AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SAGENT TECHNOLOGY, INC.,
TALUS ACQUISITION CORP.,
TALUS, INCORPORATED
AND
CERTAIN OF THE SHAREHOLDERS
OF TALUS, INC.
DATED AS OF FEBRUARY 27, 1998
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER.................................................................................................-1-
The Merger......................................................................................-1-
1.2 Effective Time..................................................................................-2-
1.3 Effect of the Merger............................................................................-2-
1.4 Articles of Incorporation; Bylaws...............................................................-2-
1.5 Directors and Officers..........................................................................-2-
1.6 Cash Consideration..............................................................................-2-
1.7 Effect on Capital Stock.........................................................................-3-
1.8 Dissenting Shares...............................................................................-4-
1.9 Surrender of Certificates.......................................................................-4-
1.10 No Further Ownership Rights in Company Common Stock.............................................-6-
1.11 Lost, Stolen or Destroyed Certificates..........................................................-6-
1.12 Taking of Necessary Action; Further Action......................................................-6-
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................................-6-
2.1 Organization of the Company.....................................................................-6-
2.2 Company Capital Structure.......................................................................-7-
2.3 Subsidiaries....................................................................................-7-
2.4 Authority.......................................................................................-7-
2.5 No Conflict; No Default.........................................................................-7-
2.6 Company Financial Statements....................................................................-8-
2.7 No Undisclosed Liabilities......................................................................-8-
2.8 No Changes......................................................................................-8-
2.9 Tax and Other Returns and Reports...............................................................-9-
2.10 Restrictions on Business Activities............................................................-10-
2.11 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment.................-11-
2.12 Intellectual Property..........................................................................-11-
2.13 Agreements, Contracts and Commitments..........................................................-12-
2.14 Interested Party Transactions..................................................................-13-
2.15 Governmental Authorization.....................................................................-14-
2.16 Litigation.....................................................................................-14-
2.17 Minute Books...................................................................................-14-
2.18 Brokers' and Finders' Fees.....................................................................-14-
2.19 Insurance......................................................................................-14-
2.20 Compliance With Laws...........................................................................-14-
2.21 Complete Copies of Materials...................................................................-15-
2.22 Binding Agreements; No Default.................................................................-15-
2.23 Environmental Matters..........................................................................-15-
2.24 Employee Matters and Benefit Plans.............................................................-16-
2.25 Representations Complete.......................................................................-19-
2.26 Third Party Consents...........................................................................-20-
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(continued)
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...................................................-20-
3.1 Organization, Standing and Power...............................................................-20-
3.2 Capital Structure..............................................................................-20-
3.3 Authority......................................................................................-21-
3.4 Representations Complete.......................................................................-21-
3.5 Litigation.....................................................................................-21-
3.6 Broker's and Finders' Fees.....................................................................-22-
3.7 Parent Financial Statements....................................................................-22-
3.8 No Undisclosed Liabilities.....................................................................-22-
3.9 No Changes.....................................................................................-22-
3.10 ...............................................................................................-23-
3.12 Restrictions on Business Activities............................................................-24-
3.13 Intellectual Property..........................................................................-24-
3.14 Compliance With Laws...........................................................................-24-
3.11 Agreements, Contracts and Commitments..........................................................-24-
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME.......................................................................-26-
4.1 Conduct of Business of the Company.............................................................-26-
4.2 No Solicitation................................................................................-28-
4.3 Strategic Agreements...........................................................................-29-
ARTICLE V
ADDITIONAL AGREEMENTS.....................................................................................-29-
5.1 Resolutions of Company Shareholders............................................................-29-
5.2 Access to Information..........................................................................-29-
5.3 Expenses.......................................................................................-29-
5.4 Public Disclosure..............................................................................-29-
5.5 Consents.......................................................................................-30-
5.6 FIRPTA.........................................................................................-30-
5.7 Legal Requirements.............................................................................-30-
5.8 Blue Sky Laws..................................................................................-30-
5.9 Best Efforts; Additional Documents and Further Assurances......................................-30-
5.10 Indemnification................................................................................-30-
5.11 Employee Agreements. Each employee of and consultant to the Company will sign
promptly a Proprietary Rights and Confidentiality Agreement in Sagent's standard form..........-31-
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TABLE OF CONTENTS
(continued)
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ARTICLE VI
CONDITIONS TO THE MERGER..................................................................................-31-
6.1 Conditions to Obligations of Each Party to Effect the Merger...................................-31-
6.2 Additional Conditions to Obligations of Company................................................-32-
6.3 Additional Conditions to the Obligations of Parent and Merger Sub..............................-32-
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION...............................................-34-
7.1 Survival of Representations and Warranties.....................................................-34-
7.2 Agreement to Indemnify.........................................................................-34-
7.3 Expiration of Indemnification..................................................................-34-
7.4 Escrow Fund....................................................................................-35-
7.5 Termination of Escrow Fund.....................................................................-35-
7.6 Protection of Escrow Fund......................................................................-35-
7.7 Claims Upon Escrow Fund........................................................................-35-
7.8 Objections to Claims...........................................................................-35-
7.9 Resolution of Conflicts........................................................................-36-
7.10 Distribution Upon Termination of Escrow Period.................................................-37-
7.11 Shareholders' Agent; Power of Attorney.........................................................-37-
7.12 Actions of the Shareholders' Agent.............................................................-38-
7.13 Third-Party Claims.............................................................................-38-
7.14 Escrow Agent's Duties..........................................................................-38-
7.15 No Joint Liability; Maximum Liability..........................................................-39-
7.16 Remedies.......................................................................................-39-
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER.........................................................................-39-
8.1 Termination....................................................................................-39-
8.2 Effect of Termination..........................................................................-40-
8.3 Amendment......................................................................................-40-
8.4 Extension; Waiver..............................................................................-40-
ARTICLE IX
GENERAL PROVISIONS........................................................................................-41-
9.1 Notices........................................................................................-41-
9.2 Interpretation.................................................................................-43-
9.3 Counterparts...................................................................................-43-
9.4 Miscellaneous..................................................................................-43-
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(continued)
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9.5 Governing Law..................................................................................-43-
9.6 Attorneys' Fees................................................................................-43-
9.7 Resolution of Disputes; Stipulation Regarding Confidentiality..................................-43-
9.8 Rules of Construction..........................................................................-44-
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of February 27, 1998 among Sagent Technology, Inc., a California
corporation ("Parent"), Talus Acquisition Corp., a Delaware corporation ("Merger
Sub") and a wholly owned subsidiary of Parent, Talus, Incorporated, a Virginia
corporation (the "Company"), Michael P. Venerable and Matthew Comstock as
shareholders of the Company, and Michael P. Venerable, the representative of all
of the shareholders (the "Shareholders' Agent").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
stockholders and shareholders that the Company and Merger Sub combine into a
single company through the statutory merger of Company with and into the Merger
Sub (the "Merger") and, in furtherance thereof, have approved the Merger.
B. The Company has 18,290 shares of Common Stock subject to unexercised
options which it expects to be exercised prior to the Closing, as hereinafter
defined. The persons who hold these options (the "Optionees"), Michael P.
Venerable and Matthew E. Comstock are hereinafter referred to collectively as
the "Shareholders." Each of them is listed on Exhibit A hereto. In exercising
their options, the Optionees will appoint Michael P. Venerable as the
Shareholder Agent.
