PLAN AND AGREEMENT OF REORGANIZATION
This Plan and Agreement of Reorganization dated March 27, 2000 is entered
into by LIBERATE TECHNOLOGIES, a Delaware corporation (the "BUYER"), LT
ACQUISITION CORPORATION, a Pennsylvania corporation and wholly owned subsidiary
of the Buyer ("MERGER SUB"), MORECOM, INC., a Pennsylvania corporation (the
"COMPANY"), and the holders of certain of the outstanding capital stock of the
Company executing this Agreement (the "STOCKHOLDERS"). The Company is a
developer and marketer of software for set-top boxes and other information
appliances (the "BUSINESS").
Capitalized terms used herein have the meanings stated in Section 9.
The Buyer desires to acquire the Company through a merger of Merger Sub
with and into the Company (the "MERGER"), and the Company and the Stockholders
desire to consummate the Merger, under the terms of this Agreement.
The Merger is intended to qualify as a tax-qualified reorganization within
the meaning of Section 368(a)(2)(E) of the Code.
Therefore, in consideration of the mutual agreements contained herein, the
parties hereby agree as follows:
SECTION 1 THE MERGER
1.1 CLOSING. The closing (the "CLOSING") under this Agreement shall
take place at the offices of McCutchen, Doyle, Brown & Enersen, LLP, Palo Alto,
within 5 business days after the satisfaction (or waiver by the party entitled
to waive) of all conditions stated in Sections 5 and 6, or at such other place
or on such other date as the parties may agree in writing.
1.2 EFFECTIVE DATE OF MERGER. The Merger shall take effect upon filing
of a certificate of merger with the Department of State of the Commonwealth of
Pennsylvania in accordance with Pennsylvania Law (the "EFFECTIVE TIME").
1.3 MERGER. At the Effective Time, Merger Sub shall be merged with and
into the Company and the separate corporate existence of Merger Sub shall
cease. The Company shall be the surviving corporation in the Merger (the
"SURVIVING CORPORATION") and shall continue to hold the purposes, objects,
powers, immunities, assets and Properties, and continue to be subject to the
debts, liabilities and obligations, of the Company and shall also be vested in
all assets and Properties of, and be subject to the debts, liabilities and
obligations, of Merger Sub with the same effect as though such assets and
Properties had been originally owned, and such debts, liabilities and
obligations had been originally incurred, by the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION. At the Effective Time, the articles of
incorporation of the Company shall constitute the articles of incorporation of
the Surviving Corporation, subject always to the right of the Company to amend
its articles of incorporation after the Effective Time in accordance with the
laws of the Commonwealth of Pennsylvania, and shall not be amended by virtue of
the Merger.
1.5 BY-LAWS. At the Effective Time, the by-laws of Merger Sub shall
constitute the by-laws of the Surviving Corporation and shall not be amended by
the Merger.
1.6 DIRECTORS AND OFFICERS. At the Effective Time, the directors of
Merger Sub immediately prior to the Effective Time shall constitute the
directors of the Surviving Corporation, and the officers of Merger Sub
immediately prior to the Effective Time shall constitute the officers of the
Surviving Corporation, in each case until their successors have been elected and
qualified or until otherwise provided by law.
1.7 COMPANY SHARES OWNED BY COMPANY OR BUYER. At the Effective Time, all
of the shares of capital stock of the Company ("SHARES") that are owned directly
or indirectly by the Company or any subsidiary of the Company and any Shares
owned by the Buyer, Merger Sub or any other subsidiary of the Buyer shall be
canceled and no consideration shall be delivered therefor.
1.8 COMPANY SHARES. At the Effective Time, each share of Common Stock,
$0.001 par value per share, and each share of Preferred Stock, $0.001 par value
per share, of the Company (each such share of Common Stock or Preferred Stock
being herein called a "SHARE"), other than any Shares as to which dissenters'
rights under Subchapter D of the Pennsylvania Business Corporation Law are
perfected and other than those referred to in Section 1.7, shall be converted
into the number of shares of the Buyer Common Stock, $0.01 par value per share
("BUYER STOCK"), determined by dividing the Buyer Share Amount by the
Fully-Diluted Company Shares (such quotient being herein called the "EXCHANGE
RATIO"). "BUYER SHARE AMOUNT" means the number of shares of Buyer Stock which
have an aggregate value, at the Average Price, of $561,000,000. "AVERAGE PRICE"
means the average closing price of a share of Buyer Stock on the Nasdaq National
Market System for the 5 trading days ending on and including the 3rd trading day
prior to the Closing Date, but in no event shall the Average Price be higher
than $85.3875 or lower than $69.8625. "FULLY-DILUTED COMPANY SHARES" means the
sum, without duplication, of (i) all Shares outstanding immediately prior to the
Effective Time and (ii) the number of Shares subject to any Stock Right
outstanding immediately prior to the Effective Time, whether or not then
exercisable, other than Stock Rights granted under the New Option Plan(s). All
calculations relevant to the determination of the Exchange Ratio shall be
appropriately adjusted for any stock split, reverse stock split, stock dividend
or similar transaction occurring after the date hereof.
1.9 COMMON STOCK OF MERGER SUB. At the Effective Time, all of the
outstanding shares of Common Stock of Merger Sub shall be converted into an
equal number of shares of Common Stock of the Surviving Corporation.
1.10 FRACTIONAL SHARES. The Buyer shall not be required to issue or
deliver any fractional shares of Buyer Stock or any certificates representing
fractional shares of Buyer Stock for certificates representing the Shares;
however, the Buyer shall pay to each person who would otherwise be entitled to
receive a certificate representing a fractional share of Buyer Stock an
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amount in cash (rounded to the nearest whole cent) equal to the per share value
of Buyer Stock (based on the Average Price) multiplied by the fraction of a
share of Buyer Stock to which such Stockholder would otherwise be entitled.
1.11 COMPANY STOCK OPTIONS. At the Effective Time, the Buyer will assume
the Company's obligations under the Company Existing Option Plan and any New
Option Plan adopted by the Company and all options outstanding thereunder, and
each option outstanding thereunder at the Effective Time will be exercisable for
the number of shares of Buyer Stock determined by multiplying the number of
Shares subject thereto at the Effective Time by the Exchange Ratio, and the
exercise price for each share of Buyer Stock subject thereto shall be the
exercise price in effect immediately prior to the Effective Time divided by the
Exchange Ratio. Such options shall continue to vest in accordance with their
terms, including acceleration of a portion of the unvested options by virtue of
the Merger. Such assumption shall not preclude participation by employees of
the Company that continue their employment in the Buyer's stock option and other
plans in the normal course.
1.12 CERTIFICATE SURRENDER REQUIRED. Notwithstanding any other provision
of this Agreement, no certificate for Buyer Stock and no cash in lieu of
fractional shares otherwise payable to a holder of Shares who has not
theretofore surrendered its, his or her certificates formerly evidencing the
Shares registered in its, his or her name shall be issued or paid until the
surrender of such certificates to the Buyer. Until properly surrendered,
certificates formerly evidencing the Shares shall be deemed for all purposes to
evidence only the shares of Buyer Stock into which such Shares were converted by
virtue of the Merger.
1.13 NOTICE. As soon as practicable after the Effective Time, the
Company shall notify each Stockholder who has not already surrendered all its,
his or her certificates formerly evidencing the Shares registered in its, his or
her name, that the Merger has become effective and that such certificates may be
surrendered to the Buyer in order to receive certificates representing the
shares of Buyer Stock into which such Shares were converted by virtue of the
Merger and the amounts then payable to such holder in accordance with this
Agreement.
1.14 NONREGISTERED CERTIFICATE HOLDERS. If any part of the Buyer Stock
issuable or right to receive cash in lieu of fractional shares payable to a
holder of Shares is to be issued or paid to a Person other than the Person in
whose name the certificates surrendered in exchange therefor are registered, it
shall be a condition to such issuance or payment that the certificate so
surrendered shall be properly endorsed or accompanied by appropriate stock
powers and otherwise in proper form for transfer, that such transfer otherwise
be proper and that the Person requesting such transfer pay to the Company any
transfer or other taxes payable by reason of the foregoing or establish to the
satisfaction of the Company that such taxes have been paid or are not required
to be paid.
1.15 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
certificate formerly representing the Shares shall have been lost, stolen or
destroyed, upon the making of any affidavit of that fact by the registered
holder thereof or his duly authorized attorney-in-fact, the Buyer shall issue
the certificate for Buyer Stock and pay the cash amount to which such Shares are
then entitled by virtue of the Merger, provided that the Buyer may, in its
discretion and as a condition precedent to such issuance and payment, require
the owner of such lost, stolen or destroyed certificate to give the Buyer and
the Company a bond in such sum as it may direct as indemnity against any claim
that may
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be made against the Buyer or the Company with respect to the certificate alleged
to have been lost, stolen or destroyed.
1.16 TRANSFER BOOKS; NO FURTHER OWNERSHIP RIGHTS IN THE SHARES. At the
Effective Time, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of the Shares on
the records of the Company. From and after the Effective Time, the holders of
Certificates evidencing ownership of the Shares outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to such Shares,
except as otherwise provided for herein or by applicable law.
1.17 DISSENTERS' RIGHTS. If any dissenters' right under Subchapter D of
the Pennsylvania Business Corporation Law ("DISSENTERS' RIGHTS") are asserted,
the Company shall give the Buyer and Merger Sub notice thereof and the Buyer and
Merger Sub shall have the right to participate in all negotiations and
proceedings with respect to any such demands. The Surviving Corporation shall
not, except with the prior written consent of the Buyer or Merger Sub,
voluntarily make any payment with respect to, or settle or offer to settle, any
assertion of Dissenters' Rights. If any Shares as to which Dissenters' Rights
are asserted shall fail to perfect or shall have effectively withdrawn or lost
such Dissenters' Rights, such Shares shall thereupon be treated as though such
Shares had been converted into Buyer Stock pursuant to Section 1.8.
1.18 OTHER AGREEMENTS.
(a) Simultaneously with the parties' entry into this Agreement, each
Stockholder is entering into a Support Agreement with the Buyer substantially in
the form attached as EXHIBIT A.
(b) At the Closing, the parties and the Holders' Agent will enter into an
escrow agreement (the "ESCROW AGREEMENT") substantially in the form attached as
EXHIBIT B.
(c) At the Closing, the Stockholders who are managers of the Company will
enter into the Equity Holder Agreement in the form attached as EXHIBIT C.
(d) At the Closing, the Stockholders who are managers of the Company will
enter into employment agreements with the Buyer in mutually-agreed form, which
will include a 2-year no-relocation provision.
(e) At the Closing, the Stockholders included in SCHEDULE 1.18(e) will
enter into amendments to their existing noncompetition agreements with the
Company to extend the noncompetition period to the later of (i) one year from
termination of employment and (ii) the second anniversary of the Effective Time.
(f) Prior to the Closing, the Company and/or the Buyer will adopt one or
more new stock option plan(s) (the "NEW OPTION PLAN(S)") providing for vesting
25% at the end of one year and monthly over the following 3 years and otherwise
similar to the Buyer's 1999 Equity Incentive Plan and reasonably satisfactory to
the Buyer, and issue options thereunder, effective at the Effective Time, in an
amount that will convert in the Merger into options for approximately 300,000
shares of Buyer Stock, with the exact number and allocation to be recommended by
the Chief Executive Officer of the Company and to be reasonably satisfactory to
the Chief Executive Officer of the Buyer.
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1.19 ESCROW DEPOSIT. Notwithstanding anything in this Section 2, a
number of shares of Buyer Stock equal to one-tenth of the number of shares of
Buyer Stock into which the Shares held by each stockholder of the Company
immediately prior to the Effective Time shall be converted by virtue of the
Merger shall be subject to the Escrow Agreement. Certificates representing such
Buyer Stock shall be delivered to the escrow agent under the Escrow Agreement
(the "ESCROW AGENT") rather than the holder of Shares otherwise entitled
thereto.
1.20 DISTRIBUTION FROM ESCROW
(a) Promptly after the Last Escrow Claim Date, as that term is defined in
the Escrow Agreement, the Holders' Agent and the Buyer shall sign a joint
instruction pursuant to which the Escrow Agent will distribute to the holders of
Shares, pro rata in accordance with the shares of Buyer Stock deposited by each
with the Escrow Agent, the portion, if any, of the amount then held under the
Escrow Agreement against which the Buyer has not made a claim.
