Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
December 14, 1999, by and among NETWORK EQUIPMENT TECHNOLOGIES, INC., a Delaware
corporation ("NET"), IPNOW, INC., a California corporation and a wholly-owned
subsidiary of NET ("Sub"), and FLOWWISE NETWORKS, INC., a California corporation
("FlowWise"). Certain other capitalized terms used in this Agreement are defined
in Exhibit A attached hereto.
RECITALS
WHEREAS, FlowWise, NET and Sub believe it is in the best interests of each
company, the stockholders of NET and the shareholders of FlowWise that NET
acquire FlowWise through the statutory merger of Sub with and into FlowWise
pursuant to which FlowWise shall continue as the surviving corporation and as a
wholly-owned subsidiary of NET (the "Merger");
WHEREAS, pursuant to the Merger, among other things, each issued and
outstanding FlowWise Share, other than Dissenting Shares, if any, will be
converted into the right to receive cash in the aggregate amount of Fifteen
Million Four Hundred Thousand Dollars ($15,400,000), subject to adjustment in
accordance with the terms of this Agreement;
WHEREAS, in connection with the execution of this Agreement, and as an
inducement to NET to enter into this Agreement, certain of the principal
shareholders of FlowWise have entered into a Voting Agreement (and related
proxy) with NET dated as of the date hereof, substantially in the form attached
hereto as Exhibit B (each, a "Voting Agreement"), pursuant to which such
principal shareholder has granted, subject to the terms and conditions of such
Voting Agreement, a proxy to NET to vote in favor of the Merger; and
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger;
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
representations, warranties and covenants set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time and subject to and upon the terms
and conditions of this Agreement and the applicable provisions of the California
Corporations Code (the "California Code"), Sub shall be merged with and into
FlowWise, the separate corporate existence of Sub shall cease and FlowWise shall
continue as the surviving corporation and as a wholly-owned subsidiary of NET.
FlowWise, as the surviving corporation after the Merger, is hereinafter
sometimes referred to as the "Surviving Corporation."
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1.2 Closing; Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 10.1 below, the closing of the Merger ("Closing") will take
place as promptly as practicable, but no later than five (5) business days
following satisfaction or waiver of the conditions set forth in Article VIII and
Article IX, at the offices of Crosby, Heafey, Xxxxx & May Professional
Corporation, Four Xxxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxxxx, Xxxxxxxxxx,
unless another place or time is agreed to in writing by NET and FlowWise. 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 an agreement of merger in the form required by the
California Code with the Secretary of State of California (the "Merger
Articles"), a copy of which is attached hereto as Exhibit C, in accordance with
the relevant provisions of applicable law (the later to occur of the time of
acceptance by the Secretary of State of California of such filing being referred
to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the California Code.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the rights and properties of FlowWise and Sub shall vest in
the Surviving Corporation, and all debts and Liabilities of FlowWise and Sub
shall become the debts and Liabilities of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of Incorporation of Sub
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Articles of Incorporation.
(b) At the Effective Time, the Bylaws of Sub shall be the Bylaws of
the Surviving Corporation until thereafter amended.
1.5 Directors and Officers. At the Effective Time, each member of the
Board of Directors of Sub immediately prior to the Effective Time shall become a
member of the Board of Directors of the Surviving Corporation (the "Surviving
Corporation Board"). Immediately following the Effective Time, each officer of
Sub immediately prior to the Effective Time shall become an officer of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Conversion of Capital Stock.
(a) As of the Effective Time, each share of FlowWise Common Stock
that is issued and outstanding immediately prior to the Effective Time of the
Merger (except for Dissenting Shares) shall, by virtue of the Merger and without
any action on the part of NET, Sub, FlowWise, or the shareholders of FlowWise,
be canceled and extinguished and each FlowWise Share then outstanding shall be
converted into the right to receive:
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(i) an amount in cash per share equal to the amount obtained
by dividing Nine Hundred Sixteen Thousand Eight Hundred Eighty Three Dollars and
Twelve Cents ($916,883.12) by the number of shares of FlowWise Common Stock that
are issued and outstanding immediately prior to the Effective Time (together
with the amounts payable pursuant to Sections 2.1(b)(i), the "Initial Merger
Consideration"); and
(ii) a conditional amount of cash per share equal to the
amount obtained by dividing Eighty Three Thousand One Hundred Sixteen Dollars
and Eighty Eight Cents ($83,116.88) by the number of shares of FlowWise Common
Stock that is issued and outstanding immediately prior to the Effective Time
(together with the amounts payable pursuant to Section 2.1(b)(ii), the "Holdback
Amount").
(b) As of the Effective Time, each share of FlowWise Preferred Stock
that is issued and outstanding immediately prior to the Effective Time of the
Merger (except for Dissenting Shares, if any) shall, by virtue of the Merger and
without any action on the part of NET, Sub, FlowWise, or the shareholders of
FlowWise, be canceled and extinguished and each share of FlowWise Preferred
Stock then outstanding shall be converted into the right to receive:
(i) an amount in cash per share equal to the amount obtained
by dividing Thirteen Million Two Hundred Three Thousand One Hundred Sixteen
Dollars and Eighty Eight Cents ($13,203,116.88) by the number of shares of
FlowWise Preferred Stock that are issued and outstanding immediately prior to
the Effective Time; and
(ii) a conditional amount of cash per share equal to the
amount obtained by dividing One Million One Hundred Ninety Six Thousand Eight
Hundred Eighty Three Dollars and Twelve Cents ($1,196,883.12) by the number of
shares of FlowWise Preferred Stock that are issued and outstanding immediately
prior to the Effective Time.
(c) The Initial Merger Consideration and the Holdback Amount (as
adjusted pursuant to this Agreement) shall constitute the "Merger Consideration"
which shall be payable per share in accordance with the provisions of Section
2.2 below. All FlowWise Shares, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate presenting any such shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration represented by such certificate upon the surrender of such
certificate in accordance with Section 2.2, without interest. "Dissenting Share"
means any FlowWise Share in respect of which any FlowWise Shareholder has
exercised dissenters rights under the California Code.
(d) FlowWise Options. At the Effective Time, all options, warrants
and other rights to purchase or otherwise acquire shares of FlowWise Capital
Stock (including, without limitation, all options ("FlowWise Options") issued
under the FlowWise 1996 Stock Option Plan (the "Plan")) or otherwise, that have
not been exercised, shall be cancelled and Plan shall be terminated.
(e) Sub Shares. As of the Effective Time, each share of Common Stock
of Sub that is issued and outstanding immediately prior to the Effective Time
shall, by virtue of the
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Merger and without any action on the part of NET, Sub or FlowWise, be converted
into one share of Common Stock of the Surviving Corporation.
2.2 Exchange of Certificates.
(a) Exchange Agent. NET shall deposit with such bank or trust
company as may be designated by NET, subject to the reasonable approval of the
Shareholders' Representative (the "Exchange Agent"), appointed pursuant to the
terms of the Exchange Agreement substantially in the form attached hereto as
Exhibit D (the "Exchange Agreement"), for the benefit of the holders of shares
of FlowWise Capital Stock, for exchange in accordance with this Article II,
through the Exchange Agent, as of the Effective Time, cash (i) in the amount
sufficient to pay the Initial Merger Consideration, and (ii) the Holdback Amount
(collectively, such cash consideration, the "Exchange Fund"). The Exchange Fund
shall be invested by the Exchange Agent in money market funds with no less than
a AAA rating.
(b) Exchange Procedures. As soon as practicable after the Effective
Time, but in any event no later than ten (10) business days after the Effective
Time, the Exchange Agent shall, in accordance with the terms of the Exchange
Agreement, mail to each holder of record of a Certificate or Certificates
immediately prior to the Effective Time, whose shares were converted into the
right to receive the Merger Consideration pursuant to Section 2.1, (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 NET may reasonably specify), and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration (collectively, the "Letter of Transmittal"). 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 NET,
together with such Letter of Transmittal, duly executed, and such other
documents as may be reasonably required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor a check in
the amount equal to the cash that such holder has the right to receive pursuant
to the provisions of this Article II in respect of the Initial Merger
Consideration payable to such holder (less the amount of any withholding taxes,
if any, required under applicable law), and the Certificate so surrendered shall
forthwith be canceled. At the expiration of the Indemnification Period, the
Holdback Amount as such amount may be adjusted in accordance with Section 2.4
below, plus interest thereon as determined in the manner set forth below, in the
Exchange Fund, shall be distributed by the Exchange Agent in accordance with the
terms of the Exchange Agreement, with accrued interest to be distributed
proportionately as the Holdback Amount is distributed. Any accrued interest on
the Holdback Amount shall be paid at the expiration of the Indemnification
Period (as provided for by the previous sentence. Until surrendered as
contemplated by this Section 2.2(b), each Certificate (other than those
representing Dissenting Shares) shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration which the holder thereof has the right to receive in respect of
such Certificate pursuant to this Article II. Except as set forth with respect
to the Holdback Amount, no interest will be paid or will accrue on any cash
payable to holders of Certificates pursuant to this Article II.
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(c) Termination of Exchange Fund. The Exchange Fund shall terminate
in accordance with the terms of the Exchange Agreement.
(d) No Liability. None of NET, Sub, and the Exchange Agent shall be
liable to any person in respect of any shares of FlowWise Capital Stock (or any
dividends or distributions with respect thereto or with respect to any shares of
FlowWise Capital Stock theretofore represented by any Certificate) or any cash
from the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificate shall not have
been surrendered prior to the date on which any Merger Consideration or other
dividends or distributions payable to the holder of such Certificate pursuant to
this Article II would otherwise escheat to or become the property of any
Governmental Body, any such Merger Consideration or cash or other dividends or
distributions shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interests
of any person previously entitled thereto.
2.3 Dissenting Shares. Any Dissenting Shares shall be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to the California Code; provided, however,
that if the status of any such shares as Dissenting Shares shall not be
perfected, or if any such shares shall lose their status as Dissenting Shares,
then, as of the later of the Effective Date or the time of the failure to
perfect such status, such shares shall automatically be converted into and shall
represent only the right to receive (upon the surrender of the Certificate or
Certificates representing such shares) cash in accordance with Section 2.1.
FlowWise shall give NET prompt notice of any demand received by FlowWise for
purchase of FlowWise Capital Stock, and NET shall have the right to participate
in all negotiations and proceedings with respect to such demand. FlowWise agrees
that, except with the prior written consent of NET or as required under Chapter
13 of the California Code, it will not voluntarily make any payment with respect
to, or settle or offer to settle, any such demand for purchase. Each holder of
Dissenting Shares ("Dissenting Shareholder") who, pursuant to the provisions of
the California Code, becomes entitled to payment of the value of shares of
FlowWise Capital Stock shall receive payment therefor from the Surviving
Corporation (but only after the value therefor shall have been agreed upon or
finally determined pursuant to such provisions).
2.4 Post-Closing Adjustment to Holdback Amount. The Holdback Amount may be
reduced from time to time in accordance with the provisions of Article XI of
this Agreement. Any reduction to the Holdback Amount pursuant to Article XI
shall be made by the Exchange Agent paying NET the amount to which the FlowWise
Shareholders are no longer entitled. The balance of the Holdback Amount shall
paid upon the expiration of the Indemnification Period as provided in Section
2.2
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FLOWWISE
Except as otherwise set forth in the "FlowWise Disclosure Statement"
provided to NET on the date hereof, FlowWise represents and warrants to NET as
set forth below. No fact or
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circumstance disclosed to NET shall constitute an exception to these
representations and warranties unless such fact or circumstance is set forth in
the FlowWise Disclosure Statement.
3.1 Organization. FlowWise is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
the corporate power and authority to carry on its business as it is now being
conducted and as it is proposed to be conducted. FlowWise is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or properties makes such qualification or licensing
necessary. Part 3.1 of the FlowWise Disclosure Statement contains a true and
complete listing of the locations of all sales offices, manufacturing
facilities, and any other offices or facilities of FlowWise and a true and
complete list of all states and countries in which FlowWise maintains any
employees. Part 3.1 of the FlowWise Disclosure Statement contains a true and
complete list of all states in which FlowWise is duly qualified to transact
business as a foreign corporation. True and complete copies of FlowWise's
articles of incorporation and bylaws, as in effect on the date hereof and as to
be in effect immediately prior to the Closing, have been provided to NET or its
representatives. FlowWise owns no equity securities of any other corporation,
limited partnership or similar entity. FlowWise does not have any ownership
interest in any joint venture, partnership or similar arrangement.
3.2 Capitalization. The authorized capital stock of FlowWise, as of the
date of this Agreement, consists of the following: (a) 30,000,000 shares of
Common Stock, (i) 9,883,113 shares of which are issued and outstanding, (ii)
7,263,455 of which had been originally reserved for issuance to employees and
consultants upon the exercise of FlowWise Options, (A) 705,906 of which are
currently outstanding, (B) 3,530,600 of which are subject to outstanding
FlowWise Options and (C) 3,026,949 of which are available for future grant under
the Plan, and (iii) 2,626,893 of which are subject to outstanding warrants to
purchase FlowWise Common Stock; and (b) 10,000,000 shares of Preferred Stock,
(i) of which 1,900,000 shares have been designated Series A Preferred Stock,
1,123,596 of which are issued and outstanding, (ii) of which 2,247,191 shares
have been designated Series B Preferred Stock, all of which are issued and
outstanding, and (iii) of which 4,869,289 shares have been designated Series C
Preferred Stock, (A) 4,500,001 of which are issued and outstanding and (B)
268,585 of which are subject to outstanding warrants to purchase Series C
Preferred Stock. The foregoing FlowWise Capital Stock is held of record by the
shareholders listed on Part 3.2 of the FlowWise Disclosure Statement. All issued
and outstanding shares of FlowWise Capital Stock (a) have been duly authorized
and validly issued, (b) are fully paid and nonassessable, and (c) were issued in
compliance with all applicable state and federal laws concerning the issuance of
securities. All of the FlowWise Options are listed and described in Part 3.2 of
the FlowWise Disclosure Schedule, which identifies the holder of the FlowWise
Option, the exercise price, the number of Shares of FlowWise Capital Stock which
can be obtained upon exercise of the FlowWise Option and the expiration date of
the FlowWise Option. Except for FlowWise Options, there are no outstanding
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal), proxy or shareholder agreements, or agreements of any kind
for the purchase or acquisition from FlowWise of any of its securities. Except
as set forth in Part 3.2 of the FlowWise Disclosure Statement, there are no
voting or other agreements which restrict voting or dividend rights on the
FlowWise Capital Stock. None of the outstanding shares of FlowWise Capital Stock
was issued in consideration in
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whole or in part for any contribution, transfer or assignment of any FlowWise
Products or proprietary assets or any proprietary rights incorporated therein or
otherwise related thereto.
3.3 Power, Authority and Validity.
(a) FlowWise has the corporate power and authority to enter into
this Agreement and the other Transaction Documents to which it is a party and to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Transaction Documents to which it is a party and the
consummation of the transactions contemplated herein and therein have been duly
authorized by the board of directors of FlowWise, and no other corporate
proceedings of FlowWise, other than shareholder approval of the Merger, are
necessary to authorize this Agreement and the other Transaction Documents.
FlowWise is not subject to or obligated under any charter, bylaw or contract
provision or any license, franchise or permit, or subject to any order or
decree, which would be breached or violated in a manner by or in conflict with
its executing and carrying out this Agreement and the transactions contemplated
herein and under the Transaction Documents. Except for (i) the filing of the
Merger Articles and any required officers' certificates with the Secretary of
State of the State of California and appropriate documents with the relevant
authorities of other states in which FlowWise is qualified to do business, and
(ii) such other consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the laws of any jurisdiction
in which FlowWise conducts any business or owns any property or assets, no
consent of any person who is a party to a contract which is material to
FlowWise's business, nor consent of any Governmental Body, is required to be
obtained on the part of FlowWise to permit the transactions contemplated herein
and continue the business activities of FlowWise as previously conducted by
FlowWise. This Agreement constitutes, and the other Transaction Documents to
which FlowWise is a party when executed and delivered by FlowWise shall
constitute, valid and binding obligations of FlowWise enforceable against
FlowWise in accordance with their respective terms, subject to (i) laws of
general application relating to public policy, bankruptcy, insolvency, and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(b) Except as set forth in Part 3.3(b) of the FlowWise Disclosure
Statement, all FlowWise Options outstanding as of the Effective Date have been
issued in accordance with the terms of the Plan and pursuant to the forms of
option agreement previously provided to legal counsel for NET. No FlowWise
Options will by its terms require an adjustment in connection with the Merger.
Neither the transactions contemplated in this Agreement nor any action taken by
FlowWise will result in any additional benefits for any optionee under FlowWise
Options.
(c) The execution and delivery of this Agreement, the Transaction
Documents and the consummation of the respective transactions contemplated
herein and therein will not conflict with, or result in a material breach or
violation of, any provision of FlowWise's articles of incorporation, and bylaws
as currently in effect, any material instrument or contract to which FlowWise is
a party or by which FlowWise is bound, or any federal, state or local judgment,
writ, decree, order, statute, rule or regulation applicable to FlowWise. The
execution and delivery of this Agreement, the Transaction Documents and the
consummation of the transactions
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contemplated herein or therein will not have a Material Adverse Effect on the
operations, assets, or financial condition of FlowWise.
3.4 Financial Statements. FlowWise has delivered to NET the following
financial statements (collectively the "FlowWise Financial Statements"): (a)
audited balance sheets and statements of income, changes in shareholders'
equity, and cash flow as of and for the fiscal years ended December 31, 1996,
1997 and 1998 (the "Most Recent Fiscal Year End") for FlowWise; and (b)
unaudited balance sheets and statements of income, changes in shareholders'
equity, and cash flow (the "Most Recent Financial Statements") as of and for the
ten (10) months ended October 31, 1999 (the "Most Recent Fiscal Month End") for
FlowWise. The FlowWise Financial Statements (including the notes thereto) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby, present fairly the financial condition of FlowWise
as of such dates and the results of operations of FlowWise for such periods, are
correct and complete, and are consistent with the books and records of FlowWise
(which books and records are correct and complete); provided, however, that the
Most Recent Financial Statements are subject to normal year-end adjustments
(which will not be material individually or in the aggregate) and lack footnotes
and other presentation items. FlowWise has no Liabilities (and there is no Basis
known to FlowWise for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against FlowWise giving rise
to any Liability) except as set forth on the FlowWise Financial Statements.
3.5 Tax Matters.
(a) FlowWise has fully and timely, properly and accurately filed all
tax returns and reports required to be filed by it, including all federal,
foreign, state and local tax returns and estimates for all years and periods
(and portions thereof) for which any such returns, reports or estimates were due
and will fully and timely, properly and accurately file all tax returns and
reports required to be filed by it, including all federal, foreign, state and
local tax returns and estimates which are due in the period from the date hereof
through and including the Effective Time. All such returns, reports and
estimates were prepared in the manner required by applicable law in all material
respects. All income, sales, use, occupation, property or other taxes or
assessments due from FlowWise prior to the Closing Date have been paid or will
be paid on or before the Closing Date. There are no pending assessments,
asserted deficiencies or claims for additional taxes that have not been paid.
The reserves for taxes, if any, reflected on the FlowWise Financial Statements
are adequate with respect to the periods covered therein, and there are no tax
liens on any property or assets of FlowWise (other than liens for taxes not yet
due and payable). There have been no audits or examinations of any tax returns
or reports by any applicable Governmental Body. No state of facts exists or has
existed which would constitute grounds for the assessment of any penalty or any
further tax Liability in a material amount, either individually or in the
aggregate, beyond that shown on the respective tax reports, returns or estimates
or accrued for or reserved on the FlowWise Financial Statements with respect to
the periods covered by such reports, returns, estimates or statements or with
respect to the period from the date hereof through and including the Effective
Date. There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any federal, foreign state or local tax
return or report for any period.
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(b) All taxes that FlowWise has been required to collect or withhold
have been duly withheld or collected and, to the extent required, have been paid
to the proper taxing authority.
(c) FlowWise is not a party to any tax-sharing agreement or similar
arrangement with any other party.
(d) At no time has FlowWise been included in the federal
consolidated income tax return of any affiliated group of corporations.
(e) No payment which FlowWise is obliged to pay to any director,
officer, employee or independent contractor pursuant to the terms of an
employment agreement, severance agreement or otherwise will constitute an excess
parachute payment as defined in Section 280G of the Code.
(f) FlowWise will not be required to include any adjustment in
taxable income for any tax period (or portion thereof) ending after the Closing
Date pursuant to Section 481(c) of the Code or any provision of the tax laws of
any jurisdiction requiring tax adjustments as a result of a change in method of
accounting implemented by FlowWise prior to the Closing Date for any tax period
(or portion thereof) ending on or before the Closing Date or pursuant to the
provisions of any agreement entered into by FlowWise prior to the Closing Date
with any taxing authority with regard to the tax Liability of FlowWise for any
tax period (or portion thereof) ending on or before the Closing Date.
(g) FlowWise is not currently under any contractual obligation to
pay to any Governmental Body any tax obligations of, or with respect to any
transaction relating to, any other person or to indemnify any other person with
respect to any tax, other than pursuant to this Agreement.
(h) FlowWise has not, with regard to any property or assets held,
acquired or to be acquired by it, at any time, filed a consent to the
application of Section 341(f)(2) of the Code nor will any such consent be filed
before the Closing.