C. Pursuant to the Merger, among other things, the outstanding shares
of Common Stock of the Company ("Company Common Stock") shall be converted into
shares of Series E Preferred Stock of Parent ("Parent Preferred Stock") at the
rate determined herein.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Merger
Agreement attached hereto as Exhibit B (the "Merger Agreement") and the
applicable provisions of (i) the California Corporations Code ("California
Law"), (ii) Delaware General Corporation Law ("Delaware Law"), and (iii) the
Virginia Stock Corporation Act ("Virginia Law") (Delaware Law, California Law
and Virginia Law, collectively,
<PAGE> 7
"Applicable Law"), Company shall be merged with and into the Merger Sub, the
separate corporate existence of Company shall cease and the Merger Sub shall
continue as the surviving corporation. The Merger Sub as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 Effective Time. As promptly as practicable after the satisfaction or
waiver of the conditions set forth in Article VI, the parties hereto shall cause
the Merger to be consummated by filing the Merger Agreement with the Secretaries
of State of the States of Delaware and Virginia, in accordance with the relevant
provisions of Applicable Law (the time of the later of such filing being the
"Effective Time"). The Closing of the transaction contemplated hereby (the
"Closing") shall take place at 11:00 a.m. at the offices of Wilson Sonsini
Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California, 94304 on
February 27, 1998, or at such other time, date and location as the parties
hereto agree (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Merger Agreement and the
applicable provisions of Applicable Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Certificate of Incorporation of Merger Sub
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Certificate of Incorporation;
provided, however, that Article I of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read as follows: "The name of the
corporation is Sagent Professional Services, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 Cash Consideration. At the Closing, Parent or Merger Sub shall
deliver in the aggregate $1,170,000.00 by check or wire transfer of immediately
available funds, as follows:
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(a) $150,000 to Greater Bay Trust Company, as escrow agent (the
"Escrow Agent"), to be held, administered and released in accordance with the
terms of an Escrow Agreement to be executed by the Shareholders' Agent, Parent,
Merger Sub, Company and the Escrow Agent at the Closing in the form of Exhibit C
attached hereto (the "Escrow Agreement"), which funds shall be held in escrow
until thirty (30) days after such time as Parent's outside public accounting
firm has released its annual audit of the consolidated financial statements
applicable to the Parent for the period ending December 31, 1998 and will be
used to satisfy indemnification claims of Buyer pursuant to Article VII hereof:
and
(b) the balance to Shareholders in such amounts and to persons as
set forth on Exhibit A.
1.7 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the Company or any of
the Shareholders, the following shall occur:
(a) Conversion of Company Common Stock. Each share of common
stock, no par value, of the Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares (as defined and to the extent provided in Section 1.8(a)) will be
canceled and extinguished and be converted automatically into the right to
receive 2.155 shares (the "Exchange Ratio") of the Parent Preferred Stock.
(b) Capital Stock of Merger Sub. Each share of common stock,
$0.001 par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall continue unchanged and remain outstanding as a share of
common stock of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
(c) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
the common stock of Parent or Company Common Stock), reorganization,
recapitalization or other like change with respect to Parent Preferred Stock or
Company Common Stock occurring after the date hereof and prior to the Effective
Time.
1.8 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of capital stock of the Company held by a holder who has
exercised dissenters' rights for such shares in accordance with Virginia Law and
who, as of the Effective Time, has not effectively withdrawn or lost such
dissenters rights ("Dissenting Shares"), shall not be converted into or
represent a right to receive Parent Preferred Stock pursuant to Section 1.7, but
the holder thereof shall only be entitled to such rights as are granted by
Virginia Law.
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(b) Notwithstanding the provisions of subsection (a), if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) his or her dissenters' rights, then, as of the later of
the Effective Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Parent
Preferred Stock and payment for fractional shares as provided in Section 1.7,
without interest thereon, upon surrender of the certificate representing such
shares.
(c) The Company shall give Parent (i) prompt notice of any written
demand received by the Company to require the Company to purchase shares of the
Company's Common Stock pursuant to the applicable provisions of Virginia Law and
(ii) the opportunity to participate in all negotiations and proceedings with
respect to such demands. The Company shall not, except with the prior written
consent of Parent, voluntarily make any payment with respect to any such demands
or offer to settle or settle any such demands.
1.9 Surrender of Certificates.
(a) Exchange Agent. Wilson Sonsini Goodrich & Rosati shall act as
exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Preferred Stock. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article I, through such reasonable procedures as Parent
may adopt, the shares of Parent Preferred Stock issuable pursuant to Section 1.7
in exchange for outstanding shares of Company Common Stock.
(c) Exchange Procedures. At or before the Effective Time, each
holder of a certificate or certificates (the "Certificates") which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock shall surrender to the Exchange Agent for cancellation the Certificates,
duly endorsed to Parent or accompanied by duly executed stock powers and
assignments separate from certificate transferring title to such shares to
Parent. Promptly after the Effective Time, and against receipt of such
Certificates, the Exchange Agent shall issue to each tendering holder of a
Certificate a certificate for the number of shares of Parent Preferred Stock to
which such holder is entitled and payment in lieu of fractional shares pursuant
to Section 1.7 hereof and the Certificate so surrendered shall forthwith be
cancelled.
To the extent that any holder of a Certificate does not so surrender such
Certificate at or before the Effective Time, then promptly after the Effective
Time, the Surviving Corporation shall cause to be mailed to each holder of
record of a Certificate or Certificates, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Preferred Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent after the Effective Time, or to such other agent or agents as may
be appointed by Parent, together with such letter of transmittal, duly
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<PAGE> 10
completed and validly executed in accordance with the instructions thereto, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Preferred Stock
and payment in lieu of fractional shares which such holder has the right to
receive pursuant to Section 1.7, and the Certificate so surrendered shall
forthwith be canceled. Until so surrendered, each outstanding certificate that,
prior to the Effective Time, represented shares of Company Common Stock will be
deemed from and after the Effective Time, for all corporate purposes, other than
the payment of dividends, to evidence the ownership of the number of full shares
of Parent Preferred Stock into which such shares of Company Common Stock shall
have been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.7.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the date of this Agreement with
respect to Parent Preferred Stock with a record date after the Effective Time
will be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Preferred Stock represented thereby until the holder of record
of such Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Preferred Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Preferred Stock.
(e) Transfers of Ownership. If any certificate for shares of
Parent Preferred Stock is to be issued in a name other than that in which the
certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Preferred Stock in any name other than that of the
registered holder of the certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.9, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Parent Preferred Stock for any
amount properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.10 No Further Ownership Rights in Company Common Stock. All shares of
Parent Preferred Stock issued upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
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<PAGE> 11
1.11 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Preferred Stock and cash for
fractional shares, if any, as may be required pursuant to Section 1.7; provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, subject to
the exceptions set forth in the Company Disclosure Schedule attached hereto as
Exhibit E (the "Disclosure Schedule"), as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Virginia. The Company has the corporate power to own its property and to carry
on its business as now being conducted and as proposed to be conducted by the
Company. The Company is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the business, assets (including
intangible assets), financial condition, results of operations or prospects
("Material Adverse Effect") of the Company. The Company has delivered a true and
correct copy of its Articles of Incorporation and Bylaws, each as amended to
date, to counsel for Parent.
2.2 Company Capital Structure. The authorized capital stock of the
Company consists of 200,000 shares of Common Stock, no par value. There are
102,000 shares of the Company Common Stock issued and outstanding held by the
persons, and in the amounts, set forth on Exhibit A. At the time of the Closing,
such list shall have been appropriately adjusted to reflect option exercises and
stock repurchases since the date hereof. All outstanding shares of Company
Common Stock are duly authorized, validly issued, fully paid and non-assessable
and not subject to preemptive rights created by statute, the Articles of
Incorporation or Bylaws of the Company or any agreement to which the Company
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<PAGE> 12
is a party or by which it is bound. The Company has reserved 98,000 shares of
Common Stock for issuance to employees and consultants pursuant to the Company
Stock Option Plan, of which 18,290 shares are subject to options which have been
exercised effective immediately prior to the Effective Time (at which time the
Company will have outstanding 120,290 shares of Common Stock), and no shares are
subject to outstanding, unexercised options (the "Options"). There are no other
options, warrants, calls, rights, commitments or agreements of any character to
which the Company is a party or by which it is bound obligating the Company to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, change the
price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement.