(b) Promptly after resolution of any Buyer claims under the Escrow
Agreement, the Holders' Agent and the Buyer will sign a joint instruction
pursuant to which the Escrow Agent will distribute to the holders of Shares, pro
rata in accordance with the shares of Buyer Stock deposited by each with the
Escrow Agent, their share, if any, and to the Buyer its share, if any, of the
amount released to the Stockholders and the Buyer pursuant to such resolution.
(c) The provisions of this Section 1.20 are supplemented by the more
detailed provisions of the Escrow Agreement.
SECTION 2 TRANSACTIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND
THE COMPANY
A. The Stockholders and the Company represent and warrant to the Buyer
that, on and as of the date hereof:
2.1 CAPITAL STOCK.
(a) The outstanding capital stock of the Company is as follows:
SHARES
DESIGNATION OF CLASS OUTSTANDING
Common Stock 9,337,500
Series A Preferred Stock 2,135,713
Series B Preferred Stock 3,965,518
Series E Preferred Stock 666,667
Series F Preferred Stock 3,588,619
Series G Preferred Stock 3,000,000
The outstanding Shares of each class and series are within the amounts
authorized in the Company's articles of incorporation. There is no capital
stock of the Company outstanding except as stated in this Section 2.1(a). The
record and beneficial owners to the outstanding capital stock state in this
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Section 2.1(a) are set forth in SCHEDULE 2.1. The outstanding Stock Rights of
the Company are as follows:
SHARES SUBJECT
CLASS OF TO STOCK RIGHT
DESIGNATION OF STOCK RIGHT STOCK
Conversion Right of Series A Common 2,135,713
Preferred Stock
Conversion Right of Series B Common 3,965,518
Preferred Stock
Conversion Right of Series E Common 666,667
Preferred Stock
Conversion Right of Series F Common 3,588,619
Preferred Stock
Conversion Right of Series G Common 3,000,000
Preferred Stock
Options under the Company Common see Schedule
Existing Option Plan 2.1
There are no Stock Rights outstanding with respect to the Company except as set
forth in this Section 2.1(a), and the terms, and record and beneficial owners,
of such Stock Rights are as set forth in SCHEDULE 2.1. Except as disclosed in
SCHEDULE 2.1, the Company is not a party to any stockholders agreement,
registration rights agreement or other Contract with respect to capital stock or
Stock Right issued or to be issued by it.
(b) All of the issued and outstanding capital stock of the Company has
been duly and validly authorized and issued and is fully paid and
non-assessable, and has not been issued in violation of any preemptive or
similar rights of any stockholder or any applicable securities law. Except as
disclosed in SCHEDULE 2.1, no Person has any right to require the Company to
redeem, purchase or otherwise reacquire any capital stock issued by the Company
or any Stock Rights with respect to any capital stock issued by the Company.
There are no preemptive or similar rights in respect of any capital stock of the
Company except as set forth in SCHEDULE 2.1.
(c) Subject to the dividend contemplated by Section 6.8, the Company has
never declared or paid any dividend or made any distribution in respect of any
of its capital stock or any Stock Rights with respect thereto, or, except as set
forth in SCHEDULE 2.1, directly or indirectly redeemed, purchased or otherwise
acquired any of the capital stock issued by it or any Stock Rights with respect
thereto.
2.2 ORGANIZATION; GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite corporate power and authority
to own, lease and operate its Properties and to conduct the Business as
currently conducted. The Company is not required to be qualified to do business
as a foreign corporation in any jurisdiction. The Company is not a partner in
any general or limited partnership or a member in any limited liability company.
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2.3. AUTHORITY. The Company has all requisite power and authority under
applicable corporate law to execute and deliver this Agreement and to perform
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all requisite corporate action on the part of the Company
(subject to the vote or consent of its stockholders approving the Merger and
this Agreement) and no other approval on the part of the Company is necessary
under applicable corporate law for the execution, delivery and performance of
this Agreement.
2.4 NO VIOLATION. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby (i) will not violate or
conflict with the articles of incorporation or by-laws of the Company, (ii)
except as set forth in SCHEDULE 2.4, do not require any Third-Party Action with
respect to the Company, (iii) do not violate any Legal Requirement or Order
applicable to the Company, (iv) do not conflict with or constitute a default
under, or result in the acceleration or right of acceleration of any obligations
or the termination or right of termination of any rights under any Contract to
which the Company is a party, and (v) will not result in the creation or
imposition of any Lien, claim, charge, restriction, equity or encumbrance of any
kind upon or give any Person any interest or right in or with respect to any of
the Properties, assets, business, agreements or Contracts of the Company.
2.5 NO BROKERS, FINDERS, ETC. Neither the Company nor (with respect to
each Stockholder) such Stockholder has engaged any agent, broker, finder or
investment or commercial banker in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated hereby, except
the engagement of Chase H&Q by the Company, whose terms of engagement are fully
and accurately set forth in SCHEDULE 2.5.
B. Each Stockholder, with respect to itself, himself or herself only,
hereby represents and warrants to the Buyer that, on and as of the date hereof:
2.6. POWER AND AUTHORITY. Such Stockholder has all requisite power and
authority to execute and deliver this Agreement and the Stockholder Agreement to
perform the transactions contemplated hereby.
2.7 TITLE. Such Stockholder is the sole record and beneficial owner of
the shares of Company stock set forth opposite such Stockholder's name on
SCHEDULE 2.1. Such shares are free and clear of all Third-Party Rights, and
such Stockholder has the full and unrestricted right, power and authority to
vote such shares in favor of, and have such shares participate in, the Merger.
2.8 AUTHORITY; ENFORCEABILITY. Such Stockholder has full right and
power and all authorization and approval required by any Legal Requirement, and
by any Contract to which such Stockholder is a party to vote his, her or its
shares in favor of the Merger. The execution, delivery and performance of this
Agreement and the Stockholder Agreement by such Stockholder have been duly
authorized by all necessary action. This Agreement and the Stockholder
Agreement is each legally binding on and enforceable against such Stockholder in
accordance with its terms. The execution, delivery and performance of this
Agreement and the Stockholder Agreement by such Stockholder and the consummation
by such Stockholder of all of the transactions contemplated hereby and thereby
(x) do not violate any Legal Requirement or Order applicable to such Stockholder
and (y) do not conflict with or constitute a default (with or without the giving
of notice
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or the passage of time or both) under, or result in any acceleration or right of
acceleration of any obligations under, any Contract to which such Stockholder is
a party.
2.9 SECURITIES STATUS. Such Stockholder is acquiring Buyer Stock under
the terms of this Agreement for such Stockholder's own account. Such
Stockholder understands that the Buyer Stock has not been registered under the
Act by reason of its issuance or contemplated issuance in a transaction exempt
from the registration and prospectus delivery requirements of the Act. Such
Stockholder is an "accredited investor," as that term is defined in Section
501(a) of Regulation D of the Act.
2.10 TRANSFER AND ASSIGNMENT. Any transfer or assignment of the Buyer
Stock must be made in compliance with the Act and applicable state securities
laws, established to the reasonable satisfaction of the Company. There are no
agreements, refusal rights or arrangements of any kind between such Stockholder
and any other party that require such Stockholder to offer or sell the Buyer
Stock to any Person, whether in connection with the transaction contemplated by
this Agreement, any resale of the Buyer Stock in the future or otherwise.
2.11 LEGENDS. Such Stockholder understands that the certificate(s)
evidencing the Buyer Stock may bear a legend substantially as follows, if the
Buyer Stock is issued pursuant to a California Permit or under an S-4:
[if pursuant to a California Permit: THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933.] THE SHARES HAVE BEEN ACQUIRED IN A RULE 145 TRANSACTION, AS
DEFINED IN RULE 145 ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION. THE SHARES MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED
OR HYPOTHECATED ONLY IN COMPLIANCE WITH THE LIMITATIONS OF RULE 145,
ESTABLISHED TO THE REASONABLE SATISFACTION OF THE COMPANY.
and any legend required by any applicable state laws or regulations. If the
Buyer Stock is issued other than pursuant to a California Permit or an S-4
pursuant to Section 7.11, such certificate(s) will be appropriately legended, as
required by applicable law.
2.12 TAX STATUS. Each Stockholder understands and acknowledges that the
qualification of the Merger as a reorganization under Section 368(a)(2)(E) of
the Code is dependent on a number of factors outside the control of the Buyer.
Each Stockholder confirms that he, she or it has relied upon his, her or its own
tax counsel, and not on the Buyer or any representative of the Buyer, with
respect to such qualification.
SECTION 3 BUSINESS REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND THE
COMPANY
The Stockholders and the Company represent and warrant to the Buyer that,
on and as of the date hereof:
3.1 SUBSIDIARIES, ETC. The Company does not beneficially own any equity
or debt interest (except as a creditor in the ordinary course of business),
direct or indirect, in any Person.
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3.2 FINANCIAL STATEMENTS, ETC.
(a) FINANCIAL STATEMENTS. SCHEDULE 3.2(a) contains copies of the audited
consolidated balance sheets and consolidated statements of operations and
retained earnings and of cash flows for the Company at and for each of the three
years ended December 31, 1997, December 31, 1998 and December 31, 1999 (the
"LAST FISCAL YEAR-END") (the "AUDITED STATEMENTS") and copies of the unaudited
consolidated balance sheets and consolidated statements of operations for the
Company at and for the period February 29, 2000 (the "INTERIM STATEMENTS" and,
together with the Audited Statements, the "FINANCIAL STATEMENTS"). The
Financial Statements fairly present the consolidated financial condition of the
Company at the dates indicated and the consolidated results of operations and
cash flows of the Company for the periods indicated in accordance with GAAP
consistently applied throughout the periods indicated (except as stated therein
and, in the case of the Interim Statements, for the absence of statements of
retained earnings and cash flows and footnotes and subject to normal,
nonmaterial year-end adjustments).
(b) HSR ACT. The balance sheet included in the Interim Statements is the
Company's last regularly prepared balance sheet within the meaning of the HSR
Act. The Company is its own ultimate parent entity within the meaning of the
HSR Act.
(c) CERTAIN INDEBTEDNESS. SCHEDULE 3.2(c) sets forth all obligations of
the Company and its Subsidiaries with respect to borrowed money, debt
securities, capitalized leases and the deferred payment of the purchase price of
property or services over an original term of 6 months or more, and the Property
of the Company, if any, subject to a Lien to secure any of such obligations.
(d) ABSENCE OF CERTAIN LIABILITIES. The Company has no liability or
obligation of any nature, whether absolute, accrued, contingent or otherwise,
arising out of acts or omissions heretofore occurring, or circumstances
currently or heretofore existing, except: (i) as expressly set forth in this
Agreement (including without limitation disclosures in the Schedules hereto);
(ii) as accrued in the balance sheet included in the Audited Statements or
Interim Statements; (iii) for liabilities and obligations incurred since the
Last Fiscal Year-End in the ordinary course of business consistent in nature and
amount with past practice; and (iv) liabilities and obligations of a kind not
required to be accrued in a balance sheet at the date hereof prepared in
accordance with GAAP which individually (or in the aggregate for related
matters) will not subject the Company to Damages in excess of $75,000.
(e) ABSENCE OF CERTAIN CHANGES. Since the Last Fiscal Year-End, except
as set forth in SCHEDULE 3.2(e):
(i) The Company has operated its business in the ordinary course.
(ii) There has been no material adverse change in the assets,
business, liabilities, financial condition, results of operations or
customer base of the Company.
(iii) There has not been any damage, destruction or condemnation
known to the Company with respect to Property having an aggregate net book
value on the Company's books in excess of $75,000, net of any insurance
recoveries.
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(iv) There has not been any change in the accounting methods,
practices or principles of the Company.
(v) The Company has not sold, transferred or otherwise disposed
of (or agreed or committed to sell, transfer or otherwise dispose of) any
Property other than the sale of inventory in the ordinary course, or
canceled, compromised, released or assigned any debt or claim in its
favor, where the aggregate amount of such sales, transfers, dispositions,
cancellations, compromises, releases or assignments exceeds $75,000.
(vi) The Company has not instituted, settled or agreed to settle
any litigation, action or proceeding before any Governmental Agency.
