EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
COBALT NETWORKS, INC.,
BLUE TORTILLA ACQUISITION CORP.
AND
CHILI!SOFT, INC.
Dated as of March 22, 2000
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER....................................................... 2
1.1 The Merger................................................. 2
1.2 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 Aggregate Merger Consideration; Effect on Capital Stock.... 3
1.7 Dissenters' Rights......................................... 8
1.8 Surrender of Certificates.................................. 8
1.9 No Further Ownership Rights in Company Capital Stock....... 10
1.10 Lost, Stolen or Destroyed Certificates..................... 10
1.11 Tax and Accounting Consequences............................ 10
1.12 Taking of Necessary Action; Further Action................. 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 11
2.1 Organization and Qualification............................. 11
2.2 Subsidiaries............................................... 11
2.3 Company Capital Structure.................................. 11
2.4 Authority.................................................. 13
2.5 No Conflict................................................ 13
2.6 Consents................................................... 13
2.7 Company Financial Statements............................... 14
2.8 No Undisclosed Liabilities................................. 14
2.9 No Changes................................................. 14
2.10 Tax and Other Returns and Reports.......................... 14
2.11 Restrictions on Business Activities........................ 16
2.12 Title to Properties; Absence of Liens and Encumbrances..... 16
2.13 Governmental Authorization................................. 17
2.14 Intellectual Property...................................... 17
2.15 Product Warranties; Defects; Liabilities................... 22
2.16 Agreements, Contracts and Commitments...................... 22
2.17 Interested Party Transactions.............................. 24
2.18 Compliance with Laws....................................... 25
2.19 Litigation................................................. 25
2.20 Insurance.................................................. 25
2.21 Minute Books............................................... 25
2.22 Environmental Matters...................................... 25
2.23 Brokers' and Finders' Fees................................. 27
2.24 Employee Matters and Benefit Plans......................... 27
2.25 Bank Accounts.............................................. 32
2.26 Indemnification Obligations................................ 32
2.27 Board Approval............................................. 32
2.28 Representations Complete................................... 32
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TABLE OF CONTENTS
(continued)
Page
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB................................................................ 33
3.1 Organization of Parent and Merger Sub...................... 33
3.2 Authority.................................................. 33
3.3 Parent Common Stock........................................ 33
3.4 SEC Filings; Parent Financial Statements................... 34
3.5 Parent Capital Structure................................... 34
3.6 Litigation................................................. 34
3.7 No Material Adverse Change................................. 34
3.8 Board Approval............................................. 35
3.9 Merger Sub................................................. 35
3.10 Brokers' and Finders' Fees................................. 35
3.11 Representations Complete................................... 35
ARTICLE IV SECURITIES ACT COMPLIANCE; REGISTRATION......................... 35
4.1 Securities Act Exemption................................... 35
4.2 Stock Restrictions......................................... 35
4.3 The Company Shareholders' Restrictions Regarding
Securities Law Matters..................................... 36
4.4 The Company Shareholders' Restrictions Regarding Market
Standoff Agreements........................................ 37
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME.............................. 38
5.1 Conduct of Business of the Company......................... 38
5.2 No Conversion.............................................. 42
5.3 Reorganization............................................. 42
ARTICLE VI ADDITIONAL AGREEMENTS........................................... 42
6.1 Information Statement and Section 3(a)(10) Permit.......... 42
6.2 Shareholder Approval....................................... 44
6.3 Access to Information...................................... 44
6.4 Confidentiality............................................ 44
6.5 Public Disclosure.......................................... 44
6.6 Consents................................................... 45
6.7 FIRPTA Compliance.......................................... 45
6.8 Legal Conditions to the Merger............................. 45
6.9 Best Efforts; Additional Documents and Further Assurances.. 45
6.10 Notification of Certain Matters............................ 46
6.11 Reorganization............................................. 46
6.12 Declaration of Registration Rights......................... 46
6.13 Form S-8................................................... 46
6.14 Nasdaq National Market..................................... 46
6.15 Voting Agreements.......................................... 46
6.16 Non-Competition Agreements................................. 46
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TABLE OF CONTENTS
(continued)
Page
6.17 Blue Sky Laws.............................................. 47
6.18 Benefit Arrangements....................................... 47
6.19 Bonus Plan................................................. 47
6.20 Termination of Company Investor Rights..................... 47
6.21 No Solicitation............................................ 47
6.22 Termination of 401(k) Plan................................. 48
6.23 Termination of Company Severance Plans..................... 48
6.24 Export Laws................................................ 48
6.25 Xxxx-Xxxxx Xxxxxx.......................................... 48
6.26 Indemnification............................................ 49
6.27 Retention Bonus Agreements................................. 50
ARTICLE VII CONDITIONS TO THE MERGER....................................... 50
7.1 Conditions to Obligations of Each Party to Effect the
Merger..................................................... 50
7.2 Additional Conditions to Obligations of the Company........ 52
7.3 Additional Conditions to the Obligations of Parent and
Merger Sub................................................. 52
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW............ 54
8.1 Survival of Representations and Warranties................. 54
8.2 Escrow Arrangements and Indemnification.................... 54
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER............................... 63
9.1 Termination................................................ 63
9.2 Effect of Termination...................................... 64
9.3 Amendment.................................................. 64
9.4 Extension; Waiver.......................................... 64
ARTICLE X GENERAL PROVISIONS............................................... 65
10.1 Notices.................................................... 65
10.2 Expenses................................................... 66
10.3 Interpretation............................................. 66
10.4 Counterparts............................................... 67
10.5 Entire Agreement; Assignment............................... 67
10.6 Severability............................................... 67
10.7 Other Remedies............................................. 67
10.8 Governing Law.............................................. 67
10.9 Rules of Construction...................................... 67
10.10 Specific Performance....................................... 67
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INDEX OF EXHIBITS
Exhibit Description
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Exhibit A Form of Voting Agreement
Exhibit B Form of Non-Competition Agreement
Exhibit C Form of Merger Agreement
Exhibit D Form of Surviving Company Articles of Incorporation
Exhibit E Form of Parent Lockup Agreement
Exhibit F Form of Declaration of Registration Rights
Exhibit G Form of Affiliate Agreement
Exhibit H Form of Press Release
Exhibit I Form of Bonus Plan
Exhibit J Form of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx Opinion
Exhibit K Form of Escrow Agreement
Exhibit L Form of Crosby, Heafey, Xxxxx & May Opinion
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INDEX OF SCHEDULES
Schedule Description
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2.3(a) Shareholder List
2.3(b) Option and Warrant Holder List
2.5 Conflicts
2.6 Governmental and Third Party Consents
2.8 Undisclosed Liabilities
2.9 No Changes
2.10 Tax Returns and Audits
2.12(a) Leased Real Property
2.12(b) Liens on Property
2.12(c) Equipment
2.13 Government Authorizations
2.14(b) Registered Intellectual Property Rights
2.14(c) IP Actions To Be Taken Within 120 Days of Closing Date; Special Status
2.14(h) Intellectual Property In-Licenses
2.14(j) Form of Proprietary Information, Confidentiality and Assignment Agreement
2.14(k) Third Party Ownership Rights to Licensed Technology or Intellectual Property
2.14(m) Form of "Shrink-Wrap" License; Outbound Licenses
2.14(n) Intellectual Property Obligations
2.14(t) Necessary Technology and Intellectual Property Rights
2.15 Product Warranties and Standard Forms of Agreements
2.16(a) Agreements, Contracts and Commitments
2.16(b) Breaches
2.17 Interested Party Transactions
2.19 Litigation
2.22 Hazardous Materials and Environmental Matters
2.23 Brokers/Finders Fees
2.24(b) Employee Benefit Plans and Employees
2.24(d) Employee Plan Compliance
2.24(g) Post-Employment Obligations
2.24(i)(i) Effect of Transaction
2.24(i)(ii) Excess Parachute Payments
2.24(j) Officers, Directors and Employees
2.24(k) Labor
2.25 Bank Accounts
6.15 Company Shareholders to Sign Voting Agreement
6.17 Persons to Sign Non-Competition Agreements
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of March 22, 2000 among Cobalt Networks, Inc., a Delaware
corporation ("Parent"), Blue Tortilla Acquisition Corp., a California
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), Chili!Soft,
Inc., a California corporation (the "Company"), Xxxxxx X. Xxxxxxx and [Xxxx X.
Land] (each such natural person a "Securityholder Agent" and collectively, the
"Securityholder Agents").
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger (the
"Merger") of Merger Sub with and into the Company in accordance with this
Agreement and the California Corporations Code (the "California Law"). Upon
consummation of the Merger, the Merger Sub will cease to exist, and the Company
will be a wholly owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the Merger
be treated as a "purchase."
C. The Board of Directors of the Company has (i) determined that the
Merger is consistent with and in furtherance of the long-term strategy of the
Company and fair to, and in the best interests of, the Company and its
shareholders, (ii) approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) determined to unanimously
recommend that the shareholders of the Company adopt and approve the principal
terms of this Agreement and approve the Merger.
D. The respective Boards of Directors of Parent and Merger Sub have
approved this Agreement and the Merger.
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, each of the
shareholders of the Company listed on Schedule 6.17 hereto (including but not
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limited to, the executive officers and directors of the Company and all
shareholders affiliated with those officers and directors) is entering into a
Voting Agreement substantially in the form attached hereto as Exhibit A (the
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"Voting Agreement").
F. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, the
employees of the Company listed on Schedule 6.15 hereto are entering into Non-
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Competition Agreements substantially in the form attached hereto as Exhibit B
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(the "Non-Competition Agreements").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2)
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and subject to and upon the terms and conditions of this Agreement and
California Law, the Merger Sub shall be merged with and into the Company, the
separate corporate existence of the Merger Sub shall cease and the Company shall
continue as the surviving corporation and as a wholly owned subsidiary of
Parent. The Company as the surviving corporation after the Merger is referred to
hereinafter sometimes as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
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to Section 9.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than three business days, following
satisfaction or waiver of the conditions set forth in Article VII, at the
offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, 000 Xxxx
Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx, unless another place or time is agreed to by
Parent and the Company. The date upon which the Closing actually occurs is
herein referred to as the "Closing Date." On the Closing Date, the parties
hereto shall cause the Merger to be consummated by filing a Merger Agreement, in
substantially the form attached hereto as Exhibit C (the "Merger Agreement"),
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with the Secretary of State of the State of California, in accordance with the
relevant provisions of California Law (the time of acceptance by the Secretary
of State of California of such filing being referred to herein as the "Effective
Time"). Merger Sub and the Company shall take such other actions as required to
effect the Merger pursuant to the relevant provisions of the California Law.
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in the applicable provisions of California Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all of the rights and property of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Articles of Incorporation; Bylaws.
---------------------------------
(a) Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time, the Articles of Incorporation of the Surviving
Corporation shall be the Articles of Incorporation of the Company as amended and
restated substantially in the form attached hereto as Exhibit D until thereafter
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amended as provided by law and such Articles of Incorporation.
(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. The director(s) of Merger Sub immediately
----------------------
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
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Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 Aggregate Merger Consideration; Effect on Capital Stock. The aggregate
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maximum number of shares of common stock of Parent ("Parent Common Stock") to be
issued (including Parent Common Stock to be reserved for issuance upon exercise
of any of the Company's options to be assumed by Parent) in exchange for the
acquisition by Parent of all outstanding capital stock of the Company ("Company
Capital Stock") and all outstanding unexpired and unexercised options, warrants
or other rights to acquire or receive shares of Company Capital Stock shall be
referred to herein as the "Aggregate Share Number." The Aggregate Share Number
shall be 1,150,000 shares. No adjustment shall be made in the number of shares
of Parent Common Stock issued in the Merger as a result of any cash proceeds
received by the Company from the date hereof to the Closing Date pursuant to the
exercise of options or warrants to acquire Company Capital Stock. Subject to the
terms and conditions of this Agreement, as of the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holder of any shares of Company Capital Stock, the holder of any options,
warrants or other rights to acquire or receive shares of Company Capital Stock,
the following shall occur (which is intended to comply fully with the
liquidation preference provisions set forth in the Articles of Incorporation of
the Company, as amended through the date hereof):
(a) Conversion of Company Common Stock. Each share of common stock of
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the Company, no par value per share, ("Company Common Stock") issued and
outstanding immediately prior to the Effective Time (other than any shares of
Company Common Stock to be canceled pursuant to Section 1.6(e) and any
"Dissenting Shares" (as defined and to the extent provided in Section 1.7(a))
will be canceled and extinguished and be converted automatically into the right
to receive that number of shares of Parent Common Stock equal to the Common
Exchange Ratio (as defined in Section 1.6(c) below) upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 1.8.
(b) Conversion of Company Preferred Stock.
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(i) Series A Preferred Stock. Each share of Series A Preferred
------------------------
Stock of the Company, no par value per share, ("Series A Preferred") issued and
outstanding immediately prior to the Effective Time (other than any shares of
Series A Preferred to be canceled pursuant to Section 1.6(e) and any Dissenting
Shares (as defined and to the extent provided in Section 1.7(a)) will be
canceled and extinguished and be converted automatically into the right to
receive that number of shares of Parent Common Stock equal to the quotient
computed by dividing (A) the sum of $0.85 (the "Series A Preference Amount")
plus the Per Share Amount (as defined in Section 1.6(c) below), by (B) the
Average Closing Price upon surrender of the certificate representing such share
of Series A Preferred in the manner provided in Section 1.8. In the event that
the aggregate of the Total Preference Amount less the Key Employee Amount
exceeds the amount equal to the Net Consideration, the Series A Preference
Amount shall be reduced proportionately by a number equal to the ratio of (A)
the Net Consideration divided by (B) the Total Preference Amount less the Key
Employee Amount.
(ii) Series B Preferred Stock. In the event that the fair market
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value of the Parent Common Stock to be issued on the Closing Date is less than
$43 million, each share of
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Series B Preferred Stock of the Company, no par value per share, ("Series B
Preferred") issued and outstanding immediately prior to the Effective Time
(other than any shares of Series B Preferred to be canceled pursuant to Section
1.6(e) and any Dissenting Shares (as defined and to the extent provided in
Section 1.7(a)) will be canceled and extinguished and be converted automatically
into the right to receive that number of shares of Parent Common Stock equal to
the quotient computed by dividing (A) the sum of $2.42 (the "Series B Preference
Amount") plus the Per Share Amount, by (B) the Average Closing Price upon
surrender of the certificate representing such share of Series B Preferred in
the manner provided in Section 1.8. In the event that the aggregate of the Total
Preference Amount less the Key Employee Amount exceeds the amount equal to the
Net Consideration, the Series B Preference Amount shall be reduced
proportionately by a number equal to the ratio of (A) the Net Consideration
divided by (B) the Total Preference Amount less the Key Employee Amount. If the
Aggregate Share Number multiplied by the fair market value of such Parent Common
Stock is greater than or equal to $43 million, then each share of Series B
Preferred issued and outstanding immediately prior to the Effective Time (other
than any shares of Series B Preferred to be canceled pursuant to Section 1.6(e)
and any Dissenting Shares (as defined and to the extent provided in Section
1.7(a)) will be canceled and extinguished and be converted automatically into
the right to receive the number of shares of Parent Common Stock equal to the
Common Exchange Ratio (as defined in Section 1.6(c) below).
(c) Definitions.
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(i) Common Exchange Ratio. The "Common Exchange Ratio" shall be
---------------------
equal to the Per Share Amount divided by the Average Closing Price.
(ii) Per Share Amount. The "Per Share Amount" shall be equal to
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the quotient (rounded to the sixth decimal place) of (A) the Aggregate
Consideration minus the Total Preference Amount divided by (B) the sum of the
Diluted Common Shares plus the Total Preferred Shares.
(iii) Total Preference Amount. The "Total Preference Amount"
-----------------------
shall be equal to the sum of (A) the Series A Preference Amount multiplied by
the Total Series A Shares plus (B) the Series B Preference Amount, if
applicable, multiplied by the Total Series B Shares.
(iv) Total Series A Shares. The "Total Series A Shares" shall be
---------------------
equal to the number of shares of Series A Preferred outstanding immediately
prior to the Effective Time (other than any shares of Series A Preferred to be
canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to
the extent provided in Section 1.7(a)).
(v) Total Series B Shares. The "Total Series B Shares" shall be
---------------------
equal to the number of shares of Series B Preferred outstanding immediately
prior to the Effective Time (other than any shares of Series B Preferred to be
canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to
the extent provided in Section 1.7(a)).
(vi) Total Preferred Shares. The "Total Preferred Shares" shall
----------------------
be equal to the number of shares of Preferred Stock of the Company outstanding
immediately prior to the Effective Time (other than any shares of Preferred
Stock to be canceled pursuant to Section 1.6(e) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)).
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(vii) Aggregate Consideration. The "Aggregate Consideration"
-----------------------
shall be equal to the Aggregate Share Number multiplied by the Average Closing
Price.
(viii) Key Employee Amount. The "Key Employee Amount" shall be
-------------------
equal to the greater of $1,600,000 or 115,000 multiplied by the Average Closing
Price. (ix) Net Consideration. The "Net Consideration" shall be equal to the
Aggregate Consideration minus the Key Employee Amount.
(ix) Net Consideration. The "Net Consideration" shall be equal
-----------------
to the Aggregate Consideration minus the Key Employee Amount.
(x) Average Closing Price. The "Average Closing Price" shall mean
---------------------
the average of of the closing prices of the Parent Common Stock as reported on
the Nasdaq National Market over the 30 day period ending three days prior to the
Closing Date.
(xi) Diluted Common Shares. The "Diluted Common Shares" shall
---------------------
mean that number equal to the sum of (A) the number of shares of Company Common
Stock issued and outstanding immediately prior to the Effective Time (regardless
of whether such shares are unvested, subject to any right of repurchase, risk of
forfeiture or other condition in favor of the Company at such time); plus (B)
the number of shares of Company Common stock issuable upon exercise of the
Company Options (as such term is defined in Section 1.6(f)) outstanding as of
February 22, 2000 (regardless of whether such Company Options are vested); plus
(C) the number of shares of Company Common Stock issuable upon exercise of the
Key Employee Options (as defined in Section 1.6(i) below); plus (D) the number
of shares of Company Common Stock issuable in connection with any other options,
warrants, calls, rights, exchangeable or convertible securities, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which it is bound obligating the Company to issue, deliver, sell or cause to
be issued, delivered or sold any Company Capital Stock immediately prior to the
Effective Time; minus (E) any shares of Company Capital Stock issued or issuable
to the Parent immediately prior to the Effective Time.
(d) Escrow. Of the shares of Parent Common Stock to be issued at the
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Effective Time pursuant to Sections 1.6(a) and (b) hereof (none of which shares
of Parent Common Stock shall be unvested, subject to any right of repurchase,
risk of forfeiture or other condition in favor of the Surviving Corporation),
115,000 shares shall be held in escrow (the "Escrow Amount") pursuant to Article
VIII of this Agreement to compensate Parent and its affiliates (including the
Surviving Corporation) for any "Losses" (as defined in Section 8.2 hereof)
incurred in connection with this Agreement and the transactions contemplated
hereby.
