1
EXHIBIT 2(ii)
AGREEMENT AND PLAN OF MERGER, entered into on September 30, 1996 by and
among Rainbow Technologies, Inc., a Delaware corporation with a principal place
of business located at 00 Xxxxxxxxxx Xxxxx, Xxxxxx, Xxxxxxxxxx 00000
("Rainbow"), RNBO Acquisition Corporation., a Nevada corporation and a
wholly-owned subsidiary of Rainbow with a principal place of business located at
00 Xxxxxxxxxx Xxxxx, Xxxxxx, Xxxxxxxxxx 00000 ("Sub"), and Software Security,
Inc., a Connecticut corporation with a principal place of business located at 0
Xxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxx 00000 ("SSI"). Rainbow, Sub and SSI are
referred to collectively herein as the "Parties."
W I T N E S S E T H
WHEREAS, the Parties desire to effect a tax-free merger of SSI with and
into Sub in a reorganization pursuant to Code Section 368(a)(1)(A) (the
"Merger") in order to further certain of their business objectives; and
WHEREAS, in furtherance of the Merger, SSI Stockholders will receive
capital stock in Rainbow in exchange for their capital stock in SSI.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1 DEFINITIONS. Certain terms used in this Agreement are defined below.
Additional terms are defined in the text of the Agreement.
1.1 AGREEMENT means this Agreement and Plan of Merger.
1.2 AFFILIATE has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
1.3 AFFILIATE'S AGREEMENT means the affiliate's agreement annexed hereto as
Exhibit A.
1.4 BELARUS SUBSIDIARY means Software Security Belarus, a joint venture
formed under the laws of Belarus of which SSI owns 85% of the outstanding
equity.
1.5 CERTIFICATES OF MERGER has the meaning set forth in Section 2.3 below.
1.6 CODE means the Internal Revenue Code of 1986, as amended.
1.7 CLOSING has the meaning set forth in Section 2.2 below.
1.8 CLOSING DATE has the meaning set forth in Section 2.2 below.
1.9 CONFIDENTIAL INFORMATION means any information concerning the businesses
and affairs of SSI and its UK Subsidiary that is not already generally available
to the public.
1.10 CONSENT SOLICITATION OFFERING MEMORANDUM has the meaning set forth in
Section 2.6.
1.11 CONVERSION RATIO means the ratio established at the close of business on
the last business day immediately preceding the Closing Date by dividing the
difference between 341,000 Rainbow Shares and the Option Exchange Shares by the
total number of issued and outstanding SSI Shares as of such date.
1.12 DISCLOSURE SCHEDULE has the meaning set forth in Section 3 below.
2
1.13 DISSENTING SHARE means any SSI Share for which any SSI Stockholder has
exercised his appraisal rights under the Connecticut Stock Corporation Act.
1.14 EFFECTIVE TIME has the meaning set forth in Section 2.4.1 below.
1.15 EXCHANGE AGENT has the meaning set forth in Section 2.5 below.
1.16 GAAP means United States generally accepted accounting principles as in
effect from time to time.
1.17 IRS means the Internal Revenue Service.
1.18 KNOWLEDGE means actual knowledge after reasonable investigation.
1.19 MOST RECENT FISCAL QUARTER END has the meaning set forth in Section 3.5
below.
1.20 MOST RECENT FISCAL YEAR END has the meaning set forth in Section 3.5
below.
1.21 MERGER means the merger of SSI with and into Sub as contemplated by the
provisions of this Agreement.
1.22 NEVADA GENERAL CORPORATION LAW means the General Corporation Law of the
State of Nevada, as amended.
1.23 OPTION EXCHANGE SHARES has the meaning set forth in Section 2.4.8.
1.24 OPTION REGISTRATION STATEMENT has the meaning set forth in Section
2.4.8.2.
1.25 ORDINARY COURSE OF BUSINESS means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
1.26 PARTY OR PARTIES has the meaning set forth in the preface above.
1.27 PATENTS means those patents identified in exhibits 3.19 (I), (II) and
(III) to the Disclosure Schedule.
1.28 PERSON means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
1.29 RAINBOW has the meaning set forth in the preface above.
1.30 RAINBOW SHARE means any share of the Common Stock, $0.001 par value per
share, of Rainbow, issued or to be issued in connection with the transactions
contemplated by this Agreement.
1.31 REGISTRATION STATEMENT has the meaning set forth in Section 2.4.5.1
below.
1.32 REQUISITE SSI STOCKHOLDER APPROVAL means the appropriate SSI Stockholder
approval of this Agreement and the Merger.
1.33 SEC means the Securities and Exchange Commission.
1.34 SECURITIES ACT means the Securities Act of 1933, as amended.
1.35 SECURITIES EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
1.36 SECURITY INTEREST means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
3
1.37 SHARE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT means the share
exchange and registration rights agreement annexed hereto as Exhibit B.
1.38 SSI has the meaning set forth in the preface above.
1.39 SSI INTELLECTUAL PROPERTY RIGHTS has the meaning set forth in Section
3.19.1 below.
1.40 SSI OPTIONS has the meaning set forth in Section 2.4.8 below.
1.41 SSI SHARE means any share of the Common Stock, no par value per share,
of SSI.
1.42 TAX has the meaning set forth in Section 3.14.2 below.
1.43 TAXING AUTHORITY has the meaning set forth in Section 3.14.2 below.
1.44 TRANSACTION EXPENSES has the meaning set forth in Section 3.6 below.
1.45 SSI STOCKHOLDER means any Person who or which holds any SSI Share.
1.46 SUB has the meaning set forth in the preface above.
1.47 SUBSIDIARY means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
1.48 UK SUBSIDIARY means Software Security International Ltd., a wholly-owned
subsidiary of SSI.
1.49 SURVIVING CORPORATION has the meaning set forth in Section 2.1 below.
2 BASIC TRANSACTION.
2.1 THE MERGER. On and subject to the terms and conditions of this
Agreement, SSI will merge with and into Sub at the Effective Time. Sub shall be
the corporation surviving the Merger (the "Surviving Corporation").
2.2 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at a place mutually agreed upon by
the parties on the date that is two business days following the date upon which
all of the conditions to the obligations of the Parties to close set forth in
Section 6.1 and Section 6.3 shall have been satisfied or waived in accordance
with the terms hereof, or upon such other date as shall have been mutually
agreed upon by the Parties (the "Closing Date"); provided, however, that the
Closing Date shall be no later than October 31, 1996.
2.3 ACTIONS AT THE CLOSING. At the Closing, (i) SSI will deliver to
Sub the various certificates, instruments, and documents referred to in Section
6.1 below, (ii) Sub and Rainbow will deliver to SSI the various certificates,
instruments, and documents referred to in Section 6.4 below, (iii) Sub and SSI
will file with the Secretary of State of the States of Nevada and Connecticut
the Certificates of Merger in the forms attached hereto as Exhibits C and D
(collectively, the "Certificates of Merger"), and (iv) Rainbow will deliver to
the Exchange Agent in the manner provided below in this Section 2 the
certificate evidencing Rainbow Shares issued in the Merger.
