employee, Director and Consultant Stock Option Plan, as amended (the "COMPANY
PLAN"), outstanding immediately prior to the Effective Time shall be converted
into an option to purchase Parent Common (a "CONVERTED COMPANY OPTION") (the
aggregate number of Company Shares issuable upon the exercise of all outstanding
Company Options immediately prior to the Effective Time is referred to herein as
the "OUTSTANDING OPTION AMOUNT"). Each Company Option so converted by Parent
will continue to have, and be subject to, substantially the same terms and
conditions set forth in the documents governing such Company Option immediately
prior to the Effective Time, except that (i) such Converted Company Option will
be exercisable for that number of whole shares of Parent Common as is equal to
the product of the number of Company Shares that were purchasable under the
Company Option immediately prior to the Effective Time, multiplied by the Option
Exchange Ratio, rounded down to the nearest whole number of shares of Parent
Common, and (ii) the per share exercise price for Parent Common issuable upon
exercise of such Converted Company Option will be equal to the quotient obtained
by dividing the exercise price per share of Company Shares at which such Company
Option was exercisable immediately prior to the Effective Time by the Option
Exchange Ratio, rounded up to the nearest whole cent. The parties intend that
the conversion of Company Options hereunder will meet the requirements of
section 424(a) of the Code and this Section 2.2(a) shall be interpreted in a
manner consistent with such intention. Subject to the terms of the Company
Options and the documents governing such Company Option, the Merger will not
terminate or accelerate any Converted Company Option or any right of exercise,
vesting or repurchase relating thereto with respect to Parent Common acquired
upon exercise of such Converted Company Option. Holders of Company Options will
not be entitled to acquire Company Shares after the Merger. Prior to the
Effective Time, the Company will make any amendments to the terms of the Company
Plan that are necessary to give effect to the transactions contemplated by this
Section 2.2.
(b) As soon as practicable after the Effective Time, Parent shall issue
to each holder of a Converted Company Option a document evidencing the
conversion of the Company Option by Parent.
2.3 Escrow Consideration. On the Closing Date, Parent shall deposit with
the Escrow Agent referred to in Section 9.2(a) an amount in cash equal to
$7,700,000 (the "ESCROW CONSIDERATION"), as collateral for the indemnification
obligations of the Company pursuant to Article IX of this Agreement. The Merger
Consideration Spreadsheet shall set forth for each Securityholder the portion of
the Escrow Consideration that is allocable to such Securityholder.
2.4 Surrender and Payment.
(a) Prior to the Effective Time, Parent shall appoint an agent (the
"EXCHANGE AGENT") for the purpose of exchanging certificates representing
Company Shares for the Merger Consideration set forth in Section 2.1. Parent
shall make available to the Exchange Agent, as needed, the Merger Consideration
to be paid in respect of Company Shares (less the Escrow Consideration to be
deposited with the Escrow Agent). Prior to the Effective Time, Parent and
6
11
the Company shall send, to each holder of record of Company Shares at the
Effective Time, a letter of transmittal for use in such exchange (which shall
specify that the delivery shall be effected, and risk of loss and title shall
pass, only upon proper delivery of the certificates representing Company Shares
to the Exchange Agent).
(b) Securityholders, upon surrender to the Exchange Agent of a
certificate or certificates representing such Company Shares, together with a
properly completed letter of transmittal covering such Company Shares, will be
entitled to receive (i) the Merger Consideration payable in respect of such
Company Shares, less Escrow Consideration to be deposited with the Escrow Agent
on such holders' behalf pursuant to Section 2.3 and Article IX, and (ii) any
dividends or other distributions to which such holders are entitled under
Section 2.4(g). Until so surrendered, each certificate representing Company
Shares that have been converted into the right to receive Merger Consideration
shall, after the Effective Time, represent for all purposes only the right to
receive such Merger Consideration and the right to receive any dividends or
other distributions payable pursuant to Section 2.4(g).
(c) If any portion of the Merger Consideration is to be paid to a Person
(as defined in Section 4.3) other than the registered holder of Company Shares
represented by the certificate or certificates surrendered in exchange therefor,
it shall be a condition to such payment that the certificate or certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and accompanied by all documents required to evidence and effect the
transfer and that the Person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required as a result of such payment to a
Person other than the registered holder of such Company Shares or establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no further registration of
transfers of Company Shares. If, after the Effective Time, certificates
representing Company Shares are presented to the Surviving Corporation, they
shall be cancelled and exchanged for the consideration provided for, and in
accordance with the procedures set forth, in this Article II.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 2.4(a) that remains unclaimed by the holders
of Company Shares twelve (12) months after the Effective Time shall be returned
to Parent, upon demand, and any holder who has not exchanged such holder's
Company Shares for the Merger Consideration in accordance with this Section 2.4
prior to that time shall thereafter look only to Parent for payment of the
Merger Consideration in respect of such holder's Company Shares. Notwithstanding
the foregoing, neither Parent, the Company nor the Surviving Corporation shall
be liable to any holder of Company Shares for any amount paid to a public
official pursuant to applicable abandoned property, escheat or similar laws. Any
amounts remaining unclaimed by holders of Company Shares three years after the
Effective Time (or such earlier date prior to such time as such amounts would
otherwise escheat to or become property of any governmental entity) shall, to
the extent permitted by applicable law, become the property of Parent free and
clear of any claims or interest of any Person previously entitled thereto.
(f) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 2.4(a) to pay for Company Shares for which
appraisal rights have been
7
12
perfected shall be returned to Parent upon demand.
(g) No dividends, interest or other distributions with respect to Parent
Common constituting part of the Merger Consideration shall be paid to the holder
of any unsurrendered certificates representing Company Shares until such
certificates are surrendered as provided in this Section 2.4. Upon such
surrender there shall be paid, without interest, to the Person in whose name the
certificates representing shares of Parent Common into which such Company Shares
were converted are registered, all dividends, interest and other distributions
payable in respect of such shares of Parent Common on a date subsequent to, and
in respect of a record date after, the Effective Time.
2.5 Dissenting Shares. Notwithstanding Section 2.1, Company Shares
outstanding immediately prior to the Effective Time and held by a holder who has
not voted or consented to the Merger in writing and who has demanded appraisal
for such Company Shares in accordance with Section 262 of the DGCL ("DISSENTING
SHARES") shall not be converted into a right to receive the Merger
Consideration, unless and until such holder fails to perfect or withdraws or
otherwise loses such holder's right to appraisal. If after the Effective Time
such holder fails to perfect or withdraws or loses such holder's right to
appraisal, such Company Shares shall be treated as if they had been converted as
of the Effective Time into a right to receive the Merger Consideration. The
Company shall give Parent prompt notice of any demands received by the Company
for appraisal of Company Shares, and Parent shall have the right to participate
in all negotiations and proceedings with respect to such demands. The Company
shall not, except with the prior written consent of Parent, make any payment
with respect to, or settle or offer to settle, any such demands.
2.6 Adjustments. If at any time during the period between the date of
this Agreement and the Effective Time, any change in the outstanding shares of
capital stock of Parent shall occur, including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period, the number of shares of Parent Common constituting part of the
Merger Consideration shall be appropriately adjusted.
2.7 Fractional Shares. No fractional shares of Parent Common shall be
issued in the Merger. All fractional shares of Parent Common that a holder of
Company Shares would otherwise be entitled to receive as a result of the Merger
shall be aggregated and if a fractional share results from such aggregation,
such holder shall be entitled to receive, in lieu thereof, an amount in cash
determined by multiplying (i) the Applicable Parent Trading Price by (ii) the
fraction of a share of Parent Common to which such holder would otherwise have
been entitled. The parties acknowledge that payment of the cash consideration in
lieu of issuing fractional shares was not separately bargained for consideration
but merely represents a mechanical rounding off for purposes of simplifying the
corporate and accounting problems that would otherwise be caused by the issuance
of fractional shares.
2.8 Withholding Rights. Each of the Surviving Corporation and Parent
shall be entitled to deduct and withhold from the consideration otherwise
payable to any Person pursuant to this Article II such amounts as it is required
to deduct and withhold with respect to the making of such payment under any
provision of federal, state, local or foreign tax law. To the extent that
8
13
amounts are so withheld by the Surviving Corporation or Parent, as the case may
be, such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the Company Shares in respect of which such
deduction and withholding was made by the Surviving Corporation or Parent, as
the case may be.
2.9 Lost Certificates. If any certificate representing Company Shares
outstanding immediately prior to the Effective Time shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such certificate to be lost, stolen or destroyed and, if required by
the Exchange Agent, the posting by such Person of a bond, in such amount as the
Exchange Agent may direct, as indemnity against any claim that shall be made
against the Surviving Corporation or the Exchange Agent with respect to such
certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed certificate the Merger Consideration to be paid in respect of the
Company Shares represented by such certificate as contemplated by this Article
II.
ARTICLE III
THE SURVIVING CORPORATION
3.1 Certificate of Incorporation. The Certificate of Incorporation of
Merger Subsidiary in effect at the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until amended in accordance with
applicable law, except that the name of the Surviving Corporation shall be
changed to the current name of the Company.
3.2 Bylaws. The Bylaws of Merger Subsidiary in effect at the Effective
Time shall be the Bylaws of the Surviving Corporation until amended in
accordance with applicable law.
3.3 Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law and the Certificate of Incorporation and Bylaws of the Surviving
Corporation (or until their earlier resignation or removal), and except as may
be specified by Parent pursuant to Schedule 3.3, the directors of Merger
Subsidiary at the Effective Time shall be the directors of the Surviving
Corporation and the officers of Merger Subsidiary at the Effective Time shall be
the officers of the Surviving Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise specifically set forth on the disclosure schedule
delivered by the Company to Parent prior to the execution of this Agreement and
signed by the Chief Executive Officer or President of the Company (the
"DISCLOSURE SCHEDULE"), the Company represents and warrants to both Parent and
Merger Subsidiary as follows:
4.1 Organization and Qualification.
(a) The Company is a corporation duly organized, validly existing and in
good
9
14
standing under the laws of its jurisdiction of incorporation and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
(b) The Company is qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction in which
the nature of its business requires such qualification, which states or
jurisdictions are listed on the Disclosure Schedule, except where the failure to
be so qualified or in good standing which, taken together with all other such
failures, would not have a material adverse effect on the Company. As used in
this Agreement, any reference to any event, change or effect being "MATERIAL" or
"MATERIALLY ADVERSE" or having a "MATERIAL ADVERSE EFFECT" on or with respect to
an entity (or group of entities, taken as a whole) means such event, change or
effect is material or materially adverse, as the case may be, to the business,
financial condition, properties, assets, liabilities, or results of operations
of such entity (or, if with respect thereto, of such group of entities taken as
a whole) except (i) any changes caused by the announcement or pendency of this
transaction; (ii) any changes due to the economy generally; and (iii) any
changes in the Company's industry specifically.
(c) The Company has delivered or made available to Parent true, complete
and correct copies, with respect to the Company, of its (i) Restated Certificate
of Incorporation (the "RESTATED CERTIFICATE") and Bylaws ("BYLAWS") (or other
applicable charter documents), as amended to the date hereof, (ii) minutes of
all of directors' and stockholders' meetings (or other applicable meetings) and
actions by written consent, complete and accurate as of the date hereof, (iii)
stock certificate books and all other records that collectively correctly set
forth the record ownership of all outstanding shares of its capital stock or
other equity interests and all rights to purchase capital stock or other equity
interests, and (iv) form of stock certificates, option agreements and rights to
purchase shares of its capital stock or other equity interests. Such Restated
Certificate and Bylaws and other applicable charter documents are in full force
and effect.
