PURCHASE AGREEMENT
DATED JULY 29, 1997,
BY AND AMONG
CINCO NETWORKS, INC.,
A CALIFORNIA CORPORATION,
NETWORK GENERAL CORPORATION,
A DELAWARE CORPORATION,
NETWORK GENERAL TECHNOLOGY CORPORATION,
A DELAWARE CORPORATION,
AND THE SELLING SHAREHOLDERS NAMED THEREIN
TABLE OF CONTENTS
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1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Ancillary Documents. . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Cash Consideration . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 CNI Founders . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 Governmental Entity. . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Network General Common Stock Price . . . . . . . . . . . . . . . 2
1.8 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Purchase and Sale. . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Aggregate Consideration. . . . . . . . . . . . . . . . . . . . . 2
2.3 Assumption of Stock Options. . . . . . . . . . . . . . . . . . . 2
2.4 Closing; Delivery. . . . . . . . . . . . . . . . . . . . . . . . 3
3. Representations and Warranties of the Sellers . . . . . . . . . . . . . 3
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Power, Authority and Validity. . . . . . . . . . . . . . . . . . 4
3.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . 6
3.7 Title and Related Matters. . . . . . . . . . . . . . . . . . . . 7
3.8 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . 8
3.9 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 9
3.10 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.11 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.12 Orders, Commitments and Returns. . . . . . . . . . . . . . . . .10
3.13 Compliance With Law. . . . . . . . . . . . . . . . . . . . . . .10
3.14 Labor Difficulties; No Discrimination. . . . . . . . . . . . . .10
3.15 Insider Transactions . . . . . . . . . . . . . . . . . . . . . .10
3.16 Title to CNI Shares. . . . . . . . . . . . . . . . . . . . . . .11
3.17 Employees, Independent Contractors and Consultants . . . . . . .11
3.18 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
3.19 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . .11
3.20 Governmental Authorizations and Regulations. . . . . . . . . . .11
3.21 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.22 Compliance with Environmental Requirements . . . . . . . . . . .12
3.23 Corporate Documents. . . . . . . . . . . . . . . . . . . . . . .12
3.24 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . .12
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TABLE OF CONTENTS (continued)
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4. Representations and Warranties of Network General . . . . . . . . . . .13
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . .13
4.2 Power, Authority and Validity. . . . . . . . . . . . . . . . . .13
4.3 Commission Filings; Financial Statements . . . . . . . . . . . .13
5. Preclosing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . .14
5.1 Material Consents. . . . . . . . . . . . . . . . . . . . . . . .14
5.2 Conduct of CNI Business. . . . . . . . . . . . . . . . . . . . .14
5.3 Advice of Changes. . . . . . . . . . . . . . . . . . . . . . . .15
5.4 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . .15
5.5 Access to Information. . . . . . . . . . . . . . . . . . . . . .15
5.6 Non-Competition/Non-Solicitation Agreements. . . . . . . . . . .15
5.7 Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . .16
6. Mutual Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
6.1 No Public Announcement . . . . . . . . . . . . . . . . . . . . .16
6.2 Regulatory Filings; Consents; Reasonable Efforts . . . . . . . .16
6.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . .16
6.4 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . .17
6.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
6.6 Employee Arrangements. . . . . . . . . . . . . . . . . . . . . .17
6.7 Guaranty of NGTC Obligations . . . . . . . . . . . . . . . . . .17
7. Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
7.1 Payment at Closing . . . . . . . . . . . . . . . . . . . . . . .17
7.2 Delivery of Stock Option Documents; Other Stock Option Matters .17
7.3 Delivery of Documents. . . . . . . . . . . . . . . . . . . . . .18
8. Conditions to Sellers' Obligations. . . . . . . . . . . . . . . . . . .18
8.1 Accuracy of Representations and Warranties . . . . . . . . . . .18
8.2 Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . .18
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . .18
8.4 Authorizations . . . . . . . . . . . . . . . . . . . . . . . . .18
8.5 No Adverse Development . . . . . . . . . . . . . . . . . . . . .18
8.6 Government Consents. . . . . . . . . . . . . . . . . . . . . . .18
8.7 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . .19
8.8 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . .19
8.9 Date of Closing. . . . . . . . . . . . . . . . . . . . . . . . .19
8.10 Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
8.11 Offer Letters. . . . . . . . . . . . . . . . . . . . . . . . . .19
9. Conditions to Network General's Obligations . . . . . . . . . . . . . .19
9.1 Accuracy of Representations and Warranties . . . . . . . . . . .19
9.2 Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
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TABLE OF CONTENTS (continued)
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9.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . .19
9.4 Authorizations . . . . . . . . . . . . . . . . . . . . . . . . .20
9.5 No Adverse Development . . . . . . . . . . . . . . . . . . . . .20
9.6 Required Consents. . . . . . . . . . . . . . . . . . . . . . . .20
9.7 Government Consents. . . . . . . . . . . . . . . . . . . . . . .20
9.8 Delivery of Stock Certificates . . . . . . . . . . . . . . . . .20
9.9 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . .20
9.10 Termination of Contracts . . . . . . . . . . . . . . . . . . . .20
9.11 Non-Competition and Non-Solicitation Agreements. . . . . . . . .20
9.12 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . .20
9.13 No Exercise of Options . . . . . . . . . . . . . . . . . . . . .20
9.14 Date of Closing. . . . . . . . . . . . . . . . . . . . . . . . .21
9.15 Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
10. Post Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . .21
10.1 CNI Development Center . . . . . . . . . . . . . . . . . . . . .21
10.2 Registration Statement on Form S-8 . . . . . . . . . . . . . . .21
11. Termination of Agreement. . . . . . . . . . . . . . . . . . . . . . . .21
11.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . .21
11.2 Liability for Termination. . . . . . . . . . . . . . . . . . . .21
11.3 Certain Effects of Termination . . . . . . . . . . . . . . . . .21
11.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
11.5 Right to Damages . . . . . . . . . . . . . . . . . . . . . . . .22
12. Escrow and Indemnification. . . . . . . . . . . . . . . . . . . . . . .22
12.1 Survival of Representations, Warranties and Covenants. . . . . .22
12.2 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . .23
12.3 Escrow Fund. . . . . . . . . . . . . . . . . . . . . . . . . . .24
12.4 Escrow Period. . . . . . . . . . . . . . . . . . . . . . . . . .24
12.5 Protection of Escrow Fund. . . . . . . . . . . . . . . . . . . .24
12.6 Claims Upon Escrow Fund. . . . . . . . . . . . . . . . . . . . .24
12.7 Objections to Claims . . . . . . . . . . . . . . . . . . . . . .25
12.8 Resolution of Conflicts. . . . . . . . . . . . . . . . . . . . .25
12.9 Distribution Upon Termination of Escrow Period . . . . . . . . .26
12.10 CNI Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . .26
12.11 Actions of the CNI Agent . . . . . . . . . . . . . . . . . . . .27
12.11 Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . .27
13. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
13.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . .28
13.2 Binding upon Successors and Assigns. . . . . . . . . . . . . . .28
13.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . .28
13.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . .28
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TABLE OF CONTENTS (continued)
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13.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . .28
13.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
13.7 Amendment and Waivers. . . . . . . . . . . . . . . . . . . . . .29
13.8 Survival of Agreements . . . . . . . . . . . . . . . . . . . . .29
13.9 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . .29
13.10 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
13.11 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
13.12 Construction of Agreement. . . . . . . . . . . . . . . . . . . .30
13.13 No Joint Venture . . . . . . . . . . . . . . . . . . . . . . . .30
13.14 Pronouns . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
13.15 Absence of Third Party Beneficiary Rights. . . . . . . . . . . .30
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EXHIBITS
Exhibit A Schedule of Sellers
Exhibit B Contingency Payment Schedule
Exhibit C Form of Assumption Agreement
Exhibit D Network General Disclosure Schedule
Exhibit E-1 and E-2 Forms of Non-Competition and Non-Solicitation Agreement
for CNI Founders
Exhibit F Form of Escrow Agreement
Exhibit G Form of Xxxx Xxxx Xxxx & Freidenrich Legal Opinion
Exhibit H Form of the Venture Law Group Legal Opinion
PURCHASE AGREEMENT
This PURCHASE AGREEMENT (the "Agreement") is entered into this 29th day of
July, 1997, by and among Network General Corporation, a Delaware corporation
("Network General"), Network General Technology Corporation, a Delaware
corporation and a wholly-owned subsidiary of Network General ("NGTC"), Cinco
Networks, Inc., a California corporation ("CNI"), and the holders of all of the
outstanding stock of CNI, as set forth on EXHIBIT A attached hereto
(collectively, the "Sellers" and each a "Seller").
RECITALS
A. The Sellers are the owners of all of the outstanding capital stock of
CNI (the "CNI Shares") prior to the Closing Date (as defined below). All
options exerciseable for shares of CNI Common Stock shall be assumed by Network
General and will represent a right to purchase shares of Network General Common
Stock as provided for below.
B. NGTC wishes to acquire the CNI Shares in exchange for certain cash
payments pursuant to the terms of this Agreement and each of the Sellers wishes
to sell all CNI Shares which he, she or it holds as of the Closing Date (as
defined below) to NGTC pursuant to the terms of this Agreement (the "Purchase").
C. The parties hereto desire to set forth certain representations,
warranties and covenants made by each of the other as an inducement to the
consummation of the Purchase.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing recitals and in and for the
consideration and mutual covenants set forth herein, the parties agree as
follows:
1. DEFINITIONS.
1.1 "Affiliate" shall have the meaning set forth in the rules and
regulations promulgated by the Commission pursuant to the Securities Act.
1.2 "Ancillary Documents" shall mean the agreements that are exhibits
to this Agreement.
1.3 "Cash Consideration" shall mean the aggregate cash consideration
to be paid by NGTC to the Sellers as consideration for their CNI Shares, which
shall not exceed Forty Million Dollars ($40,000,000).
1.4 "Commission" shall mean the United States Securities and Exchange
Commission.
1.5 "CNI Founders" shall xxxx Xxxx T. Au, Xxxxx Xxx, Long Jiang, Xxx
Xx and Miles Wu.