2.3 Subsidiaries. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of stock or any interest in, or control, directly or
indirectly, any other corporation, partnership, association, joint venture or
business entity.
2.4 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject only to
the approval of the Merger by the Shareholders as contemplated by Section
6.1(a). This Agreement has been duly executed and delivered by the Company and
constitutes the valid and binding obligation of the Company.
2.5 No Conflict; No Default. The execution and delivery of this
Agreement by the Company does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (i) any provision of the Articles of Incorporation or
Bylaws, each as amended as of the date hereof, of the Company or (ii) any other
material mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity"), is
required by or with respect to the Company in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Merger Agreement with the Virginia and
Delaware Secretaries of State, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and the laws of any foreign country
and (iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on the Company.
2.6 Company Financial Statements. Section 2.6 of the Company Disclosure
Schedule includes the Company's unaudited balance sheet as of February 25, 1998
(the "Company Balance Sheet").
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2.7 No Undisclosed Liabilities. The Company does not have any
liabilities, either accrued or contingent (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate are material and (i) have not been reflected in the Company
Balance Sheet, (ii) have not been specifically described in this Agreement or in
the Company Schedules or (iii) are not normal or recurring liabilities incurred
since February 25, 1998 in the ordinary course of business consistent with past
practices.
2.8 No Changes. Since the date of the Company Balance Sheet there has
not been, occurred or arisen any:
(a) material adverse change in the financial condition,
liabilities, assets, business, or prospects of the Company;
(b) amendments or changes in the Articles of Incorporation or
Bylaws of the Company;
(c) capital expenditure by the Company, either individually or in
the aggregate, exceeding $5,000.
(d) destruction, damage to, or loss of any assets of the Company
(whether or not covered by insurance) that constitutes a Material Adverse Effect
on the Company;
(e) labor trouble or claim of wrongful discharge of which the
Company has received written notice or of which the Company is aware, or other
unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
shares;
(i) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors or employees, or
the declaration, payment, or commitment or obligation of any kind for the
payment, by the Company, of a bonus or other additional salary or compensation
to any such person;
(j) acquisition, sale or transfer of any material asset of the
Company other than in the ordinary course of business;
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<PAGE> 14
(k) amendment or termination of any material contract, agreement
or license to which the Company is a party;
(l) loan by the Company to any person or entity, or guaranty by
the Company of any loan;
(m) waiver or release of any material right or claim of the
Company, including any write-off or other compromise of any account receivable
of the Company;
(n) the commencement or notice or threat of commencement of any
governmental proceeding against or investigation of the Company or its affairs,
to the best of the Company's knowledge;
(o) other event or condition of any character that has or might
reasonably be expected to have a Material Adverse Effect on the Company;
(p) issuance or sale by the Company of any of its shares or of any
other of its securities except for issuances or sales as a result of exercises
of stock options granted under the Company Stock Option Plan or rights
previously granted to purchase shares of the Company's capital stock;
(q) change in pricing or royalties set or charged by the Company;
or
(r) negotiation or agreement by the Company to do any of the
things described in the preceding clauses (a) through (q) (other than
negotiations with Parent and its representatives regarding the transactions
contemplated by this Agreement).
2.9 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes," means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) The Company as of the Closing Date will have prepared
and timely filed or made a timely request for extension for all required
federal, state, local and foreign returns, estimates, information statements and
reports (collectively the "Returns") relating to any and all Taxes concerning
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<PAGE> 15
or attributable to the Company or its operations and such Returns are true and
correct and have been completed in accordance with applicable law.
(ii) The Company as of the Closing Date: (A) will have paid
or accrued all Taxes it is required to pay or accrue and (B) will have withheld
and timely remitted with respect to its employees all federal and state income
taxes, FICA, FUTA and other Taxes required to be withheld and remitted.
(iii) There are no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("Liens") on the assets of the
Company relating to or attributable to Taxes other than Liens for taxes not yet
due and payable.
(iv) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is properly reflected on the Company's tax books and records.
(v) The Company has established (and until the Effective
Time will establish) on its respective books and records reserves (to be
specifically designated as an increase to current liabilities) that are adequate
for the payment of all taxes not yet due and payable.
(vi) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Returns.
(vii) The Company is not a party to any tax-sharing or
allocation agreement, nor does the Company owe any amount under any tax-sharing
or allocation agreement.
2.10 Restrictions on Business Activities. There is no material agreement,
judgment, injunction, order or decree binding upon the Company which has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of the Company, any acquisition of property by
the Company or the conduct of business by the Company as currently conducted or
as currently proposed to be conducted.
2.11 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) The Company neither owns nor leases any real property.
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used in its business,
free and clear of any liens, charges, pledges, security interests or other
encumbrances except for such imperfections of title and encumbrances, if any,
which are not substantial in character, amount or extent, and which do not
materially detract from the value, or interfere with the present use, of the
property subject thereto or affected thereby.
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(c) Section 2.11(c) of the Company Disclosure Schedule set forth
all equipment (the "Equipment") owned or leased by the Company. The Equipment
is, taken as a whole, (i) adequate for the conduct of the business of the
Company consistent with its past practice, (ii) suitable for the uses to which
it is currently employed, (iii) in good operating condition, (iv) regularly and
properly maintained, and (v) not obsolete, dangerous or in need of renewal or
replacement, except for renewal or replacement in the ordinary course of
business.
2.12 Intellectual Property. The "Company Intellectual Property Rights"
include all patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, internet domain names, trade secrets, maskworks, net
lists, schematics, technology, know-how, computer software programs or
applications and tangible or intangible proprietary information or material that
are used or currently proposed to be used in the business of the Company as
currently conducted. Section 2.12 of the Company Disclosure Schedule sets forth
a non-exclusive list of all patents, trademarks, copyrights, trade names and
service marks, and any applications for registration or registrations therefor,
included in the Company Intellectual Property Rights, and specifies the
jurisdictions in which any such registration has been filed, including the
respective registration or application numbers, dates and the names of all
registered owners. Section 2.12 of the Company Disclosure Schedule also sets
forth a list of the Company's currently marketed software products and an
indication as to which, if any, of such software products have been registered
for copyright protection with the United States Copyright Office and any foreign
offices and by whom such items have been registered. The Company is not, nor
will it be as a result of the execution and delivery of this Agreement or the
performance of its obligations hereunder, in violation of any license,
sublicense or agreement described in Section 2.12 of the Company Disclosure
Schedule. The Company is either (i) the sole and exclusive owner of, with all
right, title and interest in and to (free and clear of any liens or
encumbrances), the Company Intellectual Property Rights, and has sole and
exclusive rights (and is not contractually obligated to pay any compensation to
any third party in respect thereof) to the use thereof or (ii) is a licensee of
such Company Intellectual Property Rights used in the business of the Company as
currently conductd. No claims with respect to the Company Intellectual Property
Rights have been asserted or, to the knowledge of the Company, are threatened by
any person, nor does the Company know of any valid grounds for any bona fide
claims (i) to the effect that the manufacture, sale, licensing or use of any
product as now used, sold or licensed or proposed for use, sale or license by
the Company infringes on any copyright, patent, trade mark, service mark or
trade secret, (ii) against the use by the Company of any trademarks, trade
names, trade secrets, copyrights, patents, technology, know-how or computer
software programs and applications used in the Company's business as currently
conducted or as proposed to be conducted, or (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property Rights.