4
1.1 EFFECT OF MERGER.
1.1.1 GENERAL. The Merger shall become effective at the time (the
"Effective Time") Sub and SSI file the Certificates of Merger with the Secretary
of State of the States of Nevada and Connecticut. The Merger shall have the
effect set forth in the Nevada General Corporation Law and the Connecticut Stock
Corporation Act. The Surviving Corporation may, at any time after the Effective
Time, take any action (including executing and delivering any document) in the
name and on behalf of either Sub or SSI in order to carry out and effectuate the
transactions contemplated by this Agreement.
1.1.2 CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of Sub in effect at and as of the Effective Time will remain the
Certificate of Incorporation of the Surviving Corporation without any
modification or amendment in the Merger. A copy of such Certificate of
Incorporation has been provided to SSI.
1.1.3 BYLAWS. The Bylaws of Sub in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation without any
modification or amendment in the Merger. A copy of such Bylaws has been provided
to SSI.
1.1.4 DIRECTORS AND OFFICERS. The directors and officers of Sub in
office at and as of the Effective Time will remain the directors and officers of
the Surviving Corporation (retaining their respective positions and terms of
office).
1.1.5 CONVERSION OF SSI SHARES. At and as of the Effective Time,
(i) each SSI Share (other than any Dissenting Share) shall automatically convert
into the right to receive a number of Rainbow Share(s) determined by dividing
the Conversion Ratio by one, and (ii) each Dissenting Share shall be converted
into the right to receive payment from the Surviving Corporation with respect
thereto in accordance with the provisions of the Connecticut Stock Corporation
Act; provided, however, that the Conversion Ratio shall be subject to equitable
adjustment in the event of any stock split or other recapitalization effecting
the Rainbow Shares prior to the Closing Date.
1.1.5.1 REGISTRATION OF RAINBOW SHARES. Rainbow will cause a
registration statement on Form S-3 (the "Registration Statement") to become
effective under the Securities Act covering the Rainbow Shares issued in
exchange for the SSI Shares in connection with the Merger, as set forth in the
Share Exchange and Registration Rights Agreement.
1.1.6 FRACTIONAL SHARES. No fraction of a Rainbow Share shall be
issued, but in lieu of any such fraction each holder of an SSI Share who would
otherwise be entitled to receive a fraction of a Rainbow Share shall receive
from Rainbow an amount of cash equal to the per share market value of Rainbow
Shares (based on the closing price of Rainbow Common Stock as reported on the
NASDAQ National Market System ("NASDAQ") on the last trading day prior to the
Effective Time of the Merger) multiplied by the fraction of a Rainbow Share to
which such a holder would otherwise be entitled.
1.1.7 SUB SHARES. Each share of common stock of Sub issued and
outstanding at and as of the Effective Time will remain issued and outstanding.
1.1.8 CONVERSION OF SSI OPTIONS. At the Effective Time of the
Merger, each 4.41 options to purchase SSI Shares, whether vested or unvested,
(including all outstanding options granted under SSI's 1993 Employee Stock
Option Plan, SSI's 1993 Director Stock Option Plan, and the option agreement
between SSI and Xxxxxxxxx Xxxxx, dated January 1, 1993) (collectively, the "SSI
Options") will, by virtue of the Merger and at the Effective Time of the Merger,
and without any further action on the part of any holder thereof, be converted
into an option to purchase a single Rainbow Share. The exercise price of each
Rainbow Share issuable upon exercise of an SSI Option shall be the amount
(rounded up to the nearest cent) obtained by
5
multiplying the exercise price per share of
6
SSI Shares at which such SSI Option is exercisable immediately prior to the
Effective Time by 4.41. If the foregoing calculation results in an assumed SSI
Option being exercisable for a fraction of a Rainbow Share, then the number of
Rainbow Shares subject to such SSI Option will be rounded up to the nearest
whole number of Rainbow Shares with no cash being payable for such fractional
share. The term, exercisability, vesting schedule, and all other terms and
conditions of the SSI Options will otherwise be unchanged. For purposes of this
Agreement, Rainbow agrees to reserve for issuance that number of Rainbow Shares
for which SSI Options may be exercised (the "Option Exchange Shares").
1.1.8.1 STOCK OPTION AGREEMENT. Promptly after the Effective
Time of the Merger, Rainbow shall issue to each holder of an SSI Option a stock
option agreement evidencing the foregoing assumption of such SSI Options by
Rainbow on terms no less favorable to the holder of such SSI Options than as set
forth in the option agreement existing with respect to such SSI Options
immediately prior to the Effective Time.
1.1.8.2 REGISTRATION ON FORM S-8. Rainbow will cause the Option
Exchange Shares issuable upon exercise of the assumed SSI Options to be included
in a registration statement under the Securities Act, on Form S-8 promulgated by
the SEC (the "Option Registration Statement") and to be registered or qualified
(or to have established that an exemption from such registration or
qualification is available) such Option Exchange Shares under the blue sky laws
of all states in which holders of SSI Options reside within 45 days after the
Effective Time of the Merger. Rainbow will use its best efforts to maintain the
effectiveness of such registration statement or registration statements for so
long as any such SSI Options assumed by Rainbow remain outstanding.
1.2 EXCHANGE PROCEDURE. Immediately after the Effective Time, (i)
Rainbow will furnish to Rainbow's Transfer Agent, U.S. Stock Transfer Co. (the
"Exchange Agent"), a letter of direction authorizing the issuance of that number
of Rainbow Shares equal to the product of (a) the Conversion Ratio times (b) the
number of outstanding SSI Shares (other than any Dissenting Shares) and (ii)
Rainbow will cause the Exchange Agent to mail a letter of transmittal (with
instructions for its use), in a form reasonably acceptable to counsel to SSI, to
each record holder of outstanding SSI Shares for the holder to use in
surrendering the certificates which represented his SSI Shares in exchange for a
certificate representing the number of Rainbow Shares (or the fair value for his
Dissenting Shares) to which he is entitled.
1.2.1 Rainbow will not pay any dividend or make any distribution on
Rainbow Shares (with a record date at or after the Effective Time) to any record
holder of outstanding SSI Shares until the holder surrenders for exchange his or
its certificates which represented SSI Shares. Rainbow instead will pay the
dividend or make the distribution to the Exchange Agent in trust for the benefit
of the holder pending surrender and exchange.
1.2.2 Rainbow may cause the Exchange Agent to return any Rainbow
Shares and dividends and distributions thereon remaining unclaimed 180 days
after the Effective Time, and thereafter each remaining record holder of
outstanding SSI Shares shall be entitled to look to Rainbow (subject to
abandoned property, escheat, and other similar laws) as a general creditor
thereof with respect to Rainbow Shares and dividends and distributions thereon
to which he is entitled upon surrender of his certificates.
1.2.3 Rainbow shall pay all charges and expenses of the Exchange
Agent.