(vii) The Company has not assumed, guaranteed, endorsed or
otherwise become responsible (or otherwise agreed to become responsible)
for the obligations of any other Person, except for the endorsement of
negotiable instruments in the ordinary course of business.
(viii) The Company has not granted (or agreed or committed to grant)
any increase in compensation or fringe benefits other than normal salary
increases consistent with prior periods and employment offer letters
issued in the ordinary course of business.
3.3 TAXES.
(a) The Company has properly completed and filed, within the time and in
the manner prescribed by law, all Tax returns and other documents required to be
filed in respect of all Taxes, and all such returns and other documents are
true, correct and complete, except for any nonfilings and errors which in the
aggregate will not result in Damages in excess of $75,000. The Company has
furnished to the Buyer copies of all income Tax returns of the Company for the
past four years. The Company has, within the time and in the manner prescribed
by law, paid all Taxes that are due and payable. The Company has established
reserves on its books that are adequate for the payment of all Taxes not yet due
and payable.
(b) (i) None of such returns contained a disclosure statement under
Section 6662 of the Code or any similar provision of foreign law;
(ii) The Company has not received written notice from any federal
or foreign taxing authority asserting any deficiency against the Company
or claim for additional Taxes in connection therewith, other than any
deficiency or claim which has been previously settled or for which
appropriate reserves are included in the Interim Statements;
(iii) The Company has not received any notice of any pending
action, audit, proceeding or investigation with respect to the assessment
or collection of federal or foreign Taxes or a claim for refund made by
the Company with respect to federal or foreign Taxes previously paid;
(iv) All amounts that are required to be collected or withheld by
the Company with respect to federal or foreign Taxes have been duly
collected or withheld, and all such
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amounts that are required to be remitted to any federal or foreign taxing
authority have been duly remitted;
(v) No audit has been conducted of any federal or foreign income
tax return filed by the Company. The time during which such returns
remain open for examination has expired in accordance with applicable
statute and regulations, except for those returns for which the normally
applicable statutory/regulatory period has not yet elapsed;
(vi) The Company has not requested nor been granted any currently
effective waiver or extension of any statute of limitations with respect
to the assessment or filing of any federal or foreign Tax or return with
respect thereto;
(vii) No consent has been filed under Section 341(f) of the Code
with respect to the Company;
(viii) The Company is not required to include in income any
adjustment pursuant to Section 481(a) of the Code (or similar provisions
of foreign laws or regulations) by reason of a change in accounting method
nor does the Company have any knowledge that the Internal Revenue Service
(or other federal or foreign taxing authority) has proposed, or is
considering, any such change in accounting method; and
(ix) The Company is not a party to and is not bound by nor has any
continuing obligation under any tax sharing or similar agreement or
arrangement with any Person.
3.4 TITLE TO PROPERTIES.
(a) The Company owns no real Property.
(b) SCHEDULE 3.4(b) is a true and complete summary based on the books and
records of the Company of all items of personal Property owned by the Company
with a net book value at the Last Fiscal Year-End in excess of $7,500 per item.
(c) Except as set forth in SCHEDULE 3.4(c), the Company has good title to
all of its Properties, in each case free and clear of all Third-Party Rights.
(d) The Company owns all material items of non-inventory tangible and
intangible personal Property that were owned as of the Last Fiscal Year-End and
used in generating the revenue shown in the last audited statement of operations
of the Company for the fiscal year ending on the Last Fiscal Year-End previously
delivered to the Buyer, subject to any sales or dispositions of tangible
personal Property since the Last Fiscal Year-End in the ordinary course of
business.
3.5 INVENTORIES. Since the Last Fiscal Year-End, all sales of inventory
have been made in the ordinary course of business and no inventory has been
pledged as collateral.
3.6 ACCOUNTS RECEIVABLE. The accounts receivable of the Company (i) are
bona fide and arose from valid sales in the ordinary course of business in
material conformity with all applicable Legal Requirements, (ii) are valid and
binding obligations of the debtors requiring no further performance by the
Company, and (iii) subject to the allowance for doubtful accounts receivable in
11
the balance sheet included in the Interim Statements, are fully collectible and
not subject to any offsets or counterclaims and do not represent guaranteed
sale, sell-or-return transactions or any other similar understanding. No
accounts receivable have been pledged as collateral to any Person. The amounts
shown for accounts receivable in the Financial Statements reflect an allowance
for doubtful accounts receivable in accordance with GAAP.
3.7 LEASES, ETC. SCHEDULE 3.7 lists all leases, rental agreements,
conditional sales contracts and other similar Contracts under which the Company
leases (as lessor or lessee) any real or personal Property with rental payments
exceeding $15,000 per year (collectively, the "DISCLOSABLE LEASES"). All
Disclosable Leases are, in all material respects, valid, in good standing and
enforceable by the Company in accordance with their terms. Neither the Company
nor any other party to any Disclosable Lease is in material breach thereof. The
Company enjoys peaceable possession of all real estate premises subject to
Disclosable Leases to which it is a party and to all personal Property subject
to Disclosable Leases to which it is a party.
3.8 FACILITIES, EQUIPMENT. The Company owns or leases all material
land, buildings and equipment used in the operation of its business. The
Company has not received any notice of any material violation of any Legal
Requirement or Order by the Company's facilities which has not been corrected,
and no facility of the Company is in material violation of any Legal Requirement
or Order.
3.9 INSURANCE. SCHEDULE 3.9 lists and describes briefly all binders and
policies of liability, theft, life, fire and other forms of insurance and surety
bonds, insuring the Company or any of its Properties, assets and business as of
the date hereof. All policies and binders listed in SCHEDULE 3.9 are valid and
in good standing and in full force and effect and the premiums have been paid
when due. Except for any claims set forth in SCHEDULE 3.9, there are no
outstanding unpaid claims under such policy or binder, and, except as set forth
in SCHEDULE 3.9, the Company has not received any notice of cancellation,
general disclaimer of liability or non-renewal of any such policy or binder.
3.10 EMPLOYMENT AND BENEFIT MATTERS.
(a) SCHEDULE 3.10(a) lists each of the following for each employee of the
Company: name, hire date, current salary and currently held options (including
the vesting schedule applicable to such options). None of the employees listed
on SCHEDULE 3.10(a) has given Company notice of his or her intention to resign
his or her position with the Company and Company has no present intention to
terminate such employees.
(b) SCHEDULE 3.10(b) lists all of the following items which are
applicable to the Company: (i) employment Contracts with any employee, officer
or director; and (ii) Contracts or arrangements with any Person providing for
bonuses, profit sharing payments, deferred compensation, stock options, stock
purchase rights, retainer, consulting, incentive, severance pay or retirement
benefits, life, medical or other insurance, payments triggered by a change in
control or any other employee benefits or any other payments, "fringe benefits"
or perquisites which are not terminable at will without liability to the Company
or which are subject to ERISA. The contracts or arrangements referred to in the
foregoing clause (ii) are herein called "BENEFIT PLANS."
12
(c) Neither the Company, nor any of its ERISA Affiliates, has any union
contracts, collective bargaining, union or labor agreements or other Contract
with any group of employees, labor union or employee representative(s), nor has
the Company or any ERISA Affiliate ever participated in or contributed to any
single employer defined benefit plan or multi-employer plan within the meaning
of ERISA Section 3(37), nor is the Company currently engaged in any labor
negotiations, excepting minor grievances, nor is the Company the subject of any
union organization effort. The Company is in material compliance with
applicable Legal Requirements respecting employment and employment practices and
terms and conditions of employment, including without limitation health and
safety and wages and hours. No unfair labor practice complaint is pending
against the Company before the National Labor Relations Board or other
Governmental Agency. There is no labor dispute, strike, slowdown or work
stoppage pending or threatened against the Company.
(d) True and correct copies of each Benefit Plan listed in SCHEDULE
3.10(b) that is subject to ERISA (a "COMPANY ERISA PLAN") and related trust
agreements, insurance contracts, and summary descriptions have been delivered or
made available to the Buyer by the Company. The Company has also delivered or
made available to the Buyer a copy of the two most recently filed IRS Forms
5500, with attached financial statement and accountant's opinion, if applicable,
for each Company ERISA Plan. The Company has also delivered or made available
to the Buyer a copy of, in the case of each Company ERISA Plan intended to
qualify under Section 401(a) of the Code, the most recent Internal Revenue
Service letter as to its qualification under Section 401(a) of the Code.
Nothing has occurred prior to or since the issuance of such letters to cause the
loss of qualification under the Code of any of such plans.
(e) None of the Company ERISA Plans has participated in, engaged in or
been a party to any prohibited transaction as defined in ERISA or the Code, and
there are no material claims pending or overtly threatened, involving any
Benefit Plan listed in SCHEDULE 3.10(b). There have been no material violations
of any reporting or disclosure requirements with respect to any Company ERISA
Plan.
(f) Neither the Company nor any of its ERISA Affiliates has any liability
for any excise tax imposed by Section 4971, 4972, 4974, 4975, 4976, 4977, 4978,
4978B, 4979, 4979A, 4980 or 4980B of the Code.
(g) The Company and its ERISA Affiliates do not maintain any plans
providing benefits within the meaning of Section 3(1) of ERISA (other than group
health plan continuation coverage under Section 601 of ERISA and 4980B(f) of the
Code) to former employees or retirees.
3.11 CONTRACTS. Except as shown on SCHEDULES 3.7 and 3.11, and except
for Contracts fully performed or terminable at will without liability to the
Company (both before and after the Effective Time), the Company is not a party
to any Contract (i) which materially affects the Company, its business,
Properties, assets, operations or financial condition, (ii) which contemplates
performance by the Company during a remaining period of more than one year
(90 days in the case of any purchase Contract) or involves remaining commitments
for sale or purchase in excess of $62,500, (iii) under which the rights or
obligations of any party will change, accelerate, terminate, vest or in any
other way be affected by the consummation of the Merger or (iv) in which any
Affiliate of the Company has any direct or indirect economic interest. True and
complete copies of each Contract
13
disclosable on SCHEDULE 3.11 (a "DISCLOSABLE CONTRACT") have been delivered to
the Buyer. Each Disclosable Contract is, in all material respects, valid, in
good standing and enforceable by the Company in accordance with its terms.
Neither the Company nor any other party to any Disclosable Contract is in
material breach thereof.
3.12 OFFICERS AND DIRECTORS, ETC. SCHEDULE 3.12 is a true and complete
list of:
(a) the names of each of the Company's officers and directors;
(b) the name of each bank or other financial institution in which the
Company has an account, deposit or safe deposit box and the names of all persons
authorized to draw thereon or to have access thereto; and
(c) the name of each bank or other financial institution in which the
Company has a line of credit or other loan facility.
3.13 CORPORATE DOCUMENTS. The Company has furnished or made available to
the Buyer or its representatives true, correct and complete copies of (i) the
articles of incorporation and bylaws of the Company, (ii) the minute books of
the Company containing all records required to be set forth of all proceedings,
consents, actions and meetings of the stockholders and board of directors of the
Company; (iii) all material Permits and Orders with respect to the Company and
(iv) the stock transfer books of the Company setting forth all transfers of any
capital stock.
3.14 LEGAL PROCEEDINGS, CLAIMS. There is no action, suit, proceeding or
investigation pending in any court or before any arbitrator or before or by any
Governmental Agency against the Company or any of its Properties or business,
and no such action, suit, proceeding or investigation currently threatened. The
Company is not currently subject to any claim by any Person, whether or not such
claim involves the threat of any action, suit, proceeding or investigation,
other than claims which in the aggregate do not exceed $50,000.
3.15 COMPLIANCE WITH INSTRUMENTS, ORDERS AND LEGAL REQUIREMENTS. The
Company is not in material violation of, or in default in any material respect
with respect to, any term or provision of its articles of incorporation or
bylaws, or any Order or any Legal Requirement applicable to the Company.
3.16 PERMITS. The Company holds all Permits material to the conduct of
its business as and where now conducted. There is not pending nor, threatened
any proceedings to terminate, revoke, limit or impair any material Permit.