1
1.6 "Governmental Entity" means any (i) nation, state, commonwealth,
province, territory, county, municipality, district or other jurisdiction of any
nature; (ii) federal, state, local, municipal, foreign or other government; or
(iii) governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, official, organization,
and any court or other tribunal).
1.7 "Network General Common Stock Price" shall mean the closing price
of the Network General Common Stock on the day immediately preceding the Closing
(as defined below), as reported in the WALL STREET JOURNAL.
1.8 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
2. PURCHASE AND SALE.
2.1 PURCHASE AND SALE. At Closing (as defined in Section 2.4
hereof), the Sellers shall sell to NGTC, and NGTC shall purchase from the
Sellers, all of the issued and outstanding CNI Shares for the Cash Consideration
described below.
2.2 AGGREGATE CONSIDERATION.
(a) In consideration of Sellers' obligations hereunder, NGTC
shall pay the Sellers up to an aggregate of Forty Million Dollars ($40,000,000),
to be paid as follows: (i) a cash payment of Twenty Seven Million Dollars
($27,000,000) to be paid to and on behalf of the Sellers at the Closing (the
"Initial Payment"), (ii) Thirteen Million Dollars ($13,000,000) to be paid upon
achievement of the contingencies and in the manner described in EXHIBIT B
attached hereto (the "Contingency Payment") and (iii) the additional amounts
described in the first paragraph of Section I of EXHIBIT B. The portion of the
Initial Payment and the Contingency Payment to be paid to each Seller shall be
determined based upon the respective share holdings at the time of Closing as
set forth on EXHIBIT A.
(b) After the Closing, each Seller shall cease to have any
rights as shareholders of CNI except such rights as they may have pursuant to
this Agreement.
(c) NGTC will be entitled to withhold from any of the Cash
Consideration such amounts as may be required to be withheld and paid over to
applicable tax authorities by law or regulation.
2.3 ASSUMPTION OF STOCK OPTIONS. Effective as of the Closing (as
defined below), each outstanding stock option under the Cinco Networks, Inc.
1997 Stock Option Plan (a "CNI Option"), whether vested or unvested, shall be
deemed to constitute an option ("Assumed Option") to acquire, on the same terms
and conditions, including vesting terms and conditions, as were applicable under
the CNI Option, such number of shares of Network General Common Stock ("Network
General Option Shares") as is determined by multiplying the number of shares of
CNI Common Stock subject to the CNI Option by the quotient determined by
dividing (i) $4.00 by (ii) the Network General Common Stock Price (rounded to
the nearest whole cent).
2
The exercise price per share of the Assumed Option shall be equal to the
aggregate exercise price of the CNI Option divided by the aggregate number of
Network General Option Shares to be issued under such Assumed Option as
determined in accordance with the immediately preceding sentence (rounded to the
nearest whole share). On the Closing, Network General shall issue to those
holders of a CNI Option a document evidencing the assumption by Network General
referenced above. No fractional shares shall be issued in connection with the
Assumed Option.
2.4 CLOSING; DELIVERY. The purchase and sale of the CNI Shares shall
take place at the offices of Xxxx Xxxx Xxxx & Freidenrich, A Professional
Corporation, 000 Xxxxxxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000-0000 at 10:00
a.m., on August 5, 1997 (the "Closing"), or at such other time and place as NGTC
and the Sellers shall mutually agree. For purposes of this Agreement, unless
otherwise indicated, the term "Closing" refers to the closing of the purchase
and sale of the CNI Shares with respect to a particular Seller and the term
"Closing Date" refers to the date of the Closing. At the Closing, each Seller
shall deliver to NGTC certificate(s) representing the CNI Shares that the Seller
is selling, duly endorsed or with assignments separate from certificate, against
delivery to the Seller by NGTC of a check in the amount of the Initial Payment
due to such Seller, less the amount to be deposited in the Escrow Fund, all as
set forth on EXHIBIT A hereto.
3. REPRESENTATIONS AND WARRANTIES OF CNI AND THE SELLERS. Except as
otherwise set forth in the "CNI Disclosure Schedule" provided to Network General
on or before July 29, 1997 (the "CNI Disclosure Schedule"), CNI and the Sellers,
jointly and severally, represent and warrant to Network General and NGTC as set
forth below. No fact or circumstance disclosed to Network General or NGTC shall
constitute an exception to these representations and warranties unless such fact
or circumstance is set forth in the CNI Disclosure Schedule or such supplements
thereto as may mutually be agreed upon in writing by the Sellers and Network
General or NGTC. Whenever the term "enforceable in accordance with its terms"
or like expression is used in this Agreement, it is understood that excepted
therefrom are any limitations on enforceability under applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting the enforcement of creditor's rights.
3.1 ORGANIZATION. CNI is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
corporate power and authority to carry on its business as it is now being
conducted. CNI is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the nature of its business or properties
makes such qualification or licensing necessary except where the failure to be
so qualified would not have a material adverse effect on the operations, assets
or financial condition (a "Material Adverse Effect") on CNI. CNI has no
employees or offices in any state other than California.
3.2 CAPITALIZATION.
(a) The authorized capital of CNI consists, or will consist
prior to the Closing, of 22,000,000 shares of common stock, of which 10,000,000
shares are issued and outstanding, and 10,000,000 shares of preferred stock,
none of which is issued or outstanding.
3
(b) On the date of this Agreement, 1,500,000 shares of CNI
Common Stock are reserved for issuance under the Cinco Networks, Inc. 1997 Stock
Option Plan (the "CNI Plan"), and as of the date of this Agreement, 281,000
shares are subject to outstanding options and held of record by CNI's option
holders as set forth in the option holder list provided to Network General or
its representatives.
(c) CNI does not have outstanding any preemptive or subscription
rights, options, warrants, debentures, notes, rights to convert or exchange,
capital stock equivalents, or other rights to purchase or otherwise acquire any
of CNI's capital stock or other securities.
(d) All of the issued and outstanding shares of CNI's capital
stock have been duly authorized, validly issued, are fully paid and
nonassessable, and such capital stock, and all warrants, options, debentures and
notes convertible into capital stock of CNI, have been issued in full compliance
with all applicable federal and state securities laws. None of CNI's issued and
outstanding shares of capital stock, or options or rights to purchase capital
stock of CNI, is subject to repurchase or redemption rights. There have not
been and are not outstanding any adjustments made or required to be made to the
conversion prices set forth in CNI's current Articles of Incorporation. All of
CNI's Options have been issued in accordance with the CNI Plan and in accordance
with all applicable state securities laws. The transactions contemplated by
this Agreement and the Ancillary Documents will not cause or result in (i) a
change in the right to exercise any CNI Option or (ii) an acceleration in the
vesting of any CNI Option.
(e) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, option, or other
restriction on transfer applicable to any shares of CNI's capital stock.
(f) CNI is not under any obligation to register under the
Securities Act any shares of its capital stock or any other of its securities
that might be issued in the future if the Purchase were not consummated.
(g) CNI is not a party or subject to any agreement or
understanding and, to CNI's and the Sellers' knowledge, there is no agreement
or understanding between or among any persons that affects or relates to the
voting or giving of written consent with respect to any security.
3.3 POWER, AUTHORITY AND VALIDITY.
(a) To the extent such party has entered into each agreement,
CNI has all requisite corporate power and authority and each Seller has all
requisite power and authority or capacity to enter into this Agreement and the
Ancillary Documents and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Ancillary
Documents applicable to CNI and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of CNI. This Agreement and the Ancillary Documents to which CNI is
a party have been duly
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executed and delivered by CNI and constitute the valid and binding obligations
of CNI, enforceable against CNI in accordance with their terms.
(b) The execution and delivery by CNI and the Sellers of this
Agreement and the Ancillary Documents do not, and the consummation of the
transactions contemplated hereby and thereby will not, (i) conflict with, or
result in any violation or breach of any provision of the CNI Articles of
Incorporation or Bylaws, each as amended to the date hereof, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default under, or give rise to a right of termination, cancellation
or acceleration of any material obligation or loss of any benefit under any
note, mortgage, indenture, lease, contract or other agreement or obligation to
which CNI is a party or by which CNI or any of its respective properties or
assets may be bound, or (iii) conflict with or violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to CNI or any of its respective properties or assets,
except in the case of (ii) and (iii) for any such conflicts, violations,
defaults, terminations, cancellations or accelerations which would not be
reasonably likely to have a Material Adverse Effect on CNI or materially and
adversely affect the ability of CNI to consummate the transactions contemplated
by this Agreement in accordance with its terms.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to CNI in connection with the execution and delivery of this
Agreement or the Ancillary Documents or the consummation of the transactions
contemplated hereby or thereby except for such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
be reasonably likely to have a Material Adverse Effect on CNI or materially and
adversely affect the ability of CNI to consummate the transactions contemplated
by this Agreement in accordance with its terms.
3.4 FINANCIAL STATEMENTS.
(a) CNI has delivered, or will deliver prior to the Closing, to
Network General and NGTC copies of CNI's audited balance sheet as of March 31,
1997 and statements of operations, shareholders' equity and cash flow for the
fiscal year then ended, and copies of CNI's unaudited balance sheet as of
June 30, 1997 and statements of operations, shareholders' equity and cash flow
for the three (3) month period then ended (collectively, the "CNI Financial
Statements").
(b) The CNI Financial Statements are complete and in accordance
with the books and records of CNI and present fairly the financial position of
CNI as of their historical dates. The CNI Financial Statements have been
prepared in accordance with generally accepted accounting practice ("GAAP")
applied on a basis consistent with prior periods. Except and to the extent
reflected or reserved against in such balance sheet (including the notes
thereto), CNI does not have, as of the dates of such balance sheet, any
liabilities or obligations (absolute or contingent) of a nature required or
customarily reflected in a balance sheet (or the notes thereto) prepared in
accordance with GAAP. The reserves, if any, reflected on the CNI Financial
5
Statements (including, without limitation, any accounts receivable reserves)
have been estimated and prepared in the CNI Financial Statements in a manner
consistent with GAAP.