(e) Cancellation of Parent-Owned and Company-Owned Stock. Other than as
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set forth in this Agreement and the Merger Agreement, each share of or right to
acquire Company Capital Stock owned by Merger Sub, Parent, the Company or any
direct or indirect wholly owned subsidiary of Parent or of the Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
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(f) Stock Options. At the Effective Time, all options to purchase Company
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Common Stock (each a "Company Option") then outstanding (whether or not
exercisable at such time) under the Company's 1997 Stock Option Plan, 1998 Stock
Option Plan and 1999 Stock Option Plan (collectively, the "Option Plan"), a Key
Employee Option (as defined in Section 1.6(i) below) or otherwise, shall remain
outstanding following the Effective Time and shall be assumed by Parent in
accordance with provisions described below.
(i) Each Company Option so assumed by Parent under this Agreement
shall continue to have, and be subject to, the same terms and conditions set
forth in the Option Plan and/or as provided in the respective option agreement
governing such Company Option immediately prior to the Effective Time, except
that (A) such Company Option shall be exercisable for that number of whole
shares of Parent Common Stock equal to the product of the number of shares of
Company Common Stock that were issuable (in the event of full vesting) upon
exercise of such Company Option immediately prior to the Effective Time
multiplied by the Common Exchange Ratio, rounded down to the nearest whole
number of shares of Parent Common Stock and (B) the per share exercise price for
the shares of Parent Common Stock issuable upon exercise of such assumed Company
Option shall be equal to the quotient determined by dividing the exercise price
per share of Company Common Stock at which such Company Option was exercisable
immediately prior to the Effective Time by the Common Exchange Ratio, rounded up
to the nearest whole cent.
(ii) In the case of any Company Option to which Section 421 of the
Code applies by reason of its qualification under Section 422 of the Code
("qualified stock option"), the option price, the number of shares purchasable
pursuant to such assumed Parent Common Stock option and the terms and conditions
of exercise of such assumed Parent Common Stock option shall be determined in
order to comply with Section 424(a) of the Code.
(iii) As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Company Options appropriate notices setting forth such
holders' rights pursuant to the Option Plan, and the agreements evidencing the
grants of such Company Options shall be deemed to be appropriately amended so
that such Company Options shall represent rights to acquire Parent Common Stock
on the same terms and conditions as contained in the outstanding Company Options
(subject to the adjustments required by this Section 1.6(f) after giving effect
to the assumption by Parent as set forth above). Parent shall comply with the
terms of the Company Stock Plan and use commercially reasonable efforts to
ensure, to the extent permitted by the Code and to the extent required by, and
subject to the provisions of, the Option Plan, that Company Options which
qualified as qualified stock options prior to the Effective Time continue to
qualify as qualified stock options of Parent after the Effective Time.
(iv) Notwithstanding anything to the contrary in this Section 1.6, in
lieu of assuming outstanding Company Options in accordance with this Section
1.6(f), Parent may, at its election, cause such outstanding Company Options to
be replaced by issuing substantially similar replacement stock options in
substitution therefor pursuant to a stock option plan of Parent, which is
substantially similar to the Option Plan.
(g) Common Warrants. To the extent the warrant to purchase shares of
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Company Common Stock (the "Common Warrants") remain exercisable immediately
prior to the Effective Time, the Common Warrants shall, in connection with the
Merger and pursuant to its terms, be
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terminated and shall not be assumed by Parent. After the Effective Time, any
unexercised portion of the Common Warrants shall not represent any right to
purchase any Company Capital Stock or any Parent Common Stock.
(h) Convertible Debt. To the extent there is debt of the Company that is
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convertible to Capital Stock of the Company (the "Convertible Debt") immediately
prior to the Effective Time, the Convertible Debt shall, in connection with the
Merger, be canceled and will no longer be a debt obligation of the Parent or the
Company. After the Effective Time, any unconverted portion of the Convertible
Debt shall not represent any right to purchase any Company Capital Stock or any
Parent Common Stock.
(i) Key Employee Options. To the extent that each of Xxxxx Xxxxxxx, Xxxx
--------------------
Kennewick, Xxxx Xxxx and Xxxxx Xxxxx are entitled to the payments set forth in
the Retention and Bonus Agreements dated as of January 12, 2000 attached hereto
as Schedule 2.8 (collectively, the "Sale Payment Agreements") pursuant to the
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terms of such Sale Payment Agreements immediately prior to the Effective Time,
each such person will hold an option to purchase that number of shares of
Company Common Stock equal to the greater of $400,000 or 28,750 shares of Parent
Common Stock multiplied by the Average Closing Price less any applicable
withholding taxes required to be paid in connection therewith (collectively, the
"Key Employee Options"). At the Effective Time, any Key Employee Options
outstanding shall be assumed by the Parent as set forth in Section 1.6(f)
hereof.
(j) Capital Stock of Merger Sub. Each share of common stock of Merger Sub
---------------------------
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 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.
(k) Adjustments to Exchange Ratios. The Per Share Amount 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 Parent
Common Stock or Company Capital Stock), reorganization, recapitalization or
other like change with respect to Parent Common Stock or Company Capital Stock
occurring after the date hereof and prior to the Effective Time.
(l) Fractional Shares. No fraction of a share of Parent Common Stock will
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be issued at the Effective Time, but in lieu thereof, each holder of shares of
Company Capital Stock who would otherwise be entitled to a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock to be received by such holder) shall be entitled to receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction multiplied by (ii) the Average Closing Price.
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1.7 Dissenters' Rights.
------------------
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Capital Stock held by a holder who has demanded and
perfected dissenters' rights for such shares in accordance with Chapter 13 of
the California Law and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal or dissenters' rights ("Dissenting Shares"),
shall not be converted into or represent a right to receive Parent Common Stock
pursuant to Section 1.6, but the holder thereof shall only be entitled to such
rights as are granted by California Law. From and after the Effective Time, a
holder of Dissenting Shares shall not be entitled to exercise any of the voting
rights or other rights of a shareholder of the Surviving Corporation.
(b) Notwithstanding the provisions of Sections 1.6(a) and (b) hereof,
if any holder of shares of Company Capital Stock who demands appraisal of such
shares under California Law shall effectively withdraw or lose (through failure
to perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Parent
Common Stock and fractional shares as provided in Section 1.6(a) or (b), as the
case may be, without interest thereon, upon surrender of the certificate
representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Capital Stock, withdrawals of
such demands, and any other instruments served pursuant to California Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under
California Law. The Company shall not, except with the prior written consent of
Parent, which will not be unreasonably withheld, voluntarily make any payment
with respect to any demands for appraisal of capital stock of the Company or
offer to settle or settle any such demands.
1.8 Surrender of Certificates.
-------------------------
(a) Exchange Agent. Prior to the Effective Time, Parent shall
--------------
designate BankBoston, N.A. to act as exchange agent (the "Exchange Agent") in
the Merger.
(b) Parent to Provide Parent Common Stock. No later than one business
-------------------------------------
day after the Effective Time, Parent shall make available to the Exchange Agent
for exchange in accordance with this Article I, the aggregate number of shares
of Parent Common Stock issuable pursuant to Section 1.6 in exchange for
outstanding shares of Company Capital Stock; provided, however, that, on behalf
-------- -------
of the holders of Company Capital Stock, and pursuant to Article VIII hereof,
Parent shall deposit into an escrow account a number of shares of Parent Common
Stock equal to the Escrow Amount out of the aggregate number of shares of Parent
Common Stock otherwise issuable pursuant to Section 1.6. The portion of the
Escrow Amount contributed on behalf of each holder of Company Capital Stock
shall be in proportion to the aggregate number of shares of Parent Common Stock
which such holder would otherwise be entitled to receive under Section 1.6 by
virtue of ownership of outstanding shares of Company Capital Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the
-------------------
Parent and the 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
-8-
Company Capital Stock whose shares were converted into the right to receive
shares of Parent Common Stock 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 delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent and the Company may agree) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock; provided, however, that to the
-------- -------
extent that the number of shares of Parent Common Stock into which the shares of
Company Capital Stock held by a holder of record of a Certificate is
definitively ascertainable following the Closing Date but prior to the Effective
Time, the Parent and the Surviving Corporation shall use their commercially
reasonable efforts to distribute the letters of transmittal and instructions for
exchange prior to the Effective Time. Upon the later of the Effective Time or
the surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, 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 Parent Common Stock (less the number of shares of Parent Common Stock
to be deposited in the Escrow Fund on such holder's behalf pursuant to Article
VIII hereof), plus cash in lieu of fractional shares in accordance with Section
1.6, to which such holder is entitled pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. On the Effective Time,
and subject to and in accordance with the provisions of Article VIII hereof,
Parent shall cause to be distributed to the Escrow Agent (as defined in Article
VIII) a certificate or certificates representing that number of shares of Parent
Common Stock equal to the Escrow Amount which shall be registered in the name of
the Escrow Agent. As set forth in Section 8.2(c)(iii), such shares shall be
beneficially owned by the holders on whose behalf such shares were deposited in
the Escrow Fund and such shares shall be available to compensate Parent as
provided in Article VIII. Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of Company 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 Parent Common Stock into which such shares of Company Capital
Stock shall have 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.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender 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 Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
----------------------
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required
-9-
by reason of the issuance of a certificate for shares of Parent Common Stock in
any name other than that of the registered holder of the certificate
surrendered, or established to the satisfaction of Parent 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 1.8, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Capital Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 No Further Ownership Rights in Company Capital Stock. All shares of
----------------------------------------------------
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company 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.
1.10 Lost, Stolen or Destroyed Certificates. In the event any certificates
--------------------------------------
evidencing shares of Company Capital Stock 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 Parent Common Stock and cash for fractional
shares, if any, as may be required pursuant to Section 1.6; provided, however,
-------- -------
that Parent 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 Parent or the Exchange Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
1.11 Tax and Accounting Consequences. It is intended by the parties
-------------------------------
hereto that the Merger shall (a) constitute a reorganization within the meaning
of Section 368(a) of the Code (and this Agreement is intended to constitute a
plan of reorganization for purposes of Section 368(a) of the Code) and (b)
qualify for accounting treatment as a "purchase."
1.12 Taking of Necessary Action; Further Action. If, at any time after
------------------------------------------
the Effective Time, any such 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 the Company and Merger Sub, the officers and directors
of the Company and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
-10-
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to the exceptions specifically disclosed in writing in the disclosure
letter dated as of the date hereof and referencing a specific representation
supplied by the Company to Parent (the "Company Schedules"), as follows:
2.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted and
as proposed to be conducted and to perform its obligations under any Contracts
(as such term is defined in Section 2.16 hereto) by which it is bound. The
Company is duly qualified or licensed to do business and is in good standing as
a foreign corporation in each jurisdiction in which the failure to be so
qualified or licensed would have a material adverse effect on the business,
assets (including intangible assets), financial condition or results of
operations or prospects of the Company (hereinafter referred to as a "Material
Adverse Effect"). The Company has delivered a true and correct copy of its
Articles of Incorporation and Bylaws, each as amended to date, to Parent. Such
Articles of Incorporation and Bylaws are in full force and effect. Company is
not in violation of any of the provisions of its Articles of Incorporation or
Bylaws.
2.2 Subsidiaries. The Company does not have and has never had any
------------
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned, directly or indirectly, any shares of capital stock or any
equity, debt or similar interest in or any interest convertible, exchangeable or
exercisable for any equity, debt or similar interest in, or control, directly or
indirectly, any other corporation, partnership, association, joint venture or
other business entity. Company has not agreed nor is Company obligated to make
or be bound by any written, oral or other agreement, contract, sub-contract,
lease, binding understanding, instrument, note, option, warranty, purchase
order, license, sub-license, insurance policy, benefit plan, commitment or
undertaking of any nature, as of the date hereof or as may hereafter be in
effect under which it may become obligated to make, any future investment in or
capital contribution to any other entity.
2.3 Company Capital Structure.
-------------------------
(a) The authorized capital stock of the Company consists of 20,000,000
shares of authorized Common Stock, of which 6,096,475 shares are issued and
outstanding, and 10,000,000 shares of authorized Preferred Stock (the "Preferred
Stock"). The authorized Preferred Stock consists of 1,955,620 shares of
authorized Series A Preferred, 1,907,608 of which shares are issued and
outstanding, 1,535,000 shares of authorized Series B Preferred, 1,531,364 of
which shares are issued and outstanding, and 6,509,380 of which are undesignated
and are not issued or outstanding. The Company Capital Stock, including all
shares subject to the Company's right of repurchase, is held of record by the
persons, with the addresses of record and in the amounts set forth on Schedule
--------
2.3(a) of the Company Schedules. Schedule 2.3(a) of the Company Schedules also
------ ---------------
indicates for each Company shareholder (i) the share certificate numbers held by
such person and (ii) whether any shares of Company Capital Stock held by such
shareholder are subject to a
-11-
repurchase right in favor of the Company, the lapsing schedule for any such
restricted shares, including the extent to which any such repurchase right has
lapsed as of the date of this Agreement and whether (and to what extent) the
lapsing will be accelerated by the transactions contemplated by this Agreement.
All outstanding shares of Company Capital Stock are duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights
created by statute, the Articles of Incorporation or Bylaws of the Company or
any agreement to which the Company is a party or by which it is bound. All
preferential rights of the Preferred Stock in connection with the sale of
substantially all of the assets of the Company or a merger involving the Company
are set forth in the Articles of Incorporation of the Company. All issued and
outstanding shares of Company Capital Stock have been offered, sold and
delivered by the Company in compliance with applicable federal and state
securities laws.
(b) The Company has reserved 3,252,676 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plan and other
Company Options, of which 1,551,600 shares are subject to outstanding,
unexercised options, and 575,024 shares remain available for future grant.
Schedule 2.3(b) of the Company Schedules sets forth each outstanding Company
---------------
Option, including the name of the holder of such option, the domicile address of
such holder, an indication of whether such holder is an employee of the Company,
the status of the option as either an incentive stock option under Section 422
of the Code or a nonstatutory stock option, the date of grant or issuance of
such option, the number of shares of Common Stock subject to such option, the
exercise price of such option and the vesting schedule for such option,
including the extent vested to the date of this Agreement and whether and to
what extent the exercisability of such option will be accelerated and become
exercisable by the transactions contemplated by this Agreement. Company has made
available to Parent accurate and complete copies of all stock option plans
pursuant to which the Company has granted such Company Options that are
currently outstanding and the form of all stock option agreements evidencing
such Company Options. Except as set forth in Section 2.3(b) of the Company
Schedules, there are no commitments or agreements of any character to which the
Company is bound obligating the Company to accelerate the vesting of any Company
Option as a result of the Merger. The Company has reserved 779,356 shares of
Company Common Stock for issuance upon exercise of the Common Warrants net of
any Common Warrants held by the Parent. Schedule 2.3(b) of the Company Schedules
---------------
sets forth the name of the holders of the Common Warrants and exercise price of
such Warrant. All issued and outstanding Company Options and Common Warrants
have been offered, issued and delivered in compliance with applicable federal
and state securities laws and all requirements set forth in applicable
contracts, agreements and instruments. All shares of Company Common Stock
subject to the issuance aforesaid, upon issuance in accordance with the terms
and conditions specified in the instrument pursuant to which they are issuable,
would be duly authorized, validly issued, fully paid and nonassessable. The
holders of the Common Warrants have been or will be given, or shall have
properly waived, any required notice prior to the Merger. As a result of the
Merger, Parent will be the record and sole beneficial owner of all Company
Capital Stock and rights to acquire or receive Company Capital Stock.
(c) There are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Company
is a party or by which it is bound obligating Company to issue, deliver or sell,
or cause to be issued, delivered or sold, or repurchase, redeem or
-12-
otherwise acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock, partnership interests or similar ownership interests of
the Company or obligating the Company to grant, extend, accelerate the vesting
of or enter into any such subscription, option, warrant, equity security, call,
right, commitment or agreement.
(d) As of the date of this Agreement, except as contemplated by this
Agreement, there are no registration rights agreements, no voting trust, proxy
or other agreement or understanding to which the Company is a party or by which
it is bound with respect to any equity security of any class of the Company.
2.4 Authority. Subject only to the requisite approval of the Merger and
---------
the principal terms of this Agreement by the Company's shareholders, the Company
has all requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby. The vote required of the
Company's shareholders to duly approve the principal terms of this Agreement and
the Merger is that number of shares as would constitute a majority of the
outstanding shares of (a) the Company Common Stock and Preferred Stock, voting
together as a single class, (b) the Company Common Stock, voting together as a
single class, (c) the Series A Preferred Stock, voting separately as a single
class, and (d) the Series B Preferred Stock voting together as a single class
(in each case with each share of Preferred Stock being entitled to a number of
votes equal to the number of whole shares of Common Stock into which such share
of Preferred Stock could be converted on the record date for the vote). The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the approval of the
principal terms of this Agreement and the Merger by the Company's shareholders.
This Agreement has been duly executed and delivered by the Company and
constitutes the valid and binding obligation of the Company, enforceable in
accordance with its terms except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the rights of creditors generally and by general equitable
principles.
2.5 No Conflict. Assuming that all consents, waivers, approvals, orders,
-----------
authorizations, registrations, declarations and filings have been duly made or
obtained as contemplated by Section 2.6 hereof, subject only to the approval of
the principal terms of this Agreement and the Merger by the Company's
shareholders, the execution and delivery of this Agreement by the Company does
not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any benefit under or require any consent, waiver or approval to continue to
enjoy the benefits under (any such event, a "Conflict") (a) any provision of the
Articles of Incorporation or Bylaws of the Company or (b) 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 the Company or its properties or assets.
2.6 Consents. No consent, waiver, approval, order or authorization of,
--------
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission
-13-
("Governmental Entity") (so as not to trigger any Conflict), is required by or
with respect to the Company in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby by
the Company, except for (a) the filing of the Merger Agreement with the
California Secretary of State, (b) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws, (c) the filing of such notices and
the expiration of such waiting periods as required by the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended (the "HSR Act") and (d) such
other consents, waivers, authorizations, filings, approvals and registrations
which are set forth on Schedule 2.6.
------------
2.7 Company Financial Statements. The Company has delivered previously
----------------------------
to the Parent true and correct copies of the Company's audited balance sheets as
of December 31, 1998 and as of December 31, 1997 and the related audited
statement of income for the respective twelve-month periods then ended (the
"Company Year-End Financials," and the Company's unaudited balance sheet as of
December 31, 1999 and the related unaudited statement of income for the twelve-
month period then ended (the "Company Interim Financials," the Company Year-End
Financials and the Company Interim Financials shall be collectively referred to
as the "Company Financials"). The Company Year-End Financials and the Company
Interim Financials are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods indicated and are
consistent with each other, except for the absence of footnotes and year-end
adjustments in the case of the Company Interim Financials. The Company Year-End
Financials and Company Interim Financials present fairly the financial condition
of the Company as of the dates thereof and the operating results during the
period indicated therein. The Company's unaudited Balance Sheet as of December
31, 1999 shall be referred to herein as the "Current Company Balance Sheet."
2.8 No Undisclosed Liabilities. The Company does not have any material
--------------------------
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with GAAP), which individually or in the aggregate, (a)
has not been reflected in the Current Company Balance Sheet or (b) has not
arisen in the ordinary course of the Company's business since December 31, 1998,
consistent with past practices.
2.9 No Changes. Since December 31, 1999 and through the date of this
----------
Agreement the Company has not taken any of the actions set forth in Section 5.1
hereof.
2.10 Tax and Other Returns and Reports.
---------------------------------
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
-------------------
or, collectively, "Taxes," means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
-14-
(b) Tax Returns and Audits.
