EXHIBIT 2.01
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is entered into
as of May 21, 1999, by and among Optical Networks, Incorporated, a California
corporation ("Acquirer"), Object-Mart, Inc., a California corporation ("Target")
and, only with respect to Sections 10 and 11 (including 11.8), Xxxxxxxx X. Xxx
("Principal Shareholder").
RECITALS
A. The parties intend that, subject to the terms and conditions of this
Agreement, a new Delaware corporation that will be organized as a wholly-owned
subsidiary of Acquirer ("Newco") will merge with and into Target in a reverse
triangular merger (the "Merger"), with Target to be the surviving corporation of
the Merger, all pursuant to the terms and conditions of this Agreement and an
Agreement of Merger substantially in the form described on Exhibit A (the
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"Agreement of Merger") and the applicable provisions of the laws of the States
of California and Delaware. Upon the effectiveness of the Merger, all the
outstanding capital stock of Target ("Target Stock") will be converted into
capital stock of Acquirer ("Acquirer Stock") and the right to receive cash from
Acquirer as provided in this Agreement and the Agreement of Merger.
B. The Merger will be a taxable transaction for the shareholders of Target
under the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. PLAN OF REORGANIZATION
1.1 The Merger. Subject to the terms and conditions of this
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Agreement, Newco will be merged with and into Target pursuant to this Agreement
and the Agreement of Merger and in accordance with applicable provisions of the
laws of the States of California and Delaware as follows:
1.1.1 Conversion of Shares. Each share of Target Common Stock
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("Target Common Stock") issued and outstanding immediately prior to the filing
of the Agreement of Merger with the Secretaries of State of California and
Delaware (the "Effective Time"), other than shares, if any, for which dissenters
rights have been or will be perfected in compliance with applicable law, will by
virtue of the Merger and at the Effective Time, and without further action on
the part of any holder thereof, be converted into the right to receive (i) a
fraction, the numerator of which is 1,142,328 and the denominator of which is
the fully diluted (assuming conversion of all outstanding convertible securities
and full exercise of all outstanding options, warrants or similar rights at the
time of the closing of the Merger (the "Closing")) number of shares of common
stock of Target (the "Applicable Fraction") of a fully paid and nonassessable
share of Acquirer common stock ("Acquirer Common Stock") and (ii) $3,081,650
divided by the fully diluted (assuming conversion of all outstanding convertible
securities and
full exercise of all outstanding options, warrants or similar rights at the time
of Closing) number of shares of common stock of Target (the "Per Share Cash
Amount").
1.1.2 Adjustments for Capital Changes. If prior to the Merger
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Acquirer recapitalizes through a split-up of its outstanding shares into a
greater number, or a combination of its outstanding shares into a lesser number,
reorganizes, reclassifies or otherwise changes its outstanding shares into the
same or a different number of shares of other classes, or declares a dividend on
its outstanding shares payable in shares or securities convertible into shares,
the number of shares of Acquirer Common Stock into which the Target shares are
to be converted will be adjusted appropriately so as to maintain the
proportionate interests of the holders of the Target shares and the holders of
Acquirer shares.
1.1.3 Dissenting Shares. Holders of shares of Target Stock
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who have complied with all requirements for perfecting shareholders' rights of
appraisal, as set forth in Chapter 13 of the California Corporations Code
("California Law"), shall be entitled to their rights under the California Law
with respect to such shares ("Dissenting Shares").
1.2 Fractional Shares. No fractional shares of Acquirer Common
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Stock will be issued in connection with the Merger, but in lieu thereof each
holder of Target Stock who would otherwise be entitled to receive a fraction of
a share of Acquirer Common Stock will receive from Acquirer, promptly after the
Effective Time, an amount of cash equal to the per share market value of
Acquirer Common Stock as determined in good faith by Acquirer's Board of
Directors as of the date of the Closing multiplied by the fraction of a share of
Acquirer Common Stock to which such holder would otherwise be entitled.
1.3 Effects of the Merger. At the Effective Time: (a) the separate
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existence of Newco will cease and Newco will be merged with and into Target, and
Target will be the surviving corporation, pursuant to the terms of the Agreement
of Merger, (b) the Articles of Incorporation and Bylaws of Target will continue
unchanged to be the Articles of Incorporation and Bylaws of the surviving
corporation and shall be amended and restated in accordance with the Agreement
of Merger, (c) each share of Newco Common Stock outstanding immediately prior to
the Effective Time will be converted into one (1) outstanding share of the
surviving corporation, (d) the directors and officers of Newco immediately prior
to the Effective Time will become the directors and officers of the surviving
corporation, (e) each share of Target Stock outstanding immediately prior to the
Effective Time will be converted as provide in Section 1.1, and (f) the Merger
will, from and after the Effective Time, have all of the effects provided by
applicable law.
1.4 Further Assurances. Target agrees that if, at any time before or
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after the Effective Time, Acquirer considers or is advised that any further
deeds, assignments or assurances are reasonably necessary or desirable to vest,
perfect or confirm in Acquirer title to any property or rights of Target,
Acquirer and its proper officers and directors may execute and deliver all such
proper deeds, assignments and assurances and do all other things necessary or
desirable to vest, perfect or confirm title to such property or rights in
Acquirer and otherwise to carry out the purpose of this Agreement, in the name
of Target or otherwise; provided that the effectiveness of any such documents or
actions shall be subject to the completion of the Closing of the Merger.
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1.5 Purchase Accounting. The parties intend that the Merger be
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treated as a purchase for accounting purposes.
1.6 Legends; Right of First Offer. Section 8.7 of Acquirer's Bylaws
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provides a right of first offer in favor of Acquirer in the event of a proposed
transfer of shares of Acquirer's capital stock by a shareholder. It is
understood that the certificates evidencing the shares of Acquirer Common Stock
issued pursuant to this Agreement will bear the legends set forth below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR
AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES
MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
(b) THE SECURITIES REPRESENTED HEREBY ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER INCLUDING A RIGHT OF
FIRST OFFER HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET
FORTH IN THE BYLAWS OF THE ISSUER, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST OFFER ARE BINDING
ON TRANSFEREES OF THESE SHARES.
2. REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants that, on the date hereof, except
as set forth on the Target Schedule of Exceptions delivered to Acquirer herewith
as Exhibit 2.0:
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2.1 Organization and Good Standing. Target and each of its
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subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, has the corporate
power and authority to own, operate and lease its properties and to carry on its
business as now conducted and as proposed to be conducted, and is qualified as a
foreign corporation in each jurisdiction in which a failure to be so qualified
could reasonably be expected to have a material adverse effect on its present or
expected operations or financial condition.
2.2 Power, Authorization and Validity.
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2.2.1 Target has the right, power, legal capacity and authority
to enter into and perform its obligations under this Agreement, and all
agreements to which Target is or will be a party that are required to be
executed pursuant to this Agreement (the "Target Ancillary Agreements"). The
execution, delivery and performance of this Agreement and the Target Ancillary
Agreements have been duly and validly approved and authorized by Target's Board
of Directors.
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2.2.2 No filing, authorization, consent or approval,
governmental or otherwise, is necessary to enable Target to enter into, and to
perform its obligations under, this Agreement and the Target Ancillary
Agreements, except for (a) the filing of the Agreement of Merger with the
California and Delaware Secretaries of State, and the filing of appropriate
documents with the relevant authorities of other states in which Target is
qualified to do business, if any, (b) such filings as may be required to comply
with federal and state securities laws, and (c) the approval of the Target
shareholders of the transactions contemplated hereby.
2.2.3 This Agreement and the Target Ancillary Agreements are, or
when executed by Target will be, valid and binding obligations of Target
enforceable in accordance with their respective terms, except as to the effect,
if any, of (a) applicable bankruptcy and other similar laws affecting the rights
of creditors generally, (b) rules of law governing specific performance,
injunctive relief and other equitable remedies and (c) the enforceability of
provisions requiring indemnification in connection with the offering, issuance
or sale of securities; provided, however, that the Agreement of Merger will not
be effective until filed with the California and Delaware Secretaries of State.
2.3 Capitalization. As of the date of this Agreement, the authorized
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capital stock of Target consists of 10,000,000 shares of Common Stock, no par
value, of which 2,826,000 shares are issued and outstanding. An aggregate of
1,000,000 shares of Target Common Stock are reserved and authorized for issuance
pursuant to Target's 1998 Stock Option Plan for Employees and Consultants (the
"Target Plan"), of which options to purchase a total of 917,500 shares of Target
Common Stock are outstanding. As of immediately prior to the Closing, the
authorized capital stock of Target will consist of 10,000,000 shares of Common
Stock, of which 3,622,000 shares will be issued and outstanding. On the Closing
Date (as defined in Section 6.1), no shares of Target Common Stock will be
reserved or authorized for issuance pursuant to the Target Plan and no options
to purchase shares of Target Common Stock will be outstanding. All issued and
outstanding shares of Target Stock have been duly authorized and validly issued,
are fully paid and nonassessable, are not, to the best of Target's knowledge,
subject to any right of rescission, and have been offered, issued, sold and
delivered by Target in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws. A list of all holders of Target Stock and options to
purchase Target Stock, and the number of shares, options held by each has been
delivered by Target to Acquirer herewith as Exhibit 2.3. All persons granted
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options under the Target Plan were, at the time of grant and all time while the
grant was outstanding, directors, officers, employees and/or consultants of
Target. To the best of Target's knowledge, all Target shareholders have good,
valid and marketable title to the issued and outstanding Target Stock held by
such shareholders, free and clear of all liens, claims, pledges, options,
adverse claims, assessments or charges of any nature whatsoever, and have full
right, capacity and authority to vote such Target Stock in favor of the Merger
and the other transactions contemplated by the Agreement. Except as set forth
in this Section, there are no options, warrants, calls, commitments, conversion
privileges or preemptive or other rights or agreements outstanding to purchase
any of Target's authorized but unissued capital stock or any securities
convertible into or exchangeable for shares of Target Stock or obligating Target
to grant, extend, or enter into any such option, warrant, call, right,
commitment, conversion privilege or other right or agreement, and there is no
liability for dividends accrued but unpaid. The Target is not a party to, and
to the
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best of its knowledge is not aware of, any arrangements or agreements respecting
the voting of any of its securities or imposing rights of first refusal or other
restrictions with respect to such securities (other than normal restrictions on
transfer under applicable federal and state securities laws). Target is not
under any obligation to register under the Securities Act any of its presently
outstanding securities or any securities that may be subsequently issued.