(c) All material debts, liabilities, and obligations incurred
after the date of the CNI Financial Statements were incurred in the ordinary
course of business, and are usual and normal in amount both individually and in
the aggregate and are set forth on the CNI Disclosure Schedule.
3.5 TAX MATTERS. CNI has in all material respects fully and timely,
properly and accurately filed all tax returns and reports required to be filed
by it, including all federal, foreign, state and local tax returns and estimates
for all years and periods (and portions thereof) for which any such returns,
reports or estimates were due. All such returns, reports and estimates were
prepared in all material respects in the manner required by applicable law. All
income, sales, use, occupation, property or other taxes or assessments due from
CNI have been paid or adequately reserved for on the CNI Financial Statements.
There are no pending assessments, asserted deficiencies or claims for additional
taxes that have not been paid. The reserves for taxes, if any, reflected on the
CNI Financial Statements were prepared in accordance with GAAP and there are no
tax liens on any property or assets of CNI (other than for taxes not yet due and
payable). There have been no audits or examinations of any tax returns or
reports by any applicable governmental agency. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any federal, state or local income tax return or report for any period. All
taxes which CNI has been required to collect or withhold have been duly withheld
or collected and, to the extent required, have been paid to the proper taxing
authority.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1997, CNI
has not:
(a) suffered any material adverse change in its financial
condition or in the operations of its business, nor any material adverse changes
in its balance sheet, including but not limited to cash distributions or
material decreases in the net assets of CNI;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting its properties or business;
(c) granted or agreed to make any increase in the compensation
payable or to become payable by CNI to its officers or employees;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of CNI or
declared any direct or indirect redemption, retirement, purchase or other
acquisition by CNI of such shares;
(e) issued any shares of capital stock of CNI or any warrants,
rights, options or entered into any commitment relating to the shares of CNI;
(f) made any changes in the accounting methods or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates;
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(g) sold, leased, abandoned or otherwise disposed of any real
property or machinery, equipment or other operating property;
(h) sold, assigned, transferred, licensed or otherwise disposed
of any patent, trademark, trade name, brand name, copyright (or pending
application for any patent, trademark or copyright) invention, work of
authorship, process, know-how, formula or trade secret or interest thereunder or
other intangible asset;
(i) entered into any material commitment or transaction
(including without limitation any borrowing or capital expenditure) individually
in excess of Ten Thousand Dollars ($10,000) or in the aggregate in excess of
Twenty-Five Thousand Dollars ($25,000);
(j) permitted or allowed any of its property or assets to be
subjected to any mortgage, deed of trust, pledge, lien, security interest or
other encumbrance of any kind;
(k) made any capital expenditure for additions to property,
plant or equipment, individually in excess of Ten Thousand Dollars ($10,000) or
in the aggregate in excess of Twenty-Five Thousand Dollars ($25,000);
(l) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets to, or entered into any agreement or
arrangement with any of its officers, directors or shareholders or any affiliate
of any of the foregoing, other than employee compensation and benefits and
reimbursement of employment related business expenses incurred in the ordinary
course of business; or
(m) agreed to take any action described in this Section 3.6
outside of its ordinary course of business or which would constitute a breach of
any of the representations contained in this Agreement.
3.7 TITLE AND RELATED MATTERS. CNI has good and marketable title to
all the properties, interests in properties and assets, real and personal,
reflected in the CNI Financial Statements or acquired after the date of the CNI
Financial Statements (except properties, interests in properties and assets sold
or otherwise disposed of since the date of the CNI Financial Statements in the
ordinary course of business), free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except the lien of current
taxes not yet due and payable and except for liens which in the aggregate do not
secure more than Ten Thousand Dollars ($10,000) in liabilities. The equipment
of CNI used in the operation of its business is in good operating condition and
repair, ordinary wear and tear excepted. All real or personal property leases
to which CNI is a party are valid, binding, enforceable obligations of CNI
effective in accordance with their respective terms. There is not under any of
such leases any existing material default or event of default or event which,
with notice or lapse of time or both, would constitute a material default. The
CNI Disclosure Schedule contains a description of all real and personal property
leased or owned by CNI, identifying such property and, in the case of real
property, stating the monthly rental due, term of lease and square feet leased.
True and correct copies of CNI's leases have been provided to Network General or
its representatives.
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3.8 PROPRIETARY RIGHTS.
(a) CNI owns all right, title and interest in and to, or valid
licenses for use of, all patents, copyrights, technology, software, software
tools, know-how, processes, trade secrets, trademarks, service marks, trade
names and other proprietary rights used in or necessary for the conduct of CNI's
business as conducted to the date hereof, free and clear of all liens, claims
and encumbrances (including, without limitation, distribution rights) (all of
which are referred to as "CNI Proprietary Rights"). The foregoing
representation as it relates to third party technology licensed by CNI is
limited to CNI's interest pursuant to the third party licenses entered into by
CNI, all of which are valid and enforceable and in full force and effect and
which grant CNI such rights to such third party technology as are employed in or
necessary to the business of CNI as conducted. The CNI Disclosure Schedule
lists the CNI Proprietary Rights by (a) such rights owned by CNI and (b) such
rights owned by others and licensed to CNI. CNI has also furnished Network
General with a complete copy of any agreement pursuant to which any third party
has granted CNI a license with respect to any of the CNI Proprietary Rights.
All of CNI's trademark or trade name registrations are valid and in full force
and effect; and consummation of the transactions contemplated hereby will not
alter or impair any such rights. No claims have been asserted against CNI (and
CNI is not aware of any claims which are likely to be asserted against CNI or
which have been asserted against others) by any person challenging CNI's use,
possession, manufacture, sale or distribution of products of CNI under any
patents, trademarks, trade names, copyrights, trade secrets, software,
technology, know-how or processes utilized by CNI or challenging or questioning
the validity or effectiveness of any license or agreement relating thereto. The
use or exploitation of any patents, trademarks, trade names, copyrights,
software, technology, know-how or processes by CNI in its current business does
not infringe on the rights of, constitute misappropriation of, or in any way
involve unfair competition with respect to, any proprietary information or
intangible property right of any third person or entity, including without
limitation any patent, trade secret, copyright, trademark or trade name.
(b) No employee of CNI is in violation of any term of any
employment contract, patent disclosure agreement or any other contract or
agreement relating to the relationship of any such employee with CNI or, to
CNI's and the Sellers' knowledge, any other party because of the nature of the
business conducted by CNI or proposed to be conducted by CNI.
(c) Each person presently or previously employed by CNI
(including independent contractors, if any) with access to confidential
information has executed a confidentiality and non-disclosure agreement (the
"Confidentiality Agreement") pursuant to the form of agreement previously
provided to, and deemed satisfactory by, NGTC or its representatives. Such
Confidentiality Agreements constitute valid and binding obligations of CNI and
such person, enforceable in accordance with their respective terms. Neither the
execution or delivery of such Confidentiality Agreements, nor the carrying on of
CNI's business as employees by such persons, nor the conduct of CNI's business
as currently anticipated, will conflict with or result in a breach of the terms,
conditions or provisions of or constitute a default under the Confidentiality
Agreement or any contract, covenant or instrument under which any of such
persons is obligated.
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3.9 EMPLOYEE BENEFIT PLANS. There is no unfunded prior service
cost with respect to any bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, or other employee benefit or fringe
benefit plans, whether formal or informal, maintained by CNI. Each bonus,
deferred compensation, pension, profit-sharing, retirement, stock purchase,
stock option, and other employee benefit or fringe benefit plans, whether formal
or informal, maintained by CNI conforms to all applicable requirements of the
Employees Retirement Income Security Act of 1974.
3.10 BANK ACCOUNTS. The CNI Disclosure Schedule sets forth the
names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which CNI maintains accounts
of any nature and the names of all persons authorized to draw thereon or make
withdrawals therefrom (by check, wire transfer or otherwise).
3.11 CONTRACTS.
(a) CNI has (i) no agreements, contracts or commitments
that provide for the sale, licensing or distribution by CNI of any of its
products, inventions, technology, know-how, trademarks or trade names except in
the ordinary course of its business, (ii) no agreements, contracts or
commitments that call for fixed and/or contingent payments or expenditures in an
amount in excess of Ten Thousand Dollars ($10,000) individually, or Twenty-Five
Thousand Dollars ($25,000) in the aggregate, by or to CNI or (iii) no agreements
that grant to any third party (including, without limitation, OEMs and site
license customers) any rights to reproduce or manufacture any products of CNI,
or any exclusive rights of any kind with respect to any of the products of CNI
or any right to market any products of CNI under any "private label" or "OEM"
arrangements pursuant to which CNI is not identified as the source of such
goods. True and correct copies of each document or instrument described in the
CNI Disclosure Schedule pursuant to this Section 3.11 have been made available
to Network General or its representatives.
(b) All material contracts, agreements and instruments to
which CNI is a party are valid, binding, in full force and effect, and
enforceable against, and to CNI's and the Sellers' knowledge, by CNI in
accordance with their respective terms. CNI has not received any notice from any
party to any such material contract, agreement or instrument that such party
intends to cancel, withdraw, modify or amend such contract, agreement or
arrangement.
(c) CNI is not in default under or in breach or violation
of, nor, to CNI's and the Sellers' knowledge, is there any valid basis for any
claim of default by CNI under, or breach or violation by CNI of, any contract,
commitment or restriction to which CNI is a party or to which it or any of its
properties is bound, where such defaults, breaches, or violations would, in the
aggregate, have a Material Adverse Effect on CNI. To CNI's and the Sellers'
knowledge, no other party is in default under or in breach or violation of, any
material contract, commitment, or restriction to which CNI is bound or by which
any of its properties is bound, where such defaults, breaches, or violations
would, in the aggregate, have a Material Adverse Effect on CNI.
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3.12 ORDERS, COMMITMENTS AND RETURNS.
