Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CACHEFLOW INC.,
WILDCAT MERGER CORPORATION,
SPRINGBANK NETWORKS, INC.
AND
XXXXX XXXXXXXXXXX (AS STOCKHOLDERS' AGENT)
JUNE 3, 2000
TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER................................................... 1
1.1 The Merger.................................................... 1
1.2 Closing; Effective Time....................................... 2
1.3 Effect of the Merger.......................................... 2
1.4 Articles of Incorporation; Bylaws............................. 2
1.5 Directors and Officers........................................ 2
1.6 Effect on Capital Stock....................................... 2
1.7 Surrender of Certificates..................................... 4
1.8 No Further Ownership Rights in Target Capital Stock........... 5
1.9 Lost, Stolen or Destroyed Certificates........................ 6
1.10 Tax Consequences............................................. 6
1.11 Exemption from Registration.................................. 6
1.12 Taking of Necessary Action; Further Action................... 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET.................... 6
2.1 Organization, Standing and Power.............................. 7
2.2 Capital Structure............................................. 7
2.3 Authority..................................................... 8
2.4 Absence of Undisclosed Liabilities............................ 9
2.5 Absence of Certain Changes.................................... 9
2.6 Litigation.................................................... 9
2.7 Restrictions on Business Activities........................... 9
2.8 Governmental Authorization.................................... 9
2.9 Title to Property............................................. 10
2.10 Intellectual Property........................................ 10
2.11 Environmental Matters........................................ 11
2.12 Taxes........................................................ 11
2.13 Employee Benefit Plans....................................... 13
2.14 Employees and Consultants.................................... 14
2.15 Related-Party Transactions................................... 15
2.16 Insurance.................................................... 15
2.17 Compliance with Laws......................................... 16
2.18 Brokers' and Finders' Fees................................... 16
2.19 Voting Agreement; Irrevocable Proxies........................ 16
2.20 Vote Required................................................ 16
2.21 Material Contracts........................................... 16
2.22 No Breach of Material Contracts.............................. 17
2.23 Third-Party Consents......................................... 18
2.24 Minute Books................................................. 18
2.25 Complete Copies of Materials................................. 18
2.26 Representations Complete..................................... 18
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB.. 18
3.1 Organization, Standing and Power.............................. 18
3.2 Authority..................................................... 19
3.3 SEC Documents; Financial Statements........................... 20
3.4 Representations Complete...................................... 20
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME......................... 20
4.1 Conduct of Business of Target and Acquiror.................... 20
4.2 Conduct of Business of Target................................. 21
4.3 Notices....................................................... 23
ARTICLE V ADDITIONAL AGREEMENTS........................................ 23
5.1 No Solicitation............................................... 23
5.2 Preparation of Information Statement.......................... 24
5.3 Shareholders Meeting or Consent Solicitation.................. 24
5.4 Access to Information......................................... 24
5.5 Confidentiality............................................... 25
5.6 Public Disclosure............................................. 25
5.7 Consents; Cooperation......................................... 25
5.8 Update Disclosure; Breaches................................... 25
5.9 Irrevocable Proxies........................................... 26
5.10 Legal Requirements........................................... 26
5.11 Tax-Free Reorganization...................................... 26
5.12 Blue Sky Laws................................................ 26
5.13 Stock Options................................................ 26
5.14 Escrow Agreement............................................. 27
5.15 Change in the Number of Shares Outstanding................... 27
5.16 Additional Agreements; Reasonable Efforts.................... 27
5.17 Employee Benefits............................................ 28
5.18 Indemnification Agreements................................... 28
ARTICLE VI CONDITIONS TO THE MERGER.................................... 28
6.1 Conditions to Obligations of Each Party to Effect the Merger.. 28
6.2 Additional Conditions to Obligations of Target................ 29
6.3 Additional Conditions to the Obligations of Acquiror.......... 30
ARTICLE VII TERMINATION, EXPENSES, AMENDMENT AND WAIVER................ 32
7.1 Termination................................................... 32
7.2 Effect of Termination......................................... 33
7.3 Expenses and Termination Fees................................. 33
7.4 Amendment..................................................... 34
7.5 Extension; Waiver............................................. 34
ARTICLE VIII ESCROW AND INDEMNIFICATION................................ 34
8.1 Survival of Representations, Warranties and Covenants......... 34
8.2 Indemnity..................................................... 34
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8.3 Escrow Fund................................................... 35
8.4 Damage Threshold.............................................. 35
8.5 Escrow Period................................................. 35
8.6 Claims upon Escrow Fund....................................... 35
8.7 Objections to Claims.......................................... 36
8.8 Resolution of Conflicts; Arbitration.......................... 36
8.9 Shareholders' Agent........................................... 37
8.10 Distribution Upon Termination of Escrow Period............... 37
8.11 Actions of the Shareholders' Agent........................... 38
8.12 Third-Party Claims........................................... 38
8.13 Maximum Liability and Remedies............................... 38
ARTICLE IX GENERAL PROVISIONS.......................................... 39
9.1 Notices....................................................... 39
9.2 Interpretation................................................ 40
9.3 Counterparts.................................................. 40
9.4 Entire Agreement; No Third Party Beneficiaries................ 40
9.5 Severability.................................................. 41
9.6 Remedies Cumulative........................................... 41
9.7 Governing Law................................................. 41
9.8 Assignment.................................................... 41
9.9 Rules of Construction......................................... 41
SCHEDULES
Target Disclosure Letter
Option Schedule
EXHIBITS
Exhibit A - Certificate of Merger
Exhibit B - Amended and Restated Investors' Rights Agreement
Exhibit C - Irrevocable Proxy and Voting Agreement
Exhibit D - Escrow Agreement
Exhibit E - Acquiror's Legal Opinion
Exhibit F - Target's Legal Opinion
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into as of June 3, 2000, by and among CacheFlow Inc., a Delaware
corporation ("Acquiror"), Wildcat Merger Corporation, a Delaware corporation
("Merger Sub"), SpringBank Networks, Inc., a Delaware corporation ("Target"),
and Xxxxx Xxxxxxxxxxx (as Stockholders' Agent).
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub
believe it is in the best interests of their respective companies and the
stockholders and their respective companies that Target and Merger Sub combine
into a single company through the statutory merger of Merger Sub with and into
Target (the "Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, each outstanding
share of capital stock of Target, par value $.001 per share ("Target Capital
Stock"), shall be converted into shares of common stock of Acquiror, par value
$.0001 per share ("Acquiror Common Stock"), at the rate set forth herein.
C. Target, Acquiror and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan
of reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to consistently report the Merger as a
reorganization under the provisions of Sections 368(a) of the Code.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE I
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THE MERGER
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1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement, the Certificate
of Merger attached hereto as Exhibit A (the "Certificate of Merger") and the
---------
applicable provisions of the California Corporations Code ("California Law") and
the Delaware General Corporation Law ("Delaware Law"), Merger Sub shall be
merged with and into Target, the separate corporate existence of Merger Sub
shall cease and Target shall continue as the surviving corporation. Target as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions
-----------------------
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (the date on which
the Closing shall occur, the "Closing Date"). The Closing shall take place at
the offices of Xxxxxxxxx Xxxxxxx Xxxxxx Xxxxxxxxxx Xxxxxxxx & Xxxxxxxxx, LLP -
Menlo Park, California, or at such other location as the parties hereto agree.
On the Closing Date, the parties hereto shall cause the Merger to be consummated
by filing the Certificate of Merger, together with the required officers'
certificates, with the Secretary of State of the State of Delaware, in
accordance with the relevant provisions of Delaware Law (the time and date of
such filing being the "Effective Time" and the "Effective Date," respectively).
1.3 Effect of the Merger. At the Effective Time, the effect of the
--------------------
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Target shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
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(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation;
provided, however, that Article I of the Certificate of Incorporation shall be
amended to read as follows: "The name of the corporation is SpringBank Networks,
Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors of
----------------------
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, to hold office until such time as such directors resign,
are removed or their respective successors are duly elected or appointed and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, to hold office until such
time as such officers resign, are removed or their respective successors are
duly elected or appointed and qualified.
1.6 Effect on Capital Stock. By virtue of the Merger and without any
-----------------------
action on the part of Acquiror, Merger Sub, Target or the holders of any of
Target's securities:
(a) Conversion of Target Capital Stock. At the Effective Time,
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each share of Target Capital Stock issued and outstanding immediately prior to
the Effective Time (other than any shares of Target Capital Stock to be canceled
pursuant to Section 1.6(a) and shares, if any, held by persons who have not
voted such shares for approval of the Merger and with respect to which such
persons shall be entitled to exercise dissenter's rights in accordance with
Section 262 of the Delaware Law and Chapter 13 of the California Law
("Dissenting
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Shares") will be canceled and extinguished and be converted automatically into
the right to receive one-fifth (1/5) of a share of Acquiror Common Stock (the
"Exchange Ratio"). The shares to be issued pursuant to this Section 1.6(a) are
referred to herein as the "Total Acquiror Shares."
(b) Cancellation of Target Capital Stock Owned by Acquiror or
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Target. At the Effective Time, all shares of Target Capital Stock that are owned
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by Target as treasury stock, each share of Target Capital Stock owned by
Acquiror or any direct or indirect wholly owned subsidiary of Acquiror or of
Target immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Target Stock Plan. At the Effective Time, the Target 2000
-----------------
Stock Incentive Plan (the "Target Stock Plan") and all options to purchase
shares of Target Common Stock ("Target Options") then outstanding under the
Target Stock Plan shall be assumed by Acquiror in accordance with Section 5.13.
(d) Capital Stock of Merger Sub. At the Effective Time, each
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share of Common Stock of Merger Sub, par value $.0001 per share ("Merger Sub
Common Stock"), issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, par value $.0001 per share, of the
Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership
of any such shares shall continue to evidence ownership of such shares of
capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
-----------------------------
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Common Stock or Target Capital Stock), reorganization, recapitalization
or other like change with respect to Acquiror Common Stock or Target Capital
Stock occurring after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Acquiror Common
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Stock will be issued, but in lieu thereof each holder of shares of Target
Capital Stock who would otherwise be entitled to a fraction of a share of
Acquiror Common Stock (after aggregating all fractional shares of Acquiror
Common Stock to be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the average of the closing price for a share
of Acquiror Common Stock as quoted on the Nasdaq National Market for the ten
(10) trading days immediately preceding and ending on the trading day that is
five (5) trading days prior to the Closing Date (the "Closing Price").
(g) Dissenters' Rights. Any Dissenting Shares shall not be
------------------
converted into Acquiror Common Stock but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to Delaware Law or California Law. Target
agrees that, except with the prior written consent of Acquiror, or as required
under Delaware Law or California Law, it will not voluntarily make any payment
with respect to, or settle or offer to settle, any such purchase demand. Each
holder of Dissenting Shares ("Dissenting Stockholders") who, pursuant to the
provisions of Delaware Law
3
or California Law, becomes entitled to payment of the fair value for shares of
Target Capital Stock, shall receive payment therefor (but only after the value
therefor shall have been agreed upon or finally determined pursuant to such
provisions). If, after the Effective Time, any Dissenting Shares shall lose
their status as Dissenting Shares, Acquiror shall issue and deliver, upon
surrender by such stockholders of certificate or certificates representing
shares of Target Capital Stock, the number of shares of Acquiror Common Stock to
which such stockholders would otherwise be entitled under this Section 1.6 and
the Certificate of Merger less the number of shares allocable to such
stockholders that have been or will be deposited in the Escrow Fund (as defined
below) in respect of such shares of Acquiror Common Stock pursuant to Section
1.7(c) and Article VIII hereof.