4.2 Capital Structure.
(a) The authorized capital stock of the Company consists of 22,000,000
shares of Company Common Stock and 8,430,211 shares of Preferred Stock, $.01 par
value per share, all of which have been designated as Company Preferred Stock.
As of the date of this Agreement, there were issued and outstanding 10,612,750
shares of Company Common Stock and 8,430,211 shares of Company Preferred Stock.
Each share of Company Preferred Stock is convertible into one share of Company
Common Stock subject to certain adjustments specified in the Restated
Certificate. As of the date of this Agreement, there were an aggregate of
8,430,211 shares of Company Common Stock reserved for issuance upon conversion
of Company Preferred Stock. The rights, preferences and privileges of Company
Common Stock and Company Preferred Stock are as set forth in the Restated
Certificate.
(b) As of the date of this Agreement, there were outstanding Company
Options to acquire 1,775,615 shares of Company Common Stock. As of the date of
this Agreement, there were an aggregate of 1,775, 615 shares of Company Common
Stock reserved for issuance upon the exercise of outstanding Company Options.
10
15
(c) Other than as described in paragraphs (a) and (b) above, there are
no other outstanding shares of capital stock or other equity securities of the
Company and no other options, warrants, calls, conversion rights, commitments or
agreements of any character to which the Company is a party or by which the
Company may be bound that do or may obligate the Company to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the
Company's capital stock or securities convertible into or exchangeable for the
Company's capital stock or that do or may obligate the Company to grant, extend
or enter into any such option, warrant, call, conversion right, commitment or
agreement. There are no outstanding bonds, debentures, notes or other
indebtedness or debt securities of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which stockholders of the Company may vote ("VOTING DEBT").
(d) Except as set forth in the Restated Certificate, none of the Company
Shares are subject to repurchase at the option of the Company or are subject to
redemption. All outstanding Company Shares are, and any Company Shares issued
upon exercise of Company Options (subject to receipt of the exercise prices as
provided therein) will be, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, the Restated Certificate or
Bylaws or any agreement to which the Company is a party or by which the Company
may be bound. All outstanding securities of the Company have been issued in
compliance with applicable federal and state securities laws.
(e) Section 4.2 of the Disclosure Schedule ("SCHEDULE 4.2") contains
complete and accurate lists of the holders of outstanding Company Common Stock
and Company Preferred Stock and the number of shares owned of record by each
such holder, and the number of shares subject to Company Options, and the
holders of outstanding Company Options, including in each case the addresses of
such holders. Schedule 4.2 is complete and accurate on the date hereof and, if
required, an updated Schedule 4.2 to be attached hereto will be complete and
accurate as of the Closing Date. Such Schedule 4.2 identifies the vesting
schedule, applicable legends, and repurchase rights or other risks of forfeiture
of any outstanding security of the Company.
(f) Schedule 4.2 contains a complete and accurate list of each stock
option plan, stock appreciation rights or other equity-related stock incentive
plan of the Company.
(g) Except for any restrictions imposed by applicable federal and state
securities laws, there is no right of first refusal, co-sale right, right of
participation, right of first offer, option or other restriction on transfer
applicable to any Company Shares.
(h) Except as set forth on Schedule 4.2, the Company is not a party or
subject to any agreement or understanding, and there is no voting trust, proxy,
or other agreement or understanding between or among any Persons that affects or
relates to the voting or giving of written consent with respect to any
outstanding security of the Company, the election of directors, the appointment
of officers or other actions of the Company's Board of Directors (the "COMPANY
BOARD") or the management of the Company.
4.3 Subsidiaries; Equity Investments. The Company does not have and has
never had any Subsidiaries and does not own and has never owned any equity
interest in, or controlled, directly or indirectly, any other corporation,
partnership, joint venture, trust, firm or other entity.
11
16
As used in this Agreement, "SUBSIDIARY" when used with respect to any
Person means any other Person, whether incorporated or unincorporated, in which
such Person or any one or more of its Subsidiaries directly owns or controls (i)
fifty percent (50%) or more of the securities or other ownership interests,
including profits, equity or beneficial interests, or (ii) securities or other
interests having by their terms ordinary voting power to elect more than fifty
percent (50%) of the board of directors or others performing similar function
with respect to such other Person. As used in this Agreement, "PERSON" means an
individual, a corporation, a limited liability company, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or any agency or instrumentality thereof.
4.4 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and, subject only to the requisite
approval of this Agreement by the Company's stockholders, to perform its
obligations hereunder and consummate the transactions contemplated hereby. The
execution and delivery of this Agreement, the performance by the Company of its
obligations hereunder and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company, including approval of the Company Board, subject
only to the requisite approval of this Agreement by the Company's stockholders.
This Agreement has been duly executed and delivered on behalf of the Company and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
general principles of equity.
4.5 No Conflict with Other Instruments. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby (a) will
not result in any violation of, conflict with, constitute a breach, violation or
default (with or without notice or lapse of time, or both) under, give rise to a
right of termination, cancellation, forfeiture or acceleration of any obligation
or loss of any benefit under, or result in the creation or encumbrance on any of
the properties or assets of the Company pursuant to (i) any provision of the
Restated Certificate or Bylaws or (ii) any agreement, contract, understanding,
note, mortgage, indenture, lease, franchise, license, permit or other instrument
to which the Company is a party or by which the properties or assets of the
Company is bound, or (b) to the best knowledge of the Company after reasonable
inquiry, conflict with or result in any breach or violation of any statute,
judgment, decree, order, rule or governmental regulation applicable to the
Company or its properties or assets, except, in the case of clauses (a)(ii) and
(b) for any of the foregoing that would not, individually or in the aggregate,
have a material adverse effect on the Company, taken as a whole, or that could
not result in the creation of any material lien, charge or encumbrance upon any
assets of the Company or that could not prevent, materially delay or materially
burden the transactions contemplated by this Agreement. Section 203 of the DGCL
is, as of the date hereof, and will be, at all times on or prior to the
Effective Time, inapplicable to the Merger and the other transactions
contemplated by this Agreement.
4.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration of, or qualification or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign, is required
by or with respect to the Company in connection with the execution, delivery and
performance of this Agreement by the Company or
12
17
the consummation by the Company of the transactions contemplated hereby, except
for (a) the filing of the Certificate of Merger with the Delaware Secretary of
State, (b) such consents, approvals, orders, authorizations, registrations,
declarations, qualifications or filings as may be required under federal or
state securities laws in connection with the transactions contemplated hereby,
and (c) filings that may be required pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR ACT").
4.7 Financial Statements. The Company has previously furnished to Parent
complete and accurate copies of the audited balance sheets as of December 31,
1999 and December 31, 1998, and the related audited statements of operations,
statements of stockholders equity, and statements of cash flows for each of the
fiscal years then ended, together with the notes thereto and the report and
opinion of PricewaterhouseCoopers LLP relating thereto (the "AUDITED FINANCIAL
STATEMENTS"). The Audited Financial Statements comply as to form in all material
respects with applicable accounting requirements. The Company has previously
furnished to Parent a complete and accurate copy of the unaudited balance sheet
as of September 30, 2000 and the related unaudited statements of operations,
statements of stockholders equity, and statements of cash flows for the nine
months then ended, together with the notes thereto (the "UNAUDITED FINANCIAL
STATEMENTS" and, together with the Audited Financial Statements, the "FINANCIAL
STATEMENTS"). The balance sheet as of September 30, 2000 is hereinafter referred
to as the "BALANCE SHEET." The Financial Statements are complete and correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods indicated and are consistent with each other, except that the
Unaudited Financial Statements do not contain all of the footnote disclosure
required by GAAP. The Financial Statements present fairly the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein, subject, in the case of unaudited financial
statements, to normal year end audit adjustments. At the date of the Balance
Sheet (the "BALANCE SHEET DATE") and as of the Closing Date, except as set forth
in the Disclosure Schedule, the Company had and will have no liabilities or
obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise) not reflected in the Financial Statements or the accompanying notes
thereto, except for liabilities and obligations that have arisen in the ordinary
course of business prior to the date of the Financial Statements and which,
under GAAP, would not have been required to be reflected in the Financial
Statements and except for liabilities incurred in the ordinary course of
business since the date of the Financial Statements which are usual and normal
in amount. The Company maintains and will continue to maintain a standard system
of accounting established and administered in accordance with GAAP. The
Company's budget for the 12 months ending December 31, 2001 has previously been
provided to Parent.
4.8 Absence of Changes. From the Balance Sheet Date, except as otherwise
contemplated by this Agreement or set forth in the Disclosure Schedule, the
Company has conducted its business only in the ordinary and usual course and,
without limiting the generality of the foregoing:
(a) There have been no changes in the financial condition, business, net
worth, assets, properties, employees, operations, obligations or liabilities of
the Company, taken as a whole, which, in the aggregate, have had or may be
reasonably expected to have a material adverse
13
18
effect on the Company, taken as a whole;
(b) The Company has not incurred additional debt for borrowed money, or
incurred any obligation or liability except in the ordinary course of business
consistent with past practice and in any event not in excess of $50,000 for any
single occurrence;
(c) The Company has not paid any obligation or liability, or discharged,
settled or satisfied any claim, lien or encumbrance, except for current
liabilities in the ordinary course of business consistent with past practice and
in any event not in excess of $20,000 for any single occurrence;
(d) The Company has not declared or made any dividend, payment or other
distribution on or with respect to any share of capital stock;
(e) The Company has not purchased, redeemed or otherwise acquired or
committed itself to acquire, directly or indirectly, any share or shares of its
capital stock;
(f) The Company has not mortgaged, pledged, or otherwise encumbered any
of its assets or properties, except for liens for current taxes which are not
yet delinquent and purchase-money liens arising out of the purchase or sale of
services or products made in the ordinary course of business consistent with
past practice and in any event not in excess of $20,000 for any single item or
$50,000 in the aggregate;
(g) The Company has not disposed of, or agreed to dispose of, by sale,
lease, license or otherwise, any asset or property, tangible or intangible,
except in the ordinary course of business consistent with past practice, and in
each case for a consideration believed to be at least equal to the fair value of
such asset or property and in any event not in excess of $20,000 for any single
item or $50,000 in the aggregate;
(h) The Company has not purchased or agreed to purchase or otherwise
acquire any securities of any corporation, partnership, joint venture, firm or
other entity;
(i) The Company has not made any expenditure or commitment for the
purchase, acquisition, construction or improvement of a capital asset, except in
the ordinary course of business consistent with past practice and in any event
not in excess of $10,000 for any single item;
(j) The Company has not sold, assigned, transferred or conveyed, or
committed itself to sell, assign, transfer or convey, any Proprietary Rights (as
defined in Section 4.18) except pursuant to licenses in the ordinary course of
business;
(k) The Company has not adopted or amended any bonus, incentive,
profit-sharing, stock option, stock purchase, pension, retirement,
deferred-compensation, severance, life insurance, medical or other benefit plan,
agreement, trust, fund or arrangement for the benefit of employees of any kind
whatsoever, nor agreed to do any of the foregoing;
(l) The Company has not effected or agreed to effect any change in its
directors, officers or key employees; and
14
19
(m) The Company has not effected or committed itself to effect any
amendment or modification in its Restated Certificate or Bylaws.