(a) All accepted and unfilled orders entered into by CNI
for the sale, license, or lease or other disposition by CNI of its products, and
all agreements, contracts, or commitments for the purchase of supplies by CNI,
were made in the ordinary course of business. No outstanding material purchase
or outstanding lease commitment of CNI is in excess of the normal, ordinary and
usual requirements of its business or was made at a price (on both a per unit
and aggregate basis) in excess of the current market price at the time made, or
contains terms and conditions materially more onerous to CNI than those usual
and customary in the industry.
(b) CNI is under no liability or obligation, and no such
outstanding claim has been made, with respect to the return to CNI of inventory
or merchandise in the possession of wholesalers, distributors, retailers or
other customers, except such liabilities, obligations and claims as, in the
aggregate, do not exceed the reserves therefor set forth in the CNI Financial
Statements.
3.13 COMPLIANCE WITH LAW. CNI is in compliance with all applicable
laws and regulations except where such failure would not have a Material Adverse
Effect on CNI. Neither CNI nor, to CNI's and the Sellers' knowledge, any of its
employees has directly or indirectly paid or delivered any fee, commission or
other sum of money or item of property, however characterized, to any finder,
agent, government official or other party in the United States or any other
country, that was or is in violation of any federal, state, or local statute or
law or of any statute or law of any other country having jurisdiction. CNI has
not participated directly or indirectly in any boycotts or other similar
practices affecting any of its customers. CNI has complied at all times with
any and all applicable federal, state and foreign laws, rules, regulations,
proclamations and orders relating to the importation or exportation of its
products.
3.14 LABOR DIFFICULTIES; NO DISCRIMINATION. CNI is not engaged in
any unfair labor practice and is not in material violation of any applicable
laws respecting employment and employment practices, terms and conditions of
employment, and wages and hours. There is no unfair labor practice complaint
against CNI actually pending or to CNI's and the Sellers' knowledge, threatened
before the National Labor Relations Board. CNI has not experienced any material
work stoppage or other material labor difficulty. There is and has been no
claim against CNI based on actual or alleged race, age, sex, disability or other
harassment or discrimination, or similar tortious conduct, nor, to CNI's and the
Sellers' knowledge, is there any basis for any such claim.
3.15 INSIDER TRANSACTIONS. Except as provided in the CNI Disclosure
Schedule, no Affiliate of CNI has any interest in (i) any equipment or other
material property, real or personal, tangible or intangible, including, without
limitation, any proprietary asset, used in connection with or pertaining to the
business of CNI or, (ii) to CNI's and the Sellers' knowledge, any creditor,
supplier, customer, manufacturer, agent, representative, or distributor of
products of CNI; provided, however, that no such Affiliate or other person shall
be deemed to have such an interest solely by virtue of (a) the ownership of less
than one percent (1%) of the outstanding stock or debt securities of any
publicly-held company whose stock or debt securities are traded on a recognized
stock exchange or quoted on the National Association of Securities Dealers
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Automated Quotation System. Except as provided in the CNI Disclosure Schedule,
no Affiliate is indebted to CNI, nor is CNI indebted to any of its Affiliates.
Further, the indebtedness balances described in the CNI Disclosure Schedule
represent the full and entire indebtedness balances between each of the CNI
Founders and CNI.
3.16 TITLE TO CNI SHARES. Each Seller has good marketable title to
the CNI Shares to be sold by such Seller, free of any encumbrances, and full
right, power and authority to effect the sale and delivery of the CNI Shares to
be sold by such Seller. On the Closing Date, there will be no agreements or
restrictions that have not been canceled or waived which in any way limit or
restrict the legal ability of such Seller to transfer the CNI Shares to be sold
by such Seller and there are no shareholders agreements, pooling agreements,
voting trusts or other agreements or understandings with respect to the voting
of the CNI Shares (except as contemplated herein).
3.17 EMPLOYEES, INDEPENDENT CONTRACTORS AND CONSULTANTS. CNI has no
currently effective consulting, independent contractor and/or employment
agreements and other material agreements concluded with individual employees,
independent contractors or consultants of CNI. To CNI's knowledge, CNI is in
compliance in all materials respects with all currently applicable laws and
regulations respecting employment, immigration, discrimination in employment,
terms and conditions of employment, wages, hours and occupational safety and
health and employment practices, and are not engaged in any unfair labor
practice. There are no pending clams against CNI under any workers compensation
plan or policy or for long term disability. CNI has no material obligations
under COBRA with respect to any former employees or qualifying beneficiaries
thereunder. There are no proceedings pending or, to the knowledge of CNI,
threatened, between CNI and its employees, which proceedings have or could
reasonably be expected to have a Material Adverse Effect on CNI. CNI is not a
party to any collective bargaining agreement or other labor unions contract nor
does CNI know of any activities or proceedings of any labor union or organize
any such employees. In addition, CNI has provided all employees with all
relocation benefits, stock options, bonuses and incentives, and all other
compensation that such employee has earned up through the date of this Agreement
or that such employee was otherwise promised in their employment agreements with
CNI.
3.18 INSURANCE. The CNI Disclosure Schedule contains a list of all
policies of fire, liability and other forms of insurance held by CNI.
3.19 LITIGATION. There are no suits, actions or proceedings pending
or, to CNI's and the Sellers' knowledge, threatened against or affecting CNI or
which questions or challenges the validity of this Agreement. There is no
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against CNI.
3.20 GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS. All licenses,
franchises, permits and other governmental authorizations held by CNI and
material to its business are valid and sufficient for the business presently
carried on by CNI.
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3.21 SUBSIDIARIES. CNI has no subsidiaries. CNI does not own or
control (directly or indirectly) any capital stock, bonds or other securities
of, and does not have any proprietary interest in, any other corporation,
general or limited partnership, firm, association or business organization,
entity or enterprise, and CNI does not control (directly or indirectly) the
management or policies of any other corporation, partnership, firm, association
or business organization, entity or enterprise.
3.22 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. CNI has obtained
all permits, licenses and other authorizations which are required under federal,
state and local laws relating to pollution or protection of the environment,
including laws or provisions relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic
materials, substances, or wastes into air, surface water, groundwater, or land,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants, contaminants
or hazardous or toxic materials, substances, or wastes. CNI is in compliance
with all terms and conditions of the required permits, licenses and
authorizations. CNI is not aware of, nor has CNI received notice of, any
conditions, circumstances, activities, practices, incidents, or actions which
may form the basis of any claim, action, suit, proceeding, hearing, or
investigation of, by, against or relating to CNI, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or
toxic substance, material or waste.
3.23 CORPORATE DOCUMENTS. CNI has furnished to Network General or
NGTC for its examination: (i) copies of its Articles of Incorporation and
Bylaws; (ii) its Minute Book containing all records required to be set forth of
all proceedings, consents, actions, and meetings of the shareholders, the board
of directors and any committees thereof; (iii) all permits, orders, and consents
issued by any regulatory agency with respect to CNI, or any securities of CNI,
and all applications for such permits, orders, and consents; and (iv) the stock
transfer books of CNI setting forth all transfers of any capital stock. The
corporate minute books, stock certificate books, stock registers and other
corporate records of CNI are complete and accurate in all material respects, and
the signatures appearing on all documents contained therein are the true
signatures of the persons purporting to have signed the same. All actions
reflected in such books and records were duly and validly taken in compliance
with the laws of the applicable jurisdiction.
3.24 NO BROKERS. Neither CNI nor any Seller is obligated for the
payment of fees or expenses of any broker or finder in connection with the
origin, negotiation or execution of this Agreement or the Ancillary Documents,
or in connection with any transaction contemplated hereby or thereby.
3.25 DISCLOSURE. No statements by CNI contained in this Agreement,
the Ancillary Documents or any written statement or certificate furnished or to
be furnished pursuant hereto or in connection with the transactions contemplated
hereby and thereby (when read together) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
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4. REPRESENTATIONS AND WARRANTIES OF NETWORK GENERAL. Except as
otherwise set forth in the "Network General Disclosure Schedule" provided to the
Sellers on or before the Closing and attached as EXHIBIT D hereto, Network
General and NGTC represent and warrant to CNI and the Sellers as set forth
below. No fact or circumstance disclosed to the CNI or the Sellers shall
constitute an exception to these representations and warranties unless such fact
or circumstance is set forth in EXHIBIT D or such supplements thereto as may
mutually be agreed upon in writing by Network General and the Sellers.
4.1 ORGANIZATION. Each of Network General and NGTC is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has corporate power and authority to carry on its
business as it is now being conducted. Network General is duly qualified or
licensed to do business and in good standing in each jurisdiction in which the
nature of their businesses or properties makes such qualification or licensing
necessary except where the failure to be so qualified would not have a Material
Adverse Effect on Network General.
4.2 POWER, AUTHORITY AND VALIDITY. Each of Network General and
NGTC has the corporate power to enter into this Agreement and the other
Ancillary Documents to which it is a party and to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
Ancillary Documents and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the Boards of Directors of Network
General and NGTC, and no other corporate proceedings on the part of Network
General or NGTC are necessary to authorize this Agreement, the other Ancillary
Documents and the transactions contemplated herein and therein. Neither Network
General nor NGTC is subject to or obligated under any charter, bylaw or contract
provision or any license, franchise or permit, or subject to any order or
decree, which would be breached or violated by or in conflict with their
executing and carrying out this Agreement and the transactions contemplated
hereunder and under the Ancillary Documents. Except for filings under
applicable securities laws, no consent of any person who is a party to a
contract which is material to Network General's or NGTC's business, nor the
consent of any governmental authority, is required to be obtained on the part of
Network General or NGTC to permit the transactions contemplated herein and
continue the business activities of Network General or NGTC as previously
conducted by Network General or NGTC, respectively, without a Material Adverse
Effect on Network General. This Agreement is, and the other Ancillary Documents
when executed and delivered by Network General and NGTC shall be, the valid and
binding obligations of Network General and NGTC, respectively, enforceable in
accordance with their respective terms.