3.6 Absence of Certain Changes or Events. Except as set forth in Part 3.6
of the FlowWise Disclosure Statement, since December 31, 1998, FlowWise has not:
(a) suffered any Material Adverse Change in its financial condition
or in the operations of its business, nor any Material Adverse Change in its
balance sheet, and including but not limited to cash distributions or material
decreases in the net assets of FlowWise;
(b) suffered any damage, destruction or loss, whether covered by
insurance in an amount in excess of Ten Thousand Dollars ($10,000);
(c) granted or agreed to make any increase in the compensation
payable or to become payable by FlowWise to its officers or employees, except
those occurring in the ordinary course of business and consistent with
FlowWise's past practices;
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(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of FlowWise Capital Stock or
declared any direct or indirect redemption, retirement, purchase or other
acquisition by FlowWise of such shares other than repurchases of FlowWise
Capital Stock at original issue prices from former employees or consultants
pursuant to written agreements providing for their repurchase in the event of
termination of employment or consultancy;
(e) issued any shares of FlowWise Capital Stock or any warrants,
rights or options or entered into any commitment relating to the shares of
FlowWise except for the issuance of shares of FlowWise Capital Stock pursuant to
the exercise of outstanding FlowWise Options or upon conversion of outstanding
shares of FlowWise Preferred Stock;
(f) made any change in the accounting methods or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates adopted therein other than
changes required by changes in GAAP;
(g) sold, leased, abandoned or otherwise disposed of any real
property or any machinery, equipment or other operating property other than in
the ordinary course of business;
(h) sold, assigned, transferred, licensed or otherwise disposed of
any patent, trademark, trade name, brand name, copyright (or pending application
for any patent, trademark or copyright), invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other intangible
asset except in the ordinary course of its business;
(i) suffered any dispute involving any employee that may reasonably
result in a Liability to FlowWise;
(j) has not entered into any agreement, contract, lease, or license
(or series of related agreements, contracts, leases, and licenses) either
involving more than Fifteen Thousand Dollars ($15,000) or outside the ordinary
course of business;
(k) no party (including FlowWise) has accelerated, terminated,
modified, or cancelled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more than Fifteen
Thousand Dollars ($15,000) to which FlowWise is a party or by which it is bound;
(l) engaged in any activity or entered into any material commitment
or transaction (including without limitation any borrowing or capital
expenditure), in either case, other than in the ordinary course of business;
(m) incurred any Liabilities (whether or not required to be
reflected in financial statements in accordance with GAAP, and whether due or to
become due), except for (i) liabilities identified as such in the FlowWise
Financial Statements, and (ii) accounts payable or accrued salaries that have
been incurred by FlowWise in the ordinary course of business and consistent with
FlowWise's past practices;
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(n) permitted or allowed any of its material property or assets to
be subjected to any mortgage, deed of trust, pledge, lien, security interest or
other encumbrance of any kind, except those permitted under Section 3.7 hereof,
other than any purchase money security interests incurred in the ordinary course
of business;
(o) made any capital expenditure or commitment for additions to
property, plant or equipment individually in excess of Fifteen Thousand Dollars
($15,000), or in the aggregate, in excess of Twenty-Five Thousand Dollars
($25,000);
(p) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or arrangement
with any of its Affiliates, officers, directors or shareholders or any Affiliate
or associate of any of the foregoing;
(q) made any amendment to or terminated any agreement which, if not
so amended or terminated, would be required to be disclosed on the FlowWise
Disclosure Statement; or
(r) agreed to take any action described in this Section 3.6 or
outside of its ordinary course of business or which would constitute a breach of
any of the representations contained in this Agreement.
3.7 Title and Related Matters. FlowWise has good and marketable title to,
or a valid leasehold interest in, all the properties, interests in properties
and assets, real and personal, reflected in the FlowWise Financial Statements or
acquired after the date of the FlowWise Financial Statements (except properties,
interests in properties and assets sold or otherwise disposed of since the date
of the FlowWise Financial Statements in the ordinary course of business), free
and clear of all mortgages, liens, pledges, charges or encumbrances of any kind
or character, except the lien of current taxes not yet due and payable. The
equipment of FlowWise used in the operation of its business is in good operating
condition and repair, normal wear and tear excepted. All real or personal
property leases to which FlowWise is a party are valid, binding, enforceable and
effective in accordance with their respective terms, subject to (a) laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors, and (b) rules of law governing specific performance, injunctive relief
and other equitable remedies. There is not under any of such leases any existing
default by FlowWise (or to the knowledge of FlowWise, by any other party
thereto) or event of default or event which, with notice or lapse of time or
both, would constitute a material default under such lease. The FlowWise
Disclosure Statement contains a description of all real property and personal
property with a value in excess of Fifteen Thousand Dollars ($15,000) leased or
owned by FlowWise, describing its interest in said property and with respect to
owned real property, a description of each parcel and a summary description of
the buildings, structures and improvements thereon. True and correct copies of
the leases of FlowWise have been provided to NET or its representatives.
3.8 Intellectual Property.
(a) Part 3.8(a) of the FlowWise Disclosure Statement lists all of
FlowWise's United States and foreign: (i) patents, patent applications
(including provisional applications); (ii)
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registered trademarks, applications to register trademarks, intent to use
applications or other registrations related to trademarks; (iii) registered
copyrights and applications for copyright registration; (iv) mask work
registrations and applications to register mask works; and (v) any other
Intellectual Property of FlowWise that is the subject of an application,
certificate or registration filed with, issued by, or recorded by, any state,
government or other public legal authority (collectively, the "Registered
Intellectual Property") and Part 3.8(a) of the FlowWise Disclosure Statement
identifies the principal FlowWise Intellectual Property comprised in such
Registered Intellectual Property.
(b) Each patent, registered trademark, registered copyright and mask
work registration which is an item of Registered Intellectual Property
(collectively, "Issued Registered Intellectual Property") is valid and
subsisting, and all necessary registration, maintenance and renewal fees in
connection with such Issued Registered Intellectual Property have been made and
all necessary documents and certificates in connection with such Issued
Registered Intellectual Property 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 Issued
Registered Intellectual Property.
(c) The contracts, licenses and agreements listed on Part 3.8(c) of
the FlowWise Disclosure Statement include all contracts, licenses and agreements
currently in effect relating to any Intellectual Property, to which FlowWise is
a party, other than: (i) "shrink wrap" software; (ii) rights to use Intellectual
Property granted by FlowWise in the ordinary course of FlowWise's business in
connection with sales of products or services; (iii) third party software
generally available to the public at a cost of less than Ten Thousand Dollars
($10,000); and (iv) contracts, licenses or agreements which FlowWise has no
continuing obligations or for which Liability is contractually limited to less
than Fifteen Thousand Dollars ($15,000) (collectively, such exceptions,
"Excluded Licenses").
(d) Except as disclosed in Part 3.8(d) of the FlowWise Disclosure
Statement , the contracts, licenses and agreements listed on Part 3.8(c) of the
FlowWise Disclosure Statement are in full force and effect. The consummation of
the transactions contemplated by this Agreement and the Transaction Documents
will not violate nor result in the breach, modification, cancellation,
termination, or suspension of the contracts, licenses and agreements listed on
Part 3.8(c) of the FlowWise Disclosure Statement. Except as disclosed in Part
3.8(d) of the FlowWise Disclosure Statement, FlowWise is in compliance in all
material respects with and has not breached any material term of, the contracts,
licenses and agreements listed on Part 3.8(c) of the FlowWise Disclosure
Statement and, to the knowledge of FlowWise, all other parties to the contracts,
licenses and agreements listed on Part 3.8(c) of the FlowWise Disclosure
Statement are in compliance with, and have not breached any term of the
contracts, licenses and agreements. Except as disclosed in Part 3.8(d) of the
FlowWise Disclosure Statement, following the Closing Date, the Surviving
Corporation will be permitted to exercise all of its rights under the contracts,
licenses and agreements listed in Part 3.8(c) of the FlowWise Disclosure
Statement without the payment of any additional amounts or consideration other
than ongoing fees, royalties or payments which FlowWise would otherwise be
required to pay.
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(e) Except as set forth in Part 3.8(e) of the FlowWise Disclosure
Statement and other than Excluded Licenses or other agreements which are not
currently in effect: (i) no Person other than FlowWise has any rights to use any
FlowWise Intellectual Property other than immaterial rights granted from time to
time in the ordinary course of business which do not individually or in
aggregate materially affect the value of the FlowWise Intellectual Property in
question; and (ii) FlowWise has not granted to any Person, nor authorized any
Person to retain, any rights or interests of any nature in or with respect to
FlowWise Intellectual Property.
(f) Except as set forth in Part 3.8(f) of the FlowWise Disclosure
Statement: (i) FlowWise owns and has good and exclusive title to each item of
FlowWise Intellectual Property listed on Part 3.8(a) of the FlowWise Disclosure
Statement, free and clear of any encumbrance; and (ii) FlowWise owns, or has the
right, pursuant to a valid contract to use or operate under, all other FlowWise
Intellectual Property.
(g) Except as set forth on Part 3.8(g) of the FlowWise Disclosure
Statement, the operation of the business of FlowWise, including the design,
development, manufacture and sale of FlowWise Products (including with respect
to products currently under development) and provision of services, does not, to
FlowWise's knowledge, infringe or misappropriate the Intellectual Property of
any other Person, violate the rights of any Person (including rights to privacy
or publicity), or constitute unfair competition. Notwithstanding the foregoing,
the parties expressly acknowledge and agree that the foregoing does not limit
the indemnification rights of NET pursuant to Article XI of this Agreement.
(h) In the last five years, except as set forth on Part 3.8(h) of
the FlowWise Disclosure Statement, FlowWise has not received notice from any
Person that the operation of the business of FlowWise, including its design,
development, manufacture and sale of FlowWise Products (including with respect
to products currently under development) and provision of its services,
infringes or misappropriates the Intellectual Property of any Person, violates
the rights of any Person (including rights to privacy or publicity), or
constitutes unfair competition.
(i) Except as disclosed in Part 3.8(i) of the FlowWise Disclosure
Statement, FlowWise owns or has valid license to all Intellectual Property
necessary to the conduct of the business of FlowWise as it currently is
conducted, including its design, development, manufacture and sale of FlowWise
Products (including, to FlowWise's knowledge, with respect to products currently
under development and provision of services).
(j) Part 3.8(j) of the FlowWise Disclosure Statement lists all
contracts, licenses and agreements between FlowWise and any other Person wherein
or whereby FlowWise has agreed to, or assumed, any obligation or duty to
indemnify, hold harmless or otherwise assume or incur any obligation or
Liability with respect to the infringement by FlowWise or such other Person of
the Intellectual Property rights of any other Person; provided that the
foregoing only applies to agreements for which FlowWise's obligations are
continuing as of the date of this Agreement.
(k) Except as listed on Part 3.8(k) of the FlowWise Disclosure
Statement, there are no contracts, licenses and agreements between FlowWise and
any other Person with
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respect to FlowWise Intellectual Property with respect to which FlowWise has
received notice of any dispute which could be reasonably considered to be a
material dispute regarding the scope of such agreement, or performance under
such agreement including with respect to any payments to be made or received by
FlowWise thereunder.
(l) Except as listed on Part 3.8(l) of the FlowWise Disclosure
Statement, to the knowledge of FlowWise, no Person is infringing or
misappropriating any FlowWise Intellectual Property.
(m) Except as listed on Part 3.8(m) of the FlowWise Disclosure
Statement, there are no claims asserted against FlowWise, or to FlowWise's
knowledge, against any customer of FlowWise, related to any FlowWise Product or
service of FlowWise.
(n) No FlowWise Intellectual Property or product or service of
FlowWise, is subject to any outstanding decree, order, judgment, or stipulation
restricting in any manner the use or licensing thereof by FlowWise.
(o) Except as disclosed in Part 3.8(o) of the FlowWise Disclosure
Statement, FlowWise has, and enforces, a policy requiring each employee and
contractor to execute proprietary information and confidentiality agreements
substantially identical to the form of the Proprietary Information and
Assignment of Inventions Agreement previously delivered to NET, and all current
and former employees and contractors of FlowWise have executed such an
agreement.
(p) No (i) product, service or publication of FlowWise, (ii)
material published or distributed by FlowWise or (iii) conduct of FlowWise,
constitutes obscene material, defamatory material, or violates any rights,
including rights of publicity or privacy, of any Person.
(q) Part 3.8(q) of the FlowWise Disclosure Statement lists all the
Software Authors who were not employees of FlowWise. Each Software Author made
his or her contribution to the Software within the scope of employment with
FlowWise as an employee or independent contractor, as a "work made for hire,"
and was directed by FlowWise to work on the Software.
(r) Except for technology supplied by third party vendors disclosed
in Part 3.8(r) of the FlowWise Disclosure Statement, the Software and every
portion thereof are an original creation of the Software Authors and do not
contain any source code or portions of source code (including any "canned
program") created by any parties other than the Software Authors. FlowWise has
not, by any of its acts or omissions, or by acts or omissions of its directors,
officers, employees, agents, or representatives caused any of its proprietary
rights in the Software, including copyrights, trademarks, and trade secrets to
be diminished, or adversely affected to any material extent.
(s) Except as set forth in Part 3.8(s) of the FlowWise Disclosure
Statement:
(i) To FlowWise's knowledge, there are no defects in the
Software, and there are no errors in any accompanying design documentation,
which defects or errors would
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in any material respect affect NET's or its licensee's use of the Software or
the functioning of the Software in accordance with the specifications for the
Software published by FlowWise; the Software has all the material features
described in the user manuals made available to FlowWise's customers;
(ii) the Software does not contain any "back door," "time
bomb," "Trojan horse," "worm," "drop dead device," "virus" (as these terms are
commonly used in the computer software industry), or other software routines or
hardware components designed to permit unauthorized access, to disable or erase
software, hardware, or data, or to perform any other similar type of functions;
(iii) the Software (A) shall not fail to perform any function
specified in the product specifications therefor or otherwise be adversely
affected in any material respect as a result of the date change from December
31, 1999 to January 1, 2000; and (B) to ensure Year 2000 compatibility includes,
without limitation, date data century recognition, calculations which
accommodate same century and multi-century formulas and date values, and date
data interface values which reflect the correct century;
(iv) no government funding or university or college facilities
were used in the development of the Software, and the Software was not developed
pursuant to a contract with any Person or entity, and no situation, matter, or
agreement exists that would preclude NET from making any change to the Software
or combining it with other software in any lawful manner; and
(v) all copies of the Software contain appropriate copyright
legends; no third party has any interest in, or right to compensation from
FlowWise by reason of, the use, exploitation, or sale of the Software; there are
no restrictions on the ability of FlowWise (or any successor or assignee of
FlowWise) to use or otherwise exploit the Software, and such use or exploitation
does not and will not obligate FlowWise (or any successor or assign of FlowWise)
to pay any royalty, fee, or other compensation to any Person or entity; and
FlowWise has not received any notice and does not have any knowledge of any
complaint, assertion, threat, or allegation inconsistent with the preceding
statements in this paragraph.
(b) FlowWise has made available to NET complete and accurate records
of FlowWise with respect to Software fixes (including fixes currently in
progress), problem lists and maintenance of the Software, and customer
complaints. All warranty claims (including any pending claims) of any material
nature related to the Software are described in Part 3.8(t) of the FlowWise
Disclosure Statement. Except as set forth in Part 3.8(t) of the FlowWise
Disclosure Statement, FlowWise has made no written representations and
warranties with respect to the Software as to which FlowWise has surviving
obligations or Liabilities.
3.9 Employee Benefit Plans.
(a) Part 3.9(a) of the FlowWise Disclosure Statement lists each
Employee Benefit Plan that FlowWise maintains or to which FlowWise contributes
or has any obligation to contribute.
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(i) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation (to FlowWise's
knowledge with respect to the obligations or acts of any third party service
provider) in all respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(ii) All required reports and descriptions (including Form
5500 Annual Reports, summary annual reports, PBGC-1's, and summary plan
descriptions) have been timely filed and distributed appropriately with respect
to each such Employee Benefit Plan. The requirements of COBRA have been met with
respect to each such Employee Benefit Plan which is an Employee Welfare Benefit
Plan (to FlowWise's knowledge with respect to the obligations or acts of any
third party service provider).
(iii) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan and
all contributions for any period ending on or before the Closing Date which are
not yet due have been paid to each such Employee Pension Benefit Plan or accrued
in accordance with the past custom and practice of FlowWise. All premiums or
other payments for all periods ending on or before the Closing Date have been
paid with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan" under Code
ss.401(a), has either received a favorable determination, opinion, notification
or advisory letter from the Internal Revenue Service and FlowWise is not aware
of any facts or circumstances that could result in the revocation of such
determination letter, or with respect to such Plan there is remaining a period
of time under applicable Treasury Regulations or Internal Revenue Service
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 the
Plan.
(v) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested and
nonvested Liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
(vi) FlowWise has delivered to NET correct and complete copies
of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most recent
Form 5500 Annual Report, and all related trust agreements, insurance contracts,
and other funding agreements which implement each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that FlowWise, and
any ERISA Affiliate maintains or ever has maintained or to which any of them
contributes, ever has contributed, or ever has been required to contribute:
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(i) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a reportable event as to which
notices would be required to be filed with the PBGC. No proceeding by the PBGC
to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(ii) There have been no prohibited transactions within the
meaning of Section 4975 of the Code or Sections 406 or 407 of ERISA, and not
otherwise exempt under Section 4975 of the Code or Section 408 of ERISA with
respect to any such Employee Benefit Plan. No Employee Benefit Plan fiduciary
has any Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims for benefits) is
pending or threatened. None of FlowWise and the directors and officers (and
employees with responsibility for employee benefits matters) of FlowWise has any
knowledge of any Basis for any such action, suit, proceeding, hearing, or
investigation.
(iii) FlowWise has not incurred, and none of FlowWise and the
directors and officers (and employees with responsibility for employee benefits
matters) of FlowWise has any reason to expect that FlowWise will incur, any
Liability to the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal liability as defined in ERISA
ss.4201) or under the Code with respect to any such Employee Benefit Plan which
is an Employee Pension Benefit Plan.
(iv) FlowWise does not contribute to, has never contributed
to, or has never been required to contribute to any Multiemployer Plan. FlowWise
has no Liability (including withdrawal liability as defined in ERISA ss.4201)
under any Multiemployer Plan.
(v) FlowWise does not maintain and never has maintained and
does not contribute, and has never contributed, and has never been required to
contribute to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents (other than in
accordance with COBRA or applicable state law).
3.10 Guaranties. FlowWise is not a guarantor or otherwise liable for any
Liability or obligation (including indebtedness) of any other Person.
3.11 Bank Accounts and Receivables. Part 3.11 of the FlowWise Disclosure
Statement sets forth the names and locations of all banks, trusts, companies,
savings and loan associations, and other financial institutions at which
FlowWise maintains accounts of any nature and the names of all persons
authorized to draw thereon or make withdrawals therefrom. Part 3.11 of the
FlowWise Disclosure Statement sets forth an accurate and complete breakdown and
aging of all accounts receivable, notes receivable, and other receivables of
FlowWise as of October 31, 1999. Except as set forth on Part 3.11 of the
FlowWise Disclosure Statement all existing accounts receivable of FlowWise
(including those accounts receivable reflected on the FlowWise unaudited
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financial statements that have not yet been collected and those accounts
receivable that have arisen since October 31, 1999, and have not yet been
collected) represent valid obligations of customers of FlowWise arising from
bona fide transactions entered into in the ordinary course of business.
3.12 Contracts.
(a) Part 3.12(a) of the FlowWise Disclosure Statement identifies
each material agreement (including, without limitation, each employment
agreement and each material license agreement, development agreement,
manufacturing agreement and distribution agreement) to which FlowWise is a party
("Material Contract"). Except as set forth in Part 3.12(a) of the FlowWise
Disclosure Statement,
(i) FlowWise has no agreements, contracts or commitments that
call for prospective fixed and/or contingent payments or expenditures by or to
FlowWise of more than Fifteen Thousand Dollars ($15,000);
(ii) FlowWise has no purchase agreement, contract or
commitment that calls for fixed and/or contingent payments by FlowWise that are
in excess of the normal, ordinary and usual requirements of the business of
FlowWise;
(iii) There is no outstanding sales contract, commitment or
proposal (including, without limitation, development projects) of FlowWise that
FlowWise currently expects to result either individually or in the aggregate in
any material loss to FlowWise on a consolidated basis upon completion or
performance thereof;
(iv) FlowWise has no outstanding agreements, contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by it on
notice of not longer than ninety (90) days and without Liability, penalty or
premium exceeding Ten Thousand Dollars ($10,000) in any single instance or
Twenty Thousand Dollars ($20,000) in the aggregate;
(v) FlowWise has no currently effective collective bargaining
or union agreements, contracts or commitments;
(vi) FlowWise is not restricted by agreement from competing
with any person or from carrying on its business anywhere in the world;
(vii) FlowWise is under no Liability or obligation, and no
such outstanding claim has been made, with respect to the return to FlowWise of
inventory or merchandise in the possession of wholesalers, distributors,
retailers, or other customers, except such Liabilities, obligations and claims
as, in the aggregate, do not exceed the reserves therefor set forth in the
FlowWise Financial Statements;
(viii) FlowWise has no outstanding loan or advance to any
Person; nor is it party to any line of credit, standby financing, revolving
credit or other similar financing
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arrangement of any sort which would permit the borrowing by FlowWise of any sum
not reflected in the FlowWise Financial Statements; and
(ix) All material contracts, agreements and instruments to
which FlowWise is a party are valid, binding, in full force and effect, and
enforceable by FlowWise in accordance with their respective terms, subject to
(i) laws of general application relating to public policy, bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies. No such contract,
agreement or instrument contains any liquidated damages, penalty or similar
provision. To FlowWise's knowledge, no party to any such contract, agreement or
instrument intends to cancel, withdraw, modify or amend such contract, agreement
or instrument.