4.9 Properties.
(a) The Company does not own any real property, nor has it ever owned
any real property. The Financial Statements reflect all of the real and personal
property used by the Company in its business or otherwise held by the Company,
except for (i) property acquired or disposed of in the ordinary course of
business consistent with past practice of the Company since the date of the
Balance Sheet, and (ii) personal property not required under GAAP to be
reflected thereon. The Company has good and marketable title to all material
assets and properties listed in the Financial Statements or thereafter acquired,
free and clear of any imperfections of title, lien, claim, encumbrance,
restriction, charge or equity of any nature whatsoever, except for liens which
do not detract from the value of the assets or impair operations or liens for
current taxes not yet delinquent. All of the material fixed assets and
properties reflected in the Financial Statements or thereafter acquired are in
reasonably good condition and repair for the requirements of the business as
presently conducted by the Company.
(b) Section 4.9 of the Disclosure Schedule contains a complete and
accurate list of all real property leased by the Company (the "PROPERTIES"), the
name of the lessor and the date of the lease. The Company does not have any
options to purchase any such Properties or any other real property. To the
knowledge of the Company, the Properties are held under valid, existing and
enforceable leases. To the knowledge of the Company, the Properties and the
operations of the Company thereon do not violate any applicable material
building code, zoning requirement or classification, or pollution control
ordinance or statute relating to the Properties or to such operations.
4.10 Environmental Matters.
(a) To the knowledge of the Company, the Company is, and at all times
has been, in compliance with all applicable material local, state and federal
statutes, orders, rules, ordinances, regulations, codes and policies and all
judicial or administrative interpretations thereof (collectively, "ENVIRONMENTAL
LAWS") relating to pollution or protection of the environment, including,
without limitation, laws relating to exposures, emissions, discharges, releases
or threatened releases of Hazardous Substances (as defined below) into or on
land, ambient air, surface water, groundwater, personal property or structures
(including the protection, cleanup, removal, remediation or damage thereof), or
otherwise related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, discharge or handling of Hazardous Substances. The
Company has not received any notice of any investigation, claim or proceeding
against the Company relating to Hazardous Substances or any action pursuant to
or violation or alleged violation under any Environmental Law, and the Company
is not aware of any fact or circumstance which is reasonably likely to impose a
material environmental liability upon the Company. As used in this Agreement,
"HAZARDOUS SUBSTANCES" means any pollutant, contaminant, material, substance,
waste, chemical or compound regulated, restricted or prohibited by any law,
regulation or ordinance or designated by any governmental agency to be
hazardous, toxic, radioactive, biohazardous or otherwise a danger to health or
the environment.
15
20
(b) To the knowledge of the Company, there are no Hazardous Substances
in, under or about the soil, sediment, surface water or groundwater on, under or
around any properties at any time owned, leased or occupied by the Company. The
Company has not disposed of any Hazardous Substances on or about such
properties. To the knowledge of the Company, there is no present release or
threatened release of any Hazardous Substances in, on, under or around such
properties. To the knowledge of the Company, the Company has not disposed of any
materials at any site being investigated or remediated for contamination or
possible contamination of the environment.
(c) To the knowledge of the Company, the Company has all material
permits, licenses and approvals required by Environmental Laws for the use and
occupancy of, and for all operations and activities conducted on, the
Properties, and, to the knowledge of the Company, the Company is in material
compliance with all such permits, licenses and approvals, and all such permits,
licenses and approvals were duly issued, are in full force and effect, and, to
the extent necessary, will be transferred to Parent at the Closing, and will
remain in full force and effect as so transferred to Parent.
4.11 Taxes.
(a) For purposes of this Agreement, the following terms have the
following meanings: "TAX" (and, with correlative meaning, "TAXES" and "TAXABLE")
means any and all taxes, including without limitation (i) any income, profits,
alternative or add-on minimum tax, gross receipts, sales, use, value-added, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, net worth, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or assessment or charge of any kind whatsoever, together with any interest
or any penalty, addition to tax or additional amount imposed by any governmental
entity responsible for the imposition of any such tax (domestic or foreign) (a
"TAXING AUTHORITY") and (ii) any liability for the payment of any amounts of the
type described in clause (i) above as a result of any express or implied
obligation to indemnify any other Person.
(b) All Tax returns, statements, reports and forms (including estimated
Tax returns and reports and information returns and reports) required to be
filed with any Taxing Authority with respect to any Taxable period ending on or
before the Effective Time, by or on behalf of the Company (collectively, the
"COMPANY RETURNS"), have been or will be filed when due (including any
extensions of such due date), and all amounts shown to be due thereon on or
before the Effective Time have been or will be paid on or before such date. The
Financial Statements properly accrue for all actual or estimated Taxes with
respect to all periods through the dates thereof consistent with past practice
in accordance with GAAP. All information set forth in the notes to the Financial
Statements relating to Tax matters is true, complete and accurate in all
material respects.
(c) No Tax liability has been incurred since the date of the Financial
Statements other than in the ordinary course of business and adequate provision
has been made for all Taxes since that date in accordance with GAAP on at least
a quarterly or, with respect to employment taxes, monthly basis. The Company has
withheld and paid to the applicable financial institution or Taxing Authority
all amounts required to be withheld. To the knowledge of the Company, none
16
21
of the Company Returns filed with respect to federal income tax returns for
Taxable years of the Company in the case of the United States have been examined
and closed. The Company has not been granted any extension or waiver of the
limitation period applicable to any Company Return.
(d) There is no claim, audit, action, suit, proceeding or, to the
knowledge of the Company, investigation now pending or threatened against or
with respect to the Company in respect of any Tax or assessment. There are no
liabilities for Taxes with respect to any notice of deficiency or similar
document of any Tax Authority received by the Company which have not been
satisfied in full (including liabilities for interest, additions to tax and
penalties thereon and related expenses). Neither the Company nor any Person on
behalf of the Company has entered into or will enter into any agreement or
consent pursuant to section 341(f) of the Code. There are no liens for Taxes
upon the assets of the Company except liens for current Taxes not yet due.
Except as set forth in the Disclosure Schedule, the Company has not been nor
will it be required to include any adjustment in Taxable income for any Tax
period (or portion thereof) pursuant to section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Effective Time.
At no time has the Company been a member of any "affiliated group" of
corporations within the meaning of section 1504 of the Code nor a Member of any
combined or united group for state or local income or franchise tax purposes.
(e) There is no contract, agreement, plan or arrangement, including
without limitation the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to section 280G or section 162
of the Code (as determined without regard to section 280G(b)(4)). Other than
pursuant to this Agreement, the Company is not a party to or bound by (nor will
it prior to the Effective Time become a party to or bound by) any tax indemnity,
tax sharing or tax allocation agreement (whether written, unwritten or arising
under operation of federal law as a result of being a member of a group filing
consolidated tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than the Company. None of
the assets of the Company (i) is property that the Company is required to treat
as owned by any other Person pursuant to the so-called "safe harbor lease"
provisions of former section 168(f)(8) of the Code, (ii) directly or indirectly
secures any debt the interest on which is tax exempt under section 103(a) of the
Code, or (iii) is "tax exempt use property" within the meaning of section 168(h)
of the Code. The Company has not participated in (and prior to the Effective
Time the Company will not participate in) an international boycott within the
meaning of section 999 of the Code. The Company has disclosed on its federal
income tax returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of section
6661 of the Code. The Company has previously provided or made available to
Parent complete and accurate copies of all the Company Returns, and, as
reasonably requested by Parent, prior to or following the date hereof, presently
existing information statements, reports, work papers, Tax opinions and
memoranda and other Tax data and documents.
4.12 Employees and Employee Benefit Plans.
17
22
(a) The Company has provided Parent with a complete and accurate list
setting forth all employees and consultants of the Company as of the date hereof
together with their titles or positions, dates of hire, regular work location
and current compensation. Except as set forth in Section 4.12 of the Disclosure
Schedule ("SCHEDULE 4.12"), the Company does not have any employment or
consulting contract with any officer or employee or any other consultant or
Person which is not terminable by it at will without liability, except for
acceleration of options upon termination and except as the right of the Company
to terminate its employees at will may be limited by applicable federal, state
or foreign law. Except as set forth in Schedule 4.12, the Company does not have
any deferred compensation, pension, health, profit sharing, bonus, stock
purchase, stock option, hospitalization, insurance, severance, workers'
compensation, supplemental unemployment benefits, vacation benefits, disability
benefits, or any other employee pension benefit (as defined in the Employee
Retirement Income Security Act of 1974 ("ERISA") or otherwise) or welfare
benefit plan or obligation covering any of its officers or employees ("EMPLOYEE
PLANS") or any informal understanding with respect to the foregoing. Each
Employee Plan complies in all material respects with applicable laws, including,
without limitation, ERISA and the Code.
(b) Each Employee Plan has been maintained in material compliance with
its terms, and all applicable ERISA and other requirements as to the filing of
reports, documents and notices with governmental agencies and the furnishing of
documents to participants or beneficiaries have been satisfied. The Company does
not maintain, nor has it ever maintained or contributed to, any Employee Plan
subject to Title IV of ERISA (relating to defined benefit plans).
4.13 Labor Matters. There are no labor disputes or union organization
activities pending or, to the knowledge of the Company, threatened between the
Company and any of its employees. None of the employees of the Company belongs
to any union or collective bargaining unit. To the knowledge of the Company, the
Company has complied with all applicable and material foreign, state and federal
equal employment opportunity and other laws and regulations related to
employment or working conditions.
4.14 Compliance with Law. All material licenses, franchises, permits,
clearances, consents, certificates and other evidences of authority of the
Company which are necessary to the conduct of the Company's business ("PERMITS")
are in full force and effect and, to the knowledge of the Company, the Company
is not in violation of any Permit in any material respect. Except for exceptions
which would not have a material adverse effect on the Company, the business of
the Company has been conducted in accordance with all applicable laws,
regulations, orders and other requirements of governmental authorities.
4.15 Litigation. There is no claim, dispute, action, proceeding, notice,
order, suit, appeal or investigation, at law or in equity, pending or, to the
knowledge of the Company, threatened, against the Company or, to the knowledge
of the Company, any of its directors, officers, employees or agents, which is
reasonably likely to have a material adverse effect on the Company, before any
court, agency, authority, arbitration panel or other tribunal. The Company is
not aware of any facts which, if known to stockholders, customers, suppliers,
governmental authorities or other Persons, would be reasonably likely to result
in any material liability in any such claim (other than customary and normal
returns of product in the ordinary course of
18
23
business consistent with past practice), dispute, action, proceeding, suit or
appeal or investigation. The Company is not subject to any order, writ,
injunction or decree of any court, agency, authority, arbitration panel or other
tribunal, nor is the Company in default with respect to any notice, order, writ,
injunction or decree.