4.3 COMMISSION FILINGS; FINANCIAL STATEMENTS.
(a) Network General has filed all forms, reports and
documents required to be filed by Network General with the Commission since June
27, 1997 (collectively, the "Network General SEC Reports") and to the extent
requested by CNI, has made such Network General Reports available to CNI or its
representatives. The Network General SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as the case may be, and
(ii) did not at the time they were
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filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
Network General SEC Reports, or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each
case, any related notes) contained in the Network General SEC Reports, including
any Network General SEC Reports filed after the date of this Agreement until the
Closing, complied or will comply as to form in all material respects with the
applicable published rules and regulations of the Commission with respect
thereto, was or will be prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q of the Commission) and fairly presented or will present
the financial position of Network General as at the respective dates and the
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount.
5. PRECLOSING COVENANTS.
5.1 MATERIAL CONSENTS. CNI shall exert reasonable, good faith
commercial efforts to obtain any and all consents necessary for the assumption
of the Material Contracts by Network General or NGTC concurrent with the
Purchase as described in the CNI Disclosure Schedule pursuant to Section 3.11
(the "Material Consents"). Network General and NGTC agree to cooperate, as
reasonably requested, in obtaining the Material Consents.
5.2 CONDUCT OF CNI BUSINESS. CNI will conduct its business only in
the normal and ordinary course and, without the prior written consent of Network
General or NGTC, CNI will not:
(a) issue (including the issuance of shares of capital
stock of CNI upon exercise of options, warrants or notes outstanding as of the
date of this Agreement) or sell, or contract to issue or sell, any shares of
capital stock of CNI or any of its subsidiaries or any securities convertible
into or exchangeable for shares of capital stock of CNI or any of its
subsidiaries or securities, warrants, options or rights to purchase any of the
foregoing;
(b) purchase or redeem any shares of capital stock or other
securities of CNI;
(c) accelerate the vesting of any option or grant any
option other than in the ordinary course of CNI's business;
(d) declare or pay any bonus or dividends or agree to make
a loan or any other distribution to or for the benefit of CNI's shareholders
with respect to any assets, funds or shares of capital stock of CNI;
(e) amend the Articles of Incorporation or Bylaws of CNI;
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(f) enter into, terminate or amend, in a manner which will
adversely affect the business of CNI, (i) any agreement involving an obligation
to pay or the right to receive Ten Thousand Dollars ($10,000) or more, (ii) any
agreement relating to the license, transfer or other disposition or acquisition
of intellectual property rights or rights to market to sell CNI products, (iii)
any agreement to license, encumber or otherwise transfer on an exclusive basis
any of CNI's intellectual property rights or otherwise license such rights, or
(iv) any other agreement which is material to the business or prospects of CNI;
(g) accelerate any loan payment due by CNI or any of its
subsidiaries; and
(h) take any other action not in the normal and ordinary
course of CNI's business.
5.3 ADVICE OF CHANGES.
(a) CNI and the Sellers will promptly advise Network
General or NGTC in writing (i) of any event occurring subsequent to the date of
this Agreement which would render any representation or warranty of CNI and the
Sellers contained in this Agreement, if made on or as of the date of such event
or the Closing Date, untrue or inaccurate in any material respect and (ii) of
any material adverse change in CNI's business, taken as a whole.
(b) Network General or NGTC will promptly advise CNI in
writing (i) of any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of Network General or NGTC
contained in this Agreement, if made on or as of the date of such event or the
Closing Date, untrue or inaccurate in any material respect and (ii) of any
material adverse change in Network General's business, taken as a whole.
5.4 RISK OF LOSS. Until the Closing, all risk of loss, damage or
deterioration to CNI's assets shall be borne by CNI, and the purchase terms
described in Section 2 shall, in case of any such loss, damage or destruction,
be reduced as the parties may agree, or this Agreement shall be terminated in
accordance with Section 11 (to the extent terminable under such Section).
5.5 ACCESS TO INFORMATION. Until the Closing, CNI shall allow
Network General, NGTC and their agents and representatives reasonable access
upon reasonable notice and during normal working hours to its files, books,
records and offices including, without limitation, any and all information
relating to taxes, commitments, contracts, leases, licenses and personal
property and financial condition. Until the Closing, CNI shall cause its
accountants to cooperate with Network General, NGTC and their agents and
representatives in making available all financial information requested,
including, without limitation, the right to examine all working papers
pertaining to all financial statements prepared or audited by such accountants.
5.6 NON-COMPETITION/NON-SOLICITATION AGREEMENTS. At the Closing,
the CNI Founders shall each enter into a Non-Competition and Non-Solicitation
Agreement in the form attached hereto as EXHIBIT E.
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5.7 EXCLUSIVITY. Until the earlier of the Closing Date or
termination of this Agreement in accordance with its terms, CNI agrees that it
will not (and that it will use its best efforts to assure that its employees,
agents and affiliates do not on its behalf) take any action to solicit,
initiate, seek, encourage or support any inquiry, proposal or offer from,
furnish any information to, or participate in any negotiations with, any
corporation, partnership, person or other entity or group concerning the sale or
acquisition of CNI, its stock (including by means of a public offering thereof,
but excluding issuance of stock and options to employees in the ordinary course
of business consistent with past practices) or a substantial part of its assets
with any parties other than Network General or NGTC, and that any such
discussions presently in progress will be terminated or suspended during that
period. CNI represents and warrants that it has the legal right to terminate or
suspend any such pending negotiations and agrees to indemnify Network General
and NGTC, its representatives and agents from and against any claims by any
party to such negotiations based upon or arising out of the discussion or any
consummation of the Purchase.
6. MUTUAL COVENANTS.
6.1 NO PUBLIC ANNOUNCEMENT. Neither party shall make any public
announcement concerning this Agreement, any memos, letters or other agreements
or the discussions between the parties relating to the Purchase including the
Letter of Intent dated July 3, 1997, between Network General and CNI (the
"Letter of Intent") without the prior written approval of the other party, which
approval will not be delayed or unreasonably withheld; provided that CNI Agent
shall have the sole responsibility and authority to give the approval for CNI
and the Sellers. Network General and CNI hereby agree that the initial public
announcement of the execution of this Agreement shall be made in the form of a
joint press release to be approved by each party, which approval shall not be
delayed or unreasonably withheld. Either of the parties, but only after
reasonable consultation with the other, may make disclosure if required under
applicable law.
6.2 REGULATORY FILINGS; CONSENTS; REASONABLE EFFORTS. Subject to
the terms and conditions of this Agreement, CNI, Network General and NGTC shall
use their respective best efforts to (i) make all necessary filings with respect
to the Purchase and this Agreement under the Securities Act, and applicable blue
sky or similar securities laws and shall use all reasonable efforts to obtain
required approvals and clearances with respect thereto and shall supply all
additional information requested in connection therewith; (ii) obtain all
consents, waivers, approvals, authorizations and orders required in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the Purchase; and (iii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement.
6.3 FURTHER ASSURANCES. Prior to and following the Closing, each
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement.
16
6.4 CONFIDENTIALITY. Each party acknowledges that the Letter of
Intent and the terms of the Purchase, including the terms of this Agreement and
all exhibits and schedules hereto, shall be treated as "Proprietary
Information," as such term is defined in that certain Non-Disclosure Agreement
between Network General and CNI dated May 15, 1997 (the "Non-Disclosure
Agreement"), and shall be subject to terms and conditions thereof.
6.5 EXPENSES. The parties shall each pay their own legal,
accounting and financial advisory fees and other out-of-pocket expenses related
to the negotiation, preparation and carrying out of this Agreement and the
transactions herein contemplated.
6.6 EMPLOYEE ARRANGEMENTS. After the Closing and so long as they
remain employed by Network General or a subsidiary of Network General, all CNI
employees will be eligible for the same employee benefit plans, on the same
terms, for which similarly positioned Network General or NGTC employees are
eligible according to the terms of the employee benefit plans of Network
General. Network General agrees that there will be no waiting period under
Network General's medical insurance plans for coverage of medical conditions of
CNI employees existing at the time Network General's medical insurance plans are
substituted for CNI's current medical insurance plans. In addition, all CNI
employees shall receive credit for any vacation or "paid time off" earned and
accrued by such employees while employed by CNI through the Closing Date.
6.7 GUARANTY OF NGTC OBLIGATIONS. Network General shall cause NGTC
to perform all of its obligations under this Agreement and the Escrow Agreement
and hereby guarantees the performance of NGTC's obligations under such
agreements, including, but not limited to, the payment of the Cash Consideration
to be paid to the Sellers in accordance with this Agreement.
7. CLOSING MATTERS.
7.1 PAYMENT AT CLOSING. At the Closing, NGTC shall deliver to the
Sellers the Initial Payment, less such amounts that are delivered to the Escrow
Agent pursuant to Section 12.3 hereof.
7.2 DELIVERY OF STOCK OPTION DOCUMENTS; OTHER STOCK OPTION MATTERS.
(a) As soon as practicable after the Closing, Network
General shall deliver to the participants in the CNI Option Plan an appropriate
notice setting forth such participants' rights pursuant thereto and the grants
pursuant to the CNI Option Plan shall continue in effect on substantially the
same terms and conditions. Network General shall ensure, to the extent required
by and subject to the provisions of the CNI Option Plan, that the Assumed
Options representing assumed CNI Options which qualified as incentive stock
options prior to the Closing continue to qualify as incentive stock options
after the Closing.
(b) Network General shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of Network
General Common Stock for delivery under the Assumed Options.
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7.3 DELIVERY OF DOCUMENTS. At the Closing, the parties shall
deliver the documents, and shall perform the acts, which are set forth in
Section 8 and Section 9 including delivery of the counterpart signature pages of
the documents set forth in Section 8 and Section 9. All documents which the
Sellers shall deliver or cause to be delivered shall be in form and substance
reasonably satisfactory to Network General. All documents which Network General
shall deliver or cause to be delivered shall be in form and substance reasonably
satisfactory to the Sellers.
8. CONDITIONS TO THE SELLERS' OBLIGATIONS. The Sellers' obligations to
close the transactions contemplated under this Agreement are subject to the
fulfillment or satisfaction on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by the Sellers, but only in a
writing signed by the CNI Agent):
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Network General set forth in Section 4 shall
be true in all material respects on and as of the Closing with the same force
and effect as if they had been made at the Closing, and the Sellers shall
receive a certificate to such effect from an officer of Network General.