2.4 Subsidiaries. Except for the subsidiaries of Target listed on
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Exhibit 2.0 (collectively the "Subsidiaries" and each a "Subsidiary"), each of
which is wholly-owned by Target, Target does not have any subsidiaries or any
interest, direct or indirect, in any corporation, partnership, joint venture or
other business entity.
2.5 No Violation of Existing Agreements. Neither the execution and
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delivery of this Agreement nor any Target Ancillary Agreement, nor the
consummation of the transactions contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach, impairment or violation of (a) any provision of the Articles of
Incorporation or Bylaws of Target or any Subsidiary, as currently in effect, (b)
in any material respect, any material instrument or contract to which Target or
any Subsidiary is a party or by which Target or any Subsidiary is bound, or (c)
any federal, state, local or foreign judgment, writ, decree, order, to the best
of Target's knowledge, statute, rule or regulation applicable to Target or any
Subsidiary or their respective assets or properties. The consummation of the
Merger and the transfer to Acquirer of all material rights, licenses,
franchises, leases and agreements of Target and each Subsidiary will not require
the consent of any third party, pursuant to the agreements referred to in clause
(b) of the foregoing sentence.
2.6 Litigation. There is no action, proceeding, claim or
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investigation pending against Target or any Subsidiary before any court or
administrative agency that if determined adversely to Target or any Subsidiary
may reasonably be expected to have a material adverse effect on the present or
future operations or financial condition of Target or any Subsidiary, nor, to
the best of Target's knowledge, has any such action, proceeding, claim or
investigation been threatened. There is, to the best of Target's knowledge, no
reasonable basis for any shareholder or former shareholder of Target, or any
other person, firm, corporation, or entity, to assert a claim against Target or
Acquirer based upon: (a) ownership or rights to ownership of any shares of
Target Stock (except for dissenter's rights with respect to shares of Acquirer
Common Stock issuable by virtue of the Merger), (b) any rights as a Target
shareholder, including any option or preemptive rights or rights to notice or to
vote, or (c) any rights under any agreement among Target and its shareholders.
2.7 Taxes. Target and each of its Subsidiaries has filed all
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federal, state, local and foreign tax returns required to be filed, has paid all
taxes required to be paid in respect of all periods for which returns have been
filed, has established an adequate accrual or reserve for the payment of all
taxes payable in respect of the periods subsequent to the periods covered by the
most recent applicable tax returns, has made all necessary estimated tax
payments, and has no material liability for taxes in excess of the amount so
paid or accruals or reserves so established. Neither Target nor any Subsidiary
is delinquent in the payment of any tax or is delinquent in the filing of any
tax returns, and no deficiencies for any tax have been threatened, claimed,
assessed or, to the best of Target's knowledge, proposed. No tax return of
Target or any Subsidiary has ever been audited by the Internal Revenue Service
or any state taxing agency or authority. For
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the purposes of this Section, the terms "tax" and "taxes" include all federal,
state, local and foreign income, gains, franchise, excise, property, sales, use,
employment, license, payroll, occupation, recording, value added or transfer
taxes, governmental charges, fees, levies or assessments (whether payable
directly or by withholding), and, with respect to such taxes, any estimated tax,
interest and penalties or additions to tax and interest on such penalties and
additions to tax.
2.8 Target Financial Statements. Target has delivered to Acquirer as
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Exhibit 2.8 Target's balance sheet as of May 17, 1999 (the "Balance Sheet") and
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profit and loss statement for the period from January 1, 1999 through May 17,
1999 (collectively the "Financial Statements"). The Financial Statements (a)
are in accordance with the books and records of Target, (b) have been prepared
in good faith and fairly present the financial condition of Target at the date
therein indicated and the results of operations for the period therein specified
and (c) have been prepared on a consistent basis. Target has no material debt,
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not reflected or reserved
against in the Financial Statements, except for those that may have been
incurred after the date of the Financial Statements in the ordinary course of
its business, consistent with past practice and that are not material in amount
either individually or collectively.
2.9 Title to Properties. Target has good and marketable title to
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all of its assets as shown on the Balance Sheet, free and clear of all liens,
charges, restrictions or encumbrances (other than for taxes not yet due and
payable). All machinery and equipment included in such properties is in good
condition and repair, normal wear and tear excepted, and all leases of real or
personal property to which Target or any Subsidiary is a party are fully
effective and afford Target or the Subsidiary peaceful and undisturbed
possession of the subject matter of the lease. Neither Target nor any Subsidiary
is in violation of any zoning, building, safety or environmental ordinance,
regulation or requirement or other law or regulation applicable to the operation
of owned or leased properties (the violation of which would have a material
adverse effect on its business), or has received any notice of violation with
which it has not complied.
2.10 Absence of Certain Changes. Since the date of the Balance Sheet,
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there has not been with respect to Target or any Subsidiary:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations thereof which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had or will have a material adverse effect thereon;
(b) any contingent liability incurred thereby as guarantor or
otherwise with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the
properties thereof;
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(d) any material obligation or liability incurred thereby other
than obligations and liabilities incurred in the ordinary course of business;
(e) any purchase or sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any of the
properties or assets thereof other than in the ordinary course of business;
(f) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
thereof;
(g) any declaration, setting aside or payment of any dividend
on, or the making of any other distribution in respect of, the capital stock
thereof, any split, combination or recapitalization of the capital stock thereof
or any direct or indirect redemption, purchase or other acquisition of the
capital stock thereof;
(h) any labor dispute or claim of unfair labor practices, any
change in the compensation payable or to become payable to any of its officers,
employees or agents, or any bonus payment or arrangement made to or with any of
such officers, employees or agents;
(i) any change with respect to the management, supervisory or
other key personnel thereof;
(j) any payment or discharge of a material lien or liability
thereof which lien was not either shown on the Balance Sheet or incurred in the
ordinary course of business thereafter; or
(k) any obligation or liability incurred thereby to any of its
officers, directors or shareholders or any loans or advances made thereby to any
of its officers, directors or shareholders except normal compensation and
expense allowances payable to officers.
2.11 Contracts and Commitments. Except as set forth on Exhibit 2.11
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delivered to Acquirer herewith, neither Target nor any Subsidiary has any oral
or written contract, obligation, agreement, plan, lease, instrument,
arrangement, license or commitment which is material to the business of Target
or any Subsidiary, including, but not limited to any:
(a) Contract, obligation or commitment providing for payments by
or to Target or any Subsidiary in an aggregate amount of $5,000 or more;
(b) License agreement as licensor or licensee (except for
standard non-exclusive hardware and software licenses granted to end-user
customers in the ordinary course of business a list or written description of
which has been provided to Acquirer's counsel);
(c) Agreement for the lease of real or personal property;
(d) Joint venture contract or arrangement or any other agreement
that involves a sharing of profits with other persons;
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(e) Instrument evidencing or related in any way to indebtedness
for borrowed money by way of direct loan, sale of debt securities, purchase
money obligation, conditional sale, guarantee, or otherwise, except for trade
indebtedness incurred in the ordinary course of business, and except as
disclosed in the Financial Statements;
(f) Contract containing covenants purporting to limit Target's
or any Subsidiary's freedom to compete in any line of business in any geographic
area;
(g) Contract, obligation or commitment providing for any stock
redemption.
(h) Equipment financing or lease agreement, or franchise
agreement.
A copy of each agreement or document listed on Exhibit 2.11 has been
delivered to Acquirer or its counsel. All agreements, contracts, plans, leases,
instruments, arrangements, licenses and commitments listed on Exhibit 2.11 are
valid and in full force and effect. Neither Target nor any Subsidiary is in
default in any material respect under any contract, obligation, agreement, plan,
lease, instrument, arrangement, license or commitment listed on Exhibit 2.11 or
that is otherwise material to the business of Target or a Subsidiary. Neither
Target nor any Subsidiary is a party to any contract or arrangement which has
had or could reasonably be expected to have a material adverse effect on its
business. Neither Target nor any Subsidiary has any material liability for
renegotiation of government contracts or subcontracts, if any.
2.12 Intellectual Property. Target owns or has the right to use all
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Intellectual Property Rights (as defined below) required for the conduct of its
business as presently conducted (such Intellectual Property Rights being
hereinafter collectively referred to as the "Target IP Rights") and Target's
rights to use, sell or license the Target IP Rights are reasonably sufficient
for the conduct of such business. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby will
not constitute a material breach of any instrument or agreement governing any
Target IP Right (the "Target IP Rights Agreements"), will not cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any Target IP Right or materially impair the right of Target or any
Subsidiaries to use, sell or license any Target IP Right or portion thereof.