4.16 Contracts. Section 4.16 of the Disclosure Schedule contains a
complete and accurate list of each executory contract and agreement in the
following categories to which the Company is a party, or by which the Company is
bound in any respect: (a) agreements for the purchase, sale, lease or other
disposition of equipment, goods, materials, supplies, or capital assets, or for
the performance of services which are not terminable without penalty on thirty
(30) days' notice, in any case involving more than $10,000; (b) contracts or
agreements for the joint performance of work or services, and all other joint
venture, collaboration, research, or other agreements in excess of $10,000 each;
(c) management or employment contracts over $100,000 annually, consulting or
scientific advisory contracts, collective bargaining contracts, termination and
severance agreements; (d) notes, mortgages, deeds of trust, loan agreements,
security agreement, guarantees, debentures, indentures, credit agreements and
other evidences of indebtedness; (e) warrants, repurchase rights at the option
of the holder or other contracts or agreements relating to the issuance of
capital stock or other equity interests of the Company; (f) contracts or
agreements in excess of $10,000 with third parties who act as agents, brokers,
consignees, sale representatives or distributors; (g) contracts or agreements
with any director, officer, employee, consultant or holder of 10% or more of the
Company's capital stock, not related to the performance of employment or
consulting services; (h) powers of attorney or similar authorizations granted by
the Company to third parties; (i) patent licenses, sublicenses, royalty
agreements and other contracts or agreements to which the Company is a party, or
otherwise subject, relating to Proprietary Rights; (j) personal property or
capital equipment leases and other rental, use or service arrangements of the
Company involving payment obligations in excess of $25,000 and which cannot be
terminated without penalty on thirty (30) days' notice; and (k) other material
contracts.
The Company has not entered into any contract or agreement containing
covenants limiting the right of the Company to compete in any business or with
any Person.
4.17 No Default.
(a) Each of the contracts, agreements or other instruments referred to
in Section 4.16 is a legal, binding and enforceable obligation by or against the
Company, subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar federal or state laws affecting the
rights of creditors and the effect or availability of rules of law governing
specific performance, injunctive relief or other equitable remedies. To the
knowledge of the Company, no party with whom the Company has an agreement or
contract is in default thereunder or has breached any term or provision thereof
which is material to the conduct of the business of the Company.
(b) The Company has performed, or is now performing, the obligations of,
and the Company is not in material default (or would by the lapse of time and/or
the giving of notice be in material default) in respect of, any contract,
agreement or commitment binding upon it or its assets or properties and material
to the conduct of its business. No third party has notified the
19
24
Company of any material claim, dispute or controversy with respect to any of the
material executory contracts of the Company, nor has the Company received notice
or warning of alleged nonperformance, delay in delivery or other noncompliance
by the Company with respect to its obligations under any of those contracts, nor
are there any facts which exist indicating that any of those contracts may be
totally or partially terminated or suspended by the other parties thereto.
4.18 Proprietary Rights.
(a) Section 4.18 of the Disclosure Schedule sets forth a complete and
accurate list (the "INTELLECTUAL PROPERTY DISCLOSURE SCHEDULE") of all patents
and applications for patents, trademarks, trade names, service marks and
copyrights, owned or used by the Company or in which it has any rights or
licenses. Such list specifies, as applicable: (i) the title of the patents,
service marks, trademarks and trade names and title of each application
therefor; and (ii) the jurisdiction by or in which such patent, trademark, trade
name, service mark or copyright has been issued or registered or in which an
application has been filed, including the registration or application number.
The Company has provided Parent with copies of all agreements (other than
Proprietary Information and Invention Agreements referred to in Section 4.18(g)
below) by which any officer, employee or consultant of the Company has assigned
or conveyed to the Company title and ownership to patents, patent applications,
trade secrets, and inventions developed or used by the Company in its business.
All of such agreements are valid, enforceable and legally binding, subject to
the effect or availability of rules of law governing specific performance,
injunctive relief or other equitable remedies (regardless of whether any such
remedy is considered in a proceeding at law or in equity).
(b) To the knowledge of the Company, the Company owns or possesses or
has the right to obtain valid and enforceable licenses or other rights to all
patents, patent applications, supplementary protection certificates and patent
extensions, trademarks, trademark applications, trade secrets, service marks and
service mark registrations, trade names, copyrights, inventions, business name
registrations, drawings, designs, proprietary know-how or information, or other
rights with respect thereto (collectively referred to as "PROPRIETARY RIGHTS"),
material to the conduct of its business as it has been and is now being
conducted or as it is currently proposed to be conducted. The Company has the
right to use, sell, license, sublicense, assign, transfer, convey or dispose of
such Proprietary Rights and the products, processes and materials covered
thereby.
(c) To the knowledge of the Company, the operations of the Company do
not conflict with or infringe, and no one has asserted to the Company that such
operations conflict with or infringe, any material Proprietary Rights, owned,
possessed or used by any third party. There are no claims, disputes, actions,
proceedings, suits or appeals pending against the Company with respect to any
Proprietary Rights, and to the knowledge of the Company none has been threatened
against the Company. To the knowledge of the Company, there are no facts or
alleged facts which would reasonably serve as a basis for any claim that the
Company does not have the right to use and to transfer the right to use, free of
any rights or claims of others, all material Proprietary Rights in the
development, manufacture, use, sale or other disposition of any or all material
products or services presently being used, furnished or sold in the conduct of
the business of the Company as it has been and is now being conducted. The
Proprietary Rights referred to in the preceding sentence are free of any
unresolved ownership disputes with respect
20
25
to any third party and to the best knowledge of the Company there is no
unauthorized use, infringement or misappropriation of any of such Proprietary
Rights by any third party, including any employee or former employee of the
Company, nor, to the knowledge of the Company, is there any breach of any
license, sublicense or other agreement authorizing another party to use such
Proprietary Rights. The Company has not entered into any agreement granting any
third party the right to bring infringement actions with respect to, or
otherwise to enforce rights with respect to, any Proprietary Right.
(d) The Intellectual Property Disclosure Schedule contains a complete
and accurate list of any proceedings before any patent or trademark authority to
which the Company is a party, a description of the subject matter of each
proceeding, and the current status of each proceeding, including, without
limitation, interferences, priority contests, opposition, and protests. Such
list includes any pending applications for reissue or reexamination of a patent.
The Company has the exclusive right to file, prosecute and maintain any such
applications for patents, copyrights or trademarks and the patents and
registrations that issue therefrom.
(e) The Company has taken all other measures it deems reasonable and
appropriate to maintain the confidentiality of the Proprietary Rights used or
proposed to be used in the conduct of its business the value of which to the
Company is contingent upon maintenance of the confidentiality thereof.
(f) The Company has secured valid written assignments from all
consultants and employees who contributed to the creation or development of the
Company's Proprietary Rights of the rights to such contributions that the
Company does not already own by operation of law.
(g) Each employee and officer of and consultant to the Company has
executed a Proprietary Information and Inventions Agreement or other
nondisclosure agreement in the forms provided to Parent. To the knowledge of the
Company, no employee or officer of or consultant to the Company is in violation
of any term of any employment contract, proprietary information and inventions
agreement, non-competition agreement, or any other contract or agreement
relating to the relationship of any such employee or consultant with the Company
or any previous employer.
4.19 Insurance. The Company has provided Parent with copies of all
insurance policies to which the Company is a party or is a beneficiary or named
insured, and all such insurance policies are in full force and effect. There
have been no claims in excess of $25,000 asserted under any of the insurance
policies of the Company in respect of all general liability, professional
liability, property liability and worker's compensation and medical claims since
the Company's incorporation.
4.20 Brokers or Finders. Neither the Company nor any of its officers,
directors, employees or stockholders has employed any broker or finder or
incurred any liability for any brokerage, finder's or similar fees or
commissions in connection with this Agreement or the transactions contemplated
hereby, except that the Company has employed CIBC World Markets Corp. ("CIBC")
as financial advisors in connection with the transactions contemplated hereby.
The Company has disclosed in writing to Parent prior to the date hereof its
arrangements with such financial advisors.
21
26
4.21 Related Parties. Except as set forth in Section 4.21 of the
Disclosure Schedule ("SCHEDULE 4.21") no officer, director or affiliate (other
than a venture capital investor) of the Company has, either directly or
indirectly, (a) a material interest in any corporation, partnership, firm or
other Person or entity which furnishes or sells services or products which are
similar to those furnished or sold by the Company, or (b) a beneficial interest
in any material contract or agreement to which the Company is a party or by
which the Company may be bound.
4.22 Certain Advances. Other than advances in the ordinary course of
business consistent with past practice to officers and employees for
reimbursable business expenses which are not in excess of $5,000 for any one
individual, there are no receivables of the Company owing from directors,
officers, employees, consultants or stockholders of the Company.
4.23 Underlying Documents. Copies of any underlying documents listed or
described as having been disclosed to Parent pursuant to this Agreement have
been furnished to Parent. All such documents furnished to Parent are true and
correct copies, and there are no amendments or modifications thereto, that have
not been disclosed in writing to Parent.
4.24 No Misleading Statements. No representation or warranty made
herein, in the Disclosure Schedule or in the Appendices, Schedules and Exhibits
attached hereto or any written statement or certificate furnished or to be
furnished to Parent pursuant hereto or in connection with the transactions
contemplated hereby (when read together) contains any untrue statement of a
material fact or omits a material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which they
are made, not misleading. The Company has disclosed to Parent all material
information of which it is aware relating specifically to the operations and
business of the Company as of the date of this Agreement or relating to the
transactions contemplated by this Agreement.
4.25 Information Statement. The information supplied by the Company for
inclusion in the information statement to be sent to the stockholders of the
Company in connection with the meeting of the Company stockholders to consider
the Merger (the "COMPANY STOCKHOLDERS MEETING") or in connection with any
written consent of stockholders of the Company (such information statement as
amended or supplemented is referred to herein as the "INFORMATION STATEMENT")
shall not, on the date the Information Statement is first mailed to the Company
stockholders, at the time of the Company Stockholders Meeting, or written
consent of stockholders and at the Effective Time, contain any statement which
is false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they are made, not false or misleading. If at
any time prior to the Effective Time any event or information should be
discovered by the Company which should be set forth in an amendment to the
Information Statement, the Company shall promptly inform Parent and Merger
Subsidiary and shall communicate such information to the Company stockholders in
an appropriate manner. Notwithstanding the foregoing, the Company makes no
representation, warranty or covenant with respect to any information supplied by
Parent or Merger Subsidiary which is contained in any of the foregoing
documents.
ARTICLE V
22
27
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Parent and Merger Subsidiary represent and warrant to the Company as
follows:
5.1 Organization. Each of Parent and Merger Subsidiary is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Each of Parent and Merger Subsidiary is qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which the nature of its business requires such
qualification, except where the failure to be so qualified or in good standing
would not have a material adverse effect on Parent and its subsidiaries, taken
as a whole. The copies of Merger Subsidiary's Certificate of Incorporation and
Bylaws that have been delivered to the Company are complete and correct and in
full force and effect. All of the issued and outstanding capital stock of Merger
Subsidiary is owned by Parent.
5.2 Authority. Each of Parent and Merger Subsidiary has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder and consummate the transactions contemplated hereby. The
execution and delivery of this Agreement, the performance by each of Parent and
Merger Subsidiary of its obligations hereunder and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Subsidiary,
including approval of the Board of Directors of Parent (the "PARENT BOARD").