8.2 COVENANTS. Network General shall have performed and complied
in all material respects with all of its covenants contained in Sections 5 and 6
on or before the Closing, and the Sellers shall receive a certificate from
Network General to such effect signed by an officer of Network General.
8.3 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or prohibition preventing
the consummation of the Purchase or limiting or restricting Network General's
conduct or operation of the business of Network General or CNI after the
Purchase shall have been issued, nor shall any proceeding brought by a
Governmental Entity, seeking any of the foregoing be pending; nor shall there be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Purchase which makes the consummation of
the Purchase illegal.
8.4 AUTHORIZATIONS. The Sellers shall have received from Network
General and NGTC written evidence that the execution, delivery and performance
of Network General's and NGTC's obligations under this Agreement and the
Ancillary Documents have been duly and validly approved and authorized by the
Board of Directors of Network General and NGTC, respectively.
8.5 NO ADVERSE DEVELOPMENT. There shall not have been any material
adverse changes in the financial condition, results of operations, assets,
liabilities, business or prospects of Network General since the date of this
Agreement.
8.6 GOVERNMENT CONSENTS. There shall have been obtained at or
prior to the date of Closing such permits or authorizations, and there shall
have been taken such other action, as may be required by any regulatory
authority having jurisdiction over the parties and the subject
18
matter and the actions herein proposed to be taken, the absence of which would
have a Material Adverse Effect on CNI.
8.7 ESCROW AGREEMENT. Network General, NGTC, the CNI Agent, CNI
and the Escrow Agent shall have signed the Escrow Agreement in the form attached
hereto as EXHIBIT F.
8.8 OPINION OF COUNSEL. The Sellers shall have received a written
opinion of Xxxx Xxxx Xxxx & Freidenrich, counsel to Network General, in
substantially the form attached hereto as EXHIBIT G.
8.9 DATE OF CLOSING. The Closing shall occur on or before August
30, 1997, or such later date as the parties may mutually agree.
8.10 DOCUMENTS. All of the documents required to be delivered
pursuant to this Agreement shall have been delivered and the Sellers shall be
reasonably satisfied with the content and form of all such schedules, with the
understanding that acceptance of the schedules shall not be withheld unless such
schedules are materially adversely different from prior disclosures by the other
party.
8.11 OFFER LETTERS. Copies of the proposed Offer Letters to each of
the CNI Founders shall have been provided by Network General to the CNI
Founders, and the principal business terms contained in such Offer Letters shall
have been approved by the CNI Founders.
9. CONDITIONS TO NETWORK GENERAL'S OBLIGATIONS. The obligations of
Network General and NGTC are subject to the fulfillment or satisfaction on, and
as of the Closing, of each of the following conditions (any one or more of which
may be waived by Network General or NGTC, but only in a writing signed by
Network General or NGTC):
9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of CNI and the Sellers contained in Section 3
(other than Section 3.8) shall be true in all material respects, on and as of
the Closing with the same force and effect as if they had been made at the
Closing, and the representations and warranties of CNI and the Sellers contained
in Section 3.8 shall be true on and as of the Closing with the same force and
effect as if they had been made at the Closing, and Network General and NGTC
shall receive a certificate to such effect from the President of CNI and the
Sellers.
9.2 COVENANTS. The Sellers shall have performed and complied in
all material respects with all of its covenants contained in Sections 5 and 6 on
or before the Closing, and Network General and NGTC shall receive a certificate
from the President of CNI to such effect.
9.3 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or prohibition preventing
the consummation of the Purchase or limiting or restricting Network General's or
NGTC's conduct or operation of the business of Network General or NGTC or CNI
after the Purchase shall have been issued, nor shall any proceeding brought by a
Governmental Entity, seeking any of the foregoing be pending; nor shall there be
any action taken,
19
or any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Purchase which makes the consummation of the Purchase illegal.
9.4 AUTHORIZATIONS. Network General and NGTC shall have received
from the Secretary of CNI a certificate certifying that the execution, delivery
and performance of this Agreement and the Ancillary Documents have been duly and
validly approved and authorized by CNI's Board of Directors.
9.5 NO ADVERSE DEVELOPMENT. There shall not have been any material
adverse changes in the financial condition, results of operations, assets,
liabilities, or business of CNI since the date of this Agreement.
9.6 REQUIRED CONSENTS. Network General or NGTC shall have received
all written consents, assignments, waivers, authorizations or other certificates
identified on the CNI Disclosure Schedule, including without limitation the
consent of Advantis under the Software License Agreement dated July 22, 1997
between CNI and Advantis.
9.7 GOVERNMENT CONSENTS. There shall have been obtained at or
prior to the date of Closing such permits or authorizations and there shall have
been taken such other action, as may be required by any regulatory authority
having jurisdiction over the parties and the subject matter and the actions
herein proposed to be taken, the absence of which would have a Material Adverse
Effect on CNI.
9.8 DELIVERY OF STOCK CERTIFICATES. The Sellers shall have
delivered to Network General endorsed stock certificates or assignments separate
from certificate representing all of the outstanding capital stock of CNI.
9.9 OPINION OF COUNSEL. Network General shall have received a
written opinion from the Venture Law Group, A Professional Corporation, counsel
to CNI, in substantially the form attached hereto as EXHIBIT H.
9.10 TERMINATION OF CONTRACTS. Any oral or written contract between
CNI and any of its employees shall have been terminated.
9.11 NON-COMPETITION AND NON-SOLICITATION AGREEMENTS. Xxxx Au and
Xxxxx Xxx shall each have executed and delivered a Non-Competition and
Non-Solicitation Agreement in the form attached hereto as EXHIBIT E-1, and Long
Jiang, Xxx Xx and Miles Wu shall each have executed and delivered a
Non-Competition and Non-Solicitation Agreement in the form attached hereto as
EXHIBIT E-2.
9.12 ESCROW AGREEMENT. Network General, the CNI Agent, CNI and the
Escrow Agent shall have signed the Escrow Agreement in the form attached hereto
as EXHIBIT F.
9.13 NO EXERCISE OF OPTIONS. No CNI Option shall have been
exercised between the date of this Agreement and the Closing, and each holder of
a CNI Option shall have executed an Assumption Agreement in the form attached
hereto as EXHIBIT C.
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9.14 DATE OF CLOSING. The Closing shall occur on or before
August 30, 1997, or such later date as the parties may mutually agree.
9.15 DOCUMENTS. All of the documents required to be delivered
pursuant to this Agreement shall have been delivered and Network General shall
be reasonably satisfied with the content and form of all such schedules, with
the understanding that acceptance of the schedules shall not be withheld unless
such schedules are materially adversely different from prior disclosures by the
other party.
10. POST CLOSING COVENANTS.
10.1 CNI DEVELOPMENT CENTER. It is the present intention of Network
General to establish a development center in Pleasanton, California, at or near
CNI's current location at 0000 Xxxx Xxxxxx Xxxxxxx, Xxxxxxxxxx, Xxxxxxxxxx.
Network General also presently expects that a majority of CNI's employees
remaining with CNI following the Closing would continue to perform their
employment responsibilities at such development site. On or before September
30, 1997, Network General and NGTC will effect the transfer of appropriate
development employees into the development organization responsible for
performing the tasks set forth in the table in Section III of EXHIBIT B, and
will use commercially reasonable efforts to assist the CNI Founders to achieve
the Revenue and Technical Goals set forth on EXHIBIT B.
10.2 REGISTRATION STATEMENT ON FORM S-8. Within thirty (30) days
after the Closing, Network General will file a registration statement on
Form S-8 with the Securities and Exchange Commission to register a sufficient
number of shares of Network General Common Stock for delivery upon exercise of
the Assumed Options.
11. TERMINATION OF AGREEMENT.
11.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing as follows:
(a) By the mutual written consent of each of the parties
hereto;
(b) By either CNI or NGTC, if the Purchase has not closed
by August 30, 1997.
Any termination of this Agreement under this Section shall be effective by
the delivery of written notice of the terminating party to the other parties
hereto.
11.2 LIABILITY FOR TERMINATION. Any termination of this Agreement
pursuant to this Section 11 shall be without further obligation or liability
upon any party in favor of any other party hereto; provided, that if such
termination shall result from the willful failure of a party to carry out its
obligations under this Agreement, then such party shall be liable for losses
incurred by the other parties. The provisions of this Section 11.2 shall
survive termination.
11.3 CERTAIN EFFECTS OF TERMINATION. In the event of the
termination of this Agreement by either the Sellers or Network General as
provided in Section 11.1 hereof:
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(a) each party, if so requested by the other party, will
(i) return promptly every document (other than documents publicly available)
furnished to it by the other party (or any subsidiary, division, associate or
affiliate of such other party) in connection with the transactions contemplated
hereby, whether so obtained before or after the execution of this Agreement, and
any copies thereof which may have been made, and will cause its representatives
and any representatives of financial institutions and investors and others to
whom such documents were furnished promptly to return such documents and any
copies thereof any of them may have made, or (ii) destroy such documents and
cause its representatives and such other representatives to destroy such
documents, and such party shall deliver a certificate executed by its President
or Vice President stating to such effect; and
(b) CNI and Network General shall continue to abide by the
provisions of the previously executed Non-Disclosure Agreement between Network
General and CNI. This Section 11.3 shall survive any termination of this
Agreement.
11.4 REMEDIES. No party shall be limited to the termination right
granted in Section 11.1 hereto by reason of the nonfulfillment of any condition
to such party's closing obligations but may, in the alternative, elect to do one
of the following:
(a) proceed to close despite the nonfulfillment of any
closing condition, it being understood that consummation of the transactions
contemplated hereby shall be deemed a waiver of any misrepresentation or breach
of warranty or covenant and of any party's rights and remedies with respect
thereto to the extent that the other party shall have actual knowledge of such
misrepresentation or breach and the Closing shall nonetheless take place; or
(b) decline to close, terminate this Agreement as provided
in Section 11.1 hereof, and thereafter seek damages to the extent permitted in
Sections 11.2 and 11.5 hereof.