All registrations for trademarks, service marks and copyrights held by the
Company are valid and subsisting. There is no material unauthorized use,
infringement or misappropriation of any of the Company Intellectual Property
Rights by any third party, including any employee or former employee of the
Company. The Company (i) has not been sued or charged in writing as a defendant
in any claim, suit, action or proceeding which involves a claim of infringement
of any patents, trademarks, service marks, copyrights or violation of any trade
secret or other proprietary right of any third party and which has not been
finally terminated prior to the date hereof, (ii) has no knowledge of any such
charge or claim and (iii) has no knowledge of any infringement liability with
respect to, or infringement or
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<PAGE> 17
violation by, the Company of any patent, trademark, service mark, copyright,
trade secret or other proprietary right of another. None of the Company
Intellectual Property Rights are subject to any outstanding order, judgment,
decree, stipulation or agreement restricting in any manner the use or licensing
thereof by the Company. The Company has not entered into any agreement to
indemnify any other person against any charge of infringement of any of the
Company Intellectual Property Rights.
2.13 Agreements, Contracts and Commitments. Except as disclosed in
Section 2.13 of the Company Disclosure Schedule, the Company does not have and
is not a party to:
(a) any collective bargaining agreements,
(b) any agreements that contain any unpaid severance liabilities
or obligations,
(c) any bonus, deferred compensation, incentive compensation,
pension, profit-sharing or retirement plans, or any other employee benefit plans
or arrangements,
(d) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization, not
terminable by the Company on thirty days notice without liability, except to the
extent general principles of wrongful termination law may limit the Company's
ability to terminate employees at will,
(e) agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement,
(f) any fidelity or surety bond or completion bond,
(g) any lease of personal property having a value individually in
excess of $5,000,
(h) any agreement of indemnification or guaranty not entered into
in the ordinary course of business,
(i) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or compete
with any person,
(j) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $5,000,
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<PAGE> 18
(k) any agreement, contract or commitment relating to the
disposition or acquisition of assets not in the ordinary course of business or
any ownership interest in any corporation, partnership, joint venture or other
business enterprise,
(l) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause (h)
hereof,
(m) any purchase order or contract for the purchase of raw
materials or acquisition of assets involving $5,000 or more,
(n) any construction contracts,
(o) any distribution, joint marketing or development agreement,
(p) any other agreement, contract or commitment which involves
$50,000 or more and is not cancelable without penalty within thirty (30) days,
or
(q) any agreement which is otherwise material to the Company's
business.
The Company has not breached, or received in writing any claim or threat
that it has breached, any of the terms or conditions of any material agreement,
contract or commitment to which it is bound (including those set forth in any of
the lists separately certified by the Company) in such manner as would permit
any other party to cancel or terminate the same.
2.14 Interested Party Transactions. Except as disclosed in Section 2.14
of the Company Disclosure Schedule, no officer or director of the Company or
person who owns at least ten percent (10%) of the outstanding stock of the
Company (nor any parent, child or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an interest in any entity
which furnished or sold, or furnishes or sells, services or products which the
Company furnishes or sells, or proposes to furnish or sell, or (ii) any interest
in any entity which purchases from or sells or furnishes to, the Company, any
goods or services, or (iii) a beneficial interest in any contract or agreement
described in Section 2.13; provided, that ownership of no more than one percent
(1%) of the outstanding voting stock of a publicly traded corporation shall not
be deemed an "interest in any entity" for purposes of this Section 2.14.
2.15 Governmental Authorization. Section 2.15 of the Company Disclosure
Schedule accurately lists each material federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization issued to
the Company (i) pursuant to which the Company currently operates or holds any
interest in any of its properties or (ii) which is required for the operation of
its business or the holding of any such interest (herein collectively called
"Company Authorizations"), which Company Authorizations are in full force and
effect and constitute all Company Authorizations required to permit the Company
to operate or conduct its business or hold any interest in its properties.
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2.16 Litigation. To the best of the Company's knowledge, there is no
action, suit, claim or proceeding of any nature pending, or to the Company's
knowledge, threatened against the Company, its properties or any of its officers
or directors, in their capacities as agents of the Company. To the best of the
Company's knowledge, there is no investigation pending or, to the Company's
knowledge, threatened against the Company, its properties or any of its officers
or directors, in their capacities as agents of the Company by or before any
governmental entity. To the best of the Company's knowledge, no governmental
entity has at any time challenged or questioned the legal right of the Company
to manufacture, offer or sell any of its products in the present manner or style
thereof.
2.17 Minute Books. The minute books of the Company made available to
counsel for Parent contain complete and accurate minutes of all meetings of
directors and shareholders or actions by written consent since the time of
incorporation of the Company.
2.18 Brokers' and Finders' Fees. The Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.19 Insurance. The Company has no insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company.
2.20 Compliance With Laws. Except as disclosed in Section 2.20 of the
Company Disclosure Schedule, and except as to matters of which the Company is
not aware and which do not either individually or in the aggregate result in a
Material Adverse Effect with respect to the Company, the Company has complied
with, is not in violation of, and has not received any notices of violation with
respect to, any federal, state or local statute, law or regulation with respect
to the conduct of its business, or the ownership or operation of its business.
2.21 Complete Copies of Materials. The Company has delivered or made
available true and complete copies of each document (or summaries of same) which
has been requested by Parent or its counsel.
2.22 Binding Agreements; No Default. Each of the contracts, agreements
and other instruments shown on the Exhibits or on any lists or statements set
forth in the Company Disclosure Schedule to which the Company is a party is a
legal, binding, and enforceable obligation by or against the Company (assuming
such contract, agreement or instrument has been duly authorized, executed and
delivered by the other party(ies) thereto and except to the extent that its
non-enforceability would not have a Material Adverse Effect on the Company), and
no party with whom the Company has an agreement or contract is, to the Company's
knowledge, in material default thereunder or has breached any material terms or
provisions thereof (subject to all applicable bankruptcy, insolvency,
reorganization and other laws applicable to creditors' rights and remedies and
to the exercise of judicial discretion in accordance with general principles of
equity).
2.23 Environmental Matters.
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<PAGE> 20
(a) Hazardous Material. Except as set forth in Schedule 2.23, the
Company has not: (i) operated any underground storage tanks at any property that
the Company has at any time owned, operated, occupied or leased; or (ii)
illegally released any amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law as radioactive,
toxic, hazardous or otherwise a danger to health or the environment, including,
without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, (a "Hazardous Material"), but excluding janitorial supplies
properly and safely maintained. Except as set forth in Schedule 2.23, no
Hazardous Materials are present, as a result of the deliberate actions of the
Company or, to the Company's knowledge, as a result of any actions of any third
party or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company has at
any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as set forth in
Schedule 2.23, the Company has not transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
in violation of any law in effect on or before the Closing Date, nor has the
Company disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (any or all of the foregoing being collectively referred to
as "Hazardous Materials Activities") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior on or
before the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and businesses
are currently being conducted.
(d) Environmental Liabilities. Except as set forth in Schedule
2.23(d), no action, proceeding, revocation proceeding, amendment procedure,
writ, injunction or claim is pending or, to the Company's knowledge, threatened
against the Company concerning any Environmental Permit, Hazardous Material or
any Hazardous Materials Activity of the Company and the Company is not aware of
any fact or circumstance which could involve the Company in any environmental
litigation or impose upon the Company any environmental liability.
2.24 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.24(a)(i) below (such definition shall only
apply to this Section 2.24), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
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(i) "Affiliate" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether formal or informal, funded or unfunded, including without
limitation, each "employee benefit plan", within the meaning of Section 3(3) of
ERISA which is or has been maintained, contributed to, or required to be
contributed to, by the Company or any Affiliate for the benefit of any
"Employee" (as defined below), and pursuant to which the Company or any
Affiliate has or may have any material liability contingent or otherwise;
(iv) "Employee" shall mean any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee
Plan which is an "employee pension benefit plan", within the meaning of Section
3(2) of ERISA.