----------------------
(i) The Company has prepared and timely filed all required
federal, state, local and foreign returns, estimates, information statements and
reports ("Returns") relating to any and all Taxes concerning or attributable to
the Company or its operations and such Returns are true and correct and have
been completed in accordance with applicable law.
(ii) The Company: (A) has paid timely or accrued all Taxes it is
required to pay or accrue and (B) has timely withheld (and paid over to the
appropriate governmental authorities) with respect to its employees or any third
party all federal and state income taxes, FICA, FUTA and other Taxes required to
be withheld.
(iii) The Company has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed against
the Company, nor has the Company executed any waiver of any statute of
limitations on or extended the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the Company
is presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company has no liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against in the
Company Financials, whether asserted or unasserted, contingent or otherwise, and
the Company has not incurred any liability for Taxes since the date of the
Current Company Balance Sheet other than in the ordinary course of business
consistent with past practice.
(vi) The Company has provided or made available to Parent copies
of all federal and state income and all state sales and use Returns for all
periods since the date of Company's incorporation.
(vii) There are (and as of immediately following the Closing
there will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of the Company relating to or attributable to Taxes,
other than Liens for Taxes not yet due and payable as of such time.
(viii) There is no reasonable basis for the assertion of any
claim relating or attributable to Taxes which, if adversely determined, would
result in any Lien on the assets of the Company.
(ix) There is no contract, agreement, plan or arrangement to
which the Company is a party, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 280G, 404 or 162(m) of the Code.
-15-
(x) The Company has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the
Code) owned by the Company.
(xi) The Company has (a) never been a member of an affiliated
group (within the meaning of Code (S)1504(a)) filing a consolidated federal
income Tax Return (other than a group the common parent of which was Company),
(b) no liability for the Taxes of any person (other than Company or any of its
Subsidiaries) under Treas. Reg. (S) 1.1502-6 (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract, or otherwise
and (c) never been a party to any joint venture, partnership or other agreement
that could be treated as a partnership for Tax purposes.
(xii) The Company is not a party to any tax sharing,
indemnification or allocation agreement and does not owe any amount under any
such agreements.
(xiii) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiv) No adjustment or deficiency relating to any Return filed
or required to be filed by the Company has been proposed in writing or, to the
knowledge of the Company, informally by any Tax authority to the Company or any
representative thereof except proposed adjustments or deficiencies that have
been resolved prior to the date hereof.
(xv) The Company utilizes the accrual method of accounting for
U.S. federal income tax purposes.
(xvi) The Company has not constituted either a "distributing
corporation" or a "controlled corporation" in a distribution of stock qualifying
for tax-free treatment under Section 355 of the Code (x) in the two years prior
to the date of this Agreement or (y) in a distribution which could otherwise
constitute part of a "plan" or "Series of related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction with the Merger.
(xvii) The Company has not taken any action nor knows of any
fact, agreement, plan or other circumstance that is reasonably likely to prevent
the Merger from qualifying as a reorganization under Section 368(a) of the Code.
2.11 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete or otherwise), judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company which has or reasonably
would be expected to have the effect of prohibiting or impairing any business
practice of the Company, any acquisition of property (tangible or intangible) by
the Company or the conduct of business by the Company. Without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any of
its products or services to any class of customers, in any geographic area,
during any period of time or in any segment of the market.
2.12 Title to Properties; Absence of Liens and Encumbrances.
------------------------------------------------------
-16-
(a) The Company does not own any real property, nor has it ever owned
any real property. Schedule 2.12(a) sets forth a list of all real property
----------------
currently leased by the Company, the name of the lessor and the date of the
lease and each amendment thereto. All such current leases are in full force and
effect, are valid and effective in accordance with their respective terms, and
the Company is not, nor to the best of the Company's knowledge, no other party
is under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default).
Neither the operations of the Company on such real property nor such real
property, including improvements thereon, violate in any material manner any
applicable building code, zoning requirement, or classification or statute
relating to the particular property or such operations, and such non-violation
is not dependent, in any instance, on so-called non-conforming use exceptions.
(b) The Company has good and marketable title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens (as defined in Section 2.10(b)(vii)),
except as reflected in the Company Financials and except for liens for taxes not
yet due and payable, Liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehouse men, laborers and
material men and Liens in respect of pledges or deposits under workers'
compensation laws, and such imperfections of title and encumbrances, if any,
which are not material in character, amount or extent, and which do not
materially detract from the value, or materially interfere with the present use,
of the property subject thereto or affected thereby.
(c) Schedule 2.12(c) lists all fixed assets (the "Equipment") owned
----------------
or leased by the Company as of December 31, 1999, and since such date there have
been no material additions or deletions to such Equipment. All facilities,
machinery, equipment, fixtures, vehicles, and other properties owned, leased or
used by the Company are (i) adequate for the conduct of the business of the
Company as currently conducted and (ii) in good operating condition, regularly
and properly maintained, subject to normal wear and tear and reasonably fit and
usable for the purposes for which they are being used, except where a failure to
be in such condition would not have a Material Adverse Effect on the Company.
(d) The Company has not sold or otherwise released for distribution
any of its customer files and other customer information relating to the
Company's current and former customers (the "Company Customer Information"). No
person other than the Company possesses any claims or rights with respect to use
of the Company Customer Information.
2.13 Governmental Authorization. Schedule 2.13 accurately lists each
-------------------------- -------------
material consent, license, permit, grant or other authorization issued to the
Company by a Governmental Entity (a) pursuant to which the Company currently
operates or holds any interest in any of its properties or (b) which is required
for the operation of its business or the holding of any such interest (herein
collectively called "Company Authorizations"). The Company Authorizations are in
full force and effect and constitute all Company Authorizations required to
permit the Company to operate or conduct its business or hold any interest in
its properties or assets. The Company is in compliance with the terms of the
Company Authorizations.
2.14 Intellectual Property.
---------------------
-17-
(a) Definitions. For all purposes of this Agreement, the following
-----------
terms shall have the following respective meanings:
(i) "Technology" shall mean any or all of the following: (A)
----------
works of authorship including, without limitation, computer programs, source
code and executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, net lists, records, data and mask works; (B)
inventions (whether or not patentable), improvements and technology; (C)
proprietary and confidential information, including technical data and customer
and supplier lists, trade secrets and know how; (D) databases, data compilations
and collections and technical data; (E) tools, methods and processes; and (F)
all instantiations of the foregoing in any form and embodied in any media.
"Intellectual Property Rights" shall mean any or all of the following and
----------------------------
all rights in, arising out of, or associated therewith: (A) all United States
and foreign patents and utility models and applications therefor and all
reissues, divisions, re-examinations, renewals, extensions, provisionals,
continuations and continuations-in-part thereof and equivalent or similar rights
anywhere in the world in inventions and discoveries including without limitation
invention disclosures ("Patents"); (B) all trade secrets and other rights in
know-how and confidential or proprietary information; (C) all copyrights,
copyrights registrations and applications therefor and all other rights
corresponding thereto throughout the world ("Copyrights"); (D) all mask works,
mask work registrations and applications therefor, and any equivalent or similar
rights in semiconductor masks, layouts, architectures or topology ("Maskworks");
(E) all industrial designs and any registrations and applications therefor
throughout the world; (F) all rights in World Wide Web addresses and domain
names and applications and registrations therefor; (G) all trade dress, trade
names, logos, common law trademarks and service marks, trademark and service
xxxx registrations and applications therefor and all goodwill associated
therewith throughout the world ("Trademarks"); (H) all World Wide Web addresses,
domain names and sites and (I) any similar, corresponding or equivalent rights
to any of the foregoing anywhere in the world.
(ii) "Company Intellectual Property" shall mean any Technology
-----------------------------
and Intellectual Property Rights including the Company Registered Intellectual
Property Rights (as defined below) that are owned (in whole or in part) by the
Company.
(iii) "Registered Intellectual Property Rights" shall mean all
---------------------------------------
United States, international and foreign: (A) Patents, to the extent issued or
the subject of pending patent applications (provisional or otherwise); (B)
registered Trademarks, applications to register Trademarks, including intent-to-
use applications, or other registrations or applications related to Trademarks
and World Wide Web domain name registrations; (C) Copyright registrations and
applications to register Copyrights; (D) Mask Work registrations and
applications to register Mask Works; and (E) any other Technology that is the
subject of an application, certificate, filing, registration or other document
issued by, filed with, or recorded by, any state, government or other public or
private legal authority at any time.
(iv) For all purposes in this Section 2.14, the definitions set
forth in this Section 2.14(a) shall exclude shrink wrap licenses to commercially
available software sold at retail that are not incorporated in the Company's
products or otherwise delivered by the Company to its customers with the
Company's products.
-18-
(b) Schedule 2.14(b) lists all Registered Intellectual Property Rights
----------------
owned by, filed in the name of, or applied for by, the Company (the "Company
Registered Intellectual Property Rights") and lists any proceedings or actions
before any court, tribunal (including the United States Patent and Trademark
Office (the "PTO") or equivalent authority anywhere in the world) related to any
of the Company Registered Intellectual Property Rights or Company Intellectual
Property.
(c) Each item of Company Registered Intellectual Property Rights is
subsisting, and all necessary registration, maintenance and renewal fees in
connection with such Company Registered Intellectual Property Rights have been
paid and all necessary documents and certificates in connection with such
Company Registered Intellectual Property Rights have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Company Registered Intellectual Property Rights. There are no actions that
must be taken by the Company within one hundred twenty (120) days of the Closing
Date, including the payment of any registration, maintenance or renewal fees or
the filing of any responses to PTO office actions, documents, applications or
certificates for the purposes of obtaining, maintaining, perfecting or
preserving or renewing any Registered Intellectual Property Rights. In each case
in which the Company has acquired any ownership of Technology or Intellectual
Property Right from any person, the Company or such Subsidiary has obtained a
valid and enforceable assignment sufficient to irrevocably transfer (subject to
any statutory limits on transfer or rights of termination) all rights in such
Technology and the associated Intellectual Property Rights (including the right
to seek past and future damages with respect thereto) to the Company. To the
maximum extent provided for by, and in accordance with, applicable laws and
regulations, the Company has recorded each such assignment of a Registered
Intellectual Property Right assigned to the Company with the relevant
Governmental Entity, including the PTO, the U.S. Copyright Office, or their
respective equivalents in any relevant foreign jurisdiction, as the case may be.
The Company has not claimed a particular status, including "Small Business
Status," in the application for any Intellectual Property Rights, which claim of
status was not at the time made, or which has since become, inaccurate or false
or that will no longer be true and accurate as a result of the Closing.
(d) The Company has no knowledge of any facts or circumstances that
would render any Company Intellectual Property invalid or unenforceable. Without
limiting the foregoing, Company knows of no information, materials, facts or
circumstances, including any information or fact that would constitute prior
art, that would render any of the Company Registered Intellectual Property
Rights invalid or unenforceable, or would adversely effect any pending
application for any Company Registered Intellectual Property Right and the
Company has not misrepresented, or failed to disclose, and has no knowledge of
any misrepresentation or failure to disclose, any fact or circumstances in any
application for any Company Registered Intellectual Property Right that would
constitute fraud or a misrepresentation with respect to such application or that
would otherwise affect the validity or enforceability of any Company Registered
Intellectual Property Right.
(e) Each item of Company Intellectual Property is free and clear of
any Liens except for non-exclusive licenses granted to original equipment
manufacturers ("OEMs"), Internet service provider and/or end-user customers in
the ordinary course of business. The Company is the exclusive owner or exclusive
licensee of all Company Intellectual Property. Without limiting the foregoing:
(i) the Company is the exclusive owner of all Trademarks used in connection with
the
-19-
operation or conduct of the business of the Company, including the sale,
licensing, distribution or provision of any products or services by the Company;
and (ii) the Company owns exclusively, and has good title to, all registered
copyrights that are products of the Company or which the Company otherwise
purports to own.
(f) All Company Intellectual Property will be fully transferable,
alienable or licensable by Surviving Corporation and/or Parent without
restriction and without payment of any kind to any third party.
(g) To the extent that any Technology used in the operation of the
Company's business has been developed or created by a third party for the
Company, the Company has a written agreement with such third party with respect
thereto and the Company thereby either (i) has obtained ownership of, and is the
exclusive owner of, or (ii) has obtained a license (sufficient for the conduct
of its business as currently conducted and as proposed to be conducted) to all
such third party's Intellectual Property Rights in such Technology by operation
of law or by valid assignment.
(h) With the exception of "shrink-wrap" or similar widely-available
commercial end-user licenses, all Technology used in or necessary to the conduct
of Company's business as presently conducted or currently contemplated to be
conducted by the Company was written and created solely by either (i) employees
of the Company acting within the scope of their employment or (ii) by third
parties who have validly and irrevocably assigned (subject to any statutory
limits on transfer or rights of termination) all of their rights, including
Intellectual Property Rights therein, to the Company, and no third party owns or
has any rights to any of the Company Intellectual Property.
(i) Subject to any statutory limits on transfer or rights of
termination, all employees of the Company have entered into a valid and binding
written agreement with the Company sufficient to vest title in the Company of
all Technology, including all accompanying Intellectual Property Rights, created
by such employee in the scope of his or her employment with the Company.
(j) The Company has taken all commercially reasonable steps required
to protect the Company's rights in confidential information and trade secrets of
the Company or provided by any other person to the Company. Without limiting the
foregoing, the Company has, and enforces, a policy requiring each employee,
consultant and contractor to execute a proprietary information, confidentiality
and assignment agreement, substantially in the form attached hereto as Schedule
--------
2.14(j), and all current and former employees, consultants and contractors of
-------
the Company who have or had access to the Company's confidential information,
Technology or Intellectual Property have executed such an agreement.
(k) No person who has licensed Technology or Intellectual Property
Rights to the Company has ownership rights or license rights to improvements
made by the Company in such Technology or Intellectual Property Rights.
(l) The Company has not transferred ownership of, or granted any
exclusive license of or right to use, or authorized the retention of any
exclusive rights to use or joint ownership of, any Technology or Intellectual
Property Right that is or was Company Intellectual Property, to any other
person.
-20-
(m) Other than inbound "shrink-wrap" and similar publicly
available commercial binary code end-user licenses and outbound "shrink-wrap"
licenses in the form set forth on Schedule 2.14(m), the contracts, licenses
----------------
and agreements listed on Schedule 2.14(m) list all contract licenses and
----------------
agreements to which the Company is a party with respect to any Technology or
Intellectual Property Rights. The Company is not in breach of nor has the
Company failed to perform under, any of the foregoing contracts, licenses or
agreements and, to the Company's knowledge, no other party to any such contract,
license or agreement is in breach thereof or has failed to perform thereunder.
(n) Schedule 2.14(n) lists all material contracts, licenses and
----------------
agreements between the Company and any other person wherein or whereby the
Company has agreed to, or assumed, any obligation or duty to warrant, indemnify,
reimburse, hold harmless, guaranty or otherwise assume or incur any obligation
or liability or provide a right of rescission with respect to the infringement
or misappropriation by the Company or such other person of the Intellectual
Property Rights of any person other than the Company.
(o) To the knowledge of the Company, there are no contracts,
licenses or agreements between the Company and any other person with respect to
Company Intellectual Property under which there is any dispute regarding the
scope of such agreement, or performance under such agreement, including with
respect to any payments to be made or received by the Company thereunder.
(p) The operation of the business of the Company as it currently
is conducted or is contemplated to be conducted, including but not limited to
the design, development, use, import, branding, advertising, promotion,
marketing, manufacture and sale of the products, technology or services
(including products, technology or services currently under development) of the
Company does not and will not and will not when conducted by Parent and/or
Surviving Corporation in substantially the same manner following the Closing,
infringe or misappropriate any Intellectual Property Right of any person,
violate any right of any person (including any right to privacy or publicity)
relating to Technology or Intellectual Property or constitute unfair competition
or trade practices under the laws of any jurisdiction, and the Company has not
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company infringes or misappropriates any
Intellectual Property Right of any person or constitutes unfair competition or
trade practices under the laws of any jurisdiction (nor does the Company have
knowledge of any basis therefor).
(q) To the Company's knowledge, no person is infringing or
misappropriating any Company Intellectual Property Right.
(r) No Company Intellectual Property or service of the Company
is subject to any proceeding or outstanding decree, order, judgment or
settlement agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
(s) No (i) product, technology, service or publication of the
Company, (ii) material published or distributed by the Company or (iii) conduct
or statement of the Company constitutes obscene material, a defamatory statement
or material or false advertising.
-21-
(t) Neither this Agreement nor the transactions contemplated by
this Agreement, including the assignment to Parent or Surviving Corporation, by
operation of law or otherwise, of any contracts or agreements to which the
Company is a party, will result in (i) either Parent's or the Surviving
Corporation's granting to any third party any right to or with respect to any
Technology or Intellectual Property Right owned by, or licensed to, either of
them, (ii) either the Parent's or the Surviving Corporation's being bound by, or
subject to, any non-compete or other restriction on the operation or scope of
their respective businesses or (iii) either the Parent's or the Surviving
Corporation's being obligated to pay any royalties or other amounts to any third
party in excess of those payable by Parent or Surviving Corporation,
respectively, prior to the Closing.
(u) All of the Company's products (including products currently
under development): (i) currently or will record, store, process, calculate and
present calendar dates falling on and after (and if applicable, spans of time
including) January 1, 2000 and February 29, 2000, and currently or will
calculate any information dependent on or relating to such dates in the same
manner, and with the same functionality, data integrity and performance, as the
products record, store, process, calculate and present calendar dates on or
before December 31, 1999, or calculate any information dependent on or relating
to such dates (collectively, "Year 2000 Compliant"); and (ii) lost or will lose
no functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000 and February 29, 2000. All of the Company's
Information Technology (as defined below) is Year 2000 Compliant, and to the
Company's knowledge, have not caused and will not cause an interruption in the
ongoing operations of the Company's business on or after January 1, 2000 and
February 29, 2000. For purposes of the foregoing, the term "Information
Technology" shall mean and include all software, hardware, firmware,
telecommunications systems, network systems, embedded systems and other systems,
components and/or services (other than general utility services including gas,
electric, telephone and postal) that are owned or used by the Company in the
conduct of its business, or purchased by the Company from third party suppliers.
(v) The Company is not the exclusive licensee of any Technology or
Intellectual Property Rights.
2.15 Product Warranties; Defects; Liabilities. Each Company Product has
----------------------------------------
been in all material respects in conformity with all applicable contractual
commitments and all applicable express and implied warranties. The Company does
not have any present liability or obligation (and to the Company's knowledge,
there is no current reasonable basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand against
the Company giving rise to any liability or obligation) for replacement or
repair thereof or other damages in connection therewith except liabilities or
obligations incurred in the ordinary course of business consistent with past
practice which do not have a Material Adverse Effect on the Company. No Company
Product is subject to any guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions of sale, license or lease or beyond
that implied or imposed by applicable law. Schedule 2.15 includes a copy of the
-------------
standard terms and conditions of sale, license or lease for each of the Company
Products and copies of the Company's standard forms of merchant agreements,
portal agreements and professional services agreements.