11.5 RIGHT TO DAMAGES. If this Agreement is terminated pursuant to
Section 11.1 hereof, neither party hereto shall have any claim against the other
except if the circumstances giving rise to such termination were caused by the
other party's willful failure to comply with a material covenant set forth
herein, in which event termination shall not be deemed or construed as limiting
or denying any legal or equitable right or remedy of said party, and said party
shall be entitled to recover its costs and expenses which are incurred in
pursuing its rights and remedies (including reasonable attorneys' fees).
12. ESCROW AND INDEMNIFICATION. Unless otherwise indicated, for purposes
of this Section 12, Network General shall be deemed to mean both Network General
and NGTC.
12.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Notwithstanding any investigation conducted before or after the Closing Date,
and notwithstanding any actual or implied knowledge or notice of any facts or
circumstances which Network General or the Sellers may have as a result of such
investigation or otherwise, but subject to Section 11.4, Network General and the
Sellers will be entitled to rely upon the other party's representations,
warranties and covenants set forth in this Agreement. The representations and
warranties of Network
22
General will terminate upon the Closing. The obligations of the Sellers with
respect to their representations, warranties, agreements and covenants, and
including any matters regarding compliance with immigration laws set forth in
Section 3.13 of the CNI Disclosure Schedule (except those contained in Section
3.8 of this Agreement) will survive the Closing and continue in full force and
effect until the date twelve (12) months following the Closing Date (the "One
Year Termination Date") at which time the obligations of CNI and the Sellers
with respect to their representations, warranties, agreements and covenants
(other than those contained in Section 3.8 of the Agreement), set forth in this
Agreement and their liability with respect to those representations, warranties,
agreements and covenants will terminate, and the obligations of the Sellers with
respect to their representations, warranties, agreements and covenants contained
in Section 3.8 of this Agreement (including any matters relating to the work
performed by certain employees of CNI prior to their employment by CNI as set
forth in Section 3.9 of the CNI Disclosure Schedule) will survive the Closing
and continue in full force and effect until the date twenty-four (24) months
following the Closing Date (the "Two Year Termination Date"), at which time the
representations, warranties and covenants of CNI and the Sellers set forth in
this Agreement and their liability with respect to those representations,
warranties and covenants will terminate; provided, however, that thereafter the
Sellers will remain liable to the extent set forth below for Damages (as defined
below) in connection with any indemnity claim set forth in an Officer's
Certificate (as defined below) provided that such Officer's Certificate has been
delivered to the CNI Agent (as defined below) and the Escrow Agent on or before
the One Year Termination Date for such item in accordance with Section 12.6, and
until such time as such indemnity claim has been finally decided, settled or
adjudicated.
12.2 INDEMNITY. From and after the Closing, and subject to the
provisions of Section 12.1, Network General shall be indemnified and held
harmless by the Sellers against, and reimbursed for, any actual liability,
damage, loss, obligation, demand, judgment, fine, penalty, cost or expense
(excluding any indirect or consequential damages to Network General (such as
lost profits), other than any such damages resulting from injunctive relief
granted as to an intellectual property claim, but including reasonable
attorneys' fees (excluding costs relating to in-house attorneys) and expenses,
and the costs of investigation (excluding in-house costs of investigation)
incurred in defending against or settling such liability, damage, loss, cost or
expense or claim therefor and any amounts paid in settlement thereof) imposed on
or reasonably incurred by Network General as a result of any misrepresentation
or breach of any representation, warranty, or covenant on the part of the
Sellers under this Agreement (the "Damages"); provided, however, that with
respect to Damages incurred or sustained by Network General as a result of any
misrepresentation or breach of any representation, warranty or covenant on the
part of the Sellers under Section 3.8 of this Agreement (the "Excess Escrow Fund
Matters"), the Sellers' liability shall not exceed Ten Million Dollars
($10,000,000) (inclusive of the Escrow Fund (as defined below) for the duration
of the Escrow Fund). Damages in each case shall be net of the amount of any
insurance proceeds, indemnity and contribution actually recovered by Network
General. "Damages" as used herein is not limited to matters asserted by third
parties, but includes Damages incurred or sustained by Network General in the
absence of claims by a third party. Network General shall not be entitled to
indemnification under this Section except to the extent the aggregate amount of
Damages exceeds Three Hundred Thousand Dollars ($300,000) and then only to the
amount in excess of Three Hundred Thousand Dollars ($300,000). Resort to the
23
Escrow Fund will be the exclusive remedy of Network General for any breach of
any representation, warranty, agreement or covenant made by CNI or the
Sellers in this Agreement; provided, however, that to the extent the
indemnification under this section for Damages sought only with respect to
the Excess Escrow Fund Matters exceeds the initial amount of the Escrow Fund,
Network General shall be entitled to seek indemnification under this section
for the amount of Damages in excess of the initial amount of the Escrow Fund
from the assets of the Sellers, subject to the Ten Million Dollar
($10,000,000) limitation set forth above, and provided, however, that nothing
herein limits any potential remedies of Network General arising under
applicable state and federal laws with respect to any intentional or
fraudulent breaches of the representations, warranties or covenants of the
Sellers made in or pursuant to this Agreement or a breach of Section 3.16
herein.
12.3 ESCROW FUND. As security for the indemnity provided for in
Section 12.2 hereof, an aggregate of Two Million Seven Hundred Thousand Dollars
($2,700,000) paid to the Sellers pursuant to this Agreement, without any act of
such Sellers, shall be deposited by NGTC in an escrow account with State Street
Bank and Trust Company of California, N.A. (or other mutually acceptable
institution) as Escrow Agent (the "Escrow Agent"), as of the Closing, such
deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the
terms set forth in this Agreement and the provisions of an Escrow Agreement in
the form of EXHIBIT F (the "Escrow Agreement"). The funds to be placed in the
Escrow Fund shall be allocated among the Sellers on a pro-rata basis in
accordance with the portion of the aggregate Initial Payment to be received by
the Sellers. Upon compliance with the terms hereof and subject to the
provisions of this Section 12.3, NGTC shall be entitled to obtain indemnity from
first the Escrow Fund and if necessary, from the Sellers and their Affiliates,
for Damages covered by the indemnity provided for in Section 12.2 of this
Agreement. NGTC shall compensate the Escrow Agent for its services in
maintaining the Escrow Fund.
12.4 ESCROW PERIOD. Subject to Section 12.9, the Escrow Fund shall
remain in existence during the period of time (the "Escrow Period") between the
Closing and the One Year Termination Date or the date to which it may be
extended under Section 12.1.
12.5 PROTECTION OF ESCROW FUND. The Escrow Agent shall hold and
safeguard the Escrow Fund during the Escrow Period, in accordance with the terms
of this Agreement and not as the property of NGTC, and shall hold and dispose of
the Escrow Fund only in accordance with the terms of the Escrow Agreement.
Funds that are delivered out of the Escrow Fund shall decrease on a pro-rata
basis (in proportion to the original contribution of each Seller to the Escrow
Fund) the funds which each Former CNI Shareholder is entitled to receive upon
the distribution described in Section 12.9.
12.6 CLAIMS UPON ESCROW FUND. Upon receipt by the Escrow Agent on
or before the One Year Termination Date of a certificate signed by any officer
of Network General (an "Officer's Certificate"):
(a) stating that Network General has paid or properly
accrued or knows of facts that have arisen giving rise to a reasonable
likelihood that it will have to pay or
24
accrue Damages in an aggregate stated amount with respect to which Network
General is entitled to payment from the Escrow Fund pursuant to this Agreement;
and
(b) specifying in reasonable detail the individual items of
Damages included in the amount so stated, the date each such item was paid or
properly accrued, or the basis for such anticipated liability, the specific
nature of the misrepresentation or breach to which such item is related, the
Escrow Agent shall, subject to the provisions of Section 12.7 and Section 12.8
of this Agreement, deliver to Network General funds equal to the amount set
forth in the Officer's Certificate, or if the Damages exceed the value of the
Escrow Fund, to deliver all of the available funds in the Escrow Fund together
with written notice to Network General that the Escrow Fund has been exhausted.
If the Officer's Certificate states that Network General knows of facts that
have arisen giving rise to a reasonably probability that it will have to pay or
accrue Damages, the amount set forth in the Officer's Certificate shall not be
delivered to Network General or NGTC until such time as Network General delivers
to the Escrow Agent an Officer's Certificate satisfying the provisions of this
Section 12.6 stating that it has paid or properly accrued a stated amount of
Damages and until the procedures set forth in Sections 12.7 and 12.8 of this
Agreement have been followed. Upon receipt of such notice from the Escrow
Agent, Network General shall be entitled to proceed against the assets of the
Sellers and their Affiliates, subject to the provisions of Section 12.14 and in
accordance with the procedure provided for in Section 12.8(b) and (c) herein.
12.7 OBJECTIONS TO CLAIMS. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to Xxxx X. Au (the "CNI Agent") and for a period of thirty (30) days
after such delivery, the Escrow Agent shall not deliver any funds pursuant to
Section 12.6 unless the Escrow Agent shall have received written authorization
from the CNI Agent to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the funds in accordance
with Section 12.7, provided that no such payment or delivery may be made if the
CNI Agent shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow Agent
prior to the expiration of such thirty (30) day period.
12.8 RESOLUTION OF CONFLICTS.
(a) MEMORANDUM OF AGREEMENT. In case the CNI Agent shall
so object in writing to the indemnity of Network General in respect of any claim
or claims made in any Officer's Certificate, the CNI Agent and Network General
shall attempt in good faith to agree upon the rights of the respective parties
with respect to each of such claims. If the CNI Agent and Network General
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties and shall be furnished to the Escrow Agent. The Escrow
Agent shall be entitled to rely on any such memorandum and distribute funds from
the Escrow Fund in accordance with the terms thereof.