3.17 INTELLECTUAL PROPERTY.
(a) Except as set forth on SCHEDULE 3.17(a), the Company or a Subsidiary
owns, solely and exclusively, and free and clear of any Third-Party Right, all
title to and rights in all Intellectual Property that are used in the business
of the Company and its Subsidiaries as currently conducted (collectively, the
"COMPANY INTELLECTUAL PROPERTY"). "INTELLECTUAL PROPERTY" means patents, patent
rights, trademarks, trademark rights, trade names, trade name rights, service
marks, copyright registrations, copyrights, and any applications for any of the
foregoing, net lists, schematics, industrial models, inventions, technology,
know-how, trade secrets, computer software programs or
14
applications (in both source code and object code form), development
documentation, programming tools, data, technical information, and tangible or
intangible proprietary information or material.
(b) SCHEDULE 3.17(b) lists all patents, patent applications, trademarks,
trade names, service marks and copyrights included in the Company Intellectual
Property which have been registered, issued or applied for and the jurisdictions
in which such Company Intellectual Property right has been issued, registered or
applied for.
(c) SCHEDULE 3.17(c) lists (i) all licenses, sublicenses and other
agreements, written or unwritten, to which the Company or any Subsidiary is a
party and pursuant to which any Person is authorized to use, resell, sublicense
or market or distribute any Company Intellectual Property, and (ii) all written,
and all material unwritten, licenses, sublicenses and other agreements to which
the Company or any Subsidiary is a party and pursuant to which the Company or
any Subsidiary is authorized to use, resell or distribute any third-party
Intellectual Property, including without limitation software, opensource,
freeware, shareware and hardware, (collectively, "THIRD-PARTY INTELLECTUAL
PROPERTY") which are incorporated in or are a part of any products which the
Company or any Subsidiary has sold, resold, licensed or sublicensed, or which is
material to the current operations of the Company and its Subsidiaries, other
than (in the case of Third-Party Intellectual Property used internally only)
readily-obtainable standard products with wide retail distribution. The Company
and each Subsidiary has, and at the relevant times in the past had, all
necessary rights to resell or distribute any hardware and software of a third
party which it resells or distributes or has resold or distributed. Neither the
Company nor any Subsidiary is in material violation of any license, sublicense
or agreement described in SCHEDULE 3.17(c). To the knowledge of the Company,
neither the Company nor any Subsidiary, or any of the products or operations of
either, is in material violation of or materially infringes any Third-Party
Intellectual Property. Except as set forth on SCHEDULE 3.17(c), neither the
Company nor any Subsidiary has received any claim that it has lost or will lose
any rights of the Company or any Subsidiary under any licenses to Third-Party
Intellectual Property to which the Company or such Subsidiary is a party. The
execution and delivery of this Agreement by the Company and the consummation of
the transactions contemplated hereby will neither cause the Company or any
Subsidiary to be in violation or default under any such license, sublicense or
agreement nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement. Except
as listed on SCHEDULE 3.17(c), neither the Company nor any Subsidiary has
assigned or licensed to any third party any right, title or interest in the
Company Intellectual Property. Except as listed on SCHEDULE 3.17(c), neither
the Company nor any Subsidiary is contractually obligated to pay any
compensation to any third party for the use of the Company Intellectual Property
or the Third-Party Intellectual Property.
(d) To the Company's knowledge, there is no material unauthorized use,
disclosure, infringement or misappropriation of any Company Intellectual
Property or any Third-Party Intellectual Property licensed by or through the
Company by any third party, including without limitation any employee or former
employee of the Company or any Subsidiary. Neither the Company nor any
Subsidiary has entered into any agreement to indemnify any other person against
any charge of infringement of any Third-Party Intellectual Property, other than
indemnification provisions contained in purchase orders arising in the ordinary
course of business.
(e) To the Company's knowledge, all patents, registered trademarks,
registered service marks and registered copyrights held by the Company and its
Subsidiaries are valid and subsisting.
15
To the Company's knowledge, there is no assertion or claim (or basis therefor)
challenging the validity of any Company Intellectual Property. Neither the
Company nor any Subsidiary has been sued in any suit, action or proceeding, or
otherwise notified of any claim, which involves a claim of infringement of any
patent, trademark, service mark, copyright or violation of any trade secret or
other proprietary right of any third party. To the Company's knowledge neither
the conduct of the business of the Company and its Subsidiaries as currently
conducted nor the manufacture, sale, licensing or use of any of the products of
the Company and its Subsidiaries as now manufactured, sold or licensed or used,
infringes on or conflicts with, in any way, any trademark, trademark right,
trade name, trade name right, service mark or copyright, or, to the Company's
knowledge, any patent, patent right, industrial model or invention, of any third
party that individually or in the aggregate has or is reasonably likely to have
a Material Adverse Effect. To the Company's knowledge and except as set forth
on SCHEDULE 3.17(e), no third party is challenging the ownership by the Company
nor any Subsidiary, or the validity or effectiveness of, any of the Company
Intellectual Property. Neither the Company nor any Subsidiary has brought any
action, suit or proceeding for infringement of Company Intellectual Property or
breach of any license or agreement involving Company Intellectual Property
against any third party. There are no pending, or to the Company's knowledge,
threatened interference, re-examinations, oppositions or nullities involving any
patents, patent rights or applications therefor of the Company or any
Subsidiary. Except as set forth on SCHEDULE 3.17(e), to the Company's
knowledge, there is no breach or violation by a third party of, or actual or
threatened, loss of rights under, any licenses to which the Company is a party.
(f) Except as set forth in SCHEDULE 3.17(f), the Company or a Subsidiary
has secured written assignments from all current and former consultants and
employees who contributed to the creation or development of the Company
Intellectual Property currently being provided or marketed to customers or
currently being used by the Company or a Subsidiary of the rights to such
contributions that the Company or such Subsidiary does not already own by
operation of law, recognizing the Company's or Subsidiary's ownership of all
such Company Intellectual Property and agreeing to hold such of it as is not
protected by patents, patent applications or copyright ("CONFIDENTIAL
INFORMATION") in confidence and not to use any Confidential Information except
in connection with such consultant's or employee's work for the Company or a
Subsidiary.
(g) The Company and each of its Subsidiaries has taken all commercially
reasonable steps to protect and preserve the confidentiality of all Confidential
Information. Except as set forth on SCHEDULE 3.17(g), all use, disclosure or
appropriation of Confidential Information by or to a third party has been
pursuant to the terms of a written confidentiality or nondisclosure agreement
between the Company or any Subsidiary and such third party. SCHEDULE 3.17(g)
lists all such agreements currently in effect.
(h) SCHEDULE 3.17(h) lists (including names, addresses, contact names,
telephone numbers and termination date and next renewal date) of all Contracts
or other arrangements currently in effect pursuant to which the Company or any
Subsidiary is obligated to provide installation, maintenance or other support
services (collectively, the "SUPPORT AGREEMENTS"). Except for any nonstandard
maintenance agreements specified as such in SCHEDULE 3.17(h), all of the Support
Agreements are in all material respects in the form of the license agreement
identified as the standard maintenance agreement set forth in SCHEDULE 3.17(h).
The versions of the products currently supported by the Company are set forth in
SCHEDULE 3.17(h).
16
(i) There are no material defects in the Company's products, and there
are no material errors in any documentation, specifications, manuals, user
guides, promotional material, internal notes and memos, technical documentation,
drawings, flow charts, diagrams, source language statements, demo disks,
benchmark test results, and other written materials related to, associated with
or used or produced in the development of the Company's or its Subsidiaries'
products, which defects or errors have or are reasonably like to have,
individually or in the aggregate, a Material Adverse Effect.
(j) SCHEDULE 3.17(j) lists, as of the date hereof, all written
agreements or other arrangements under which the Company or any Subsidiary has
provided or agreed to provide source code of the Company or any Subsidiary or
any other Company Intellectual Property to any third Person, whether pursuant to
escrow arrangements or otherwise.
(k) The Company has made available to the Buyer copies of the Company's
standard forms of end-user licenses. Except as disclosed in SCHEDULE 3.17(k)
(which describes the material variations from the standard form of end-user
license), as of the date hereof, Company has not entered into any end-user
licenses which contain terms materially different than as set forth in the
standard forms of such agreements made available to Purchaser.
(l) No government funding or university or college facilities were used
in the development of any product currently marketed or currently proposed to be
marketed, and no such product was developed pursuant to any contract or other
agreement with any Person except pursuant to contracts or agreements listed in
SCHEDULE 3.17(l).
(m) The Company categorizes warranty claims against it as critical and
non-critical. There have been no critical warranty claims related to products
currently or previously marketed by the Company that are pending or were made
within the past twelve months. Except as set forth in SCHEDULES 3.17(c) AND
3.17(m), to the knowledge of the Company, the Company has not made any material
oral or written representations or warranties with respect to its products or
services.
3.18 CAPITAL EXPENDITURES. SCHEDULE 3.18 sets forth, by nature and
amount, all capital expenditures of the Company in excess of $10,000
individually for which commitments have been or are budgeted to be made, or for
which payments or current liabilities have been made or incurred or are budgeted
to be made or incurred, after the Last Fiscal Year-End. The aggregate amount of
capital expenditures of $10,000 or less individually so committed or budgeted
(other than workstations acquired in the ordinary course of business for new
employees) does not exceed $50,000.
3.19 ENVIRONMENTAL MATTERS. There are no Hazardous Materials used or
present at any location used by the Company in the conduct of the Business,
except for any Hazardous Materials constituting normal office supplies. To the
knowledge of the Company, no location currently or previously used by the
Company is contaminated by any Hazardous Material, and no event has occurred and
no activity has been or is being conducted by the Company or any other Person
which has resulted or could reasonably result in contamination of any location
currently or previously used by the Company by any Hazardous Material. To the
knowledge of the Company, no Government Agency has commenced any investigation
or proceeding with respect to the contamination of any location currently or
previously used by the Company by any Hazardous Material.
17
3.20 ILLEGAL PAYMENTS. To the knowledge of the Company, none of the
Company or any director, officer, employee, or agent of the Company has,
directly or indirectly, paid or delivered any fee, commission, or other sum of
money or item of property however characterized to any broker, finder, agent,
government official, or other person, in the United States or any other country,
in any manner related to the business or operations of the Company, which the
Company or any such director, officer, employee, or agent knows or has reason to
believe to have been illegal under any law.
3.21 CONFIDENTIALITY OBLIGATIONS. The Company is not in possession of
any information, documents or materials under an obligation of confidentiality
or non-use to any other Person other than pursuant to a Contract described in
SCHEDULE 3.11. To the knowledge of the Company, the conduct of the Business as
presently conducted does not violate or conflict with the obligation of
confidentiality or non-use to any other Person.
3.22 AFFILIATE TRANSACTIONS. SCHEDULE 3.22 lists all transactions since
the Company's inception, and all obligations currently in effect (whenever
arising), between the Company or any subsidiary of the Company on the one hand
and any Affiliate of the Company or any Person related to an Affiliate of the
Company by blood or marriage on the other hand.
3.23 INFORMATION PROVIDED. The information supplied in writing to the
Buyer or its advisors by the Company and the Stockholders for inclusion in the
application for issuance of a California permit under Section 25142 of the
California Corporations Code (the "CALIFORNIA PERMIT") shall not, at the time
the fairness hearing is held pursuant to such Section and the time the
qualification of such securities is effective under such Section contain any
untrue statement of a material fact or 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 were made, not misleading. The
information supplied by the Company and the Stockholders for inclusion in any
Registration Statement shall not, on the date the Registration Statement is
filed, at the time such holders vote or consent to the Merger and at the
Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any previously communicated
statement which has become false or misleading. The information supplied by the
Company and the Stockholders for inclusion in any information statement or
information statement/prospectus (the "INFORMATION STATEMENT") to be sent to the
holders of Shares in connection with such holders' consideration of the Merger
shall not, on the date the Information Statement is first mailed to such
holders, at the time such holders vote or consent to the Merger and at the
Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any previously communicated
statement which has become false or misleading. Notwithstanding the foregoing,
neither the Company nor any Stockholder makes any representation, warranty or
covenant with respect to any information supplied by the Buyer or Merger Sub
that is contained in such permit application or such information statement.
18
3.24 REPRESENTATIONS. No representation or warranty by the Company in
this Agreement, or in any document furnished by the Company pursuant hereto
contains any untrue statement of a material fact or omits to state a fact
necessary to make the statements contained herein and therein not misleading.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer hereby represents and warrants to the Stockholders and the
Company that, on and as of the date hereof:
4.1 ORGANIZATION, STANDING, ETC. OF BUYER AND MERGER SUB. The Buyer is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Pennsylvania. The Buyer and Merger Sub have full power and authority under
applicable corporate law to own, lease and operate their Properties and to carry
on the business in which they are engaged.