There are no royalties, honoraria, fees or other payments payable by Target to
any person by reason of the ownership, use, license, sale or disposition of the
Target IP Rights (other than as set forth in the Target IP Rights Agreements
listed in Exhibit 2.12). Neither the manufacture, marketing, license, sale or
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intended use of any product currently licensed or sold by Target or any of the
Target Subsidiaries or currently under development by Target or any of the
Target Subsidiaries violates any license or agreement between Target or any of
the Target Subsidiaries and any third party or infringes any Intellectual
Property Right of any other party; and there is no pending or, to the best of
Target's knowledge, threatened, claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any Target IP Right nor
is there any basis for any such claim, nor has Target received any notice
asserting that any Target IP Right or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party, nor, to the best knowledge of Target, is there any basis for any such
assertion. Target has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, all Target IP Rights. All officers, employees
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and consultants of Target and each Subsidiary have executed and delivered to
Target or the Subsidiary an agreement regarding the protection of proprietary
information and the assignment to Target or the Subsidiary of all Intellectual
Property Rights arising from the services performed for Target or the Subsidiary
by such persons. Copies of the form of all such agreements have been delivered
to Acquirer or its counsel. Exhibit 2.12 contains a list of all applications,
registrations, filings and other formal actions made or taken pursuant to
federal, state and foreign laws by Target to perfect or protect its interest in
Target IP Rights, including, without limitation, all patents, patent
applications, trademarks, trademark applications and service marks. As used
herein, the term "Intellectual Property Rights" shall mean all worldwide
industrial and intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service xxxx applications, copyright, copyright
applications, franchises, licenses, inventories, know-how, trade secrets,
customer lists, proprietary processes and formulae, all source and object code,
algorithms, architecture, structure, display screens, layouts, inventions,
development tools and all documentation and media constituting, describing or
relating to the above, including, without limitation, manuals, memoranda and
records.
2.13 Compliance with Laws. Target and each of its Subsidiaries has
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complied, or prior to the Closing Date will have complied, and is or will be at
the Closing Date in full compliance, with all applicable laws, ordinances,
regulations, and rules, and all orders, writs, injunctions, awards, judgments,
and decrees applicable to it or to the assets, properties, and business thereof
(except to the extent failure of Target to comply with any of the foregoing
would not have a material adverse effect on its assets, properties, or business
as presently conducted), including, without limitation: (a) all applicable
federal and state securities laws and regulations, (b) all applicable federal,
state, and local laws, ordinances, regulations, and all orders, writs,
injunctions, awards, judgments, and decrees pertaining to (i) the sale,
licensing, leasing, ownership, or management of its owned, leased or licensed
real or personal property, products and technical data, (ii) employment,
employment practices, wages, hours, and terms and conditions of employment and
(iii) safety, health, fire prevention, environmental protection, toxic waste
disposal, building standards, zoning and other similar matters (c) the Export
Administration Act and regulations promulgated thereunder and all other laws,
regulations, rules, orders, writs, injunctions, judgments and decrees applicable
to the export or re-export of controlled commodities or technical data and (d)
the Immigration Reform and Control Act. Each of Target and the Subsidiaries has
received all permits and approvals from, and has made all filings with, third
parties, including government agencies and authorities, that are necessary in
connection with its present business, except to the extent failure to obtain any
such permit or approval, or to make such filings, would not, individually or in
the aggregate, have a material adverse affect on Target's assets, properties, or
business as presently conducted. There are no legal or administrative
proceedings or investigations pending or, to the best of Target's knowledge,
threatened, that, if enacted or determined adversely to Target or any
Subsidiary, would result in any adverse change in the present or future
operations or financial condition thereof.
2.14 Certain Transactions and Agreements. No officer or director of
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Target or any Subsidiary or any "affiliate" or "associate" (as those terms are
defined in Rule 405 promulgated under the Securities Act) of any such person has
had, either directory or indirectly, a
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material interest in: (i) any person or entity which purchases from or sells,
licenses or furnishes to Target or any Subsidiary any goods, technology,
property, real or personal, tangible or intangible, including inventions,
patents, copyrights, trademarks or trade names or trade secrets or other
property rights or services; (ii) any person or entity that competes with Target
(except with respect to any interest in less than one percent of the stock of
any corporation whose stock is publicly traded), or (iii) any contract,
agreement or informal arrangement to which Target or any Subsidiary is a party
or by which it may be bound or affected, except for normal compensation for
services as an officer, director, employee or consultant thereof.
2.15. Employees, ERISA and Other Compliance.
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2.15.1 Neither Target nor any Subsidiary has any employment
contracts or consulting agreements currently in effect that are not terminable
at will (other than agreements with the sole purpose of providing for the
confidentiality of proprietary information or assignment of inventions).
2.15.2 Neither Target nor any Subsidiary (i) has ever been or
is now subject to a union organizing effort, (ii) is subject to any collective
bargaining agreement with respect to any of its employees, (iii) is subject to
any other contract, written or oral, with any trade or labor union, employees'
association or similar organization, or (iv) has any current labor disputes.
Target and each of its Subsidiaries has good labor relations, and has no
knowledge of any facts indicating that the consummation of the transactions
contemplated hereby will have an adverse effect on such labor relations, and has
no knowledge that any of its key employees intends to leave its employ.
2.15.3 ERISA Plans. Exhibit 2.15.3 identifies (i) each
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"employee benefit plan," as defined in Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and (ii) all other written or
formal plans or agreements involving direct or indirect compensation or benefits
(including any employment agreements entered into between Target or any
Subsidiary and any employee of Target or any Subsidiary, but excluding workers'
compensation, unemployment compensation and other government-mandated programs)
currently or previously maintained, contributed to or entered into by Target or
any Subsidiary under which Target or any Subsidiary or any ERISA Affiliate (as
defined below) thereof has any present or future obligation or liability
(collectively, the "Target Employee Plans"). For purposes of this Section 2.15,
"ERISA Affiliate" shall mean any entity which is a member of (A) a "controlled
group of corporations," as defined in Section 414(b) of the Code, (B) a group of
entities under "common control," as defined in Section 414(c) of the Code, or
(C) an "affiliated service group," as defined in Section 414(m) of the Code, or
treasury regulations promulgated under Section 414(o) of the Code, any of which
includes Target or any Subsidiary. A list of all Target Employee Plans has been
delivered to Acquirer or its counsel. The Company does not have any Target
Employee Plans which individually or collectively would constitute an "employee
pension benefit plan," as defined in Section 3(2) of ERISA (collectively, the
"Target Pension Plans"). All contributions due from Target or any Subsidiary
with respect to any of the Target Employee Plans have been made as required
under ERISA or have been accrued on Target's or any such Target Subsidiary's
Financial Statements. Each Target Employee Plan has been maintained
substantially in compliance with its terms and with the requirements prescribed
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by any and all statutes, orders, rules and regulations, including, without
limitation, ERISA and the Code, which are applicable to such Target Employee
Plans.
2.15.4 Exhibit 2.15.4 lists each employment, severance or
--------------
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization benefits, retirement
benefits, deferred compensation, profit-sharing, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits for
employees, consultants or directors which is entered into, maintained or
contributed to, as the case may be, by Target or any Subsidiary and covers any
employee or former employee of Target or any Subsidiary. Such contracts, plans
and arrangements as are described in this Section 2.15.4 are herein referred to
collectively as the "Target Benefit Arrangements." Each Target Benefit
Arrangement has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Target Benefit Arrangement. Target has
delivered to Acquirer or its counsel a complete and correct copy or description
of each Target Benefit Arrangement.
2.15.5 Exhibit 2.15.5 lists each amendment to, written
interpretation or announcement (whether or not written) by Target or any
Subsidiary relating to, or change in employee participation or coverage under,
any Target Benefit Arrangement that would increase the expense of maintaining
such Target Employee Plan or Target Benefit Arrangement above the level of the
expense incurred in respect thereof for the fiscal year ended December 31, 1999.
2.15.6 Target has provided, or will have provided prior to the
Closing, to individuals entitled thereto all required notices and coverage
pursuant to Section 4980B of the Code and the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any
"qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Closing Date, and no Tax payable on account of
Section 4980B of the Code has been incurred with respect to any current or
former employees (or their beneficiaries) of Target or any Subsidiary.
2.15.7 No benefit payable or which may become payable by Target
or any Subsidiary pursuant to any Target Employee Plan or any Target Benefit
Arrangement or as a result of or arising under this Agreement shall constitute
an "excess parachute payment" (as defined in Section 280G(b)(1) of the Code)
which is subject to the imposition of an excise Tax under Section 4999 of the
Code or which would not be deductible by reason of Section 280G of the Code.
2.15.8 Target and each Target Subsidiary is in compliance in all
respects with all contracts relating to employment, including, but not limited
to, employee compensation matters. To the best of Target's knowledge, no
employee of Target or any Subsidiary is in violation of any term of any
employment contract, patent disclosure agreement, noncompetition agreement, or
any other contract or agreement, or any restrictive covenant relating to the
right of any such employee to be employed thereby, or to use trade secrets or
proprietary information of
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others, and the employment of such employees does not subject Target or any
Subsidiary to any liability.
2.15.9 A list of all employees, officers and consultants of
Target and the Subsidiaries and their current compensation is set forth on
Exhibit 2.15.9, which has been delivered to Acquirer.
--------------
2.15.10 Except as set forth on Exhibit 2.15.10, neither Target
nor any Subsidiary is a party to any (a) agreement with any executive officer or
other key employee thereof (i) the benefits of which are contingent, or the
terms of which are altered, upon the occurrence of a transaction involving
Target in the nature of any of the transactions contemplated by this Agreement
and the Agreement of Merger, (ii) providing any term of employment or
compensation guarantee, or (iii) providing severance benefits or other benefits
after the termination of employment of such employee regardless of the reason
for such termination of employment, or (b) agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights 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 and the Agreement of Merger 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 and the Agreement of Merger.