This Agreement has been duly executed and delivered on behalf of each of Parent
and Merger Subsidiary and constitutes a legal, valid and binding obligation of
each of Parent and Merger Subsidiary, enforceable against each of them in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
5.3 No Conflict with Other Instruments. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby (a) will
not result in any violation of, conflict with, constitute a breach, violation or
default (with or without notice or lapse of time, or both) under, give rise to a
right of termination, cancellation, forfeiture or acceleration of any obligation
or loss of any benefit under, or result in the creation or encumbrance on any of
the properties or assets of Parent or any of its subsidiaries, including Merger
Subsidiary, pursuant to (i) any provision of Parent's or Merger Subsidiary's
Certificate of Incorporation or Bylaws, or (ii) any agreement, contract,
understanding, note, mortgage, indenture, lease, franchise, license, permit or
other instrument to which Parent or any of its subsidiaries is a party or by
which the properties or assets of Parent or any of its subsidiaries is bound, or
(b) to the knowledge of Parent after reasonable inquiry, conflict with or result
in any breach or violation of any statute, judgment, decree, order, rule or
governmental regulation applicable to Parent or any of its subsidiaries or their
respective properties or assets, except, in the case of clauses (a)(ii) and (b)
for any of the foregoing that would not, individually or in the aggregate, have
a material adverse effect on Parent and its subsidiaries, taken as a whole, or
that could not result in the creation of any material lien, charge or
encumbrance upon any assets of Parent or any of its subsidiaries or that could
not prevent, materially delay or materially burden the transactions contemplated
by this Agreement.
23
28
5.4 Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental authority is
required by or with respect to Parent or Merger Subsidiary in connection with
the execution and delivery of this Agreement by Parent and Merger Subsidiary or
the consummation by Parent and Merger Subsidiary of the transactions
contemplated hereby, except for (a) the filing of the Certificate of Merger with
the Delaware Secretary of State, (b) such consents, approvals, orders,
authorizations, registrations, declarations, qualifications or filings as may be
required under federal or state securities laws in connection with the
transactions set forth herein or which the failure to obtain would not have a
material adverse effect on the consummation by Parent of the transactions
contemplated hereby, and (c) filings that may be required pursuant to the HSR
Act.
5.5 SEC Documents. Parent has furnished to the Company complete and
accurate copies of Parent's Annual Report on Form 10-K for the year ended
December 31, 1999, Parent's Quarterly Reports on Form 10-Q for the quarters
ended March 31, June 30 and September 30, 2000, and Parent's Proxy Statement for
its Annual Meeting of Stockholders held on June 5, 2000, all filed with the SEC
under the Exchange Act ("PARENT'S SEC FILINGS"). As of their respective filing
dates, Parent's SEC Filings complied in all material respects with the
requirements of the Exchange Act and, as of their respective filing dates,
Parent's SEC Filings did not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made therein, in
the light of the circumstances under which they were made, not misleading.
5.6 Shares of Parent Common. The shares of Parent Common to be issued
pursuant to the Merger will, when issued and delivered to the Securityholders
and the shares of Parent Common to be issued pursuant to the Converted Company
Options will, when issued and delivered to the holders thereof on payment of the
consideration provided for therein, be duly authorized, validly issued, fully
paid and nonassessable.
5.7 No Material Adverse Change. Since September 30, 2000, there has not
occurred: (a) any change that resulted or would reasonably be expected to result
in a material adverse effect on Parent and its subsidiaries, taken as a whole
(it being understood that changes in trading prices for Parent's securities
shall not be taken into account in determining whether there has been or could
or would be a material adverse effect); (b) any amendment or change in Parent's
Certificate of Incorporation or Bylaws; or (c) any damage to, destruction or
loss of any assets of Parent (whether or not covered by insurance) that resulted
or would reasonably be expected to result in a material adverse effect on Parent
and its subsidiaries, taken as a whole.
5.8 Brokers or Finders. Neither Parent nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage, finder's or similar fees or commissions in
connection with this Agreement or the transactions contemplated hereby, except
that Parent has employed Chase Securities Inc. as financial advisors in
connection with the transactions contemplated hereby.
5.9 Financial Statements. Each of the consolidated financial statements
(including, in each case, any related notes) contained in Parent's SEC Filings
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the
24
29
periods involved (except as may be indicated in the notes to such financial
statements, or, in the case of unaudited statements, as permitted for
presentation in quarterly reports on Form 10-Q) and fairly presented, in all
material respects, the consolidated financial position of Parent and its
Subsidiaries as of the respective dates thereof and the consolidated results of
operations and cash flows of Parent and its Subsidiaries for the periods
indicated, except that the unaudited interim financial statements were or are
subject to, normal and recurring year-end audit adjustments. Since September 30,
2000, there has been no material adverse change in the financial condition of
Parent and its Subsidiaries, taken as a whole.
5.10 Litigation. Except as disclosed in Parent's SEC filings, there is
no (a) claim, action, suit or proceeding pending or, to the knowledge of Parent,
threatened against or relating to Parent or its Subsidiaries before any court or
governmental or regulatory authority or body or arbitration tribunal, or (b)
outstanding judgment, order, writ, injunction or decree, or application, request
or motion therefor, of any court, governmental agency or arbitration tribunal in
a proceeding to which Parent or any Subsidiary of Parent was or is a party
except, in the case of clauses (a) and (b) above, such as would not,
individually and in the aggregate, either impair Parent's ability to consummate
the Merger or have a material adverse effect on Parent and its Subsidiaries,
taken as a whole.
ARTICLE VI
CONDUCT PRIOR TO THE EFFECTIVE TIME
6.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except as contemplated by
this Agreement or to the extent that Parent shall otherwise consent in writing)
to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay its debts and
Taxes when due, to pay or perform other obligations when due, and, to the extent
consistent with such business, to use all commercially reasonable efforts
consistent with past practice and policies to preserve intact its present
business organization, keep available the services of its present officers, key
employees and independent contractors, and preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired its
goodwill and ongoing businesses at the Effective Time.
Following the date of this Agreement, the Company shall promptly notify
Parent of any materially negative event related to the Company or the business
of the Company. Without limiting the foregoing, except as expressly contemplated
by this Agreement, the Company shall not, without the prior written consent of
Parent:
(a) Enter into any material commitment or transaction not in the
ordinary course of business consistent with past practice;
(b) Transfer to any Person or entity any material Proprietary Rights,
other than pursuant to licenses in the ordinary course of business;
25
30
(c) Enter into any material agreements (or material amendments thereto)
pursuant to which any unrelated third party is granted marketing, distribution
or similar rights of any type or scope with respect to any products of the
Company other than in the ordinary course of business consistent with past
practice;
(d) Amend or otherwise modify, except in the ordinary course of
business, or violate the material terms of, any of the agreements set forth or
described in the Disclosure Schedule;
(e) Commence any material litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or other equity interests, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares of
its capital stock (or options, warrants or other rights exercisable therefor),
except pursuant to purchase rights under agreements with employees and
consultants;
(g) Except for the issuance of Company Shares upon exercise of presently
outstanding Company Options (as to which the Company shall deduct and withhold
such amounts as it is required to deduct and withhold under any provision of
federal, state, local or foreign tax law) or upon conversion of outstanding
Company Preferred Stock, issue, grant, deliver or sell or authorize or propose
the issuance, grant, delivery or sale of, or purchase or propose the purchase
of, any Voting Debt or any shares of its capital stock or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities;
(h) Cause or permit any amendments to its Restated Certificate or Bylaws
(or other charter documents);
(i) Acquire or agree to acquire any assets in excess of $25,000 in the
case of a single transaction, or acquire by merging or consolidating with or by
purchasing or by any other manner, any equity securities;
(j) Sell, lease, license or otherwise dispose of any of its properties
or assets, except in the ordinary course of business consistent with past
practice;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any of its debt securities or guarantee any debt
securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee other than pursuant to the existing
agreements of the Company;
(m) Adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers to any Person whose aggregate
annual base salary would exceed $50,000, pay or agree to pay any special bonus
or special remuneration to any director or employee other than in connection
with normal annual bonus and salary adjustments for all
26
31
non-officers and directors upon consultation with Parent, or increase the
salaries or wage rates of its other employees, except as consistent with the
ordinary course of business consistent with past practice;
(n) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable, other than
in the ordinary course of business consistent with past practice;
(o) Pay, discharge or satisfy, in an amount in excess of $10,000 (in any
one case) or $25,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of (i)
liabilities reflected or reserved against in the Financial Statements and that
are not in excess of $25,000 or (ii) liabilities that arose in the ordinary
course of business subsequent to the Balance Sheet Date and that are not in
excess of $25,000, or (iii) liabilities under contracts entered into in the
ordinary course of business, which payments are due in accordance with the terms
of such contracts and that are not in excess of $25,000; or (iv) expenses
consistent with the provisions of this Agreement incurred in connection with the
transactions contemplated hereby and that are not in excess of $25,000;
(p) 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 any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes; or
(q) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 6.1(a) through (p) above, or any other action that would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder.
6.2 No Solicitation. Until the earlier of the Effective Time and the
date of termination of this Agreement, the Company agrees that it shall not,
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: solicit, initiate, facilitate or encourage
(including by way of furnishing or disclosing non-public information) any
inquiries or the making of any proposal with respect to any merger,
consolidation or other business combination involving the Company or acquisition
of any kind of material portion of the capital stock or assets of the Company
(an "ACQUISITION TRANSACTION") or negotiate, explore or otherwise communicate in
any way with any third party with respect to any Acquisition Transaction or
enter into any agreement, arrangement or understanding with respect to an
Acquisition Transaction or requiring it to abandon, terminate, or fail to
consummate the Merger or any other transactions contemplated by this Agreement,
or make or authorize any statement, recommendation or solicitation in support of
any Acquisition Transaction with any third party other than Parent and Merger
Subsidiary.