4.2 AUTHORITY; ENFORCEABILITY. The Buyer and Merger Sub have all
necessary power and authority under applicable corporate law to execute, deliver
and perform their obligations under this Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Buyer and Merger Sub has been duly authorized by all
necessary action under applicable corporate law and no other approvals are
required. This Agreement is legally binding on and enforceable against the
Buyer and Merger Sub in accordance with its terms. The execution, delivery and
performance of this Agreement by the Buyer and Merger Sub and the consummation
by the Buyer and Merger Sub of all of the transactions contemplated hereby, (w)
will not violate or conflict with the certificate or articles of incorporation
or bylaws of the Buyer or Merger Sub, (x) do not require any Third-Party Action
relating to the Buyer or Merger Sub except those listed on SCHEDULE 4.2, (y) do
not violate any Legal Requirement or Order applicable to the Buyer or Merger Sub
and (z) do not conflict with or constitute a default (with or without the giving
of notice or the passage of time or both) under, or result in any acceleration
or right of acceleration of any obligations under, any Contract to which the
Buyer or Merger Sub is a party, where, in each case, the absence of such
Third-Party Action or such violation, conflict, default or acceleration would in
any way adversely affect the transactions contemplated hereby.
4.3 SEC INFORMATION. As of their respective filing dates (except as
thereafter amended) all documents that the Buyer has filed with the SEC (the
"BUYER SEC DOCUMENTS") have complied in all material respects with the
applicable requirements of the Act or the Exchange Act, and none of the Buyer
SEC Documents has contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading except to the extent corrected by a subsequently filed
Buyer SEC Document.
4.4 INFORMATION PROVIDED. The information supplied in writing by the
Buyer for inclusion in the application for issuance of the California Permit
will not, at the time the fairness hearing is held pursuant to such Section and
the time the qualification of such securities is effective under such Section
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein with respect to such
19
information, in light of the circumstances under which they were made, not
misleading. The information supplied by the Buyer for inclusion in any
Registration Statement shall not, on the date the Registration Statement is
filed, at the time such holders vote or consent to the Merger and at the
Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact with respect to such information,
or omit to state any material fact necessary in order to make the statements
made therein with respect to such information, in light of the circumstances
under which they are made, not false or misleading; or omit to state any
material fact necessary to correct any previously communicated statement with
respect to such information which has become false or misleading. The
information supplied by the Buyer for inclusion in the Information Statement
shall not, on the date the Information Statement is first mailed to such
holders, at the time such holders vote or consent to the Merger and at the
Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact with respect to such information,
or omit to state any material fact necessary in order to make the statements
made therein with respect to such information, in light of the circumstances
under which they are made, not false or misleading; or omit to state any
material fact necessary to correct any previously communicated statement with
respect to such information which has become false or misleading.
Notwithstanding the foregoing, neither the Buyer nor Merger Sub makes any
representation, warranty or covenant with respect to any information supplied by
the Company or the Stockholders that is contained in such permit application,
Registration Statement or Information Statement.
SECTION 5 CONDITIONS TO OBLIGATIONS OF BUYER AT CLOSING
The obligations of the Buyer hereunder to be performed at the Closing are
subject to the satisfaction at or prior to the Closing of the following
conditions, except for any condition the Buyer may waive in writing in
accordance with Section 8.3.
5.1 REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties contained in Section 2 shall have
been true on the date of this Agreement and shall be true at and as of
immediately prior to the Closing with the same effect as though made at and as
of immediately prior to the Closing, subject to the right of the Company to
update schedules to disclose developments between the date hereof and the
Closing Date which are not materially adverse.
(b) The representations and warranties contained in Section 3 which are
qualified as to materiality or a specified dollar amount shall have been true on
the date of this Agreement and shall be true at and as of immediately prior to
the Closing with the same effect as though made at and as of immediately prior
to the Closing, subject to the right of the Company to update schedules to
disclose developments between the date hereof and the Closing Date which are not
materially adverse.
(c) The representations and warranties contained in Section 3 which are
not qualified as to materiality or a specified dollar amount shall have been
true in all material respects on the date of this Agreement and shall be true in
all material respects at and as of immediately prior to the Closing with the
same effect as though made at and as of immediately prior to the Closing,
subject to the right of the Company to update schedules to disclose developments
between the date hereof and the Closing Date which are not materially adverse.
20
5.2 CLOSING CERTIFICATE. Each Stockholder and the Company shall have
delivered to the Buyer his, her or its certificate dated the date of the Closing
that the conditions specified in Section 5.1 are satisfied. Such certificate
shall be deemed a representation and warranty of the Stockholder and the Company
under Sections 2 and 3 for all purposes of this Agreement.
5.3 PERFORMANCE. The Stockholders and the Company shall have performed
and complied in all material respects with all covenants required herein to be
performed or complied with by them or it on or before the Closing.
5.4 THIRD-PARTY ACTION. All Third-Party Action required in order to
consummate the Closing on the terms hereof shall have been taken, except to the
extent that the failure to secure such Third Party Action will not, in the
Buyer's business judgment, materially adversely affect the operations, results
of operations, value or liabilities of the Company following the Effective Time.
5.5 OPINION OF COUNSEL. The Buyer shall have received from Morgan,
Lewis & Bockius, LLP, counsel to the Company and the Stockholders, an opinion
dated the date of the Closing, in form and substance customary for similar
transactions.
5.6 TRANSACTIONAL LITIGATION. No action, suit or proceeding before any
Governmental Agency shall have been commenced, and no investigation by any
Governmental Agency shall have been commenced or overtly threatened, against the
Company, the Buyer, Merger Sub, or any of their respective principals, officers,
directors or shareholders seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the validity or legality of any
of such transactions or seeking damages in connection with any of such
transactions other than the exercise of Dissenters' Rights.
5.7 INTERIM EVENTS. None of the events listed in Sections 7.9(a)
through (h) shall have occurred.
5.8 MANAGEMENT CHANGES. No change in the chief executive officer of the
Company shall have occurred from the date hereof.
5.9 EQUITY HOLDER AGREEMENTS. The individuals designated in SCHEDULE
5.9 shall have entered into Equity Holder Agreements in the form attached as
EXHIBIT C.
5.10 EMPLOYMENT AGREEMENTS. The individuals designated in SCHEDULE 5.9
shall have entered into employment agreements with the Buyer as provided in
Section 1.18(d).
5.11 NONCOMPETITION AGREEMENTS. The individuals designated in SCHEDULE
5.11 shall have entered into amendments to their existing noncompetition
agreements with the Company to extend the noncompetition period to the later of
(i) one year from termination of employment and (ii) the second anniversary of
the Effective Time.
5.12 KEY CUSTOMERS. No material adverse change shall have occurred since
December 31, 1999 in the current or prospective business relationships between
the Company and any of the following customers: BetaResearch and Golden
Channels.
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5.13 STOCKHOLDER APPROVAL. The Stockholders shall have approved the
Merger and no Stockholders entitled to vote thereon shall have filed notices of
intention to dissent which would result in cash payment, at the Average Price,
of more than $12,000,000.
5.14 EMPLOYEES. Not less than 90% of the technical employees and key
non-technical employees of the Company as of the date hereof (other than any who
die or become long-term disabled) shall have signed and delivered letters
satisfactory to Buyer confirming their intention to continue their employment
with the Surviving Corporation following the Merger. If the Merger has not been
consummated within 75 days after the date hereof, the Company and the Buyer will
discuss and seek to mutually agree on an appropriate adjustment to the 90%
retention rate to reflect normal attrition.
5.15 TERMINATION OF AGREEMENTS. All agreements between the Company and
its stockholders, or among its stockholders, relating to registration rights,
first refusal or first offer rights, pre-emptive or percentage maintenance
rights, co-sale rights and similar rights shall have terminated on or before the
Effective Time in accordance with their terms or a termination agreement
reasonably satisfactory to the Buyer.
5.16 CORPORATE AND OTHER PROCEEDINGS. All corporate and other
proceedings on the part of the Company and the Stockholders in connection with
the transactions to be consummated at the Closing, and all documents and
instruments incident to such transactions, shall be reasonably satisfactory in
substance and form to the Buyer.
SECTION 6 CONDITIONS TO STOCKHOLDERS' AND COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Stockholders and the Company hereunder to be
performed at the Closing are subject to the satisfaction at or prior to the
Closing of the following conditions, except for any condition the Holders' Agent
may waive in accordance with Section 8.3.
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Buyer contained in Section 4 shall have been true in all material
respects on the date of this Agreement and shall be true in all material
respects at and as of immediately prior to the Closing with the same effect as
though made at and as of immediately prior to the Closing.
6.2 CLOSING CERTIFICATE. The Buyer shall have delivered to the Company
a certificate dated the date of the Closing that the conditions specified in
Section 6.1 are satisfied, and that the Buyer has not been affected by any
material adverse change since the date of this Agreement. Such certificate
shall be deemed a representation and warranty of the Buyer under Sections 4 for
all purposes of this Agreement.
6.3 PERFORMANCE. The Buyer and Merger Sub shall have performed and
complied in all material respects with all covenants required herein to be
performed or complied with by the Buyer and Merger Sub on or before the Closing.
6.4 THIRD-PARTY ACTION. All Third-Party Action required in order to
consummate the Closing on the terms hereof, other than any the absence of which
in the aggregate would not have a material effect on the transactions
contemplated hereby, shall have been taken.
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6.5 OPINION OF COUNSEL. The Stockholders and the Company shall have
received at the Closing from McCutchen, Doyle, Brown & Enersen, LLP, counsel to
the Buyer and Merger Sub, an opinion dated the date of the Closing, in form and
substance customary for similar transactions.
6.6 TRANSACTIONAL LITIGATION. No action, suit or proceeding before any
Governmental Agency shall have been commenced, and no investigation by any
Governmental Agency shall have been commenced or overtly threatened, against the
Company, the Buyer, Merger Sub or any of their respective principals, officers,
directors or stockholders seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the validity or legality of any
of such transactions or seeking damages in connection with any of such
transactions other than Dissenters' Rights.
6.7 DIVIDEND. The Company shall have distributed to the holders of
Shares a cash dividend in an amount equal to the excess, if any, immediately
prior to the Effective Time, of the Company's cash and cash equivalents over
$1,000,000.
6.8 STOCKHOLDER APPROVAL. With respect to the Company's closing
obligations only, the Merger shall have been approved by not less than a
majority of the Shares entitled to vote thereon.
6.9 LISTING. The Buyer Stock to be issued in the Merger shall have been
duly listed for trading on the Nasdaq National Market System.
6.10 CORPORATE AND OTHER PROCEEDINGS. All corporate and other
proceedings on the part of the Buyer and Merger Sub in connection with the
transactions to be consummated at the Closing, and all documents and instruments
incident to such transactions, shall be reasonably satisfactory in substance and
form to the Company.
6.11 TAX OPINION. The Company and its stockholders shall have received
an opinion, reasonably satisfactory in form and substance to the Company, as to
the qualification of the Merger under Section 368(a)(2(E) of the Code from
Morgan, Lewis & Bockius LLP or another similarly-qualified law firm.
6.12 PERMIT OR REGISTRATION. The California Permit shall have been
issued or a registration statement on the form determined pursuant to
Section 7.11 shall have become effective.
SECTION 7 COVENANTS
7.1 NON-DISCLOSURE. Each party agrees not to divulge or communicate, or
use for any purpose other than evaluating this transaction or exercising rights
as a party hereto, any information or materials concerning this Agreement, the
negotiation between the parties hereto and the transactions contemplated hereby,
except to the extent that such information (w) is or hereafter becomes lawfully
obtainable from other sources, (x) is required to be disclosed to a Governmental
Agency having jurisdiction over the party or its Affiliates, (y) is otherwise
required by law to be disclosed or (z) is disclosed following a waiver in
writing from the other parties. Promptly after the Effective Time, the Buyer
and the Company will issue a mutually agreeable press release concerning the
transactions contemplated hereby. The parties also hereby ratify and confirm
the Mutual Nondisclosure Agreement dated March 8, 2000, which shall continue in
effect.
23
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, INDEMNIFICATION.