1.7 Surrender of Certificates.
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(a) Exchange Agent. Boston EquiServe shall act as exchange agent
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(the "Exchange Agent") in the Merger.
(b) Acquiror to Provide Common Stock and Cash. Promptly after
-----------------------------------------
the Effective Time, Acquiror shall make available to the Exchange Agent for
exchange in accordance with this Article I, through such reasonable procedures
as Acquiror may adopt, (i) the shares of Acquiror Common Stock issuable pursuant
to Section 1.6(a) in exchange for shares of Target Capital Stock outstanding
immediately prior to the Effective Time less (i) the number of shares of
Acquiror Common Stock to be deposited into an escrow fund (the "Escrow Fund")
pursuant to the requirements of Article VIII hereof and (ii) cash in an amount
sufficient to permit payment of cash in lieu of fractional shares pursuant to
Section 1.6(f).
(c) Exchange Procedures. Promptly after the Effective Time, the
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Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Target Capital Stock, whose
shares were converted into the right to receive shares of Acquiror Common Stock
(and cash in lieu of fractional shares) pursuant to Section 1.6, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Acquiror may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Acquiror Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Acquiror, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing the number of whole
shares of Acquiror Common Stock, less the number of shares of Acquiror Common
Stock to be deposited in the Escrow Fund on such holder's behalf pursuant to
Article VIII hereof, and payment in lieu of fractional shares which such holder
has the right to receive pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Target
Capital Stock will be deemed from and after the Effective Time, for all
corporate purposes, other than the payment of dividends, to evidence the
ownership of the number of full shares of Acquiror Common Stock into which such
shares of Target Capital Stock shall have
4
been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6. As soon as
practicable after the Effective Time, and subject to and in accordance with the
provisions of Section 8.3 hereof, Acquiror shall cause to be delivered to the
Escrow Agent (as defined in Section 8.3 hereof) a certificate or certificates
representing ten percent (10%) of the Acquiror Common Stock held by each of the
Founders (as defined in Section 5.14 hereof), the Xxxxxxxx Entities (as defined
in Section 5.14 hereof) and the Sequoia Funds (as defined in Section 5.14
hereof) (collectively, the "Escrow Shares") which shall be registered in the
name of the Escrow Agent as nominee for the holders of Certificates cancelled
pursuant to this Section 1.7. Such shares shall be beneficially owned by such
holders and shall be held in escrow and shall be available to compensate
Acquiror for certain damages as provided in Article VIII. To the extent not used
for such purposes, such shares shall be released, all as provided in Article
VIII hereof.
(d) Distributions with Respect to Unexchanged Shares. No
------------------------------------------------
dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate surrenders
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Acquiror Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
which would have been previously payable (but for the provisions of this Section
1.7(d)) with respect to such shares of Acquiror Common Stock.
(e) Transfers of Ownership. If any certificate for shares of
----------------------
Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Certificate so surrendered is
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in
------------
this Section 1.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(g) Dissenting Shares. The provisions of this Section 1.7 shall
-----------------
also apply to Dissenting Shares that lose their status as such, except that the
obligations of Acquiror under this Section 1.7 shall commence on the date of
loss of such status and the holder of such shares shall be entitled to receive
in exchange for such shares the number of shares of Acquiror Common Stock to
which such holder is entitled pursuant to Section 1.6 hereof.
1.8 No Further Ownership Rights in Target Capital Stock. All shares
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of Acquiror Common Stock issued upon the surrender for exchange of shares of
Target Capital
5
Stock in accordance with the terms hereof (including any cash paid in lieu of
fractional shares) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Target Capital Stock, and there shall be
no further registration of transfers on the records of the Surviving Corporation
of shares of Target Capital Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of
Acquiror Common Stock (and cash in lieu of fractional shares) as may be required
pursuant to Section 1.6; provided, however, that Acquiror may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Acquiror, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
----------------
Merger shall be treated as a reorganization within the meaning of Section 368 of
the Code. No party shall take any action which would, to such party's knowledge,
be inconsistent with treatment as a reorganization within the meaning of Section
368 of the Code.
1.11 Exemption from Registration. The shares of Acquiror Common Stock
---------------------------
to be issued in connection with the Merger will be issued in a transaction
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of Section 4(2) thereof and under Section 25103(h)
of the California Corporations Code. The registration of the shares with the
Securities and Exchange Commission (the "SEC") and their resale shall be subject
to the terms and conditions of a registration rights agreement attached hereto
as Exhibit B (the "Amended and Restated Investors' Rights Agreement").
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1.12 Taking of Necessary Action; Further Action. If, at any time after
------------------------------------------
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Target, the officers and directors of Target and Merger Sub
are fully authorized in the name of their respective corporations or otherwise
to take, and shall take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
ARTICLE II
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REPRESENTATIONS AND WARRANTIES OF TARGET
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Target represents and warrants to Acquiror and Merger Sub that the
statements contained in this Article II are true and correct, except as set
forth in the disclosure letter delivered by Target to Acquiror prior to the
execution and delivery of this Agreement (the "Target Disclosure Letter"). The
Target Disclosure Letter shall be arranged in paragraphs
6
corresponding to the numbered and lettered paragraphs contained in this Article
II, and the disclosure in any paragraph (including any cross references) shall
qualify only the corresponding paragraph in this Article II. Any reference in
this Article II to an agreement being "enforceable" shall be deemed to be
qualified to the extent such enforceability is subject to (i) laws of general
application relating to bankruptcy, insolvency, moratorium and the relief of
debtors, and (ii) the availability of specific performance, injunctive relief
and other equitable remedies.
2.1 Organization, Standing and Power. Target is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the corporate power to own its
properties and to carry on its business and is duly qualified to do business and
is in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect (as defined in Section
9.2) on Target. Target has delivered to Acquiror a true and correct copy of the
Certificate of Incorporation and Bylaws or other charter documents, as
applicable, of Target, each as amended to date. Target is not in violation of
any of the provisions of its Certificate of Incorporation or Bylaws or
equivalent organizational documents. Target does not directly or indirectly own
or control any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
2.2 Capital Structure. The authorized capital stock of Target
-----------------
consists of 15,000,000 shares of Common Stock and 1,200,000 shares of Preferred
Stock, of which there were issued and outstanding as of the date of this
Agreement 12,538,500 shares of Common Stock and 1,102,941 shares of Series A
Preferred Stock (the "Series A Preferred"). There are no other outstanding
shares of capital stock or voting securities and no outstanding commitments to
issue any shares of capital stock or voting securities after the date of this
Agreement other than pursuant to the exercise of options outstanding as of the
date of this Agreement under the Target Stock Plan. All outstanding shares of
Target Capital Stock are duly authorized, validly issued, fully paid and non-
assessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and are not subject
to preemptive rights, rights of first refusal, rights of first offer or similar
rights created by statute, the Certificate of Incorporation or Bylaws of Target
or any agreement to which Target is a party or by which it is bound. As of the
date of this Agreement, Target has reserved (i) 1,102,941 shares of Common Stock
for issuance upon conversion of the Series A Preferred, (ii) 7,300,000 shares of
Common Stock for issuance to employees, directors and consultants pursuant to
the Target Stock Plan, of which 6,288,500 shares have been issued pursuant to
option exercises or direct stock purchases, 385,000 shares are subject to
outstanding, unexercised options, and (iii) no shares subject to outstanding
warrants. Except for (i) the rights created pursuant to this Agreement and (ii)
Target's right to repurchase any unvested shares under the Target Stock Plan,
there are no other options, warrants, calls, rights, commitments or agreements
of any character to which Target is a party or by which it is bound obligating
Target to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of Target Capital Stock or
obligating Target to grant, extend, accelerate the vesting of, change the price
of, or otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no contracts, commitments or agreements
relating to the voting, purchase or sale of Target Capital Stock (i) between or
among Target and any of its stockholders and (ii) to the best of Target's
knowledge, among any of Target's stockholders or between any of Target's
7
stockholders and any third party, except for the stockholders delivering
Irrevocable Proxies (as defined below). The terms of the Target Stock Plan
permit the assumption of such Target Stock Plan by Acquiror or the substitution
of options to purchase Acquiror Common Stock as provided in this Agreement,
without the consent or approval of the holders of the outstanding options, the
Target stockholders, or otherwise and without any acceleration of the exercise
schedule or vesting provisions in effect for such options. True and complete
copies of all agreements and instruments relating to or issued under the Target
Stock Plan have been made available to Acquiror, and such agreements and
instruments have not been amended, modified or supplemented, and there are no
agreements to amend, modify or supplement such agreements or instruments from
the form made available to Acquiror. All outstanding Common Stock and Series A
Preferred was issued in compliance with all applicable federal and state
securities laws.
2.3 Authority.
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(a) Target has all requisite corporate power and authority to
enter into this Agreement, the Certificate of Merger, the Amended and Restated
Investors' Rights Agreement and the Escrow Agreement (collectively, the
"Transaction Documents") and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Target, subject only to the approval of the Merger by Target's
stockholders as contemplated by Section 6.1(a). This Agreement and the other
Transaction Documents have been duly executed and delivered by Target and
constitute the valid and binding obligations of Target enforceable against
Target in accordance with their terms.
(b) The execution and delivery of this Agreement and the other
Transaction Documents by Target do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the Certificate
of Incorporation or Bylaws of Target, as amended, or (ii) any Material Contract
(as defined in Section 2.21), permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Target
or any of its properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Target in connection with the
execution and delivery of this Agreement and the other Transaction Documents or
the consummation of the transactions contemplated hereby or thereby, except for
(i) the filing of the Certificate of Merger, together with the required
officers' certificates, as provided in Section 1.2; (ii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the securities laws
of any foreign country; and (iii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on Target and would not prevent or materially alter or
delay any of the transactions contemplated by this Agreement.
8
2.4 Absence of Undisclosed Liabilities. At the Effective Time, other
----------------------------------
than as set forth in Section 2.4 of the Target Disclosure Letter, Target has no
financial obligations or liabilities of any nature (matured or unmatured, fixed
or contingent), except for obligations or liabilities that do not exceed $25,000
individually or $50,000 in the aggregate. Target's financial obligations or
liabilities will not increase between the date of this Agreement and Closing.
2.5 Absence of Certain Changes. Since its date of incorporation,
--------------------------
Target has conducted it's business in the ordinary course consistent with past
practice and there has not occurred: (i) any change, event or condition (whether
or not covered by insurance) that has resulted in, or might reasonably be
expected to result in, a Material Adverse Effect on Target; (ii) any
acquisition, sale or transfer of any material asset of Target; (iii) any change
in accounting methods or practices (including any change in depreciation or
amortization policies or rates) by Target or any revaluation by Target of any of
its assets; (iv) any declaration, setting aside, or payment of a dividend or
other distribution with respect to the shares of Target, or any direct or
indirect redemption, purchase or other acquisition by Target or any of its
shares of capital stock; (v) any Material Contract entered into by Target, other
than as provided to Acquiror, or any material amendment or termination of, or
default under, any Material Contract to which Target is a party or by which it
is bound; (vi) any amendment or change to the Certificate of Incorporation or
Bylaws of Target since January 31, 2000; (vii) any increase in or modification
of the compensation or benefits payable or to become payable by Target to any of
its directors, employees or consultants; (viii) any negotiation or agreement by
Target to do any of the things described in the preceding clauses (i) through
(vii) (other than negotiations with Acquiror and its representatives regarding
the transactions contemplated by this Agreement).