2.16 Agreements, Contracts and Commitments. The Company does not
-------------------------------------
have, is not a party to nor is it bound by:
-22-
(a) any collective bargaining agreements,
(b) any employment or consulting agreement, contract or
commitment with any officer, director, employee or member of the Company's Board
of Directors, other than those that are terminable by the Company without
liability of financial obligation of the Company,
(c) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(d) any employment or consulting agreement with an employee or
individual consultant or salesperson or consulting or sales agreement, under
which a firm or other organization provides services to the Company,
(e) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, or under which payments are required to be made by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement,
(f) any fidelity or surety bond or completion bond,
(g) any lease of personal property having a value
individually in excess of $10,000,
(h) any agreement of indemnification or guaranty, except for
indemnification or guarantees provided in the ordinary course of business in
connection with the sale of the Company's products as set forth on
Schedule 2.15,
-------------
(i) any agreement, contract or commitment containing any
covenant limiting in any respect the right of Company to engage in any line of
business or to compete with any person or granting any exclusive distribution
rights,
(j) any agreement relating to capital expenditures and
involving future payments in excess of $25,000,
(k) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by Company after the date of this
Agreement of a material amount of assets not in the ordinary course of business
or pursuant to which Company has any material ownership interest in any
corporation, partnership, joint venture or other business enterprise,
(l) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause (h)
hereof,
(m) any purchase order or contract involving the expenditure
by the Company of $50,000 or more for the Company's products or $25,000 or more
or otherwise,
-23-
(n) any construction contracts,
(o) any dealer, distribution, joint marketing (including any
pilot program), development, content provider, destination site or merchant
agreement,
(p) any agreement pursuant to which the Company has granted
or may be obligated to grant in the future, to any party a source code license
or option or other right to use or acquire source code, including any agreements
which provide for source code escrow arrangements,
(q) any sales representative, original equipment manufacturer,
value added, remarketer or other agreement for distribution of the Company's
products or services or the products or services of any other person or entity,
(r) any agreement pursuant to which the Company has advanced or
loaned any amount to any shareholder of the Company or any director, officer,
employee or consultant other than business travel advances in the ordinary
course of business consistent with past practice,
(s) any settlement agreement entered into since the Company's
initial incorporation, or
(t) any other agreement that involves $25,000 or more or is
not cancelable without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and
events that would constitute a breach, violation or default with the lapse of
time, giving of notice, or both, as are all noted in Schedule 2.16(b), the
----------------
Company has not breached, violated or defaulted under, or received notice that
it has breached, violated or defaulted under, any of the terms or conditions of
any agreement, contract or commitment required to be set forth on
Schedule 2.16(a), Schedule 2.14(m) or Schedule 2.14(n) (any such agreement,
---------------- ---------------- ----------------
contract or commitment, a "Contract"). Each Contract is in full force and effect
and, except as otherwise disclosed in Schedule 2.16(b), is not subject to any
----------------
default thereunder of which the Company has knowledge by any party obligated to
the Company pursuant thereto.
2.17 Interested Party Transactions. To the Company's best
-----------------------------
knowledge, no officer, director or affiliate (as defined under Regulation C
under the Securities Act) of the Company (nor any member of the immediate family
of any of such persons, or any trust, partnership or corporation in which any of
such persons has or has had an economic interest), has or has had, directly or
indirectly, (a) an economic interest in any entity which furnished or sold, or
furnishes or sells, services or products that the Company furnishes or sells, or
proposes to furnish or sell, or (b) an economic interest in any entity that
purchases from or sells or furnishes to, the Company, any goods or services or
(c) a beneficial interest in any contract or agreement set forth in
Schedule 2.16(a), Schedule 2.14(m) or Schedule 2.14(n); provided, that
---------------- ---------------- ----------------
ownership of less than five percent of the outstanding voting stock of a
publicly traded corporation shall not be deemed an "economic interest in any
entity" for purposes of this Section 2.17. There are no receivables of the
Company owing by any director, officer, employee or consultant to the Company
(or any member of the immediate family of any such persons, or any trust,
partnership, or corporation in which any of such persons has an economic
interest), other than advances in the ordinary and usual course of business for
-24-
reimbursable business expenses (as determined in accordance with the Company's
established employee reimbursement policies and consistent with past practice).
None of the Company shareholders has agreed to, or assumed, any obligation or
duty to guaranty or otherwise assume or incur any obligation or liability of the
Company except as contemplated by this Agreement.
2.18 Compliance with Laws. Company is not in conflict with, or in
--------------------
default or violation of any law, rule, regulation, order, judgment or decree
applicable to Company or by which its properties is bound or affected. No
investigation or review by any governmental or regulatory body or authority is
pending or, to the knowledge of Company, threatened against Company or any of
its officers, directors or employees, nor has any governmental or regulatory
body or authority indicated an intention to conduct the same, other than, in
each such case, those the outcome of which could not, individually or in the
aggregate, reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company, any acquisition of
material property by the Company or the conduct of business by the Company.
2.19 Litigation. There is no action, suit or proceeding of any
----------
nature pending or to the Company's knowledge threatened against the Company, its
properties or any of its officers, directors or employees, nor, to the knowledge
of the Company, is there any reasonable basis therefor. Schedule 2.19 sets
-------------
forth, with respect to any pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages claimed or other remedy requested. The Company has not
received any notice of and has no reason to believe that any Governmental Entity
has at any time challenged or questioned the legal right of the Company to
conduct its operations as presently or previously conducted.
2.20 Insurance. With respect to the insurance policies and fidelity
---------
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company, there is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been 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
the Company is otherwise in material compliance with the terms of such policies
and bonds (or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.21 Minute Books. The minute books of the Company made available
------------
to Parent are the only minute books of the Company and contain an accurate
summary of all meetings of directors (or committees thereof) and shareholders or
actions by written consent since the time of incorporation of the Company.
2.22 Environmental Matters.
---------------------
(a) Environmental Compliance. The Company (a) has obtained all
------------------------
applicable and material permits, licenses and other authorizations that are
required under Environmental Laws for the conduct of its business as currently
conducted ("Environmental Permits"); (b) is in compliance with all material
terms and conditions of such required permits, licenses and authorizations, and
also is in compliance in all material respects with all other laws, rules,
regulations, limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables applicable to the Company or
its assets, or contained in any regulation, code, plan, order, decree,
-25-
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder; (c) has not received written notice of any event, condition,
circumstance, activity, practice, incident, action or plan which constitutes a
violation of any Environmental Law applicable to the Company, any person or
entity for which the Company is legally liable or any of the Company's current
or past locations or assets for that is reasonably likely to interfere with the
conduct of business as currently conducted or prevent continued compliance with
Environmental Laws applicable to the conduct of its business as currently
conducted or that would reasonably be expected to give rise to any common law or
statutory liability, or otherwise form the basis of any Environmental Claim with
respect to the Company or any person or entity whose liability for any
Environmental Claim the Company has retained or assumed either contractually or
by operation of law; (d) has not disposed of, released, discharged or emitted
any Hazardous Materials into the soil, air, surface water, building materials or
groundwater at any properties owned or leased at any time by the Company, or at
any other property, or exposed any employee or other individual to any Hazardous
Materials or condition in such a manner as would reasonably be expected to
result in any material liability or result in any corrective or remedial action
obligation; and (e) has taken all actions necessary under Environmental Laws to
register any products or materials required to be registered by the Company (or
any person for whom the Company has legal responsibility) thereunder. No
Hazardous Materials are present in, on, or under (or, to the knowledge of the
Company, in the vicinity of) any properties owned, leased or used at any time
(including both land and improvements thereon) by the Company so as to
reasonably be expected to give rise to any material liability or corrective or
remedial obligation of the Company under any Environmental Laws or any contract
binding on the Company. For the purposes of this Section 2.22, "Environmental
Claim" means any notice, claim, act, cause of action or investigation by any
person alleging potential liability (including potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (a) the presence, or release into the
environment, of any Hazardous Materials (b) any violation, or alleged violation,
of any Environmental Laws, (c) the exposure of any person to a Hazardous
Material or (d) the use, storage, disposal, discharge, transportation, emission,
destruction, remediation or investigation of any Hazardous Material.
"Environmental Laws" means all federal, state, local and foreign laws and
regulations relating to pollution or the environment (including ambient air,
surface water, ground water, land surface or subsurface strata) or the
protection of human health and worker safety, including, without limitation,
laws and regulations relating to emissions, discharges, releases or threatened
releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials. "Hazardous Materials" means chemicals,
pollutants, contaminants, wastes, toxic substances, radioactive and biological
materials, asbestos-containing materials (ACM), hazardous substances, petroleum
and petroleum products or any fraction thereof or other substance which is or
has been designated as a threat to health or the environment, excluding,
however, Hazardous Materials contained in products typically used for office and
janitorial purposes properly, safely and legally maintained in accordance with
Environmental Laws.
(b) Hazardous Materials Activities. The Hazardous Material
------------------------------
Activities of the Company and its past or present subsidiaries (i) have been
conducted in compliance with applicable Environmental Laws and (ii) have not
resulted in the exposure of any person to a Hazardous Material in a manner which
has or will cause an adverse health effect to said person. For the purpose of
the foregoing "Hazardous Materials Activity" is the transportation, transfer,
recycling,
-26-
storage, use, treatment, manufacture, investigation, removal, remediation,
release, exposure of others to, sale or distribution of any Hazardous Material
or any product containing a Hazardous Material.
(c) Effect of Transaction. No circumstances exist which could
---------------------
cause any Environmental Permit to be revoked, modified, or rendered non-
renewable upon payment of the permit fee or which could impose upon the Company
or any Subsidiary the obligation to obtain any additional Environmental Permit.
All Environmental Permits and all other consents and clearances required by any
Environmental Law or any agreement to which the Company is bound as a condition
to the performance and enforcement of this Agreement (including without
limitation, all so-called "ECRA" environmental clearances) which are required by
any Governmental Authority in connection with the transactions contemplated by
this Agreement have been obtained or will be obtained prior to the Closing at no
cost to the Parent or the Company.
(d) Offsite Hazardous Material Disposal. The Company, its
-----------------------------------
subsidiaries, and their respective agents, employees and contractors have
transferred or released Hazardous Materials only to those disposal sites,
transporters, recyclers, and handlers ("Disposal Site") described on
Schedule 2.22; and no action, proceeding, liability or claim exists or, to
-------------
the best knowledge of the Company is threatened, against any Disposal Site or
against the Company or any person or entity for which the Company is legally
responsible with respect to any transfer or release of Hazardous Materials to a
Disposal Site and there is no valid basis for such claim.
(e) Environmental Liabilities. The Company is not aware of any
-------------------------
fact or circumstance, which could involve the Company, any of its past or
present subsidiary, or any person or entity for which the Company is legally
responsible in any environmental litigation or impose upon the Company, its past
or present subsidiary, or any such person or entity any environmental liability.
(f) Disclosure of Environmental Matters. The Company has
-----------------------------------
delivered to the Parent or made available for inspections by the Parent and its
agents and employees all records concerning the Environmental Activities of the
Company and its past and present subsidiaries and all environmental audits and
environmental assessments of any current or past Company facility conducted at
the request of, or otherwise available to the Company. The Company has complied
with all environmental disclosure, facility closure, and clearance obligations
imposed upon the Company with respect to this transaction or otherwise by
applicable law.
2.23 Brokers' and Finders' Fees. Other than Broadview
--------------------------
International LLC, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby. Attached to Schedule 2.23 are copies of any written
-------------
agreements and the summary of terms for any oral agreements with respect to such
fees.
2.24 Employee Matters and Benefit Plans.
----------------------------------
(a) Definitions. With the exception of the definition of
-----------
"Affiliate" set forth in Section 2.24(a)(i) below (such definition shall only
apply to this Section 2.24 and Section 6.22 of this Agreement), for purposes of
this Agreement, the following terms shall have the meanings set forth below:
-27-
(i) "Affiliate" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iii) "Company Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA (as defined below) which is or has
been maintained, contributed to, or required to be contributed to, by the
Company or any Affiliate for the benefit of any Employee (as defined below), or
with respect to which the Company or any Affiliate has or may have any liability
or obligation;
(iv) "DOL" shall mean the United States Department of Labor.
(v) "Employee" shall mean any current, former, or retired
employee, officer, director or consultant of the Company or any Affiliate;
(vi) "Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or other agreement, contract or understanding between the Company or
any Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of
1993, as amended;
(ix) "International Employee Plan" shall mean each Company
Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of Employees
who perform services outside the United States;
(x) "IRS" shall mean the United States Internal Revenue
Service;
(xi) "Knowledge of the Company" shall mean the actual
knowledge of any director, officer or other employee of the Company or its
counsel after reasonable inquiry;
(xii) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA; and
-28-
(xiii) "Pension Plan" shall refer to each Company Employee
Plan which is an "employee pension benefit plan," within the meaning of Section
3(2) of ERISA.
(b) Schedule. Schedule 2.24(b) contains an accurate and complete
-------- ----------------
list of each Company Employee Plan and each Employee Agreement. The Company does
not have any plan or commitment to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement or as required to maintain tax qualification), or to enter into any
Company Employee Plan, Employee Agreement or International Employee Plan nor
does it have any intention or commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent correct and
---------
complete copies of: (i) all documents embodying each Company Employee Plan and
each Employee Agreement including, without limitation, all amendments thereto
and all related trust documents; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the three
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan; (iv) if the Company Employee Plan is
funded, the most recent annual and periodic accounting of Company Employee Plan
assets; (v) the most recent summary plan description together with the most
recent summary(ies) of material modifications thereto, if any, required under
ERISA with respect to each Company Employee Plan; (vi) all IRS determination,
opinion, notification and advisory letters, and all applications and
correspondence to or from the IRS or DOL with respect to any such application or
letter; (vii) all material written agreements and contracts relating to each
Company Employee Plan, including, but not limited to, administrative service
agreements, group annuity contracts and group insurance contracts, if any;
(viii) all communications, if any, material to any Employee or Employees
relating to any Company Employee Plan and any proposed Company Employee Plans,
in each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any material liability to the
Company; (ix) all correspondence, if any, to or from any governmental agency
relating to any Company Employee Plan; (x) all COBRA forms and related notices
presently being used (or such forms and notices as required under comparable
law); (xi) all policies pertaining to fiduciary liability insurance covering the
fiduciaries for each Company Employee Plan, if any; (xii) discrimination tests,
if any, for each Company Employee Plan for the three most recent plan years; and
(xiii) all registration statements, annual reports (Form 11-K and all
attachments thereto) and prospectuses, if any, prepared in connection with each
Company Employee Plan.
(d) Employee Plan Compliance. (i) The Company has performed in all
------------------------
material respects all obligations required to be performed by it under, is not
in default or violation of, and has no knowledge of any default or violation by
any other party with respect to each Company Employee Plan, and each Company
Employee Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or the Code;
(ii) each Company Employee Plan intended to qualify under Section 401(a) of the
Code and each trust intended to
-29-
qualify under Section 501(a) of the Code has either received a favorable
determination, opinion, notification and/or advisory letter, as applicable, from
the IRS with respect to each such Company Employee Plan as to its qualified
status under the Code, including all amendments to the Code effected by the Tax
Reform Act of 1986 and subsequent legislation, or has a remaining period of time
under applicable Treasury regulations or IRS pronouncements in which to apply
for such a letter and make any amendments necessary to obtain a favorable
determination as to the qualified status of each such Company Employee Plan;
(iii) no "prohibited transaction" within the meaning of Section 4975 of the Code
or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of
the Code or Section 408 of ERISA (or any administrative class exemption issued
thereunder), has occurred with respect to any Company Employee Plan; (iv) there
are no actions, suits or claims pending, or, to the knowledge of the Company,
threatened or anticipated (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan; (v)
each Company Employee Plan (other than the Option Plan) can be amended,
terminated or otherwise discontinued after the Effective Time, without material
liability to the Company, Parent or any of its Affiliates (other than ordinary
administration expenses); (vi) there are no audits, inquiries or proceedings
pending or, to the knowledge of the Company or any Affiliates, threatened by the
IRS or DOL with respect to any Company Employee Plan; and (vii) neither the
Company nor any Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 502(i) of ERISA or Sections 4975 through
4980 of the Code.
(e) Pension Plans. Neither the Company nor any Affiliate has ever
-------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan, which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer and Multiple Employer Plans. At no time has the
-----------------------------------------
Company or any Affiliate contributed to or been obligated to contribute to any
Multiemployer Plan. Neither the Company nor any Affiliate has at any time ever
maintained, established, sponsored, participated in or contributed to any
multiple employer plan, or to any plan described in Section 413(c) of the Code.
(g) No Post-Employment Obligations. No Company Employee Plan provides,
------------------------------
or reflects or represents any liability to provide, retiree health to any person
for any reason, except as may be required by COBRA or other applicable statute,
and the Company has never represented, promised or contracted (whether in oral
or written form) to any Employee (either individually or to Employees as a
group) or any other person that such Employee(s) or other person would be
provided with retiree health, except to the extent required by statute.
(h) Health Care Compliance. Neither the Company nor any Affiliate has,
----------------------
prior to the Effective Time and in any material respect, violated any of the
health care continuation requirements of COBRA, the requirements of FMLA, the
requirements of the Health Insurance Portability and Accountability Act of 1996,
the requirements of the Women's Health and Cancer Rights Act, the requirements
of the Newborns' and Mothers' Health Protection Act of 1996 or any amendment to
each such act or any similar provisions of state law applicable to its
Employees.
-30-
(i) Effect of Transaction.
---------------------
(i) Except as provided in Section 1.6 of this Agreement, the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Company Employee
Plan, Employee Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by the
Company or its affiliates with respect to any Employee will be characterized as
a "parachute payment," within the meaning of Section 280G(b)(2) of the Code.
(j) Employment Matters. Schedule 2.24(j) lists all current officers,
------------------ ----------------
directors and employees of the Company. The Company (i) is in compliance in all
material respects with all applicable federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees
(including any immigration laws with respect to the same); (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages, salaries
and other payments to Employees; (iii) is not liable for any arrears of wages or
any taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). To the Knowledge of the Company,
there are no pending, threatened or reasonably anticipated claims or actions
against the Company under any workers compensation policy or long-term
disability policy. To the Knowledge of the Company, each person who is acting or
has acted as a consultant to the Company is acting or acted as an "independent
contractor" and could not, based on the facts and circumstances of his
consultancy, reasonably be deemed to be or have been "employed" with the
Company. Schedule 2.24(j) also sets forth all outstanding offers of employment,
----------------
whether written or oral, made to any employee or prospective employee, which
offer has not been rejected by the offeree.
(k) Labor. No work stoppage or labor strike against the Company is
-----
pending, threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of the Company, threatened or reasonably anticipated relating to any
labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in any material liability to the Company. The Company has not
engaged in any unfair labor practices within the meaning of the National Labor
Relations Act. The Company is not presently, nor has it been in the past, a
party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
(l) International Employee Plan. The Company does not now, nor has it
---------------------------
ever had the obligation to, maintain, establish, sponsor, participate in or
contribute to any International Employee Plan.
-31-
(m) No Interference or Conflict. To the knowledge of the Company, no
---------------------------
shareholder, officer, employee or consultant of the Company is obligated under
any contract or agreement subject to any judgement, decree or order of any court
or administrative agency that would interfere with such person's efforts to
promote the interests of the Company or that would interfere with the Company's
business. Neither the execution nor delivery of this Agreement, nor the carrying
on of the Company's business as presently conducted nor any activity of such
officers, directors, employees or consultants in connection with the carrying on
of the Company's business as presently conducted, will conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract or agreement under which any of such officers, directors,
employees or consultants is now bound.