1.3 CONSENT SOLICITATION OFFERING MEMORANDUM. The Rainbow Shares
to be issued on the Closing Date in exchange for the SSI Shares will not be
registered under the Securities Act until the Registration Statement filed with
the SEC becomes effective. Accordingly, the Rainbow Shares will be issued
pursuant to an exemption from the Securities Act in a private placement to the
SSI Stockholders. As promptly as practicable after the date of this
7
Agreement, Rainbow and SSI will prepare and issue to the SSI Stockholders a
Consent Solicitation Offering Memorandum (the "Consent Solicitation Offering
Memorandum"). Rainbow will also take any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the issuance
of the Rainbow Shares. The Parties will furnish each other with all information
reasonably required in connection with any action contemplated by this Section
2.6.
2. REPRESENTATIONS AND WARRANTIES OF SSI. SSI represents and warrants
to Rainbow and Sub that the statements contained in this Section 3 are correct
and complete as of the date of this Agreement and will be correct and complete
in all material respects as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3), except as set forth in the disclosure schedule
accompanying this Agreement and initialed by the Parties (the "Disclosure
Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding
to the lettered and numbered paragraphs contained in this Section 3. With regard
to the Belarus Subsidiary, SSI represents and warrants only that SSI has not
been subject to any claim of any third party, named as a party in any litigation
or received notice of any claim or threatened litigation relating to Belarus
Subsidiary or its business or operations, and SSI makes no other representations
or warranties of any nature whatsoever with respect to Belarus Subsidiary.
2.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of SSI and
its UK Subsidiary is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. Each of SSI
and its UK Subsidiary is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required. Each of SSI and its UK Subsidiary has full corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it.
2.2 CAPITALIZATION. The entire authorized capital stock of SSI
consists of 1,200,000 SSI Shares (consisting of 800,000 voting shares and
400,000 non-voting shares). The number of issued and outstanding voting shares,
non-voting shares and SSI Options are as set forth on the Disclosure Schedule.
All of the issued and outstanding SSI Shares have been duly authorized and are
validly issued, fully paid, and nonassessable. Except as described above, there
are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require SSI to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to SSI.
2.3 AUTHORIZATION OF TRANSACTION. SSI has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder; provided, however, that SSI
cannot consummate the Merger unless and until it receives the Requisite SSI
Stockholder Approval. This Agreement constitutes the valid and legally binding
obligation of SSI, enforceable against it in accordance with its terms and
conditions.
2.4 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of SSI and its UK Subsidiary is
subject or any provision of the charter or bylaws of any of SSI and its UK
Subsidiary or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
any of SSI and its UK Subsidiary is a party or by which it is bound or to which
any of its assets is subject
8
(or result in the imposition of any Security Interest upon any of its assets)
except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, or failure to give notice would not
have a material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
2.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit E are the
following financial statements (collectively the "SSI Financial Statements"):
(i) preliminary consolidated balance sheets of SSI and its UK Subsidiary, and
the related statements of income, shareholders' equity, and cash flows as of and
for the fiscal years ended March 31, 1996 and 1995 (the "Most Recent Fiscal Year
End"); and (ii) preliminary unaudited consolidated balance sheets of SSI and Its
UK Subsidiary, and the related statements of income, shareholders' equity, and
cash flows as of and for the three months ended June 30, 1996 and 1995 (the
"Most Recent Fiscal Quarter End"). The SSI Financial Statements (including the
notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby , present fairly the
financial condition of SSI and its UK Subsidiary as of such dates and the
results of operations of the SSI and its UK Subsidiary for the periods then
ended; provided, however, that the Most Recent Fiscal Quarter End is subject to
normal year-end adjustments.
2.6 UNDISCLOSED LIABILITIES. None of SSI and its UK Subsidiary has any
material liability (and, to the knowledge of SSI, there is no reasonable basis
for any action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any material liability),
including liability for taxes, except for (i) liabilities, obligations or
contingencies not required to be disclosed on a balance sheet prepared in
accordance with GAAP, (ii) liabilities which have arisen after the Most Recent
Fiscal Quarter End in the Ordinary Course of Business none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of law,
(iii) liabilities and obligations disclosed in the Disclosure Schedule, and (iv)
costs and expenses incurred and to be incurred by SSI in connection with the
negotiation, documentation and closing of the transactions contemplated by this
Agreement (the "Transaction Expenses").
2.7 BROKERS' FEES. None of SSI and its UK Subsidiary has any liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
2.8 CONTINUITY OF BUSINESS ENTERPRISE. SSI operates at least one
significant historic business line, or owns at least a significant portion of
its historic business assets, in each case within the meaning of Treas. Reg.
Section 1.368-1(d).
2.9 INVENTORIES AND ACCOUNTS RECEIVABLE. The inventories of SSI,
whether finished goods, work in process or raw materials, shown on the SSI
Financial Statements, are all items of a quality usable or salable in the
ordinary and usual course of SSI's business, except for inventory items that
have been written down to an amount not in excess of realizable market value or
for which adequate reserves or allowances have been provided. The values at
which inventories are carried reflect an inventory valuation policy of SSI which
is consistent with SSI's past practice and which is in accordance with GAAP
applied on a consistent basis. The accounts receivable of SSI shown on the SSI
Financial Statements arose from valid transactions. To SSI's knowledge, the
reserve for doubtful accounts and product returns is adequate, and the values at
which accounts receivable are carried reflect the policies of SSI consistent
with SSI's past practice and are in accordance with GAAP applied on a consistent
basis.
2.10 NO VIOLATIONS. The business of SSI is not being conducted in
violation of any applicable law, rule or regulation, judgment, decree or order
of any governmental entity except for any violations which, individually or in
the aggregate, have not had and will not have a material adverse effect on the
business condition of SSI. There are no judgments or outstanding orders,
injunctions, decrees, stipulations or awards (whether rendered by a court or
9
administrative agency or by arbitration) against SSI or any of its properties
or businesses which will, individually or in the aggregate, have a material
adverse effect on the business condition of SSI.
2.11 NO DEFAULTS. SSI is not aware of and has not received written
notice that it would be with the passage of time, in default or violation of any
term, condition or provision of (i) the Certificate of Incorporation or Bylaws
of SSI; (ii) any judgment, decree or order applicable to SSI; or (iii) any
material mortgage, note, indenture, contract, agreement, lease or other
instrument or commitment to which SSI is now a party or by which SSI or any of
its properties or assets may be bound, except for any defaults or violations
which would not have a material adverse effect on the business condition of SSI.
2.12 LITIGATION. There is no action, suit or proceeding pending, or to
the knowledge of SSI, threatened, which would, individually or in the aggregate,
have a material adverse effect on the business condition of SSI. There is no
investigation pending or, to the knowledge of SSI, threatened against SSI or any
of its officers or directors, before any federal, state, municipal or other
governmental department, commission, board, bureau, agency, instrumentality or
other governmental entity. To SSI's knowledge, no governmental entity is
currently challenging or questioning the legal right of SSI to manufacture,
offer or sell any of their products in the present manner or style thereof and
any prior matters of such nature have been settled and properly reflected in the
SSI Financial Statements.