(b) Schedule. Schedule 2.24(b) contains an accurate and complete
list of each Company Employee Plan and each Employee Agreement, together with a
schedule of all liabilities under any Employee Agreement, whether or not
accrued, under each such Company Employee Plan or Employee Agreement. The
Company does not have any stated plan or commitment to establish any new Company
Employee Plan or Employee Agreement, to modify any Company Employee Plan or
Employee Agreement (except to the extent required by law or to conform any such
Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement.
(c) Documents. The Company has provided access to Parent (i)
correct and complete copies of all documents embodying or relating to each
Company Employee Plan and each
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<PAGE> 22
Employee Agreement including all amendments thereto and written interpretations
thereof; (ii) the most recent annual actuarial valuations, if any, prepared for
each Company Employee Plan; (iii) the three most recent annual reports (Series
5500 and all schedules thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan or related trust; (iv) if the Company
Employee Plan is funded, the most recent annual and periodic accounting of
Company Employee Plan assets; (v) the most recent summary plan description
together with the most recent summary of material modifications, if any,
required under ERISA with respect to each Company Employee Plan; (vi) all IRS
determination letters and rulings relating to Company Employee Plans and copies
of all applications and correspondence to or from the IRS or the Department of
Labor ("DOL") with respect to any Company Employee Plan; (vii) in the case of
Multiemployer Plans, all valuation reports, summaries of contributions and
statements or schedules or notices of liabilities received from such
Multiemployer Plan at any time during the three years preceding the date of this
Agreement; (viii) all communications material to any Employee or Employees
relating to any Company Employee Plan and any proposed Company Employee Plans,
in each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any material liability to the
Company; and (ix) all registration statements and prospectuses prepared in
connection with each Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
2.24(d), (i) the Company has performed in all material respects all obligations
required to be performed by it under each Company Employee Plan and each Company
Employee Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or the Code;
(ii) no "prohibited transaction", within the meaning of Section 4975 of the Code
or Section 406 of ERISA, has occurred with respect to any Company Employee Plan;
(iii) there are no actions, suits or claims pending, or, to the knowledge of the
Company, threatened or anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan; and (iv) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to the Company, Parent or any of its Affiliates (other than
ordinary administration expenses typically incurred pursuant to an amendment or
a termination event); (v) there are no inquiries or proceedings pending or, to
the knowledge of the Company or any Affiliates, threatened by the IRS or DOL
with respect to any Company Employee Plan; and (vi) neither the Company nor any
Affiliate is subject to any penalty or tax with respect to any Company Employee
Plan under Section 402(i) of ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. Except as set forth in Schedule 2.24(e), the
Company does not now, nor has it ever, maintained, established, sponsored,
participated in, or contributed to, any Pension Plan which is subject to Part 3
of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. Except as set forth in Schedule 2.24(f),
at no time has the Company contributed to any Multiemployer Plan.
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(g) The Company has paid all premiums (and interest charges and
penalties for late payment, if applicable) due the Pension Benefit Guarantee
Corporation ("PBGC") with respect to each Pension Plan for each plan year they
are up for which premiums are required. The Company has not engaged in, or is a
successor or parent corporation to an entity that has engaged in, a transaction
described in Section 4069 of ERISA. There has been no "reportable event" (as
defined in Section 4043(b) of ERISA and the PBGC regulations under such Section)
with respect to any Pension Plan. No filing has been made by the Company with
the PBGC, and no proceeding has been commenced by the PBGC, to terminate any
Pension Plan. No condition exists and no event has occurred that would
constitute grounds for the termination of any Pension Plan by the PBGC. The
Company has not, at any time, (1) ceased operations in a facility so as to
become subject to the provisions of Section 4062(e) of ERISA, (2) withdrawn as a
substantial employer so as to become subject to provisions of Section 4063 of
ERISA, or (3) ceased to making contributions on or before the effective date to
any Pension Plan subject to Section 4064(a) of ERISA to which the Company made
contributions during the six years prior to the effective date. The Company has
not incurred any material liability at any time under Title IV of ERISA arising
in Multiemployer Plan covered or previously covered by Title IV of ERISA. If a
"complete withdrawal" by the Company were to occur as of the Closing Date with
respect to all Multiemployer Plans, the Company would not incur any withdrawal
liability under Title IV of ERISA.
(h) No Post-Employment Obligations. Except as set forth in
Schedule 2.24(h), no Company Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee benefits to any Employee upon
his or her retirement or termination of employment for any reason, except as may
be required by statute.
(i) Effect of Transaction.
(i) Except as set forth on Schedule 2.24(i)(i), the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Company Employee
Plan, Employee Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) Except as set forth on Schedule 2.24(i)(ii), no payment
or benefit which will or may be made by the Company or any of its affiliates
with respect to any Employee will be characterized as an "excess parachute
payment", within the meaning of Section 280G(b)(1) of the Code.
(j) Employment Matters. The Company (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to Employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any
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<PAGE> 24
payment to any trust or other fund or to any governmental or administrative
authority, with respect to unemployment compensation benefits, social security
or other benefits or obligations for Employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
(k) Labor. No work stoppage or labor strike against the Company is
pending or, to the best knowledge of the Company, threatened. Except as set
forth in Schedule 2.24(k), the Company is not involved in or, to the knowledge
of the Company, threatened with, any labor dispute, grievance, or litigation
relating to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in a material liability to the Company or the loss
of a material benefit by the Company. Neither the Company nor any of its
subsidiaries has engaged in any unfair labor practices within the meaning of the
National Labor Relations Act which would, individually or in the aggregate,
directly or indirectly result in a material liability to the Company or the loss
of a material benefit by the Company. Except as set forth in Schedule 2.24(k),
the Company is not presently, nor has it been in the past, a party to, or bound
by, any collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by the
Company.
2.25 Representations Complete. None of the representations or warranties
made by the Company, nor any statement made in any list or other statement
separately certified by the Company, Exhibit or certificate furnished by the
Company pursuant to this Agreement, when all such documents are read together in
their entirety, contains or will contain any untrue statement of a material fact
at the Effective Time, or omits or will omit to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
2.26 Third Party Consents. No consent or approval is needed from any
third party except as disclosed in Section 2.26 of the Company Disclosure
Schedule in order to effect the Merger, this Agreement or any of the
transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company, Michael
Venerable and Matthew Comstock, subject to the exceptions previously certified
in writing by Parent or Merger Sub, as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company and Merger
Sub are duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a Material Adverse Effect on the business,
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<PAGE> 25
assets (including intangible assets), financial condition, results of operations
or prospects of the Company and Merger Sub, as appropriate. Each of Parent and
Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted. Parent has delivered a true and correct copy of
the Certificate or Articles of Incorporation and Bylaws of each of Parent and
Merger Sub, as amended to date, to counsel for the Company.