6.3 Conduct of Business of Parent. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, Parent agrees (except as contemplated by this
Agreement or to the extent that the Company shall otherwise consent in writing,
which consent shall not be unreasonably withheld) to carry on its business in
the usual, regular and ordinary course in substantially the same manner
27
32
as heretofore conducted, to not declare, set aside or pay any dividend on its
capital stock, to pay its debts and Taxes when due, to pay or perform other
obligations when due, and, to the extent consistent with such business, to use
all commercially reasonable efforts consistent with past practice and policies
to preserve intact its present business organization, keep available the
services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. Following
the date of this Agreement, and continuing until the earlier of the termination
of this Agreement and the Effective Time, Parent shall promptly notify the
Company of any materially negative event related to Parent or its business.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Approval of the Company Stockholders. The Company and Parent will
prepare as soon as reasonably practicable the Information Statement and if the
Company holds a stockholders' meeting, a proxy statement, in form and substance
reasonably acceptable to Parent, with respect to the solicitation of written
consents and/or proxies from the stockholders of the Company to approve this
Agreement, the Merger and related matters. The Information Statement shall be in
such form and contain such information so as to permit compliance by Parent with
the requirements of Regulation D under the Securities Act in connection with the
issuance of shares of Parent Common Stock in the Merger. The Information
Statement shall include a solicitation of consents necessary to prevent the
acceleration of stock options in connection with this Agreement from giving rise
to a "parachute payment" under section 280G of the Code. Prior to the Closing
Date and at the earliest practicable date following the date hereof, the Company
will solicit written consents from its stockholders seeking, or hold the Company
Stockholders Meeting for the purpose of seeking, approval of this Agreement, the
Merger and related matters. If the Company holds the Company Stockholders
Meeting, the Board of Directors will solicit proxies from the Company's
stockholders to vote such stockholders' shares at the Company Stockholders
Meeting. In soliciting such written consent or proxies, the Board of Directors
of the Company will recommend to the stockholders of the Company that they
approve this Agreement and the Merger and the Company shall use all reasonable
efforts (i) to obtain the approval of the stockholders of the Company entitled
to vote on or consent to approve this Agreement and the Merger in accordance
with the DGCL and the Restated Certificate and to approve the items necessary to
prevent the acceleration of stock options in connection with this Agreement from
giving rise to a "parachute payment" under section 280G of the Code, (ii) to
cause each of the Securityholders who is not an "accredited investor" (as
defined in Rule 501 under the Securities Act) to appoint a "purchaser
representative" (as defined in Rule 501 under the Securities Act) in connection
with evaluating the merits and risks of investing in Parent Common, and (iii) to
obtain the agreement of the Preferred Securityholders that, subject to the
consummation of the Closing, the dividend on the outstanding shares of Company
Preferred Stock shall be deemed to cease to accrue on and after December 15,
2000, and (iv) to obtain the acknowledgement of the Securityholders that (A) the
Merger Consideration shall be allocated as set forth on the Merger Consideration
Spreadsheet, and such allocation is in full satisfaction of the amounts such
Securityholders are entitled to receive pursuant to Section B of Article Fourth
of the Restated Certificate and (B) the amount of
28
33
the Escrow Consideration to be delivered in respect of each such Securityholder
shall be as set forth on the Merger Consideration Spreadsheet.
7.2 Access to Information; Interim Financial Information. Subject to any
applicable contractual confidentiality obligations (which each party shall use
all commercially reasonable efforts to cause to be waived) each party shall
afford the other party and its accountants, counsel and other representatives,
reasonable access during normal business hours during the period prior to the
Effective Time to (a) all of its and its subsidiaries' properties, books,
contracts, agreements and records, and (b) all other information concerning the
business, properties and personnel (subject to restrictions imposed by
applicable law or previously agreed to by the parties) of it and its
subsidiaries as the others may reasonably request. No information or knowledge
obtained in any investigation pursuant to this Section 7.2 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger. Promptly
following the end of each month between the date of this Agreement and the
Closing Date, the Company shall prepare and furnish to Parent financial
statements of the Company as of and for the month and year-to-date periods
ending on the last day of such month, all prepared in a manner consistent with
the Company's past practice.
7.3 Confidentiality. Each of the parties hereto hereby agrees to and
reaffirms the terms and provisions of the Mutual Non-Disclosure Agreement
between Parent and the Company, effective as of November 19, 2000.
7.4 Expenses. All fees and expenses incurred in connection with the
Merger including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses.
7.5 Public Disclosure. Unless otherwise required by law (including,
without limitation, securities laws) or, as to Parent, by the rules and
regulations of Nasdaq, prior to the Effective Time, no disclosure (whether or
not in response to an inquiry) of the discussions or subject matter of this
Agreement or the transactions contemplated hereby shall be made by any party
hereto unless approved by Parent and the Company prior to release, provided that
such approval shall not be unreasonably withheld, provided, however, that either
party may make necessary, nonconfidential disclosures to employees, consultants,
customers, suppliers and shareholders (after consultation with the other party,
if practical).
7.6 FIRPTA Compliance. The Company shall, as soon as practicable prior
to the Effective Time, deliver to Parent a copy of a statement conforming with
the requirements of Income Tax Regulations sections 1.897-2(h) and
1.1445-2(c)(3) and in form and substance satisfactory to Parent, certifying that
shares of capital stock of the Company do not constitute "United States real
property interests" under section 897(c) of the Code. In addition,
simultaneously with delivery of such statement, the Company shall provide to
Parent, as agent for the Company, a form of notice to the Internal Revenue
Service conforming with the requirements of Income Tax Regulations section
1.897-2(h)(2), together with written authorization for Parent to deliver such
notice to the Internal Revenue Service on behalf of the Company following the
Effective Time.
29
34
7.7 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto shall use all commercially reasonable
efforts to take promptly, or cause to be taken promptly, all actions, and to do
promptly, or cause to be done promptly all things reasonably necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby, to obtain all necessary waivers,
consents and approvals, to effect all necessary registrations and filings and to
remove any injunctions or other impediments or delays, legal or otherwise, in
order to consummate and make effective the transactions contemplated by this
Agreement for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement; provided that neither the Company nor Parent
shall be required to agree to any divestiture by Parent or the Company, as may
be applicable, or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or properties of Parent or its
affiliates or the Company or the imposition of any material limitation on the
ability of any of them to conduct their businesses or to own or exercise control
of such assets, properties and stock.
7.8 Conduct; Notification of Certain Matters. Each of Parent and the
Company shall use all commercially reasonable efforts to not take, or fail to
take, any action that from the date hereof through the Closing would cause or
constitute a breach of any of its respective representations, warranties,
agreements and covenants set forth in this Agreement. The Company shall give
prompt written notice to Parent, and Parent shall give prompt written notice to
the Company, of (a) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which causes or is likely to cause any
representation or warranty of the Company or Parent or Merger Subsidiary,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (b) any failure of the
Company or Parent or Merger Subsidiary, as the case may be, to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 7.8 shall not limit or otherwise affect
the other party's right to rely on the representations and warranties herein or
any the other remedies available to the party receiving such notice.
7.9 Tax-Free Reorganization. Parent and the Company shall each use all
commercially reasonable efforts to cause the Merger to be treated as a
reorganization within the meaning of section 368 of the Code. Parent and the
Company shall each use reasonable efforts to obtain opinions from counsel to the
Company and counsel to Parent, respectively, that the Merger is a reorganization
within the meaning of section 368 of the Code, and the Company and Parent shall
each make certain representations and warranties as requested by counsel to the
Company and counsel to Parent, respectively, in connection with such opinions.
7.10 Lock-Up Agreements. The Company shall deliver or cause to be
delivered to Parent, concurrently with the execution of this Agreement, from
each of James I. Garrels, Joan E. Brooks and Robert Merold, an executed Lock-Up
Agreement in the form attached hereto as Exhibit A. Parent and Merger Subsidiary
shall be entitled to place appropriate legends on the certificates evidencing
any shares of Parent Common to be received by such individuals pursuant to the
terms of this Agreement, and to issue appropriate stop transfer instructions to
the transfer agent for the Parent Common, consistent with the terms of such
Lock-Up Agreements.
7.11 Stockholder Agreements. The Company shall deliver or cause to be
delivered to
30
35
Parent, concurrently with the execution of this Agreement, from each of the
stockholders set forth on Schedule 7.11 who hold in the aggregate a majority of
the outstanding Company Shares (and a majority of the shares of any class or
series of Company Shares required to approve this Agreement and the Merger), an
executed Stockholder Agreement with Parent in substantially the form attached
hereto as Exhibit B.
7.12 Sale of Shares. The parties hereto acknowledge and agree that the
shares of Parent Common issuable to the Securityholders pursuant to Section 2.1
shall constitute "restricted securities" within the meaning of Rule 144 under
the Securities Act of 1933, as amended (the "SECURITIES ACT"). The certificates
for such shares of Parent Common shall bear appropriate legends to identify such
shares as being restricted under the Securities Act and, if applicable to comply
with applicable state securities laws, to notice the restrictions on the
transfer of such shares under such laws. The parties acknowledge that Parent is
relying upon certain representations made by the Securityholders in the
Investment Representations in substantially the form attached hereto as Exhibit
C. The Company agrees to use all commercially reasonable efforts to cause all of
its stockholders to make the representations set forth in the Stockholder
Certificates.
7.13 Blue Sky Laws. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the shares of Parent Common pursuant hereto. The
Company shall use all reasonable efforts to assist Parent as may be reasonably
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of the shares of Parent
Common pursuant hereto.
7.14 Company Employee Benefit Plans; Form S-8. Parent agrees to file a
registration statement on Form S-8 no later than forty-five (45) days after the
Closing relating to the shares of Parent Common underlying the Converted Company
Options and shall use commercially reasonable efforts to maintain the
effectiveness (and current status) of such registration statement for so long as
such Converted Company Options remain outstanding. The Company agrees that its
401(k) Plan or any other 401(k) plans may be terminated, frozen, modified or
merged into the appropriate Parent qualified plans as of or after the Effective
Time, as determined by Parent in its sole discretion.
Employees of the Company shall be afforded the opportunity to
participate in Parent's 401(k) plan following the Effective Time.
7.15 HSR Filings; Antitrust and Other Legal Compliance. Subject to the
terms and conditions herein provided, the Company and Parent shall promptly, as
required, make their respective filings and submissions and shall take or cause
to be taken all action and do, or cause to be done all things necessary, proper
or advisable to comply with the provisions of the HSR Act, and the Company
agrees to use all reasonable efforts to cause any stockholder of the Company to
do the same. Without limiting the generality of the foregoing, the Company and
Parent shall respond as promptly as practicable to (i) any inquiries or requests
received from the Federal Trade Commission or the Department of Justice for
additional information or documentation and (ii) any inquiries or requests
received from any state attorney general or other governmental body in
connection with antitrust or related matters. Each of the Company and
31
36
Parent shall (i) give the other party prompt notice of the commencement of any
material legal proceeding by or before any court or other governmental body with
respect to the Merger or any of the other transactions contemplated by this
Agreement, (ii) keep the other party informed as to the status of any such legal
proceeding and (iii) except as may be prohibited by any governmental body or by
any legal requirement, permit the other party to be present at each meeting or
conference relating to any such legal proceeding and to have access to and be
consulted in connection with any document filed with or provided to any
governmental body in connection with any such legal proceeding.
7.16 Registration Rights Agreement. Parent and the holders of Company
Shares shall have entered into the Registration Rights Agreement attached hereto
as Exhibit D.
7.17 Additional Documents and Further Assurances. Each party hereto, at
the reasonable request of the other party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
reasonably necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby.
To that end, the Company shall use all commercially reasonable efforts
to cause (a) James I. Garrels, Joan E. Brooks and Robert Merold, to enter into
Non Competition and Non Solicitation Agreements in the form attached hereto as
Exhibit E, which form is reasonably satisfactory to Parent and such individuals
("NON COMPETITION AGREEMENTS"), and (b) cause the parties to the agreements
listed in Section 7.17 of the Disclosure Schedule to deliver their consents,
approvals or waivers, as appropriate, to the Merger and the transactions
contemplated hereby.
7.18 Indemnification. Parent shall cause the Surviving Corporation to
maintain and perform in the same manner the Company's existing indemnification
provisions with respect to present and former directors and officers of the
Company for all losses, claims, damages, expenses or liabilities arising out of
actions or omissions or alleged actions or omissions occurring at or prior to
the Effective Time to the extent permitted or required under applicable law and
the Restated Certificate and Bylaws in effect as of the date hereof (to the
extent consistent with applicable law), for a period of not less than six (6)
years after the Effective Time. In the event that (i) Parent causes the
Surviving Corporation to consolidate with or merge with or into any other entity
and the Surviving Corporation is not the continuing or surviving corporation or
entity of such consolidation or merger, or (ii) causes the Surviving Corporation
to transfer or convey all or substantially all of the Surviving Corporation's
properties and assets to any entity, then and in each such case, to the extent
necessary to effect the purposes of this Section 7.18, proper provision shall be
made so that the successors or assigns of the Surviving Corporation assume the
obligations set forth in this Section 7.18, and none of the actions described in
clause (i) or (ii) shall be taken until such provision is made.