2.15.11 All of the employees of Target and its subsidiaries are
legally permitted to be employed by Target and its subsidiaries in the United
States in their current job capacities. Target and each of its subsidiaries
have reviewed, and has in its personnel records, a completed a Form I-9 for each
employee. To the extent that such Forms I-9 are incomplete or missing, Target
and its subsidiaries have reviewed and made record of any documentation
necessary to confirm that each employee is legally entitled to seek or engage in
employment in the United States. Target is in compliance with all of the United
States Department of Labor's labor condition application regulations, except to
the extent that non-compliance would not have a material effect on Target's
business, result in a material penalty or result in the invalidity of visas held
by its employees. This includes the creation, update and maintenance of the
public access file required by Department of Labor regulations and the creation
and updating of private wage memos for each non-immigrant employed and
previously employed by Target. Target has no obligation to provide any
notification to any governmental authority as a result of the Merger.
2.16 Corporate Documents. Target has made available to Acquirer for
-------------------
examination all documents and information listed in the Target Schedule of
Exceptions or other Exhibits called for by this Agreement which have been
requested by Acquirer's legal counsel, including, without limitation, the
following: (a) copies of Target's Articles of Incorporation and Bylaws as
currently in effect; (b) its Minute Book containing all records of all
proceedings, consents, actions, and meetings of the shareholders, the board of
directors and any committees thereof; (c) its stock ledger and journal
reflecting all stock issuances and transfers; and (d) all permits, orders, and
consents issued by any regulatory agency with respect to Target, or any
securities of Target, and all applications for such permits, orders, and
consents.
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2.17 No Brokers. Neither Target nor the Principal Shareholder is
----------
obligated for the payment of fees or expenses of any investment banker, broker
or finder in connection with the origin, negotiation or execution of this
Agreement or the Agreement of Merger or in connection with any transaction
contemplated hereby or thereby.
2.18 Disclosure. Neither this Agreement, its exhibits and schedules,
----------
nor any of the certificates or documents to be delivered by Target to Acquirer
under this Agreement, taken together, contains any untrue statement of material
fact or omits to state any material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading.
2.19 Information Supplied. None of the information supplied or to be
--------------------
supplied by Target for inclusion in an Application for Qualification of
Securities (the "Permit Application"), under the California Securities Law of
1968 (the "California Securities Law"), or any solicitation of written consent
of the shareholders for the Merger (the "Notice Materials"), at the date such
information is supplied and at the time of written consent of the shareholders
approving the Merger is solicited or received, contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
or will, in the case of the Permit Application, at the time the Permit is
issued, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
2.20 Books and Records.
-----------------
2.20.1 The books, records and accounts of Target and its
Subsidiaries (a) are in all material respects true, complete and correct, (b)
have been maintained in accordance with good business practices on a basis
consistent with prior years, (c) are stated in reasonable detail and accurately
and fairly reflect the transactions and dispositions of the assets of Target,
and (d) accurately and fairly reflect the basis for the Financial Statements.
2.20.2 Target has devised and maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorization; (b) transactions are recorded as necessary (i) to permit
preparation of financial statements, and (ii) to maintain accountability for
assets, and (c) the amount recorded for assets on the books and records of
Target is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
2.21 Insurance. Target and its Subsidiaries maintain and at all
---------
times during the prior three years have maintained fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance which it believes to be reasonably prudent for similarly sized
and similarly situated businesses.
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2.22 Environmental Matters.
---------------------
2.22.1 To the best of Target's knowledge, during the period
that Target and Subsidiary have leased or owned their respective properties or
owned or operated any facilities, there have been no disposals, releases or
threatened releases of Hazardous Materials (as defined below) on, from or under
such properties or facilities. Target has no knowledge of any presence,
disposals, releases or threatened releases of Hazardous Materials on, from or
under any of such properties or facilities, which may have occurred prior to
Target or any Subsidiary having taken possession of any of such properties or
facilities. For the purposes of this Agreement, the terms "disposal," "release,"
and "threatened release" shall have the definitions assigned thereto by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. (S) 9601 et seq., as amended ("CERCLA"). For the purposes of this
Agreement "Hazardous Materials" shall mean any hazardous or toxic substance,
material or waste which is or becomes prior to the Closing regulated under, or
defined as a "hazardous substance," "pollutant," "contaminant," "toxic
chemical," "hazardous materials," "toxic substance" or "hazardous chemical"
under (1) CERCLA; (2) any similar federal, state or local law; or (3)
regulations promulgated under any of the above laws or statutes.
2.22.2 To the best of Target's knowledge, none of the
properties or facilities of Target or any Subsidiary is in violation of any
federal, state or local law, ordinance, regulation or order relating to
industrial hygiene or to the environmental conditions on, under or about such
properties or facilities, including, but not limited to, soil and ground water
condition. During the time that Target or any Subsidiary have owned or leased
their respective properties and facilities, neither Target nor any Subsidiary
nor, to Target's knowledge, any third party, has used, generated, manufactured
or stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials.
2.22.3 During the time that Target or any Subsidiary have owned
or leased their respective properties and facilities, there has been no
litigation brought or threatened against Target or any Subsidiary by, or any
settlement reached by Target or any Subsidiary with, any party or parties
alleging the presence, disposal, release or threatened release of any Hazardous
Materials on, from or under any of such properties or facilities.
2.23 Cash Balance. As of the date of this Agreement, (i) the cash
------------
balance in the Target's bank accounts is $1,149,600, (ii) the invoice amount of
all completed work, which has actually been invoiced, but which has not been
collected or determined to be uncollectable, and expected collectable accounts
receivable as of May 31, 1999 for work completed prior to such date that Target
has not invoiced as of this date, less anticipated expenses is $659,050, and
(iii) the estimated proceeds from option exercises is $248,000.
3. REPRESENTATIONS AND WARRANTIES OF ACQUIRER
Acquirer hereby represents and warrants, that:
3.1 Organization and Good Standing. Acquirer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
California, and has the corporate power and authority to own, operate and lease
its properties and to carry on its
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business as now conducted and as proposed to be conducted, and is qualified as a
foreign corporation in each jurisdiction in which a failure to be so qualified
could reasonably be expected to have a material adverse effect on its present or
expected operations or financial condition. Acquirer has no subsidiaries, except
Newco.
3.2 Power, Authorization and Validity.
---------------------------------
3.2.1 Acquirer has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and
all agreements to which Acquirer is or will be a party that are required to be
executed pursuant to this Agreement (the "Acquirer Ancillary Agreements"). The
execution, delivery and performance of this Agreement and the Acquirer Ancillary
Agreements have been duly and validly approved and authorized by Acquirer's
Board of Directors.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable Acquirer to enter into, and to perform its
obligations under, this Agreement and the Acquirer Ancillary Agreements, except
for (a) the filing of the Agreement of Merger with the California and Delaware
Secretaries of State, the recording of the Agreement of Merger in the office of
the Recorder of the Delaware county in which Newco's registered office is
located, and the filing of appropriate documents with the relevant authorities
of other states in which Acquirer is qualified to do business, if any, and (b)
such filings as may be required to comply with federal and state securities
laws.
3.2.3 This Agreement and the Acquirer Ancillary Agreements
are, or when executed by Acquirer will be, valid and binding obligations of
Acquirer enforceable in accordance with their respective terms, except as to the
effect, if any, of (a) applicable bankruptcy and other similar laws affecting
the rights of creditors generally, (b) rules of law governing specific
performance, injunctive relief and other equitable remedies and (c) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities; provided, however, that the Agreement
of Merger will not be effective until filed with the California and Delaware
Secretaries of State.
3.3 Capitalization. As of April 26, 1999, the capitalization of the
--------------
Company consisted of the following:
(a) Preferred Stock. A total of 30,040,000 authorized
---------------
shares of preferred stock, consisting of 19,840,000 shares designated as Series
B Preferred Stock, of which 18,596,631 shares are issued and outstanding
(convertible into 6,198,876 shares of common stock), 2,050,000 shares designated
as Series C Preferred Stock, all of which are issued and outstanding
(convertible into 683,334 shares of common stock), 1,300,000 shares designated
Series D Preferred Stock, of which 1,242,287 shares are issued and outstanding,
and 6,850,000 shares designated Series E Preferred Stock, of which 6,521,006
shares are issued and outstanding.
(b) Common Stock. A total of 28,000,000 authorized shares
------------
of Common Stock, of which 4,648,044 shares are issued and outstanding.
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(c) Options and Warrants. A total of 2,754,967 shares
--------------------
consisting of (i) 58,336 shares of Common Stock issuable under certain warrants
(ii) up to 410,084 shares of Common Stock subject to outstanding options under
the Company's 1997 Stock Option Plan and (iii) 2,301,639 shares of Common Stock
subject to outstanding options under the Company's 1998 Equity Incentive Plan.
3.4 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement nor any Acquirer Ancillary Agreement, nor the
consummation of the transactions contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach, impairment or violation of (a) any provision of the Articles of
Incorporation or Bylaws of Acquirer, as currently in effect, (b) in any material
respect, any material instrument or contract to which Acquirer is a party or by
which Acquirer is bound, or (c) any federal, state, local or foreign judgment,
writ, decree, order, statute, rule or regulation applicable to Acquirer or its
assets or properties.
3.5 Litigation. There is no action, proceeding, claim or, to
----------
Acquirer's knowledge, investigation, pending against Acquirer before any court
or administrative agency that if determined adversely to Acquirer may reasonably
be expected to have a material adverse effect on the present or future
operations or financial condition of Acquirer, nor, to Acquirer's knowledge, has
any such action, proceeding, claim or investigation been threatened.