(b) Part 3.12(b) of the FlowWise Disclosure Statement describes all
agreements pursuant to which FlowWise has agreed to manufacture for or supply to
any third party any FlowWise Products or components thereto requiring, or
expected to require, payments of Ten Thousand Dollars ($10,000) or more over the
life of any such agreement. Part 3.12(b) of the FlowWise Disclosure Statement
also lists each vendor which is the sole source for any product or component
included in any FlowWise Products which FlowWise believes is not readily
available from other sources.
(c) FlowWise has delivered to NET accurate and complete copies of
all Material Contracts, including all amendments thereto. FlowWise has not
entered into any material oral contracts.
(d) Except as set forth in Part 3.12(d) of the FlowWise Disclosure
Statement:
(i) FlowWise has not violated or breached, or committed any
default under, any Material Contract, and, to FlowWise's knowledge, no other
Person has violated or breached, or committed any default under, any Material
Contract except as in any such case where such default would not have a Material
Adverse Effect; and
(ii) to FlowWise's knowledge, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or could reasonably be expected to, (A) result in a violation or breach of
any of the provisions of any Material Contract, (B) give any Person the right to
declare default or exercise any remedy under any Material Contract, (C) give any
Person the right to accelerate the maturity or performance of any Material
Contract or (D) give any Person the right to cancel, terminate or modify any
Material Contract.
(e) Except as set forth in Part 3.12(e) of the FlowWise Disclosure
Statement, none of the Material Contracts contains any provision which would
require the consent of third parties to the Merger or which would be altered in
any material respect as a result of the Merger.
3.13 Orders, Commitments and Returns. All accepted and unfilled orders
entered into by FlowWise for the sale, license, or lease or other disposition by
FlowWise of FlowWise Products, and all agreements, contracts, or commitments for
the purchase of supplies by
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FlowWise, were made in the ordinary course of business. No outstanding material
purchase or outstanding lease commitment of FlowWise is in excess of the normal,
ordinary and usual requirements of its business or was made at a price (on both
a per unit and aggregate basis) in excess of the current market price at the
time made, or contains terms and conditions materially more onerous to FlowWise
than those usual and customary in the industry.
3.14 Compliance with Law. FlowWise is in compliance with all applicable
laws and regulations in all material respects. Neither FlowWise, nor to
FlowWise's knowledge, any of its employees has directly or indirectly paid or
delivered any fee, commission or other sum of money or item of property, however
characterized, to any finder, agent, government official or other party in the
United States or any other country, that was or is in violation of any federal,
state, or local statute or law or of any statute or law of any other country
having jurisdiction. FlowWise has not participated directly or indirectly in any
boycotts or other similar practices affecting any of its customers. FlowWise has
complied in all material respects at all times with any and all applicable
federal, state and foreign laws, rules, regulations, proclamations and orders
relating to the importation or exportation of its products. All licenses,
franchises, permits and other governmental authorizations held by FlowWise which
are material to its business are valid and sufficient in all respects for the
business presently carried on by FlowWise.
3.15 Labor Difficulties; No Discrimination.
(a) FlowWise is not engaged in any unfair labor practice and is not
in violation of any applicable laws relating to employment and employment
practices, terms and conditions of employment, and wages and hours.
(b) There is no unfair labor practice complaint against FlowWise
actually pending or, to FlowWise's knowledge, threatened before the National
Labor Relations Board or any comparable foreign governmental or
quasi-governmental authority.
(c) There is no strike, labor dispute, slowdown, or stoppage
actually pending or, to FlowWise's knowledge, threatened against FlowWise.
(d) No union representation question exists with respect to the
employees of FlowWise and, to FlowWise's knowledge, no union organizing
activities are taking place.
(e) No grievance or arbitration proceeding arising out of or under
any collective bargaining agreement is pending and, to FlowWise's knowledge, no
claims therefor exist.
(f) No collective bargaining agreement that is binding on FlowWise
restricts it from relocating or closing any of its operations.
(g) FlowWise has not experienced any work stoppage or other labor
difficulty.
(h) There is not presently, and there has not been within the
previous three (3) years, any claim against FlowWise based on actual or alleged
wrongful termination or on actual or
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alleged race, age, sex, disability or other harassment or discrimination, or
similar tortuous conduct, nor to FlowWise's knowledge, is there any reasonable
Basis for any such claim.
(i) FlowWise is not aware of any key FlowWise employee who intends
to terminate his or her employment with FlowWise.
3.16 Trade Regulation. FlowWise has not terminated its relationship with
or refused to ship FlowWise products to any dealer, distributor, OEM, third
party marketing entity or customer which had theretofore paid or been obligated
to pay FlowWise in excess of Fifteen Thousand Dollars ($15,000) over any
consecutive twelve (12) month period. The prices charged by FlowWise in
connection with the marketing or sale of any FlowWise Products or services have
been in compliance in all material respects with all applicable laws and
regulations. No claims against FlowWise have been communicated or threatened in
writing to FlowWise with respect to wrongful termination of any dealer,
distributor or any other marketing entity, discriminatory pricing, price fixing,
unfair competition, false advertising, or any other violation of any laws or
regulations relating to anti-competitive practices or unfair trade practices of
any kind and, to FlowWise's knowledge, no specific situation, set of facts, or
occurrence provides a reasonable Basis for any such claim.
3.17 Insider Transactions. No Affiliate of FlowWise has any interest in
(a) any equipment or other material property, real or personal, tangible or
intangible, including, without limitation, any proprietary asset, used in
connection with or pertaining to the business of FlowWise, or (b) any creditor,
supplier, customer, manufacturer, agent or representative of FlowWise, or
distributor of FlowWise products; provided, however, that no such Affiliate or
other person shall be deemed to have such an interest solely by virtue of (A)
the ownership of less than one percent (1%) of the outstanding stock or debt
securities of any publicly-held company whose stock or debt securities are
traded on a recognized stock exchange or quoted on Nasdaq, or (B) such person's
status as a general or limited partner of a venture capital or similar fund,
which fund is also a holder of the securities of such creditor, supplier,
customer, manufacturer, agent, representative or distributor.
3.18 Employees, Independent Contractors and Consultants. The FlowWise
Disclosure Statement lists all currently effective written or oral consulting,
independent contractor and/or employment agreements and other material
agreements with individual employees, independent contractors or consultants to
which FlowWise is a party. If oral, Part 3.18 of the FlowWise Disclosure
Statement also contains a brief summary of such agreements. True and correct
copies of all such written agreements have been provided to NET or its
representatives. All salaries and wages paid by FlowWise are in material
compliance, both individually and in the aggregate, with applicable foreign,
federal, state and local laws. Part 3.18 of the FlowWise Disclosure Statement
lists (a)(1) the names of all persons currently employed by FlowWise, and (2)
the salaries and other compensation arrangements (bonus, deferred compensation,
etc.) for each such person; and (b) all personnel laid off or terminated by
FlowWise since September 1, 1999.
3.19 Insurance. Part 3.19 of the FlowWise Disclosure Statement contains a
list of the principal policies of fire, liability and other forms of insurance
held by FlowWise. Each such policy is in full force and effect. FlowWise is not
in default with respect to its obligations under
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any insurance policy maintained by it, and FlowWise has not been denied
insurance coverage. The insurance coverage of FlowWise is customary for
corporations of similar size engaged in similar lines of business. Except as set
forth on Part 3.19 of the FlowWise Disclosure Statement, FlowWise does not have
any self-insurance or co-insurance programs, and the reserves set forth on the
balance sheet included in the Most Recent Financial Statements are adequate to
cover all reasonably anticipated Liabilities with respect to any such
self-insurance or co-insurance programs.
3.20 Litigation. There are no actions, suits, proceedings, orders,
investigations or claims pending or, to FlowWise's knowledge, threatened against
FlowWise (or pending or, to FlowWise's knowledge, threatened against or
affecting any of the officers, directors or employees of FlowWise with respect
to FlowWise businesses or proposed business activities), or pending or
threatened by FlowWise against any third party, at law or in equity, or before
or by any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suit, proceedings
or investigations with respect to the transactions contemplated by this
Agreement); nor has there been any such actions, suits, proceedings, orders,
investigations or claims pending against or affecting FlowWise during the past
three years; FlowWise is not subject to any arbitration proceedings under
collective bargaining agreements or otherwise or any governmental investigations
or inquiries; and to FlowWise's knowledge, there is no Basis for any of the
foregoing. FlowWise is not subject to any judgment, order or decree of any court
or other Governmental Body, and FlowWise has not received any opinion or
memorandum or legal advice from legal counsel to the effect that it is exposed,
from a legal standpoint, to any Liability or disadvantage which may have a
Material Adverse Effect on the financial condition or operations of FlowWise.
3.21 Product Warranty. Each FlowWise Product manufactured, sold, leased,
or delivered by FlowWise has been in conformity with all applicable contractual
commitments and all express and implied warranties, and FlowWise does not have
any Liability (and there is no Basis known to FlowWise for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against FlowWise giving rise to any Liability) for replacement or repair
thereof or other damages in connection therewith, subject only to the reserve
for product warranty claims set forth on the balance sheet included in the Most
Recent Financial Statements (rather than in any notes thereto) as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of FlowWise. No FlowWise Product manufactured, sold, leased, or
delivered by FlowWise is subject to any guaranty, warranty, or other indemnity
beyond the applicable standard terms and conditions of sale or lease. Part 3.21
of the FlowWise Disclosure Statement includes copies of the standard terms and
conditions of sale or lease for FlowWise (containing applicable guaranty,
warranty, and indemnity provisions).
3.22 Product Liability. FlowWise does not have any Liability (and there is
no Basis known to FlowWise for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against FlowWise
giving rise to any Liability) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product
manufactured, sold, leased, or delivered by FlowWise.
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3.23 Compliance with Environmental Requirements.
(a) Except as set forth in Part 3.23 of the FlowWise Disclosure
Statement:
(i) FlowWise has complied with and is currently in compliance
with all material Environmental and Safety Requirements, and FlowWise has not
received any oral or written notice, report or information regarding any
Liabilities or threatened Liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) or any corrective, investigatory or remedial
obligations arising under Environmental and Safety Requirements which relate to
FlowWise or any of its properties or facilities.
(ii) Without limiting the generality of the foregoing,
FlowWise has obtained and complied with, and is currently in compliance with,
all material permits, licenses and other authorizations or notice or warning
requirements, including but not limited to the requirements under Proposition 65
that apply to its California operations that may be required pursuant to any
Environmental and Safety Requirements for the occupancy of its properties or
facilities or the operation of its businesses,
(b) Neither this Agreement nor the consummation of the transactions
contemplated by this Agreement shall impose any obligations on FlowWise or
otherwise for site investigation or cleanup, or notification to or consent of
any government agencies or third parties under any Environmental and Safety
Requirements (including, without limitation, any so called
"transaction-triggered" or "responsible property transfer" laws and
regulations).
(c) None of the following exists at any property or facility owned,
occupied or operated by FlowWise:
(i) underground storage tanks or surface impoundments;
(ii) asbestos-containing materials in any form or condition;
or
(iii) materials or equipment containing polychlorinated
biphenyls.
(d) FlowWise has not treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled or Released any substance
(including, without limitation, any hazardous chemical or substance) or owned,
occupied or operated any facility or property, so as to give rise to Liabilities
of FlowWise for response costs, natural resource damages or attorneys fees
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), or any other Environmental and Safety
Requirements.
(e) Without limiting the generality of the foregoing, no facts,
events or conditions relating to the past or present properties, facilities,
leased space or operations of FlowWise shall prevent, hinder or limit continued
compliance with Environmental and Safety Requirements, give rise to any
corrective, investigatory or remedial obligations pursuant to Environmental and
Safety Requirements or give rise to any other Liabilities pursuant to
Environmental and Safety Requirements (including, without limitation, those
Liabilities, including but not limited to third party Liabilities, relating to
onsite or offsite releases or threatened releases
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of hazardous materials, substances or wastes, personal injury, property damage
or natural resources damage).
(f) FlowWise has not, either expressly or by operation of law,
assumed or undertaken any Liability or corrective, investigatory or remedial
obligation of any other Person relating to any Environmental and Safety
Requirements.
(g) No Environmental Lien has attached to any property owned, leased
or operated by FlowWise.
3.24 Corporate Documents. FlowWise has furnished to NET for its
examination the following: (a) copies of its articles of incorporation and
bylaws; (b) its minute book containing all records required to be set forth of
all proceedings, consents, actions, and meetings of the shareholders, the board
of directors and any committees thereof; (c) all material permits, orders, and
consents issued by any regulatory agency with respect to FlowWise, or any
securities of FlowWise, and all applications for such permits, orders, and
consents; and (d) the stock transfer books of FlowWise setting forth all
transfers of any capital stock. The corporate minute books, stock certificate
books, stock registers and other corporate records of FlowWise are complete and
accurate in all respects, and the signatures appearing on all documents
contained therein are the true signatures of the persons purporting to have
signed the same. All actions reflected in such books and records were duly and
validly taken in compliance in all material respects with the laws of the
applicable jurisdiction.
3.25 No Brokers. Except as set forth on Part 3.25 of the FlowWise
Disclosure Statement, neither FlowWise nor any FlowWise shareholder is obligated
for the payment of fees or expenses of any broker or finder in connection with
the origin, negotiation or execution of this Agreement or in connection with any
transaction contemplated hereby.
3.26 Disclosure. This Agreement, the FlowWise Financial Statements, and
the FlowWise Disclosure Statement provided in connection with this Agreement,
taken as a whole, do not contain any untrue statement of material fact, fairly
represent the business, properties, assets, and condition, financial or
otherwise, of FlowWise in all material respects, and do not fail to state a
material fact necessary in order to make the statements contained therein and
herein, when taken as a whole, not misleading. There is no fact which has not
been disclosed to NET of which FlowWise is aware and which, when reviewed in
light of this Agreement, the FlowWise Financial Statements, and the FlowWise
Disclosure Statement provided in connection with this Agreement, taken as a
whole, materially adversely affects or could reasonably be anticipated to
materially adversely affect the business, financial condition, operating
results, earnings, assets, customers, supplier, employee or sales representative
relations or business prospects of FlowWise.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NET AND SUB
NET and Sub jointly and severally represent and warrant to FlowWise that:
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4.1 Organization and Good Standing. NET and Sub are corporations duly
organized, validly existing and in good standing under the laws of their
respective states of incorporation, and have full power and authority to carry
on their businesses as now conducted.
4.2 Capital Structure. As of the date hereof the authorized capital stock
of NET consists of Fifty Million (50,000,000) shares of NET Common Stock, $0.01
par value per share and Five Million (5,000,000) shares of NET Preferred Stock,
$0.01 par value per share. At the close of business on December 8, 1999, Twenty
One Million Four Hundred Fifty Four Thousand Nine Hundred Seventy Five
(21,454,975) shares of NET Common Stock were outstanding. As of the date hereof,
the authorized capital stock of Sub consists of One Thousand (1,000) shares of
Common Stock, no par value, all of which are validly issued, fully paid and
nonassessable and owned by NET.
4.3 Power, Authorization and Validity. Each of NET and Sub has the
corporate power and authority to enter into and perform their respective
obligations under this Agreement and the Transaction Documents to which they are
a party. The execution and delivery of this Agreement and the Transaction
Documents have been duly and validly approved and authorized by the respective
boards of directors of NET and Sub and by NET as the sole shareholder of Sub. No
authorization or approval, governmental or otherwise, is necessary in order to
enable NET and Sub to enter into and to perform the terms of this Agreement or
the Transaction Documents on their parts to be performed, except for (a) the
filing of the Merger Articles and all required officers' certificates with the
Secretary of State of the State of California, (b) filings under applicable
securities laws, and (c) such other consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the laws of any
foreign country in which NET or any of NET's subsidiaries conducts any business
or owns any property or assets. This Agreement is, and the other Transaction
Documents when executed and delivered by NET and/or Sub shall be, the valid and
binding obligations of NET and Sub enforceable against NET and Sub, as the case
may be, in accordance with their respective terms, subject to (a) laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors, and (b) rules of law governing specific performance, injunctive relief
and other equitable remedies.
4.4 No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
herein will conflict with, or result in a material breach or violation of, any
provision of NET's and or Sub's certificate or articles of incorporation,
respectively, and bylaws as currently in effect, any instrument or contract to
which NET or Sub is a party or by which any such party is bound, or any federal,
state or local judgment, writ, decree, order, statute, rule or regulation
applicable to any such party. The execution and delivery of this Agreement and
the Transaction Documents and the consummation of the transactions contemplated
herein or therein will not have a Material Adverse Effect on the operations,
assets, or financial condition of NET on a consolidated basis.
4.5 Litigation. There is no suit, action, proceeding, claim or
investigation pending or, to NET's knowledge, threatened against NET and Sub
before any court or administrative agency or which questions or challenges the
validity of this Agreement and which is not set forth in the SEC Documents which
could have a Material Adverse Effect on the operations, assets or financial
condition of NET (on a consolidated basis) or Sub.
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4.6 Sufficient Resources NET currently has, and will have, at all times
that it has financial obligations under any Transaction Document, sufficient
cash or cash equivalent funds available to consummate the transactions
contemplated hereby, including, without limitation, payment of the amount due
under the Transaction Bonus Agreements.
ARTICLE V
PRECLOSING COVENANTS OF FLOWWISE
5.1 Material Consents. FlowWise shall, to the extent requested by NET, use
its Best Efforts to obtain any and all consents (the "Material Consents")
required under the terms of any Material Contract in connection with this
Agreement and the transactions contemplated hereby.
5.2 Advice of Changes. FlowWise shall promptly advise NET in writing (a)
of any event occurring subsequent to the date of this Agreement which would
render any representation or warranty of FlowWise contained in this Agreement,
if made on or as of the date of such event, untrue or inaccurate in any material
respect, (b) of any Material Adverse Change in FlowWise's business or financial
condition, taken as a whole, and (c) the departure, termination of employment,
or announced departure or termination of employment of any employee (other than
employees not referenced in Section 12.1 of this Agreement).
5.3 Conduct of Business. Until the Closing, FlowWise will continue to
conduct its business and maintain its business relationships in the ordinary and
usual course and will not, except as set forth in the FlowWise Disclosure
Statement or with the prior written consent of NET:
(a) borrow any additional money;
(b) incur any Liability other than in the ordinary and usual course
of business or in connection with the performance or consummation of this
Agreement;
(c) incur or commit to incur any capital expenditures other than
capital expenditures and commitments which were made prior to the date of this
Agreement;
(d) lease, license, sell, transfer, encumber or permit to be
encumbered any asset, intellectual property right or other property associated
with the business of FlowWise (including sales or transfers to Affiliates of
FlowWise), except for licenses granted and products sold in the usual and
ordinary course of business and except for cash applied in payment of
Liabilities of FlowWise in the usual and ordinary course of its business;
(e) dispose of any of its assets, except inventory in the regular
and ordinary course of business;
(f) enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business;
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(g) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained up to the date
of this Agreement, subject only to ordinary wear and tear;
(h) pay any bonus or special remuneration (excluding sales
commissions and bonuses paid pursuant to existing arrangements in the ordinary
course of business) to any officer or employee, including any amounts for
accrued but unpaid bonuses, or increase the salary of any officer or employee;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital, or redeem or otherwise acquire any of its
capital stock;
(j) amend or terminate any Material Contract, agreement or license
to which it is a party except in the ordinary course of business;
(k) enter into any material contract except in the ordinary course
of business and consistent with past practice;
(l) loan any amount to any person or entity, or guaranty or act as a
surety for any obligation;
(m) waive or release any right or claim, except in the ordinary
course of business;
(n) issue or sell any shares of its capital stock of any class or
any other of its securities, or issue or create any warrants, obligations,
subscriptions, options, convertible securities, or other commitments to issue
shares of capital stock, except in connection with the exercise of rights
existing prior to the date hereof;
(o) split or combine the outstanding shares of its capital stock of
any class or enter into any recapitalization affecting the number of outstanding
shares of its capital stock of any class or affecting any other of its
securities;
(p) merge, consolidate or reorganize with any Person;
(q) amend its articles of incorporation or bylaws;
(r) make or change any election, change any annual accounting
period, adopt or change any accounting method, file any amended tax return,
enter into any closing agreement, settle any tax claim or assessment relating to
FlowWise, surrender any right to claim refund of taxes, consent to any extension
or waiver of the limitation period applicable to any tax claim or assessment
relating to FlowWise, or take any other action or omit to take any action, if
any such election, adoption, change, amendment, agreement, settlement,
surrender, consent or other action or omission would have the effect of
increasing the tax Liability of FlowWise or NET;
(s) Adopt, amend, modify, or terminate any plan, program, policy or
arrangement subject to Section 3.9, other than as required under Section 12.3 of
this Agreement.
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(t) do anything that is not contemplated in this Agreement or would
cause there to be a Material Adverse Change in the FlowWise Financial Statements
(including but not limited to cash distributions or material decreases in the
net assets of FlowWise), except as would occur in the ordinary course of
FlowWise's business, between the date of the FlowWise Financial Statements and
the Closing Date; or
(u) agree to do any of the things described in the preceding clauses
Section 5.3(a) through (t).
5.4 Risk of Loss. Except as otherwise provided in this Agreement or to the
extent caused by NET or Sub, until the Closing, all risk of loss, damage or
destruction to FlowWise's assets shall be borne by FlowWise.
5.5 Access To Information. Until the Closing, FlowWise shall allow NET and
its legal, accounting and other representatives and agents free access upon
reasonable notice and during normal working hours to its files, books, records,
and offices, including, without limitation, any and all information relating to
taxes, commitments, contracts, leases, licenses, and personal property and
financial condition. Until the Closing, FlowWise shall cause its accountants to
cooperate with NET and its representatives and agents in making available all
financial information requested, including without limitation the right to
examine all working papers pertaining to all financial statements prepared or
audited by such accountants.