2.6 Litigation. There is no private or governmental action, suit,
----------
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target, threatened
against Target or any of its properties or officers, directors or employees (in
their capacities as such). The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or threatened involving the prior
employment of any of Target's employees, their use in connection with Target's
business of any information or techniques allegedly proprietary to any of their
former employers, or their obligations under any agreements with prior
employers. There is no judgment, decree or order against Target, or, to the
knowledge of Target, any of its directors, officers or employees (in their
capacities as such), that could prevent, enjoin, or materially alter or delay
any of the transactions contemplated by this Agreement, or that could reasonably
be expected to have a Material Adverse Effect on Target. All litigation to which
Target is a party (or, to the knowledge of Target, threatened to become a party)
is disclosed in the Target Disclosure Letter. Target does not have any plans to
initiate any litigation, arbitration or other proceeding against any third
party.
2.7 Restrictions on Business Activities. There is no agreement,
-----------------------------------
judgment, injunction, order or decree binding upon Target that has or could
reasonably be expected to have the effect of prohibiting or impairing any
current or future business practice of Target, any acquisition of property by
Target or the conduct of business by Target.
2.8 Governmental Authorization. Target has obtained each federal,
--------------------------
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a
9
Governmental Entity (i) pursuant to which Target currently operates or holds any
interest in any of its properties or (ii) that is required for the operation of
Target's business or the holding of any such interest ((i) and (ii) herein
collectively called "Target Authorizations"), and all of such Target
Authorizations are in full force and effect, except where the failure to obtain
or have any such Target Authorizations could not reasonably be expected to have
a Material Adverse Effect on Target.
2.9 Title to Property. Target has good and marketable title to all of
-----------------
its properties, interests in properties and assets, real and personal, necessary
for the conduct of its business as presently conducted or with respect to leased
properties and assets, valid leasehold interests therein, in each case 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. The plants,
property and equipment of Target that are used in the operations of its business
are in good operating condition and repair. Section 2.9 of the Target Disclosure
Letter identifies each parcel of real property owned by Target.
2.10 Intellectual Property.
---------------------
(a) Target is the sole and exclusive owner of all Target
Intellectual Property (defined below) free of all contingent and noncontingent
liens, restrictions, interests, rights of reversion or termination, and all
other encumbrances of any nature. The conduct of Target's business will not
infringe, misappropriate or violate any Intellectual Property (defined below) of
others.
(b) To date, none of the Target Intellectual Property is the
subject of any application, registration or issuance with or from any
governmental entity. Target has adequately protected all other Target
Intellectual Property through the use of confidentiality agreements and
otherwise and Target is not aware of any use, exercise or exploitation of any
Target Intellectual Property, except as authorized by Target.
(c) Each current and former employee and contractor of Target
has executed and delivered (and to Target's knowledge, is in compliance with) an
enforceable agreement in substantially the form of Target's standard Proprietary
Information and Inventions Agreement (in the case of an employee) or Target's
standard Consulting Agreement (in the case of a contractor) (which agreement
provides valid written assignments of all title and rights to any Target
Intellectual Property conceived or developed thereunder or otherwise in
connection with his or her consulting or employment).
(d) "Intellectual Property" means patent rights; trade name,
trademark, service xxxx and similar rights ("Xxxx" rights); copyrights; mask
work rights; sui generis database rights; trade secret rights; and all other
intellectual and industrial property rights of any sort throughout the world,
and all applications, registrations, issuances and the like with respect
thereto. "Target Intellectual Property" means all Intellectual Property that has
been, is, or is proposed to be owned by Target, or used, exercised, or
exploited, or otherwise necessary for, Target's business.
10
2.11 Environmental Matters. Target is and has at all times operated its
---------------------
business in material compliance with all Environmental Laws. "Environmental
Laws" means all applicable statutes, rules, regulations, ordinances, orders,
decrees, judgments, permits, licenses, consents, approvals, authorizations, and
governmental requirements or directives or other obligations lawfully imposed by
governmental authority under federal, state or local law pertaining to the
protection of the environment, protection of public health, protection of worker
health and safety, the treatment, emission and/or discharge of gaseous,
particulate and/or effluent pollutants, and/or the handling of hazardous
materials.
2.12 Taxes.
-----
(a) All Tax returns, statements, reports, declarations and other
forms and documents (including without limitation estimated Tax returns and
reports and material information statements, returns and reports) required to be
filed with any Tax authority with respect to any Taxable period ending on or
before the Effective Time, by or on behalf of Target (collectively, "Tax
Returns" and individually a "Tax Return"), have been or will be completed and
filed when due (including any extensions of such due date) and all amounts shown
due on such Tax Returns on or before the Effective Time have been or will be
paid on or before such date. Target has timely paid all Taxes that have become
due or payable (whether or not shown on any Tax Return). The Target has properly
accrued in accordance with GAAP all material liabilities for Taxes payable after
January 1, 2000 with respect to all transactions and events occurring on or
prior to such date. All information set forth in the notes to the Target
Financial Statements relating to Tax matters is true, complete and accurate in
all material respects. No material Tax liability since January 1, 2000 has been
or will be incurred by Target other than in the ordinary course of business, and
adequate provision has been made by Target for all Taxes since that date in
accordance with GAAP on at least a quarterly basis.
(b) Target has previously provided or made available to Acquiror true
and correct copies of all Tax Returns. Target has withheld and paid to the
applicable financial institution or Tax authority all amounts required to be
withheld. To the best knowledge of Target, Tax Returns filed with respect to
Taxable years of Target through the Taxable year ended December 31, 1999 in the
case of the United States, have been examined and closed. Target (or any member
of any affiliated or combined group of which Target has been a member) has not
granted any extension or waiver of the limitation period applicable to any Tax
Returns that is still in effect. There is no material claim, audit, action,
suit, proceeding, or (to the knowledge of Target) investigation now pending or
(to the knowledge of Target) threatened against or with respect to Target in
respect of any Tax or assessment. No notice of deficiency or similar document of
any Tax authority has been received by Target, and there are no liabilities for
Taxes (including liabilities for interest, additions to Tax and penalties
thereon and related expenses) with respect to the issues that have been raised
(and are currently pending) by any Tax authority that could, if determined
adversely to Target, materially and adversely affect the liability of Target for
Taxes. There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of Target. Target has never been a member of an
affiliated group of corporations, within the meaning of Section 1504 of the
Code. Target is in full compliance with all the terms and conditions of any Tax
exemptions or other Tax-sharing agreement or order of a foreign government and
the consummation of the Merger will not have any adverse effect on the continued
validity and effectiveness of any such Tax exemption or other Tax-sharing
agreement
11
or order. Neither Target nor any person on behalf of Target has entered into or
will enter into any agreement or consent pursuant to the collapsible corporation
provisions of Section 341(f) of the Code (or any corresponding provision of
state, local or foreign income tax law) or agreed to have Section 341(f)(2) of
the Code (or any corresponding provision of state, local or foreign income tax
law) apply to any disposition of any asset owned by Target. None of the assets
of Target is property that Target is required to treat as being owned by any
other person pursuant to the so-called "safe harbor lease" provisions of former
Section 168(f)(8) of the Code. None of the assets of Target directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code. None of the assets of Target is "tax-exempt use property"
within the meaning of Section 168(h) of the Code. Target has not made and will
not make a deemed dividend election under Treas. Reg. (S)1.1502-32(f)(2) or a
consent dividend election under Section 565 of the Code. Target has never been a
party (either as a distributing corporation as a corporation that has been
distributed) to any transaction intended to qualify under Section 355 of the
Code or any corresponding provision of state law. Target has not participated in
(and will not participate in) an international boycott within the meaning of
Section 999 of the Code. No Target Certificate of Incorporation is other than a
United States person within the meaning of the Code. Target does not have and
has not had a permanent establishment in any foreign country, as defined in any
applicable tax treaty or convention between the United States of America and
such foreign country and Target has not engaged in a trade or business within
any foreign country. Target has never elected to be treated as an S-corporation
under Section 1362 of the Code or any corresponding provision of federal or
state law. After the date of this Agreement, no material election with respect
to Taxes will be made without the prior written consent of Acquiror, which
consent will not be unreasonably withheld or delayed. Target is not party to any
joint venture, partnership, or other arrangement or contract which could be
treated as a partnership for federal income tax purposes. Target is not
currently and never has been subject to the reporting requirements of Section
6038A of the Code. There is no agreement, contract or arrangement to which
Target is a party that could, individually or collectively, result in the
payment of any amount that would not be deductible by reason of Sections 280G
(as determined without regard to Section 280G(b)(4)), 162(a) (by reason of being
unreasonable in amount), 162 (b) through (p) or 404 of the Code. Target is not a
party to or bound by any Tax indemnity, Tax sharing or Tax allocation agreement
(whether written or unwritten or arising under operation of federal law as a
result of being a member of a group filing consolidated Tax returns, under
operation of certain state laws as a result of being a member of a unitary
group, or under comparable laws of other states or foreign jurisdictions) which
includes a party other than Target nor does Target owe any amount under any such
Agreement. Target is not, and has not been, a United States real property
holding corporation (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Other than
by reason of the Merger, Target has not been and will not be required to include
any material adjustment in Taxable income for any Tax period (or portion
thereof) pursuant to Section 481 or 263A of the Code or any comparable provision
under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
(c) For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means any and all taxes including, without limitation, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, value added, net worth, license,
withholding, payroll, employment, excise, severance, stamp, occupation,
12
premium, property, environmental or windfall profit tax, custom, duty or other
tax governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "Tax authority") responsible for the
imposition of any such tax (domestic or foreign), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period or as the result of being a transferee or successor thereof and (iii) any
liability for the payment of any amounts of the type described in (i) or (ii) as
a result of any express or implied obligation to indemnify any other person. As
used in this Section 2.12, the term "Target" means Target and any entity
included in, or required under GAAP to be included in, any of the Target
Financial Statements.
2.13 Employee Benefit Plans.
----------------------
(a) For all purposes under this Section 2.13 "ERISA Affiliate" shall
mean each person (as defined in Section 3(9) of ERISA) that, together with
Target, is treated as a single employer under Section 4001(b) of ERISA or
Section 414 of the Code. Except for the plans and agreements listed in Section
2.13 of the Target Disclosure Letter (collectively, the "Plans"), Target and its
ERISA Affiliates do not maintain, are not a party to, do not contribute to and
are not obligated to contribute to, and are employees or former employees of
Target and its ERISA Affiliates and their dependents or survivors do not receive
benefits under, any of the following (whether or not set forth in a written
document):
(i) Any employee benefit plan, as defined in section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA");
(ii) Any bonus, deferred compensation, incentive, restricted
stock, stock purchase, stock option, stock appreciation right, phantom stock,
supplemental pension, executive compensation, cafeteria benefit, dependent care,
director or employee loan, fringe benefit, sabbatical, severance, termination
pay or similar plan, program, policy, agreement or arrangement; or
(iii) Any plan, program, agreement, policy, commitment or other
arrangement relating to the provision of any benefit described in section 3(1)
of ERISA to former employees or directors or to their survivors, other than
procedures intended to comply with the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
(b) Neither Target nor any ERISA Affiliate has, since its inception,
terminated, suspended, discontinued contributions to or withdrawn from any
employee pension benefit plan, as defined in section 3(2) of ERISA, including
(without limitation) any multiemployer plan, as defined in section 3(37) of
ERISA.
(c) With respect to each Plan that is subject to COBRA, the
requirements of COBRA applicable to such Plan have been satisfied.