2.25 Bank Accounts. Schedule 2.25 constitutes a full and complete list of
------------- -------------
all the bank accounts and safe deposit boxes of the Company, the number of each
such account or box, and the names of the persons authorized to draw on such
accounts or to access such boxes. All cash in such accounts is held in demand
deposits and is not subject to any restriction or documentation as to
withdrawal.
2.26 Indemnification Obligations. The Company has no knowledge of any
---------------------------
action, proceeding or other event pending or threatened against any officer or
director of the Company which would give rise to any indemnification obligation
of Company to its officers and directors under its Articles of Incorporation,
Bylaws or any agreement between the Company and any of its officers or
directors.
2.27 Board Approval. The Board of Directors of Company has, as of the
--------------
date of this Agreement unanimously (a) approved and deemed advisable, subject to
shareholder approval, this Agreement and the transactions contemplated hereby,
(b) determined that the Merger is in the best interests of the shareholders of
Company and is on terms that are fair to such shareholders and (c) recommended
that the shareholders of Company approve the principal terms of this Agreement
and approve the Merger.
2.28 Representations Complete. None of the representations or warranties
------------------------
made by the Company (as modified by the Company Schedules), nor any statement
made in any Schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the shareholders of the Company in connection with soliciting their consent
to the principal terms of this Agreement and the Merger (to the extent that such
documents were prepared by or include information provided by the Company),
contains any untrue statement of a material fact, or omits 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.
-32-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Organization of Parent and Merger Sub. Parent is a corporation duly
-------------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of Parent and
Merger Sub 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 would
have a material adverse effect on Parent or Merger Sub or the ability of either
to consummate the transactions contemplated hereby.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
---------
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
and thereby will not, conflict with, or result in any violation of, or default
(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 to loss of a
benefit under (a) any provision of the Certificate of Incorporation or Bylaws of
Parent or the Certificate of Incorporation or Bylaws of Merger Sub or (b) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or representation applicable to Parent or on which Parent's
business, financial condition or operations is substantially dependent, the
breach, violation, default, termination or forfeiture of which would result in a
material adverse effect upon the ability of Parent or Merger Sub to consummate
the Merger, or a material adverse effect on Parent or Merger Sub. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity, is required by or with respect to Parent or
Merger Sub in connection with the execution and delivery of this Agreement by
Parent and Merger Sub or the consummation by Parent and Merger Sub of the
transactions contemplated hereby except for (a) the filing of the Merger
Agreement with the Secretary of State of the State of California, or (b) such
consents, approvals, order, authorizations, registrations, declarations and
filings as may be required under applicable state and federal securities laws or
(c) approval pursuant to the HSR Act.
3.3 Parent Common Stock. The shares of Parent Common Stock to be issued
-------------------
pursuant to the Merger and upon exercise of Company Options assumed by Parent
hereunder will, when issued and delivered in accordance with this Agreement, be
duly authorized, validly issued, fully paid and non-assessable; provided,
--------
however, that the Parent Common Stock to be issued hereunder will be subject to
-------
restrictions on transfer under applicable federal and state securities laws.
-33-
3.4 SEC Filings; Parent Financial Statements.
----------------------------------------
(a) Parent has timely filed all forms, reports, registration statements
and documents required to be filed by Parent with the SEC and has made available
to the Company such forms, reports, and documents in the form filed with the
SEC. All such required forms, reports and documents (including those that Parent
may file subsequent to the date hereof until the Closing) are referred to herein
as the "Parent SEC Reports;" provided, that any Parent SEC Report shall be
deemed to include all amendments to such report through the date hereof. As of
their respective filing dates (or if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing), the Parent SEC
Reports (i) complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Parent SEC Reports and (ii)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated financial statements of Parent (including,
in each case, the notes thereto), included in the Parent SEC Reports (the
"Parent Financial Statements"), including each Parent SEC Report filed after the
date hereof until the Closing, (i) complied as to form in all material respects
with the applicable rules and regulations of the SEC with respect thereto; (ii)
was prepared in accordance with GAAP applied on a consistent basis throughout
the periods indicated (other than the provision of notes to the financial
statements for quarterly periods); and (iii) fairly presented the consolidated
financial position of Parent and its subsidiaries at the respective dates
thereof and the consolidated results of Parent's operations and cash flows for
the periods indicated (subject, in the case of unaudited financial statements,
to audit adjustments). There has been no change in Parent's accounting policies
except as described in the notes to the Parent Financial Statements.
3.5 Parent Capital Structure. The authorized capital stock of the Parent
------------------------
consists of 120,000,000 shares of authorized Common Stock, $0.001 par value per
share, of which 28,317,000, (rounded to the nearest thousand) shares were issued
and outstanding as of December 31, 1999 and 10,000,000 shares of authorized
Preferred Stock, par value $0.001 per share, of which no shares were issued and
outstanding as of February 29, 2000.
3.6 Litigation. Other than as set forth in the Parent SEC Reports, there
----------
is no action, suit or proceeding of any nature pending or to the Parent's
knowledge threatened against the Parent, its properties or any of its officers,
directors or employees, nor, to the knowledge of the Parent, is there any
reasonable basis therefor.
3.7 No Material Adverse Change. Since the date of the balance sheet
--------------------------
included in the Parent's most recently filed Parent SEC Report, there has not
occurred any material adverse change in the financial condition, liabilities,
assets, business or results of operations of Parent. For purposes of this
section, fluctuation in the trading price of Parent's Common Stock, as reported
by the Nasdaq National Market, changes in economic conditions or changes in the
industry and markets in which the Parent competes shall not constitute a
material adverse change, whether occurring at any time or from time to time.
-34-
3.8 Board Approval. The Board of Directors of Parent has, as of the date
--------------
of this Agreement unanimously (a) approved and deemed advisable this Agreement
and the transactions contemplated hereby and (b) determined that the Merger is
in the best interests of the stockholders of Parent and is on terms that are
fair to such stockholders.
3.9 Merger Sub. All of the outstanding capital stock of Merger Sub is
----------
owned by Parent free and clear of any lien, claim or encumbrance or any
agreement with respect thereto, since the date of its incorporation, Merger Sub
has not engaged in any activity of any nature except in connection with or as
contemplated by this Agreement and the Merger Agreement.
3.10 Brokers' and Finders' Fees. The Parent and Merger Sub have not
--------------------------
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
3.11 Representations Complete. None of the information provided by the
------------------------
Parent or Merger Sub (including information incorporated by reference from
Parent SEC Reports) for the purpose of making statements or furnishing in or in
connection with documents mailed or delivered to the shareholders of the Company
in connection with soliciting their consent to the principal terms of this
Agreement and the Merger (to the extent that such documents were prepared by or
include information provided by the Parent or Merger Sub), contains any untrue
statement of a material fact, or omits 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
SECURITIES ACT COMPLIANCE; REGISTRATION
4.1 Securities Act Exemption. In the event that the (i) Parent does not
------------------------
obtain a Section 3(a)(10) Permit (as defined in Section 6.1 hereof) or (ii)
Parent, Company and the Securityholder Agents agree to withdraw the Parent's
application for such Section 3(a)(10) Permit, then Parent and the Company agree
that the Parent Common Stock to be issued pursuant to this Agreement will be
issued pursuant to an exemption (other than under Section 3(a)(10)) from the
registration requirements of the Securities Act. If such Parent Common Stock is
issued pursuant to such an exemption, prior to the Closing Date, each of the
Company's shareholders shall have provided Parent such representations,
warranties, certifications and additional information as Parent may reasonably
request to ensure the availability of such exemption from the registration
requirements of the Securities Act.
4.2 Stock Restrictions. If Parent obtains a Section 3(a)(10) Permit, the
------------------
certificates (other than those certificates issued to persons who were not as of
the Effective Time, an affiliate of the Company, as such term is defined in Rule
144 under the Securities Act) representing the shares of Parent Common Stock
issued pursuant to this Agreement shall bear the restrictive legends (and a stop
transfer orders shall be placed against the transfer thereof with Parent's
transfer agent) as follows:
-35-
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED IN
CONFORMITY WITH RULE 145(d) OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
OR IN ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL, REASONABLY
ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE, THAT SUCH TRANSFER IS
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED."
If such shares of Parent Common Stock are issued in reliance upon an
exemption from the registration requirements of Section 5 of the Securities Act
as set forth in Section 4(2) thereof, the certificates representing the shares
of Parent Common Stock issued pursuant to this Agreement shall bear a
restrictive legend (and stop transfer orders shall be placed against the
transfer thereof with Parent's transfer agent) stating substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR
HYPOTHECATED EXCEPT IN COMPLIANCE WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION.
4.3 The Company Shareholders' Restrictions Regarding Securities Law Matters.
-----------------------------------------------------------------------
Each shareholder of the Company, by virtue of the Merger and the conversion into
Parent Common Stock of the Company Capital Stock held by such shareholder, shall
be bound by the following provisions:
(a) If Parent issues the shares of Parent Common Stock in the Merger in
reliance on a Section 3(a)(10) Permit for an exemption from registration, such
shareholder will not offer or sell any shares of Parent Common Stock except in
compliance with Rule 145 promulgated under the Securities Act or otherwise
dispose of any such shares except in compliance with the Securities Act and the
rules and regulations thereunder.
(b) In the event that the shares of Parent Common Stock to be issued
pursuant to this Agreement are issued pursuant to an exemption from registration
pursuant to Section 4(2) of the Securities Act, then such shareholder agrees
that such shareholder will not sell, transfer or otherwise dispose of any shares
of Parent Common Stock unless (i) such sale, transfer or other disposition is
within the limitations of and in compliance with Rule 144 promulgated by the SEC
under the Securities Act and the Shareholder furnishes Parent with reasonable
proof of compliance with such Rule, (ii) in the opinion of counsel, reasonably
satisfactory to Parent and its counsel, some other exemption from registration
under the Securities Act is available with respect to any such proposed
-36-
sale, transfer, or other disposition of Parent Common Stock or (iii) the offer
and sale of Parent Common Stock is registered under the Securities Act.
4.4 The Company Shareholders' Restrictions Regarding Market Standoff
----------------------------------------------------------------
Agreements. Each shareholder and optionee of the Company, by virtue of the
----------
Merger and the conversion into Parent Common Stock of the Company Capital Stock
or Company Option held by such shareholder or optionee, as the case may be,
shall be subject to any agreement (the "Parent Lockup Agreements") in effect at
the Effective Time between the Parent or its underwriters and its shareholders
and optionees with respect to such shareholders and optionees agreement not to
sell, transfer or otherwise dispose of the shares of Parent Common Stock held by
such persons until the later of May 6, 2000 or such date the Parent Lockup
Agreement shall expire by its terms. In particular, each holder of Company
Capital Stock and Company Options shall execute the form of Parent Lockup
Agreement attached hereto as Exhibit E and be bound by the following provisions:
---------
(a) Each holder of Company Capital Stock or rights to acquire Company
Capital Stock agrees that, during the period beginning from the Effective Time
and continuing to and including the later of (i) May 5, 2000 or (ii) such later
date as shall also apply to the Company, its officers and directors pursuant to
agreements with the Parent's underwriters in effect at the Effective Time, each
holder of Company Capital Stock or rights to acquire Company Capital Stock will
not offer, sell, contract to sell, pledge, grant any option to purchase, make
any short sale or otherwise dispose of any shares of Common Stock of the Parent,
or any options or warrants to purchase any shares of Common Stock of the Parent,
or any securities convertible into, exchangeable for or that represent the right
to receive shares of Common Stock of the Parent (other than pursuant to employee
stock purchase plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement), whether now owned or hereinafter acquired, owned directly by each
holder of Company Capital Stock or rights to acquire Company Capital Stock
(including holding as a custodian) or with respect to which each holder of
Company Capital Stock or rights to acquire Company Capital Stock has beneficial
ownership within the rules and regulations of the Securities and Exchange
Commission (collectively the "Shares").
(b) The foregoing restriction is expressly agreed to preclude each
holder of Company Capital Stock or rights to acquire Company Capital Stock from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a sale or disposition of the Shares even if
such Shares would be disposed of by someone other than each holder of Company
Capital Stock or rights to acquire Company Capital Stock. Such prohibited
hedging or other transactions would include without limitation any short sale or
any purchase, sale or grant of any right (including without limitation any put
or call option) with respect to any of the Shares or with respect to any
security that includes, relates to, or derives any significant part of its value
from such Shares.
(c) Notwithstanding the foregoing, each holder of Company Capital Stock
or rights to acquire Company Capital Stock may transfer such Shares of Parent
Common Stock (i) as a bona fide gift or gifts, provided that the donee or donees
thereof agree to be bound by the restrictions set forth herein, (ii) to any
trust for the direct or indirect benefit of each holder of Company Capital Stock
or rights to acquire Company Capital Stock or the immediate family of each
holder of Company Capital Stock or rights to acquire Company Capital Stock,
provided that the trustee of the
-37-
trust agrees to be bound by the restrictions set forth herein, and provided
further that any such transfer shall not involve a disposition for value, or
(iii) with the prior written consent of Xxxxxxx, Xxxxx & Co. on behalf of the
underwriters. For purposes of this Agreement, "immediate family" shall mean any
relationship by blood, marriage or adoption, not more remote than first cousin.
In addition, notwithstanding the foregoing, if each holder of Company Capital
Stock or rights to acquire Company Capital Stock is a corporation, the
corporation may transfer the capital stock of the Parent to any wholly-owned
subsidiary of such corporation; provided, however, that in any such case, it
-------- -------
shall be a condition to the transfer that the transferee execute an agreement
stating that the transferee is receiving and holding such capital stock subject
to the provisions of this Agreement and there shall be no further transfer of
such capital stock except in accordance with this Agreement, and provided
further that any such transfer shall not involve a disposition for value. Each
holder of Company Capital Stock or rights to acquire Company Capital Stock now
has, and, except as contemplated by clause (i), (ii), or (iii) above, for the
duration of the restrictions set forth in this Section 4.4 will have, good and
marketable title to such Parent Common Stock, free and clear of all liens,
encumbrances, and claims whatsoever. Each holder of Company Capital Stock or
rights to acquire Company Capital Stock also agrees and consents to the entry of
stop transfer instructions with the Parent's transfer agent and registrar
against the transfer of such shares of Parent Common Stock except in compliance
with the foregoing restrictions.
(d) Each share of Parent Common Stock issued in connection with the
Merger or upon exercise of a Company Option assumed pursuant to this Agreement
shall bear a legend restricting the transfer of such shares prior to May 6, 2000
or such later date as may be applicable without the prior written consent of
Xxxxxxx, Sachs & Co. and the Company.
(e) Each holder of Company Capital Stock or rights to acquire Company
Capital Stock understands and agrees that the agreements set forth in this
Section 4.4 are irrevocable and shall be binding upon such holder's heirs, legal
representatives, successors, and assigns.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of the Company. During the period from the date of
----------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, the Company agrees
(except to the extent that Parent shall otherwise consent in writing or as
contemplated by this Agreement) to carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted, to
pay its debts and Taxes when due, to pay or perform other obligations when due,
and, to the extent consistent with such business, to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees and others having business dealings with it,
all with the goal of preserving unimpaired its goodwill and ongoing businesses
at the Effective Time. The Company shall promptly notify Parent of any
materially negative event involving or adversely affecting the Company or its
business.
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In addition, except as permitted by the terms of this Agreement,
without the prior written consent of Parent, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company shall not do any
of the following:
(a) Waive any stock repurchase rights, accelerate, amend, or change
the period of exercisability of any outstanding Company Options or Company
Common Stock subject to vesting, or reprice Company Options granted under the
Option Plan or authorize cash payments in exchange for any such options;
(b) Make any payments or enter into any commitment or transaction
outside of the ordinary course of business in excess of $100,000 or in the
ordinary course of business in excess of $200,000;
(c) Make any capital expenditure or capital commitment of $25,000 in
any individual case or $50,000 in the aggregate (other than commitments to pay
expenses incurred in connection with the transactions contemplated by this
Agreement);
(d) Permit the destruction of, damage to or loss of any material
asset, business or customer of the Company (whether or not covered by
insurance);
(e) Change accounting methods, principles or practices (including any
change in depreciation or amortization policies or rates), except as required by
GAAP;
(f) Except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which the Company is a party or
waive, release or assign any material rights or claims thereunder;
(g) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property Rights (other
than pursuant to OEM, Internet service provider and/or end-user licenses granted
to customers of the Company in the ordinary course of business, provided that no
such license shall (i) contain any right of refusal to the license, (ii) involve
the transfer of product(s) to any person or entity in violation of applicable
U.S. export laws and regulations) or enter into grants to future patent rights
or (iii) contain a change in pricing or royalties set or charged by the Company
to its customers or licensees;
(h) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(i) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the Contracts,
including any material change in the pricing or royalties charged to the Company
by persons who have licensed Intellectual Property to the Company;
(j) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Capital Stock, or split, combine or
-39-
reclassify any Company Capital Stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for any Company
Capital Stock;
(k) Purchase, redeem or otherwise acquire, directly or indirectly, any
Company Capital Stock, except repurchases of unvested shares at cost in
connection with the termination of the employment relationship with any employee
or consultant pursuant to stock option or purchase agreements in effect on the
date hereof;
(l) Issue, grant, deliver, sell, pledge or authorize, or otherwise
encumber or propose to do any of the foregoing with respect to any Company
Capital Stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities (except
for the issuance of any Company Capital Stock upon exercise or conversion of
presently outstanding or existing Company Options, warrants, convertible debt or
Preferred Stock, or the grant of stock options to new employees pursuant to
outstanding written offers of employment);
(m) Cause or permit any amendments to its Articles of Incorporation or
Bylaws;
(n) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association, joint venture or other
business organization or division thereof, or otherwise acquire or agree to
acquire outside of the ordinary course of business any assets in any amount, or
in the ordinary course of business in an amount in excess of $25,000 in the case
of a single transaction or in excess of $50,000 in the aggregate;
(o) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice and except for the sale, lease or
disposition (other than through licensing) of a property or assets which are not
material, individually or in the aggregate, to the business of Company;
(p) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Company, enter
into any "keep well" or other agreement to maintain any financial statement
condition or enter into any arrangement having the economic effect of any of the
foregoing other than in connection with the financing of ordinary course trade
payables consistent with past practice or the borrowing of working capital under
lines of credit existing as of the date hereof and in the ordinary course of
business;
(q) Loan to any person or entity any funds or guarantee any
indebtedness or debt securities of others other than advances to employees for
travel and business expenses in the ordinary course of business, consistent with
past practices;
(r) Grant any, or increase the terms of, any existing agreement to
provide severance or termination pay (i) to any director or officer or (ii) to
any other employee except payments made pursuant to written agreements
outstanding on the date hereof and as disclosed in the Company Schedules, adopt
any new severance, termination, indemnification or other agreement the
-40-
benefits of which are contingent upon the occurrence of a transaction involving
the Company of the nature contemplated hereunder;
(s) Adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers, pay or agree to pay any special
bonus or special remuneration to any director, officer, employee or consultant,
or increase the salaries, wage rates or fringe benefits (including rights to
severance or indemnification of its directors, officers, employees or
consultants or the modification of any existing compensation or equity
arrangements with such individuals or the change of vesting terms of any Company
Options), except as consistent with the ordinary course of the business of the
Company consistent with past practice or in accordance with existing contracts;
(t) Effect or agree to effect, including by way of hiring or
involuntary termination, any change in the Company's directors, officers or key
employees;
(u) Materially, 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 except as required
by GAAP or applicable law, make any change in accounting methods, principles or
practices;
(v) 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
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Company Financial
Statements (or the notes thereto) or that arose in the ordinary course of
business subsequent to December 31, 1999 or expenses consistent with the
provisions of this Agreement incurred in connection with any transaction
contemplated hereby;
(w) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(x) Enter into any strategic alliance, joint development or joint
marketing agreement other than such agreements entered into in the ordinary
course of business consistent with past practice;
(y) Commence a lawsuit other than (i) for the routine collection of
bills, (ii) in such cases where it, in good faith, determines that failure to
commence suit would result in the material impairment of a valuable aspect of
its business, provided that it consults with Parent prior to the filing of such
a suit or (iii) to enforce its rights hereunder or under any agreements related
hereto;
(z) Materially reduce the amount of any insurance coverage provided
by or fail to renew any existing insurance policies;
(aa) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement;
-41-
(bb) Engage in any action that could reasonably be expected to cause
the Merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code whether or not otherwise permitted by the provisions of this Article V;
(cc) Waive or release any material right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(dd) Engage in any other transaction except in the ordinary course of
business as conducted on or prior to the date hereof and consistent with past
practices;
(ee) Cause any event or condition of any character that has or
reasonably would be expected to have a Material Adverse Effect on the Company;
or
(ff) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (y) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
5.2 No Conversion. From the date of this Agreement until the Effective
-------------
Time, neither Parent nor any of its affiliates shall elect to convert any
convertible debt of the Company or elect to exercise any warrants to purchase
Company Capital Stock, provided that no violation of Section 6.21 hereof has
occurred.