5.6 Satisfaction of Conditions Precedent. FlowWise will use its Best
Efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Article IX, and FlowWise will use its Best Efforts to cause the
transactions contemplated in this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties which may be necessary or reasonably required on its
part in order to effect the transactions contemplated herein.
5.7 Other Negotiations. Between the date hereof and the date this
Agreement is terminated pursuant to Article X hereof (the "Expiration Date"),
FlowWise will not (and it will use its Best Efforts to assure that its officers,
directors, employees, agents, investment bankers, professional advisors and
affiliates do not on its behalf) take any action to solicit, initiate, seek,
encourage or support any inquiry, proposal or offer from, furnish any
information to, or participate in any negotiations with, any corporation,
partnership, person or other entity or group (other than discussions with NET)
regarding any acquisition of FlowWise, any merger or consolidation with or
involving FlowWise, or any acquisition of any material portion of the stock or
assets of FlowWise. FlowWise agrees that any such negotiations in progress as of
the date hereof will be terminated or suspended during such period. In no event
will FlowWise accept or enter into an agreement concerning any such third party
transaction. FlowWise represents and warrants that it has the legal right to
terminate or suspend any such pending negotiations and agrees to indemnify NET,
its representatives and agents from and against any claims by any party to such
negotiations based upon or arising out of the discussion or any consummation of
the Acquisition as contemplated in this Agreement (or following the Closing Date
in the event of any such liability, the Shareholders of FlowWise shall indemnify
NET and its affiliates pursuant to
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Article XI). FlowWise shall immediately notify NET if it is approached by any
Person who is interested, or expresses an interest, in acquiring FlowWise, its
stock or assets, or making an investment in FlowWise.
ARTICLE VI
PRECLOSING AND OTHER COVENANTS OF NET AND SUB
6.1 Material Consents. NET shall provide reasonable assistance and
cooperation to FlowWise in obtaining the Material Consents.
6.2 Advice of Changes. NET and Sub will promptly advise FlowWise in
writing of (a) any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of NET or Sub contained in
this Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect, and (b) any Material Adverse
Change in NET's or Sub's business or financial condition, taken as a whole.
6.3 Satisfaction of Conditions Precedent. NET and Sub will use their
respective Best Efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Article VIII, and NET and Sub will use their
respective Best Efforts to cause the transactions contemplated herein to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties which may be necessary or reasonably
required on their part in order to effect the transactions contemplated hereby.
ARTICLE VII
MUTUAL COVENANTS
7.1 Confidentiality. Each party acknowledges that in the course of the
performance of this Agreement, it may obtain the Confidential Information of the
other party. The party receiving such Confidential Information (the "Receiving
Party") from the party disclosing such confidential information (the "Disclosing
Party") shall, at all times, both during the term of this Agreement and
thereafter, keep in confidence and trust all of the Disclosing Party's
Confidential Information received by it. The Receiving Party shall not use the
Confidential Information of the Disclosing Party other than as expressly
permitted under the terms of this Agreement or by a separate written agreement.
The Receiving Party shall take all reasonable steps to prevent unauthorized
disclosure or use of the Disclosing Party's Confidential Information and to
prevent it from falling into the public domain or into the possession of
unauthorized persons. The Receiving Party shall not disclose Confidential
Information of the Disclosing Party to any person or entity other than its
officers or employees (or outside legal, financial or accounting advisors) who
need access to such Confidential Information in order to effect the intent of
this Agreement and who have entered into confidentiality agreements with such
person's employer or who are subject to ethical restrictions on disclosure which
protects the Confidential Information of the Disclosing Party. The Receiving
Party shall immediately give notice to the Disclosing Party of any unauthorized
use or disclosure of Disclosing Party's Confidential Information. The Receiving
Party agrees to assist the Disclosing Party to remedy such unauthorized use or
disclosure of its Confidential Information.
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These obligations shall not apply to the extent that Confidential Information
includes information which:
(a) is already known to the Receiving Party at the time of
disclosure, which knowledge the Receiving Party shall have the burden of proving
by reference to written or electronic records in existence at the time of
disclosure;
(b) is, or through no act or failure to act of the Receiving Party
becomes, publicly known;
(c) is received by the Receiving Party from a third party without
restriction on disclosure (although this exception shall not apply if such third
party is itself violating a confidentiality obligation by making such
disclosure);
(d) is independently developed by the Receiving Party without
reference to the Confidential Information of the Disclosing Party, which
independent development the Receiving Party will have the burden of proving;
(e) is approved for release by written authorization of the
Disclosing Party; or
(f) is required to be disclosed by a Government Body to further the
objectives of this Agreement or by a proper order of a court of competent
jurisdiction; provided, however, that the Receiving Party will use its best
efforts to minimize such disclosure and will consult with and assist the
Disclosing Party in obtaining a protective order prior to such disclosure.
7.2 No Public Announcement. Neither party shall issue any press release or
make any public announcement relating to the subject matter of this Agreement
prior to the Closing without the prior written approval of the other party;
provided, however, that NET may make any public disclosure it believes in good
faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case NET will use its best
efforts to advise FlowWise prior to making the disclosure).
7.3 Regulatory Filings; Consents; Best Efforts. Subject to the terms and
conditions of this Agreement, FlowWise and NET shall use their respective Best
Efforts to (a) make all necessary filings with respect to the Merger and this
Agreement under the Exchange Act and supply all additional information requested
in connection therewith, (b) make other appropriate filings with federal, state
or local governmental bodies or applicable foreign governmental agencies and
obtain required approvals and clearances with respect thereto and supply all
additional information requested in connection therewith, (c) obtain all
consents, waivers, approvals, authorizations and orders required in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the Merger, and (d) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
to consummate and make effective the transactions contemplated by this Agreement
as promptly as practicable, with the objective of completing the Closing no
later than December 31, 1999.
7.4 Further Assurances. Prior to and following the Closing, each party
agrees to cooperate fully with the other parties and to execute such further
instruments, documents and
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agreements, and to give such further written assurances, as may be reasonably
requested by any other party to evidence and reflect better the transactions
described and contemplated herein and to carry into effect the intents and
purposes of this Agreement.
ARTICLE VIII
CONDITIONS OF FLOWWISE'S OBLIGATIONS
The obligations of FlowWise to close the transactions contemplated in this
Agreement are subject to the fulfillment or satisfaction on and as of the
Closing of each of the following conditions (any one or more of which may be
waived by FlowWise, but only in a writing signed by FlowWise):
8.1 Accuracy of Representations and Warranties. The representations and
warranties of NET and Sub set forth in Section 4 and in any certificate
delivered at the Closing by NET or Sub in connection with this Agreement shall
be true and correct in all material respects when made and on and as of the
Closing with the same force and effect as if such representations and warranties
had been made at the Closing, and FlowWise shall receive a certificate to such
effect signed by an officer of NET and Sub, respectively.
8.2 Covenants. NET and Sub shall have performed and complied in all
material respects with all of their covenants contained in Article VI and
Article VII on or before the Closing, and FlowWise shall receive a certificate
from NET and Sub to such effect signed by an officer of NET and Sub,
respectively.
8.3 Authorizations. FlowWise shall have received from NET and Sub written
evidence that the execution, delivery and performance of NET and Sub's
obligations under this Agreement have been duly and validly approved and
authorized by the Board of Directors of NET and Sub, respectively, and the
shareholder of Sub.
8.4 Government Consents. There shall have been obtained at or prior to the
date of Closing such permits or authorizations, and there shall have been taken
such other action, as may be required by any regulatory authority having
jurisdiction over the parties and the subject matter and the actions herein
proposed to be taken.
8.5 No Litigation. On and as of the Closing, no litigation or proceeding
shall be threatened or pending against FlowWise or NET with the probable effect
(in the reasonable opinion of FlowWise's counsel) of enjoining or preventing the
consummation of the Merger.
8.6 Deposit of Consideration. NET shall have deposited the Merger
Consideration and the Bonus Pool with the Exchange Agent.
8.7 Transaction Bonus Agreements. Each of the Transaction Bonus Agreements
shall be in full force and effect (except to the extent resulting from a breach
or termination by one of employees who is party thereto).
8.8 Opinion of NET's Counsel. The FlowWise Shareholders shall have
received from the General Counsel of NET and Crosby, Heafey, Xxxxx & May
Professional Corporation, legal
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counsel to NET, opinions in substantially the forms attached hereto as Exhibits
E-2 and E-3, respectively.
8.9 Receipt of Certificate. The FlowWise Shareholders shall have received
at Closing a certificate signed by an executive officer of NET certifying as to
the accuracy of the matters set forth in Sections 8.1, 8.2 and 8.5.
8.10 Exchange Agreement. NET and the Exchange Agent (or a substitute
Exchange Agent reasonably acceptable to FlowWise) shall have executed and
delivered the Exchange Agreement.
8.11 Escrow Agreement. NET and the Exchange Agent (or a substitute
Exchange Agent reasonably acceptable to FlowWise) shall have executed and
delivered an escrow agreement relating to the Bonus Pool and distributions
thereof reasonably satisfactory to the Shareholder Representative.
ARTICLE IX
CONDITIONS TO NET'S AND SUB'S OBLIGATIONS
The obligations of NET and Sub are subject to the fulfillment or
satisfaction on and as of the Closing of each of the following conditions (any
one or more of which may be waived by NET, but only in a writing signed by NET):
9.1 Accuracy of Representations and Warranties. The representations and
warranties made by FlowWise contained in Article III and in any certificate
delivered by FlowWise in connection with this Agreement shall be true and
correct in all material respects when made and on and as of the Closing with the
same force and effect as if such representations had been made at the Closing.
9.2 Covenants. FlowWise shall have performed and complied in all material
respects with all of its covenants contained in Article V and Article VII on or
before the Closing.
9.3 No Litigation. On and as of the Closing, no litigation or proceeding
shall be threatened or pending against FlowWise or NET with the probable effect
(in the reasonable opinion of NET's counsel) of enjoining or preventing the
consummation of the Merger, or requiring NET to divest or hold separate any
business in connection with the Merger or possibly causing a Material Adverse
Effect on FlowWise or its business or financial condition, and no judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator shall be outstanding against
FlowWise that would otherwise have a Material Adverse Effect on NET (exclusive
of the business of FlowWise).
9.4 Authorizations. NET shall have received from FlowWise written evidence
that (a) the execution, delivery and performance of this Agreement have been
duly and validly approved and authorized by FlowWise's board of directors and by
the shareholders of FlowWise, and (b) shareholders of FlowWise holding no more
than ten percent (10%) of each class of the, outstanding capital stock of
FlowWise have, or might be able to perfect, dissenters' rights in connection
with the Merger.
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9.5 Transaction Bonus Agreements. Each of the Transaction Bonus Agreements
shall be in full force and effect (except to the extent resulting from a breach
or termination by NET) and shall not been amended without NET's consent.
9.6 Opinion of FlowWise's Counsel. NET shall have received from Venture
Law Group, A Professional Corporation, legal counsel to FlowWise, an opinion in
substantially the form attached hereto as Exhibit E-1.
9.7 Receipt of Certificate. NET shall have received at Closing a
certificate signed by each of the President and Chief Financial Officer of
FlowWise certifying as to the accuracy of the matters set forth in Sections 9.1,
9.2 and 9.3.
9.8 Employees. None of the Key Employees (as defined in Section 12.1)
shall have (a) voluntarily terminated their employment with FlowWise on or prior
to the Closing Date, or (b) refused to accept employment with, or given notice
that they do not intend to continue employment with, the Surviving Corporation
or NET (as determined by NET).
9.9 Exchange Agreement. FlowWise, the Exchange Agent (or a substitute
Exchange Agent reasonably acceptable to NET) and the Shareholder Representative
shall have executed and delivered the Exchange Agreement.
9.10 GATX. FlowWise shall have obtained and delivered a waiver, in form
and substance acceptable to NET in its sole discretion, from MMC/GATX
Partnership No. I and Transamerica Business Credit Corporation (together, the
"GATX") of the GATX's rights under Article IX of that certain Loan and Security
Agreement dated as of April 23, 1999, with respect to any prepayment or
acceleration of any amounts due under such Loan and Security Agreement as a
result of the transactions contemplated by or referenced in this Agreement.
9.11 Comdisco. FlowWise shall have obtained a delivered a waiver and
consent, in form and substance acceptable to NET in its sole discretion, from
Comdisco, Inc. ("Comdisco") of Comdisco's rights under that certain Master Lease
Agreement dated as of October 21, 1998, with respect to (a) Comdisco's consent
to the assignment of such Master Lease Agreement to NET, and (b) the waiver of
Comdisco's rights under such Master Lease Agreement with respect to any
prepayment or acceleration of any amounts due under such Master Lease Agreement
as result of the transactions contemplated by or referenced in this Agreement.
9.12 Number of Shares Outstanding. No later than one (1) day prior to the
Closing, FlowWise shall advise NET and its counsel as to the number of shares of
FlowWise Capital Stock outstanding as of the Closing Date.
9.13 Exercise of Warrants. All FlowWise Options and any other warrants,
options or other rights to purchase shares of FlowWise Capital Stock shall have
been exercised or terminated immediately prior to the Effective Time.
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ARTICLE X
TERMINATION OF AGREEMENT
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) By mutual consent;
(b) By either NET or FlowWise for any reason if the Closing has not
occurred by January 31, 2000, unless otherwise mutually agreed in writing by the
parties, or such later date as the parties may agree in writing, provided that a
party cannot terminate under this provision if the failure of the Closing to
occur is the result of the failure on the part of such party to perform any of
its obligations hereunder (except the failure on the part of such party to
satisfy a closing condition over which such party has no control). Any
termination of this Agreement under this Section 10.1(b) shall be effective by
the delivery of written notice of the terminating party to the other parties
hereto;
(c) By either party by giving written notice to the other party at
any time prior to the Closing in the event the other party has breached any
material representation, warranty, or covenant contained in this Agreement in
any material respect, the non-breaching party has notified the breaching party
of the breach, and the breach has continued without cure for a period of ten
(10) calendar days after the notice of breach; or
(d) By either NET or FlowWise if any Governmental Entity shall have
issued an order, injunction, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger and such
order, injunction, decree, ruling or other action shall have become final and
nonappealable.
10.2 Effect of Termination. Any termination of this Agreement pursuant to
this Article X shall be without further obligation or Liability upon any party
in favor of any other party hereto; provided, however, that if such termination
by one party shall result from the willful failure of the other party to carry
out its obligations under this Agreement, then such party shall be liable for
Damages incurred by the other party, and such termination shall not be deemed or
construed as limiting or denying any legal or equitable right or remedy of said
party, and said party shall be entitled to recover its costs and expenses which
are incurred in pursuing its rights and remedies (including reasonable
attorneys' fees).
10.3 Certain Effects of Termination. In the event of the termination of
this Agreement by either FlowWise or NET as provided in Section 10.1 hereof:
(a) each party, if so requested by the other party, will (i) return
promptly every document (other than documents publicly available and other than
one copy thereof to be retained by outside counsel for such party) furnished to
it by the other party (or any subsidiary, division, associate or affiliate of
such other party) in connection with the transactions contemplated hereby,
whether so obtained before or after the execution of this Agreement, and any
copies thereof which may have been made, and will cause its representatives and
others to whom such documents were furnished promptly to return such documents
and any copies thereof any of them
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may have made, or (ii) destroy such documents and cause its representatives and
such other representatives to destroy such documents, and such party shall
deliver a certificate executed by its president or vice president stating to
such effect; and
(b) FlowWise and NET shall continue to abide by the provisions of
the NonDisclosure Agreement dated as of January 7, 1999 between NET and FlowWise
(the "Nondisclosure Agreement"). This Section 10.3 shall survive any termination
of this Agreement.
ARTICLE XI
INDEMNIFICATION
11.1 Survival of Representations.
(a) The representations and warranties made by FlowWise (including
the representations and warranties set forth in Article III hereof and the
representations and warranties set forth in any certificate delivered by
FlowWise in connection with this Agreement) shall survive the Closing and shall
remain in full force and effect and shall survive until the expiration of the
Indemnification Period and shall survive thereafter only with respect to any
claims made prior to the expiration of the Indemnification Period; provided,
however, that the termination hereunder of the representations and warranties
made by FlowWise shall not terminate or limit in any manner whatsoever any
rights NET has or may have for knowing and intentional misrepresentation. The
representations and warranties made by NET and Sub shall survive the Closing,
shall remain in full force and effect and shall survive until the expiration of
the Indemnification Period, and the FlowWise Shareholders shall be expressly
permitted to rely on such representations and warranties as third party
beneficiaries; provided, however, that the termination hereunder of the
representations and warranties made by NET and Sub shall not terminate or limit
in any manner whatsoever any rights which FlowWise or the FlowWise Shareholders
have or may have for knowing and intentional misrepresentation.
(b) As used in this Agreement, Indemnification Period shall mean a
period of one (1) year from the Closing Date, subject to Section 11.3(e) hereof;
provided, however, that the expiration of any Indemnification Period shall not
limit the rights any Indemnitees with respect to indemnification under this
Article XI in respect of any claim commenced within the Indemnification Period.
(c) The representations, warranties, covenants and obligations of
FlowWise, and the rights and remedies that may be exercised by the Indemnitees,
shall not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, any of the
Indemnitees or any of their representatives.
11.2 Indemnification by FlowWise Shareholders.
(a) From and after the Closing Date (but subject to Section
11.1(a)), the Shareholders of FlowWise shall hold harmless and indemnify each of
the Indemnitees from and against, and shall compensate and reimburse each of the
Indemnitees for, any Damages which are suffered or incurred by any of the
Indemnitees or to which any of the Indemnitees may otherwise
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become subject (regardless of whether or not such Damages relate to any
third-party claim) and which arise from or as a result of:
(i) any inaccuracy in or breach of any representation or
warranty set forth in Article III hereunder or in any certificate delivered by
FlowWise in connection with this Agreement;
(ii) any breach of any covenant or obligation of FlowWise
hereunder,
(iii) any Legal Proceeding relating to any inaccuracy, breach
or expense of the type referred to in clause (i) or (ii) above (including any
Legal Proceeding commenced by any Indemnitee for the purpose of enforcing any of
its rights under this Article XI if such Indemnitee is the prevailing party in
any such Legal Proceeding).
(b) If the Surviving Corporation suffers, incurs or otherwise
becomes subject to any Damages as a result of or in connection with any
inaccuracy in or breach of any representation, warranty, covenant or obligation
of FlowWise hereunder, then (without limiting any of the rights of the Surviving
Corporation as an Indemnitee) NET shall also be deemed, by virtue of its
ownership of the stock of the Surviving Corporation, to have incurred Damages as
a result of and in connection with such inaccuracy or breach.
11.3 Floor; Ceiling; Exclusivity; Claims Process.
(a) The FlowWise Shareholders shall not be required to make any
indemnification payment pursuant to Section 11.2(a) until such time as and only
to the extent that the total amount of all Damages (including the Damages
arising from any inaccuracy or breach of any representation or warranty and all
other Damages arising from any other inaccuracies in or breaches of any
representations or warranties) that have been suffered or incurred by any one or
more of the Indemnitees, or to which any one or more of the Indemnitees has or
have otherwise become subject, exceeds Twenty-Five Thousand Dollars ($25,000) in
the aggregate.
(b) Except with respect to claims based on knowing and intentional
misrepresentations of representations and warranties, NET and Sub agree on
behalf of the Indemnitees that, after the Closing, the sole recourse of the
Indemnitees with respect to Damages shall be against the Holdback Amount in the
manner set forth in Section 2.4 of this Agreement.
(c) In the event that an Indemnitee shall have incurred any Damages
for which Indemnitee wishes to seek adjustment to the Holdback Amount pursuant
to Section 11.1, Indemnitee shall deliver to the Shareholder Representative and
the Exchange Agent an Officer's Certificate: (i) stating that Indemnitee has
paid Damages, (ii) specifying in reasonable detail the individual items of
Damages included in the amount so stated, the date each such item was paid, and
the nature of the misrepresentation, breach of warranty or covenant or other
adjustment to the Holdback Amount to which such item is related, and (iii)
indicating that Indemnitee is seeking adjustment to the Holdback Amount under
this Article XI. Nothing in this Section 11.3(c) shall limit the right of an
Indemnitee to seek an adjustment to the Holdback Amount under this Article
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XI in accordance with Section 11.3(e) with respect to Damages that such
Indemnitee reasonably anticipates that it will have to pay or accrue, subject to
the other provisions of this Section 11.3.
(d) In the event that an Indemnitee has elected to pursue adjustment
to the Holdback Amount under this Article XI, the amount stated in the Officer's
Certificate shall be delivered to the Indemnitee by the Exchange Agent, unless
the Shareholder Representative contests such claim in writing within thirty (30)
days after such election. In such event, the parties will follow the procedures
set forth in Section 13.2 below (in which case the payment of the amount of the
Holdback Amount shall be made as determined pursuant to Section 13.2 with any
amounts to be paid to an Indemnitee to be paid by the Exchange Agent following
such determination and any amounts to be paid to the FlowWise Shareholders to be
paid upon the later of the expiration of the Indemnification Period or ten (10)
days after a final determination of a claim).