32
37
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the requisite vote of the stockholders of the Company.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(c) HSR Act. Any applicable waiting period under the HSR Act shall have
expired or been terminated.
8.2 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Subsidiary contained in this Agreement shall be true and
correct on the date hereof and on and as of the Closing Date, as though made on
and as of the Closing Date (except for representations and warranties made as of
a specified date, which need be true and correct only as of the specified date),
and except for such inaccuracies that, considered collectively, have not had and
would not reasonably be expected to have a material adverse effect on Parent and
its subsidiaries, taken as a whole (it being understood that, for purposes of
determining the accuracy of such representations and warranties, all "material
adverse effect" and other materiality qualifications contained in such
representations and warranties shall be disregarded).
(b) Agreements and Covenants. Each of Parent and Merger Subsidiary shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it on
or prior to the Effective Time.
(c) Officer's Certificate. Each of Parent and Merger Subsidiary shall
have furnished the Company with a certificate dated the Closing Date signed on
behalf of it by the Chief Executive Officer or President to the effect that the
conditions set forth in Sections 8.2(a) and 8.2(b) have been satisfied.
(d) Legal Opinion. The Company shall have received a legal opinion from
Pillsbury Madison & Sutro LLP, counsel to Parent, in substantially the form
attached hereto as Exhibit F.
(e) Tax Opinion. The stockholders of the Company shall have received a
written opinion from Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
counsel to the Company, to
33
38
the effect set forth in Section 7.9.
(f) Non Competition Agreements. Each of James I. Garrels, Joan E. Brooks
and Robert Merold shall have entered into a Non Competition Agreement.
(g) Registration Rights Agreement. Parent shall have entered into the
Registration Rights Agreement, substantially in the form attached hereto as
Exhibit D.
8.3 Additional Conditions to the Obligations of Parent and Merger
Subsidiary. The obligations of Parent and Merger Subsidiary to consummate the
Merger and the transactions contemplated by this Agreement shall be subject to
the satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall be true and correct on the date
hereof and on and as of the Closing Date, as though made on and as of the
Closing Date (except for representations and warranties made as of a specified
date, which need be true and correct only as of the specified date), except for
changes contemplated by this Agreement and except for such inaccuracies that,
considered collectively, have not had and would not reasonably be expected to
have a material adverse effect on the Company (it being understood that, for
purposes of determining the accuracy of such representations and warranties, all
"material adverse effect" and other materiality qualifications contained in such
representations and warranties shall be disregarded).
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time.
(c) Officer's Certificate. Each of the Company and Merger Subsidiary
shall have furnished Parent with a certificate dated the Closing Date signed on
behalf of it by its Chief Executive Officer or President to the effect that the
conditions set forth in Sections 8.3(a) and 8.3(b) have been satisfied.
(d) Legal Opinion. Parent shall have received a legal opinion from
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., legal counsel to the
Company, in substantially the form attached hereto as Exhibit G.
(e) Tax Opinion. Parent shall have received a written opinion from
Pillsbury Madison & Sutro LLP, counsel to Parent, to the effect set forth in
Section 7.9.
(f) Third Party Consents. Parent shall have been furnished with evidence
satisfactory to it that the Company has obtained the consents, approvals,
assignments and waivers set forth in Section 7.17 of the Disclosure Schedule,
subject to no term, condition or restriction unacceptable to Parent in its sole
discretion.
(g) Resignations. Parent shall have received the resignations of the
directors and officers of the Company to be effective immediately upon the
Closing.
34
39
(h) Dissenters' Rights. Holders of more than 5% of the outstanding
Company Shares shall not have exercised, nor shall they have any continued right
to exercise, appraisal, dissenters' or similar rights under applicable law with
respect to their Company Shares by virtue of the Merger.
(i) Escrow Agreement. The Escrow Agent referred to in Section 9.2(a) and
the Securityholder Agent referred to in Section 9.2(c) shall have entered into
the Escrow Agreement in substantially the form attached hereto as Exhibit H (the
"ESCROW AGREEMENT").
(j) Registration Rights Agreement. The Securityholders shall have
entered into the Registration Rights Agreement, substantially in the form
attached hereto as Exhibit D.
ARTICLE IX
INDEMNIFICATION AND ESCROW
9.1 Survival of Representations and Warranties. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger and continue until 5:00
p.m., California time, on the date which is one year after the Closing Date (the
"ESCROW EXPIRATION DATE") and shall not be affected by any investigation
conducted for or on behalf of Parent with respect thereto or any knowledge
acquired by Parent or its officers, directors, employees, stockholders or agents
as to the accuracy or inaccuracy of any such representation or warranty. The
waiver of any condition based on the accuracy of any representation or warranty,
or the performance or compliance of any covenant or obligation, will not affect
the right to indemnification set forth in this Article IX.
9.2 Indemnification and Escrow Arrangements.
(a) Escrow Fund and Indemnification. Subject to the limitations set
forth herein, by approval and adoption of this Agreement, each of the
Securityholders agrees to indemnify Parent for such Securityholder's pro rata
portion of claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses, and expenses of
investigation and defense (calculated after deduction for insurance proceeds
recovered or recoverable) incurred by Parent or the Surviving Corporation as a
result of any inaccuracy or breach of a representation or warranty of the
Company contained herein or in any instrument delivered pursuant to this
Agreement or any failure by the Company to perform or comply with any covenant
contained herein (hereinafter individually a "LOSS" and collectively "LOSSES").
Parent and the Company each acknowledge that such Losses, if any, would relate
to unresolved contingencies existing at the date hereof, which if resolved at
the date hereof would have led to a reduction in the aggregate Merger
Consideration. The adoption and approval of this Agreement by the
Securityholders shall constitute approval of the Escrow Agreement and of all of
the arrangements relating thereto, including without limitation the placement of
the Escrow Consideration in escrow and the appointment of the Securityholder
Agent (as defined in paragraph (c) below). At the Effective Time, the
Securityholders will be deemed to have received and deposited with the Escrow
Agent the Escrow Consideration, without any act of any Securityholder. As soon
as practicable after the Effective Time, the Escrow Consideration will be
deposited with Chase Manhattan Bank and Trust Company, N.A. (or such other
institution
35
40
acceptable to Parent and the Securityholder Agent), as Escrow Agent (the "ESCROW
AGENT"), such deposit to constitute such deposit to constitute an escrow fund
(the "ESCROW FUND") to be governed by the terms set forth herein and in the
Escrow Agreement. The Escrow Fund shall be available to compensate Parent and
the Surviving Corporation for any Losses. The right of Parent and the Surviving
Corporation after the Effective Time to assert indemnification claims and
receive indemnification payments from the Escrow Fund pursuant to this Article
IX shall be the sole and exclusive right and remedy exercisable by such parties
with respect to any inaccuracy or breach in any representation, warranty, or
covenant contained in this Agreement or in any instrument delivered pursuant to
this Agreement or in connection with the transactions contemplated hereby.
Notwithstanding the foregoing, the limitations contained in this Section 9.2(a)
shall not apply to fraud or willful misconduct. Parent may not receive any
Escrow Consideration from the Escrow Fund unless and until Officer's
Certificates (as defined in paragraph (e) below) identifying Losses, the
aggregate cumulative amount of which exceed $100,000, have been delivered to the
Escrow Agent as provided in paragraph (e), at which time, Parent may recover
from the Escrow Fund the entire amount of the cumulative Losses. Except for
fraud or willful misconduct by such Securityholder, no Securityholder shall be
liable to Parent or Merger Subsidiary for any amount other than its
proportionate share of the Escrow Fund.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
California time, on the Escrow Expiration Date (the "ESCROW PERIOD"). Promptly
after the Escrow Expiration Date, and except as set forth below, the Escrow
Agent shall deliver to the Securityholders the remaining portion of the Escrow
Fund after the satisfaction of any Losses. Notwithstanding the foregoing, the
Escrow Period shall not terminate with respect to such amount (or some portion
thereof) that, together with the aggregate amount remaining in the Escrow Fund,
is necessary in the reasonable judgment of Parent, subject to the objection of
the Securityholder Agent and the subsequent arbitration of the matter in the
manner provided in Section 9.2(g) hereof, to satisfy any unsatisfied Losses
concerning facts and circumstances existing prior to the termination of the
Escrow Period specified in any Officer's Certificate delivered to the Escrow
Agent prior to termination of the Escrow Period. As soon as any such Loss has
been resolved, the Escrow Agent shall deliver to the Securityholders the
remaining portion of the Escrow Fund not required to satisfy any other such
unresolved Loss. Deliveries of Escrow Consideration to the Securityholders
pursuant to this Section 9.2 shall be made in proportion to their respective
original contributions to the Escrow Fund.
(c) Securityholder Agent; Power of Attorney.
(i) In the event that this Agreement is approved and adopted by
the Company's stockholders, effective upon such consent, and without
further act of any stockholder, Robert W. Jevon, shall be appointed as
agent and attorney-in-fact (the "SECURITYHOLDER AGENT") for each
Securityholder, for and on behalf of Securityholders, to give and
receive notices and communications, to object to deliveries of Escrow
Consideration to Parent in satisfaction of claims by Parent, to agree to
negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators
with respect to such claims, and to take all actions
36
41
necessary or appropriate in the judgment of the Securityholder Agent for
the accomplishment of the foregoing. Such agency may be changed by the
Securityholders from time to time upon not less than thirty (30) days'
prior written notice to Parent; provided that the Securityholder Agent
may not be removed unless holders of a two-thirds interest of the Escrow
Fund agree to such removal and to the identity of the substituted agent.
Any vacancy in the position of Securityholder Agent may be filled by
approval of the holders of a majority in interest of the Escrow Fund. No
bond shall be required of the Securityholder Agent, and the
Securityholder Agent shall not receive compensation for his services.
Notices or communications to or from the Securityholder Agent shall
constitute notice to or from each of the Securityholders.
(ii) The Securityholder Agent shall not be liable for any act
done or omitted hereunder as Securityholder Agent while acting in good
faith and in the exercise of reasonable judgment. The Securityholders on
whose behalf the Escrow Consideration was contributed to the Escrow Fund
shall severally indemnify the Securityholder Agent and hold the
Securityholder Agent harmless against any loss, liability or expense
incurred without negligence or bad faith on the part of the
Securityholder Agent and arising out of or in connection with the
acceptance or administration of the Securityholder Agent's duties
hereunder, including the reasonable fees and expenses of any legal
counsel retained by the Securityholder Agent.