(d) With respect to each Plan that is subject to the Family Medical
Leave Act of 1993, as amended, the requirements of such Act applicable to such
Plan have been satisfied.
13
(e) Each Plan that is intended to qualify under section 401(a) of the
Code meets the requirements for qualification under section 401(a) of the Code
and the regulations thereunder, except to the extent that such requirements may
be satisfied by adopting retroactive amendments under section 401(b) of the Code
and the regulations thereunder. Each such Plan has been administered in
accordance with its terms (or, if applicable, such terms as will be adopted
pursuant to a retroactive amendment under section 401(b) of the Code) and the
applicable provisions of ERISA and the Code and the regulations thereunder.
(f) Neither Target nor any ERISA Affiliate has any accumulated
funding deficiency under section 412 of the Code or any termination or
withdrawal liability under Title IV of ERISA.
(g) All contributions, premiums or other payments due from the Target
to (or under) any Plan have been fully paid or adequately provided for on the
books and financial statements of Target. All accruals (including, where
appropriate, proportional accruals for partial periods) have been made in
accordance with prior practices.
2.14 Employees and Consultants.
-------------------------
(a) Target has provided Acquiror with a true and complete list of all
individuals employed by the Company as of the date hereof and the position and
base compensation payable to each such individual. The Target Disclosure Letter
contains a description of any written or oral employment agreements, consulting
agreements or termination or severance agreements to which Target is a party.
(b) Target is not a party to or subject to a labor union or a
collective bargaining agreement or arrangement and is not a party to any labor
or employment dispute.
(c) The consummation of the transactions contemplated herein will not
result in (i) any amount becoming payable to any employee, director or
independent contractor of Target, (ii) the acceleration of payment or vesting of
any benefit, option or right to which any employee, director or independent
contractor of Target may be entitled, (iii) the forgiveness of any indebtedness
of any employee, director or independent contractor of Target or (iv) any cost
becoming due or accruing to Target or the Acquiror with respect to any employee,
director or independent contractor of Target.
(d) Except as set forth on Section 2.14 of the Target Disclosure
Letter, Target is not obligated and upon consummation of the Merger will not be
obligated to make any payment or transfer any property that would be considered
a "parachute payment" under section 280G(b)(2) of the Code.
(e) To the knowledge of Target, no employee of Target has been
injured in the work place or in the course of his or her employment except for
injuries which are covered by insurance or for which a claim has been made under
workers' compensation or similar laws.
(f) Target has complied in all material respects with the
verification requirements and the record-keeping requirements of the Immigration
Reform and Control Act
14
of 1986 ("IRCA"); to the best knowledge of Target, the information and documents
on which Target relied to comply with IRCA are true and correct; and there have
not been any discrimination complaints filed against Target pursuant to IRCA,
and to the knowledge of Target, there is no basis for the filing of such a
complaint.
(g) Target has not received or been notified of any complaint by any
employee, applicant, union or other party of any discrimination or other conduct
forbidden by law or contract, nor to the knowledge of Target, is there a basis
for any complaint.
(h) Target's action in complying with the terms of this Agreement
will not violate any agreements with any of Target's employees.
(i) Target has filed all required reports and information with
respect to its employees that are due prior to the Closing Date and otherwise
has complied in its hiring, employment, promotion, termination and other labor
practices with all applicable federal and state law and regulations, including
without limitation those within the jurisdiction of the United States Equal
Employment Opportunity Commission, United States Department of Labor and state
and local human rights or civil rights agencies. Target has filed and shall file
any such reports and information that are required to be filed prior to the
Closing Date.
(j) Target is not aware that any of its employees or contractors is
obligated under any agreement (including those agreements referenced in the
Target Disclosure Letter), commitments, judgment, decree, order or otherwise (an
"Employee Obligation") that would interfere with the use of his or her best
efforts to promote the interests of Target or that would conflict with Target's
business. As of the date hereof and as of the Effective Date, none of Target's
employees or contractors has breached, in any material respect, any term or
provision of any Employee Obligation, which breach, considered individually or
in the aggregate, could reasonably be expected to have a material adverse effect
on Target's business. Neither the execution or delivery of this Agreement, nor
the consummation of the transactions contemplated by this Agreement, will, to
Target's knowledge, conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any Employee Obligation. No
employee of Target is employed by any other employer as of the date of execution
of this Agreement.
2.15 Related-Party Transactions. No employee, officer, or director of
--------------------------
Target or member of his or her immediate family is indebted to Target, nor is
Target indebted (or committed to make loans or extend or guarantee credit) to
any of them. To the best of Target's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which
Target is affiliated or with which Target has a business relationship, or any
firm or corporation that competes with Target, except to the extent that
employees, officers, or directors of Target and members of their immediate
families own stock in publicly traded companies that may compete with the
Company. No member of the immediate family of any officer or director of Target
is directly or indirectly interested in any material contract with Target.
2.16 Insurance. Target has policies of insurance and bonds of the type and
---------
in amounts customarily carried by persons conducting businesses or owning assets
similar to those
15
of Target. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Target is otherwise in compliance
with the terms of such policies and bonds. Target has no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
2.17 Compliance with Laws. Target has complied with, is not in violation
--------------------
of, and has not received any notices of violation with respect to, any federal,
state, local or foreign statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for such
violations or failures to comply as could not be reasonably expected to have a
Material Adverse Effect on Target.
2.18 Brokers' and Finders' Fees. Target has not incurred, nor will it
--------------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.19 Irrevocable Proxy and Voting Agreements. All of the persons and/or
---------------------------------------
entities deemed "Affiliates" of Target within the meaning of Rule 145
promulgated under the Securities Act, and holders of more than 75% of the sum of
(i) all shares of Target Common Stock issued and outstanding and (ii) all shares
of Target Preferred Stock issued and outstanding, have agreed in writing to vote
for approval of the Merger pursuant to irrevocable proxy and voting agreements
attached hereto as Exhibit C ("Irrevocable Proxy and Voting Agreements").
---------
2.20 Vote Required. The affirmative vote of the holders of a majority of
-------------
each class of the shares of Target Capital Stock outstanding on the record date
set for the Target Stockholders Meeting or Target Stockholders Consent is the
only vote of the holders of any of Target's Capital Stock necessary to approve
this Agreement and the transactions contemplated hereby.
2.21 Material Contracts. Except for the material contracts described in
------------------
Section 2.21 of the Target Disclosure Letter (collectively, the "Material
Contracts") Target is not a party to or bound by any material contract,
including without limitation:
(a) any distributor, sales, advertising, agency or manufacturer's
representative contract;
(b) any continuing contract for the purchase of materials, supplies,
equipment or services involving in the case of any such contact more than
$25,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option of any
person other than the Target so as to expire more than one year after the date
of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan agreement or
other contract for the borrowing of money, any currency exchange, commodities or
other hedging arrangement or any leasing transaction of the type required to be
capitalized in accordance with GAAP;
16
(e) any contract for capital expenditures in excess of $25,000 in the
aggregate;
(f) any contract limiting the freedom of the Target to engage in any
line of business or to compete with any other Person as that term is defined in
the Exchange Act, as defined herein, or any confidentiality, secrecy or non-
disclosure contract;
(g) any contract pursuant to which Target leases any real property;
(h) any contract pursuant to which the Target is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
(i) any contract with any person with whom the Target does not deal
at arm's length within the meaning of the Code;
(j) any agreement of guarantee, support, indemnification, assumption
or endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness
of any other Person;
(k) any license, sublicense or other agreement to which Target is a
party (or by which it or any Target Intellectual Property is bound or subject)
and pursuant to which any person has been or may be assigned, authorized to Use,
or given access to any Target Intellectual Property;
(l) any license, sublicense or other agreement pursuant to which
Target has been or may be assigned or authorized to Use, or has or may incurred
any obligation in connection with, (A) any third party Intellectual Property
that is incorporated in or form a part of any current or proposed product,
service or Intellectual Property offering of Target or (B) any Target
Intellectual Property;
(m) any agreement pursuant to which Target has deposited or is
required to deposit with an escrow holder or any other person or entity, all or
part of the source code (or any algorithm or documentation contained in or
relating to any source code) of any Target Intellectual Property ("Source
Materials"); and
(n) any agreement to indemnify, hold harmless or defend any other
person with respect to any assertion of personal injury, damage to property or
Intellectual Property infringement, misappropriation or violation or warranting
the lack thereof.
2.22 No Breach of Material Contracts. The Target has performed all of the
-------------------------------
obligations required to be performed by it to date and is entitled to all
benefits under, and is not alleged to be in default in respect of any Material
Contract. Each of the Material Contracts is in full force and effect, unamended,
and there exists no default or event of default or event, occurrence, condition
or act, with respect to Target or to Target's knowledge with respect to the
other contracting party, or otherwise that, with or without the giving of
notice, the lapse of the time or the happening of any other event or conditions,
would (A) become a default or event of default under any Material Contract or
(B) result in the loss or expiration of any right or option by Target (or the
gain thereof by any third party) under any Material Contract or (C) the release,
17
disclosure or delivery to any third party of any part of the Source Materials
(as defined in Section 2.21(m)). True, correct and complete copies of all
Material Contracts have been delivered to the Acquiror.
2.23 Third-Party Consents. Section 2.23 of the Target Disclosure Letter
--------------------
lists all contracts that require a novation or consent to assignment, as the
case may be, prior to the Effective Time so that Acquiror shall be made a party
in place of Target or as assignee (the "Contracts Requiring Novation or Consent
to Assignment"). Such list is complete and accurate.
2.24 Minute Books. The minute books of Target made available to Acquiror
------------
contain a complete and accurate summary of all meetings of directors and
stockholders or actions by written consent since the time of incorporation of
Target through the date of this Agreement, and reflect all transactions referred
to in such minutes accurately in all material respects.
2.25 Complete Copies of Materials. Target has delivered or made available
----------------------------
true and complete copies of each document which has been requested by Acquiror
or its counsel in connection with their legal and accounting review of Target.
2.26 Representations Complete. None of the representations or warranties
------------------------
made by Target herein or in any Schedule hereto, including the Target Disclosure
Letter, or certificate furnished by Target pursuant to this Agreement, when all
such documents are read together in their entirety, contains or will contain at
the Effective Time any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
---------------------------------------------------------
Acquiror and Merger Sub represent and warrant to Target that the statements
contained in this Article III are true and correct, except as set forth in the
disclosure letter delivered by Acquiror to Target prior to the execution and
delivery of this Agreement (the "Acquiror Disclosure Letter"). Any reference in
this Article III to an agreement being "enforceable" shall be deemed to be
qualified to the extent such enforceability is subject to (i) laws of general
application relating to bankruptcy, insolvency, moratorium and the relief of
debtors, and (ii) the availability of specific performance, injunctive relief
and other equitable remedies.
3.1 Organization, Standing and Power. Each of Acquiror and its
--------------------------------
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of Acquiror
and its subsidiaries has the corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect on Acquiror. Acquiror
has delivered a true and correct copy of the Certificate of Incorporation and
Bylaws or other charter documents, as applicable, of Acquiror and Merger Sub,
each as amended to date, to Target. Neither Acquiror
18
nor Merger Sub (or any other subsidiary) is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents. Acquiror is the owner of all outstanding shares of
capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by Acquiror free and
clear of all liens, charges, claims or encumbrances or rights of others. Except
as contemplated by Acquiror's 1999 Stock Incentive Plan, its 2000 Supplemental
Stock Option Plan, its 1999 Director Option Plan or its Employee Stock Purchase
Plan and except as disclosed in the Acquiror SEC Documents (as defined in
Section 3.3), there are no outstanding subscriptions, options, warrants, puts,
calls, rights, exchangeable or convertible securities or other commitments or
agreements of any character relating to the issued or unissued capital stock or
other securities of any such subsidiary, or otherwise obligating Acquiror or any
such subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire
any such securities.