(e) Notwithstanding anything to the contrary herein, no later than
the date of the expiration of the Indemnification Period, in the event that an
Indemnitee reasonably anticipates that it will have to pay or accrue Damages
relating to (i) claims for which such Indemnitee has not provided notice
pursuant to subsection (c) hereof that such Indemnitee reasonably believes are
indemnifiable under this Article XI, or (ii) claims for which such Indemnitee
has provided notice pursuant to subsection (c) of this Section 11.3 that have
not been finally resolved in accordance with this Article XI, the Indemnitee
shall deliver to the Shareholder Representative and the Exchange Agent an
Officer's Certificate setting forth the information identified in clauses (i),
(ii) and (iii) of subsection (c) of this Section 11.3 (including, without
limitation, information relating to any anticipated claims and the Basis for
such anticipated Liability). The amount stated in the Officer's Certificate
shall be delivered to the Indemnitee unless the Shareholder Representative
contest such claim in writing within ten (10) days after receipt of such notice.
In such event, as soon as practicable but in no event later than twenty (20)
days after the receipt of the notice of objection from the Shareholder
Representative, the parties shall submit the claim to the Neutral Third Party
(as defined below) for a determination to be made within sixty (60) days after
submission whether a reasonable likelihood exists that any Damages (including
attorney's fees) will be incurred or accrued by the Indemnitee for such claims.
In the event that the Neutral Third Party determines that a reasonable
likelihood does not exist, then the Holdback Amount in dispute as a result of
that claim shall be distributed to the Former Holders in accordance with the
terms of the Exchange Agreement. In the event that the Neutral Third Party
determines that a reasonable likelihood does exist that any Damages (including
attorney's fees) will be incurred or accrued by the Indemnitee for such claim,
then such amount stated in the Officer's Certificate shall remain in escrow,
subject to the Exchange Agreement, until such time as the amount of such Damages
is paid or properly accrued by the Indemnitee. At such time, the parties shall
follow the procedure set forth in subsections (c) and (d) of this Section 11.3.
The costs and expenses of the Neutral Third Party as well as any additional
amounts due under the Exchange Agreement in connection with the procedure
described herein shall be paid from the Holdback Amount.
For purposes of this Section 11.3, the Neutral Third Party shall mean a third
party selected by the parties in the following manner: within five (5) days
following receipt of the Shareholder Representative's notice of objection, NET,
on the one hand, and the Shareholder Representative, on the other hand, shall
each propose an unaffiliated third party who is qualified and experienced
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for such determination (the "NET Nominee" and "FlowWise Nominee," respectively).
Within five (5) days thereafter, the parties may mutually agree that either the
NET Nominee or the FlowWise Nominee shall act as the Neutral Third Party. In the
event that both (i) the NET Nominee is not reasonably acceptable to FlowWise,
and (ii) the FlowWise Nominee is not reasonably acceptable to NET, then within
ten (10) days after the initial proposals, the NET Nominee and the FlowWise
Nominee shall select a third party unaffiliated with both NET and FlowWise and
such individual shall act as the Neutral Third Party. In the event that neither
party proposes an unaffiliated third party within the five-day initial proposal
period, the first party to propose an unaffiliated third party in writing
thereafter shall have the right to appoint such third party as the Neutral Third
Party.
11.4 No Contribution. The Shareholders acknowledge and agree that they
shall not have and shall not exercise or assert (or attempt to exercise or
assert), any right of contribution, right of indemnity or other right or remedy
against the Surviving Corporation in connection with any indemnification
obligation or any other Liability to which they may become subject under or in
connection with this Agreement or any certificate delivered by FlowWise in
connection with this Agreement.
11.5 Defense of Third Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against NET or against any other Person) with respect to
which the Shareholders may become obligated to hold harmless, indemnify,
compensate or reimburse any Indemnitee pursuant to this Article XI, the
procedure set forth in Sections 11.6 and 11.7 below shall be followed.
11.6 Notice. NET shall give prompt written notice to the Shareholder
Representative pursuant to Section 11.9 of the commencement of any such Legal
Proceeding against NET or the Surviving Corporation for which indemnity may be
sought under Article XI together with a description of such Legal Proceeding and
the specific bases upon which such indemnity may be sought consistent with the
provisions of this Agreement; provided, however, that any failure on the part of
NET to so notify the Shareholder Representative shall not limit any of the
obligations of the Shareholders under this Article XI (except to the extent such
failure materially prejudices the defense of such Legal Proceeding). The
Indemnification Period shall be tolled solely with respect to a particular claim
for the period beginning on the date the Shareholder Representative receives
written notice of that claim until the final resolution of such claim so long as
such claim is made within the Indemnification Period.
11.7 Defense of Claim. The Indemnitee shall have the right to be
represented by counsel of its choice and to defend or otherwise control the
handling of any third party claim or Legal Proceeding for which indemnity is
sought. Notwithstanding the foregoing, the Shareholder Representative may elect
on behalf of the Shareholders (by written notice by the Shareholder
Representative to NET within thirty (30) days after receipt of written notice
under Section 11.6) to assume the defense of or otherwise control the handling
of any such third party claim or Legal Proceeding (other than for matters
relating to the intellectual property rights of NET (including FlowWise), or
claims by customers of NET) for which indemnity is sought so long as, and only
in the event that, the maximum amount reasonably expected to be payable with
respect to any such
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Legal Proceeding by FlowWise or NET would not exceed the Holdback Amount in
NET's reasonable determination, subject to the further limitations provided
herein.
(a) If the Shareholder Representative so elects to assume the
defense of any such claim or Legal Proceeding:
(i) the Shareholders shall proceed to defend such claim or
Legal Proceeding in a diligent manner with counsel reasonably satisfactory to
the Indemnitee;
(ii) the Indemnitee shall make available to the Shareholder
Representative any documents and materials in the possession of the Indemnitee
that may be necessary to the defense of such claim or Legal Proceeding;
(iii) the Shareholder Representative shall keep the Indemnitee
informed of all material developments and events relating to such claim or Legal
Proceeding;
(iv) the Indemnitee shall have the right to participate in the
defense of such claim or Legal Proceeding at the Indemnitee's expense (except
that the FlowWise Shareholders shall pay the fees and expenses of such counsel
out of the Holdback Amount to the extent that the Indemnitee reasonably
concludes that there is a conflict of interest between the Indemnitee and the
FlowWise Shareholders); and
(v) the Shareholder Representative shall have the right to
settle, adjust or compromise such claim or Legal Proceeding only with the
consent of NET; provided, however, that NET shall not unreasonably withhold such
consent.
(b) If the Shareholder Representative does not (or cannot) elect to
assume the defense of any such third party claim or Legal Proceeding, the
Indemnitee may proceed with the defense of such claim or Legal Proceeding on its
own. If the Indemnitee so proceeds with the defense of any such claim or Legal
Proceeding on its own:
(i) all expenses relating to the defense of such claim or
Legal Proceeding (whether or not incurred by the Indemnitee) shall be borne and
paid exclusively by the Shareholders out of the Holdback Amount, provided,
however, that the Shareholders shall not be liable for the costs of more than
one counsel on behalf of the Indemnities collectively;
(ii) the Shareholders shall make available to the Indemnitee
any documents and materials in the possession or control of the Shareholders
that may be necessary to the defense of such claim or Legal Proceeding except
for documents or materials which are sealed by a court order or are subject to a
nondisclosure agreement prohibiting disclosure by the Shareholders;
(iii) the Indemnitee shall keep the Shareholder Representative
informed of all material developments and events relating to such claim or Legal
Proceeding; and
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(iv) the Indemnitee shall have the right to settle, adjust or
compromise such claim or Legal Proceeding with the consent of the Shareholder
Representative; provided, however, that the Shareholder Representative shall not
unreasonably withhold such consent.
11.8 Exercise of Remedies by Indemnitees Other than NET. No Indemnitee
(other than NET or any successor thereto or assignee thereof) shall be permitted
to assert any indemnification claim or exercise any other remedy under this
Agreement unless NET (or any successor thereto or assign thereof) shall have
consented to the assertion of such indemnification claim or the exercise of such
other remedy.
11.9 Shareholder Representative; Approval of Shareholders.
(a) Xxxxxxx X. Xxxxxx shall be constituted and appointed as agent
("Shareholder Representative") for and on behalf of the Shareholders to give and
receive notices and communications, to authorize distribution to NET of the
Holdback Amount in satisfaction of claims by NET, to object to such distribution
to NET of the Holdback Amount, to agree to, negotiate, enter into settlements
and compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Shareholder Representative for
the accomplishment of the foregoing. Such agency may be changed by the
Shareholders, with the vote of the Shareholders to be determined by their pro
rata interests in the Holdback Amount from time to time upon not less than ten
(10) business days' prior written notice to NET. No bond shall be required of
the Shareholder Representative, and the Shareholder Representative shall receive
no compensation for his/her services. Notices or communications to or from the
Shareholder Representative shall constitute notice to or from each of the
Shareholders.
(b) The Shareholder Representative shall not be liable for any act
done or omitted hereunder as Shareholder Representative while acting in good
faith and not in a manner constituting gross negligence, and any act done or
omitted pursuant to the advice of counsel shall be conclusive evidence of such
good faith. The Shareholders shall severally indemnify the Shareholder
Representative and hold him/her harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Shareholder
Representative and arising out of or in connection with the acceptance or
administration of his/her duties hereunder. Subject to the prior right of NET to
make claims for damages, the Shareholder Representative, with the consent of
Shareholders entitled to a majority in interest in the Holdback Amount, may
recover from the Holdback Amount prior to any payment to the Shareholders
reasonable costs and expenses incurred by the Shareholder Representative in
connection with acting as same.
(c) The approval by the Shareholders of the Merger shall be deemed
to be approval of the terms of the provisions of this Article XI, including the
appointment of the Shareholder Representative.
(d) A decision, act, consent or instruction of the Shareholder
Representative shall constitute a decision of all FlowWise Shareholders and
shall be final, binding and conclusive upon each such FlowWise Shareholder, and
NET may rely upon any such decision, act, consent or instruction of the
Shareholder Representative as being the decision, act, consent or instruction
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of each every such FlowWise Shareholder. NET is hereby relieved from any
Liability to any person for any acts done by it in accordance with such
decision, act, consent or instruction of the Shareholder Representative.
ARTICLE XII
EMPLOYEE ARRANGEMENTS
12.1 Transaction Bonus Agreements. NET and FlowWise acknowledge that each
of the employees of FlowWise listed on Exhibit F hereto (each a "Key Employee"
and collectively the "Key Employees") have executed and delivered a Transaction
Bonus Agreement, as amended ("Transaction Bonus Agreement"), with NET which
agreement will be effective at the Effective Time.
12.2 Bonus Pool. In connection with the Merger, NET agrees to establish a
bonus pool for certain employees of FlowWise following the Effective Date (the
"Bonus Pool"). The Bonus Pool shall be established in accordance with and
subject to the terms of the Transaction Bonus Agreements. NET will deposit the
Bonus Pool with the Exchange Agent for distribution in accordance with the terms
of an agreement reasonably satisfactory to the Shareholder Representative.
12.3 Employee Benefit Plans. NET and FlowWise hereby agree that to the
extent the existing Employee Benefit Plans provided by FlowWise to its employees
are terminated or merged with existing NET Employee Benefit Plans after the
Closing Date, such employees who are hired by NET shall be entitled to
participate in all benefit plans and arrangements which are available and
subsequently become available to NET's employees of similar position on the same
basis as NET's employees. For purposes of eligibility to participate and vesting
requirements in the NET Employee Benefit Plans for which any former FlowWise
employee may be eligible upon hire by NET, to the extent permissible under the
relevant plans, service by a former FlowWise employee with FlowWise shall be
deemed to have been service with NET.
12.4 Assumption of Indemnity Obligations.
(a) Articles of Incorporation and Bylaws. The Surviving Corporation
agrees that the obligations set forth in the Amended and Restated Articles of
Incorporation and Bylaws of FlowWise, as in effect immediately prior to the
Effective Time, to indemnify its officers and directors shall survive the
Merger, and any rights of the directors and officers to such indemnification
thereunder shall not be adversely affected by any amendment, repeal or other
modification thereto after the Effective Time.
(b) Exclusion. Notwithstanding the foregoing, nothing in this
Section 12.4 is intended to release any director or officer of FlowWise, who is
also a shareholder of FlowWise, from its indemnification obligations under
Section 11 hereof.
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ARTICLE XIII
MISCELLANEOUS
13.1 Governing Laws. It is the intention of the parties hereto that the
internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto.
13.2 Amicable Resolution. NET and FlowWise mutually desire that friendly
collaboration will develop between themselves. Accordingly, they shall try to
resolve in a friendly manner all disagreements and misunderstandings connected
with their respective rights and obligations under this Agreement, including any
amendments hereof.
Excluding Intellectual Property disputes which must be brought before a
court of competent jurisdiction, to the extent that any misunderstanding or
dispute which arises after the Effective Date cannot be resolved agreeably in a
friendly manner, the dispute will be mediated by a mutually-acceptable mediator
to be chosen by NET and the Shareholder Representative within forty-five (45)
days after written notice by one of the parties demanding mediation. Neither
party may unreasonably withhold consent to the selection of a mediator, however,
by mutual agreement NET and the Shareholder Representative may postpone
mediation until each has completed specified but limited discovery with respect
to a dispute. The parties may also agree to attempt some other form of
alternative dispute resolution ("ADR") in lieu of mediation, including by way of
example and without limitation neutral fact-finding or a mini-trial.
Any dispute that the parties cannot resolve through negotiation, mediation
or other form of ADR within six months of the date of the initial demand for it
by one of the parties may then be submitted to the courts for resolution. The
use of any ADR procedures will not be construed under the doctrines of laches,
waiver or estoppel to affect adversely the rights of either party. Nothing in
this Section 13.2 will prevent either party from resorting to judicial
proceedings if (i) good faith efforts to resolve the dispute under these
procedures have been unsuccessful or (ii) interim relief from a court is
necessary to prevent serious and irreparable injury to one party or to others.
13.3 Limitation on Liability. NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INCIDENTAL,
INDIRECT, COLLATERAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH ANY
CLAIMS, LOSSES, DAMAGES, OR INJURIES ARISING OUT OF THE CONDUCT OF THE PARTIES
PURSUANT TO THIS AGREEMENT.
13.4 Binding Upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the benefit
of, the permitted successors, executors, heirs, representatives, administrators
and assigns of the parties hereto.
13.5 Severability. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and
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application of such provision to other persons or circumstances shall be
interpreted so as best to effect reasonably the intent of the parties hereto.
The parties further agree to replace such void or unenforceable provision of
this Agreement with a valid and enforceable provision which will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provision.
13.6 Entire Agreement; Assignment. This Agreement (with all of the
exhibits, appendices and schedules appended hereto and thereto), the FlowWise
Disclosure Statement, and the documents and instruments and other agreements
among the parties hereto referenced herein: (i) 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; (ii) are not intended to confer upon
any other person (including, without limitation, any employee of FlowWise or any
such employee's spouse, dependents or beneficiaries) except the Shareholder
Representative any rights or remedies hereunder; and (iii) shall not be assigned
by FlowWise whether by operation of law or otherwise without the prior written
consent of NET.
13.7 Counterparts. This Agreement may be executed in any number of
counterparts, including counterparts transmitted by telecopier or telefax, each
of which shall be an original as against any party whose signature appears
thereon and all of which together shall constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as signatories.
13.8 Expenses. Whether or not the transactions herein contemplated shall
be consummated, NET will pay the fees, expenses and disbursements of NET and Sub
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto. Whether or
not the transactions herein contemplated shall be consummated, FlowWise will pay
the fees, expenses and disbursements of FlowWise and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto and all other costs and
expenses incurred in the performance and compliance with all conditions to be
performed by FlowWise under this Agreement. Notwithstanding the foregoing,
neither NET nor FlowWise shall be liable for any fees or expenses payable to any
broker or finder contemplated by Section 3.25 of this Agreement, except that NET
shall pay (a) the fee of Five Hundred Thousand Dollars ($500,000 to Credit
Suisse First Boston Corporation, an investment banking firm retained by FlowWise
as identified in Part 3.25 of the FlowWise Disclosure Statement, and (b) the
reasonable expenses and fees of Venture Law Group, A Professional Corporation,
in connection with its representation of FlowWise in connection herewith, if the
Merger is consummated.
13.9 Amendment and Waivers. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a party
of any breach hereof for default in payment of any amount due hereunder or
default in the performance hereof shall not be deemed to constitute a waiver of
any other default or any succeeding breach or default.
-48-
13.10 No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
13.11 Notices. Any notice provided for or permitted under this Agreement
will be treated as having been given when (a) delivered personally, (b) sent by
confirmed telecopy, (c) sent by commercial overnight courier with written
verification of receipt, or (d) mailed postage prepaid by certified or
registered mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section 13.11.
If to FlowWise: FlowWise Networks, Inc.
0000 X. Xxxxx Xxxxxx, Xxx. 000
Xxx Xxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: President
With copies to: Venture Law Group, A Professional Corporation
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Tae Xxx Xxxx
If to NET: Network Equipment Technologies, Inc.
0000 Xxxxx Xxxxx Xxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: President
With copies to: Network Equipment Technologies, Inc.
0000 Xxxxx Xxxxx Xxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: General Counsel
Crosby, Heafey, Xxxxx & May
Professional Corporation
Four Embarcadero Center, Ste. 1900
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
-49-
If to the Shareholder Xxxxxxx X. Xxxxxx
Representative: Battery Ventures
000 Xxxxxxx'x Xxxxxx Xxxx., Xxx. 000
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
With a copy to: Venture Law Group, A Professional Corporation
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Tae Xxx Xxxx
Such notice will be treated as having been received upon actual receipt.
13.12 Construction of Agreement. This Agreement has been negotiated by the
respective parties hereto and their attorneys and the language hereof shall not
be construed for or against any party. The titles and headings herein are for
reference purposes only and shall not in any manner limit the construction of
this Agreement which shall be considered as a whole.
13.13 No Joint Venture. Nothing contained in this Agreement shall be
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party shall have
the power to control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent contractors with
respect to each other. No party shall have any power or authority to bind or
commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section 13.13.
13.14 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
13.15 Absence of Third Party Beneficiary Rights. Except for Section 12.4
hereof, no provisions of this Agreement are intended, nor shall be interpreted,
to provide or create any third party beneficiary rights or any other rights of
any kind in any client, customer, affiliate, shareholder, partner of any party
hereto or any other person or entity unless specifically provided otherwise
herein, and, except as so provided, all provisions hereof shall be personal
solely between the parties to this Agreement.
(This space intentionally left blank)
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
"FLOWWISE" "NET"
FLOWWISE NETWORKS, INC. NETWORK EQUIPMENT TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxx By: /s/ Xxxx Xxx Xxxxx
----------------------------- -----------------------------
Name: Xxxxxx X. Xxxx Name: Xxxx Xxx Xxxxx
Title: President and Chief Executive Title: Vice President and General
Officer Counsel
"SUB"
IPNOW, INC.
By: /s/ Xxxx Xxx Xxxxx
-----------------------------
Name: Xxxx Xxx Xxxxx
Title: President
-51-
LIST OF EXHIBITS
EXHIBIT A: Certain Definitions
EXHIBIT B: Form of Voting Agreement
EXHIBIT C: Form of Merger Articles
EXHIBIT D: Form of Exchange Agreement
EXHIBIT E-1: Form of Opinion of Counsel to FlowWise **
EXHIBIT E-2: Form of Opinion of General Counsel of NET **
EXHIBIT E-3: Form of Opinion of Counsel to NET **
EXHIBIT F: List of Key Employees **
** denotes exhibits that have been intentionally omitted and will be provided
upon request
EXHIBIT A TO AGREEMENT AND PLAN OF MERGER
Certain Definitions
For purposes of the Agreement (including this Exhibit A):
"ADR" shall have the meaning set forth in Section 13.2.
"Agreement" shall have the meaning set forth in the introductory
paragraph.
"Affiliate" shall have the meaning set forth in the rules and regulations
promulgated by the SEC pursuant to the Securities Act.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Best Efforts" shall mean the efforts that a prudent person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as is reasonable; provided, however, that an
obligation to use Best Efforts under this Agreement does not require the person
subject to that obligation to take actions that would result in a Material
Adverse Change in the benefits to such person of this Agreement and the
transactions contemplated herein.
"Bonus Pool" shall have the meaning set forth in Section 12.2.
"California Code" shall have the meaning set forth in Section 1.1.
"CERCLA" shall have the meaning set forth in Section 3.23(d).
"Certificate" shall mean a stock certificate representing shares of
FlowWise Capital Stock.
"Closing" shall have the meaning set forth in Section 1.2.
"Closing Date" shall have the meaning set forth in Section 1.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Comdisco" shall have the meaning set forth in Section 9.11.
"Confidential Information" shall mean confidential information of a party
("Disclosing Party") which is disclosed to another party ("Receiving Party")
including, without limitation, trade secrets, know-how, inventions, techniques,
processes, algorithms, software programs, blueprints, engineering drawings,
schematics, designs, theories of operation, contracts, customer lists, financial
information, sales and marketing plans and business information.
"Damages" shall include any loss, damage, injury, Liability, claim,
demand, settlement, judgment, award, fine, penalty, tax, fee (including
reasonable attorneys' fees), charge, costs (including reasonable costs of
investigation) or reasonable expenses of any nature.
"Disclosing Party" shall have the meaning set forth in Section 7.1.
"Dissenting Shareholder" shall have the meaning set forth in Section 2.3.
"Dissenting Share(s)" shall have the meaning set forth in Section 2.1(c).
"Effective Time" shall have the meaning set forth in Section 1.2.
"Employee Benefit Plan" shall mean any plan, program, policy, practice,
contract, agreement or other arrangement providing for bonuses, severance,
termination pay, paid vacation time, performance awards, stock or stock related
awards, fringe benefits or other employee benefits of any kind, whether formal
or informal, funded or unfunded and whether or not legally binding, including
without limitation, any plan which is or has been maintained, contributed to, or
required to be contributed to, by FlowWise for the benefit of any current,
former, or retired employee, officer, or director of FlowWise, and pursuant to
which FlowWise has or may have any Liability.