2.13 ABSENCE OF CERTAIN CHANGES. Since the Most Recent Fiscal Year End,
except for the Transaction Expenses, there has not been any material adverse
change in the business, financial condition, operations, results of operations,
or, to SSI's knowledge, future prospects of either SSI or its UK Subsidiary.
Without limiting the generality of the foregoing, except as contemplated by this
Agreement, since that date: (i) neither SSI nor its UK Subsidiary has sold,
leased, transferred, or assigned any of its assets, tangible or intangible,
other than in the Ordinary Course of Business; (ii) neither SSI nor its UK
Subsidiary has entered into any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) either involving
more than $10,000 or outside the Ordinary Course of Business; (iii) no party
(including SSI and its UK Subsidiary) has accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more than $10,000 to
which either SSI or its UK Subsidiary is a party or by which either of them is
bound; (iv) neither SSI nor its UK Subsidiary has imposed any Security Interest
upon any of its assets, tangible or intangible; (v) neither SSI nor its UK
Subsidiary has made any capital expenditure (or series of related capital
expenditures) either involving more than $10,000 or outside the Ordinary Course
of Business; (vi) neither SSI nor its UK Subsidiary has made any capital
investment in, any loan to, or any acquisition of the securities or assets of,
any other Person (or series of related capital investments, loans, and
acquisitions) either involving more than $10,000 or outside the Ordinary Course
of Business; (vii) neither SSI nor its UK Subsidiary has issued any note, bond,
or other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation either involving
more than $10,000 or outside the Ordinary Course of Business; (viii) neither SSI
nor its UK Subsidiary has delayed or postponed the payment of accounts payable
and other liabilities outside the Ordinary Course of Business; (ix) neither SSI
nor its UK Subsidiary has canceled, compromised, waived, or released any right
or claim (or series of related rights and claims) involving more than $10,000 or
outside the Ordinary Course of Business; (x) neither SSI nor its UK Subsidiary
has granted any license or sublicense of any rights under or with respect to any
intellectual property outside the Ordinary Course of Business; (xi) there has
been no change made or authorized in the charter or bylaws of any of SSI and its
UK Subsidiary; (xii) neither SSI nor its UK Subsidiary has issued, sold, or
otherwise disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock; (xiii) neither SSI nor its UK
Subsidiary has declared, set aside, or paid any dividend or made any
distribution with respect to its capital stock
10
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired any
of its capital stock; (xiv) neither SSI nor its UK Subsidiary has experienced
any material damage, destruction, or loss (whether or not covered by insurance)
to its property, except for property not material to its business; (xv) neither
SSI nor its UK Subsidiary has made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business; (xvi) neither SSI nor its UK Subsidiary has entered
into any employment contract or collective bargaining agreement, written or
oral, or modified the terms of any existing such contract or agreement; (xvii)
neither SSI nor its UK Subsidiary has granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business; (xviii) neither SSI nor its UK Subsidiary has
adopted, amended, modified, or terminated any bonus, profit-sharing, incentive,
severance, or other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan); (xix) neither SSI nor its UK Subsidiary has made
any other change in employment terms for any of its directors, officers, and
employees outside the Ordinary Course of Business; (xx) neither SSI nor its UK
Subsidiary has made or pledged to make any charitable or other capital
contribution outside the Ordinary Course of Business; and (xxi) neither SSI nor
its UK Subsidiary has committed to any of the foregoing.
2.14 TAXES.
2.14.1 All Tax returns, statements, reports and forms
(including estimated tax returns and reports and information returns and
reports) required to be filed with any Taxing Authority with respect to any
Taxable period ending on or before the Effective Time of the Merger by or on
behalf of SSI, (collectively, the "SSI Returns") have been or will be filed when
due in accordance with all applicable laws (including any extensions of such due
date); (ii) SSI has timely paid or withheld all Taxes reasonably estimated as
payable by SSI Returns that have been filed; (iii) SSI has made provision for
all Taxes reasonably estimated as payable by SSI for any Taxable period
(including any portion thereof) ending on or before June 30, 1996 for which no
SSI Return has yet been filed; (iv) the charges, accruals and reserves for taxes
with respect to SSI for any Taxable period (including any portion thereof)
ending on or before the Effective Time of the Merger reflected on the SSI
Financial Statements are adequate to cover such Taxes; (v) SSI has withheld and
paid to the applicable financial institutions or Taxing Authority all amounts
required to be withheld; (vi) since June 30, 1996, no Tax liability has been or
will be incurred by SSI other than in the Ordinary Course of Business; (vii)
there is no material claim, audit, action, suit, proceeding or investigation now
pending or (to the knowledge of SSI) threatened against or with respect to SSI
in respect of any Tax or assessment; and (viii) there are no liens for Taxes
upon the assets of SSI except liens for current Taxes not yet due.
2.14.2 For purposes of this Agreement, "Tax" (and, with
correlative meaning, "Taxes" and "Taxable") means (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
governmental authority (a "Taxing Authority") responsible for the imposition of
any such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) any liability for the payment of any amounts of the type described in (i)
or (ii) as a result of any express or implied obligation to indemnify any other
person.
2.14.3 SSI has provided Sub or its designated representatives
true and correct copies of all material Tax returns, information statements,
reports, work papers, Tax opinions and memoranda and other Tax data and
documents requested by Sub.
11
2.15 EMPLOYEE BENEFIT PLANS. All material employee benefit plans,
policies, programs or arrangements covering active, former or retired employees
(collectively, the "Plans") of SSI, to the extent applicable, (i) comply, in all
material respects, with the requirements of the Employee Retirement Income
Security Act of 1974, as amended (ERISA) and the Code, and any such Plan
intended to be qualified under Section 401(a) of the Code has been determined by
the IRS to be so qualified; (ii) no such plan is covered by Title IV of ERISA or
Section 412 of the Code; (iii) have not incurred any liability or penalty under
Section 4975 of the Code or Section 502(i) of ERISA; and (iv) have been
maintained and administered in all material respects in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations, including but not limited to ERISA and the Code, which
are applicable to such Plans. To the knowledge of SSI there are no pending or
threatened material claims against or otherwise involving any such plans and no
suit, action or other litigation (excluding claims for benefits incurred in the
ordinary course of such Plan activities) has been brought against or with
respect to any such Plan, and all material contributions, reserves or premium
payments required to be made as of the date hereof to such Plans have been made
or provided for.