3.2 Capital Structure.
(a) The authorized stock of Parent consists of 25,000,000 shares
of Common Stock, par value $0.001 of which 3,461,284 shares were issued and
outstanding as of February 11, 1998, and 15,555,555 shares of Preferred Stock,
12,435,415 of which are issued or outstanding as of February 11, 1998. The
authorized capital stock of Merger Sub consists of 1,000 shares of Common Stock,
par value $0.001, 1,000 shares of which, as of the date hereof, are issued and
outstanding and are held by Parent. All such shares have been duly authorized,
and all such issued and outstanding shares have been validly issued, are fully
paid and nonassessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof. A warrant
to purchase 70,000 shares of Common Stock has been granted, for which the
Company has reserved 70,000 shares of Common Stock for issuance. A warrant to
purchase 42,222 shares of Series A Preferred Stock has been granted, for which
the Company has reserved 42,222 shares of Series A Preferred Stock for issuance
upon the exercise of such warrant and 42,222 shares of Common Stock for issuance
upon the conversion of such Series A Preferred Stock. Warrants to purchase an
aggregate of 60,695 shares of Series B Preferred Stock have been granted, for
which the Company has reserved 60,695 shares of Series B Preferred Stock for
issuance upon the exercise of such warrants and 60,695 shares of Common Stock
for issuance upon the conversion or such Series B Preferred Stock. A warrant to
purchase 22,400 shares of Series C Preferred Stock has been granted, for which
the Company has reserved 22,400 shares of Series C Preferred Stock for issuance
upon the exercise of such warrant and 22,400 shares of Common Stock for issuance
upon the conversion of such Series C Preferred Stock. As of February 11, 1998,
there were 2,800,000 shares of Common Stock reserved for issuance under the
Company's Amended 1995 Stock Plan and 268,255 shares of Common Stock issued
which were not under the Company's Amended 1995 Stock Plan. Except as set forth
above, there are no other options, warrants or other rights to purchase any of
the Company's authorized and unissued capital stock.
(b) The shares of Parent Preferred Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid, non-assessable.
3.3 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both), or
give rise to a right of termination,
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cancellation or acceleration of any obligation or to loss of a benefit under (i)
any provision of the Certificates of Incorporation or Bylaws of Parent and
Merger Sub or (ii) any mortgage, indenture, lease, contract or other agreement
or instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or its
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Parent and Merger Sub in connection with the execution and
delivery of this Agreement by Parent and Merger Sub or the consummation by
Parent and Merger Sub of the transactions contemplated hereby, except for (i)
the filing of the Merger Agreement with the California and Delaware Secretaries
of State, (ii) any filings as may be required under applicable state and federal
securities laws and the laws of any foreign country, and (iii) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not have a Material Adverse Effect on Parent.
3.4 Representations Complete. None of the representations or warranties
made by Parent herein, nor any statement made in any list or other statement
separately certified by Parent, or in any Exhibit or certificate furnished by
Parent pursuant to this Agreement, when all such documents are read together in
their entirety, contains or will contain any untrue statement of a material fact
at the Effective Time, or omits or will omit to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
3.5 Litigation. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Parent has received any notice of
assertion or as to which Parent has a reasonable basis to expect such notice of
assertion, against Parent which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement or which could reasonably be anticipated to have a Material Adverse
Effect on Parent.
3.6 Broker's and Finders' Fees. Parent has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement,
the Merger or any transaction contemplated hereby.
3.7 Parent Financial Statements. Parent has delivered to the
Shareholders a copy of Parent's audited financial statements for the year ended
December 31, 1997 (the "Financial Statements").
3.8 No Undisclosed Liabilities. As of December 31, 1997, Parent did not
have any liabilities, either accrued or contingent (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate are material and (i) have not been reflected in the Financial
Statements, (ii) have not been specifically described in this Agreement or in
the Schedules hereto or (iii) are not normal or recurring liabilities incurred
since December 31, 1997 in the ordinary course of business consistent with past
practices.
3.9 No Changes. Since the date of the Financial Statements there has not
been, occurred or arisen any:
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(a) material adverse change in the financial condition,
liabilities, assets, business, or prospects of the Parent;
(b) destruction, damage to, or loss of any assets of the Parent
(whether or not covered by insurance) that constitutes a Material Adverse Effect
on the Parent;
(c) labor trouble or claim of wrongful discharge of which the
Parent has received written notice or of which the Parent is aware, or other
unlawful labor practice or action;
(d) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Parent;
(e) revaluation by the Parent of any of its assets;
(f) declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of the Parent, or any direct or indirect
redemption, purchase or other acquisition by the Parent of any of its shares;
(g) acquisition, sale or transfer of any material asset of the
Parent other than in the ordinary course of business other than as contemplated
in this Agreement;
(h) loan by the Parent to any person or entity, or guaranty by the
Parent of any loan;
(i) waiver or release of any material right or claim of the
Parent, including any write-off or other compromise of any account receivable of
the Parent;
(j) the commencement or notice or threat of commencement of any
governmental proceeding against or investigation of the Parent or its affairs,
to the best of the Parent's knowledge;
(k) other event or condition of any character that has or might
reasonably be expected to have a Material Adverse Effect on the Parent;
(l) negotiation or agreement by the Parent to do any of the things
described in the preceding clauses (a) through (k) (other than negotiations with
Parent and its representatives regarding the transactions contemplated by this
Agreement).
3.10 Tax Returns and Audits.
(i) The Parent as of the Closing Date will have prepared and
timely filed or made a timely request for extension for all required federal,
state, local and foreign returns, estimates, information statements and reports
(collectively the "Returns") relating to any and all Taxes concerning or
attributable to the Parent or its operations and such Returns are true and
correct and have been completed in accordance with applicable law.
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(ii) The Parent as of the Closing Date: (A) will have paid or
accrued all Taxes it is required to pay or accrue and (B) will have withheld and
timely remitted with respect to its employees all federal and state income
taxes, FICA, FUTA and other Taxes required to be withheld and remitted.
(iii) There are no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("Liens") on the assets of the
Parent relating to or attributable to Taxes other than Liens for taxes not yet
due and payable.
(iv) The Parent's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is properly reflected on the Parent's tax books and records.
(v) The Parent has established (and until the Effective Time
will establish) on its respective books and records reserves (to be specifically
designated as an increase to current liabilities) that are adequate for the
payment of all taxes not yet due and payable.
(vi) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Returns.
(vii) The Parent is not a party to any tax-sharing or
allocation agreement, nor does the Parent owe any amount under any tax-sharing
or allocation agreement
3.12 Restrictions on Business Activities. There is no material agreement,
judgment, injunction, order or decree binding upon Parent which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of Parent, any acquisition of property by Parent or the
conduct of business by Parent as currently conducted or as currently proposed to
be conducted.
3.13 Intellectual Property. Parent (i) has not been sued or charged in
writing as a defendant in any claim, suit, action or proceeding which involves a
claim of infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third party and
which has not been finally terminated prior to the date hereof, (ii) has no
knowledge of any such charge or claim or (iii) has no knowledge of any
infringement liability with respect to, or infringement or violation by, Parent
of any patent, trademark, service mark, copyright, trade secret or other
proprietary right of another.
3.14 Compliance With Laws. Parent has complied with, is not in violation
of, and has not received any notices of violation with respect to, any federal,
state or local statute, law or regulation with respect to the conduct of its
business, or the ownership or operation of its business.
3.11 Agreements, Contracts and Commitments. Except as disclosed in
Schedule 3.11, the Parent does not have and is not a party to:
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(a) any collective bargaining agreements,
(b) any agreements that contain any unpaid severance liabilities
or obligations,
(c) any bonus, deferred compensation, incentive compensation,
pension, profit-sharing or retirement plans, or any other employee benefit plans
or arrangements,
(d) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization, not
terminable by the Parent on thirty days notice without liability, except to the
extent general principles of wrongful termination law may limit the Parent's
ability to terminate employees at will,
(e) agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement,
(f) any fidelity or surety bond or completion bond,
(g) any lease of personal property having a value individually in
excess of $75,000,
(h) any agreement of indemnification or guaranty not entered into
in the ordinary course of business,
(i) any agreement, contract or commitment containing any covenant
limiting the freedom of the Parent to engage in any line of business or compete
with any person,
(j) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $75,000,
(k) any agreement, contract or commitment relating to the
disposition or acquisition of assets not in the ordinary course of business or
any ownership interest in any corporation, partnership, joint venture or other
business enterprise,
(l) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause (h)
hereof,
(m) any purchase order or contract for the purchase of raw
materials or acquisition of assets involving $75,000 or more,
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(n) any construction contracts,
(o) any distribution, joint marketing or development agreement
other than entered in to in the ordinary course of business,
(p) any other agreement, contract or commitment which involves
$75,000 or more and is not cancelable without penalty within thirty (30) days,
or
(q) any agreement which is otherwise material to the Parent's
business.