3.2 Authority.
---------
(a) Each of Acquiror and Merger Sub has all requisite corporate power
and authority to enter into this Agreement and the other Transaction Documents
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the other Transaction Documents and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of each of
Acquiror and Merger Sub. This Agreement and the other Transaction Documents have
been duly executed and delivered by each of Acquiror and Merger Sub and
constitute the valid and binding obligations of each of Acquiror and Merger Sub.
(b) The execution and delivery of this Agreement and the other
Transaction Documents do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under (i) any provision of the Certificate
of Incorporation or Bylaws of Acquiror or any of its subsidiaries, as amended,
or (ii) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Acquiror or any of its
subsidiaries or their properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Acquiror or any of its subsidiaries in connection with the execution
and delivery of this Agreement or the other Transaction Documents by Acquiror or
the consummation by Acquiror of the transactions contemplated hereby or thereby,
except for (i) the filing of the Certificate of Merger, together with the
required officers' certificates, as provided in Section 1.2, (ii) any filings as
may be required under applicable state securities laws and the securities laws
of any foreign country, (iii) the filing with the Nasdaq National Market of a
Notification Form for Listing of Additional Shares with respect to the shares of
Acquiror Common Stock issuable upon conversion of the Target Capital Stock in
the Merger and upon exercise of the options under the Target Stock Plan assumed
by Acquiror, and (iv) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not have a Material
Adverse Effect on
19
Acquiror and would not prevent, materially alter or delay any of the
transactions contemplated by this Agreement or the other Transaction Documents.
3.3 SEC Documents; Financial Statements. Acquiror has furnished to Target
-----------------------------------
a true and complete copy of each statement, report, registration statement (with
the prospectus in the form filed pursuant to Rule 424(b) of the Securities Act),
definitive proxy statement, and other filing filed with the SEC by Acquiror
since November 18, 1999, and, prior to the Effective Time, Acquiror will have
furnished Target with true and complete copies of any additional documents filed
with the SEC by Acquiror prior to the Effective Time (collectively, the
"Acquiror SEC Documents"). All documents required to be filed as exhibits to the
Acquiror SEC Documents have been so filed, and all material contracts so filed
as exhibits are in full force and effect, except those which have expired in
accordance with their terms, and neither Acquiror nor any of its subsidiaries is
in default thereunder. The financial statements of Acquiror, including the notes
thereto, included in the SEC Documents (the "Acquiror Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated in the
notes thereto) and present fairly the consolidated financial position of
Acquiror at the dates thereof and of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
audit adjustments).
3.4 Representations Complete. None of the representations, warranties or
------------------------
statements made by Acquiror herein or in any Schedule hereto, including the
Acquiror Disclosure Letter, or certificate furnished by Acquiror pursuant to
this Agreement, or the Acquiror SEC Documents, when all such documents are read
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE IV
----------
CONDUCT PRIOR TO THE EFFECTIVE TIME
-----------------------------------
4.1 Conduct of Business of Target and Acquiror. During the period from
------------------------------------------
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, Target and Acquiror each agree (except
to the extent expressly contemplated by this Agreement or as consented to in
writing by the other), to carry on its and its subsidiaries' business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted. Target further agrees to (i) pay and to cause its
subsidiaries to pay debts and Taxes when due subject to good faith disputes over
such debts or Taxes, (ii) subject to Acquiror's consent to the filing of
material Tax Returns if applicable, to pay or perform other obligations when
due, and (iii) use all reasonable efforts consistent with past practice and
policies to preserve intact its and its subsidiaries' present business
organizations, keep available the services of its and its subsidiaries' present
officers and key employees and preserve its and its subsidiaries' relationships
with customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it or its subsidiaries, to the end that its and its
subsidiaries' goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Target agrees to
20
promptly notify Acquiror of any event or occurrence not in the ordinary course
of its or its subsidiaries' business, and of any event which could have a
Material Adverse Effect on Target. Without limiting the foregoing, except as
expressly contemplated by this Agreement, neither Target nor Acquiror shall do,
cause or permit any of the following, or allow, cause or permit any of its
subsidiaries to do, cause or permit any of the following, without the prior
written consent of the other:
(a) Charter Documents. Cause or permit any amendments to its
-----------------
Certificate of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declare or pay any
-----------------------------------
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
(c) Other. Take, or agree in writing or otherwise to take, any of
-----
the actions described in Sections 4.1(a) and (b) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
4.2 Conduct of Business of Target. During the period from the date of
-----------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement, Target shall not do, cause or permit any of the following, or allow,
cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of Acquiror:
(a) Material Contracts. Enter into any material contract, agreement,
------------------
license or commitment, or violate, amend or otherwise modify or waive any of the
terms of any of its material contracts, agreements or licenses other than in the
ordinary course of business consistent with past practice;
(b) Stock Option Plans, etc. Accelerate, amend or change the period
-----------------------
of exercisability or vesting of options or other rights granted under its stock
plans or authorize cash payments in exchange for any options or other rights
granted under any of such plans;
(c) Issuance of Securities. Issue, deliver or sell or authorize or
----------------------
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire shares of its capital
stock, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than the issuance
of shares of its Common Stock pursuant to the exercise of stock options,
warrants or other rights therefor outstanding as of the date of this Agreement;
21
(d) Intellectual Property. Transfer to or license to any person or
---------------------
entity or otherwise extend, amend or modify any rights to its Intellectual
Property other than the grant of non-exclusive licenses in the ordinary course
of business consistent with past practice;
(e) Exclusive Rights. Enter into or amend any agreements pursuant to
----------------
which any other party is granted exclusive marketing, manufacturing or other
exclusive rights of any type or scope with respect to any of its products or
technology;
(f) Dispositions. Sell, lease, license or otherwise dispose of or
------------
encumber any of its properties or assets which are material, individually or in
the aggregate, to its and its subsidiaries' business, taken as a whole;
(g) Indebtedness. Incur or commit to incur any indebtedness for
------------
borrowed money or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others;
(h) Leases. Enter into any operating lease requiring payments in
------
excess of $25,000;
(i) Payment of Obligations. Pay, discharge or satisfy in an amount
----------------------
in excess of $25,000 in any one case or $50,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business;
(j) Capital Expenditures. Incur or commit to incur any capital
--------------------
expenditures in excess of $50,000 in the aggregate;
(k) Insurance. Materially reduce the amount of any material
---------
insurance coverage provided by existing insurance policies;
(l) Termination or Waiver. Terminate or waive any right of
---------------------
substantial value, other than in the ordinary course of business;
(m) Employee Benefits; Severance. Take any of the following actions:
----------------------------
(i) increase or agree to increase the compensation payable or to become payable
to its officers or employees, except for increases in salary or wages of non-
officer employees in the ordinary course of business and in accordance with past
practices, (ii) grant any additional severance or termination pay to, or enter
into any employment or severance agreements with, any officer or employee, (iii)
enter into any collective bargaining agreement, or (iv) establish, adopt, enter
into or amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust, fund,
policy or arrangement for the benefit of any directors, officers or employees;
(n) Lawsuits. Commence a lawsuit or arbitration proceeding other
--------
than (i) for the routine collection of bills, or (ii) for a breach of this
Agreement;
22
(o) Acquisitions. Acquire or agree to acquire by merging or
------------
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its and its subsidiaries' business, taken as a whole;
(p) Taxes. Make any material Tax election other than in the ordinary
-----
course of business and consistent with past practice, change any material Tax
election, adopt any Tax accounting method other than in the ordinary course of
business and consistent with past practice, change any Tax accounting method,
file any Tax return (other than any estimated tax returns, immaterial
information returns, payroll tax returns or sales tax returns) or any amendment
to a Tax return, enter into any closing agreement, settle any Tax claim or
assessment or consent to any Tax claim or assessment provided that Acquiror
shall not unreasonably withhold or delay approval of any of the foregoing
actions;
(q) Revaluation. Revalue any of its assets, including without
-----------
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or
(r) Other. Take or agree in writing or otherwise to take, any of the
-----
actions described in Sections 4.2(a) through (q) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
4.3 Notices. Target shall give all notices and other information required
-------
to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable government
authority under the National Labor Relations Act, the Internal Revenue Code, the
Consolidated Omnibus Budget Reconciliation Act, and other applicable law in
connection with the transactions provided for in this Agreement.
ARTICLE V
---------
ADDITIONAL AGREEMENTS
---------------------
5.1 No Solicitation.
---------------
(a) From and after the date of this Agreement until the Effective
Time, Target shall not, directly or indirectly, through any officer, director,
employee, representative or agent, (i) solicit, initiate, or encourage any
inquiries or proposals that constitute, or could reasonably be expected to lead
to, a proposal or offer for a merger, consolidation, business combination, sale
of all or substantially all of the assets, sale of shares of capital stock
(including without limitation by way of a tender offer) or similar transactions
involving Target, other than the transactions contemplated by this Agreement
(any of the foregoing inquiries or proposals being referred to in this Agreement
as a "Takeover Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Takeover Proposal, or (iii) agree to, approve or recommend any
Takeover Proposal.
23
(b) Target shall notify Acquiror immediately (and no later than 24
hours) after receipt by Target (or its advisors or agents) of any Takeover
Proposal or any request for information in connection with a Takeover Proposal
or for access to the properties, books or records of Target by any person or
entity that informs Target that it is considering making, or has made, a
Takeover Proposal. Such notice shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact.
5.2 Preparation of Information Statement. As soon as practicable after
------------------------------------
the execution of this Agreement, Target shall prepare, with the cooperation of
Acquiror, an Information Statement for the stockholders of Target to approve
this Agreement, the Certificate of Merger and the transactions contemplated
hereby and thereby. The Information Statement shall constitute a disclosure
document for the offer and issuance of the shares of Acquiror Common Stock to be
received by the holders of Target Capital Stock in the Merger. Acquiror and
Target shall each use its reasonable efforts to cause the Information Statement
to comply with applicable federal and state securities laws requirements. Each
of Acquiror and Target agrees to provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the Information Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Information Statement.
Target will promptly advise Acquiror, and Acquiror will promptly advise Target,
in writing if at any time prior to the Effective Time either Target or Acquiror
shall obtain knowledge of any facts that might make it necessary or appropriate
to amend or supplement the Information Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. The Information Statement shall contain the recommendation of
the Board of Directors of Target that the Target stockholders approve the Merger
and this Agreement and the conclusion of the Board of Directors that the terms
and conditions of the Merger are fair and reasonable to the stockholders of
Target. Anything to the contrary contained herein notwithstanding, Target shall
not include in the Information Statement any information with respect to
Acquiror or its affiliates or associates, the form and content of which
information shall not have been approved by Acquiror prior to such inclusion.
5.3 Stockholders Meeting or Consent Solicitation. Target shall promptly
--------------------------------------------
after the date hereof take all actions necessary to either (i) call a meeting of
its stockholders to be held for the purpose of voting upon this Agreement and
the Merger or (ii) commence a consent solicitation to obtain such approvals on
or prior to June 13, 2000 or as soon thereafter as is practicable. Target will,
through its Board of Directors, recommend to its stockholders approval of such
matters as soon as practicable after the date hereof. Target shall use all
reasonable efforts to solicit from its stockholders proxies or consents in favor
of such matters.