5.3 Reorganization. From the date of this Agreement until the Effective
--------------
Time, neither Parent nor any of its affiliates shall engage in any action that
could reasonably be expected to cause the Merger to fail to qualify as a
"reorganization" under Section 368(a) of the Code whether or not otherwise
permitted by the provisions of this Article V.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Information Statement and Section 3(a)(10) Permit
-------------------------------------------------
(a) Preparation of Information Statement. As soon as practicable
------------------------------------
after the execution of this Agreement, the Company shall prepare, with the
cooperation of Parent, an information statement and form of proxy for the
shareholders of the Company to approve the principal terms of this Agreement and
the Merger (such information statement, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to the Company's
shareholders, the "Information Statement"). The Information Statement shall also
constitute a disclosure document for the offer and issuance of the shares of
Parent Common Stock to be received by the holders of Company Capital Stock in
the Merger. Parent and the Company shall each use its best efforts to cause the
Information Statement to comply in all material respects with applicable federal
and state securities laws requirements. Each of Parent and the Company 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
-42-
thereto, and to cause its counsel and auditors to cooperate with the other's
counsel and auditors in the preparation of the Information Statement. The
Company will promptly advise Parent and Parent will promptly advise the Company,
in writing if at any time prior to the Effective Time either the Company or
Parent 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
unanimous recommendation of the Board of Directors of the Company that the
Company shareholders approve the principal terms of this Agreement and the
Merger and the conclusion of the Board of Directors that the terms and
conditions of the Merger are fair and reasonable to the shareholders of the
Company. Anything to the contrary contained herein notwithstanding, the Company
shall not include in the Information Statement any information with respect to
Parent or its affiliates or associates, the form and content of which
information shall not have been approved by Parent prior to such inclusion,
which consent shall not be unreasonably withheld.
(b) Section 3(a)(10) Permit. As promptly as practicable after the
-----------------------
execution of this Agreement, Parent and the Company shall prepare the necessary
documentation to seek a permit (a "3(a)(10) Permit") from the Commissioner of
the Department of Corporations of the State of California (after a hearing
before such Department) pursuant to Section 25121 of the California Corporate
Securities Law of 1968, so that the issuance of Parent Common Stock and the
assumption of the Company Options in the Merger shall be exempt from
registration under Section 3(a)(10) of the Securities Act. If the shares of
Parent Common Stock to be issued in connection with the Merger cannot be issued
in a transaction exempt from registration in accordance with to Section 3(a)(10)
of the Securities Act pursuant to Section 25121 of the California Corporate
Securities Law of 1968, then such shares shall be issued in a transaction exempt
from registration under the Securities Act by reason of Section 4(2) thereof. In
the event that the (i) Parent does not obtain a Section 3(a)(10) Permit or (ii)
Parent, Company and the Securityholder Agents agree to withdraw Parent's
application for such 3(a)(10) Permit prior to the Effective Time, then Parent,
Company and the Securityholder Agents agree to take such actions to issue the
shares of Parent Common Stock in a private placement pursuant to Section 4(2) of
the Securities Act and to register such shares for resale pursuant to Form S-1
under the Securities Act (as set forth in the Declaration of Registration Rights
attached hereto as Exhibit F). With regard to the 3(a)(10) hearing, if
---------
necessary, the Company will obtain from its shareholders holding a majority of
the Company Capital Stock their consent to the jurisdiction of the California
Department of Corporations. With regard to any exemptions from the Securities
Act or state securities laws, the Company will use its reasonable best efforts
to identify and obtain the approval of those of its shareholders, who are not
"accredited" within the meaning of Rule 501 promulgated under the Securities
Act, to appoint an accredited investor to act as a "purchasers representative"
as such term is defined in Rule 501 for each such unaccredited stockholder. Such
purchasers representative shall be reasonably acceptable to Parent, and Parent's
consent to the selection of such "purchasers representative" shall not be
unreasonably withheld.
(c) Affiliate Agreements. Each "Affiliate" of the Company, as such
--------------------
term is defined in Rule 144 promulgated under the Securities Act, and each
officer and director of the Company (collectively, the "Company Affiliates")
will enter into an affiliate agreement with the Parent substantially in the form
attached hereto as Exhibit G (the "Affiliate Agreement"). Pursuant to such
---------
Affiliate Agreements, each of the Company Affiliates will agree to dispose of
any shares of
-00-
Xxxxxx Xxxxxx Stock he or she receives in connection with the Closing of the
Merger or pursuant to Company Options assumed in the Merger in compliance with
applicable securities laws, including Rule 145, as promulgated under the
Securities Act.
6.2 Shareholder Approval. As promptly as practicable after the execution
--------------------
of this Agreement and at such time as Parent may request (provided that such
request shall be timed so as not to conflict with the Parent's efforts to obtain
the Section 3(a)(10) Permit), the Company shall use its best efforts, in
accordance with California Law and the Company's Articles of Incorporation and
Bylaws, to obtain the approval of the Company's shareholders of the principal
terms of this Agreement and the Merger. The Company shall use its best efforts
to ensure that the shareholder approval is solicited in compliance with
California Law, the Articles of Incorporation and Bylaws of the Company and all
other applicable legal requirements. The Company agrees to use its best efforts
and to take all action necessary or advisable to secure the necessary votes
required by California Law to effect the Merger. Parent, promptly upon request
by the Company, shall make a representative available to shareholders to answer
any questions Company shareholders may have regarding the Parent's business,
management and financial affairs.
6.3 Access to Information. The Company shall afford Parent and its
---------------------
accountants, legal counsel and other representatives reasonable access during
normal business hours during the period prior to the Effective Time to (a) all
of the properties, books, contracts, commitments and records of the Company and
(b) all other information concerning the business, properties, and personnel of
the Company as Parent may reasonably request. The Company agrees to provide
Parent and its accountants, legal counsel and other representatives copies of
internal financial statements promptly upon request. No information or knowledge
obtained in any investigation pursuant to this Section 6.3 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.
6.4 Confidentiality. The parties acknowledge that the Company and Parent
---------------
have previously executed confidentiality agreements dated January , 2000 and
February 22, 2000 (the "Confidentiality Agreements"), which Confidentiality
Agreements will continue in full force and effect in accordance with their
terms.
6.5 Public Disclosure. Unless otherwise required by law (including,
-----------------
without limitation, securities laws) or, as to Parent, by the rules and
regulations of the Nasdaq National Market), prior to the Effective Time, no
disclosure (whether or not in response to an inquiry) of the subject matter of
this Agreement shall be made by any party hereto (other than disclosures to
Company shareholders pursuant to Section 6.2) unless approved by Parent and the
Company prior to release, provided that such approval shall not be unreasonably
withheld. If any such press release or public announcement is so required, the
party making such disclosure shall consult with the other party prior to making
such disclosure, and the parties shall use all reasonable efforts, acting in
good faith, to agree when a text for such disclosure that is satisfactory to
both parties. The parties have agreed to the text of the joint press release
announcing the signing of this Agreement, attached hereto as Exhibit H, which
---------
press release shall be made available to the public as promptly as reasonably
practicable following the execution of this Agreement.
6.6 Consents. The Company shall promptly apply for or otherwise seek and
--------
use its reasonable best efforts to obtain all consents and approvals required to
be obtained by it for the
-44-
consummation of the Merger, including all consents, waivers or approvals under
any of the Contracts in order to preserve the benefits thereunder for the
Surviving Corporation and otherwise in connection with the Merger. All of such
consents and approvals are set forth in Schedule 2.5.
------------
6.7 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
-----------------
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
6.8 Legal Conditions to the Merger. Each of Parent, Merger Sub and the
------------------------------
Company will take all reasonable actions necessary to comply promptly with all
legal requirements which may be imposed on such party with respect to the Merger
and will promptly cooperate with and furnish information to any other party
hereto in connection with any such requirements imposed upon such other party in
connection with the Merger. Each party will take all reasonable actions to
obtain (and will cooperate with the other parties in obtaining) any consent,
authorization, order or approval of or any registration, declaration or filing
with, or an exemption by, any Governmental Entity, or other third party,
required to be obtained or made by such party or its subsidiaries in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement; provided, however, that Parent shall not be required to agree to any
-----------------
divestiture by Parent or the Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or of any business, assets or property of
Parent or its subsidiaries or affiliates or of the Company or its affiliates or
the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock.
6.9 Best Efforts; Additional Documents and Further Assurances. Each of
---------------------------------------------------------
the parties agrees to use its best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including using best
efforts to accomplish the following: (a) the taking of all acts necessary to
cause the conditions precedent set forth in Article VII to be satisfied, (b) the
obtaining of all necessary actions or nonactions, waivers, consents, approvals,
orders and authorizations from Governmental Entities and the making of all
necessary registrations, declarations and filings (including registrations,
declarations and filings with Governmental Entities, if any) and the taking of
all reasonable steps as may be necessary to avoid any suit, claim, action,
investigation or proceeding by any Governmental Entity (provided, however, that
-----------------
Parent shall not be required to agree to any divestiture by Parent or the
Company or any Parent's subsidiaries or affiliates of shares of capital stock or
of any business, assets or property of Parent or its subsidiaries or affiliates
or of the Company or its affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock), (c) the obtaining of
all necessary consents, approvals or waivers from third parties, (d) the
defending of any suits, claims, actions, investigations or proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
the transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (e) the execution or delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement.
-45-
6.10 Notification of Certain Matters. The Company shall give prompt
-------------------------------
notice to Parent, and Parent shall give prompt notice to the Company, of (a) the
occurrence or non-occurrence of any event which is likely to cause any
representation or warranty of the Company and Parent or Merger Sub,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time except as contemplated by
this Agreement (including the Company Schedules) and (b) any failure of the
Company or Parent, as the case may be, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
-----------------
this Section 6.10 shall not limit or otherwise affect any remedies available to
the party receiving such notice or affect the representations, warranties,
covenants or agreements of the parties or conditions to the obligation of the
parties under this Agreement.
6.11 Reorganization. It is the intent of the Company, Parent, Merger Sub
--------------
and the Surviving Corporation that this Merger qualifies as a tax-free
reorganization under Section 368(a) of the Code, and the Company, Parent, Merger
Sub and the Surviving Corporation covenant and agree not to take any actions
inconsistent with such intent.
6.12 Declaration of Registration Rights. In the event that (i) Parent
----------------------------------
does not obtain an exemption from registration pursuant to Section 3(a)(10) of
the Securities Act prior to the Effective Time or (ii) Parent, Company and the
Securityholder Agents agree to withdraw Parent's application to obtain a Section
3(a)(10) Permit prior to the Effective Time, then Parent and the Company agree
that the that the shareholders of the Company receiving Parent Common Stock in
the Merger pursuant to Sections 1.6(a) and (b) hereto shall be entitled to the
registration rights set forth in the Declaration of Registration Rights attached
hereto as Exhibit F (the "Declaration of Registration Rights") and which is
---------
hereby incorporated by reference.
6.13 Form S-8. Parent shall file a Registration Statement on Form S-8
--------
with the SEC covering the shares of Parent Common Stock issuable with respect to
assumed Company Options within fifteen business days after the Closing Date and
will use its reasonable best efforts to maintain the effectiveness of such
registration statement thereafter for so long as any of such Company Options
remain outstanding.
6.14 Nasdaq National Market. On or prior to the Closing Date, the Parent
----------------------
shall apply for the listing on the Nasdaq National Market of shares of the
Parent Common Stock issuable in connection with the Merger and with respect to
the assumed Company Options, upon official notice of issuance and shall take all
other acts as necessary or appropriate to cause such shares to become and remain
so listed.
6.15 Voting Agreements. Concurrently with the execution of this
Agreement, the Company will use its best efforts to cause the persons and
entities listed on Schedule 6.15 hereto to execute a Voting Agreement in the
-------------
form attached hereto as Exhibit A, agreeing, among other things, to vote in
---------
favor of the Merger and against any competing proposals.
6.16 Non-Competition Agreements. On or before the Closing, the Company
--------------------------
will use its best efforts to cause the employees listed on Schedule 6.16 to
-------------
execute a Non-Competition Agreement in the form attached hereto as Exhibit B.
---------
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6.17 Blue Sky Laws. Parent shall use its reasonable best efforts to
-------------
comply with the securities and blue sky laws of all jurisdictions that are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Company shall use its reasonable best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
that are applicable in connection with the issuance of Parent Common Stock
pursuant hereto.
6.18 Benefit Arrangements. Parent covenants and agrees that to the
--------------------
extent permitted by applicable law and to the extent the existing benefit plans
and arrangements provided by the Company to its employees are terminated on or
after the Effective Time, such employees shall be entitled to benefits which are
available or subsequently become available to Parent's employees, and on a basis
which is on parity with Parent's employees. For purposes of satisfying the terms
and conditions of such plans, Parent shall give full credit for eligibility or
vesting and shall make commercially reasonable efforts to give full credit for
benefit accrual for each participant's period of service at the Company prior to
the Effective Time.
6.19 Bonus Plan. Parent covenants and agrees that it will adopt a bonus
----------
plan in the form attached hereto as Exhibit I (the "Bonus Plan") at the
---------
Effective Time to provide bonus payments in the aggregate of a maximum of $10.0
million to all of the employees of the Company as of the date hereof who remain
employed by the Parent or one of its subsidiaries on or after the six month, one
year, eighteen month and two year anniversaries of the Closing Date. The Bonus
Plan shall be reasonably acceptable to the Company. If any such person is an
employee of the Company immediately prior to the Effective Time and is no longer
an employee of Parent or any of its subsidiaries on the payment date for such
bonus as set forth in the Bonus Plan, the bonus payment allocated to such person
shall be retained by the Parent, unless such person is no longer an employee of
the Parent or one of its subsidiaries as a result of (i) death, (ii) long-term
disability as defined in the Bonus Plan or (iii) actual or constructive
termination of such person's employment with the Parent or one of its
subsidiaries without cause (as such terms are defined in the Bonus Plan and in
each such instance set forth in (i), (ii) or (iii)), Parent shall make such
bonus payment to such employee.
6.20 Termination of Company Investor Rights. The Company shall take such
--------------------------------------
steps as may be necessary to provide for the termination as of the Closing of
all Company investor rights granted by the Company to its shareholders and in
effect prior to the Closing, including but not limited to rights of co-sale,
voting, registration, first refusal, board observation or information or
operational covenants.
6.21 No Solicitation. From and after the date of this Agreement until
---------------
the earlier to occur of the Effective Time or termination of this Agreement
pursuant to its terms, the Company will not, and the Company will instruct its
directors, officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, (a) solicit or encourage submission
of any "Acquisition Proposal" (as defined herein) by any person, entity or group
(other than Parent and its affiliates, agents, and representatives) or (b)
participate in any discussions or negotiations with, or disclose any non-public
information concerning the Company to, or afford access to the properties,
books, or records of the Company, or otherwise assist or facilitate, or enter
into any agreement or understanding with, any person, entity or group (other
than Parent and its affiliates, agents, and representatives) in connection with
any Acquisition Proposal with respect to the Company. For
-47-
purposes of this Agreement, an "Acquisition Proposal" means any proposal or
offer relating to (a) any merger, consolidation, sale or license of substantial
assets or similar transactions involving the Company (other than sales or
licenses of assets or inventory in the ordinary course of business or as
permitted by this Agreement) or (b) sales by the Company of any Company Capital
Stock (including, without limitation, by way of a tender offer or an exchange
offer). The Company will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. The Company will within one business day of receipt (a)
notify Parent if, after the date of this Agreement, it receives any proposal or
inquiry or request for information in connection with an Acquisition Proposal or
potential Acquisition Proposal and (b) notify Parent of the significant terms
and conditions of any such Acquisition Proposal including the identity of the
party making an Acquisition Proposal. In addition, from and after the date of
this Agreement, until the earlier to occur of the Effective Time or termination
of this Agreement pursuant to its terms, the Company will not, and will instruct
its directors, officers, employees, representatives, investment bankers, agents
and affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Acquisition Proposal
made by any person, entity or group (other than Parent).
6.22 Termination of 401(k) Plan. The Company agrees to adopt resolutions
--------------------------
to terminate its 401(k) plan immediately prior to Closing, unless the Parent, in
its sole and absolute discretion, agrees to sponsor and maintain such plans by
providing the Company with written notice of such election at least three (3)
days before the Effective Time. Unless the Parent provides such notice to the
Company, the Parent shall receive from the Company evidence that the Company's
Board of Directors has adopted resolutions to terminate the 401(k) plan (the
form and substance of which resolutions shall be subject to review and approval
of the Parent), effective as of the day immediately preceding the Closing Date
but contingent on the Closing.
6.23 Termination of Company Severance Plans. The Company and its
--------------------------------------
Affiliates, as applicable, each agrees to terminate any and all group severance,
separation or salary continuation plans, programs or arrangements that are
covered under ERISA immediately prior to Closing. The Parent shall receive from
the Company evidence that the Company's and each Affiliate's (as applicable)
plan(s) has been terminated pursuant to resolution of each such entity's Board
of Directors (the form and substance of which resolutions shall be subject to
review and approval of the Parent), effective as of the day immediately
preceding the Closing Date but contingent on the Closing.
6.24 Export Laws. Promptly after the execution of this Agreement but in
-----------
any event prior to the Effective Time, if it has not already done so, the
Company shall apply to the U.S. Commerce Department's Bureau of Export
Administration for export classification determinations for all of the Company's
Products which (a) incorporate any encryption functions, features or
characteristics; or (b) include an interface to any other software products with
encryption functions, features or characteristics in order to confirm that all
such products may be exported from the United States without an export license,
under authority of a license exception, in accordance with the Export
Administration Regulations, 15 C.F.R. Parts 730-774.