The Parent has not breached, or received in writing any claim or threat
that it has breached, any of the terms or conditions of any material agreement,
contract or commitment to which it is bound (including those set forth in any of
the lists separately certified by the Parent) in such manner as would permit any
other party to cancel or terminate the same.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 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 or the Effective Time, the Company agrees (except 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 subject (i) to good
faith disputes over such debts or taxes and (ii) in the case of taxes, to
Parent's consent to the filing of material Returns if applicable, to pay or
perform other obligations when due, and, to the extent consistent with such
business, use all reasonable efforts consistent with past practice and policies
to preserve intact the Company's present business organizations, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, to the end that the Company's goodwill
and ongoing businesses shall be unimpaired at the Effective Time. The Company
shall promptly notify Parent of any event or occurrence not in the ordinary
course of business of the Company which could have a Material Adverse Effect on
the Company. Except as expressly contemplated by this Agreement, the Company
shall not, without the prior written consent of Parent:
(a) Except pursuant to existing contractual provisions of options
outstanding on the date hereof and which are disclosed in writing pursuant to
Section 2.2, accelerate, amend or change the period of exercisability of options
or restricted stock granted under the employee stock plans of the Company or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Enter into any commitment or transaction (i) which requires
performance over a period longer than six months in duration except transactions
in the ordinary course of business, or
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(ii) to purchase fixed assets for a purchase price in excess of $5,000; except
as mutually agreed by Parent and the Company and set forth on a separate
certificate;
(c) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except (x) payments made pursuant to
standard written agreements outstanding on the date hereof and as disclosed on
Schedule 2.13 or (y) in the case of employees who do not have standard written
agreements, payments of up to two months salary;
(d) Transfer to any person or entity any rights to the Company's
Intellectual Property other than nonexclusive object code licenses except as
mutually agreed by Parent and the Company and set forth on a separate
certificate;
(e) Enter into or amend any agreements pursuant to which any other
party is granted marketing or other rights of any type or scope with respect to
any products or technology of the Company, except as mutually agreed by Parent
and the Company and set forth on a separate certificate;
(f) Violate, amend or otherwise modify the terms of any of the
contracts set forth in the Company Disclosure Schedule;
(g) Commence any litigation;
(h) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to the Company;
(i) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, other
than the repurchase of shares of the Company's Common Stock from terminated
employees pursuant to the terms of restricted stock purchase agreements and the
issuance of shares of the Company's Common Stock pursuant to the exercise of
Company Incentive Options (as defined below) outstanding as of the date of this
Agreement;
(j) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(k) Acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree
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to acquire any assets which are material, individually or in the aggregate, to
the business of the Company;
(l) Sell, lease, license or otherwise dispose of any of its
properties or assets which are material, individually or in the aggregate, to
the business of the Company, except in the ordinary course of business, except
as mutually agreed by Parent and the Company and set forth on a separate
certificate;
(m) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others except with respect to an existing lease
line in an amount not more than $5,000;
(n) Adopt or amend any employee benefit plan, or enter into any
employment contract except for offer letters in the Company's standard form for
newly hired employees, pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates of its employees;
(o) 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;
(p) Pay, discharge or satisfy in an amount in excess of $5,000 in
any one case 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 liabilities reflected or
reserved against in the Company Financial Statements (or the notes thereto);
(q) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, file any material
Return or any amendment to a material Return, 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
(r) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (q) above, or any action which
would make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or prevent the Company from performing or
cause the Company not to perform its covenants hereunder.
4.2 No Solicitation. After the date of this Agreement and prior to the
Effective Date, the Company will not (nor will the Company permit any of the
Company's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees:
(a) solicit, encourage, initiate or participate in any
negotiations or discussions with respect to, any offer or proposal to acquire
all or substantially all of the Company's business and
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properties or to purchase or acquire capital stock of the Company whether by
merger, purchase of assets, tender offer or otherwise (an "Acquisition"),
(b) disclose any information not customarily disclosed to any
person other than its attorneys or financial advisors concerning the Company's
business and properties or afford to any person or entity access to its
properties, books or records, or
(c) assist or cooperate with any person to make any proposal to
purchase all or any part of the Company's capital stock or assets, other than
licensing of software in the ordinary course of business (a "Purchase"),
provided, however, that the Company may participate in negotiations with, or
furnish information to, a party other than Parent or its designees who has made
a written Acquisition or Purchase offer or proposal if the Company's Board of
Directors, upon receipt of a written opinion from its outside counsel,
determines that failure to do so would constitute a breach of the Board's
fiduciary duty under applicable law.
In the event the Company shall receive any such written offer or proposal,
directly or indirectly, of the type referred to in clause (a) or (c) above, or
any request for disclosure or access pursuant to clause (b) above, the Company
party shall immediately inform Parent as to all material facts relating to any
such offer or proposal (including the identity of the party making such offer or
proposal and the specific terms thereof) and will cooperate with Parent by
furnishing any information it may reasonably request.
4.3 Strategic Agreements. The Company agrees that it will not without
the prior written consent of Parent, which consent will not be unreasonably
withheld, enter into any strategic alliance, joint development or joint
marketing agreement during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement and the
Effective Time.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Resolutions of Company Shareholders. The Company shall promptly
after the date hereof take all action necessary in accordance with Virginia Law,
and the Company's Articles of Incorporation and Bylaws to prepare and solicit an
Action By Written Consent of the Company Shareholders. The Company shall use its
best efforts to obtain the approval of the shareholders of the Company for the
Merger and shall take all other action necessary or advisable to secure the vote
or consent of its shareholders required by Virginia Law to effect the Merger.
5.2 Access to Information. The Company shall afford Parent 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 the
Company's properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel of the
Company as Parent
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may reasonably request. The Company agrees to provide to Parent and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request. Parent shall provide the Company with copies
of such publicly available information about Parent as the Company may request
and shall provide the Company with reasonable access to its Chief Executive
Officer, Chief Financial Officer and Vice President, Marketing in this
connection. No information or knowledge obtained in any investigation pursuant
to this Section 5.2 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.
5.3 Expenses. In the event the Merger is not consummated, all expenses
incurred in connection with the Merger and this Agreement shall be the
obligation of the party incurring such expenses; provided if the Merger shall
fail to close for any reason within the control of the Company or Parent, such
party shall reimburse the other for all expenses incurred in connection with the
Merger and this Agreement.
5.4 Public Disclosure. Unless otherwise required by law, prior to the
Effective Time no disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and 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, subject, in the case of Parent, to Parent's obligation to comply with
applicable securities laws.
5.5 Consents. Each of Parent and the Company shall promptly apply for or
otherwise seek, and use its best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Merger, and the
Company shall use its best efforts to obtain all necessary consents, waivers and
approvals under any of the Company's material agreements, contracts, licenses or
leases in connection with the Merger. All such necessary consents are set forth
in Section 2.26 of the Company Disclosure Schedule.
5.6 FIRPTA. Upon request by Parent after the Effective Time, the Company
shall use its best efforts to deliver to the Internal Revenue Service a notice
that it is not a "United States Real Property Holding Corporation" as defined in
and in accordance with the requirements of Treasury Regulation Section
1.897-2(h)(2).
5.7 Legal Requirements. Each of Parent, Merger Sub and the Company will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement and will promptly cooperate with
and furnish information to any party hereto necessary in connection with any
such requirements imposed upon such other party in connection with the
consummation of the transactions contemplated by this Agreement and will take
all reasonable actions necessary to obtain (and will cooperate with the other
parties hereto in obtaining) any consent, approval, order or authorization of,
or any registration, declaration or filing with, any Governmental Entity or
other person, required to be obtained or made in connection with the taking of
any action contemplated by this Agreement.