2.16 MAJOR CONTRACTS. SSI is not a party to any written or oral,
formal or informal:
(i) union contract, employment contract or arrangement providing for
future compensation with any officer, consultant, director or employee which is
not terminable by it on 30 days' notice or less without penalty or obligation to
make payments related to such termination;
(ii) plan, contract or arrangement exceeding $5000, providing for
bonuses, pensions, deferred compensation, retirement payments, profit-sharing or
the like;
(iii) OEM agreement, distribution agreement, dealer agreement, volume
purchase agreement or manufacturing agreement in which SSI has granted or
received manufacturing rights, most favored customer pricing provisions or
exclusive marketing rights related to any product, group of products or
territory;
(iv) agreement, license, franchise, permit, indenture or
authorization, in each case, which is material to the business condition of SSI,
which has not been terminated, or performed in its entirety and not renewed
which may be, by its terms, terminated, materially impaired or materially
adversely affected by reason of the execution of this Agreement, the Merger
Agreement, the closing of the Merger, or the transactions contemplated hereby or
thereby;
(v) except with respect to trade indebtedness incurred in the Ordinary
Course of Business, instruments evidencing or related in any way to indebtedness
incurred in the acquisition of products, or companies or other entities, or
indebtedness for borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, guarantee or otherwise which
individually is in the amount of $5000 or more; or
(vi) contract containing covenants purporting to limit the freedom of
SSI or, to SSI's knowledge, any key employee of SSI to compete in any line of
business in any geographic area, other than agreements related to
confidentiality and assignment of inventions between SSI and its employees in
the form heretofore furnished to Sub.
1.1 All agreements, contracts, plans, leases, instruments,
arrangements, licenses and commitments heretofore furnished to Sub are valid and
in full force and effect and SSI has not, nor to the knowledge of SSI has any
other party thereto, breached any provision of, or is in default under the terms
of, any such contract, agreement, instrument, arrangement, commitment, plan,
lease or license, except for such breaches or defaults as would not have a
material adverse effect on the business condition of SSI.
12
1.2 INTERESTS OF CERTAIN PERSONS. To the best knowledge of SSI,
neither SSI's officers, directors, or key employees or consultants has any
direct or indirect interest material to SSI in any property, real or personal,
tangible or intangible, including inventions, patents, copyrights, trademarks or
trade names, used in or pertaining to SSI's business, except for such agreements
that are not material to the business condition of SSI and except for rights of
a shareholder and except for rights under existing employee benefit plans. To
the best knowledge of SSI, no officer of SSI has any financial interest in any
corporation, partnership, joint venture or other entity that is a party to any
agreement with SSI, except rights of a shareholder and rights under existing
employee benefit plans. For this purpose, an ownership interest of less than 5%
of the voting stock of a publicly held company shall be deemed to be not
material.
1.3 INTELLECTUAL PROPERTY.
1.3.1 The Patents, trademarks and copyrights listed in the
Disclosure Schedule are either owned by or licensed to SSI, as indicated in the
Disclosure Schedule, and together with all of the know-how used by SSI in the
conduct of its business all of which is owned by SSI (such know-how together
with such Patents, trademarks and copyrights, collectively, the "SSI
Intellectual Property Rights") constitute all the know-how, Patents, trademarks
and copyrights necessary to conduct the business of SSI as currently conducted
by it.
1.3.2 To the best of SSI's knowledge, neither the manufacture,
marketing, license, sale or use of any product currently licensed or sold by SSI
violates in any material respect any license or agreement between SSI and any
third party or infringes any valid intellectual property right of any other
party; there is no pending or, to the knowledge of SSI, threatened claim or
litigation contesting the validity, ownership or right to use, any SSI
Intellectual Property Rights nor, to the knowledge of SSI, is there any
reasonable basis for any such claim, nor has SSI received any written notice
asserting that any SSI Intellectual Property Rights or the use thereof by SSI
conflicts with the rights of any other party.
1.4 EMPLOYEES. No officer or key employee of SSI has given notice to
SSI of his or her intention to terminate his or her employment with SSI. To
SSI's knowledge, no employee of SSI is subject to any secrecy or noncompetition
agreement or any agreement or restriction of any kind that would impede in any
material way the ability of such employee to carry out fully all activities of
such employee in furtherance of the business of SSI now or upon consummation of
the transactions contemplated hereby.
1.5 INSURANCE. SSI has insurance policies in the type and amounts
customarily carried by persons conducting businesses similar to those of SSI.
1.6 ENVIRONMENTAL MATTERS. At all times prior to the date hereof, SSI
has complied with, and, to SSI's knowledge, SSI's facilities are in all material
respects in compliance with, all applicable environmental laws, orders,
regulations, rules and ordinances adopted , imposed or promulgated by any
governmental entity relating to the properties owned or leased by SSI (the "SSI
Properties"), the violation of which could have a material adverse effect on the
business condition of SSI. The environmental licenses, permits, clearances,
consents and authorizations material to the operations of SSI are in full force
and effect. SSI has not released or caused to be released on or about any of SSI
properties any pollutants, contaminations, "hazardous substances" (as that term
is defined in Section 101(14) of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended) or "regulated substances" (as that
term is defined in Section 9001 or the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901, et seq, as amended) required to be remedied by any
governmental agency with jurisdiction over SSI Properties under the authority of
laws, regulations and ordinances as in effect and currently interpreted, which
would have a material adverse effect on the business condition of SSI. No
action, proceeding, liability or claim exists, or to SSI's knowledge is
threatened, against SSI or to the knowledge of SSI, any landfills, disposal
sites, agents and recycles used by SSI. To the knowledge of SSI, there is no
fact or circumstance
13
which could involve SSI in any environmental litigation or impose any
environmental liability upon SSI which would have a materially adverse effect on
the business condition of SSI.
1.7 DISCLOSURE. None of the information that SSI will supply
specifically for use in the Consent Solicitation Offering Memorandum will
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein not misleading. No
representation or warranty of SSI set forth in this Section 3 or any of the
documents delivered pursuant to this Agreement contains an untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements made herein or therein not misleading.
2. REPRESENTATIONS AND WARRANTIES OF SUB AND RAINBOW. Each of Sub and
Rainbow represent and warrant to SSI that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement and will, on
the Closing Date, continue to be correct and complete (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Section 4).
2.1 ORGANIZATION. Rainbow is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware, and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of Nevada. Sub is qualified to do business as a foreign corporation under the
laws of the State of Connecticut.
2.2 CAPITALIZATION. As of September 26, 1996, the entire authorized
capital stock of Rainbow consists of 20,000,000 Rainbow Shares, of which
7,412,327 Rainbow Shares are issued and outstanding and 1,098,700 Rainbow Shares
are reserved for issuance under outstanding options to purchase Rainbow Shares.
All of Rainbow Shares to be issued in the Merger, including the Option Exchange
Shares to be issued upon the exercise of SSI Options have been duly authorized
and, upon consummation of the Merger, will be validly issued, fully paid, and
nonassessable. Rainbow has reserved for issuance upon exercise of the SSI
Options that number of Rainbow Shares for which the SSI Options may be
exercised.
2.3 AUTHORIZATION OF TRANSACTION. Sub and Rainbow have full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of Sub and Rainbow,
enforceable against each of them in accordance with its terms and conditions.