5.4 Access to Information.
---------------------
(a) Target shall afford Acquiror and its accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of Target's and its subsidiaries'
properties, books, contracts, commitments and records, and (ii) all other
information concerning the business, properties and
24
personnel of Target and its subsidiaries as Acquiror may reasonably request.
Target agrees to provide to Acquiror and its accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
(b) Subject to compliance with applicable law, from the date hereof
until the Effective Time, each of Acquiror and Target shall confer on a regular
and frequent basis with one or more representatives of the other party to report
operational matters of materiality and the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.4 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.5 Confidentiality. The parties acknowledge that Acquiror and Target
---------------
have previously executed a Letter Agreement dated May 24, 2000 in which each
party agreed to keep certain Proprietary Information (as defined in the Letter
of Intent) confidential, which agreement shall continue in full force and effect
in accordance with its terms.
5.6 Public Disclosure. Unless otherwise permitted by this Agreement,
-----------------
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by Acquiror to comply with the
rules and regulations of the SEC or any obligations pursuant to any listing
agreement with any national securities exchange or with the NASD.
5.7 Consents; Cooperation. Each of Acquiror and Target shall promptly
---------------------
apply for or otherwise seek, and use all reasonable efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
Merger and shall use all reasonable efforts to obtain all necessary consents,
waivers and approvals under any of its material contracts in connection with the
Merger for the assignment thereof or otherwise. The parties hereto will consult
and cooperate with one another, and consider in good faith the views of one
another, in connection with any analyses, appearances, presentations, memoranda,
briefs, arguments, opinions and proposals made or submitted by or on behalf of
any party hereto in connection with proceedings under or relating to HSR or any
other federal or state antitrust or fair trade law.
5.8 Update Disclosure; Breaches. From and after the date of this
---------------------------
Agreement until the Effective Time, each party hereto shall promptly notify the
other party, by written update to its Disclosure Letter, of (i) the occurrence
or non-occurrence of any event which would be likely to cause any condition to
the obligations of any party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied, or (ii) the failure of
Target or Acquiror, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it pursuant to this
Agreement which would be likely to result in any condition to the obligations of
any party to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied. The delivery of any notice pursuant to this
25
Section 5.8 shall not cure any breach of any representation or warranty
requiring disclosure of such matter prior to the date of this Agreement or
otherwise limit or affect the remedies available hereunder to the party
receiving such notice.
5.9 Irrevocable Proxies. Target shall use its best efforts, on behalf of
-------------------
Acquiror and pursuant to the request of Acquiror, to cause holders of more than
75 percent of (a) all shares of Target Common Stock issued and outstanding and
(b) all shares of Target Preferred Stock issued and outstanding to execute and
deliver to Acquiror an Irrevocable Proxy and Voting Agreement substantially in
the form of Exhibit C attached hereto concurrently with the execution of this
---------
Agreement and in any event prior to the time that the Information statement is
mailed to the stockholders of Target.
5.10 Legal Requirements. Each of Acquiror and Target will, and will cause
------------------
their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this Agreement
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon such other party
in connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
5.11 Tax-Free Reorganization. Neither Target, Acquiror nor Merger Sub
-----------------------
will, either before or after consummation of the Merger, take any action which,
to the knowledge of such party, would be inconsistent with treatment of the
Merger as a "reorganization" within the meaning of Code Section 368.
5.12 Blue Sky Laws. Acquiror shall take such steps as may be necessary to
-------------
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger. Target shall use its best efforts to assist Acquiror as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
5.13 Stock Options.
-------------
(a) At the Effective Time, the Target Stock Plan and each outstanding
option to purchase shares of Target Common Stock under the Target Stock Plan,
whether vested or unvested, shall be assumed by Acquiror. Target has delivered
to Acquiror a schedule (the "Option Schedule") which sets forth a true and
complete list as of the date hereof of all holders of outstanding options under
the Target Stock Plan including the number of shares of Target Capital Stock
subject to each such option, the exercise or vesting schedule, the exercise
price per share and the term of each such option. On the Closing Date, Target
shall deliver to Acquiror an updated Option Schedule current as of such date.
Each such option so assumed by Acquiror under this Agreement shall continue to
have, and be subject to, the same terms and conditions set forth in the Target
Stock Plan immediately prior to the Effective Time, except that (i) such
26
option shall be exercisable for that number of whole shares of Acquiror Common
Stock equal to the product of the number of shares of Target Common Stock that
were issuable upon exercise of such option immediately prior to the Effective
Time multiplied by the Exchange Ratio and rounded down to the nearest whole
number of shares of Acquiror Common Stock, and (ii) the per share exercise price
for the shares of Acquiror Common Stock issuable upon exercise of such assumed
option shall be equal to the quotient determined by dividing the exercise price
per share of Target Common Stock at which such option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent. It is the intention of the parties that the options so
assumed by Acquiror qualify following the Effective Time as incentive stock
options as defined in Section 422 of the Code to the extent such options
qualified as incentive stock options prior to the Effective Time. Within 20
business days after the Effective Time, Acquiror will issue to each person who,
immediately prior to the Effective Time was a holder of an outstanding option
under the Target Stock Plan a document in form and substance satisfactory to
Target evidencing the foregoing assumption of such option by Acquiror.
(b) Acquiror shall take all corporate action necessary to reserve and
make available for issuance a sufficient number of shares of Acquiror Common
Stock for delivery under Target Stock Options assumed in accordance with this
Section 5.13. Within twenty (20) days following the Effective Time, Acquiror
shall file a registration statement on Form S-8 (or any successor or other
appropriate forms) with respect to the shares of Acquiror Common Stock subject
to such options to the extent permitted by law and shall use its best efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding.
5.14 Escrow Agreement. On or before the Effective Time, the Escrow Agent
----------------
and Xxxxx Xxxxxxxxxxx (the Stockholders' Agent), on behalf of The Xxxxxxx
Xxxxxxxxxxx Irrevocable Trust dated June 2, 2000, The Xxxxxxxx Xxxxxxxxxxx
Irrevocable Trust dated June 2, 2000, Xxxxxx Xxxxxxx, Xxxxxxxx Xxxxxxx, Xxxxxxxx
Xxxxxxx Grantor Retained Annuity Trust, Xxxx Xxxxxx, Xxxx Xxxxxxxx
(collectively, the "Founders"), Sequoia Capital IX, Sequoia Capital
Entrepreneurs Fund, and Sequoia Capital IX Principals Fund (collectively, the
"Sequoia Funds"), Xxx Xxxxxxxx, Xxxxxxxxxxx Xxxxxxxx Irrevocable Trust, and Xxx
Xxxxxxxx Irrevocable Trust (collectively, the "Xxxxxxxx Entities"), will execute
one or more Escrow Agreements as contemplated by Article VIII and in the form
attached hereto as Exhibit D (such escrow agreements being herein collectively
---------
referred to as the "Escrow Agreement"). The Founders, the Xxxxxxxx Entities, and
the Sequoia Funds shall hereinafter be referred to as the "Escrow Stockholders."
5.15 Change in the Number of Shares Outstanding. Acquiror shall timely file
------------------------------------------
with Nasdaq a Notification Form for Change in the Number of Shares Outstanding
with respect to the Total Acquiror Shares.
5.16 Additional Agreements; Reasonable Efforts. Each of the parties agrees
-----------------------------------------
to use all reasonable efforts to take, or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, subject to the appropriate
27
vote of stockholders of Target described in Section 5.3, including cooperating
fully with the other party, including by provision of information. In case at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of either of the Target or the Acquiror, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
Acquiror shall prepare and properly file on behalf of Target the short-period
federal and California income Tax Returns that Target is required to file with
respect the period ending on the Closing Date. Target shall provide Acquiror
with such assistance as may reasonably be requested in connection with the
preparation of such Tax Returns.
5.17 Employee Benefits. Acquiror shall take such reasonable actions, to
-----------------
the extent permitted by Acquiror's benefits program, as are necessary to allow
eligible employees of Target to participate in the benefit programs of Acquiror,
or alternative benefits programs in the aggregate substantially comparable to
those applicable to employees of Acquiror on similar terms, as soon as
practicable after the Effective Time of the Merger. For purposes of satisfying
the terms and conditions of such programs, to the extent permitted by Acquiror's
benefit programs, Acquiror shall use reasonable efforts to give full credit for
eligibility, or vesting for each participant's period of service with Target.
5.18 Indemnification Agreements. From and after the Effective Time,
--------------------------
Acquiror will cause the Surviving Corporation to fulfill and honor in all
respects the obligations of the Target pursuant to those indemnification
agreements between the Target and its directors and officers in effect
immediately prior to the Effective Time (the "Indemnified Parties") and made a
part of the Target Disclosure Letter, and any indemnification provisions under
the Target Certificate of Incorporation and Bylaws as in effect on the date
hereof. The Certificate of Incorporation and Bylaws of the Surviving Corporation
will contain provisions with respect to exculpation and indemnification that are
at least as favorable to the Indemnified Parties as those contained in the
Target Certificate of Incorporation and Bylaws as in effect on the date hereof,
which provisions will not be amended, repealed or otherwise modified for a
period of three (3) years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, immediately prior to
the Effective Time, were directors, officers, employees or agents of the Target,
unless such modification is required by law. Notwithstanding the foregoing,
Acquiror shall not be obligated to indemnify Target's directors and officers
pursuant to any indemnification agreements to which Target or they may be a
party to the extent actions or inactions of such directors and officers of
Target were found by a trier of fact or an arbitrator, or otherwise admitted by
a director or officer, to have resulted in a material breach of any of the
Representations and Warranties of Target set forth in Article II of this
Agreement.
ARTICLE VI
CONDITIONS TO THE MERGER
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the
28
Effective Time of each of the following conditions, any of which may be waived,
in writing, by agreement of all the parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(b) Governmental Approval. Acquiror and Target and their respective
---------------------
subsidiaries shall have timely obtained from each Governmental Entity all
approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the several transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Securities Act and under state Blue Sky laws.
(c) Escrow Agreement. Acquiror, Target, Escrow Agent, and the Escrow
----------------
Stockholders shall have entered into an Escrow Agreement substantially in the
form attached hereto as Exhibit D.
---------
(d) Amended and Restated Investors' Rights Agreement. Acquiror and
------------------------------------------------
the holders of a majority of the Target Capital Stock shall have entered into an
Amended and Restated Investors'Rights Agreement in the form attached hereto as
Exhibit B.
---------
6.2 Additional Conditions to Obligations of Target. The obligations of
----------------------------------------------
Target to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Target:
(a) Representations, Warranties and Covenants. Except as disclosed
-----------------------------------------
in the Acquiror Disclosure Letter, (i) The representations and warranties of
Acquiror in this Agreement shall be true and correct in all material respects
(except for such representations and warranties that are qualified by their
terms by a reference to materiality which representations and warranties as so
qualified shall be true in all respects) on and as of the Effective Time as
though such representations and warranties were made on and as of such time and
(ii) Acquiror shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time.
(b) Certificate of Acquiror. Target shall have been provided with a
-----------------------
certificate executed on behalf of Acquiror by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:
29
(i) all representations and warranties made by Acquiror under
this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this Agreement
to be performed by Acquiror on or before such date have been so performed in all
material respects.
(c) Legal Opinion. Target shall have received a legal opinion from
-------------
Acquiror's legal counsel, in substantially the form attached hereto as Exhibit
-------
E.
-
(d) Stockholders Approval. This Agreement and the Merger shall have
---------------------
been approved and adopted by the holders of at least a majority of each class of
Target Capital Stock outstanding as of the record date set for the Target
Stockholders Meeting or solicitation of stockholders consents.