6.25 Xxxx-Xxxxx Xxxxxx. Parent, Sub and the Company will, and the
-----------------
Company shall use its reasonable best efforts to cause any of its shareholders
so required (the "Reporting Shareholders")
-48-
to, as promptly as practicable prepare and file the applicable notices and forms
(if any) required to be filed by them under the HSR Act or comparable laws of
non-U.S. governmental entities, and comply promptly with any appropriate
requests from the Federal Trade Commission, the United States Department of
Justice or any other Governmental Antitrust Authority for additional information
and documentary material. The parties hereto will not take any action that will
have the effect of delaying, impairing or impeding the termination of any
waiting period or the receipt of any required approvals of a Government
Antitrust Authority. Without limiting the generality of the parties'
undertakings pursuant to this Section 6.25, the parties shall use their
reasonable best efforts to prevent the entry in a judicial or administrative
proceeding brought under any antitrust law by any Governmental Antitrust
Authority or any other party of any permanent or preliminary injunction or other
order that would make consummation of the Merger in accordance with the terms of
this Agreement unlawful under appropriate anti-trust laws or that would prevent
or delay such consummation as a consequence of such laws; provided, however,
-----------------
that Parent shall not be required to agree to any divestiture by Parent or the
Company or any Parent's subsidiaries or affiliates of shares of capital stock or
of any business, assets or property of Parent or its subsidiaries or affiliates
or of the Company or its affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock. Each party hereto
shall promptly inform the other of any material communication between such party
and the Federal Trade Commission, the Department of Justice or any other
governmental antitrust authority regarding any of the transactions contemplated
hereby. If any party or any affiliate of such party receives a request for
additional information or for documents or any material from any such
governmental antitrust authority with respect to the transactions contemplated
hereby, then such party shall endeavor in good faith to make or cause to be
made, as soon as reasonably practicable and after consultation with the other
parties, an appropriate response in compliance with such request. Further, no
written materials shall be submitted by any party to the Federal Trade
Commission, the Department of Justice or any other governmental antitrust
authority in connection with HSR Act compliance or the merger control
regulations of any other state or country, nor shall any oral communications be
initiated with such governmental entities by any party, without prior disclosure
to and coordination with the other parties and their counsel. Each party hereto
will cooperate in connection with reaching any understandings, undertakings or
agreements (oral or written) involving the Federal Trade Commission, the
Department of Justice or any other governmental antitrust authority in
connection with the transactions contemplated hereby.
6.26 Indemnification.
---------------
(a) Upon the Effective Time, the Surviving Corporation or, to the
extent the Surviving Corporation is unable to do so, Parent shall assume all of
the obligations of the Company under the Company's existing indemnification
agreements with each of the directors and officers of the Company, as such
agreements relate to the indemnification of such persons for expenses and
liabilities arising from facts or events which occurred on or before the
Effective Time or relating to the Merger or transactions contemplated by this
Agreement.
(b) The Bylaws and Articles of Incorporation of the Surviving
Corporation shall contain provisions identical with respect to indemnification
to those set forth in the Bylaws and Articles of Incorporation of Merger Sub as
in effect on the date hereof, which provisions shall not be amended, repealed or
otherwise modified for a period of one year from the Effective Time in any
-49-
manner that would adversely affect the rights thereunder of individuals who at
the Effective Time were directors or officers of the Company. The Parent and
Company agree that the provisions with respect to indemnification in the Bylaws
and Articles of Incorporation of the Surviving Corporation shall be no less
favorable to the directors and officers of the Company than those set forth in
the Bylaws and Articles of Incorporation of the Company on the date hereof.
6.27 Retention Bonus Agreements.
--------------------------
(a) Immediately prior to the Effective Time, the Company shall grant
the Key Employee Options and shall obtain from its shareholders a waiver of any
rights of first refusal and trigger of any antidilution rights associated
therewith. The Key Employee Options shall be for that number of shares of
Company Common Stock to satisfy the obligations of the Company under the
Retention Bonus Agreements less any applicable withholding taxes required to be
paid in connection therewith. The Parent shall fund the withholding obligations
of the recipients of the Key Employee Options at such time as those withholding
obligations are required to be paid; provided, however, that the Parent shall
not be required to fund such withholding obligations until the Closing Date or
later and the number of shares issuable under the Key Employee Options are
reduced by the amount of the applicable withholdings.
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Shareholder Approval. The principal terms of this Agreement, the
--------------------
Merger and the transactions contemplated hereby shall have been approved and
adopted by the shareholders of the Company by the requisite vote under
applicable law and the Company's Articles of Incorporation.
(b) 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.
(c) Tax Opinions. Parent and the Company shall each have received
------------
written opinions from their counsel, Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
Professional Corporation, and Crosby, Heafey, Xxxxx & May Professional
Corporation, respectively, in form and substance reasonably satisfactory to
them, to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code. The parties to this Agreement agree to
make reasonable representations as requested by such counsel for the purpose of
rendering such opinion.
(d) Closing Date Payment Schedule. Parent and the Company shall each
-----------------------------
have reviewed and approved and the Company shall have executed and delivered a
schedule (the "Closing
-50-
Date Payment Schedule") reflecting, as of the Effective Time (i) for each holder
of Company Capital Stock, the number of shares of Company Capital Stock held of
record, the aggregate number of shares of Parent Common Stock payable to such
holder in the Merger, the number of such shares payable promptly after the
Effective Time (in accordance with Section 1.6) and payable into the Escrow Fund
(as defined in Section 8.2(a)), the amount of cash payable to such holder for
any fractional shares, the stock certificate numbers held by each such person
and such person's federal tax identification number to the extent such number is
known and (ii) for each holder of Company Options, the number of shares of
Company Common Stock issuable upon exercise thereof immediately prior to the
Effective Time, the number of shares of Parent Common Stock issuable upon
exercise thereof following their assumption by Parent (in accordance with
Section 1.6(f)), and the per share exercise price thereof upon such assumption,
assuming that such options were fully vested.
(e) Governmental Approvals. Any waiting period applicable to the
----------------------
consummation of the Merger under the HSR Act shall have expired or been
terminated and no action shall have been instituted by the Department of Justice
or Federal Trade Commission challenging or seeking to enjoin the consummation of
the Merger, which action shall not have been withdrawn or terminated, and all
other material governmental filings, authorizations and approvals that are
required for the consummation of the transactions contemplated hereby will have
been duly made and obtained.
7.2 Additional Conditions to Obligations of the Company. The obligations
---------------------------------------------------
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Parent and Sub in this Agreement shall be true and correct in
all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time, except that any
such representation or warranty made as of a specified date (other than the date
hereof) shall only need to have been true on and as of such date, and the
Company shall have received a certificate to such effect signed by a duly
authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
------------------------
performed or complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed or complied with by
them on or prior to the Closing Date, and the Company shall have received a
certificate to such effect signed by a duly authorized officer of Parent.
(c) Legal Opinion. The Company shall have received a legal opinion
-------------
from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, counsel to
Parent and Merger Sub, in the form attached hereto as Exhibit J.
---------
(d) No Material Adverse Change. There shall not have occurred any
--------------------------
material adverse change in the business, assets (including intangible assets),
financial condition or results of operations of Parent. For purposes of this
condition, changes in the trading price of Parent's Common Stock, as reported on
the Nasdaq National Market, changes in economic conditions or
-51-
changes in the industry and markets in which the Parent competes shall not
constitute a material adverse change, whether occurring at any time or from time
to time.
(e) Section 3(a)(10) Permit or Declaration of Registration Rights.
-------------------------------------------------------------
Parent shall have obtained a permit from the Department of Corporations of the
State of California upon which Parent can rely to issue the Parent Common Stock
exempt from registration pursuant to Section 3(a)(10) of the Securities Act. In
the event that Parent has not obtained such a Section 3(a)(10) Permit or the
parties have agreed that Parent's application for a Section 3(a)(10) Permit be
withdrawn, Parent shall have executed and delivered the Declaration of
Registration Rights.
(f) Affiliate Agreement. Each Company Affiliate shall have entered
-------------------
into an Affiliate Agreement in the form attached hereto as Exhibit G.
---------
(g) Bonus Plan. The Bonus Plan shall have been duly approved and
----------
adopted by Parent.
(h) Escrow Agreement. Parent, Merger Sub and the Escrow Agent shall
----------------
have executed and delivered the Escrow Agreement in the form substantially set
forth in Exhibit K hereto and consistent with Article VIII hereof.
---------
(i) Secretary's Certificate. Each of Parent and Merger Sub shall have
-----------------------
delivered to the Company a copy of (i) the text of the resolutions adopted by
the Board of Directors of Parent and Merger Sub authorizing the execution,
delivery and performance of this Agreement and the Merger Agreement and the
consummation of all of the transactions contemplated by this Agreement and the
Merger Agreement and (ii) the certificates of incorporation and bylaws of Parent
and Merger Sub, along with certificates executed on behalf of each of Parent and
Merger Sub by such entity's corporate secretary certifying to the Company that
such copies are true, correct and complete copies of such resolutions,
certificate of incorporation and bylaws, respectively, and the such resolutions,
certificate of incorporation and bylaws were duly adopted and have not been
amended or rescinded.
7.3 Additional Conditions to the Obligations of Parent and Merger Sub.
-----------------------------------------------------------------
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company set forth in this Agreement shall be true and correct
(i) as of the date hereof and (ii) as of the Closing Date, as though made on and
as of the Closing Date (provided that in the cases of clauses (i) and (ii) any
such representation and warranty made as of a specific date shall be true and
correct as of such specific date); and the Parent shall have received a
certificate signed by the chief executive officer and the chief financial
officer of the Company to such effect.
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date, and Parent and Merger Sub shall
-52-
have received a certificate to such effect signed by the President and Chief
Financial Officer of the Company;
(c) Third Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 2.5.
------------
(d) Legal Opinion. Parent shall have received a legal opinion from
-------------
Crosby, Heafey, Xxxxx & May Professional Corporation, legal counsel to the
Company, in the form attached hereto as Exhibit L.
---------
(e) No Material Adverse Change. There shall not have occurred any
--------------------------
material adverse change in the business, assets (including intangible assets)
financial condition or results of operations of the Company. For purposes of
this condition, changes in economic conditions or changes in the industry or
markets in which the Company competes shall not constitute a Material Adverse
changes, whether occurring at anytime or from time to time.
(f) Dissenters' Rights. Holders of not more than 3% of the
------------------
outstanding shares of Company Capital Stock shall have exercised, nor shall they
have any rights or continued right to exercise, dissenters' rights under
California Law with respect to the transactions contemplated by this Agreement.
(g) Termination of Company Investor Rights. Parent shall have been
--------------------------------------
furnished evidence satisfactory to it that all investor rights granted by the
Company to its shareholders and in effect prior to the Closing, including but
not limited to rights of co-sale, voting, registration, first refusal, board
observation or information or operational covenants, shall have terminated as of
the Closing.
(h) Affiliate Agreement. The Company Affiliates shall have entered
-------------------
into the Affiliate Agreement as required by Section 6.25.
(i) Non-Competition Agreements. The Non-Competition Agreements as
--------------------------
required by Section 6.16 hereof shall have been duly executed and delivered to
Parent.
(j) Parent Lockup Agreements. Each Company shareholder holding one
------------------------
percent or more of the Company's outstanding capital stock immediately prior to
the Closing and each employee of the Company immediately prior to the Closing
shall have executed and delivered to Parent a Parent Lockup Agreement in the
form attached hereto as Exhibit E for the benefit of Xxxxxxx, Xxxxx & Co. Inc.
---------
or such other underwriter as the Parent may determine.
(k) Escrow Agreement. The Company and the Escrow Agent shall have
----------------
executed and delivered the Escrow Agreement in the form attached hereto as
Exhibit K and consistent with Article VIII hereof.
---------
(l) Secretary's Certificate. The Company shall have delivered to
-----------------------
Parent a copy of (i) the text of the resolutions adopted by the Board of
Directors of the Company authorizing the execution, delivery and performance of
this Agreement and the Merger Agreement and the
-53-
consummation of all of the transactions contemplated by this Agreement and the
Merger Agreement and (ii) the articles of incorporation and bylaws of the
Company, along with a certificate executed on behalf of the Company by its
corporate secretary certifying to Parent that such copies are true, correct and
complete copies of such resolutions, articles of incorporation and bylaws,
respectively, and the such resolutions, articles of incorporation and bylaws
were duly adopted and have not been amended or rescinded.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
8.1 Survival of Representations and Warranties. All of the Company's
------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Schedules) shall
survive the Merger and continue until 5:00 p.m., California time, on the date
which is one year following the Closing Date (the "Expiration Date"). The
representations and warranties of Parent and Merger Sub in this Agreement or in
any instrument delivered pursuant to this Agreement shall not survive the
Effective Time or be of any further force and effect thereafter.
8.2 Escrow Arrangements and Indemnification.
---------------------------------------
(a) Escrow Fund and Indemnification by the Company. At the Effective
----------------------------------------------
Time the Company's shareholders will be deemed to have received and deposited
with the Escrow Agent (as defined below) the Escrow Amount (plus any additional
shares as may be issued upon any stock split, stock dividend or recapitalization
effected by Parent after the Effective Time) without any act of any shareholder
pursuant to an Escrow Agreement to be negotiated by the Parent, Company and the
Escrow Agent in a form reasonably satisfactory to them, consistent with this
Article VIII and in the form set forth as Exhibit K hereto (the "Escrow
---------
Agreement"). As soon as practicable after the Effective Time, the Escrow Amount,
without any act of any Company shareholder, will be deposited by Parent with The
Bank of New York, a New York banking corporation (or other institution
acceptable to Parent and the Securityholder Agents (as defined in Section 8.2(g)
below)) as Escrow Agent (the "Escrow Agent"), such deposit to constitute an
escrow fund (the "Escrow Fund") to be governed by the terms set forth herein and
in the Escrow Agreement. The portion of the Escrow Amount contributed on behalf
of each shareholder of the Company shall be in proportion to the aggregate
Parent Common Stock, which such holder would otherwise be entitled under
Sections 1.6(a) and (b) and shall be in the respective share amounts and
percentages listed on the Closing Date Payment Schedule opposite each Company
shareholder's name. All shares of Parent Common Stock contributed to the Escrow
Fund shall not be unvested or subject to any right of repurchase, risk of
forfeiture or other condition in favor of the Surviving Corporation. The Escrow
Fund shall be available to compensate Parent and its affiliates (including the
Surviving Corporation) for any claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses, and expenses of investigation and defense (hereinafter individually a
"Loss" and collectively "Losses") incurred by Parent, its officers, directors,
or affiliates (including the Surviving Corporation) directly or indirectly as a
result of (i) any inaccuracy or breach of a representation or warranty of the
Company contained herein (or in any certificate, instrument,
-54-
schedule or document attached to this Agreement and delivered by the Company in
connection with the Merger) without regard to any materiality qualifiers,
including without limitation Material Adverse Effect or (ii) any failure by the
Company to perform or comply with any covenant contained herein (or in any
certificate, instrument, schedule or document attached to this Agreement and
delivered by the Company in connection with the Merger); provided any such
claims must be asserted on or before 5:00 p.m. (California Time) on the
Expiration Date. Except as otherwise provided herein, the Escrow Agent shall not
pay claims for Losses received from the Parent from the Escrow Fund unless and
until the Parent has made claims for Losses pursuant to Section 8.2(d) hereof
that exceed the Allowed Deductible (as defined below). After the claims for
Losses equal to the Allowed Deductible have been made, then the Allowed
Deductible and any additional Losses incurred by the Parent shall be satisfied
by the Escrow Fund in accordance with the procedures set forth in Sections
8.2(d) and 8.2(e) of this Agreement. In addition, Parent shall be entitled to
immediate reimbursement as Losses from the Escrow Fund for any Third Party
expenses (as defined in Section 10.2) incurred by the Company that exceed
$1,500,000, without regard as to whether the Allowed Deductible has been
satisfied. For purposes of this Agreement, the "Allowed Deductible" shall be the
first $500,000 of Losses that (i) are submitted by an officer of the Parent to
the Escrow Agent in accordance with Section 8.2(d) hereof, and (ii) are not
subject to any objections by the Securityholder Agents pursuant to Section
8.2(e) hereof, or (iii) were subject to an objection that has been resolved in
accordance with the provisions of this Article VIII. However, Third Party
expenses shall not be included in the $500,000 of Losses that comprise the
Allowed Deductible.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
--------------------------------------------------------------
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
California time, on the Expiration Date (the "Escrow Period"); provided,
however, that the Escrow Period shall not terminate with respect to such amount
(or some portion thereof), that is necessary in the reasonable judgment of
Parent, subject to the objection of the Securityholder Agents and the subsequent
arbitration of the matter in the manner provided in Section 8.2(f) hereof, to
satisfy any unsatisfied claims concerning facts and circumstances existing prior
to the termination of such Escrow Period specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as all such claims have been resolved, as evidenced by written memorandum
of the Securityholder Agents and Parent, the Escrow Agent shall deliver to the
shareholders of the Company the remaining portion of the Escrow Fund not
required to satisfy such claims. Deliveries of Escrow Amounts to the
shareholders of the Company pursuant to this Section 8.2(b) shall be made in
proportion to their respective original contributions to the Escrow Fund (as set
forth on the Closing Date Payment Schedule). At all times during the Escrow
Period, the Company shareholders shall be deemed to be the record holders of
their respective amounts of the Parent Common Stock comprising the Escrow
Amount.
(c) Protection of Escrow Fund.
-------------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Parent and shall
hold and dispose of the Escrow Fund only in accordance with the terms hereof.
-55-
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split or stock dividend) ("New Shares") in respect of Parent Common Stock in the
Escrow Fund which have not been released from the Escrow Fund shall be added to
the Escrow Fund and become a part thereof. New Shares issued in respect of
shares of Parent Common Stock which have been released from the Escrow Fund
shall not be added to the Escrow Fund but shall be distributed to the
recordholders thereof. Cash dividends on Parent Common Stock shall not be added
to the Escrow Fund but shall be distributed to the recordholders thereof.
(iii) Each Company shareholder shall be deemed the record holder
of, and shall have voting, dividend, distribution and all other rights with
respect to the shares of Parent Common Stock contributed to the Escrow Fund by
such shareholder (and on any voting securities and other equity securities added
to the Escrow Fund in respect of such shares of Parent Common Stock).
(d) Claims Upon Escrow Fund.
-----------------------
(i) Upon receipt by the Escrow Agent at any time on or before
the Expiration Date of a certificate signed by any officer of Parent (an
"Officer's Certificate"): (A) stating that Parent has paid or properly accrued
or reasonably anticipates that it will have to pay or accrue Losses, and (B)
specifying in reasonable detail the individual items of Losses included in the
amount so stated, the date each such item was paid or properly accrued, or the
basis for such anticipated liability, and the nature of the misrepresentation,
breach of warranty or covenant to which such item is related, the Escrow Agent
shall, subject to the provisions of Section 8.2(e) hereof, deliver to Parent out
of the Escrow Fund, as promptly as practicable, shares of Parent Common Stock
held in the Escrow Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 8.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at
the Average Closing Price. Parent and the Securityholder Agents shall certify
such determined value in a certificate signed by both Parent and the
Securityholder Agents, and shall deliver such certificate to the Escrow Agent.