2.4 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Sub and Rainbow are subject or any
provision of the charter or bylaws of Sub or Rainbow or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license, instrument
or other arrangement to which Sub or Rainbow is a party or by which it is bound
or to which any of its assets is subject except where the violation, conflict,
breach, default, acceleration, termination, modification, cancellation, or
failure to give notice would not have a material adverse effect on the ability
of the Parties to consummate the transactions contemplated by this Agreement.
Other than in connection with the provisions of the Nevada General Corporation
Law, the Securities Exchange Act, the Securities Act, and the state securities
laws, Sub and Rainbow do not need to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement, except where the failure to give notice, to
file, or to obtain any authorization, consent, or approval would
14
not have a material adverse effect on the ability of the Parties to consummate
the transactions contemplated by this Agreement.
2.5 BROKERS' FEES. Neither Sub nor Rainbow has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which any of SSI
and its UK Subsidiary could become liable or obligated.
2.6 CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention of
Sub to continue at least one significant historic business line of SSI, or to
use at least a significant portion of SSI's historic business assets in a
business, in each case within the meaning of Treas. Reg. Section 1.368-1(d).
2.7 DISCLOSURE. The Registration Statement and the Option Registration
Statement will comply with the Securities Act and all applicable state
securities law in all material respects. The Registration Statement and the
Option Registration Statement will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein not misleading; provided, however, Rainbow and Sub make no
representation or warranty with respect to any information that SSI will supply
for use in the Registration Statement and the Option Registration Statement.
None of the information about Rainbow contained in the Consent Solicitation
Offering Memorandum will contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements made therein
not misleading.
3 . COVENANTS. The Parties agree as follows with respect to the
period from and after the execution of this Agreement.
3.1 GENERAL. Each of the Parties will cooperate to take all action and
to do all things necessary in order to consummate and make effective the
transactions contemplated by this Agreement including satisfaction of their
respective conditions to closing set forth in Section 6 below.
3.2 NOTICES AND CONSENTS. SSI will give any notices (and will cause
its UK Subsidiary to give any notices) to third parties, and will use its best
efforts to obtain (and will cause its UK Subsidiary to use its best efforts to
obtain) any third party consents, that Sub may reasonably request in connection
with the matters referred to in Section 3.4 above.
3.3 REGULATORY MATTERS AND APPROVALS. Sub and Rainbow will give any
notices to, make any filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in Section 4.4 above. Without
limiting the generality of the foregoing:
3.3.1 SECURITIES ACT, SECURITIES EXCHANGE ACT, AND STATE SECURITIES
LAWS. Rainbow covenants that, at the Closing, Rainbow shall execute a Share
Exchange and Registration Rights Agreement with each SSI Stockholder and shall
cause the Rainbow Shares to be covered by an effective registration statement as
described in Section 2.4.5.1.
3.4 GENERAL CORPORATION LAWS. Promptly following execution of this
Agreement by the Parties, SSI, in conjunction with Rainbow as the issuer of the
Consent Solicitation Offering Memorandum, will cause to be delivered to each SSI
Stockholder the Consent Solicitation Offering Memorandum and will cause to be
delivered to each holder of SSI Options a letter describing the treatment of SSI
Options in the Merger.
3.5 AFFILIATES AGREEMENTS.
3.5.1 At least one day prior to the Closing, SSI and Rainbow shall
deliver to each other a list of names and addresses of those persons who were in
their reasonable judgement, as of such date, "affiliates" of the respective
companies within the
15
meaning of Rule 145 (each such person, together with the persons identified
below and "Affiliate") of the rules and regulations under the Securities Act
("Rule 145").
3.5.2 SSI and Rainbow shall provide such information and documents
reasonably requested for purposes of reviewing such list. SSI and Rainbow shall
use all reasonable efforts to deliver or cause to be delivered to the other
party, prior to the Effective Time, from each of the Affiliates identified in
the foregoing lists (as the same may be supplemented as aforesaid), an
Affiliate's Agreement.
3.5.3 Rainbow shall be entitled to place legends as specified in
the Affiliates Agreement on the certificate evidencing any Rainbow Shares to be
received by SSI Affiliates pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Rainbow Shares,
consistent with the terms of such Agreements whether or not such letter is
actually delivered to Rainbow.
3.6 OPERATION OF BUSINESS. SSI will not (and will not cause or permit
its UK Subsidiary to) engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business except for the payment of
the Transaction Expenses. Without limiting the generality of the foregoing:
3.6.1 Neither SSI nor its UK Subsidiary will authorize or effect
any change in its charter or bylaws;
3.6.2 Neither SSI nor its UK Subsidiary will grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);
3.6.3 Neither SSI nor its UK Subsidiary will declare, set aside, or
pay any dividend or distribution with respect to its capital stock (whether in
cash or in kind), or redeem, repurchase, or otherwise acquire any of its capital
stock, in either case outside the Ordinary Course of Business;
3.6.4 Neither SSI nor its UK Subsidiary will issue any note, bond,
or other debt security or create, incur, assume, or guarantee any indebtedness
for borrowed money or capitalized lease obligation outside the Ordinary Course
of Business;
3.6.5 Neither SSI nor its UK Subsidiary will impose any Security
Interest upon any of its assets outside the Ordinary Course of Business;
3.6.6 Neither SSI nor its UK Subsidiary will make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
3.6.7 Neither SSI nor its UK Subsidiary will make any change in
employment terms for any of its directors, officers, and employees outside the
Ordinary Course of Business; and
3.6.8 Neither SSI nor its UK Subsidiary will commit to any of the
foregoing.
3.7 FULL ACCESS. SSI will (and will cause its UK Subsidiary to) permit
representatives of Rainbow and/or Sub to have full access at all reasonable
times with prior notice, and in a manner so as not to interfere with the normal
business operations of SSI and its UK Subsidiary, to information related to all
premises, properties, personnel, books, records (including tax records),
contracts, and documents of or pertaining to each of SSI and its UK Subsidiary.
Sub will treat and hold as such any Confidential Information it receives from
any of SSI and its UK Subsidiary in the course of the reviews contemplated by
this Section 5.7, will not use any of the Confidential Information except in
connection with this Agreement, and, if this Agreement is
16
terminated for any reason whatsoever, agrees to return to SSI all tangible
embodiments (and all copies) thereof which are in its possession. In furtherance
of the foregoing, SSI acknowledges that it has been informed that six
representatives of Rainbow will be at the offices of SSI from October 1, 1996
through October 3, 1996 for purposes of collecting available information and
planning to assume control of the operation of the business of SSI following the
Closing. SSI agrees to provide such access to such Rainbow representatives and
to provide its diligent best efforts to cooperate and aide the Rainbow
representatives so as to enable them to obtain such information they request,
and to otherwise comply with the provisions of this Section 5.7.
3.8 NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice
to the other of any material adverse development known to it to cause a breach
of any of its own representations and warranties in Section 3 and Section 4
above.