6.3 Additional Conditions to the Obligations of Acquiror. The obligations
----------------------------------------------------
of Acquiror to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Acquiror:
(a) Representations, Warranties and Covenants. Except as disclosed
-----------------------------------------
in the Target Disclosure Letter (i) The representations and warranties of Target
in this Agreement shall be true and correct in all material respects (except for
such representations and warranties that are qualified by their terms by a
reference to materiality which representations and warranties as so qualified
shall be true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time and (ii) Target
shall have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time.
(b) Certificate of Target. Acquiror shall have been provided with a
---------------------
certificate executed on behalf of Target by its President and Chief Financial
Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Target under this
Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this Agreement
to be performed by Target on or before such date have been so performed in all
material respects.
(c) Stockholders Approval. This Agreement and the Merger shall have
---------------------
been approved and adopted by the holders of at least ninety-five percent (95%)
of the shares of Target Capital Stock outstanding as of the record date set for
the Target Stockholders Meeting or solicitation of stockholders consents, and
any agreements or arrangements that may result in the payment of any amount that
would not be deductible by reason of Section 280G of the Code shall have been
approved by such number of stockholders of Target as is required by the terms of
Section 280G(b)(5)(B). Target shall have entered into an Offeree Representative
30
Agreement and shall have appointed an offeree representative to represent
certain of the stockholders of Target.
(d) Third Party Consents. Acquiror shall have been furnished
--------------------
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
the contracts of Target set forth on Section 2.23 of the Target Disclosure
Letter hereto, if failure to obtain such consents or approvals would or would
reasonably be expected to have a Material Adverse Effect on Target.
(e) Injunctions or Restraints on Merger and Conduct of Business.
-----------------------------------------------------------
No proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking to
prevent the consummation of the Merger shall be pending. In addition, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target and its subsidiaries following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(f) Legal Opinion. Acquiror shall have received a legal opinion
-------------
from Target's legal counsel, in substantially the form attached hereto as
Exhibit F.
---------
(g) No Material Adverse Changes. There shall not have occurred
---------------------------
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Target and its subsidiaries,
taken as a whole.
(h) Resignation of Directors. The directors of Target in office
------------------------
immediately prior to the Effective Time shall have resigned as directors of
Target effective as of the Effective Time.
(i) Conversion of Preferred Stock. All of Target's outstanding
-----------------------------
Preferred Stock shall have been converted into Common Stock in accordance with
the Certificate of Incorporation of Target.
(j) Employment Agreements. Each of the Founders and Xxx Xxxxxxxx
---------------------
shall have entered into an agreed-upon Employment Agreement at the time of
execution of this Agreement, with such employment agreements becoming effective
at and as of the date of the Closing.
(k) FIRPTA. Target shall deliver a properly executed statement
------
conforming to the requirements of United States Treasury Regulation Section
1.897-2(h)(l)(i) and Target further agrees to provide the notification to the
Internal Revenue Service required pursuant to United States Treasury Regulation
Section 1.897-2(h)(2).
(l) Termination of Agreements. Target, the holders of the
-------------------------
Target's Series A Preferred Stock and certain of the Target's stockholders shall
enter into an agreement, reasonably satisfactory in form and content to Acquiror
(and conditioned and effective upon the
31
Closing), terminating (i) the Investors' Rights Agreement dated as of January
2000, by and among Target, the Preferred Investors (as defined therein) and the
Founders (as defined therein), and (ii) the Right of First Refusal and Co-Sale
Agreement dated as of January 2000, by and among Target, the Purchasers (as
defined therein) and the Founders (as defined therein).
ARTICLE VII
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
-------------------------------------------
7.1 Termination. At any time prior to the Effective Time, whether
-----------
before or after approval of the matters presented in connection with the Merger
by the stockholders of Target, this Agreement may be terminated:
(a) by mutual consent duly authorized by the Boards of Directors
of Acquiror and Target;
(b) by Target, if, without fault of Target, the Closing shall
not have occurred on or before June 23, 2000 (provided, a later date may be
agreed upon in writing by the parties hereto, and provided further that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to Target if its action or failure to act has been the cause or
resulted in the failure of the Merger to occur on or before such date and such
action or failure to act constitutes a breach of this Agreement);
(c) by Acquiror, if (i) Target shall breach any representation,
warranty, obligation or agreement hereunder and such breach shall not have been
cured within five (5) business days of receipt by Target of written notice of
such breach, provided that the right to terminate this Agreement by Acquiror
under this Section 7.1(c)(i) shall not be available to Acquiror where Acquiror
is at that time in willful breach of this Agreement, (ii) the Board of Directors
of Target shall have withdrawn or modified its recommendation of this Agreement
or the Merger in a manner adverse to Acquiror or shall have resolved to do any
of the foregoing, provided that the right to terminate this Agreement by
Acquiror under this Section 7.1(c)(ii) shall not be available to Acquiror where
Acquiror is at that time in willful breach of this Agreement, (iii) for any
reason Target fails to call and hold the Target Stockholders Meeting or commence
solicitation of stockholders consents by June 13, 2000, provided that the right
to terminate this Agreement by Acquiror under this Section 7.1(c)(iii) shall not
be available to Acquiror where Acquiror is at that time in material breach of
this Agreement or (iv) if the Closing shall not have occurred, for whatever
reason, on or before June 23, 2000 (provided, a later date may be agreed in
writing by the parties hereto);
(d) by Target, if Acquiror shall breach any representation,
warranty, obligation or agreement hereunder and such breach shall not have been
cured within five (5) business days following receipt by Acquiror of written
notice of such breach, provided that the right to terminate this Agreement by
Target under this Section 7.1(d) shall not be available to Target where Target
is at that time in willful breach of this Agreement;
(e) by Acquiror if (i) any permanent injunction or other order
of a court or other competent authority preventing the consummation of the
Merger shall have
32
become final and nonappealable or (ii) if any required approval of the
stockholders of Target shall not have been obtained by reason of the failure to
obtain the required stockholders consents within 10 days of the commencement of
a stockholders consent solicitation or vote upon a vote held at a duly held
meeting of stockholders or at any adjournment thereof; or
(f) by Target if (i) any permanent injunction or other order of
a court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable or (ii) if any required approval of
the stockholders of Target shall not have been obtained by reason of the failure
to obtain the required stockholders consents within 10 days of the commencement
of a stockholders consent solicitation or vote upon a vote held at a duly held
meeting of stockholders or at any adjournment thereof.
7.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror or Target
or their respective officers, directors, stockholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties or covenants set forth in this Agreement;
provided that the provisions of Section 5.5 (Confidentiality), Section 7.3
(Expenses and Termination Fees) and this Section 7.2 shall remain in full force
and effect and survive any termination of this Agreement.
7.3 Expenses and Termination Fees.
-----------------------------
(a) Subject to Sections 7.3(b) and 7.3(c), whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisers, accountants and legal
counsel) shall be paid by the party incurring such expense, either Acquiror or
Target.
(b) In the event that (i) Acquiror shall terminate this
Agreement pursuant to Section 7.1(c) or (ii) Acquiror shall terminate this
Agreement pursuant to Section 7.1(e)(ii), Target shall promptly reimburse
Acquiror for all of the out-of-pocket costs and expenses incurred by Acquiror in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisors,
accountants and legal counsel); and, in the event any Takeover Proposal is
consummated (as defined in Section 7.3(d)) within twelve months of the later of
(x) such termination of this Agreement and (y) the payment of the above-
described expenses, Target shall promptly pay to Acquiror the additional sum of
$7,500,000.
(c) In the event that Target shall terminate this Agreement
pursuant to Section 7.1(d) Acquiror shall promptly reimburse Target for all of
the out-of-pocket costs and expenses incurred by Target in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel).
(d) For purposes of Section 7.3(b) above, "consummation" of a
Takeover Proposal shall occur on the date a written agreement is entered into
with respect to a
33
merger or other business combination involving Target or the acquisition of 20%
or more of the outstanding shares of capital stock of Target, or sale or
transfer of any material assets (excluding the sale or disposition of assets in
the ordinary course of business) of Target or any of its subsidiaries.
7.4 Amendment. The boards of directors of the parties hereto may
---------
cause this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the stockholders of
Target shall not (i) alter or change the amount or kind of consideration to be
received on conversion of the Target Capital Stock, (ii) alter or change any
term of the Certificate of Incorporation of the Surviving Corporation to be
effected by the Merger, or (iii) alter or change any of the terms and conditions
of the Agreement if such alteration or change would adversely affect the holders
of Target Capital Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any
-----------------
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
ESCROW AND INDEMNIFICATION
--------------------------
8.1 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 Acquiror or Target may have as a result of such
investigation or otherwise, Acquiror and Target will be entitled to rely upon
the other party's representations, warranties and covenants set forth in this
Agreement. The representations and warranties of Acquiror will terminate upon
the Closing. The obligations of Target with respect to its representations,
warranties, agreements and covenants will survive the Closing and continue in
full force and effect until the date 6 months following the Closing Date (the
"Termination Date"), at which time, subject to Section 8.5, the representations,
warranties and covenants of Target set forth in this Agreement and any liability
of the holders of Target Capital Stock (collectively, the "Former Target
Stockholders") with respect to those representations, warranties and covenants
will terminate.
8.2 Indemnity. From and after the Effective Time of the Merger, and
---------
subject to the provisions of Section 8.1, Acquiror and the Surviving Corporation
(on or after the Closing Date) shall be indemnified and held harmless by the
Former Target Stockholders against, and reimbursed for, any actual liability,
damage, loss, obligation, demand, judgment, fine, penalty, cost or expense
(excluding any indirect or consequential damages to Acquiror, other than any
such damages resulting from injunctive relief granted as to an intellectual
property claim, but including reasonable attorneys' fees and expenses, and the
costs of investigation incurred in
34
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 Acquiror or the Surviving Corporation as a result of any
breach of any representation, warranty, agreement or covenant on the part of
Target under this Agreement (collectively the "Damages"). "Damages" as used
herein is not limited to matters asserted by third parties, but includes Damages
incurred or sustained by Acquiror in the absence of claims by a third party.
8.3 Escrow Fund. As security for the indemnity provided for in
-----------
Section 8.2 hereof, the Escrow Shares (as defined in Section 1.7(c) hereof)
shall be deposited by Acquiror in an escrow account with Acquiror (or other
mutually acceptable institution) as Escrow Agent (the "Escrow Agent"), as of the
Closing Date, 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 to be executed and delivered pursuant to Section 5.14. The
Escrow Fund shall be allocated among the Escrow Stockholders (as defined in
Section 5.14 hereof) on a pro-rata basis in accordance with the number of the
shares of Target Capital Stock held by such persons at the Effective Time
(excluding for the purposes of this calculation any Dissenting Shares). Upon
compliance with the terms hereof and subject to the provisions of this Article
VIII, Acquiror and the Surviving Corporation shall be entitled to obtain
indemnity from the Escrow Fund for Damages covered by the indemnity provided for
in Section 8.2 of this Agreement.
8.4 Damage Threshold. Notwithstanding the foregoing, Acquiror may not
----------------
receive any shares from the Escrow Fund unless and until Damages the aggregate
amount of which exceeds $200,000 have been claimed upon the Escrow Fund as
provided in Section 8.6 below and such amounts are determined pursuant to this
Article VIII to be payable, in which case Acquiror shall receive shares equal in
value to the full amount of Damages. In determining the amount of any Damage
attributable to a breach, any materiality standard contained in a
representation, warranty or covenant of Acquiror shall be disregarded.