(d) Protection of Escrow Fund. The Escrow Agent shall hold and safeguard
the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund
in accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(e) Claims Upon Escrow Fund. Upon receipt by the Escrow Agent at any
time on or before 5:00 p.m. California time on the Escrow Expiration Date of a
certificate signed by any officer of Parent (an "OFFICER'S CERTIFICATE"): (A)
stating that Parent has paid or properly accrued or reasonably anticipates that
it will have to pay or accrue Losses and specifying an aggregate amount thereof,
and (B) specifying in reasonable detail the individual items of Losses included
in the amount so stated, the date each such item was paid or properly accrued,
or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is related
and to the extent known a reasonable summary of the facts underlying the claim,
and if no objection is received from the Securityholder Agent in accordance with
Section 9.2(f) hereof, the Escrow Agent shall, subject to the provisions of
Section 9.2(f) hereof, deliver to Parent out of the Escrow Fund, as promptly as
practicable, Escrow Consideration in an amount equal to such Losses.
(f) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no delivery to Parent of any Escrow
Consideration pursuant to Section 9.2(e) hereof unless the Escrow Agent shall
have received written authorization from the Securityholder Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of Escrow Consideration from the Escrow Fund in accordance
with Section 9.2(e) hereof, provided that no such payment or delivery may be
made if the Securityholder Agent shall
37
42
object in a written statement to the claim made in the Officer's Certificate,
and such statement shall have been delivered to the Escrow Agent prior to the
expiration of such thirty (30) day period.
(g) Resolution of Conflicts; Arbitration.
(i) In case the Securityholder Agent shall object in writing to
any claim or claims made in any Officer's Certificate, the
Securityholder Agent and Parent shall attempt in good faith to agree
upon the rights of the respective parties with respect to each of such
claims. If the Securityholder Agent and Parent should so agree, a
memorandum setting forth such agreement shall be prepared and signed by
both parties and shall be furnished to the Escrow Agent. The Escrow
Agent shall be entitled to rely on any such memorandum and distribute
Escrow Consideration from the Escrow Fund in accordance with the terms
thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Securityholder Agent may demand
arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or
both parties agree to arbitration; and in either such event the matter
shall be settled by arbitration conducted by three arbitrators. Parent
and the Securityholder Agent shall each select one arbitrator, and the
two arbitrators so selected shall select a third arbitrator, each of
which arbitrators shall be independent and have at least ten years
relevant experience. The arbitrators shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery
while allowing the parties an opportunity, adequate in the sole judgment
of the arbitrators, to discover relevant information from the opposing
parties about the subject matter of the dispute. The arbitrators shall
rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys' fees and costs, to
the extent of a court of competent law or equity, should the arbitrators
determine that discovery was sought without substantial justification or
that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to
the validity and amount of any claim in such Officer's Certificate shall
be binding and conclusive upon the parties to this Agreement, and
notwithstanding anything in Section 9.2(f) hereof, the Escrow Agent
shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance therewith. Such
decision shall be written and shall be supported by written findings of
fact and conclusions which shall set forth the award, judgment, decree
or order awarded by the arbitrators. The arbitrators shall not award
less than any amount of losses conceded by the Securityholder Agent as
being properly payable from the Escrow Fund nor any amount in excess of
the total losses sought by Parent, and shall in no event award punitive
damages.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be
held in Palo Alto, California, under the rules then in effect of the
Judicial Arbitration and Mediation Services, Inc.
(iv) The fees of the arbitration or arbitrators shall be shared
one-half by Parent
38
43
and one-half by the Securityholders. Fees to be paid by Securityholders
shall be borne pro rata in accordance with their respective ownership of
Company Shares immediately prior to Closing and may, with the consent of
the Securityholder Agent and Parent, be paid from the Escrow Fund.
(h) Actions of the Securityholder Agent. A decision, act, consent or
instruction of the Securityholder Agent shall constitute a decision of all the
Securityholders for whom a portion of the Escrow Consideration otherwise
issuable or payable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each of the Securityholders, and the Escrow Agent
and Parent may rely upon any such decision, act, consent or instruction of the
Securityholder Agent as being the decision, act, consent or instruction of each
Securityholder. The Escrow Agent and Parent are hereby relieved from any
liability to any Person for any acts done by them in accordance with such
decision, act, consent or instruction of the Securityholder Agent.
(i) Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent, as representative for the Securityholders, shall be
entitled, at the expense of the Securityholder, to participate in any defense of
such claim. Parent shall have the right in its sole discretion to settle any
such claim; provided, however, that except with the consent of the
Securityholder Agent, no settlement of any such claim with third-party claimants
shall alone be determinative of the amount of any claim against the Escrow Fund.
In the event of any settlement, without the consent of the Securityholder Agent,
no information relating to the settlement may be introduced in arbitration. In
the event that the Securityholder Agent has consented in writing to any such
settlement and acknowledged that the claim by Parent is a valid claim against
the Escrow Fund, the Securityholder Agent shall have no power or authority to
object under any provision of this Article IX to the amount of any claim by
Parent against the Escrow Fund with respect to such settlement.
ARTICLE X
TERMINATION, AMENDMENT, WAIVER, CLOSING
10.1 Termination. Except as provided in Section 10.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) By mutual consent of the Company and Parent;
(b) By Parent or the Company if: (i) the Effective Time has not occurred
by January 31, 2001 (provided that the right to terminate this Agreement under
this clause (i) shall not be available to any party whose willful failure to
fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date); (ii) there shall
be a final non-appealable order, decree or ruling of a court of competent
jurisdiction in effect preventing consummation of the Merger; (iii) there shall
be any statute, rule, regulation or non-appealable order enacted, promulgated or
issued or deemed applicable to the Merger by any governmental entity that would
make consummation of the Merger illegal; or (iv) the approval
39
44
and adoption of this Agreement by the Company's stockholders shall not have been
obtained;
(c) By Parent or the Company if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any governmental entity, which would: (i) prohibit
Parent's or the Company's ownership or operation of any portion of the business
of the Company or (ii) compel Parent or the Company to dispose of or hold
separate, as a result of the Merger, any portion of the business or assets of
the Company or Parent; in either case, the unavailability of which assets or
business would have a material adverse effect on Parent or would reasonably be
expected to have a material adverse effect on Parent's ability to realize the
benefits expected from the Merger.
(d) By Parent if the Company Board shall have failed to recommend or
modifies in a manner adverse to Parent its recommendation concerning this
Agreement or shall have disclosed in any manner its intention to modify in a
manner adverse to Parent such recommendation; or
(e) By Parent if the Company Board makes any recommendation with respect
to an Acquisition Transaction, except a recommendation against an Acquisition
Transaction (including making no recommendation or stating an inability to make
a recommendation) or the Company Board shall have resolved to take any such
action and publicly disclosed this resolution.
Where action is taken to terminate this Agreement pursuant to this
Section 10.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
10.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 10.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent, Merger
Subsidiary or the Company, or their respective subsidiaries, officers, directors
or stockholders, provided that the provisions of Sections 7.3 and 7.4 and
Article X of this Agreement shall remain in full force and effect and survive
any termination of this Agreement.
10.3 Amendment or Supplement.
(a) This Agreement may be amended or supplemented at any time before or
after approval of this Agreement by the stockholders of the Company to the
extent permitted under Section 251(d) of the DGCL. No amendment or supplement
shall be effective unless in writing and signed by the party or parties sought
to be bound thereby.
(b) Subject to the preceding paragraph, this Agreement may be amended in
a writing executed by the Chief Executive Officer of the Company and the Chief
Executive Officer of Parent in order to modify the structure of the Merger to
substitute for Merger Subsidiary another directly or indirectly wholly owned
subsidiary of Parent, pursuant to which such subsidiary shall then become a
party to this Agreement and all references in this agreement to Merger
Subsidiary shall thereafter be deemed to refer to such substituted subsidiary of
Parent.
10.4 Extension of Time; Waiver. At any time prior to the Effective Time,
Parent and Merger Subsidiary, on the one hand, and the Company, on the other
hand, may, to the extent legally allowed:
40
45
(a) Extend the time for the performance of any of the obligations or
other acts of the other party hereto,
(b) Waive any inaccuracies in the representations and warranties made to
such party contained herein or in any document delivered pursuant hereto, and
(c) Waive compliance with any of the agreements or conditions for the
benefit of such party contained herein; provided, that no failure or delay by
any party hereto in exercising any right hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right hereunder.
Any agreement on the part of any party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on behalf
of such party.
ARTICLE XI
GENERAL
11.1 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy (with receipt
confirmed and promptly confirmed by personal delivery, U.S. first class mail, or
courier), or by courier service, as follows:
(a) If to Parent or Merger Subsidiary to:
Incyte Genomics, Inc.
3160 Porter Drive
Palo Alto, CA 94304
Attn: Chief Executive Officer
Fax: (650) 855-0572
with a copy to:
Pillsbury Madison & Sutro LLP
50 Fremont Street
San Francisco, CA 94105
Attn: Stanton D. Wong, Esq.
Fax: (415) 983-1200
(b) If to the Company to:
Proteome, Inc.
100 Cummings Center
Suite 435M
Beverly, MA 01915-6115
Attention: President
Fax: (978) 816-0198
41
46
with a copy to:
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Jeffrey M. Wiesen, Esq.
Fax: (617) 542-2241
(c) If to the Securityholder Agent:
Robert W. Jevon
c/o Boston Millennia Partners Limited Partnership
30 Rowes Wharf
Suite 330
Boston, MA 02110
Fax: (617) 428-5160
with a copy to:
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Jeffrey M. Wiesen, Esq.
Fax: (617) 542-2241
or to such other Persons as may be designated in writing by the parties, by a
notice given as aforesaid.
11.2 Headings. The headings of the several sections of this Agreement
are inserted for convenience of reference only and are not intended to affect
the meaning or interpretation of this Agreement.
11.3 Counterparts. This Agreement may be executed in counterparts, and
when so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
11.4 Entire Agreement; Assignment. This Agreement, the Schedules and
Exhibits hereto (including the Disclosure Schedule), and the documents and
instruments and other agreements among the parties hereto referenced herein: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof;
(b) are not intended to confer upon any other Person any rights or remedies
hereunder (except as provided in Section 11.8 below); and (c) except as
contemplated by Section 10.3 shall not be assigned by operation of law or
otherwise except as mutually agreed in writing between the parties
42
47
11.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
11.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served them in any manner
authorized by the laws of the State of Delaware for such Persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction and such process.
11.8 Absence of Third-Party Beneficiary Rights. No provision of this
Agreement is intended, or will be interpreted, to provide to or create for any
third-party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, employee, partner or any party hereto or any
other Person, and all provisions hereof will be personal solely between the
parties to this Agreement, except that the provisions of Sections 2.1 and 7.16
are intended for the benefit of the Securityholders; the provisions of Sections
2.2 and 7.14 are intended for the benefit of holders of Company Options; and the
provisions of Section 7.18 shall be for the benefit of, and enforceable by, the
indemnified Persons referred to therein.
[Remainder of page intentionally left blank]
43
48
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed, all as of the date first above written.
INCYTE GENOMICS, INC.
By: /s/ ROY A. WHITFIELD
---------------------------------
Name: Roy A. Whitfield
Title: Chief Executive Officer
DONNER ACQUISITION CORPORATION
By: /s/ ROY A. WHITFIELD
---------------------------------
Name: Roy A. Whitfield
Title: President
PROTEOME, INC.
By: /s/ JAMES I. GARRELS
---------------------------------
Name: James I. Garrels
Title: President and CEO
44