(a) SURVIVAL. All representations and warranties made under Section 2, 3
or 4 shall survive the Closing, for one year in the case of Section 3, and any
investigation with respect thereto by an authorized party. Following the
Closing, however, the Company shall have no liability with respect to any
representation or warranty and shall not be subject to any contribution,
indemnity or similar claims with respect thereto by any Stockholder or any other
Person. For purposes of this Section 7.2, such representations and warranties
will be deemed amended by any schedule update delivered by the Company pursuant
to Sections 5.1 (a), (b) and (c), and by any additional written disclosure by
the Company expressly making an exception to a specified representation or
warranty, which additional disclosure is acknowledged and accepted in writing by
the Buyer prior to the Effective Time (it being understood that the Buyer shall
have complete discretion whether or not to acknowledge and accept any such
additional disclosure which is materially adverse).
(b) REPRESENTATIONS AND WARRANTIES IN SECTION 3. In the event of any
misrepresentation or breach of warranty in Section 3 (it being agreed that for
purposes of determining the existence of any such misrepresentation, all such
representations, warranties or covenants of the Stockholders and the Company
that are qualified as to materiality or as to a specified threshold or minimum
amounts shall be deemed to be not so qualified), the Buyer shall be entitled to
recover the related Recoverable Amount solely from the Escrow Account, provided
that (i) the Buyer gives notice of such misrepresentation or breach in
accordance with the Escrow Agreement, in reasonable detail, specifying the
amount of the claim, on or before 5:00 p.m. Pacific Time on the Last Escrow
Claim Date, it being understood that no recovery may be had against the Escrow
Account with respect to any claim which is not the subject of such a notice
given by such time, and (ii) the Buyer shall not be entitled to any such
recovery unless the aggregate Recoverable Amount for all claims made under this
Section 7.2(b) exceeds $350,000, in which event the Buyer may recover from the
Escrow Account the entire Recoverable Amount.
"RECOVERABLE AMOUNT" means Damages, if any, proximately resulting to the
Buyer on account of any misrepresentation, breach of warranty or breach of
covenant.
The Company, the Stockholders, any Affiliate of the Company or any
Affiliate of the Stockholders shall not have any liability or obligation of any
kind to the Buyer, or any other Person on account of the subject matter of any
representation or warranty made in Section 3, except from the Escrow Account as
stated in this Section 7.2. Notwithstanding anything in this Section 7.2, any
liability or obligation resulting from fraud or willful misconduct shall not be
subject to any of the limitations or thresholds stated in this Section 7.2(b).
(c) PRE-CLOSING TAXES, BROKERAGE, EXPENSES. The Buyer shall be entitled
to recover against the Escrow Account for Damages to it resulting from (i) the
failure of the Company to pay Taxes required to be paid or accrued under GAAP on
or before the Closing or (ii) any claim by any broker, finder or similar person
claiming through the Company or any Stockholder for any broker's fee, finder's
fee, commission or similar amount, other than as set forth in SCHEDULE 2.5 or
(iii) any other transaction expenses incurred by the Company in addition to
those set forth in the second sentence of Section 8.2.
24
(d) INDIVIDUAL TRANSACTIONAL REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDERS. Each Stockholder individually, for himself, herself or itself
only, hereby agrees to indemnify, defends and hold the Buyer harmless against
Damages resulting from breaches by him, her or it of the representations and
warranties in part B of Section 2. Without limitation on other remedies
available to the Buyer, amounts recoverable against individual Stockholders
pursuant to this Section 7.2(d) shall first be asserted against the individual
Stockholder's entitlement to distributions from the Escrow Account.
(e) LIMITATIONS. Nothing in this Section 7.2 shall limit the
indemnification available to the Buyer and the Stockholders under Sections 7.11,
if applicable.
7.3 DISPUTED AND THIRD-PARTY CLAIMS.(a) If the Buyer shall give notice
of a claim in accordance with Section 7.2, and the Buyer and the Holders' Agent
do not resolve such matter by written agreement within 45 days after such notice
is given, the dispute will be settled exclusively by arbitration before a single
arbitrator appointed by the American Arbitration Association. The Buyer and the
Holders' Agent shall each bear their own expenses (including without limitation
the fees and expenses of legal counsel and accountants) in connection with such
arbitration. The arbitral award shall allocate the arbitrator's fees and
expenses according to the relative success of the Buyer and the Holders' Agent
in the arbitration, as determined by the arbitrator.
(b) To the extent a claim by the Buyer under Section 7.2 relates to a
claim asserted against a party to this Agreement (other than to enforce this
Agreement) (a "THIRD-PARTY CLAIM") and the Buyer gives notice of the assertion
of the Third-Party Claim, then the Holders' Agent will have the option,
exercisable by written notice to the Buyer within 20 days after receipt of the
Buyer' notice, to control the defense of such Third-Party Claim. All expenses
(including, without limitation, attorneys' fees) incurred by the Holders' Agent
in connection with their assumption of control of the defense of a Third-Party
Claim shall be paid by the Holders' Agent from the sources specified in the
Escrow Agreement. If the Holders' Agent has not assumed the defense of a Third-
Party Claim, then the Buyer shall have the right to control the defense of the
Third-Party Claim, and the expenses reasonably incurred by the Buyer in
connection with such defense shall be recoverable as part of the underlying
claim on the same basis and subject to the same limitations as stated in Section
7.2 and this Section.
(c) The party controlling the defense may use counsel selected by it, but
if the other party reasonably objects (within 20 days after designation of
counsel initially selected) on account of such counsel's representation or
potential representation of the designating party in matters in which the Buyer'
and the Stockholders' or the Company's interests are adverse or potentially
adverse, the designating party shall select other counsel free of any such
adverse representation. The party controlling the defense shall have the right,
in its discretion exercised in good faith and upon the advice of counsel, to
settle such matter, either before or after the initiation of litigation, at such
time and upon such terms as they deem fair and reasonable, PROVIDED that (i) at
least 10 days' prior notice shall be given to the other party of the intention
to settle the Third-Party Claim, (ii) no settlement by the controlling party
shall include any equitable relief binding on the noncontrolling party, and
(iii) the controlling party shall not agree to any settlement of such Third-
Party Claim without the prior written consent of the other party, which consent
shall not be unreasonably withheld. The noncontrolling party will have the
right to be represented by counsel, solely at its own expense. The controlling
party shall keep the other party advised of the status of the Third-Party Claim
and the
25
defense thereof and shall consider in good faith recommendations made by the
other party with respect thereto.
(d) Unless otherwise agreed by the parties, arbitration under
Section 7.3(a) of a claim by the Buyer with respect to a Third-Party Claim shall
be deferred until the resolution of the Third-Party Claim.
7.4 TERMINATION OF THIS AGREEMENT. If any condition of the Closing
stated in Section 5 is not satisfied on or before July 15, 2000 (if the
California Permit has been issued on or before July 1, 2000) or October 15, 2000
(in all other cases), then, provided the Buyer is not in material default
hereunder, the Buyer may at any time thereafter terminate any further
obligations under this Agreement by giving written notice thereof to the Company
and the Holders' Agent. If any condition of the Closing stated in Section 6 is
not satisfied on or before such date, then, provided the Company and the
Stockholders are not in material default hereunder, the Company and the Holders'
Agent may at any time thereafter terminate any further obligations under this
Agreement by giving written notice thereof to the Buyer. Any such termination
will not, however, terminate or otherwise affect the obligations of the parties
under Sections 7.1 or 8.1. This Agreement may be so terminated, or terminated
by mutual agreement of the parties upon the authorization of their respective
boards of directors, notwithstanding approval of this Agreement by the
stockholders of any or all parties.
7.5 REASONABLE BUSINESS EFFORTS, NO INCONSISTENT ACTION. Each party
will use its, his or her reasonable business efforts to cause the conditions
over which it has control to be satisfied on or before the Closing. No party
will take any action which will foreseeably result in the nonsatisfaction of any
condition stated in Section 5 or 6 on or before the Closing.
7.6 ACCESS. Between the date of this Agreement and the Closing or any
earlier termination of this Agreement in accordance with its terms, the Company
will (i) give the Buyer and its authorized representatives access to its books,
records, Properties, officers, attorneys and accountants and permit the Buyer to
make inspections and copies of such books and records, and (ii) furnish the
Buyer with such financial information and operating data and other information
with respect to its business and Properties, and to discuss with the Buyer and
its authorized representative its affairs, all as the Buyer may from time to
time reasonably request for the purposes of this Agreement, during normal office
hours. Any on-site visit shall be subject to reasonable advance notice and to
being accompanied by an officer or designated employee of the Company.
7.7 NO SOLICITATION OR NEGOTIATION. The Company and the Stockholders
agree that, between the date of this Agreement and the Closing or any earlier
termination of this Agreement in accordance with its terms, they will not (and
will not permit any person or entity which they control to) seek or entertain,
or negotiate any terms of, a Strategic Transaction with any party other than the
Buyer and its affiliates, or give any information concerning its business to any
such party, or enter into any agreement inconsistent with the proposed
transaction with the Buyer. A "STRATEGIC TRANSACTION" means (i) any form of
acquisition, direct or indirect, whether by purchase, merger, stock sale
(primary or secondary), reinsurance or any other structure, of any significant
(15% or greater in the aggregate) portion of the Company's consolidated business
or a significant (15% or greater in the aggregate) equity interest therein,
(ii) any arrangement whereby effective operating control of the Company's
consolidated business or a portion thereof is granted to another party or
(iii) any transaction involving the recapitalization, restructuring,
liquidation, dissolution or other
26
similar type of transaction involving the Company. During such period, the
Company will promptly notify the Buyer of the content and identity of any
proposal or communication it receives from any such person concerning any
Strategic Transaction.
7.8 INTERIM FINANCIAL INFORMATION. The Company will supply to the Buyer
unaudited consolidated monthly financial statements within 30 business days of
the end of each month ending between the date of this Agreement and the Closing
or any earlier termination of this Agreement in accordance with its terms,
prepared on a basis consistent with the unaudited consolidated financial
statements for the preceding months, together with additional monthly reports
substantially in the form heretofore delivered to the Company's Board of
Directors. For purposes of these statements, employee bonuses and similar
expenses may be accrued based on actual results for the year to date and
budgeted results for the balance of the year.
7.9 INTERIM CONDUCT OF BUSINESS. From the date of this Agreement until
the Closing or any earlier termination of this Agreement in accordance with its
terms, unless approved by the Buyer in writing, the Company will operate its
business consistently with past practice and in the ordinary course of business,
and will not:
(a) merge or consolidate with or agree to merge or consolidate
with, or sell or agree to sell all or substantially all of its Property
to, or purchase or agree to purchase all or substantially all of the
Property of, or otherwise acquire, any other Person or a division thereof,
except as provided in this Agreement;
(b) amend its articles of incorporation or by-laws except as may be
necessary to effect this Agreement and the transaction contemplated hereby
(which the Company agrees to complete on a timely basis);
(c) make any changes in its accounting methods, principles or
practices, except as required by GAAP;
(d) sell, consume or otherwise dispose of any Property, except in
the ordinary course of business consistent with past practices;
(e) authorize for issuance, issue, sell or deliver any additional
shares of its capital stock of any class or any Stock Rights with respect
to its capital stock, other than, in each case, the issuance of Common
Stock pursuant to the exercise of any conversion rights under Shares
outstanding on the date hereof and the exercise of any stock options
outstanding on the date hereof;
(f) except as contemplated in Section 6.8, declare any dividend on,
make any distribution with respect to, or redeem or repurchase, its
capital stock;
(g) except as provided in Section 1.18(f), modify, amend or
terminate any Benefit Plans, except as required under Legal Requirements
or any Disclosable Contract; or
(h) authorize or enter into an agreement to do any of the
foregoing.
7.10 FAIRNESS HEARING.
27
(a) As soon as practicable after the execution of this Agreement, the
Company shall prepare, with the cooperation of the Buyer, the Information
Statement for the holders of Shares to approve this Agreement and the
transactions contemplated hereby. The Information Statement shall constitute a
disclosure document for the offer and issuance of the shares of Buyer Stock to
be received by the holders of Shares. The Buyer and the Company shall each use
reasonable commercial efforts to cause the Information Statement to comply with
applicable federal and state securities laws requirements. Each of the Buyer
and the Company agree to provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the Information Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Information Statement.