3.6 Acquirer Financial Statements. Acquirer has delivered to Target
-----------------------------
Acquirer's balance sheet as of March 31, 1999 and income statement and statement
of cash flows for the quarter then ended (collectively the "Acquirer Financial
Statements"). The Acquirer Financial Statements (a) are in accordance with the
books and records of Target, (b) have been prepared in good faith and fairly
present the financial condition of Acquirer at the date therein indicated and
the results of operations for the period therein specified and (c) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis. Acquirer has no material debt, liability or obligation of
any nature, whether accrued, absolute, contingent or otherwise, and whether due
or to become due, that is not reflected or reserved against in the Acquirer
Financial Statements, except for those that (i) may have been incurred after the
date of the Financial Statements in the ordinary course of its business,
consistent with past practice and that are not material in amount either
individually or collectively or (ii) are not required to be reflected in
financial statements in accordance with generally accepted accounting
principles.
3.7 Absence of Certain Changes. Since the date of the Acquirer
--------------------------
Financial Statements, there has not been any change in the financial condition,
properties, assets, liabilities, business or operations of Acquirer which change
by itself or in conjunction with all other such changes, whether or not arising
in the ordinary course of business, has had or will have a material adverse
effect thereon.
3.8 Corporate Documents. Acquirer has made available to Target
-------------------
copies of (a) Acquirer's Articles of Incorporation and Bylaws as currently in
effect and (b) its Minute Book containing all records of all proceedings,
consents, actions, and meetings of the shareholders, the board of directors and
any committees thereof.
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3.9 No Brokers. Acquirer is not obligated for the payment of fees
----------
or expenses of any investment banker, broker or finder in connection with the
origin, negotiation or execution of this Agreement or the Agreement of Merger or
in connection with any transaction contemplated hereby or thereby.
3.10 Intellectual Property. Acquirer owns or has the right to use,
---------------------
or after the Effective Time will own or have the right to use, all Intellectual
Property Rights (as defined below) required for the conduct of its business as
presently conducted (such Intellectual Property Rights being hereinafter
collectively referred to as the "Acquirer IP Rights") and Acquirer's rights to
use, sell or license the Acquirer IP Rights are reasonably sufficient for the
conduct of such business. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
constitute a material breach of any instrument or agreement governing any
Acquirer IP Right (the "Acquirer IP Rights Agreements"), will not cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any Acquirer IP Right or materially impair the right of Acquirer or any
Subsidiaries to use, sell or license any Acquirer IP Right or portion thereof.
Neither the manufacture, marketing, license, sale or intended use of any product
currently licensed or sold by Acquirer or any of the Acquirer Subsidiaries or
currently under development by Acquirer or any of the Acquirer Subsidiaries
violates any license or agreement between Acquirer or any of the Acquirer
Subsidiaries and any third party or infringes any Intellectual Property Right of
any other party; and, to Acquirer's best knowledge, there is no pending or
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any Acquirer IP Right nor is there any basis
for any such claim, nor has Acquirer received any notice asserting that any
Acquirer IP Right or the proposed use, sale, license or disposition thereof
conflicts or will conflict with the rights of any other party, nor, to the best
knowledge of Acquirer, is there any basis for any such assertion. Acquirer has
taken reasonable and practicable steps designed to safeguard and maintain the
secrecy and confidentiality of, and its proprietary rights in, all Acquirer IP
Rights. All officers, employees and consultants of Acquirer and each Subsidiary
have executed and delivered to Acquirer or the Subsidiary an agreement regarding
the protection of proprietary information and the assignment to Acquirer or the
Subsidiary of all Intellectual Property Rights arising from the services
performed for Acquirer or the Subsidiary by such persons.
3.11 Compliance with Laws. Acquirer has complied, or prior to the
--------------------
Closing Date will have complied, and is or will be at the Closing Date in full
compliance, with all applicable laws, ordinances, regulations, and rules, and
all orders, writs, injunctions, awards, judgments, and decrees applicable to it
or to the assets, properties, and business thereof (except to the extent failure
of Acquirer to comply with any of the foregoing would not have a material
adverse effect on its assets, properties, or business as presently conducted)
including, without limitation: (a) all applicable federal and state securities
laws and regulations, (b) all applicable federal, state, and local laws,
ordinances, regulations, and all orders, writs, injunctions, awards, judgments,
and decrees pertaining to (i) the sale, licensing, leasing, ownership, or
management of its owned, leased or licensed real or personal property, products
and technical data, (ii) employment, employment practices, wages, hours, and
terms and conditions of employment and (iii) safety, health, fire prevention,
environmental protection, toxic waste disposal, building standards, zoning and
other similar matters (c) the Export Administration Act and regulations
-17-
promulgated thereunder and all other laws, regulations, rules, orders, writs,
injunctions, judgments and decrees applicable to the export or re-export of
controlled commodities or technical data and (d) the Immigration Reform and
Control Act. Each of Acquirer and the Subsidiaries has received all permits and
approvals from, and has made all filings with, third parties, including
government agencies and authorities, that are necessary in connection with its
present business, except to the extent failure to obtain any such permit of
approval, or to make any such filings, would not, individually or in the
aggregate, have a material adverse affect on Acquirer's assets, properties, or
business as presently conducted. There are no legal or administrative
proceedings or investigations pending or, to the best of Acquirer's knowledge,
threatened, that, if enacted or determined adversely to Acquirer or any
Subsidiary, would result in any adverse change in the present or future
operations or financial condition thereof.
3.12 Disclosure. Neither this Agreement, its exhibits and schedules,
----------
nor any of the certificates or documents to be delivered by Acquirer to Target
under this Agreement, taken together, contains any untrue statement of material
fact or omits to state any material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading.
3.13 Information Supplied. None of the information supplied or to be
--------------------
supplied by Acquirer for inclusion in the Permit Application, or any Notice
Materials, at the date such information is supplied and at the time of the
statement soliciting written consent of the shareholders approving the Merger is
solicited or received, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading or will, in the case
of the Permit Application, at the time the Permit is issued, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
3.14 Employee Matters. Acquirer believes that it has good employee
----------------
relations, and to the best knowledge of Acquirer, no key employee or consultant
of Acquirer intends to terminate his or her employment or consulting
relationship with Acquirer.
4. TARGET PRECLOSING COVENANTS
During the period from the date of this Agreement until the Effective
Time, Target covenants and agrees as follows:
4.1 Advice of Changes. Target will promptly advise Acquirer in
-----------------
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Target contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (b) of any material adverse
change in Target's business, results of operations or financial condition. To
ensure compliance with this Section 4.1, Target shall deliver to Acquirer within
fifteen (15) days after the end of each monthly accounting period ending after
the date of this Agreement and before the Closing Date, an unaudited balance
sheet and statement of operations, which financial statements shall be prepared
in good faith in the ordinary course of business, in accordance with
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Target's books and records and shall fairly present the financial position of
Target as of their respective dates and the results of Target's operations for
the periods then ended.
4.2 Maintenance of Business. Target will use its commercially
-----------------------
reasonable efforts to carry on and preserve its business and its relationships
with customers, suppliers, employees and others in substantially the same manner
as it has prior to the date hereof. If Target becomes aware of a material
deterioration in the relationship with any customer, supplier or key employee,
it will promptly bring such information to the attention of Acquirer in writing
and, if requested by Acquirer, will exert its best efforts to restore the
relationship.
4.3 Conduct of Business. Target will continue to conduct its
-------------------
business and maintain its business relationships in the ordinary and usual
course and will not, without the prior written consent of the President of
Acquirer:
(a) borrow any money;
(b) enter into any transaction not in the ordinary course of
business;
(c) encumber or permit to be encumbered any of its assets
except in the ordinary course of its business consistent with past practice and
to an extent which is not material;
(d) dispose of any of its assets except in the ordinary
course of business consistent with past practice;
(e) enter into any material lease or contract for the
purchase or sale of any property, real or personal, except in the ordinary
course of business consistent with past practice;
(f) fail to maintain its equipment and other assets in good
working condition and repair according to the standards it has maintained to the
date of this Agreement, subject only to ordinary wear and tear;
(g) pay any bonus, increased salary or special remuneration
to any officer, employee or consultant or enter into any new employment or
consulting agreement with any such person, except for the proposed bonuses
described in Section 4.3(g) of the Schedule of Exceptions and the acceleration
of certain options to purchase Target common stock;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or
other distribution in respect of capital stock, or redeem or otherwise acquire
any of its capital stock;
(j) amend or terminate any contract, agreement or license to
which it is a party except those amended or terminated in the ordinary course of
business, consistent with past practice, and which are not material in amount or
effect;
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(k) lend any amount to any person or entity, other than
advances for travel and expenses which are incurred in the ordinary course of
business consistent with past practice, not material in amount and documented by
receipts for the claimed amounts;
(l) guarantee or act as a surety for any obligation except
for the endorsement of checks and other negotiable instruments in the ordinary
course of business, consistent with past practice, which are not material in
amount;
(m) waive or release any material right or claim except in
the ordinary course of business, consistent with past practice;
(n) issue or sell any shares of its capital stock of any
class (except upon the exercise of an option currently outstanding), or any
other of its securities, or issue or create any warrants, obligations,
subscriptions, options, convertible securities, or other commitments to issue
shares of capital stock, or amend the terms, accelerate the vesting, of any
outstanding option or other security (other than to accelerate the vesting of
and/or to provide for the termination of currently outstanding options);
(o) split or combine the outstanding shares of its capital
stock of any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other of
its securities;
(p) merge, consolidate or reorganize with, or acquire any
entity;
(q) amend its Articles of Incorporation or Bylaws;
(r) license any of its technology or intellectual property
except in the ordinary course of business consistent with past practice;
(s) agree to any audit assessment by any tax authority or
file any federal or state income or franchise tax return unless copies of such
returns have been delivered to Acquirer for its review prior to filing;
(t) change any insurance coverage or issue any certificates
of insurance; or
(u) agree to do, or permit any Subsidiary to do or agree to
do, any of the things described in the preceding clauses 4.3(a) through 4.3(t).