"Employee Pension Benefit Plan" has the meaning set forth in Section 3(2)
of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in Section 3(1)
of ERISA
"Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
"Environmental Lien" shall mean any lien, whether recorded or unrecorded,
in favor of any governmental entity, relating to any Liability of FlowWise or
any Subsidiary arising under any Environmental and Safety Requirements.
"Environmental and Safety Requirements" shall mean all federal, state,
local and foreign statutes, regulations, ordinances and other provisions having
the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law, in each case
concerning public health and safety, worker health and safety and pollution or
protection of the environment (including, without limitation, all those relating
to the presence, use, production, generation, handling, transport, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
Release, threatened Release, control or cleanup of any hazardous or otherwise
regulated materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation).
"ERISA" shall the Employee Retirement Income Security Act of 1974, as
amended.
-2-
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any substituted federal statute and the rules and regulations thereunder, all
as the same shall be in effect at the time.
"Exchange Agent" shall have the meaning set forth in Section 2.2(a).
"Exchange Agreement" shall have the meaning set forth in Section 2.2(a).
"Exchange Fund" shall have the meaning set forth in Section 2.2(a).
"Excluded Licenses" shall have the meaning set forth in Section 3.8(c).
"Expiration Date" shall have the meaning set forth in Section 5.7.
"FlowWise" shall have the meaning set forth in the introductory paragraph.
"FlowWise Financial Statements" shall have the meaning set forth in
Section 3.4(a).
"FlowWise Capital Stock" shall mean any shares of stock of FlowWise Common
Stock or FlowWise Preferred Stock, including shares issuable upon exercise of
any outstanding warrants and options to acquire shares of stock of FlowWise.
"FlowWise Common Stock" shall mean the common stock, no par value per
share, of FlowWise.
"FlowWise Disclosure Statement" shall have the meaning set forth in
Article III.
"FlowWise Financial Statements" shall have the meaning set forth in
Section 3.4.
"FlowWise Intellectual Property" shall mean any Intellectual Property that
is owned by or exclusively licensed to FlowWise.
"FlowWise Nominee" shall have the meaning set forth in Section 11.3(e).
"FlowWise Options" shall have the meaning set forth in Section 2.1(d).
"FlowWise Preferred Stock" shall mean FlowWise Series A Preferred Stock,
FlowWise Series B Preferred Stock and FlowWise Series C Preferred Stock.
"FlowWise Products" shall mean all versions and implementations of any
product which has been or is being marketed by FlowWise or currently is under
development, and all patents, patent applications, trade secrets, copyrights,
trademarks, trade names and other proprietary rights related thereto.
"FlowWise Series A Preferred Stock" shall mean the Series A Preferred
Stock, no par value per share, of FlowWise.
-3-
"FlowWise Series B Preferred Stock" shall mean the Series B Preferred
Stock, no par value per share, of FlowWise.
"FlowWise Series C Preferred Stock" shall mean the Series C Preferred
Stock, no par value per share, of FlowWise.
"FlowWise Shares" shall mean the shares of FlowWise Capital Stock issued
and outstanding at the Effective Date of the Merger, other than the Dissenting
Shares.
"FlowWise Shareholders" shall mean the record holders of FlowWise Capital
Stock. "GAAP" shall mean generally accepted accounting principles.
"GATX" shall have the meaning set forth in Section 9.10.
"Governmental Body" shall mean any of the following: (i) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or
other government; or (iii) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
"Holdback Amount" shall have the meaning set forth in Section 2.1(a)(ii)
(but shall not include any interest paid on the Holdback Amount).
"Indemnification Period" shall have the meaning set forth in Section
11.1(b).
"Indemnitees" shall mean the following Persons: (i) NET; (ii) NET's
current and future affiliates (including, but not limited to, the Surviving
Corporation); (iii) the respective representatives of the Persons referred to in
clauses (i) and (ii) above; and (iv) the respective successors of the Persons
referred to in clauses (i) and (ii) and (iii) above.
"Initial Merger Consideration" shall have the meaning set forth in Section
2.1(a)(i).
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States and
foreign patents and applications therefor and all reissues, divisions, renewals,
extensions, provisional, continuations and continuations in part thereof; (ii)
all inventions (whether patentable or not), invention disclosures, improvements,
trade secrets, proprietary information, know how, technology, technical data and
customer lists, and all documentation relating to any of the foregoing, (iii)
all copyrights, copyright registrations and applications therefor, and all other
rights corresponding thereto throughout the world; (iv) all mask works, mask
work registrations and applications therefor, and all other rights corresponding
thereto throughout the world; (v) all industrial designs and any registrations
and applications therefor throughout the world; (vi) all trade names, logos,
common law trademarks and service marks; trademark and service xxxx
registrations and applications therefor throughout the world; (vii) all
databases and data collections and all rights therein throughout the world; and
(viii) all computer software including all source code, object code, firmware,
development tools, files,
-4-
records and data, all media on which any of the foregoing is recorded, and all
documentation related to any of the foregoing throughout the world. "Issued
Registered Intellectual Property" shall have the meaning set forth in Section
3.8(b).
"Key Employee" shall have the meaning set forth in Section 12.1.
"Legal Proceeding" shall mean any action, suit, litigation, arbitration
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding), hearing, inquiry, audit, examination or investigation
commenced, brought, conducted or heard by or before, or otherwise involving any
court or other Governmental Body or any arbitrator or arbitration panel.
"Letter of Transmittal" shall have the meaning set forth in Section
2.2(b).
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due).
"Material Adverse Change" shall mean a change which would have a Material
Adverse Effect.
A violation or other matter will be deemed to have a "Material Adverse
Effect" on FlowWise or NET or Sub, as applicable, if such violation or other
matter would be material in impact or amount to FlowWise' or NET's or Sub's, as
applicable, (and in the case of NET, together with its subsidiaries), business,
intellectual property rights or condition, or, taken as a whole, its assets,
Liabilities, operations, or financial performance.
"Material Consents" shall have the meaning set forth in Section 5.1.
"Material Contract" shall have the meaning set forth in Section 3.12(a).
"Merger" shall have the meaning set forth in the Recitals.
"Merger Articles" shall have the meaning set forth in Section 1.2.
"Merger Consideration" shall have the meaning set forth in Section 2.1(c).
"Most Recent Financial Statements" shall have the meaning set forth in
Section 3.4.
"Most Recent Fiscal Month End" shall have the meaning set forth in Section
3.4.
"Most Recent Fiscal Year End" shall have the meaning set forth in Section
3.4.
"Multiemployer Plan" shall have the meaning set forth in Section 3(37) of
ERISA.
"NET" shall have the meaning set forth in the introductory paragraph.
"NET Nominee" shall have the meaning set forth in Section 11.3(e).
-5-
"Neutral Third Party" shall have the meaning set forth in Section 11.3(e).
"Nondisclosure Agreement" shall have the meaning set forth in Section
10.3(b).
"Person" shall mean any individual, Entity or Governmental Body.
"Plan" shall have the meaning set forth in Section 2.1(d).
"Receiving Party" shall have the meaning set forth in Section 7.1.
"Registered Intellectual Property" shall have the meaning set forth in
Section 3.8(a).
"Release" shall have the meaning set forth in CERCLA.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall mean the statements and reports filed by NET with
the SEC.
"Shareholder Representative" shall have the meaning set forth in Section
11.9(a).
"Shareholders" shall mean the record holders of shares of FlowWise Capital
Stock.
"Software" shall mean all computer code and data in source code, object
code or other form incorporated in the FlowWise Products or used by FlowWise in
the preparation or support of the FlowWise Products.
"Software Authors" shall mean all authors of the Software, or any other
Person or entity who participated in the development of the Software or any
portion thereof or performed any work related to the Software; provided,
however, that Software Authors shall not include any Persons who are not
involved in the development or modification of Software source code.
"Sub" shall have the meaning set forth in the introductory paragraph.
"Surviving Corporation" shall have the meaning set forth in Section 1.1.
"Surviving Corporation Board" shall have the meaning set forth in Section
1.5.
"Transaction Bonus Agreement" shall have the meaning set forth in Section
12.1.
"Transaction Documents" shall mean this Agreement (including the FlowWise
Disclosure Statement delivered pursuant to Article III hereof) and the following
documents or agreements required to be delivered hereunder: the Merger Articles,
the Exchange Agreement, the Voting Agreements and Transaction Bonus Agreements.
"Voting Agreement" shall have the meaning set forth in the Recitals.
-6-
EXHIBIT B TO AGREEMENT AND PLAN OF MERGER
FORM OF VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Voting Agreement") is entered into as of
December [___], 1999, by and between NETWORK EQUIPMENT TECHNOLOGIES, INC., a
Delaware corporation ("NET"), and [________] ("Shareholder"). Capitalized terms
used herein but not otherwise defined in this Voting Agreement shall have the
meaning ascribed thereto in the Merger Agreement (as defined below).
RECITALS
WHEREAS, NET, IPNow, Inc., a California corporation and wholly-owned
subsidiary of NET ("Sub"), and FlowWise Networks, Inc., a California corporation
("FlowWise"), are party to that certain Agreement and Plan of Merger dated as of
December 14, 1999 (the "Merger Agreement"), pursuant to which Sub will be merged
with and into FlowWise and FlowWise will continue as a wholly-owned subsidiary
of NET;
WHEREAS, as of the date hereof, Shareholder owns in the aggregate
(including shares held both beneficially and of record and other shares held of
record) the number of shares of FlowWise Capital Stock set forth below
Shareholder's name on the signature page hereof (all such shares, together with
any shares of FlowWise Capital Stock that may hereafter be acquired by
Shareholder, being referred to herein as the "Subject Shares"); and
WHEREAS, as a condition to the willingness of NET to enter into the Merger
Agreement, NET has required that Shareholder agree, and in order to induce NET
to enter into the Merger Agreement, Shareholder has agreed to enter into this
Voting Agreement:
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the consideration
described in Article II of the Merger Agreement, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereby agree as follows:
1. Restrictions on Transfer.
1.1 No Disposition of or Encumbrances on Subject Shares. Shareholder
hereby covenants and agrees that, prior to the earlier of the date upon which
the Merger Agreement is validly terminated or the Effective Date ("Expiration
Date"), Shareholder will not, directly or indirectly, (a) offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase or otherwise
dispose of or transfer (or announce any offer, sale, offer of sale, contract of
sale or grant of any option to purchase or other disposition or transfer of) any
of the Subject Shares to any Person other than NET unless such transferee agrees
to be bound by all of the terms
and conditions of the Voting Agreement and has executed and delivered to NET a
Proxy (as defined below) in respect of such transferred Subject Shares, (b)
create or permit to exist any encumbrances on any of the Subject Shares (except
any pledge thereof to FlowWise as security for payment of indebtedness by
Shareholder to FlowWise) or (c) reduce the Shareholder's beneficial ownership
of, interest in, or risk relating to, any of the Subject Shares unless such
transferee agrees to be bound by all of the terms and conditions of the Voting
Agreement and has executed and delivered to NET a Proxy in respect of such
transferred Subject Shares.
1.2 Transfer of Voting Rights. Shareholder covenants and agrees
that, prior to the Expiration Date, except as provided in this Voting Agreement,
Shareholder, as an individual, will not deposit any of the Subject Shares into a
voting trust or grant a proxy or enter into any other voting agreement with
respect to any of the Subject Shares.
2. Voting Agreements.
2.1 Pre-Termination Voting Agreement. Shareholder hereby agrees
that, prior to the Expiration Date, at any meeting of the shareholders of
FlowWise, however called, and in any written action by consent of shareholders
of FlowWise, unless otherwise directed in writing by NET, Shareholder shall vote
the Subject Shares:
(a) in favor of (i) the Merger, (ii) the execution and
delivery by FlowWise of the Merger Agreement and the adoption and approval of
the terms thereof, (iii) of each of the other actions contemplated by the Merger
Agreement and any action approved by the Board of Directors of FlowWise in
furtherance hereof and thereof, (iv) the Merger Articles, and (v) the
appointment of the individual specified as the Shareholder Representative in the
Merger Agreement;
(b) against any Acquisition Proposal (as defined below) (other
than the Merger) and against any action or agreement that would result in a
breach of any covenant or obligation of FlowWise in the Merger Agreement; and
(c) against any other action which is intended or could
reasonably be expected to impede, interfere with, delay, postpone or adversely
affect the Merger or any of the other transactions contemplated by the Merger
Agreement.
Prior to the Expiration Date, Shareholder shall not enter into any agreement or
understanding with any Person to vote or give instructions in any manner
inconsistent with clause "(a)", "(b)" or "(c)" of the preceding sentence. For
purposes of this Voting Agreement, an Acquisition Proposal shall mean any
proposal or offer in respect of any transaction or series of related
transactions involving: (A) any merger, consolidation, share exchange, business
combination, issuance of securities, acquisition of securities, tender offer,
exchange offer or other similar transaction in which (i) FlowWise or any of its
subsidiaries (each a "Party") is a constituent corporation, (ii) any Person or
"group" (as defined in the Securities Exchange Act of 1934, as amended, and the
rules promulgated thereunder) of Persons directly or indirectly acquires such
Party or more than fifty percent (50%) of such Party's business or, directly or
indirectly, acquires beneficial or record
-2-
ownership of securities representing more than fifty percent (50%) of the
outstanding securities of any class of voting securities of such Party or (iii)
in which such Party issues securities representing more than fifty percent (50%)
of the outstanding securities of any class of voting securities of such party;
or (B) any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of business) or
disposition of more than fifty percent (50%) of the assets of the Party.
2.2 Proxy; Further Assurances. Contemporaneously with the execution
of this Voting Agreement, Shareholder delivers herewith to NET a proxy in the
form attached hereto as Exhibit A (the "Proxy"), which shall be irrevocable to
the fullest extent permitted by law, with respect to the Subject Shares.
Shareholder shall perform such further acts and execute such further documents
and instruments as may reasonably be required to vest in NET the power to carry
out and give effect to the provisions of this Voting Agreement.
3. Waiver of Appraisal Rights. Shareholder hereby waives and agrees not to
assert any and all rights of appraisal or dissenters' rights that Shareholder
may have or hereafter acquire pursuant to Chapter 13 of the California General
Corporation Law or any other applicable laws in connection with the Merger.
4. No Solicitation. Shareholder covenants and agrees that during the
period commencing on the date of this Voting Agreement and ending on the
Expiration Date, Shareholder shall not, directly or indirectly, and shall not
authorize or permit any representative of Shareholder, directly or indirectly
to: (a) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal; (b) furnish any nonpublic information
regarding FlowWise to any Person in connection with or in response to an
Acquisition Proposal; (c) engage in discussions with any Person with respect to
any Acquisition Proposal; (d) approve, endorse or recommend any Acquisition
Proposal; or (e) enter into any letter of intent or other similar document or
any agreements contemplated or otherwise relating to any Acquisition Proposal.
As of the date of this Voting Agreement, Shareholder shall immediately cease and
cause to be terminated any existing discussions with any Person that relate to
any Acquisition Proposal.
5. Representations and Warranties of Shareholder. Shareholder hereby
represents and warrants to NET as follows:
5.1 Power, Capacity, Authority and Enforceability. Shareholder has
all requisite right, power, legal capacity and authority to execute and deliver
this Voting Agreement and the Proxy and to perform his obligations hereunder and
thereunder. This Voting Agreement and the Proxy have been duly executed and
delivered by Shareholder and constitute the legal, valid and binding obligations
of Shareholder, enforceable against Shareholder in accordance with their terms
subject to (a) laws of general application relating to public policy,
bankruptcy, insolvency and the relief of debtors, and (b) rules of law governing
specific performance, injunctive relief and other equitable remedies. Without
limiting the generality of the foregoing, the Proxy is irrevocable in accordance
with its terms.
5.2 No Conflicts, Required Filings and Consents.
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(a) The execution and delivery of this Voting Agreement and
the Proxy by Shareholder do not, and the performance of this Voting Agreement by
Shareholder will not: (i) conflict with or violate any order, decree or judgment
applicable to Shareholder or by which he or any of his properties is bound or
affected; or (ii) result in any breach of or constitute a default (with notice
or lapse of time, or both) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of an
encumbrance on the Subject Shares pursuant to, any agreement or other instrument
to which Shareholder is a party or by which Shareholder or any of its properties
is bound or affected.
(b) The execution and delivery of this Voting Agreement and
the Proxy by Shareholder do not, and the performance of this Voting Agreement by
Shareholder will not, require any consent of any Person.
5.3 Title to Subject Shares. Shareholder owns of record the Subject
Shares set forth under Shareholder's name on the signature page hereof and does
not directly or indirectly own, either beneficially or of record, any shares of
FlowWise Capital Stock, or rights to acquire any shares of FlowWise Capital
Stock, other than the Subject Shares.
5.4 Accuracy of Representations. The representations and warranties
contained in this Voting Agreement are accurate in all respects as of the date
of this Voting Agreement, will be accurate in all respects at all times through
the Expiration Date and will be accurate in all respects as of the date of the
consummation of the Merger as if made on that date.
6. Covenants of Shareholder.
6.1 Further Assurances. From time to time and without additional
consideration, Shareholder will execute and deliver, or cause to be executed and
delivered, such additional or further proxies, consents and other instruments as
NET may reasonably request for the purpose of effectively carrying out and
furthering the intent of this Voting Agreement.
6.2 Notice of Shareholder Meetings and Proposed Consents. For the
purpose of effectively carrying out and furthering the intent of this Voting
Agreement and allowing NET to exercise its rights hereunder, Shareholder agrees
to give NET prompt written notice of any meeting of the shareholders of FlowWise
or proposed written consent of the shareholders of FlowWise with respect to the
matters covered by the Proxy. NET acknowledges that the obligations of this
Section 6.2 will be satisfied with respect to a given meeting or proposed
written consent once it has received notice with respect to such meeting or
proposed written consent from FlowWise or any other shareholder of FlowWise
executing a similar voting agreement or from the Shareholder Representative.
7. Miscellaneous.
7.1 Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements made by Shareholder in this Voting
Agreement shall survive for a period of one (1) year from the Expiration Date.
-4-
7.2 Indemnification. Shareholder shall hold harmless and indemnify
NET from and against any and all Damages (regardless of whether or not such
Damages relate to a third-party claim) which are incurred by NET to the extent
that such Damages arise from any breach of any representation, warranty,
covenant or obligation of Shareholder contained herein.
7.3 Expenses. All costs and expenses incurred in connection with the
transactions contemplated by this Voting Agreement shall be paid by the party
incurring such costs and expenses.
7.4 Fiduciary Duties. Nothing contained in this Agreement and the
Proxy shall prevent the Shareholder, if in his individual capacity as a director
of FlowWise from taking any action which Shareholder determines (after
consulting with Shareholder's or the FlowWise counsel) is required in order to
discharge properly Shareholder's fiduciary duties as a director of FlowWise.
7.5 Notices. Any notice or other communication required or permitted
to be given under this Voting Agreement will be in writing, will be delivered
personally, by facsimile or by mail or express delivery, postage prepaid, return
receipt requested and will be deemed given upon actual delivery or, if mailed by
registered or certified mail, on the third business day following deposit in the
mails, addressed as follows:
If to Shareholder: [__________________]
[__________________]
[__________________]
[__________________]
With copy to: Venture Law Group, A Professional Corporation
0000 Xxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Tae Xxx Xxxx
If to NET: Network Equipment Technologies, Inc.
0000 Xxxxx Xxxxx Xxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: President
With copies to: Network Equipment Technologies, Inc.
0000 Xxxxx Xxxxx Xxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: General Counsel
-5-
Crosby, Heafey, Xxxxx & May
Professional Corporation
Four Embarcadero Center, Ste. 1900
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
or to such other address as the party in question may have furnished to the
other party by written notice given in accordance with this Section 7.5.
7.6 Severability. Any term or provision of this Voting Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Voting Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Voting Agreement in any
other jurisdiction. If any provision of this Voting Agreement is so broad as to
be unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
7.7 Entire Agreement. This Voting Agreement and any documents
delivered by the parties in connection herewith constitute the entire agreement
between the parties with respect to the subject matter hereof and thereof and
supersedes all prior agreements and understandings between the parties with
respect thereto.
7.8 Amendment and Waivers. Any term or provision of this Voting
Agreement may be amended and the observance of any term of this Voting Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by a writing signed by the parties to be
bound thereby. The waiver by a party of any breach hereof or default in the
performance hereof will not be deemed to constitute a waiver of any other
default or any succeeding breach or default.
7.9 Assignment, Binding Effect. Except as provided herein, neither
this Voting Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either of the parties hereto (whether by operation of law
or otherwise) without the prior written consent of the other party. Subject to
the preceding sentence, this Voting Agreement shall be binding upon and shall
inure to the benefit of (a) Shareholder and his heirs, successor and assigns and
(b) NET and its successors and assigns.
7.10 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Voting
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that NET shall be entitled to an
injunction or injunctions to prevent breaches of this Voting Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which NET is entitled at law or in equity.
-6-
7.11 Other Agreements. Nothing in this Voting Agreement shall limit
any of the rights or remedies of NET or any of the obligations of Shareholder
under any Transaction Document between NET and Shareholder or any other
agreement.
7.12 Governing Law. The internal laws of the State of California
(irrespective of its choice of law principles) will govern the validity of this
Voting Agreement, the construction of its terms and the interpretation and
enforcement of the rights and duties of the parties hereto.