The Company will promptly advise the Buyer, and the Buyer will promptly advise
the Company, in writing if at any time prior to the Effective Time either shall
obtain knowledge of any facts that might make it necessary or appropriate to
amend or supplement the Information Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. The Information Statement shall contain the recommendation of
the Company's Board of Directors and the Stockholders that the holders of Shares
approve the Merger and this Agreement and the conclusion of the Company's Board
of Directors that the terms and conditions of the Merger are advisable and fair
and reasonable to the holders of Shares. The Company shall not include in the
Information Statement any information with respect to the Buyer or its
affiliates or associates, the form and content of which information shall not
have been approved by the Buyer prior to such inclusion.
(b) As soon as practicable after the execution of this Agreement, and
subject to Section 7.10(a), the Buyer shall prepare, with the cooperation of the
Company, the application for the California Permit. The Buyer and the Company
shall each use commercially reasonable efforts to cause such application to
comply with the requirements of applicable federal and state laws, and agrees to
provide promptly to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the providing
party or its counsel, may be required or appropriate for inclusion in such
application, or in any amendments or supplements thereto, and to cause its
counsel and auditors to cooperate with the other's counsel and auditors in the
preparation of such application. The Company will promptly advise the Buyer,
and the Buyer will promptly advise the Company, in writing if at any time prior
to the Effective Time it shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement such application in order to
make the statements contained or incorporated by reference therein not
misleading or to comply with applicable law. The Buyer shall not include in
such application any information with respect to the Company or its affiliates
or associates, the form and content of which information shall not have been
approved by the Company prior to such inclusion.
(c) If the California Permit is not issued on or before June 1, 2000,
then the parties will proceed without a California Permit, and Section 7.11 will
apply.
7.11 REGISTRATION.
(a) FORM OF REGISTRATION. In the event a hearing for the California
Permit is not granted by the California Department of Corporations by May 1,
2000 or such Department issues a determination against granting a hearing prior
to that date, the Buyer and the Company will
28
promptly commence preparation of an S-4 pursuant to Section 7.11(b). If a
hearing is denied at a later date or the hearing held but the California Permit
not issued, the parties agree to consult and seek to reach agreement upon an
alternative form of registration, such as a resale prospectus under Form S-3,
that provides liquidity at least equivalent (as to amount and timing) for
Company stockholders to the liquidity that would have been provided by a
California Permit, but on a more cost-effective but substantially as timely
basis than an S-4, if available, and otherwise the parties will promptly
commence the preparation of an S-4.
(b) S-4. Promptly after this Section 7.11(b) becomes applicable, the
Buyer and the Company will jointly prepare and file with the SEC the Information
Statement forming part of a registration statement on Form S-4 (the "S-4"). The
Buyer and the Company will use all reasonable efforts to cause the S-4 to become
effective as promptly as practicable after the date this Section 7.11(b) becomes
applicable. The Buyer and the Company will provide promptly to one another such
information concerning its business and financial statements and affairs as is,
in the reasonable judgment of the providing party or its counsel, required or
appropriate for inclusion in the Information Statement and the S-4, or in any
amendments or supplements thereto, and will cause their respective counsel and
accountants to cooperate with one another in the preparation of the Information
Statement and the S-4. The Company and the Buyer will notify the other promptly
upon the receipt of any comments of the SEC or its staff or any other government
officials relating to the Information Statement, S-4 or any amendment or
supplement thereto, and will supply the other with copies of all correspondence
between such party or any of its representatives, on the one hand, and the SEC
or its staff or any other government officials, on the other hand, relating to
the Information Statement, S-4 or any amendment or supplement thereto. Whenever
any event occurs which is required to be set forth in an amendment or
supplement, the Information Statement or the S-4, the Company or the Buyer, as
the case may be, will promptly inform the other of such occurrence and cooperate
in filing with the SEC or its staff or any other government official, and/or
furnishing to shareholders of the Company, such amendment or supplement. No
amendment or supplement to the Information Statement or the S-4 will be made
without the approval of both the Company and the Buyer, which approval shall not
be unreasonably withheld or delayed. The Company and the Buyer will each advise
the other, promptly after it receives notice thereof, of the time when the S-4
has become effective or any supplement or amendment has been filed, of the
issuance of any stop order, or of any request by the SEC for amendment of
Information Statement or the S-4 or comments thereon and responses thereto or
request by the SEC for additional information. The Information Statement shall
contain the recommendation of the Company's Board of Directors and the
Stockholders that the holders of Shares approve the Merger and this Agreement.
The Buyer will mail the Information Statement to the Company's stockholders at
the addresses provided by the Company. To the extent required by applicable
law, the Buyer will at its expense qualify the offer of the Buyer Stock under
the "blue sky" laws of any state of the United States or the District of
Columbia as necessary to consummate the Merger. If this Section 7.11(b) becomes
applicable, the parties will enter into indemnification agreement customary for
similar S-4 transactions.
(c) S-3. If a registration on Form S-3 is determined to be appropriate
pursuant to Section 7.11(a), this Section 7.11(c) shall apply.
(i) Upon the written request of the holders of the Buyer Stock
certifying that they have a bona fide intention to sell a specified number, not
less than 300,000, of shares of Buyer
29
Stock, the Buyer shall file a S-3 (the "S-3"), registering the number of shares
Buyer Stock so specified (the "REGISTRABLE SECURITIES") for non-underwritten
resale into the open market.
(ii) In order to effect the registration, the Buyer shall:
(1) prepare and file the S-3 with respect to the Registrable
Securities and use its best efforts to cause the S-3 to become effective and
remain effective for at least 120 days;
(2) prepare and file with the SEC such amendments and
supplements to the S-3 and the prospectus used in connection therewith as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by the S-3;
(3) furnish to the Stockholders the numbers of copies of the
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as the Stockholders may
reasonably request in order to facilitate the disposition of the Registrable
Securities;
(4) use its best efforts to register and qualify the
securities covered by the S-3 under other securities or blue sky laws of such
jurisdictions as shall be reasonably appropriate for distribution of the
securities covered by the S-3, provided that the Buyer shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions; and
(5) notify the Stockholders, at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event as a result of which the prospectus included in such S-3, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
(iii) It shall be a condition precedent to the obligation of the
Buyer under this Section 7.11(c) that the each Stockholder shall furnish to the
Buyer such information regarding such Stockholder, the shares of Registrable
Securities held by such Stockholder and the intended method of disposition of
such shares as shall reasonably be required to effect the registration of the
Registrable Securities.
(iv) The Buyer shall bear and pay all expenses incurred by the
Buyer in connection with any registration, filing or qualification of the
Registrable Securities with respect to registrations pursuant to this Section
7.11(c), including (without limitation) all registration, filing, qualification,
printer's fees, accounting fees and expenses and the fees of a single attorney
for the Stockholders, but shall not be responsible for other charges relating to
the Buyer Stock and expenses or any taxes imposed with respect to the
Registrable Securities on the sale and transfer thereof.
(v) To the extent permitted by law, the Buyer will indemnify and
hold harmless any Stockholder and each person, if any, who controls Stockholder
within the meaning of the Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, or the Exchange Act, or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "VIOLATION"): (i) any untrue
30
statement or alleged untrue statement of a material fact contained in the S-3,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Buyer of the Act, the Exchange Act, any state securities law or
any rule or regulation promulgated under the Act, or the Exchange Act or any
state securities law; and the Buyer will pay to such Stockholder or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; PROVIDED, HOWEVER, that the indemnity agreement contained
in this subsection (1) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Buyer (which consent shall not be unreasonably withheld), nor
shall the Buyer be liable to any indemnitee for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished by such indemnitee expressly for use in connection with
such registration.
(vi) To the extent permitted by law, Stockholder will indemnify
and hold harmless the Buyer, each of its directors, each of its officers who has
signed the S-3, each person, if any, who controls the Buyer within the meaning
of the Act, any other shareholder selling securities in the S-3 and any
controlling person of any such other shareholder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the Exchange Act, or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by Stockholder
expressly for use in connection with such registration; and Stockholder will
pay, as incurred, any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this Section 7.11(c)(vi), in connection
with investigating or defending any such loss, claim, damage, liability, or
action; PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 7.11(c)(vi) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Stockholder, which consent shall not be unreasonably
withheld; and PROVIDED, THAT, in no event shall any indemnity obligation under
this Section 7.11(c)(vi) (together with any obligation to contribute under
Section 7.11(c)(ix)) exceed the gross proceeds from the offering received by
Stockholder.
(viii) Promptly after receipt by an indemnified party under this
Section 7.11(c) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7.11(c), deliver
to the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure
31
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.11(c), but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this
Section 7.11(c).
(ix) If the indemnification provided for in this Section 7.11(c) is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. In no event shall any Stockholder's obligation to
contribute under this Section 7.11(c)(ix) (together with any obligation to
indemnify under Section 7.11(c)(vi)) exceed the gross proceeds from the offering
received by such Stockholder.
(x) The obligations of the Buyer and Stockholder under this
Section 7.11(c) shall survive the completion of any offering of Registrable
Securities in the S-3.
7.12 NOTICE OF CERTAIN EVENTS. The Company shall notify the Buyer, and
the Buyer shall promptly notify the Company, of:
(i) receipt of any notice or other communication from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) receipt of any notice or other communication from any
Governmental Entity in connection with the transactions contemplated by
this Agreement;
(iii) receipt of notice that any action, suit, claim, investigation
or proceeding has been commenced or, to the knowledge of the Company,
threatened, against or involving the Company, the Buyer or Merger Sub, as
applicable, which, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Section 3.14 or which
relates to the transactions contemplated by this Agreement;
(iv) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would be likely to cause any representation or
warranty of it (and, in the case of the Buyer, of Merger Sub) contained in
this Agreement to be untrue or inaccurate; and
(v) any failure of the Company, the Buyer or Merger Sub, as the
case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder
32
The delivery of any notice pursuant to this Section 7.12 shall not limit or
otherwise affect the remedies available to the party receiving such notice.
7.13 COMPANY LOCATION. The Buyer currently intends to maintain the
principal offices of the Company in the Horsham, PA area and agrees to do so for
not less than 2 years from the date of this Agreement, unless Ami Miron approves
otherwise.
7.14 MINIMUM DAMAGES. In the event the Merger does not occur due to a
breach by the Buyer or the Company, the damages recoverable by the nonbreaching
party for such breach shall not be less than $25,000,000. In all events, such
remedy shall be in addition to, and not in lieu of, any and all remedies, legal,
equitable or other, otherwise available under this Agreement and applicable law.
SECTION 8 MISCELLANEOUS
8.1 BUYER BROKERAGE. The Buyer has not engaged any agent, broker, finder
or investment or commercial banker in connection with the negotiation, execution
or performance of this Agreement or the transactions contemplated hereby, other
than Credit Suisse First Boston, for whose fees and expenses, the Buyer will be
solely responsible. The Buyer shall indemnify, defend and hold the Company and
the Stockholders harmless against and in respect of any claim for brokerage fees
or other commissions incurred or owing due to any such engagement or alleged
engagement.
8.2 EXPENSES. If the transactions contemplated by this Agreement are
not consummated, the Company and the Buyer shall each pay their own fees and
expenses incident to the negotiation, preparation, execution, delivery and
performance hereof, including, without limitation, the fees and expenses of
their respective counsel, accountants, bankers, brokers, and other experts. If
the transactions contemplated by this Agreement are consummated, the Buyer
shall, in addition to its own fees and expenses, pay (or bear, through the
Company's payment) the reasonable fees and expenses of the Company incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement, including, without limitation, the investment banking fees set forth
in SCHEDULE 2.5 and the reasonable fees and expenses of its counsel and
accountants.
8.3 COMPLETE AGREEMENT; WAIVER AND MODIFICATION, ETC. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior and contemporaneous agreements and
understandings of the parties, but excluding the Non-Disclosure Agreement dated
March 8, 2000 between the Buyer and the Company, which shall continue in effect.
There are no representations or warranties by any party except those expressly
stated or provided for herein, any implied warranties being hereby expressly
disclaimed. There are no covenants or conditions except those expressly stated
herein. No amendment, supplement or termination of or to this Agreement, and no
waiver of any of the provisions hereof, shall be binding on a party unless made
in a writing signed by such party. This Agreement may be modified by mutual
agreement of the parties as authorized by their respective boards of directors,
notwithstanding approval hereof and thereof by the stockholders of the parties,
subject to the limitations imposed by the Pennsylvania Business Corporation Law.