4.4 Preparation of Permit Application. As promptly as practicable
---------------------------------
after the date hereof, Target shall provide such assistance and information as
Acquirer reasonably requests to enable Acquirer to prepare and file with the
Commissioner the Permit Application and any other documents required by the
California Securities Law of 1968, as amended in connection with the Merger.
Each of Acquirer and Target shall use its best efforts to have the Permit
Application declared effective under the California Securities Law, as amended
as promptly as practicable after such filing.
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4.5 Shareholder Approval. Target will solicit and receive the
--------------------
written consent of the shareholders approving this Agreement, the Merger and
related matters which approval will be recommended by Target's Board of
Directors and management. Such written consent will be solicited and completed
in compliance with applicable law. Concurrently with the execution of this
Agreement, Target will cause the Principal Shareholder to, and Principal
Shareholder shall, execute a voting agreement in the form of Exhibit 4.4
-----------
agreeing to vote in favor of the Merger.
4.6 Shareholder Notice of Materials. Target will send to its
-------------------------------
shareholders in a timely manner, for the purpose of considering and voting upon
the Merger, the Notice Materials. Target will promptly provide all information
relating to its business or operations necessary for inclusion in the Notice
Materials to satisfy all requirements of applicable state and federal securities
laws. Target shall be solely responsible for any statement, information or
omission in the Notice Materials relating to it or its affiliates based upon
written information furnished by it.
4.7 Regulatory Approvals. Target will execute and file, or join in
--------------------
the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign which may be reasonably
required, or which Acquirer may reasonably request, in connection with the
consummation of the transactions contemplated by this Agreement. Target will use
its best efforts to obtain all such authorizations, approvals and consents.
4.8 Necessary Consents. Target will use its best efforts to obtain
------------------
such written consents and take such other actions as may be necessary or
appropriate in addition to those set forth in Section 4.4 to allow the
consummation of the transactions contemplated hereby and to allow Acquirer to
carry on Target's business after the Closing.
4.9 Litigation. Target will notify Acquirer in writing promptly
----------
after learning of any actions, suits, proceedings or investigations by or before
any court, board or governmental agency, initiated by or against it or any
Subsidiary, or known by it to be threatened against it or any Subsidiary.
4.10 No Other Negotiations. From the date hereof until the earlier
---------------------
of termination of this Agreement or consummation of the Merger, Target will not,
and will not authorize or permit any officer, director, employee or affiliate of
Target, or any other person, on its behalf to, directly or indirectly: (i)
solicit, initiate, facilitate, encourage or induce the making, submission or
announcement of, any offer, or any effort or attempt concerning any Alternative
Transaction or take any action that could reasonably be expected to lead to an
Alternative Transaction; (ii) furnish any information regarding Target to any
person or entity in connection with or in response to any Alternative
Transaction or potential Alternative Transaction or any proposal for an
Alternative Transaction, except information furnished in response to a wholly
unsolicited offer; or (iii) enter into any letter of intent or other similar
document or any written, oral or other agreement, contract or legally binding
commitment contemplating or otherwise relating to any Alternative Transaction.
Target will promptly notify Acquirer orally and in writing of any such inquiries
or proposals. For the purpose of this Section 4.10, "Alternative Transaction"
shall mean (A) any extraordinary corporate transaction, such as a merger,
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consolidation, tender offer or other business combination involving Target or
any subsidiary of Target with any person other than Acquirer; (B) any sale,
lease or transfer of a material amount of assets of Target or any subsidiary of
Target (other than in the ordinary course of business) to any person other than
Acquirer; (C) any registered public offering of Target's capital stock pursuant
to a registration statement filed under the 1933 Act.
4.11 Access to Information. Until the Closing, Target will allow
---------------------
Acquirer and its agents reasonable access to the files, books, records and
offices of Target and each Subsidiary, including, without limitation, any and
all information relating to Target's taxes, commitments, contracts, leases,
licenses, and real, personal and intangible property and financial condition,
but excluding source code, programmer's notes and the like. Target will cause
its accountants to cooperate with Acquirer and its agents in making available
all financial information reasonably requested, including without limitation the
right to examine all working papers pertaining to all financial statements
prepared or audited by such accountants.
4.12 Satisfaction of Conditions Precedent. Target will use its best
------------------------------------
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Section 8, and Target will use its best efforts to cause the
transactions contemplated by this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
4.14 Target Dissenting Shares. As promptly as practicable after the
------------------------
date of the written consent of Target's shareholders and prior to the Closing
Date, Target shall furnish Acquirer with the name and address of each Target
Dissenting Shareholder and the number of Target Dissenting Shares owned by such
Target Dissenting Shareholder.
4.15 Blue Sky Laws. Target shall use its best efforts to assist
-------------
Acquirer to the extent necessary to comply with the securities and Blue Sky laws
of all jurisdictions which are applicable in connection with the Merger.
5. ACQUIRER PRECLOSING COVENANTS
During the period from the date of this Agreement until the Effective
Time, Acquirer covenants and agrees as follows:
5.1 Advice of Changes. Acquirer will promptly advise Target in
-----------------
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Acquirer contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (b) of any material adverse
change in Acquirer's business, results of operations or financial condition. To
ensure compliance with this Section 4.1, Acquirer shall deliver to Target within
twenty (20) days after the end of each monthly accounting period ending after
the date of this Agreement and before the Closing Date, an unaudited balance
sheet and statement of operations, which financial statements shall be prepared
in good faith in the ordinary course of business, in accordance with Acquirer's
books and records and shall fairly present the financial position of Acquirer as
of their
-22-
respective dates and the results of Acquirer's operations for the periods then
ended. In addition, Acquirer will notify Target of any matter requiring notice
to, or approval by, its shareholders at the same time and in the same manner
that Acquirer so notifies its shareholders.
5.2 Regulatory Approvals. Acquirer will execute and file, or join
--------------------
in the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which Target may reasonably request, in connection with the
consummation of the transactions contemplated by this Agreement. Acquirer will
use its best efforts to obtain all such authorizations, approvals and consents.
5.3 Satisfaction of Conditions Precedent. Acquirer will use its
------------------------------------
best efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section 7, and Acquirer will use its best efforts to
cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
5.4 Preparation of Permit Application. As promptly as practicable
---------------------------------
after the date hereof, Acquirer, with Target's assistance, shall prepare and
file with the Commissioner the Permit Application and any other documents
required by the California Securities Law of 1968, as amended in connection with
the Merger. Acquirer, with Target's assistance, shall use its best efforts to
have the Permit Application declared effective under the California Securities
Law, as amended as promptly as practicable after such filing.
5.5 Blue Sky Laws. Acquirer shall take such steps as may be
-------------
necessary to comply with the securities and Blue Sky laws of all jurisdictions
which are applicable in connection with the Merger.
6. CLOSING MATTERS
6.1 The Closing.
-----------
(a) Subject to termination of this Agreement as provided in
Section 9 below, the Closing will take place at the offices of Fenwick & West,
Two Xxxx Xxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000 at 1:30 p.m., Pacific Daylight
Time on ________ ___, 1999, or, if all conditions to closing have not been
satisfied or waived by such date, such other place, time and date as Target and
Acquirer may mutually select (the "Closing Date"). Concurrently with the
Closing, the Agreement of Merger will be filed in the office of the California
and Delaware Secretaries of State. The Agreement of Merger provides that the
Merger shall become effective upon filing.
(b) Acquirer will deliver to Acquirer's counsel for
distribution and execution at or after the Effective Time in accordance with
this Section 6: (i) a check in an amount equal to the aggregate cash proceeds to
be paid to Target's shareholders by Acquirer
-23-
pursuant by to Sections 1.1.1; and 1.2 and (ii) instructions to acquirer's
counsel to issue the shares of Acquirer Common Stock and cash amounts in
accordance with Section 1.
6.2 Exchange of Certificates.
------------------------
6.2.1 As of the Effective Time, each share of Target Stock
that is outstanding immediately prior thereto will, by virtue of the Merger and
without further action, cease to exist and will be converted into the right to
receive from Acquirer the Applicable Fraction of a share of Acquirer Common
Stock and the Per Share Cash Amount determined as set forth in Section 1.1.1,
subject to Sections 1.1.2, 1.1.3 and 1.2.
6.2.2 As soon as practicable after the Effective Time, each
holder of shares of Target Stock that are not Dissenting Shares will surrender
the certificate(s) for such shares (the "Target Certificates"), duly endorsed as
requested by Acquirer, to Acquirer for cancellation. Promptly after the
Effective Time and receipt of such Target Certificates, Acquirer will issue to
each tendering holder a certificate (with legends in accordance with Section
1.6) for the number of shares of Acquirer Common Stock to which such holder is
entitled pursuant to Section 1.1.1 hereof, and distribute any cash payable under
Section 1.1.1 and 1.2.
6.2.3 No dividends or distributions payable to holders of
record of Acquirer Common Stock after the Effective Time, or cash payable in
lieu of fractional shares, will be paid to the holder of any unsurrendered
Target Certificate(s) until the holder of the Target Certificate(s) surrenders
such Target Certificate(s). Subject to the effect, if any, of applicable escheat
and other laws, following surrender of any Target Certificate, there will be
delivered to the person entitled thereto, without interest, the amount of any
dividends and distributions therefor paid with respect to Acquirer Common Stock
so withheld as of any date subsequent to the Effective Time and prior to such
date of delivery.