(b) ARBITRATION. If no such agreement can be reached after
good faith negotiation, either Network General or the CNI Agent may demand
arbitration of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both Network
25
General and the CNI Agent agree to arbitration; and in such event the matter
shall be settled by arbitration conducted by three arbitrators. Network General
and the CNI Agent shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The decision of the arbitrators so
selected as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this Agreement,
and, notwithstanding anything in Section 12.7, the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold payments
or distributions out of the Escrow Fund in accordance with such decision.
(c) JUDGMENT. Any such arbitration shall be held in San
Jose, California under the commercial rules then in effect of the American
Arbitration Association ("AAA"). Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. For the purposes
of this Section 12.8(c) in any arbitration hereunder in which any claim or the
amount thereof stated in the Officer's Certificate is at issue, Network General
shall be deemed to be the non-prevailing party unless the arbitrators award
Network General more than 75% of the amount in dispute, plus any amounts not in
dispute; otherwise, the Sellers shall be deemed to be the non-prevailing party.
The non-prevailing party to an arbitration hereunder shall pay its own expenses,
the fees of each arbitrator, the administrative fee of AAA, and the expenses
(including, without limitation, attorneys' fees and costs) incurred by the other
party to the arbitration.
12.9 DISTRIBUTION UPON TERMINATION OF ESCROW PERIOD. Promptly
following, but no more than five (5) business days following, the One Year
Termination Date, the Escrow Agent shall deliver to the Sellers all of the funds
in the Escrow Fund with a value in excess of any amount of such funds deemed
reasonably necessary upon mutual agreement of Network General or NGTC and the
CNI Agent to satisfy any unsatisfied or disputed claims for Damages specified in
any Officer's Certificate delivered to the Escrow Agent on or before the One
Year Termination Date and any unsatisfied or disputed claims by the CNI Agent
under Section 12.10(b). As soon as all such claims have been resolved, the
Escrow Agent shall deliver to the Sellers all funds remaining in the Escrow
Fund, including interest thereon, and not required to satisfy such claims.
Deliveries of funds to the Sellers pursuant to this section shall be made in
proportion to their original contributions to the Escrow Fund.
12.10 CNI AGENT.
(a) The CNI Agent shall be appointed and constituted agent
by the Sellers, for and on behalf of the Sellers: to enter into and perform in
accordance with the terms and conditions of the Escrow Agreement; to give and
receive notices and communications; to authorize delivery to NGTC of funds from
the Escrow Fund in satisfaction of claims by NGTC; to object to such deliveries;
to agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such claims; and to take all actions necessary or appropriate in the
judgment of the CNI Agent for the accomplishment of the foregoing and this
Section 12. The CNI Agent may resign upon thirty (30) days notice to the
parties to this Agreement. The CNI Agent may be replaced by the Sellers from
time to time upon not less than five (5) days' prior written notice to Network
General; provided that the CNI Agent may not be replaced unless recipients of a
majority of the funds in
26
the Escrow Fund agree to such replacement. No bond shall be required of the CNI
Agent, and the CNI Agent shall receive no compensation for his services except
as provided in Section 12.10(b). Notices or communications to or from the CNI
Agent shall constitute notice to or from each of the Sellers
(b) The CNI Agent shall not be personally liable to Network
General or the Sellers for any act done or omitted hereunder as CNI Agent while
acting in good faith and in the exercise of reasonable judgment, and any act
performed or omitted pursuant to the advice of counsel shall be conclusive
evidence of good faith. The Sellers shall indemnify the CNI Agent and hold the
CNI Agent harmless for their respective pro rata share against, any loss,
liability or expense that is incurred without bad faith on the part of the CNI
Agent and arise out of or in connection with the acceptance or administration of
the CNI Agent's duties hereunder. The CNI Agent shall have reasonable access to
information about CNI, the Sellers and Network General, and the reasonable
assistance of CNI's and Network General's officers and employees for the purpose
of performing his duties and exercising his rights hereunder; provided, however,
that the CNI Agent shall treat as confidential and not disclose any nonpublic
information from or about CNI or Network General to anyone (except on a need to
know basis to individuals who agree in writing with Network General to treat
such information as confidential). The CNI Agent shall be entitled to a
distribution of funds from the Escrow Fund with a value equal to any such
indemnity claim which has not been satisfied; provided, however, that no such
distribution shall be made until all claims of Network General set forth in any
Officer's Certificate delivered to the Escrow Agent on or prior to the One Year
Termination Date have been resolved.
12.11 ACTIONS OF THE CNI AGENT. A decision, act, consent or
instruction of the CNI Agent shall constitute a decision of all the Sellers and
shall be final, binding and conclusive upon each of the Sellers, and the Escrow
Agent and Network General may rely upon any decision, act, consent or
instruction of the CNI Agent as being the decision, act, consent or instruction
of each and all of the Sellers. The Escrow Agent and Network General are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the CNI Agent.
12.12 THIRD-PARTY CLAIMS. In the event Network General becomes aware
of a third-party claim which Network General believes may result in a demand
against the Escrow Fund, Network General shall promptly notify the CNI Agent of
such claim. Network General shall have the right to settle any such claim with
the written consent of the CNI Agent, which consent shall not be unreasonably
withheld. In the event that the CNI Agent has consented to the specific terms
of any such settlement, including, but not limited to, the dollar amount of such
settlement, neither the Sellers nor the CNI Agent shall have any power or
authority to object under Section 12.7 or any other provision of this Agreement
to the amount of any claim by Network General against the Escrow Fund for
indemnity that is consistent with such settlement. If any proceeding is
commenced, or if any claim, demand or assessment is asserted, in respect of
which a claim for indemnification is or might be made against the Escrow Fund
based on matters other than (i) the intellectual property of CNI or (ii) claims
made by customers of Network General or CNI, the CNI Agent may, at his option,
contest or defend any such action, proceeding, claim, demand or assessment, with
counsel selected by the CNI Agent who is reasonably acceptable to Network
General; provided, however, that if Network General shall reasonably
27
object to such control, then the CNI Agent and Network General shall cooperate
in the defense of such matter; provided further, that the CNI Agent shall not
admit any liability with respect thereto or settle, compromise, pay or discharge
the same without the prior written consent of Network General, which consent
shall not be unreasonably withheld. With respect to any claim for
indemnification based on matters relating to the intellectual property of CNI,
or customers of CNI or Network General, Network General shall have the option to
defend any such proceeding; provided, however, that Network General shall not
admit any liability with respect thereto or settle, compromise, pay or discharge
the same without the prior written consent of the CNI Agent, which consent shall
not be unreasonably withheld. The CNI Agent or Network General, whichever is
not controlling the defense of any matter, shall be entitled, at his or its
expense, to participate in such defense.
13. MISCELLANEOUS.
13.1 GOVERNING LAW. It is the intention of the parties hereto that
the internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto.
13.2 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and agreements contained herein shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
13.3 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
13.4 ENTIRE AGREEMENT. This Agreement, the exhibits hereto, the
documents referenced herein (including the Non-Disclosure Agreement), and the
exhibits thereto, constitute the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof and thereof and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto and thereto. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
13.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
28
13.6 EXPENSES. Except as provided to the contrary herein, each
party shall pay all of its own costs and expenses incurred with respect to the
negotiation, execution and delivery of this Agreement and the exhibits hereto;
provided, however, that Network General shall pay the reasonable fees and
expenses of Shilling & Xxxxxx, Inc., CNI's independent accountants, for the
audit of CNI's financial statements for the fiscal year ended March 31, 1997.
13.7 AMENDMENT AND WAIVERS. Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default.
13.8 SURVIVAL OF AGREEMENTS. Except as otherwise provided for
herein, all covenants, agreements, representations and warranties made herein
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby notwithstanding any investigation of the
parties hereto and shall terminate on the date one year after the Closing Date.
13.9 NO WAIVER. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
13.10 NOTICES. Any notice provided for or permitted under this
Agreement will be treated as having been given when (a) delivered personally,
(b) sent by confirmed telex or telecopy, (c) sent by commercial overnight
courier with written verification of receipt, or (d) mailed postage prepaid by
certified or registered mail, return receipt requested, to the party to be
notified, at the address set forth below, or at such other place of which the
other party has been notified in accordance with the provisions of this
Section 13.10.
CNI: Cinco Networks, Inc.
0000 Xxxx Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx X. Au
With copy to: Venture Law Group, A Professional Corporation
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx, Esq.
Network General Network General Corporation
and NGTC: 0000 Xxxxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Attn: Legal Department
29
With copy to: Xxxx Xxxx Xxxx & Freidenrich
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxxxxx, Esq.
Such notice will be treated as having been received upon actual receipt.
13.11 TIME. Time is of the essence of this Agreement.
13.12 CONSTRUCTION OF AGREEMENT. This Agreement has been negotiated
by the respective parties hereto and their attorneys and the language hereof
shall not be construed for or against any party. The titles and headings herein
are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole.
13.13 NO JOINT VENTURE. Nothing contained in this Agreement shall be
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party shall have
the power to control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent contractors with
respect to each other. No party shall have any power or authority to bind or
commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section 13.13.
13.14 PRONOUNS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
13.15 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of
this Agreement are intended, nor shall be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner of any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof shall be personal solely between the parties
to this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
NETWORK GENERAL CORPORATION NETWORK GENERAL
TECHNOLOGY CORPORATION
By: /s/ Xxxxx X. Xxxxxx By: /s/ Xxxxx X. Xxxxxxxxxx
-------------------------------- --------------------------
Title: Executive VP and COO Title: President
----------------------------- -----------------------
Counterpart Signatures of SELLERS CINCO NETWORKS, INC.
/s/ Xxxx X. Au
----------------------------------- By: /s/ Xxxx X. Au
Signature --------------------------
Print Name: Xxxx X. Au Title: President
------------------------ -----------------------
/s/ Xxxxx X. Xxx
-----------------------------------
Signature
Print Name: Xxxxx X. Xxx
------------------------
/s/ Jeng Long Jiang
-----------------------------------
Signature
Print Name: Jeng Long Jiang
------------------------
/s/ Xxxxxx Xx
-----------------------------------
Signature
Print Name: Xxxxxx Xx
------------------------
/s/ Miles Wu
-----------------------------------
Signature
Print Name: Miles Wu
------------------------
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