(e) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, Parent shall deliver a duplicate copy of such
certificate to the Securityholder Agents and for a period of thirty (30) days
after such delivery, the Escrow Agent shall not deliver to Parent any Escrow
Amounts pursuant to Section 8.2(d) hereof unless the Escrow Agent shall have
received written authorization from the Securityholder Agents to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of shares of Parent Common Stock from the Escrow Fund in
accordance with Section 8.2(d) hereof, provided that no such payment or delivery
may be made if the Securityholder Agents shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
-56-
(f) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Securityholder Agents shall so object in writing
to any claim or claims made in any Officer's Certificate, the Securityholder
Agents and Parent shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the Securityholder
Agents and Parent should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum
and distribute shares of Parent Common Stock from the Escrow Fund in accordance
with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, and in any event not later than sixty (60) days after receipt of
the written objection of the Securityholder Agents, either Parent or the
Securityholder Agents may demand arbitration of the matter unless the amount of
the damage or loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter shall
be settled by arbitration conducted by three arbitrators. Any such arbitration
shall be held in Santa Xxxxx County, California under the American Arbitration
Association Commercial Arbitration Rules then in effect. Parent and the
Securityholder Agents shall each select one arbitrator, and the two arbitrators
so selected shall select a third arbitrator, each of which arbitrators shall be
independent, meaning that they may not be current or former employees or
consultants or the Parent, Merger Sub, Company or Surviving Corporation. The
arbitrators must disclose any circumstances likely to affect their independence
pursuant to Rule 19 of the American Arbitration Association Commercial
Arbitration Rules. The period of discovery shall be limited to 60 days and
limited to relevant information from the opposing parties about the subject
matter of the dispute. The arbitrators shall rule upon motions to compel or
limit discovery and shall have the authority to impose sanctions, including
attorneys fees and costs, to the extent as a court of competent law or equity,
should the arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three 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 8.2(e) 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. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. For purposes of this Section 8.2(f),
in any arbitration hereunder in which any claim or the amount thereof stated in
the Officer's Certificate is at issue, Parent shall be deemed to be the Non-
Prevailing Party in the event that the arbitrators award Parent the sum of one-
half ( 1/2) or less of the disputed amount plus any amounts not in dispute;
otherwise, the shareholders of the Company as represented by the Securityholder
Agents shall be deemed to be the Non-Prevailing Party. Each party to an
arbitration shall pay its own expenses and one half of (i) the fees of each
arbitrator and (ii) the administrative costs of the arbitration.
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(g) Securityholder Agents of the Shareholders; Power of Attorney.
------------------------------------------------------------
(i) In the event that the Merger is approved, effective upon
such vote, and without further act of any shareholder, Xxxxxx X. Xxxxxxx and
Xxxx X. Land shall be appointed as agents and attorneys-in-fact (each such
natural person a "Securityholder Agent" and collectively, the "Securityholder
Agents") for each shareholder of the Company (except such shareholders, if any,
as shall have perfected their dissenters' rights under California Law and a list
of whom shall be provided to the Escrow Agent with evidence of the exercise of
such dissenters' rights), for and on behalf of shareholders of the Company, to
give and receive notices and communications, to authorize delivery to Parent of
shares of Parent Common Stock from the Escrow Fund in satisfaction of claims by
Parent, 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 Securityholder Agents for
the accomplishment of the foregoing. Such agency may be changed by the
shareholders of the Company from time to time upon not less than thirty (30)
days prior written notice to Parent; provided that the each of the persons
acting as Securityholder Agents may not be removed unless holders of a majority
in interest of the Escrow Fund agree to such removal and to the identity of the
substituted agent. Any vacancy in either of the positions of Securityholder
Agents may be filled by approval of the holders of a majority in interest of the
Escrow Fund. No bond shall be required of the Securityholder Agents, and the
Securityholder Agents shall not receive compensation for their services. The
reasonable legal fees and expenses and other professional fees incurred by the
Securityholder Agents in connection with the performance of such persons' duties
hereunder shall be reimbursed from the Escrow Fund upon written request pursuant
to Section 8.2(d) hereof; provided, however, that such expenses shall be paid
-------- -------
from the Escrow Fund after all allowed claims shall have been paid or sufficient
amounts thereof have been set aside. Notices or communications to or from the
Securityholder Agents shall constitute notice to or from each of the
shareholders of the Company.
(ii) Neither or the Securityholder Agents shall be liable for
any act done or omitted hereunder as Securityholder Agents while acting in good
faith and in the exercise of reasonable judgment. The shareholders of the
Company on whose behalf the Escrow Amount was contributed to the Escrow Fund
shall jointly and severally indemnify each of the Securityholder Agents and hold
each of the Securityholder Agents harmless against any loss, liability or
expense incurred without negligence or bad faith on the part of such
Securityholder Agent and arising out of or in connection with the acceptance or
administration of the Securityholder Agents' duties hereunder, including the
reasonable fees and expenses of any legal counsel retained by the Securityholder
Agents.
(h) Actions of the Securityholder Agents. A decision, act, consent or
------------------------------------
instruction of both of the Securityholder Agents shall constitute a decision of
all the shareholders for whom a portion of the Escrow Amount otherwise issuable
to them are deposited in the Escrow Fund and shall be final, binding and
conclusive upon each of such shareholders, and the Escrow Agent and Parent may
rely upon any such written decision, consent or instruction of the
Securityholder Agents as being the decision, consent or instruction of each
every such shareholder of the Company. The Escrow Agent and Parent are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, consent or instruction of the Securityholder
Agents.
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(i) Third Party Claims.
------------------
(i) If any third party shall notify Parent or its affiliates
hereto with respect to any matter (hereinafter referred to as a "Third Party
Claim"), which may give rise to a claim by Parent against the Escrow Fund, then
Parent shall give notice to the Securityholder Agents within 30 days of Parent
becoming aware of any such Third Party Claim or of facts upon which any such
Third Party Claim will be based (but in all events, at least five business days
prior to the date that an answer to such Third Party Claim is due to be filed)
setting forth such material information with respect to the Third Party Claim as
is reasonably available to Parent; provided, however, that no delay or failure
-------- -------
on the part of Parent in notifying the Securityholder Agents shall relieve the
Securityholder Agents and the Company shareholders from any obligation hereunder
unless the Securityholder Agents and the Company shareholders are thereby
materially prejudiced (and then solely to the extent of such prejudice). The
Securityholder Agents and the Company shareholders shall not be liable for any
attorneys fees and expenses incurred by Parent prior to Parent's giving notice
to the Securityholder Agents of a Third Party Claim. The notice from Parent to
the Securityholder Agents shall set forth such material information with respect
to the Third Party Claim as is then reasonably available to Parent.
(ii) In case any Third Party Claim is asserted against Parent or
its affiliates, and Parent notifies the Securityholder Agents thereof pursuant
to Section 8.2(i)(a) hereinabove, the Securityholder Agents and the Company
shareholders will be entitled, if the Securityholder Agents so elect by written
notice delivered to Parent within 30 days after receiving Parent's notice, to
assume the defense thereof, at the expense of the Company shareholders
independent of the Escrow Fund, with counsel reasonably satisfactory to Parent,
so long as:
(1) Parent has reasonably determined that Losses which may
be incurred as a result of the Third Party Claim do not exceed either
individually, or when aggregated with all other Third Party Claims, the total
dollar value of the Escrow Fund determined in accordance with Section 8.2(d)(ii)
hereof;
(2) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief; and
(3) settlement of, or an adverse judgment with respect to,
the Third Party Claim is not, in the good faith judgment of Parent, likely to
establish a precedential custom or practice materially adverse to the continuing
business interests of Parent.
If the Securityholder Agents and the Company shareholders so assume any
such defense, the Securityholder Agents and the Company shareholders shall
conduct the defense of the Third Party Claim actively and diligently. The
Securityholder Agents and the Company shareholders shall not compromise or
settle such Third Party Claim or consent to entry of any judgment in respect
thereof without the prior written consent of Parent and/or its affiliates, as
applicable.
(iii) In the event that the Securityholder Agents assume the
defense of the Third Party Claim in accordance with Section 8.2(i)(ii) above,
Parent or its affiliates may retain separate counsel and participate in the
defense of the Third Party Claim, but the fees and expenses of such counsel
shall be at the expense of Parent unless Parent or its affiliates shall
reasonably
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determine that there is a material conflict of interest between or among Parent
or its affiliates and the Securityholder Agents and the Company shareholders
with respect to such Third Party Claim, in which case the reasonable fees and
expenses of such counsel will be borne by the Securityholder Agents and the
Company shareholders out of the Escrow Fund. Parent or its affiliates will not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the Securityholder
Agents. Parent will cooperate in the defense of the Third Party Claim and will
provide full access to documents, assets, properties, books and records
reasonably requested by Securityholder Agents and material to the claim and will
make available all officers, directors and employees reasonably requested by
Securityholder Agents for investigation, depositions and trial.
(iv) In the event that the Securityholder Agents fail or elect
not to assume the defense of Parent or its affiliates against such Third Party
Claim, which Securityholder Agents had the right to assume under Section
8.2(i)(ii) above, Parent or its affiliates shall have the right to undertake the
defense and Parent shall not compromise or settle such Third Party Claim or
consent to entry of any judgment in respect thereof without the prior written
consent of Securityholder Agents. In the event that the Securityholder Agents
are not entitled to assume the defense of Parent or its affiliates against such
Third Party Claim pursuant to Section 8.2(i)(ii) above, Parent or its affiliates
shall have the right to undertake the defense, consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim in
any manner it may deem appropriate (and Parent or its affiliates need not
consult with, or obtain any consent from, the Securityholder Agents in
connection therewith); provided, however, that except with the written consent
-------- -------
of the Securityholder Agents, no settlement of any such claim or consent to the
entry of any judgment with respect to such Third Party Claim shall alone be
determinative of the validity of the claim against the Escrow Fund. In each
case, Parent or its affiliates shall conduct the defense of the Third Party
Claim actively and diligently, and the Securityholder Agents will cooperate with
Parent or its affiliates, and will use its best efforts to cause the Company's
shareholders, to cooperate in the defense of that claim and will provide full
access to documents, assets, properties, books and records reasonably requested
by Parent and material to the claim and will make available all individuals
reasonably requested by Parent for investigation, depositions and trial.
(j) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent shall be obligated only for the performance
of such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Parent and the
Securityholder Agent, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow 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.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders,
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judgments or decrees of any court. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any court, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses, except
for gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any written instrument, including any written statement or
affidavit provided for in this Agreement that the Escrow Agent shall in good
faith believe to be genuine, nor will the Escrow Agent be liable or responsible
for forgeries, fraud, impersonations, or determining the scope of any
representative authority. In addition, the Escrow Agent may consult with the
legal counsel in connection with Escrow Agent's duties under this Agreement and
shall be fully protected in any act taken, suffered, or permitted by him/her in
good faith in accordance with the advice of counsel. The Escrow Agent is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon initiating
such action, the Escrow Agent shall be fully released and discharged of and from
all obligations and liability imposed by the terms of this Agreement.
(vii) Parent and the Surviving Corporation agree jointly and
severally to indemnify and hold Escrow Agent harmless against any and all
losses, claims, damages, liabilities, and expenses, including reasonable costs
of investigation, counsel fees, and disbursements that may be imposed on Escrow
Agent or incurred by Escrow Agent in connection with the performance of his/her
duties under this Agreement, including but not limited to any litigation arising
from this
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Agreement or involving its subject matter; provided, however, that in the event
-------- -------
the Securityholder Agents shall be the Non-Prevailing Party in connection with
any claim or action initiated by a Company shareholder or Company shareholders,
then Parent and the Surviving Corporation (1) shall jointly and severally
indemnify and hold the Escrow Agent harmless and (2) shall have a right to
reimbursement from the Escrow Fund, or if the amounts available therein are
insufficient, from such Company shareholder or Company shareholders, in an
amount equal to all amounts paid by the Parent or the Surviving Corporation to
the Escrow Agent for the indemnification of the Escrow Agent to the full extent
provided by this paragraph.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; provided, however, that no
-------- -------
such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use their
best efforts to mutually agree on a successor escrow agent within thirty (30)
days after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the state of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. The Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(k) Fees. All fees of the Escrow Agent for performance of its duties
----
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorneys' fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
(l) Maximum Liability and Remedies. Except for intentional fraud and
------------------------------
willful misconduct, (i) the rights of Parent to make claims upon the Escrow Fund
in accordance with this Article VIII shall be the sole and exclusive remedy of
Parent and the Surviving Corporation after the Closing with respect to any
representation, warranty, covenant or agreement made by Company under this
Agreement and (ii) no former shareholder, option holder, warrant holder,
director, officer, employee or agent of Company shall have any personal
liability to Parent or the Surviving Corporation after the Closing in connection
with the Merger.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this Agreement
-----------
may be terminated and the Merger abandoned at any time prior to the Closing
Date:
(a) by mutual written consent duly authorized by the Board of
Directors of the Company and Parent;
(b) by either Parent or the Company if: (i) the Closing Date has
not occurred by May 31, 2000 (or July 31, 2000 if HSR Approval has not been
obtained or the Parent has not obtained a permit for the issuance of the Parent
Common Stock from the California Department of Corporations prior to May 31,
2000) (provided that the right to terminate this Agreement under this clause
9.1(b)(i) shall not be available to any party whose willful failure to fulfill
any obligation hereunder has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date and such action or failure
constitutes a breach of this Agreement); (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity that would make consummation of the Merger
illegal;
(c) by Parent if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any Governmental Entity, which would: (i) prohibit
Parent's or the Company's ownership or operation of any portion of the business
of the Company or (ii) compel Parent or the Company to dispose of or hold
separate, as a result of the Merger, any portion of the business or assets of
the Company or Parent;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and as a result of such breach the conditions set forth in Section
7.3(a) or 7.3(b), as the case may be, would not then be satisfied; provided,
--------
however, that if such breach is curable by the Company within 10 days through
-------
the exercise of its reasonable best efforts, then for so long as the Company
continues to exercise such reasonable best efforts Parent may not terminate this
Agreement under this Section 9.1(d) unless such breach is not cured within 10
days (but no cure period shall be required for a breach which by its nature
cannot be cured);
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent or Merger Sub and as a result of such breach the conditions
set forth in Section 7.2(a) or 7.2(b), as the case may be, would not then be
satisfied; provided, however, that if such breach is curable by Parent or Merger
-------- -------
Sub within 10 days through the exercise of its reasonable best efforts, then for
so long as Parent or Merger Sub continues to exercise such reasonable best
efforts the Company may not terminate this Agreement under this Section 9.1(e)
unless such breach is not cured within 10 days (but no cure period shall be
required for a breach which by its nature cannot be cured).
-63-
Where action is taken to terminate this Agreement pursuant to Section 9.1,
it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
9.2 Effect of Termination. Except as set forth in Section 10.2, any
---------------------
termination of this Agreement under Section 9.1 above will be effective
immediately upon the delivery of written notice of the terminating party to the
other parties hereto. In the event of the termination of this Agreement as
provided in Section 9.1, this Agreement shall be of no further force or effect,
except (a) as set forth in this Section 9.2 and Article X (general provisions,
including expenses), each of which shall survive the termination of this
Agreement, and (b) nothing herein shall relieve any party from liability for any
breach of this Agreement. No termination of this Agreement shall affect the
obligations of the parties contained in the Confidentiality Agreement, all of
which obligations shall survive termination of this Agreement.
9.3 Amendment. Except as is otherwise required by applicable law, prior
---------
to the Closing, this Agreement may be amended by the parties hereto at any time
by execution of an instrument in writing signed by Parent and the Company;
provided, however, that after the approval of the Merger Agreement by the
-------- -------
shareholders of the Company, no amendment may be made which reduces the Merger
Consideration or which effects any changes which would materially adversely
affect the shareholders of the Company without the further approval of the
shareholders of the Company. Except as is otherwise required by applicable law,
after the Closing, this Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed by Parent, the
Securityholder Agents and by Company shareholders who receive more than 50% of
the Parent Common Stock issued or to be issued pursuant to Section 1.6, or by
all of the Company shareholders in the case of an amendment to Articles VIII.
9.4 Extension; Waiver. At any time prior to the Effective Time, Parent
-----------------
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations of the other party hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) 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.
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ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given on (i) the date thereof if delivered
personally, (ii) the next business day if delivered by commercial delivery
service, (iii) three business days after being mailed by registered or certified
mail (return receipt requested) or (iv) the date thereof if sent via facsimile
(with acknowledgment of complete transmission and a confirming copy sent by
mail) to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Cobalt Networks, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xx. Xxxxxxx X. XxXxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx, Esq.
and Xxxxx Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(b) if to the Company, to:
Chili!Soft, Inc.
00000 XX Xxxxxxxx Xxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xx. Xxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Crosby, Heafey, Xxxxx & May
Four Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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(c) if to the Securityholder Agents:
Xxxxxx X. Xxxxxxx
c/x Xxxxxx Xxxxxx Jurvetson
000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Xxxx X. Land
c/o Encompass Ventures
000 000xx Xxxxxx XX
Xxxxx 0000
Xxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(d) if to the Escrow Agent:
The Bank of New York
000 Xxxxxxx Xxxxxx, Xxxxx 00 Xxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxx, Escrow Unit
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
10.2 Expenses.
--------
(a) In the event the Merger is not consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses.
(b) Subject to the provisions of Section 8.2, in the event the
Merger is consummated, the Surviving Corporation shall be responsible for the
payment of all Third Party Expenses, including Third Party Expenses incurred by
the Company.
10.3 Interpretation. The words "include," "includes" and "including"
--------------
when used herein shall be deemed in each case to be followed by the words
"without limitation." The word "agreement" when used herein shall be deemed in
each case to mean any contract, commitment or other agreement, whether oral or
written, that is legally binding. 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.
-66-
10.4 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 party, it being understood that all
parties need not sign the same counterpart.
10.5 Entire Agreement; Assignment. Except for the Confidentiality
----------------------------
Agreement, this Agreement, the schedules and Exhibits hereto, and the documents
and instruments and other agreements among the parties hereto referenced herein:
(a) constitute the entire 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; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided, except that Parent and
Merger Sub may assign their respective rights and delegate their respective
obligations hereunder to their respective affiliates.
10.6 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.
10.7 Other Remedies. Except as otherwise provided herein (including as
--------------
set forth in Section 8.2(l)), 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.
10.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof;
provided, however, that the Merger Agreement shall be governed by California
-------- -------
Law. Each of the parties hereto agrees that process may be served upon them in
any manner authorized by the laws of the State of Delaware 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.
10.9 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation 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.
10.10 Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
-67-
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
[Remainder of Page Left Blank Intentionally]
-68-
IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Securityholder
Agents (as to Articles VI and VIII only) have caused this Agreement to be signed
by their duly authorized respective officers, all as of the date first written
above.
CHILI!SOFT, INC. COBALT NETWORKS, INC.
a California corporation a Delaware corporation
By: /s/ Xxxxx Xxxxxxx By: /s/ Xxxx X. Xxxxxxx
----------------------- ---------------------------
Xxxxx Xxxxxxx Xxxx X. Xxxxxxx
Chief Executive Officer Chief Operating Officer
SECURITYHOLDER AGENTS: BLUE TORTILLA ACQUISITION CORP.
a California corporation
/s/ Xxxxxx X. Xxxxxxx By: /s/ Xxxx X. Xxxxxxx
---------------------------- ---------------------------
Xxxxxx X. Xxxxxxx Xxxx X. Xxxxxxx
Chief Operating Officer
/s/ Xxxx X. Land
----------------------------
Xxxx X. Land