6.2.4 All cash and shares of Acquirer Common Stock delivered
upon the surrender of Target Stock in accordance with the terms hereof will be
deemed to have been delivered in full satisfaction of all rights pertaining to
such Target Stock. There will be no further registration of transfers on the
stock transfer books of Target or its transfer agent of the Target Stock. If,
after the Effective Time, Target Certificates are presented for any reason, they
will be canceled and exchanged as provided in this Section 6.2.
6.2.5 Until certificates representing Target Stock outstanding
prior to the Merger are surrendered pursuant to Section 6.2.2 above, such
certificates will be deemed, for all purposes, to evidence (a) ownership of the
number of shares of Acquirer Stock into which the Target Stock will have been
converted and (b) the right to receive cash determined as set forth in Section
1.1.1 and 1.2. Notwithstanding anything herein to the contrary, any Target
Certificate that is not properly submitted to Acquirer for exchange and
cancellation within three (3) years after the Effective Time shall no longer
evidence ownership of, or any right to receive, shares of Acquirer Common Stock
and all rights of the holder of such Target Certificate, including the right to
receive shares and the right to receive cash, previously evidenced thereby,
shall lapse.
-24-
7. CONDITIONS TO OBLIGATIONS OF TARGET
Target's obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by Target, but only in a writing signed by
Target):
7.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Acquirer set forth in Section 3 shall be true and accurate in
every material respect on and as of the Closing with the same force and effect
as if they had been made at the Closing, and Target shall receive a certificate
to such effect executed by Acquirer's President and Chief Financial Officer.
7.2 Covenants. Acquirer shall have performed and complied in all
---------
material respects with all of its covenants contained in Section 5 on or before
the Closing, and Target shall receive a certificate to such effect signed by
Acquirer's President and Chief Financial Officer.
7.3 Absence of Material Adverse Change. There shall not have been,
----------------------------------
in the reasonable judgment of the Board of Directors of Target, any material
adverse change in the business or financial condition of Acquirer.
7.4 Compliance with Law. There shall be no order, decree, or ruling
-------------------
by any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
7.5 Government Consents. There shall have been obtained at or prior
-------------------
to the Closing Date such permits or authorizations, and there shall have been
taken such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to requirements under applicable
federal and state securities laws.
7.6 Permit. The Commissioner shall have issued the Permit pursuant
------
to the Permit Application with respect to the issuance of Acquirer Stock in the
Merger.
7.7 Opinion of Acquirer's Counsel. Target shall have received from
-----------------------------
counsel to Acquirer, an opinion substantially in the form of Exhibit 7.7.
-----------
7.8 Shareholder Approval. The principal terms of this Agreement and
--------------------
the Agreement of Merger shall have been approved and adopted by Target
Shareholders, as required by applicable law and Target's Articles of
Incorporation and Bylaws.
7.9 Satisfactory Form of Legal and Accounting Matters. The form,
-------------------------------------------------
scope and substance of all legal and accounting matters contemplated hereby and
all closing documents and other papers delivered hereunder shall be reasonably
acceptable to Target's counsel.
-25-
8. CONDITIONS TO OBLIGATIONS OF ACQUIRER
The obligations of Acquirer hereunder are subject to the fulfillment
or satisfaction on, and as of the Closing, of each of the following conditions
(any one or more of which may be waived by Acquirer, but only in a writing
signed by Acquirer):
8.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Target set forth in Section 2 shall be true and accurate in
every material respect on and as of the Closing with the same force and effect
as if they had been made at the Closing, and Acquirer shall receive a
certificate to such effect executed by Target's President and Chief Financial
Officer.
8.2 Covenants. Target shall have performed and complied in all
---------
material respects with all of its covenants contained in Section 4 on or before
the Closing, and Acquirer shall receive a certificate to such effect signed by
Target's President and Chief Financial officer.
8.3 Absence of Material Adverse Change. There shall not have been,
----------------------------------
in the reasonable judgment of the Board of Directors of Acquirer, any material
adverse change in the business or financial condition of Target.
8.4 Compliance with Law. There shall be no order, decree, or ruling
-------------------
by any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.5 Government Consents. There shall have been obtained at or prior
-------------------
to the Closing Date such permits or authorizations, and there shall have been
taken such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to requirements under applicable
federal and state securities laws.
8.6 Opinion of Target's Counsel. Acquirer shall have received from
---------------------------
counsel to Target, an opinion substantially in the form of Exhibit 8.6.
-----------
8.7 Consents. Acquirer shall have received duly executed copies of
--------
all material third-party consents, approvals, assignments, waivers,
authorizations or other certificates contemplated by this Agreement or the
Target Schedule of Exceptions or reasonably deemed necessary by Acquirer's legal
counsel to provide for the continuation in full force and effect of any and all
material contracts and leases of Target and for Acquirer to consummate the
transactions contemplated hereby in form and substance reasonably satisfactory
to Acquirer, except for such thereof as Acquirer and Target shall have agreed
shall not be obtained.
8.8 No Litigation. No litigation or proceeding shall be threatened
-------------
or pending for the purpose or with the probable effect of enjoining or
preventing the consummation of any of the transactions contemplated by this
Agreement, or which could be reasonably expected to have a material adverse
effect on the present or future operations or financial condition of Target.
8.9 Requisite Approvals. The principal terms of this Agreement and
-------------------
the Agreement of Merger shall have been approved and adopted by Target
shareholders, as required
-26-
by applicable law and Target's Articles of Incorporation and Bylaws, and by
Target's Board of Directors. In addition, the principal terms of this Agreement
and the Agreement of Merger shall have been approved and adopted by Acquirer's
Board of Directors.
8.10 Dissenting Shares. In order that the Dissenting Shares shall
-----------------
not constitute more than 5% of the total number of shares of Target Stock
outstanding immediately prior to the Effective Time, at least 95% of the Target
shareholders shall have voted in favor of this Agreement, the Merger and related
matters at a meeting of Target shareholders or given written consent of this
Agreement, the Merger and related matters as contemplated by Section 4.5.
8.11 Employment and Non-Competition. Acquirer shall have received
------------------------------
executed copies of (a) Employment and Non-Competition Agreements executed by
Acquirer and Xxxxxxxx X. Xxx, Xxxx Xxxxxxxxx and Xxxxx Xxxxxxx in substantially
the form of Exhibit 8.11(a) and (b) Consulting and Non-Competition Agreements in
---------------
substantially the form of Exhibit 8.11(b) executed by acquiror and Prashant
---------------
Sawant and Xxxxxx Xxxxxxxx.
8.12 Employee Retention. None of the individuals named in Section
------------------
8.11, nor any more than five (5) other employees shall have indicated to the
Target, Principal Shareholder or Acquirer that they intend to leave the employ
of Target or Acquirer or intend not to accept employment with Acquirer following
the Merger.
8.13 Permit. The Commissioner shall have issued the Permit pursuant
------
to the Permit Application with respect to the issuance of Acquirer Stock in the
Merger.
8.14 Termination of Rights. All registration rights, rights of first
---------------------
refusal, rights to any liquidation preference, or redemption rights of any
Target shareholder shall have been terminated or waived as of and subject to the
Closing.
8.15 FIRPTA. Acquirer, as agent for the shareholders of Target,
------
shall have received a properly executed Foreign Investment and Real Property Tax
Act of 1980 ("FIRPTA") Notification Letter, in form and substance satisfactory
to Acquirer, which states that shares of Target Stock do not constitute "United
States real property interests" under Section 897(c) of the Code, for purposes
of satisfying Acquirer's obligations under Treasury Regulation Section
1.14452(c)(3).
8.16 Resignation of Directors. The directors of Target in office
------------------------
immediately prior to the Effective Time of the Merger shall have resigned as
directors of the Surviving Corporation effective as of, and subject to, the
Effective Time of the Merger.
8.17 Satisfactory Form of Legal and Accounting Matters. The form,
-------------------------------------------------
scope and substance of all legal and accounting matters contemplated hereby and
all closing documents and other papers delivered hereunder shall be reasonably
acceptable to Acquirer's counsel.
8.18 Termination of Target's Stock Option Plan. Target's 1998 Stock
-----------------------------------------
Option Plan and any other plan or agreement pursuant to which options to
purchase Target's capital stock have been, or may be, granted to directors,
officers, employees or consultants of Target and all options outstanding
thereunder shall have been terminated, or caused to be terminated, by Target
with no expense or liability related thereto for Target or Acquirer.
-27-
8.19 Repayment of Loans. All loans or other indebtedness of Target
------------------
to shareholders, directors or officers of Target shall have been paid in full by
Target.
8.20 Independent Contractors. Target shall have amended existing, or
-----------------------
entered into new, agreements with the entities from which it receives the
services of consultants that provide that all Intellectual Property Rights
associated with the work performed by such consultants is owned by Target to the
extent that such ownership is necessary for the conduct of its business as
presently conducted.
9. TERMINATION OF AGREEMENT
9.1 Termination.
-----------
9.1.1 This Agreement may be terminated at any time prior to
the Closing by the mutual written consent of each of the parties hereto.
9.1.2 Acquirer and/or Target may terminate this Agreement if
all conditions to the Closing have not been satisfied or waived on or before
July 9, 1999; provided, however, that the right to terminate this Agreement
under this Section 9.1.2 shall not be available to any party if such breach of
any representation, warranty or agreement contained in this Agreement has been
the cause of or resulted in the failure of the Closing to occur on or before
such date. Notwithstanding the foregoing, the parties hereto may mutually agree
in writing to extend the termination date set forth in the preceding sentence.
9.1.3 Either party may terminate this Agreement by written
notice to the other party if such other party is in material breach of any
representation, warranty, covenant or agreement contained in this Agreement and
such breaching party fails to cure such material breach within ten (10) days of
written notice of such material breach from the non-breaching party.