7.13 Construction. The language hereof will not be construed for or
against either party. A reference to a section or exhibit will mean a section
in, or an exhibit to, this Voting Agreement, unless otherwise explicitly set
forth. The titles and headings in this Voting Agreement are for reference
purposes only and will not in any manner limit the construction of this Voting
Agreement. For the purposes of such construction, this Voting Agreement will be
considered as a whole.
-7-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
"NET" "SHAREHOLDER"
NETWORK EQUIPMENT TECHNOLOGIES, INC. [_________________]
By: By:
-------------------------------- --------------------------------
Name: Name:
-------------------------------- --------------------------------
Title: Title:
-------------------------------- --------------------------------
(if applicable)
Number of shares of FlowWise Common
Stock held as of the date hereof:
[_______]
Number of shares of FlowWise Series A
Preferred Stock held as of the date
hereof: [_______]
Number of shares of FlowWise Series B
Preferred Stock held as of the date
hereof: [_______]
Number of shares of FlowWise Series C
Preferred Stock held as of the date
hereof: [_______]
-8-
EXHIBIT C TO AGREEMENT AND PLAN OF MERGER
FORM OF MERGER ARTICLES
AGREEMENT OF MERGER
OF
IPNOW, INC.
WITH AND INTO
FLOWWISE NETWORKS, INC.
This Agreement of Merger ("Agreement") is entered into as of December [__]
1999, by and between IPNOW, INC., a California corporation (the "Sub"), and
FLOWWISE NETWORKS, INC., a California corporation (the "Company"). The Sub and
FlowWise are referred to herein as the parties.
RECITALS
WHEREAS, the Boards of Directors of Sub and FlowWise have resolved that
Sub and FlowWise be merged pursuant to the General Corporation Law of the State
of California into a single corporation existing under the laws of the State of
California pursuant to which FlowWise, shall continue as the surviving
corporation (such transaction, the "Merger");
WHEREAS, the authorized capital stock of Sub consists of One Thousand
(1,000) shares of common stock, no par value per share ("Sub Common Stock"), all
of which are issued and outstanding;
WHEREAS, the authorized capital stock of FlowWise consists of the
following: Thirty Million (30,000,000) shares of Common Stock, no par value per
share ("FlowWise Common Stock"), [Nine Million Eight Hundred Eighty Three
Thousand One Hundred Thirteen (9,883,113)] shares of which are issued and
outstanding; and Ten Million (10,000,000) shares of Preferred Stock, of which
One Million Nine Hundred Thousand (1,900,000) shares have been designated Series
A Preferred Stock, no par value per share ("FlowWise Series A Preferred Stock"),
One Million One Hundred Twenty Three Thousand Five Hundred Ninety Six
(1,123,596) shares of which are issued and outstanding, of which Two Million Two
Hundred Forty Seven Thousand One Hundred Ninety One (2,247,191) shares have been
designated Series B Preferred Stock, no par value per share ("FlowWise Series B
Preferred Stock"), all of which are issued and outstanding, and of which Four
Million Eight Hundred Sixty Nine Two Hundred Eighty Nine (4,869,289) shares have
been designated Series C Preferred Stock, no par value per share ("FlowWise
Series C Preferred Stock" and, together with FlowWise Series A Preferred
Stock and FlowWise Series B Preferred Stock, the "FlowWise Preferred Stock"),
Four Million Five Hundred Thousand One (4,500,001) shares of which are issued
and outstanding;
WHEREAS, the respective Boards of Directors of Sub and FlowWise have
approved the Merger upon the terms and conditions hereinafter set forth and have
approved this Agreement:
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the mutual agreements
herein contained and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereby agree as follows:
1. Merger. Sub shall be merged with and into FlowWise, and FlowWise shall
be, and is sometimes referred to below as, the Surviving Corporation.
2. Merger Consideration.
(a) Sub Common Stock. Upon the Effective Time (as defined herein),
each outstanding share of Sub Common Stock shall be canceled and extinguished
without any action on the part of the holder thereof and converted into One (1)
share of FlowWise Common Stock.
(b) FlowWise Capital Stock.
(i) FlowWise Common Stock. Upon the Effective Time, each share
of FlowWise Common Stock that is issued and outstanding immediately prior to the
Effective Time of the Merger (except for Dissenting Shares) shall be canceled
and extinguished without any action on the part of the holder thereof and
converted into the right to receive:
(A) an amount in cash per share equal to the amount
obtained by dividing Nine Hundred Sixteen Thousand Eight Hundred Eighty
Three Dollars and Twelve Cents ($916,883.12) by the number of shares of
FlowWise Common Stock that are issued and outstanding immediately prior to
the Effective Time; and
(B) a conditional amount of cash per share equal to the
amount obtained by dividing Eighty Three Thousand One Hundred Sixteen
Dollars and Eighty Eight Cents ($83,116.88) by the number of shares of
FlowWise Common Stock that are issued and outstanding immediately prior to
the Effective Time.
(ii) FlowWise Preferred Stock. Upon the Effective Time, each
share of FlowWise Preferred Stock that is issued and outstanding immediately
prior to the Effective Time of the Merger (except for Dissenting Shares, if any)
shall be canceled and extinguished without any action on the part of the holder
thereof and converted into the right to receive:
(A) an amount in cash per share equal to the amount
obtained by dividing Thirteen Million Two Hundred Three Thousand One
Hundred Sixteen Dollars and Eighty Eight Cents ($13,203,116.88) by the
number of shares of
-2-
FlowWise Preferred Stock that are issued and outstanding immediately prior
to the Effective Time; and
(B) a conditional amount of cash per share equal to the
amount obtained by dividing One Million One Hundred Ninety Six Thousand
Eight Hundred Eighty Three Dollars and Twelve Cents ($1,196,883.12) by the
number of shares of FlowWise Preferred Stock that are issued and
outstanding immediately prior to the Effective Time.
3. Articles and Bylaws; Directors and Officers.
(a) Articles of Incorporation. Upon the Effective Time, the Articles
of Incorporation of Sub, as amended to date (the "Articles"), as in effect
immediately prior to the Effective Time shall become the Articles of
Incorporation of the Surviving Corporation and Article I thereof shall be hereby
amended such that Article I shall read as follows: "The name of this corporation
is FlowWise Networks, Inc."
(b) Bylaws. Upon the Effective Time, the Bylaws of Sub, as amended
to date (the "Bylaws"), as in effect immediately prior to the Effective Time
shall become the Bylaws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
(c) Directors and Officers. Upon the Effective Time, each member of
the Board of Directors of Sub immediately prior to the Effective Time shall
become a member of the Board of Directors of the Surviving Corporation (the
"Surviving Corporation Board"). Immediately following the Effective Time, each
officer of Sub immediately prior to the Effective Time shall become an officer
of the Surviving Corporation, each to hold office in accordance with the Bylaws
of the Surviving Corporation.
(d) Effect of Merger. Upon the Effective Time, the separate
existence of Sub shall cease and FlowWise shall succeed, without other transfer,
to all the rights and property of Sub and shall be subject to all the debts and
liabilities thereof in the same manner as if FlowWise had itself incurred them.
All rights of creditors and all liens upon the property of each corporation
shall be preserved unimpaired, provided that such liens upon property of Sub
shall be limited to the property affected thereby immediately prior to the
Effective Time.
4. Further Actions. After the Effective Time, Sub, through the persons who
were its officers immediately prior to the merger, shall execute or cause to be
executed such further assignments, assurances or other documents as may be
necessary or desirable to confirm title to properties, assets and rights in
FlowWise.
5. Effective Time. The Effective Time shall be the date upon which an
executed copy of this document is filed with the Secretary of State of
California.
6. Counterparts. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original, and all of which shall constitute one
instrument.
-3-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
"SUB" "FLOWWISE"
IPNOW, INC. FLOWWISE NETWORKS, INC.
By: By:
--------------------------- ----------------------------
Name: Xxxx Xxx Xxxxx Name: Xxxxxx Xxxx
Title: President and Secretary Title: President
By:
----------------------------
Name: Tae Xxx Xxxx
Title: Secretary
-4-
CERTIFICATE OF OFFICER
OF
FLOWWISE NETWORKS, INC.
Xxxxxx Xxxx and Tae Xxx Xxxx hereby certify that:
1. They are the President and Secretary, respectively, of FLOWWISE
NETWORKS, INC. ("FlowWise"), a corporation duly organized and existing under the
laws of the State of California.
2. The principal terms of the Agreement of Merger in the form
attached were duly approved by the board of directors of FlowWise.
3. FlowWise has four (4) classes of stock which are entitled to vote
on the merger: (a) Common Stock, (b) Preferred Stock, (c) Common Stock and
Preferred Stock, voting together as a class (together, the "Capital Stock"), and
(d) Series B Preferred and Series C Preferred Stock, voting together as a class
(together, the Series B/C Preferred"). The number of outstanding shares of
Common Stock, Preferred Stock, Capital Stock and Series B/C Preferred entitled
to vote is [______] shares, [______] shares, [______] shares and [______]
shares, respectively.
4. The principal terms of the Agreement of Merger were approved by
the vote of a number of shares which equaled or exceeded the percentage vote
required. The percentage vote required was greater than fifty percent (50%) of
Common Stock, Preferred Stock and Series B/C Preferred, each voting separately
as a class.
The undersigned declare under penalty of perjury under the laws of the
State of California that the statements contained in this certificate are true
and correct of their own knowledge.
Dated: December [__], 1999 By:
------------------------
Name: Xxxxxx Xxxx
Title: President
By:
------------------------
Name: Tae Xxx Xxxx
Title: Secretary
CERTIFICATE OF OFFICER
OF
IPNOW, INC.
Xxxx Xxx Xxxxx hereby certifies that:
5. She is the President and Secretary of IPNOW, INC., a California
corporation (the "Sub").
6. The principal terms of the Agreement of Merger in the form
attached were duly approved by the board of directors of Sub.
7. The Sub has one class of stock, Common Stock, no par value per
share, which is entitled to vote on the merger. The number of outstanding shares
entitled to vote is One Thousand (1,000) shares of Common Stock.
8. The principal terms of the Agreement of Merger were approved by
the vote of a number of shares which equaled or exceeded the percentage vote
required. The percentage vote required was greater than fifty percent (50%).
The undersigned declares under penalty of perjury under the laws of the
State of California that the statements contained in this certificate are true
and correct of her own knowledge.
Dated: December [__], 1999 By:
------------------------------
Name: Xxxx Xxx Xxxxx
Title: President and Secretary
Exhibit 2.1
EXHIBIT D TO AGREEMENT AND PLAN OF MERGER
FORM OF EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (the "Exchange Agreement") is entered as of
December [24], 1999, by and among NETWORK EQUIPMENT TECHNOLOGIES, INC., a
Delaware corporation ("NET"), IPNow, Inc., a California corporation and a
wholly-owned subsidiary of NET ("Sub"), FLOWWISE NETWORKS, INC., a California
corporation ("FlowWise"), XXXXXXX X. XXXXXX, an individual ("Shareholder
Representative"), and U.S. Bank Trust National Association, a national banking
association ("Exchange Agent"). Capitalized terms used herein but not otherwise
defined in this Exchange Agreement shall have the meaning ascribed thereto in
the Merger Agreement (as defined below).
RECITALS
WHEREAS, pursuant to that certain Agreement and Plan of Merger dated as of
December 14, 1999 (the "Merger Agreement"), by and among NET, Sub and FlowWise,
Sub will be merged with and into FlowWise and FlowWise will continue as a
wholly-owned subsidiary of NET (the "Merger");
WHEREAS, this Exchange Agreement is being entered into pursuant to Section
2.2 of the Merger Agreement and the execution and delivery of hereof is a
condition to the obligations of the parties to the Merger Agreement to
consummate the Merger;
WHEREAS, as set forth in Section 11.9 of the Merger Agreement, by their
approval of the Merger Agreement and the Merger, the FlowWise Shareholders (the
"Former Holders") have authorized the Shareholder Representative to act as their
representative under this Exchange Agreement and the Merger Agreement with the
powers and authority provided herein and therein;
WHEREAS, pursuant to the Merger, each issued and outstanding FlowWise
Share, other than Dissenting Shares, if any, shall, by virtue of the Merger and
without any action on the part of Sub, FlowWise, or the Former Holders be
canceled and converted into the right to receive the Merger Consideration (as
defined in Section 2.1(c) of the Merger Agreement); and
WHEREAS, pursuant to Section 2.2(a) of the Merger Agreement, NET shall
deposit with the Exchange Agent, cash in the amount sufficient to pay the Merger
Consideration in the manner described in and in accordance with the Merger
Agreement:
AGREEMENT
NOW, THEREFORE, in consideration of the entering into the Merger
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereby agree as follows:
8. Exchange Services.
8.1 Merger Consideration Schedule. On or prior to the Closing Date,
FlowWise will furnish the Exchange Agent with a copy of a schedule (the "Merger
Consideration Schedule"), substantially in the form attached hereto as Exhibit
A, showing (a) the name and address of each of the Former Holders (other than
holders of Dissenting Shares, if any), (b) the number of shares of FlowWise
Capital Stock held by each Former Holder (other than holders of Dissenting
Shares, if any) as of the Effective Time, (c) the amount of the Initial Merger
Consideration payable to each Former Holder (other than holders of Dissenting
Shares, if any) as the Effective Time, and (d) the amount of the Holdback Amount
payable to each Former Holder (other than holders of Dissenting Shares, if any)
upon the one (1) year anniversary of the Closing Date (the period from the
Closing Date to such anniversary, the "Indemnification Period") (assuming no
adjustment thereto), subject to Section 2.3(c) hereof.
8.2 Initial Deposits by NET. On the Closing Date, NET shall deposit
with the Exchange Agent (a) the Initial Merger Consideration, and (b) the
Holdback Amount. The account into which each of the items referred to in this
Section 1.2 is to be deposited shall be referred to hereinafter as the "Exchange
Fund."
8.3 Distribution of Transmittal Letters. As soon as practicable, but
in any event no later than ten (10) business days after the Effective Time, the
Exchange Agent will mail by first class mail, postage prepaid, to each Former
Holder (a) a letter of transmittal, substantially in the form attached hereto as
Exhibit B (the "Letter of Transmittal"), and (b) instructions for use in
effecting the surrender of a certificate or certificates which immediately prior
to the Effective Time represented a share or shares of FlowWise Capital Stock
(the "Certificates") in exchange for payments of Merger Consideration.
8.4 Telephone Requests. The Exchange Agent will accept and comply
with all telephone requests for information relative to the exchange of
Certificates in connection with the Merger.
8.5 Payments to Former Holders. The Exchange Agent will make the
following payments out of the Exchange Fund to the Former Holders (other than to
holders of Dissenting Shares, if any):
(a) Upon the later to occur of (i) the receipt by the Exchange
Agent from a Former Holder of (A) the Certificate(s) or affidavits for lost
certificate(s) as required by Section 1.10 below (the "Securities
Documentation"), together with a properly completed and executed Letter of
Transmittal, (B) a Form W-8 or W-9, as appropriate, properly completed and
signed by such Former Holder, and (C) such other documents as may be reasonably
required by
-3-
the Exchange Agent (each, a "Documented Former Holder"), or (ii) the Effective
Time, the Exchange Agent will pay to such Former Holder the amount of cash
payable to such Former Holder as described in Section 1.1(c) above in the manner
requested by such Former Holder in the Letter of Transmittal; provided, however,
that the Exchange Agent shall not deliver any amount described in Section 1.1(c)
above by wire transfer of immediately available funds if such amount is less
than One Hundred Thousand Dollars ($100,000). The Exchange Agent shall reserve
for future payment to each Former Holder who has not submitted completed
Securities Documentation and a Letter of Transmittal (each, an "Undocumented
Former Holder") that Former Holder's share of the Initial Merger Consideration.
(b) Subject to the provisions of Section 2.2(b) and Article XI
of the Merger Agreement and Section 2.3(c) hereof, as soon as practicable (but
in any event within ten (10) business days) after the expiration of the
Indemnification Period, the Exchange Agent will pay to each of the Documented
Former Holders, the amounts of the Holdback Amount payable to each such holder
as described in Section 1.1(d) hereof as such may be adjusted pursuant to
Section 2.3 hereof, plus interest thereon for the period from the Closing Date
payable in accordance with Section 2.2(b) of the Merger Agreement in the manner
requested by such Former Holder in the Letter of Transmittal or as subsequently
directed by such Former Holder in accordance with the notice provisions hereof;
provided, however, that the Exchange Agent shall not deliver any amount
described in Section 1.1(d) above by wire transfer of immediately available
funds if such amount is less than One Hundred Thousand Dollars ($100,000). The
Exchange Agent shall also reserve for each Undocumented Former Holder his or her
share of the amount referred to in this Section 1.5(b) (for payment upon
becoming a Documented Former Holder).
Notwithstanding anything contained in this Section l.5 to the contrary, the
Exchange Agent shall not issue checks to Former Holders for amounts less than
$10.00, except that the final payment under this Agreement to any Former Holder
shall have no minimum amount. Amounts less than $10.00 allocable to any Former
Holder on any scheduled payment date shall be retained in the Exchange Fund and
cumulate for the benefit of such Former Holder until the earlier of (i) the
first scheduled payment for which the funds in the Exchange Fund allocable to
such Former Holder exceed $10.00 or (ii) the final payment to such Former
Holder.
8.6 Discrepancies. The Exchange Agent will follow its regular
procedures to reconcile any discrepancies between the number of FlowWise Shares
any Letter of Transmittal may indicate are owned by a surrendering Former Holder
and the number that the Merger Consideration Schedule indicates was owned by the
Former Holder immediately prior to the Effective Time. In any instance where the
Exchange Agent cannot reconcile such discrepancies by following such procedures,
the Exchange Agent will consult with NET for instructions as to the number of
FlowWise Shares, if any, the Exchange Agent is authorized to accept for payment.
In the absence of such instructions, the Exchange Agent is instructed not to
make any payment.
8.7 Processing Letters of Transmittal. The Exchange Agent will
examine the Letters of Transmittal and Securities Documentation delivered or
mailed to the Exchange Agent to ascertain whether they have been completed and
executed in accordance with the instructions set forth in the Letter of
Transmittal and are in proper form for surrender. In the event any Letter of
Transmittal has not been properly completed or executed or the Securities
Documentation is
-4-
not in proper form for surrender or there is some other irregularity in
connection with the surrender, the Exchange Agent will follow its regular
procedures to cause such irregularity to be corrected. In instances where any
such irregularity is neither corrected nor waived, as soon as practicable, the
Exchange Agent will return to the surrendering Former Holder (by first class
mail under a blanket surety bond or insurance protecting the Exchange Agent and
Shareholder Representative or by registered mail insured separately for
replacement value, as the Exchange Agent in its sole discretion determines) any
Securities Documentation in connection therewith, together with the Letters of
Transmittal and any other documents relating thereto and a letter of notice
explaining the reasons for the return of the Securities Documentation and other
documents.
8.8 Date and Time Stamp. Each document received by the Exchange
Agent relating to the Exchange Agent's duties under this Agreement will be date
and time stamped when received.
8.9 Payment to Person Other than Registered Holder. If payment is to
be made by the Exchange Agent to a person other than the person in whose name
the Securities Documentation is registered, the Exchange Agent will make no
payment until the Letter of Transmittal accompanying the Securities
Documentation has been properly endorsed (or otherwise put in proper form for
transfer), with a proper form of signature guaranty, and the person requesting
such payment has established to the Exchange Agent's satisfaction either (a)
that any transfer and other taxes or governmental charges required by reason of
such payment in a name other than that of the registered holder of the
Securities Documentation have been paid or (b) that no such tax or charge is
payable.
8.10 Lost, Stolen or Destroyed Certificates. If any Former Holder
reports to the Exchange Agent that his, her or its failure to surrender the
Certificate(s) registered in his, her or its name immediately prior to the
Effective Time according to the Merger Consideration Schedule is due to the
loss, theft or destruction of the Certificate(s), such Former Holder shall
furnish an affidavit for such lost or destroyed Certificate(s) in the form of
Exhibit C hereto (and, if required by NET, the posting by such Former Holder of
a bond in such reasonable amount as NET may direct as indemnity against any
claim that may be made against it with respect to such Certificate(s)). The
Exchange Agent will notify NET prior to making any payment under this Section
1.10, and if NET does not require the posting of a bond within ten (10) business
days of such notification, upon receipt of any such affidavit, the Exchange
Agent may effect payment to the Former Holder pursuant to Section 1.5 above as
though he, she or it had surrendered his, her or its Certificate(s) without any
liability to Exchange Agent.
8.11 Cancellation of Certificates. Upon the payment to a Former
Holder by the Exchange Agent under Section 1.5(a) above, the Certificate(s)
surrendered by such Former Holder will be physically canceled by the Exchange
Agent and delivered to NET for posting to the shareholder records of FlowWise.
8.12 Exchange Reports. The Exchange Agent will forward to NET and
the Shareholder Representative reports of the Securities Documentation
surrendered and the aggregate amount of cash paid therefor in the following
manner: (a) a monthly report following the first month after the Closing Date;
(b) a quarterly report following the first (3) months after
-5-
the Closing Date; and (c) quarterly reports thereafter. If so instructed by the
Shareholder Representative, the Exchange Agent will prepare and forward such a
report on a monthly basis.
8.13 Tax Reporting. On or before January 31, 1999 and 2000, the
Exchange Agent will prepare and mail to each Former Holder, other than Former
Holders who demonstrate their status as nonresident aliens in accordance with
United States Treasury Regulations, a Form 1099-B and a Form 1099-INT, in
accordance with Treasury Regulations. The Exchange Agent will also prepare and
file copies of such Forms 1099-B and 1099-INT by magnetic tape with the Internal
Revenue Service, in accordance with Treasury Regulations. If the Exchange Agent
has not received notice from the surrendering Former Holder of that Former
Holder's certified taxpayer identification number, the Exchange Agent shall
deduct and withhold backup withholding tax from any cash payment pursuant to
Treasury Regulations. Should any issue arise regarding federal income tax
reporting or withholding, the Exchange Agent will take such action as NET and
the Shareholder Representative jointly instruct the Exchange Agent in writing.