8.5 Escrow Period. The Escrow Period shall terminate at the
-------------
expiration of six (6) months after the Effective Time; provided, however, that a
portion of the Escrow Shares, which are necessary to satisfy any unsatisfied
claims specified in any Officer's Certificate theretofore delivered to the
Escrow Agent prior to termination of the Escrow Period with respect to facts and
circumstances existing prior to expiration of the Escrow Period, shall remain in
the Escrow Fund until such claims have been finally resolved.
8.6 Claims upon Escrow Fund.
-----------------------
(a) Upon receipt by the Escrow Agent on or before the
Termination Date of a certificate signed by the chief financial or chief
executive officer of Acquiror (an "Officer's Certificate"):
(i) stating that Acquiror or the Surviving Corporation has
incurred, paid or properly accrued (in accordance with GAAP) or knows of facts
giving rise to a reasonable probability that it will have to incur, pay or
accrue (in accordance with GAAP) Damages in an aggregate stated amount with
respect to which Acquiror or the Surviving Corporation is entitled to payment
from the Escrow Fund pursuant to this Agreement; and
35
(ii) specifying in reasonable detail the individual items of
Damages included in the amount so stated, the date each such item was incurred,
paid or properly accrued (in accordance with GAAP), or the basis for such
anticipated liability, and the specific nature of the breach to which such
item is related, the Escrow Agent shall, subject to the provisions of Section
8.7 of this Agreement, deliver to Acquiror shares of Acquiror Common Stock in
an amount necessary to indemnify Acquiror for the Damages claimed; provided,
however, that no shares of Acquiror Common Stock shall be delivered to
Acquiror, as a result of a claim based upon an accrual or upon a reasonable
probability of having to incur, pay or accrue Damages until such time as the
Acquiror has actually incurred or paid Damages. All shares of Acquiror Common
Stock subject to such claims shall remain in the Escrow Fund until Damages are
actually incurred or paid or the Acquiror determines in its reasonable good
faith judgment that no Damages will be required to be incurred or paid (in
which event such shares shall be distributed to the Former Target Stockholders
in accordance with Section 8.10 below).
(b) For the purpose of compensating Acquiror for its Damages
pursuant to this Agreement, the Acquiror Common Stock in the Escrow Fund shall
be valued at the Closing Price.
8.7 Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agent (defined in Section 8.9 below) and
for a period of forty-five (45) days after such delivery to the Escrow Agent,
the Escrow Agent shall make no delivery of Acquiror Common Stock or other
property pursuant to Section 8.6 hereof unless the Escrow Agent shall have
received written authorization from the Stockholders' Agent to make such
delivery. After the expiration of such forty-five (45) day period, the Escrow
Agent shall make delivery of the Acquiror Common Stock or other property in the
Escrow Fund in accordance with Section 8.6 hereof, provided that no such payment
or delivery may be made if the Stockholders' 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 and to Acquiror prior to the
expiration of such forty-five (45) day period.
8.8 Resolution of Conflicts; Arbitration.
------------------------------------
(a) In case the Stockholders' Agent shall so object in writing
to any claim or claims by Acquiror made in any Officer's Certificate, the
Stockholders' Agent and Acquiror shall attempt in good faith for sixty (60) days
to agree upon the rights of the respective parties with respect to each of such
claims. If the Stockholders' Agent and Acquiror 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 shall distribute the Acquiror Common Stock or
other property from the Escrow Fund in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Acquiror or the Stockholders' Agent may, by written notice
to the other, demand arbitration of the matter unless the amount of the Damage
is at issue in pending litigation with a
36
third party, in which event arbitration shall not be commenced until such amount
is ascertained or both parties agree to arbitration; and in either such event
the matter shall be settled by arbitration conducted by three arbitrators.
Within fifteen (15) days after such written notice is sent, Acquiror and the
Stockholders' Agent shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The decision of the arbitrators 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 8.6 hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith.
8.9 Stockholders' Agent.
-------------------
(a) Xxxxx Xxxxxxxxxxx shall be constituted and appointed as agent
("Stockholders' Agent") for and on behalf of the Target stockholders to give and
receive notices and communications, to authorize delivery to Acquiror of the
Acquiror Common Stock or other property from the Escrow Fund in satisfaction of
claims by Acquiror, 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 Stockholders'
Agent for the accomplishment of the foregoing. Such agency may be changed by the
holders of a majority in interest of the Escrow Fund from time to time upon not
less than 10 days' prior written notice to Acquiror. The Stockholders's Agent
may resign upon thirty (30) days notice to the parties to this Agreement and the
Former Target Stockholders. No bond shall be required of the Stockholders'
Agent, and the Stockholders' Agent shall receive no compensation for his
services. Notices or communications to or from the Stockholders' Agent shall
constitute notice to or from each of the Target stockholders.
(b) The Stockholders' Agent shall not be liable for any act done
or omitted hereunder as Stockholders' Agent while acting in good faith and in
the exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Target
stockholders shall severally indemnify the Stockholders' Agent and hold him
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Stockholders' Agent shall have reasonable access to
information about Target and the reasonable assistance of Target's officers and
employees for purposes of performing its duties and exercising its rights
hereunder, provided that the Stockholders' Agent shall treat confidentially and
not disclose any nonpublic information from or about Target to anyone (except on
a need to know basis to individuals who agree to treat such information
confidentially).
8.10 Distribution Upon Termination of Escrow Period. Within five (5)
----------------------------------------------
business days following the Termination Date, the Escrow Agent shall deliver to
the Escrow Stockholders all of the shares in the Escrow Fund in excess of any
amount of such shares reasonably necessary to satisfy any unsatisfied or
disputed claims for Damages specified in any Officer's Certificate delivered to
the Escrow Agent on or before the Termination Date. As soon
37
as all such claims have been resolved, the Escrow Agent shall deliver to the
Escrow Stockholders all shares remaining in the Escrow Fund and not required to
satisfy such claims. Deliveries of shares to the Escrow Stockholders pursuant to
this section shall be made in proportion to the allocation set forth in Section
8.3.
8.11 Actions of the Stockholders' Agent. A decision, act, consent or
----------------------------------
instruction of the Stockholders' Agent shall constitute a decision of all Target
stockholders for whom shares of Acquiror Common Stock otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each such Target Stockholders, and the Escrow Agent and Acquiror may rely upon
any decision, act, consent or instruction of the Stockholders' Agent as being
the decision, act, consent or instruction of each and every such Target
Stockholder. The Escrow Agent and Acquiror 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 Stockholders' Agent.
8.12 Third-Party Claims. In the event Acquiror becomes aware of a
------------------
third-party claim which Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall promptly notify the Stockholders' Agent of such
claim. Acquiror shall have the right to settle any such claim with the written
consent of the Stockholders' Agent, which consent shall not be unreasonably
withheld; provided, however, that the Stockholders' Agent may, at his option,
direct the settlement negotiations other than for claims related to (i) the
intellectual property of Target or (ii) disputes or disagreements with customers
of Acquiror or Target. In the event that the Stockholders' Agent has consented
to any such settlement, neither the Former Target Stockholders nor the
Stockholders' Agent shall have any power or authority to object under Section
8.7 or any other provision of this Agreement to the amount of any claim by
Acquiror against the Escrow Fund for indemnity with respect to 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 Target or (ii) claims made by customers of Acquiror or Target, the
Stockholders' Agent may, at his option, contest or defend any such action,
proceeding, claim, demand or assessment, with counsel selected by the
Stockholders Agent who is reasonably acceptable to Acquiror; provided, however,
that if Acquiror shall reasonably object to such control, then the Stockholders'
Agent and Acquiror shall cooperate in the defense of such matter; provided
further, that the Stockholders' Agent shall not admit any liability with respect
thereto or settle, compromise, pay or discharge the same without the prior
written consent of Acquiror, which consent shall not be unreasonably withheld.
With respect to any claim for indemnification based on matters relating to the
intellectual property of Target, or customers of Target or Acquiror, Acquiror
shall have the option to defend any such proceeding with counsel reasonably
satisfactory to the Stockholders' Agent; provided, however, that Acquiror shall
not admit any liability with respect thereto or settle, compromise, pay or
discharge the same without the prior written consent of the Stockholders' Agent,
which consent shall not be unreasonably withheld. The Stockholders' Agent or
Acquiror, whichever is not controlling the defense of any matter, shall be
entitled to participate in such defense, at Acquiror's or the Former Target
Stockholders' expense.
8.13 Maximum Liability and Remedies. The rights of the Acquiror to
------------------------------
make claims upon the Escrow Fund in accordance with this Article VIII shall be
the sole and exclusive
38
remedy of Acquiror and the Surviving Corporation after the Closing with respect
to any representation, warranty, covenant or agreement made by Target under this
Agreement and no former stockholders, optionholder, warrantholder, director,
officer, employee or agent of Target shall have any personal liability to
Acquiror or the Surviving Corporation after the Closing in connection with the
Merger; provided, however, that nothing herein limits any potential remedies of
Acquiror or the Surviving Corporation, arising under applicable state and
federal laws with respect to any intentional or fraudulent breaches of the
representations, warranties or covenants of Target made in or pursuant to this
Agreement. Nothing in this Agreement shall limit the liability (i) of Target for
any breach of any representation, warranty or covenant if the Merger does not
close, or (ii) of any Target Stockholders in connection with any breach by such
stockholders of the Irrevocable Proxies.
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror or Merger Sub, to:
Xxxxx XxXxxxx
President and CEO
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxxx X. Xxxxxx
Xxxxxxxxx Xxxxxxx Xxxxxx Xxxxxxxxxx
Xxxxxxxx & Xxxxxxxxx, LLP
000 Xxxxxxxxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
(b) if to Target, to:
39
SpringBank Networks, Inc.
c/o Xxxxx Xxxxxxxxxxx
000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Attention: President
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxxx X. Xxxxxxx
Pillsbury Madison & Sutro LLP
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
9.2 Interpretation. When a reference is made in this Agreement to
--------------
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such entity and its subsidiaries, taken
as a whole. In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry of officers, directors
and other employees of such party and its subsidiaries reasonably believed to
have knowledge of such matters. The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof", and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to June 3, 2000. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; No Third Party Beneficiaries. This Agreement,
----------------------------------------------
the other Transaction Documents and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits, the Schedules, including the Target Disclosure Letter
and the Acquiror Disclosure Letter (a) constitute the entire
40
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, except for the
Confidentiality Agreement, which shall continue in full force and effect, and
shall survive any termination of this Agreement or the Closing, in accordance
with its terms; (b) are not intended to confer upon any other person any rights
or remedies hereunder, except for the rights of the Target Stockholders and
optionholders to receive the consideration set forth in Article I of this
Agreement.
9.5 Severability. In the event that any provision of this Agreement,
------------
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Remedies Cumulative. Except as otherwise provided herein, any and
-------------------
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California without regard to
applicable principles of conflicts of law. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
the State of California, in connection with any matter based upon or arising out
of this Agreement or the matters contemplated herein, agrees that process may be
served upon them in any manner authorized by the laws of the State of California
for such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction and such process.
9.8 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
9.9 Rules of Construction. The parties hereto agree that they have
---------------------
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
41
IN WITNESS WHEREOF, Target, Acquiror and Merger Sub have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the date first written above.
SPRINGBANK NETWORKS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
XXXXX XXXXXXXXXXX
_______________________________________
as Stockholders' Agent
CACHEFLOW INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
WILDCAT MERGER CORPORATION
By:____________________________________
Name:__________________________________
Title:_________________________________
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