9.2 No Liability. Any termination of this Agreement pursuant to
------------
this Section 9 will be without further obligation or liability upon any party in
favor of the other party hereto other than the obligations provided in Section
11.16, which will survive termination of this Agreement; provided, however, that
nothing herein will limit the obligation of Target and Acquirer to use their
best efforts to cause the Merger to be consummated, as set forth in Sections
4.12 and 5.3 hereof, respectively; and provided further that, following any
termination of this agreement pursuant to Section 9.1.2 and 9.1.3, the parties
hereto will continue to be liable for breaches of this Agreement prior to such
termination and will continue to perform their respective obligations under
Section 11.16, but will not continue to perform their other covenants under this
Agreement.
10. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
10.1 Survival of Representations. All representations, warranties
---------------------------
and covenants of Acquirer contained in this Agreement will remain operative and
in full force and effect, regardless of any investigation made by or on behalf
of the parties to this Agreement, until the earlier of the termination of this
Agreement or the Closing Date, whereupon such
-28-
representations, warranties and covenants will expire (except for covenants that
by their terms survive for a longer period). Unless otherwise specified herein,
all representations, warranties and covenants of Target will survive the
Effective Time and will continue until twelve months from the Closing Date.
10.2 Agreement to Indemnify. Subject to the limitations set forth in
----------------------
this Section 10 and the effectiveness of the Merger, Principal Shareholder will
indemnify and hold harmless Acquirer and its officers, directors, agents and
employees, and each person, if any, who controls or may control Acquirer within
the meaning of the Securities Act (hereinafter referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons") from and against
any and all claims, demands, actions, causes of actions, losses, costs, damages,
liabilities and expenses including, without limitation, reasonable legal fees
(hereinafter referred to as "Damages") arising out of any breach of any of the
representations, warranties and covenants given or made by Target in this
Agreement or any certificate, document or instrument delivered by or on behalf
of Target pursuant hereto.
Except for intentional fraud or willful misconduct: (i) Principal
Shareholder's liability under this Agreement shall be limited to a maximum of
$100,000 and (ii) the remedies set forth in this Section 10.2 shall be the
exclusive remedies of Acquirer and the other Indemnified Persons hereunder
against Principal Shareholder. The indemnification provided for in this Section
10.2 shall (except in cases of fraud or willful misconduct) apply only to the
extent that the aggregate Damages for which one or more Indemnified Persons
seeks indemnification exceeds $50,000.
11. MISCELLANEOUS
11.1 Governing Law. The validity of this Agreement, the construction
-------------
of its terms, and the interpretation and enforcement of the rights and duties of
the parties hereto will be governed by and construed in accordance with the
internal laws of the State of California, excluding that body of laws pertaining
to conflict of laws.
11.2 Assignment; Binding Upon Successors and Assigns. No party hereto
-----------------------------------------------
may assign any of its rights or obligations hereunder without the prior written
consent of the other party hereto. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
11.3 Severability. If any provision of this Agreement, or the
------------
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
11.4 Counterparts. This Agreement may be executed in counterparts,
------------
each of which will be deemed an original but all of which, taken together,
constitute one and the same agreement.
-29-
11.5 Other Remedies. Except as otherwise provided herein, any and
--------------
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law on such
party, and the exercise of any one remedy will not preclude the exercise of any
other.
11.6 Amendment and Waiver. Any term or provision of this Agreement
--------------------
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
failure by either party at any time to require performance or compliance by the
other of any of its obligations or agreements will in no way affect the right to
require such performance or compliance at any time thereafter. The waiver by a
party of any breach hereof or default in the performance hereof will not be
deemed to constitute a waiver of any other default or any succeeding breach or
default. The Agreement may be amended by the parties hereto at any time before
or after approval of the Target shareholders, but, after such approval, no
amendment will be made which by applicable law requires the further approval of
the Target shareholders without obtaining such further approval.
11.7 Expenses. If the Merger is consummated, Acquirer will bear such
--------
Target expenses and legal fees to the extent that such expenses and fees do not
exceed $25,000. Target expenses and legal fees exceeding $25,000 will be paid by
Principle Shareholder.
11.8 Attorneys' Fees. Should suit be brought to enforce or
---------------
interpret any part of this Agreement, the prevailing party will be entitled to
recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees to be fixed by the court (including without limitation, costs,
expenses and fees on any appeal). The prevailing party will be entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment.
11.9 Notices. Any and all notices required or permitted to be given
-------
to a party pursuant to the provisions of this Agreement will be in writing and
will be effective and deemed to provide such party sufficient notice under this
Agreement on the earliest of the following: (i) at the time of personal
delivery, if delivery is in person; (ii) one (1) business day after deposit with
an express overnight courier for United States deliveries, or two (2) business
days after such deposit for deliveries outside of the United States; or (iii)
three (3) business days after deposit in the United States mail by registered or
certified mail (return receipt requested) for United States deliveries. All
notices for delivery outside the United States will be sent by express courier.
All notices not delivered personally will be sent with postage and/or other
charges prepaid and properly addressed to the party to be notified at the
address set forth below, or at such other address as such other party may
designate by ten (10) days advance written notice to the other parties hereto.
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(i) If to Acquirer: (i) If to Target:
-------------- ------------
Optical Networks, Incorporated Object-Mart, Inc.
000-X Xxxxxxxxx Xxxxxxx 00 Xxxxx Xxxxx Xxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000-0000 Suite 501
Attention: President Xxx Xxxx, XX 00000
Attention: President
with copy to: with copy to:
Fenwick & West LLP Xxxxxx, Love, Xxxxxxxxxxx & XxXxxx
Two Palo Alto Square 000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx, Xxxxxxxxxx 00000 Xxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx, Attention: Xxxxxxxx X. Xxxxxx, Esq.
Esq.
(iii) If to Principal Shareholder:
---------------------------
Xxxxxxxx X. Xxx
000 Xxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: President
with copy to:
Xxxxxx, Love, Xxxxxxxxxxx & XxXxxx
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx, XX 00000
Attention: Xxxxxxxx X. Xxxxxx, Esq.
11.10 Construction of Agreement; Title. This Agreement has been
--------------------------------
negotiated by the respective parties hereto and their attorneys and the language
hereof will not be construed for or against any party. A reference to a Section
or an exhibit will mean a Section in, or exhibit to, this Agreement unless
otherwise explicitly set forth. The titles and headings herein are for
reference purposes only and will not in any manner limit the construction of
this Agreement which will be considered as a whole. In this Agreement, the
singular includes the plural, the plural included the singular, the masculine
gender includes both male and female referents, and the word "or" is used in the
inclusive sense.
11.11 No Joint Venture. Nothing contained in this Agreement will be
----------------
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent contractors with
respect to each other. No party will have any power or authority to bind or
commit any other.
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No party will hold itself out as having any authority or relationship in
contravention of this Section.
11.12 Further Assurances. Each party agrees to cooperate fully with
------------------
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.
11.13 Absence of Third Party Beneficiary Rights. No provisions of
-----------------------------------------
this Agreement are intended, nor will be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
employee, customer, affiliate, shareholder, partner or any party hereto or any
other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely between the
parties to this Agreement; provided that Acquirer acknowledges that Target's
shareholders may rely on the representations, warranties and covenants of
Acquirer contained herein in connection with their decision to approve the
Merger; provided further that Acquirer's total liability to such shareholders
under this Agreement shall not exceed a maximum of $100,000.
11.14 Public Announcement. Upon execution of this Agreement, Acquirer
-------------------
and Target will issue a press release approved by each of them announcing the
Merger, which approval shall not be unreasonably withheld. Thereafter, Acquirer
may issue such press releases, and make such other disclosures regarding the
Merger, as it determines are required under applicable securities laws or
regulatory rules, subject to Target's approval of the content thereof, which
approval shall not be unreasonably withheld.
11.15 Confidentiality. Target and Acquirer each recognize that they
---------------
have received and will receive confidential information concerning the other
during the course of the Merger negotiations and preparations. Accordingly,
Acquirer and Target each agrees (a) to use its respective best efforts to
prevent the unauthorized disclosure of any confidential information concerning
the other that was or is disclosed during the course of such negotiations and
preparations, and is clearly designated in writing as confidential at the time
of disclosure, or that the recipient knows or should know to be confidential to
the disclosing party; and (b) to not make use of or permit to be used any such
confidential information other than for the purpose of effectuating the Merger
and related transactions. The obligations of this section will not apply to
information that (i) is or becomes part of the public domain, (ii) is disclosed
by the disclosing
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party to third parties without restrictions on disclosure, (iii) is received by
the receiving party from a third party without breach of a nondisclosure
obligation to the other party or (iv) is required to be disclosed by law. If
this Agreement is terminated, all copies of documents containing confidential
information shall be returned by the receiving party to the disclosing party.
11.16 Entire Agreement. This Agreement and the exhibits hereto
----------------
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings inducements or conditions, express or implied,
written or oral, between the parties with respect hereto, including the Letter
of Intent dated May 6, 1999, other than the Nondisclosure and Agreement between
Target and Acquirer dated ____________, 199_. The express terms hereof control
and supersede any course of performance or usage of the trade inconsistent with
any of the terms hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Reorganization as of the date first above written.
ACQUIRER: Target:
Optical Networks, Incorporated Object-Mart, Inc.
By: /s/ Xxxx X. Xxxxxx By: /s/ Xxxxxxxx X. Xxx
--------------------------- ----------------------------
Name: Xxxx X. Xxxxxx Name: X. Xxxxxxxx
------------------------- --------------------------
Title: President & CEO Title: President
------------------------ -------------------------
PRINCIPAL STOCKHOLDER:
/s/ Xxxxxxxx X. Xxx
------------------------------
Xxxxxxxx X. Xxx, individually
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