3.9 EXCLUSIVITY. SSI will not (and will not cause or permit its UK
Subsidiary to) solicit, initiate, or encourage the submission of any proposal or
offer from any Person relating to the acquisition of all or substantially all of
the capital stock or assets of any of SSI and its UK Subsidiary (including any
acquisition structured as a merger, consolidation, or share exchange); provided,
however, that SSI, its UK Subsidiary, and their directors and officers will
remain free to participate in any discussions or negotiations regarding, furnish
any information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing to the extent their fiduciary duties may require. SSI shall notify Sub
immediately if any Person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
3.10 INDEMNIFICATION. Rainbow agrees to indemnify all individuals who
served as a director or officer of SSI at any time prior to the Effective Time
in accordance with the indemnification provisions existing in the certificate of
incorporation and/or bylaws of SSI on the date of the Agreement, and further
agrees to observe the limitations of director liability set forth in the
certificate of incorporation of SSI.
3.11 CONTINUITY OF BUSINESS ENTERPRISE. Sub will continue at least one
significant historic business line of SSI, or use at least a significant portion
of SSI's historic business assets in a business, in each case within the meaning
of Treas. Reg. Section 1.368-1(d).
3.12 CONFIDENTIALITY AGREEMENTS. SSI will use its reasonable best
efforts to cause each of its employees to enter into a confidentiality agreement
with SSI prior to the Closing.
4. CONDITIONS TO OBLIGATION TO CLOSE.
4.1 CONDITIONS TO OBLIGATION OF SUB AND RAINBOW. The obligation of Sub
and Rainbow to consummate the transactions to be performed by each of them in
connection with the Closing is subject to satisfaction of the following
conditions:
4.1.1 this Agreement and the Merger shall have received the
Requisite SSI Stockholder Approval;
4.1.2 SSI shall have procured the consent of The Xxxxxxx Company to
the assignment by SSI to Sub of the Darien Lease (as such term is defined in the
Disclosure Schedule);
4.1.3 the representations and warranties set forth in Section 3
above shall be true and correct in all material respects as of the Closing Date
(subject to changes in Section 3.2 regarding the number of SSI Shares and SSI
Options outstanding resulting from the exercise of SSI Options);
17
4.1.4 SSI shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
4.1.5 SSI will have received an audit opinion, without
qualification, from Deloitte & Touche for the SSI Financial Statement for the
Most Recent Fiscal Year End, without any adjustment to such statement.
4.1.6 Xxxxx X. Xxxx will have entered into a consulting agreement
with Rainbow in a form satisfactory to counsel to Rainbow and Xxxxx X. Xxxx.
4.1.7 all technology owned, licensed or otherwise controlled by SSI
will be available for use by Sub following the Effective Time in the same manner
as that used by SSI and all of the Patents shall be unencumbered and owned by
SSI;
4.1.8 SSI will have obtained a "pooling letter" from Deloitte &
Touche LLP, its independent auditors, to the effect that no conditions exist
concerning SSI that would preclude accounting for the Merger as a pooling of
interests.
4.1.9 SSI will have delivered to Ernst & Young LLP, independent
auditors to Rainbow, and to Deloitte & Touche LLP, independent auditors for SSI,
"pooling representation letters," in forms reasonably satisfactory to such
auditors, regarding the Merger.
4.1.10 Rainbow shall have received a letter from Ernst & Young LLP,
its independent auditors, in form reasonably satisfactory to Rainbow to the
effect that Ernst & Young LLP concurs with the conclusion of the management of
Rainbow that, as of the date of such letter, no conditions exist that would
preclude Rainbow from accounting for the Merger as a pooling of interests.
4.1.11 no action, suit, or proceeding shall be pending or threatened
before any court or quasi judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) materially affect adversely the right of the
Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former UK Subsidiary of SSI, or (D) materially
affect adversely the right of any of the former UK Subsidiary of SSI to own its
assets and to operate its businesses (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
4.1.12 SSI shall have delivered to Sub a certificate to the effect
that each of the conditions specified in this Section 6.1 is satisfied in all
respects;
4.1.13 Sub shall have received from counsel to SSI an opinion in
form and substance reasonably satisfactory to counsel to Rainbow, addressed to
Sub, and dated as of the Closing Date;
4.1.14 Sub shall have received the resignations, effective as of the
Closing, of each director and officer of SSI and its UK Subsidiary other than
those whom Sub shall have specified in writing prior to the Closing; and
4.1.15 all actions to be taken by SSI in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
Sub.
4.2 Sub may waive any condition specified in Section 6.1 if it
executes a writing so stating at or prior to the Closing.
4.3 CONDITIONS TO OBLIGATION OF SSI. The obligation of SSI to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
18
4.3.1 the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of the
Closing Date;
4.3.2 Sub and Rainbow shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
4.3.3 no action, suit, or proceeding shall be pending or threatened
before any court or quasi judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) materially affect adversely the right of the
Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former UK Subsidiary of SSI, or (D) materially
affect adversely the right of any of the former UK Subsidiary of SSI to own its
assets and to operate its businesses (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
4.3.4 Sub and Rainbow shall have delivered to SSI a certificate to
the effect that each of the conditions specified in this Section 6.3 is
satisfied in all respects;
4.3.5 this Agreement and the Merger shall have received the
Requisite SSI Stockholder Approval;
4.3.6 Rainbow shall have entered into the Share Exchange and
Registration Rights Agreement with each SSI Stockholder;
4.3.7 SSI shall have received from counsel to Sub an opinion in
form and substance reasonably satisfactory to counsel to SSI, addressed to SSI,
and dated as of the Closing Date; and
4.3.8 all actions to be taken by Sub and Rainbow in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
SSI.
4.3.9 SSI may waive any condition specified in this Section 6.3 if
it executes a writing so stating at or prior to the Closing.
5. TERMINATION.
5.1 TERMINATION OF AGREEMENT. This Agreement may be terminated as
provided below:
5.1.1 the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
5.1.2 Either party may terminate this Agreement by giving written
notice to the other party at any time prior to the Effective Time (A) in the
event the other party has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the terminating
party has notified the other party of this breach, and the breach has continued
without cure for a period of 30 days after the notice of breach or (B) if the
Closing shall not have occurred on or before October 31, 1996, by reason of the
failure to satisfy any condition precedent under Section 6 hereof (unless the
failure results primarily from a breach of any representation, warranty, or
covenant contained in this Agreement by the party seeking termination);or
5.1.3 Sub or SSI may terminate this Agreement by giving written
notice to the other party at any time in the event this Agreement and the Merger
fail to receive the
19
Requisite SSI Stockholder Approval following the holding of a special meeting of
SSI Stockholders for such purpose.
5.2 EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 7.1 above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
(i) the terms of the confidentiality provisions contained in Section 5.7 of this
Agreement and the terms of the Confidentiality Agreement, dated April 29, 1996,
shall survive any such termination; and (ii) in the event either party
terminates this Agreement for reasons of convenience and not as a result of a
failure of the other party to satisfy the terms of this Agreement, the
terminating party will pay to the other party the sum of $250,000 as liquidated
damages within 30 days of the date of such termination.