Nothing in this Agreement shall be construed to give any Person other than the
express parties hereto any rights or remedies.
8.4 NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing and shall be given by delivery (by
mail or otherwise) or transmitted to the address
33
or facsimile number listed below, and will be effective (in all cases) upon
receipt. Without limiting the generality of the foregoing, a mail, express,
messenger or other receipt signed by any Person at such address shall
conclusively evidence delivery to and receipt at such address, and any printout
showing successful facsimile transmission of the correct total pages to the
correct facsimile number shall conclusively evidence transmission to and receipt
at such facsimile number.
(a) If to the Buyer or Merger Sub:
Liberate Technologies
2 Circle Star Way
San Carlos, California 94070-6200
attention: Gordon Yamate
facsimile: 650-701-5258
with a copy to:
McCutchen, Doyle, Brown & Enersen, LLP
3150 Porter Drive
Palo Alto, CA 94304
attention: Bartley C. Deamer
facsimile: 650-849-4800
(b) If to the Company:
MoreCom, Inc.
Two Walnut Grove Drive, Suite 200
Horsham, PA 19033
attention: Ami Miron
facsimile: 215-733-9401
with a copy to:
Alan Goldberg
2828 Charter Road
Philadelphia, PA 19154
facsimile: 215-676-1991
and
Stephen Goodman
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
facsimile: 215-963-5299
34
(c) If to the Stockholders:
c/o Ami Miron
1644 Tuckerstown Road
Dresher, PA 19025
facsimile: 215-773-9401
with a copy to:
Alan Goldberg
2828 Charter Road
Philadelphia, PA 19154
facsimile: 215-676-1991
Any party may change its address or facsimile number for purposes of this
Section 8.4 by giving the other party written notice of the new address or
facsimile number in accordance with this Section 8.4, PROVIDED it is a normal
street address, or normal operating facsimile number, in the continental United
States.
8.5 LAW GOVERNING. This Agreement shall be interpreted in accordance
with and governed by the laws of the State of Delaware, without regard to
principles of conflicts of laws.
8.6 HEADINGS; REFERENCES; "HEREOF," ETC. The Section headings in this
Agreement are provided for convenience only, and shall not be considered in the
interpretation hereof. References herein to Sections, Exhibits or Schedules
refer, unless otherwise specified, to the designated Section of or Exhibit or
Schedule to this Agreement. Terms such as "herein," "hereto" and "hereof" refer
to this Agreement as a whole.
8.7 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the heirs, executors, administrators and successors of
the parties hereto, but no right or liability or obligation arising hereunder
may be assigned by any party hereto.
8.8 COUNTERPARTS, SEPARATE SIGNATURE PAGES. This Agreement may be
executed in any number of counterparts, or using separate signature pages. Each
such executed counterpart and each counterpart to which such signature pages are
attached shall be deemed to be an original instrument, but all such counterparts
together shall constitute one and the same instrument.
8.9 SEVERABILITY. In the event any of the provisions of this Agreement
shall be declared by a court or arbitrator to be void or unenforceable, then
such provision shall be severed from this Agreement without affecting the
validity and enforceability of any of the other provisions hereof, and the
parties shall negotiate in good faith to replace such unenforceable or void
provisions with a similar clause to achieve, to the extent permitted under law,
the purpose and intent of the provisions declared void and unenforceable.
8.10 ATTORNEYS' FEES. In the event any suit, counterclaim, arbitration
or other proceeding is brought to enforce or interpret the provisions of this
Agreement, the prevailing side (the Buyer, on the one hand, and the Company
and/or the Stockholders on the other hand) shall be entitled to recover from the
nonprevailing side, in addition to all other remedies available at equity and
law, the
35
cost, including but not limited to reasonable attorneys' fees, incurred by the
prevailing side therein, including any appeal or other subsequent proceeding. A
side shall be considered to prevail if it secures a more favorable result than
the other side (who shall be considered the nonprevailing party), as determined
by the arbitrator or judge.
SECTION 9 GLOSSARY
ACT - the Securities Act of 1933, as amended.
AFFILIATE - a Person who controls, is controlled by or is under common
control with another Person, or who directly or indirectly owns 10% or more of
the voting power in such other Person, or of whose voting power such other
Person (or a Person holding 10% or more of the voting power in such other
Person) owns 10% or more. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
AGREEMENT - this Plan and Agreement of Reorganization, including the
Exhibits and Schedules hereto.
AVERAGE PRICE - Section 1.8.
AUDITED STATEMENTS - Section 3.2(a).
BENEFIT PLANS - Section 3.10(a).
BUSINESS - introductory paragraphs.
BUYER - introductory paragraphs.
BUYER SEC DOCUMENTS - Section 4.3.
BUYER SHARE AMOUNT - Section 1.8.
BUYER STOCK - Section 1.8.
CALIFORNIA PERMIT - Section 3.23.
CLOSING - Section 1.1.
CODE - the Internal Revenue Code of 1986, as amended.
COMMON STOCK - the Common Stock of the Company.
COMPANY - introductory paragraphs.
COMPANY ERISA PLAN - Section 3.10(d).
COMPANY INTELLECTUAL PROPERTY - Section 3.17.
36
CONFIDENTIAL INFORMATION - Section 3.17(f).
COMPANY EXISTING OPTION PLAN - the Company's 1998 Stock Option Plan, as
amended.
CONTRACT - any agreement, written or oral, or any promissory note or other
instrument of a contractual nature, which is intended to be enforceable against
the Person in question or against any Property of such Person. Any Person which
is, or any of whose Property is, subject to enforcement of a Contract shall, for
purposes of this Agreement, be deemed a party to it.
DAMAGES - any loss, loss in value, cost, liability or expense actually
incurred, including without limitation, costs and expenses of litigation and
reasonable attorneys' fees, but excluding in each case incidental, consequential
or punitive damages. (The foregoing exclusion of punitive damages does not
apply, however, to any punitive damages awarded in a Third-Party Claim.) All
Damages shall be net of (i) any applicable insurance recovery (net of any
retrospective premium adjustment), (ii) any related net realized tax benefit
(taking any applicable recovery into account), (iii) any related refund or
recovery realized by the Buyer, (iv) any related reserve included in the Interim
Statements, and (v) any other reserve (whether or not related to the Damages in
question) included in the Interim Statements, to the extent that, at the time of
determination of Damages under this Agreement, such other reserve has proved to
be in excess of the Company's actual losses or liabilities reserved against
(PROVIDED, that such other reserves shall thereafter be reduced by the excess
thus utilized for netting).
DERIVATIVE WORK - Section 3.17(l).
DISCLOSABLE CONTRACT - Section 3.11.
DISCLOSABLE LEASES - Section 3.7.
DISSENTERS' RIGHTS - Section 1.17
EFFECTIVE TIME - Section 1.2.
ERISA - the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute.
ERISA AFFILIATE - any company which, as of the relevant measuring date
under ERISA, is or was a member of a controlled group of corporations or trades
or businesses (as defined in Sections 414(b), (c), (m) or (o) of the Code) of
which a Coast Company is or was a member.
ESCROW ACCOUNT - the Property held by the escrow agent under the Escrow
Agreement.
ESCROW AGREEMENT - Section 1.5(a).
EXCHANGE RATIO - Section 1.8.
EXCHANGE ACT - the Securities Exchange Act of 1934, as amended.
FINANCIAL STATEMENTS - Section 3.2(a).
37
FULLY-DILUTED COMPANY SHARES - Section 1.8.
GAAP - generally accepted accounting principles applied on a consistent
basis, as set forth in authoritative pronouncements which are applicable to the
circumstances as of the date in question. The requirement that such principles
be applied on a "consistent basis" means that accounting principles observed in
the period in question are comparable in all material respects to those applied
in the preceding periods, except as change is permitted or required under or
pursuant to such accounting principles.
GOVERNMENTAL AGENCY - any agency, department, board, commission, district
or other public organ, whether federal, state, local or foreign.
HAZARDOUS MATERIAL - all or any of the following: (i) any substance the
presence of which requires investigation or remediation under any applicable law
or regulation; (ii) substances that are defined or listed in, or otherwise
classified pursuant to, any applicable laws or regulations as "hazardous
substances," "hazardous materials," "hazardous wastes," "toxic substances," or
any other formulation intended to define, list or classify substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity or "EP toxicity;" (iii) any petroleum
products, explosives or radioactive materials; and (iv) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per million.
HOLDERS' AGENT - Ami Miron
HSR ACT - the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended, and all regulations issued thereunder.
INFORMATION STATEMENT - Section 3.23.
INTELLECTUAL PROPERTY - Section 3.17(a).
INTERIM STATEMENTS - Section 3.2(a).
LAST ESCROW CLAIM DATE - the first anniversary of the Closing Date.
LAST FISCAL YEAR-END - Section 3.2(a).
LEGAL REQUIREMENT - a statute, regulation, ordinance or similar legal
requirement, whether federal, state, local or foreign, or any requirement of a
permit or other authorization issued by a Governmental Agency.
LIEN - any lien, security interest, mortgage, deed of trust, pledge,
hypothecation, capitalized lease or interest or right for security purposes.
MERGER SUB - introductory paragraphs.
NEW OPTION PLAN(S) - Section 1.18(f).
38
ORDER - any judgment, injunction, order or similar mandatory direction of,
or stipulation or agreement filed with, a Governmental Agency, court, judicial
body, arbitrator or arbitral body.
PERMIT - a permit, license, franchise, certificate of authority or similar
instrument issued by a Governmental Agency.
PERSON - an individual, or a corporation, partnership, limited liability
company, trust, association or other entity of any nature, or a Governmental
Agency.
PREFERRED STOCK - the Series A Preferred Stock, the Series B Preferred
Stock, the Series E Preferred Stock, the Series F Preferred Stock and Series G
Preferred Stock of the Company.
PROPERTY - any interest in any real, personal or mixed property, whether
tangible or intangible.
RECOVERABLE AMOUNT - Section 7.2(b).
REGISTRATION STATEMENT - a registration statement filed under the Act
pursuant to Section 7.11.
S-3 - Section 7.11(c).
S-4 - Section 7.11(b).
SEC - the Securities and Exchange Commission.
SHARES - Section 1.8.
STOCK RIGHT - any right (including without limitation any option or
warrant or subscription right) to acquire any capital stock or any other Stock
Right or any instrument convertible into or exchangeable for any capital stock
or any other Stock Right.
STOCKHOLDER AGREEMENT - Section 1.18.
STOCKHOLDERS - introductory paragraphs.
STRATEGIC TRANSACTION - Section 7.7.
SUPPORT AGREEMENTS - Section 3.17.
TAX - any federal, state, local or foreign tax, assessment, duty, fee and
other governmental charge or imposition of any kind, whether measured by
properties, assets, wages, payroll, purchases, value added, payments, sales,
use, business, capital stock, surplus or income, and any addition, interest,
penalty, deficiency imposed with respect to any Tax.
THIRD-PARTY ACTION - any consent, waiver, approval, license or other
authorization of, or notice to, or filing with, any other Person, whether or not
a Governmental Agency, and the expiration of any associated mandatory waiting
period.
39
THIRD-PARTY CLAIM - Section 7.3(b).
THIRD-PARTY RIGHT - any Lien on any Property of the Person in question, or
any right (other than the rights of the Buyer hereunder) (i) to acquire, lease,
use, dispose of, vote or exercise any right or power conferred by any Property
of such Person, or (ii) restricting the Person's right to lease, use, dispose
of, vote or exercise any right or power conferred by any Property of such
Person.
VIOLATION - Section 7.10(e)(1).
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
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IN WITNESS WHEREOF, the parties have executed this Plan and Agreement of
Reorganization.
BUYER: LIBERATE TECHNOLOGIES
By:
--------------------------------
Name: Mitchell E. Kertzman
Title: President and CEO
MERGER SUB: LT ACQUISITION CORPORATION
By:
--------------------------------
Name: Mitchell E. Kertzman
Title: President and CEO
COMPANY: MORECOM, INC.
By:
--------------------------------
Name:
Title:
STOCKHOLDERS:
------------------------------
Name:
------------------------------
Name:
------------------------------
Name:
------------------------------
Name:
EXHIBITS
A Support Agreement
B Escrow Agreement
C Equity Holder Agreement
41