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5.8 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 Parent Preferred Stock pursuant hereto. The
Company shall use its best efforts to assist Parent as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Parent Preferred Stock pursuant
hereto.
5.9 Best Efforts; Additional Documents and Further Assurances. Each of
the parties to this Agreement shall each use its best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each party hereto, at the reasonable
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.10 Indemnification. Parent shall either (i) cause the Company to
continue to indemnify or (ii) directly indemnify the persons who are currently
officers and directors of the Company substantially in accordance with the
Bylaws of the Company as they are currently in effect for action or inaction by
such person prior to the Merger. For so long as the insurer under the Company's
officer and director indemnification insurance policy is willing to continue
such insurance policy after the Merger at approximately the same premium as
currently in effect, the Parent shall continue such policy in effect until the
third anniversary of the Closing.
5.11 Employee Agreements. Each employee of and consultant to the Company
will sign promptly a Proprietary Rights and Confidentiality Agreement in
Sagent's standard form.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by all of the Shareholders of the Company entitled to
vote and the sole shareholder of Merger Sub.
(b) Board Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the Board of Directors of the
Company, Parent and Merger Sub.
(c) 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 restraint or prohibition
preventing the consummation of the Merger or limiting or restricting the
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operation of the business of the Company following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal.
(d) Employment and Non-Competition Agreements. Parent shall have
entered into employment and non-competition agreements with Michael Venerable
and Matthew Comstock substantially in the form attached hereto as Exhibit F.
(e) Approval. Parent, Company and Merger Sub shall have timely
obtained all necessary approvals from Governmental Entities.
(f) Option Exercises. The holders of all of the outstanding
options of the Company shall have exercised such options.
6.2 Additional Conditions to Obligations of Company. The obligations of
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
and warranties of Parent in this Agreement shall be true and correct in all
material respects on and as of the Effective Time as though such representations
and warranties were made on and as of such time and Parent shall have performed
and complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by it as
of the Effective Time.
(b) Certificate of Parent. The Company shall have been provided
with a certificate executed on behalf of Parent by its President or its Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Parent and
Merger Sub under this Agreement are true and complete in all material respects;
(ii) all covenants, obligations and conditions of this
Agreement to be performed by Parent and Merger Sub on or before such date have
been so performed in all material respects; and
(iii) the transactions contemplated by this Agreement have
been approved by the Board of Directors of Parent.
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(c) Legal Opinion. The Company shall have received a legal opinion
from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to
Parent, substantially in the form of Exhibit G hereto.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate and effect this Agreement
and the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Company in this Agreement shall be true and correct in all
material respects on and as of the Effective Time as though such representations
and warranties were made on and as of such time and the Company shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
it as of the Effective Time.
(b) Certificate of the Company. Parent shall have been provided
with a certificate executed on behalf of the Company by its President to the
effect that, as of the Effective Time:
(i) all representations and warranties made by the Company
under this Agreement are true and complete in all material respects;
(ii) all covenants, obligations and conditions of this
Agreement to be performed by the Company on or before such date have been so
performed in all material respects; and
(iii) attached to such certificate are true and correct copies
of the Company's Articles of Incorporation, as certified by the Virginia
Secretary of State, Bylaws and resolutions of the Company's Board of Directors
and Shareholders approving the transactions contemplated by this Agreement.
(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in order to assign the agreements listed
pursuant to Section 5.5.
(d) Legal Opinion. Parent shall have received a legal opinion from
legal counsel to the Company, in substantially the form of Exhibit G.
(e) No Material Adverse Changes. There shall not have occurred any
material adverse change in the business, properties, results of operations or
financial condition of the Company since February 25, 1998;
(f) Dissenters. No holders of the Company's Common Stock shall
have exercised, or shall continue to have the right to exercise, dissenters'
rights with respect to the transactions contemplated by this agreement.
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(g) Resignation of Current Directors and Officers of the Company.
Parent shall have received letters of resignation of all of the directors and
officers of the Company effective as of the Effective Time.
(h) Assignment. All right, title and interest in and to all assets
of the Company are properly assigned to Buyer.
(i) No Distributions or Adjustments. No cash distributions or
compensation adjustments prior to the Effective Time other than such cash
distributions or compensation adjustments made pursuant to agreements
outstanding as of the date hereof or pursuant to standard corporate policies in
effect on the date hereof.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 Survival of Representations and Warranties. All representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger and continue for a period ending on the date
which is thirty (30) days after such time as Parent's outside public accounting
firm has released its annual audit of the consolidated financial statements
applicable to the Parent for the period ending December 31, 1998 (such date, the
"Escrow Release Date"), subject to Section 7.3 hereof; provided, however, that
as to the Shareholders the representations and warranties relating or pertaining
to Taxes set forth in Section 2.9 hereof, shall survive until ninety (90) days
following the expiration of all applicable statutes of limitations governing the
Company's Taxes or Returns.
7.2 Agreement to Indemnify. Michael P. Venerable and Matthew C. Comstock
(the "Indemnifying Shareholders"), severally but not jointly, hereby agree to
indemnify and hold Parent, Merger Sub and their affiliates harmless against all
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses of investigation (hereinafter
individually a "Loss" and collectively "Losses") incurred by Parent as a result
of (i) any breach of a representation, warranty or obligation of the Company
contained in Article II herein, (ii) any failure by the Company to perform or
comply with any covenant contained herein, (iii) failure to disclose requested
material information which is known or should be known during the due diligence
process, or (iv) delivery of incorrect or misleading material information during
the due diligence process; provided, that no such representation or warranty
shall be deemed breached (for purposes of this Article VII only and not for
purposes of the conditions to the obligations of Parent to effect the Merger
under Article VI) with respect to information disclosed in the Company
Disclosure Schedule delivered by the Company at the Closing to the extent such
schedule provides exceptions to any representation or warranty. Parent shall be
entitled to recover from the Escrow Fund as defined in Section 7.4 hereof, for
any Loss pursuant to the terms hereof.
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7.3 Expiration of Indemnification.
(a) Except as otherwise provided in Section 7.3(b), the
indemnification obligations of the Indemnifying Shareholders under Section 7.2
shall terminate at 5:00 p.m., Pacific Standard Time, on the Escrow Release Date
but shall not terminate as to any Loss asserted in good faith pursuant to
Section 7.7 on or prior to such date.
(b) The indemnification obligations of the Indemnifying
Shareholders under Section 7.2 related to Taxes or a breach of the
representations and warranties contained in Section 2.9 shall terminate 90 days
following the expiration of all applicable statutes of limitations relating to
Taxes subject to the claim of indemnification hereunder, but shall not terminate
as to a Loss (or a potential claim by an appropriate party) asserted in good
faith prior to such date; provided however that no claim for indemnification
with regard to the Indemnifying Shareholders shall terminate with respect to any
Loss arising due to any willful or grossly negligent breach of any
representation or warranty contained in Section 2.9.
7.4 Escrow Fund.
At the Effective Time, Parent, Merger Sub, Company, the Shareholders
Agent, on behalf of the Indemnifying Shareholders, and the Escrow Agent shall
execute the Escrow Agreement, and the Parent shall deposit with the Escrow Agent
the sum of $150,000 (the "Escrow Cash") to be held in the Escrow Fund and
administered in accordance with the Escrow Agreement. The Escrow Agent shall
administer the Escrow Fund, as it may exist from time to time, on behalf of
Parent, Merger Sub, Company and Indemnifying Shareholders, for the purposes of
securing Company and Indemnifying Shareholders indemnity obligations under
Article VII hereof.