6. MISCELLANEOUS.
6.1 SURVIVAL. None of the representations and warranties of the
Parties contained in this Agreement will survive the Closing. All covenants of
the parties which by their terms include obligations to be performed subsequent
to the Closing shall survive the Closing until such obligations are performed in
full.
6.2 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Prior to the Closing, SSI
shall not issue any press release or make any public announcement relating to
the subject matter of this Agreement without the prior written approval of
Rainbow. Rainbow shall give SSI advance notice of any such press release or
public announcement to be made by it and agrees to consult with SSI regarding
the timing and content of such press release and public announcement.
6.3 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that the provisions in
Section 2.4.5, 2.4.5.1, 2.4.6, 2.4.8, 2.4.8.1, 2.4.8.2, 2.5. 2.5.3, 5.3.1 and
5.10 are intended for the benefit of the individuals specified therein and their
respective legal representatives.
6.4 ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein and the documents to be delivered at Closing) constitutes the entire
agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral, to
the extent they related in any way to the subject matter hereof.
6.5 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party.
6.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
6.7 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.8 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below, or one day after if it is sent via overnight courier:
20
IF TO SSI:
Software Security, Inc.
0 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxx 00000-0000
Att: Xxxxx X. Xxxx, Executive Vice President
WITH A COPY TO:
Xxxxxxxx & Xxxxxxxx
Attorneys at Law
Four Xxxxxxxx Xxxxx
X.X. Xxx 000
Xxxxxxxx, XX 00000
Att: Xxxxxxx Xxxxxxxxx, Esq.
IF TO RAINBOW:
Rainbow Technologies, Inc.
00 Xxxxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxx 00000
Att: Xxxx Xxxx, Senior Vice President
WITH A COPY TO:
Xxxxxxxxx Xxxxxx & Xxxxxx LLP
00 Xxxx 00xx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Att: Xxxx X. Xxxxxx, Esq.
IF TO SUB:
RNBO Acquisition Corporation
00 Xxxxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxx 00000
Att: Xxxx Xxxx, Senior Vice President
WITH A COPY TO:
Xxxxxxxxx Xxxxxx & Xxxxxx LLP
00 Xxxx 00xx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Att: Xxxx X. Xxxxxx, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
1.1 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.
1.2 AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent
21
to stockholder approval will be subject to the restrictions contained in the
Delaware General Corporation Law. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by both
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
1.3 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
1.4 EXPENSES. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
1.5 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
1.6 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
22
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
RAINBOW TECHNOLOGIES, INC. SOFTWARE SECURITY, INC.
By: __________________________ By: __________________________
Title: _________________________ Title: _________________________
RNBO ACQUISITION CORPORATION
By: __________________________
Title: _________________________
23
EXHIBIT A
FORM OF RAINBOW AFFILIATE'S AGREEMENT
September , 1996
Rainbow Technologies, Inc.
00 Xxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger (the "Merger
Agreement") dated as of September , 1996, by and among Rainbow Technologies,
Inc., a Delaware corporation ("Rainbow"), RNBO Acquisition Corporation, a Nevada
corporation and a wholly-owned subsidiary of Rainbow ("Sub"), and Software
Security, Inc., a Connecticut corporation ("SSI"). The Merger Agreement provides
for the merger of SSI with and into Sub (the "Merger") pursuant to which, among
other things, SSI Shares (as defined in the Merger Agreement) will be converted
into the right to receive such number of Rainbow Shares (as defined in the
Merger Agreement) as determined in accordance with the provisions of the Merger
Agreement.
The undersigned has been informed that the undersigned may be deemed to
be an "affiliate" of Rainbow within the meaning of Rule 144 and that the Merger
is intended to be a "pooling of interest" for financial accounting purposes.
The undersigned understands that the Merger will not be accounted for as
a pooling of interests unless, among other requirements, following the Merger,
affiliates of Rainbow comply with requirements of Section 1.3 below. The
undersigned further understands that the representations, warranties and
agreements set forth herein will be relied upon by the auditors for Rainbow and
by counsel for Rainbow and SSI in rendering opinions to Rainbow, SSI and their
stockholders regarding accounting and other legal consequences of the Merger.
The capitalized terms used and not defined herein shall have the
meanings set forth in the Merger Agreement.
24
1. The undersigned represents, warrants and agrees as follows:
1.1 The undersigned has full power to execute this Affiliate's Agreement
and to make the representations, warranties and agreements herein and to perform
the undersigned's obligations hereunder.
1.2 Appendix A attached hereto sets forth all shares of Rainbow Common
Stock and other equity securities of Rainbow owned by the undersigned, including
all rights to acquire Rainbow Common Stock and all equity securities of Rainbow
as to which the undersigned has sole or shares voting or investment power
(collectively, the "Rainbow Shares").
1.3 The undersigned will not sell, transfer or dispose of any of the
Rainbow Shares and the undersigned will not in any other way reduce the
undersigned's risk of ownership or investment in any of such Rainbow Shares
until the financial report including the combined revenues and net income of
Rainbow and SSI covering a period of at least 30 days of combined operations
following the Effective Time of the Merger has been published by Rainbow
(provided that the undersigned may make bona fide gifts or charitable
contributions or distributions of such Rainbow Shares without consideration).
2. The undersigned also understands that stop transfer instructions concerning
the provisions of Section 1.3 above will be given to Rainbow's transfer agent
with respect to certificates evidencing the Rainbow Shares. Rainbow agrees that
such stop transfer instructions will be promptly rescinded upon publication of
the financial report referred to in Section 1.3 above.
3. The undersigned understands that the certificates representing the Rainbow
Shares will bear restrictive legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
CONTRACTUAL HOLDING PERIOD EXPIRING ON THE DATE ON WHICH CERTAIN
FINANCIAL STATEMENTS ARE ISSUED AS SET FORTH IN THAT CERTAIN
AFFILIATES AGREEMENT BETWEEN THE ISSUER AND THE HOLDER HEREOF. PRIOR
TO THE EXPIRATION OF SUCH HOLDING PERIOD, SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED (EXCEPT FOR BONA FIDE GIFTS OR CHARITABLE
CONTRIBUTIONS OR DISTRIBUTIONS OF SUCH SHARES WITHOUT CONSIDERATION).
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND ( AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) WHEN THE HOLDING PERIOD HAS EXPIRED.
4. The undersigned has carefully read this Affiliate's Agreement and discussed
its requirements and other applicable limitations upon the sale, transfer or
other disposition of the Rainbow Shares and other Rainbow securities owned by
the undersigned, to the extent the undersigned felt necessary, with the
undersigned's counsel or with counsel for Rainbow.
Very truly yours,
By:_________________________
Title:________________________
(if applicable)
25
Agreed to and accepted:
Rainbow Technologies, Inc.
By:____________________________
Title:___________________________