The Shareholder Representative and NET jointly may modify or supplement the
federal tax reporting instructions to the Exchange Agent at any time by notice
in writing and the Exchange Agent shall comply with such modified or
supplemented instructions.
8.14 Follow-up Letters. No later than six (6) months after the
Effective Time, the Exchange Agent will mail or cause to be mailed a follow-up
letter, substantially in the form attached hereto as Exhibit D (the "Follow-up
Letter"), to all Former Holders who did not theretofore surrender their
Certificates. The follow up letter will be mailed with a Letter of Transmittal
and return envelope.
9. Escrow Services.
9.1 Establishment and Investment of the Exchange Fund; Taxation of
Interest. The Exchange Agent agrees to establish the Exchange Fund and to hold
the funds deposited by NET into the Exchange Fund in escrow until such time as
it is required to disburse the funds in such Exchange Fund as herein provided.
The Exchange Agent agrees to invest and reinvest the funds in the Exchange Fund
in money market funds with no less than a AAA rating. Any interest and other
earnings on the Exchange Fund shall be paid to the Former Holders on a pro-rata
basis in accordance with the respective amounts of Merger Consideration received
by each Former Holder. The parties acknowledge that the Exchange Agent shall not
be responsible for any diminution in the Exchange Fund due to losses resulting
from investments. The Exchange Agent may use its own Bond Department in
executing purchases and sales of permissible investments.
9.2 Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Certificates more than six (6)
months after the expiration of the Indemnification Period shall be delivered to
NET, upon written demand, and any Former Holders who have not theretofore
complied with the requirements of Section 1.5(a) above shall thereafter look
only to NET for payment of their claim for the Merger Consideration payable to
such Former Holders pursuant to Section 2.1 of the Merger Agreement, in each
case without interest thereon, except as may apply with respect to the Holdback
Amount.
9.3 Disposition of Holdback Amount.
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(a) Term of Escrow. Except as provided in this Section 2.3,
the Holdback Amount shall not be released from escrow until the expiration of
the Indemnification Period. At such time, subject to the provisions of this
Section 2.3 and payment of the Shareholder Representative's expenses in
accordance with Section 3.3 below, the Holdback Amount shall be delivered to the
Former Holders in accordance with Section 1.5(b) hereof.
(b) Certification of Damages.
(i) In the event that NET shall have incurred any
Damages for which NET wishes to seek adjustment to the Holdback Amount
pursuant to Section 11.1 of the Merger Agreement, NET shall provide
written notice to the Shareholder Representative and the Exchange Agent in
accordance with the terms of Section 11.3(c) of the Merger Agreement. Such
notice shall (A) state that NET has paid Damages, (B) specify in
reasonable detail the individual items of Damages included in the amount
so stated, the date each such item was paid, and the nature of the
misrepresentation, breach of warranty or covenant or other adjustment to
the Holdback Amount to which such item is related, and (C) indicate that
NET is seeking adjustment to the Holdback Amount under Article XI of the
Merger Agreement.
(ii) Within thirty (30) calendar days after delivery of
NET's notice claiming indemnification, the Shareholder Representative may
provide written notice to NET and the Exchange Agent that (A) the
Shareholder Representative (on behalf of the Former Holders) disputes the
claim for indemnification, or (B) the Shareholder Representative (on
behalf of the Former Holders) disputes and intends to defend the claim or
Legal Proceeding giving rise such Damages or potential Damages in
accordance with Section 11.7 of the Merger Agreement. In either case, the
Exchange Agent shall make payment with respect to such Damages only in
accordance with (X) subsequent jointly-written instructions of the
Shareholder Representative and NET, or (Y) a final non-appealable order of
a court of competent jurisdiction together with a legal opinion of counsel
for the presenting party satisfactory to the Exchange Agent to that effect
that the order is final and non-appealable.
(iii) Unless the Shareholder Representative contests
such claim in writing within thirty (30) calendar days in the manner
described in subsection (ii) above, the Exchange Agent shall deliver the
amount stated in NET's notice from (and only to extent of) the remaining
balance of the Holdback Amount.
(c) Notice of Anticipated Damages Prior to Expiration of
Indemnification Period.
(i) Notwithstanding anything to the contrary herein, no
later than the date of the expiration of the Indemnification Period, in
the event that NET reasonably anticipates that it will have to pay or
accrue Damages relating to (i) claims for which NET has not provided
notice pursuant to subsection (b) of this Section
-7-
2.3 that NET reasonably believes are indemnifiable under Article XI of the
Merger Agreement, or (ii) claims for which NET has provided notice
pursuant to subsection (b) of this Section 2.3 that have not been finally
resolved in accordance with Article XI of the Merger Agreement, NET shall
deliver to the Shareholder Representative and the Exchange Agent an
Officer's Certificate setting forth the information identified in clauses
(A), (B) and (C) of subsection (b)(i) of this Section 2.3 with respect to
such claims (including, without limitation, information related to any
anticipated claims and the Basis for such anticipated Liability).
(ii) Within ten (10) calendar days after delivery of
NET's notice referenced in subsection (i) above, the Shareholder
Representative may provide written notice to NET and the Exchange Agent
that (A) the Shareholder Representative (on behalf of the Former Holders)
disputes the claim for indemnification in accordance with Section 11.3(e)
of the Merger Agreement. In such case, the Exchange Agent shall not
deliver any of the Holdback Amount to the Former Holders or NET and shall
continue to hold the Holdback Amount in escrow, subject to the terms
hereof, until such time as the Exchange Agent receives written
instructions from the Neutral Third Party as acknowledged by the
Shareholder Representative and NET that either (A) the Holdback Amount
shall remain in escrow and the distribution of the Holdback Amount shall
be made pursuant to the procedure set forth in subsection (b) of this
Section 2.3, or (B) the Holdback Amount shall be distributed to the Former
Holders in accordance with Section 1.5(b) hereof.
(iii) Unless the Shareholder Representative contests
such claim in writing within ten (10) calendar days in the manner
described in subsection (ii) above, the Exchange Agent shall deliver the
amount stated in NET's notice from (and only to extent of) the remaining
balance of the Holdback Amount.
For purposes of this Section 2.3 , the term "NET" shall be deemed to include any
Indemnitee (as such term is defined in the Merger Agreement and used in Article
XI thereof).
10. Shareholder Representative.
10.1 Authorization; Removal. From and after the Effective Time, the
Former Holders shall be represented hereunder by the Shareholder Representative.
The Shareholder Representative has been duly authorized to act on the Former
Holder's behalf by the affirmative vote of the holders of a majority of the
shares of FlowWise Capital Stock outstanding immediately prior to the Effective
Time. The Shareholder Representative has the power and authority to bind all of
the Former Holders with respect to the Shareholder Representative's performance
of this Exchange Agreement. A decision, act, consent or instruction of the
Shareholder Representative shall constitute a decision of all Former Holders,
and NET and the Exchange Agent may rely upon any such decision, act, consent or
instruction of the Shareholder Representative as being the decision, act,
consent or instruction of each and every Former Holder. Notice or communications
to or from the Shareholder Representative shall constitute notice to or from
each of the Former Holders. The Shareholder Representative may be changed by the
Former Holders from time to time upon not less than ten (10) business days prior
written notice to NET; provided the Shareholder Representative may not be
removed unless a majority in interest of the Former Holders agree to such
removal and to the identity of the substituted Shareholder Representative.
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In such event, the substitute Shareholder Representative shall agree in writing
to abide by the terms of this Exchange Agreement, and, upon such written
agreement, all parties hereto shall recognize the substitute as the Shareholder
Representative hereunder. No bond shall be required of the Shareholder
Representative, and the Shareholder Representative shall receive no compensation
for his or her services.
10.2 Powers and Duties. The Shareholder Representative shall have
the following powers and duties: (a) to give and receive notices and
communications; (b) to employ accountants, attorneys, and other such agents as
the Shareholder Representative may deem available and to pay reasonable
compensation for their services; (c) 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 claims for damages under
Article XI of the Merger Agreement; and (d) to take all actions necessary or
appropriate in the judgment of the Shareholder Representative for the
accomplishment of the foregoing. The Shareholder Representative shall not be
liable for any act done or omitted hereunder as Shareholder Representative while
acting in good faith and in a manner not constituting gross negligence, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith. The Former Holders shall severally indemnify the
Shareholder Representative and hold him or her harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the part
of the Shareholder Representative and arising out of or in connection with the
acceptance or administration of the Shareholder Representative's duties
hereunder.
10.3 Expenses of Shareholder Representative. Following the
expiration of the Indemnification Period and subject to the resolution of all
claims of NET in accordance with Section 11 of the Merger Agreement, if any
amounts remain in the Holdback Amount, the Shareholder Representative shall be
entitled to be compensated for his actual out-of-pocket expenses incurred in
connection with the fulfillment of his duties under the Merger Agreement and
hereunder, prior to the distribution of Holdback Amount.
11. Indemnification of the Exchange Agent. NET and the Former Holders,
severally, shall reimburse, indemnify and hold harmless the Exchange Agent, its
employees and agents (referred to in this Section 4 severally and collectively
as the "Exchange Agent"), from and against any loss, damage, liability or claim
suffered, incurred by, or asserted against the Exchange Agent (including any
amounts paid in settlement of any action, suit, proceeding, or claim brought or
threatened to be brought and including expenses of legal counsel) arising out
of, in connection with or based upon any act or omission by the Exchange Agent
relating in any way to this Agreement or its services hereunder, so long as the
Exchange Agent has acted in good faith and in a manner not constituting gross
negligence. The costs and expenses of enforcing this right of indemnification
shall also be borne by NET and the Former Holders equally; provided, however,
that the Former Holders shall not be required to pay any amounts except from the
Exchange Fund (to the extent available). In the event that any amount is due to
the Exchange Agent pursuant to this Section 4, the Exchange Agent shall have the
right to deduct such amount from the Exchange Fund (to the extent available);
provided, however, that NET shall pay one-half of such amount, either directly
to the Exchange Agent or by reimbursing the Exchange Fund for such amount. If
the Exchange Fund has been distributed to the Former Holders in accordance with
Section 1.5(b) hereof or the funds available in the Exchange Fund are
insufficient to satisfy such obligation, then
-9-
such indemnification obligation shall be borne by NET. The right of the Exchange
Agent to indemnification hereunder shall survive its resignation or removal as
the Exchange Agent and shall survive the termination of this Agreement by lapse
of time or otherwise.
12. Fees. All fees and costs of the Exchange Agent shall be paid or
reimbursed from NET when and as incurred. Notwithstanding the foregoing, in the
event that the term of the Indemnification Period is extended in accordance with
Section 2.3(c) hereof, an additional fees and costs incurred in connection
therewith shall be paid out of the Holdback Amount, to the extent such funds are
available, when and as incurred. A copy of the fee schedule of the Exchange
Agent is attached hereto as Exhibit E and incorporated herein by this reference.
13. Limitations Upon the Exchange Agent's Duties.
13.1 As the Exchange Agent under this Agreement, the Exchange Agent:
(a) will have no duties or obligations other than those
specifically set forth in this Agreement or in a written supplement to this
Agreement delivered by the Shareholder Representative and NET and executed by
the Exchange Agent;
(b) will be regarded as making no representations and having
no responsibilities as to the legality, validity, sufficiency, value or
genuineness of any Securities Documentation surrendered to the Exchange Agent
under this Agreement and will not be required to and will make no
representations as to the legality, validity, value or genuineness of the
Merger;
(c) will not be obligated to take any legal action under this
Agreement which might, in the Exchange Agent's sole judgment, involve any
expense or liability to it unless the Exchange Agent has been furnished with
indemnity satisfactory to the Exchange Agent;
(d) may rely on and be fully protected in acting upon any
certificate, instrument, opinion, notice, letter, telegram or other document or
security delivered to the Exchange Agent and reasonably believed by the Exchange
Agent to be genuine and to have been signed by the proper party or parties and
may take the statements made therein as correct without any affirmative duty of
inquiry or investigation;
(e) will not be liable or responsible for any recital or
statement contained in the Letter of Transmittal or any other documents which
are prepared by persons other than the Exchange Agent or its counsel;
(f) will not be liable or responsible for any failure on the
part of NET, FlowWise or the Shareholder Representative to comply with any of
their covenants and obligations contained in the Merger Agreement or any other
documents;
(g) may rely on and will be protected in acting upon the
written or oral instructions of NET, FlowWise or the Shareholder Representative
and their respective counsel, as the case may be, prior to the Effective Time of
the Merger and the Shareholder Representative or NET and its respective counsel,
as the case may be, after the Effective Time of the Merger with
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respect to the Exchange Agent's duties under this Agreement, and will not be
liable for any action taken, suffered or omitted by the Exchange Agent under
this Agreement in accordance with any such instructions; and
(h) may consult with counsel satisfactory to the Exchange
Agent, and the opinion of such counsel will be full and complete authorization
and protection with respect to action taken, suffered or omitted by the Exchange
Agent under this Agreement in good faith and in accordance with the opinion of
such counsel.
13.2 In the event any question or dispute arises with respect to the
proper interpretation of the Merger Consideration Schedule, the Merger
Agreement, the Exchange Agent's duties under this Agreement or the rights of any
party hereto or of any Former Holder under the Merger Agreement, the Exchange
Agent will not be required to act and will not be held liable for refusal to act
until the question or dispute has been judicially settled (and the Exchange
Agent may, if the Exchange Agent in its sole discretion deems it advisable, but
will not be obligated to, file a suit in interpleader or for a declaratory
judgment for such purpose) by final judgment rendered by a court of competent
jurisdiction, binding upon NET, FlowWise, the Shareholder Representative and
relevant Former Holders, which is no longer subject to review or appeal, or
settled by a written document in form and substance satisfactory to the Exchange
Agent and executed by each of such parties and Former Holders which, in the
Exchange Agent's opinion, is relevant to the matter. At the Exchange Agent's
option, the Exchange Agent may additionally require for such purpose, but will
not be obligated to require for such purpose, the execution of such written
settlement by the relevant Former Holders and any other parties that may have an
interest in the settlement. Any court order or judgment referred to above shall
be accompanied by a legal opinion of counsel for the presenting party
satisfactory to the Exchange Agent to the effect that such court order or
judgment is final and enforceable and is not subject to further appeal. The
Exchange Agent shall act on such court order and legal opinion without further
question.
14. Termination of Exchange Agreement; Resignation of Exchange Agent. NET
and the Shareholder Representative may jointly terminate this Agreement at any
time by so notifying the Exchange Agent in writing. The Exchange Agent may
resign at any time by giving written notice thereof to the other parties hereto,
but such resignation shall not become effective until a successor Exchange Agent
shall have been appointed and shall have accepted such appointment in writing.
If an instrument of acceptance by a successor Exchange Agent shall not have been
delivered to the Exchange Agent within thirty (30) days of the giving of such
notice of resignation, the resigning Exchange Agent may petition any court of
competent jurisdiction for the appointment of a successor Exchange Agent. Unless
so terminated, this Agreement shall continue in effect until the date that the
Exchange Fund has been finally distributed pursuant to the terms of this
Agreement. In the event of a termination of this Agreement by NET prior to the
time date that the Exchange Fund has been finally distributed, NET shall appoint
a successor Exchange Agent that will be reasonably acceptable to the Shareholder
Representative and inform the Exchange Agent of the name and address of any
successor Exchange Agent, provided that no failure by NET to appoint such a
successor Exchange Agent shall affect the termination of this Agreement or the
discharge of the Exchange Agent as the Exchange Agent hereunder. Upon any such
termination, the Exchange Agent shall be relieved and discharged of any further
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responsibilities with respect to its duties hereunder (other than the Exchange
Agent's responsibility to deliver the Former Holder's property to the
Shareholder Representative, to deliver the Exchange Fund to the new Exchange
Agreement and to forward documents to NET pursuant to the following sentence
hereof). Upon payment of all of the Exchange Agent's outstanding fees and
expenses (other than fees and expenses of counsel of the Exchange Agent arising
from any dispute under this Agreement), the Exchange Agent will, upon NET's
written instruction, deliver to the Former Holders any remaining funds which
have been deposited with the Exchange Agent pursuant to this Agreement (if any
so remain for distribution), deliver to NET any records concerning prior
payments to and distributions from the Exchange Fund and exchanges of
Certificates for Merger Consideration and promptly forward, pursuant to NET's
instructions, any Certificates, Letters of Transmittal, or other documents
relating to its previous duties hereunder that the Exchange Agent may receive
after its appointment has so terminated. In the event of a termination of the
Exchange Agent or any successor of the Exchange Agent, the Exchange Agent will
promptly notify any Former Holders who have not been paid hereunder of such
termination, and, if a successor Exchange Agent has been appointed, of the name
and address of such successor.
15. General Provisions.
15.1 Address for Notices. Any notice provided for or permitted under
this Agreement will be treated as having been given when (a) delivered
personally, (b) sent by confirmed telecopy, (c) sent by commercial overnight
courier with written verification of receipt, or (d) mailed postage prepaid by
certified or registered mail, return receipt requested, to the party to be
notified, at the address set forth below, or at such other place of which the
other party has been notified in accordance with the provisions of this Section
8.1.
If to FlowWise: FlowWise Networks, Inc.
0000 X. Xxxxx Xxxxxx, Xxx. 000
Xxx Xxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: President
With copy to: Venture Law Group, A Professional Corporation
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Tae Xxx Xxxx
If to NET: Network Equipment Technologies, Inc.
0000 Xxxxx Xxxxx Xxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: President
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With copies to: Network Equipment Technologies, Inc.
0000 Xxxxx Xxxxx Xxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: General Counsel
Crosby, Heafey, Xxxxx & May
Professional Corporation
Four Embarcadero Center, Ste. 1900
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
If to the Shareholder Xxxxxxx X. Xxxxxx
Representative: Battery Ventures
000 Xxxxxxx'x Xxxxxx Xxxx., Xxx. 000
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Venture Law Group, A Professional
Corporation
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Tae Xxx Xxxx
If to the Exchange Agent: U.S. Bank Trust National Association
Corporate Trust Services
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxxxxx
Such notice will be treated as having been received upon actual
receipt.
15.2 Successors and Assigns. This Agreement is binding upon and
shall inure to the benefit of the respective parties hereto and their respective
heirs, executors, administrators, successors and permitted assigns; provided,
however, that any heirs, executors, administrators, successors and assigns shall
only be liable for any liabilities hereunder to the extent of the value of the
property or assets received from their respective predecessor in interest. No
party may assign its duties and responsibilities hereunder without the written
consent of the other parties thereto. Any company into which the Exchange Agent
may be merged or with which it may be consolidated, or any company to whom the
Exchange Agent may transfer a substantial amount of its global escrow business,
shall be the successor to the Exchange Agent without the execution or filing of
any paper or any further act on the part of any party, anything herein to the
contrary notwithstanding.
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15.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
reference to conflicts of laws principles.
15.4 Amicable Resolution.
(a) To the extent that any misunderstanding or dispute which
arises among the parties hereto cannot be resolved agreeably in a friendly
manner, the dispute will be mediated by a mutually-acceptable mediator to be
chosen by NET, the Shareholder Representative and the Exchange Agent within
thirty (30) days after written notice by one of the parties demanding mediation.
No party may unreasonably withhold consent to the selection of a mediator,
however, by mutual agreement the parties may postpone mediation until each has
completed specified but limited discovery with respect to a dispute. The parties
may also agree to attempt some other form of alternative dispute resolution
("ADR") in lieu of mediation, including by way of example and without limitation
neutral fact-finding or a mini-trial.
(b) Any dispute that the parties cannot resolve through
negotiation, mediation or other form of ADR within three (3) months of the date
of the initial demand for it by one of the parties may then be submitted to the
courts for resolution. The use of any ADR procedures will not be construed under
the doctrines of laches, waiver or estoppel to affect adversely the rights of
either party. Nothing in this Section 8.4 will prevent any party from resorting
to judicial proceedings if (i) good faith efforts to resolve the dispute under
these procedures have been unsuccessful or (ii) interim relief from a court is
necessary to prevent serious and irreparable injury to a party or to others.
15.5 Amendments. Any provision of this Agreement may be amended only
by agreement in writing signed by all of the signatories hereto.
15.6 Counterparts. This Agreement may be executed in counterparts,
including counterparts transmitted by telecopier or telefax, each of which shall
be deemed an original, but all of which together shall constitute one
instrument.
15.7 Attorneys' Fees. In the event that any dispute arises with
respect to the subject matter of this Agreement, including a dispute resolved
through arbitration, the prevailing party(ies) shall be entitled to recover from
the losing party(ies) its or their reasonable attorneys' fees and legal costs
and expenses incurred in resolving or settling the dispute.
(This space intentionally left blank)
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IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be duly executed on the day and year first above written.
"FLOWWISE" "NET"
FLOWWISE NETWORKS, INC. NETWORK EQUIPMENT TECHNOLOGIES, INC.
By: By:
-------------------------------- --------------------------------
Name: Name:
-------------------------------- --------------------------------
Title: Title:
-------------------------------- --------------------------------
"SHAREHOLDER REPRESENTATIVE" "SUB"
XXXXXXX X. XXXXXX IPNOW, INC.
By:
---------------------------- --------------------------------
Xxxxxxx X. Xxxxxx Name:
--------------------------------
Title:
--------------------------------
"EXCHANGE AGENT"
U.S. BANK TRUST NATIONAL ASSOCIATION
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
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