EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
BROCADE COMMUNICATIONS SYSTEMS, INC.
MAVERICK ACQUISITION CORP.
RHAPSODY NETWORKS, INC.
AND WITH RESPECT TO ARTICLES VII AND IX ONLY
XXXXXXX X. XXXXX
AS STOCKHOLDER REPRESENTATIVE
AND
U.S. BANK, N.A.
AS ESCROW AGENT
DATED AS OF NOVEMBER 5, 2002
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ARTICLE I THE MERGER.................................................................................... 2
1.1 The Merger............................................................................ 2
1.2 Effective Time........................................................................ 2
1.3 Effect of the Merger.................................................................. 2
1.4 Certificate of Incorporation and Bylaws............................................... 2
1.5 Directors and Officers................................................................ 3
1.6 Effect of Merger on the Capital Stock of the Constituent Corporations................. 3
1.7 Dissenting Shares..................................................................... 12
1.8 Surrender of Certificates............................................................. 13
1.9 No Further Ownership Rights in Company Capital Stock.................................. 14
1.10 Lost, Stolen or Destroyed Certificates................................................ 15
1.11 Tax Consequences...................................................................... 15
1.12 Taking of Necessary Action; Further Action............................................ 15
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................ 15
2.1 Organization of the Company........................................................... 15
2.2 Company Capital Structure............................................................. 16
2.3 Subsidiaries.......................................................................... 18
2.4 Authority............................................................................. 18
2.5 No Conflict........................................................................... 18
2.6 Consents.............................................................................. 19
2.7 Company Financial Statements.......................................................... 19
2.8 No Undisclosed Liabilities............................................................ 20
2.9 No Changes............................................................................ 20
2.10 Tax Matters........................................................................... 23
2.11 Restrictions on Business Activities................................................... 25
2.12 Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment;
Customer Information.................................................................. 25
2.13 Intellectual Property................................................................. 27
2.14 Agreements, Contracts and Commitments................................................. 33
2.15 Interested Party Transactions......................................................... 34
2.16 Governmental Authorization............................................................ 35
2.17 Litigation............................................................................ 35
2.18 Minute Books.......................................................................... 35
2.19 Environmental Matters................................................................. 36
2.20 Brokers' and Finders' Fees; Third Party Expenses...................................... 37
2.21 Employee Benefit Plans and Compensation............................................... 37
2.22 Insurance............................................................................. 42
2.23 Compliance with Laws.................................................................. 42
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2.24 Foreign Corrupt Practices Act......................................................... 42
2.25 Warranties; Indemnities............................................................... 42
2.26 Complete Copies of Materials.......................................................... 42
2.27 Representations Complete.............................................................. 43
2.28 Information Statement................................................................. 43
2.29 Spreadsheet........................................................................... 43
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB............................................ 43
3.1 Organization, Standing and Power...................................................... 43
3.2 Authority............................................................................. 44
3.3 Consents.............................................................................. 44
3.4 Parent Common Stock................................................................... 44
3.5 Broker's and Finders' Fees............................................................ 44
3.6 SEC Documents; Parent Financial Statements............................................ 45
3.7 No Vote Required...................................................................... 45
3.8 No Conflicts.......................................................................... 45
3.9 Information Statement................................................................. 45
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.......................................................... 46
4.1 Conduct of Business of the Company.................................................... 46
4.2 No Solicitation....................................................................... 49
ARTICLE V ADDITIONAL AGREEMENTS......................................................................... 50
5.1 Fairness Hearing; Stockholder Approval................................................ 50
5.2 Restrictions on Transfer.............................................................. 52
5.3 Access to Information................................................................. 52
5.4 Confidentiality....................................................................... 52
5.5 Expenses.............................................................................. 53
5.6 Public Disclosure..................................................................... 53
5.7 Consents.............................................................................. 54
5.8 FIRPTA Compliance..................................................................... 54
5.9 Reasonable Efforts.................................................................... 54
5.10 Notification of Certain Matters....................................................... 55
5.11 Additional Documents and Further Assurances........................................... 55
5.12 S-8 Registration...................................................................... 55
5.13 New Employment Arrangements........................................................... 55
5.14 Severance or Transitional Packages.................................................... 56
5.15 Vesting Waivers....................................................................... 56
5.16 Affiliate Agreements.................................................................. 56
5.17 Statement of Expenses................................................................. 57
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5.18 Termination of 401(k) Plan............................................................ 57
5.19 Resignation of Officers and Directors................................................. 57
5.20 Proprietary Information and Inventions Assignment Agreement........................... 57
5.21 HSR Act............................................................................... 58
5.22 Spreadsheet........................................................................... 58
5.23 No Liability for New Employees........................................................ 59
5.24 Voting Agreements..................................................................... 59
5.25 Non-Competition Agreements............................................................ 59
5.26 Termination of Agreements............................................................. 59
5.27 Closing Financial Statements.......................................................... 59
5.28 Tax Matters........................................................................... 60
5.29 Nasdaq Listing........................................................................ 60
5.30 Termination of Warrants............................................................... 60
5.31 Indemnification....................................................................... 60
ARTICLE VI CONDITIONS TO THE MERGER..................................................................... 60
6.1 Conditions to Obligations of Each Party to Effect the Merger.......................... 60
6.2 Conditions to the Obligations of Parent and Sub....................................... 61
6.3 Conditions to Obligations of the Company.............................................. 64
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW.......................................... 66
7.1 Survival of Representations, Warranties and Covenants................................. 66
7.2 Indemnification....................................................................... 66
7.3 Escrow Arrangements................................................................... 67
7.4 Stockholder Representative............................................................ 74
7.5 Maximum Payments; Remedy.............................................................. 75
7.6 Right of Set-Off...................................................................... 75
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................................................... 76
8.1 Termination........................................................................... 76
8.2 Effect of Termination................................................................. 77
8.3 Amendment............................................................................. 77
8.4 Extension; Waiver..................................................................... 77
ARTICLE IX GENERAL PROVISIONS........................................................................... 77
9.1 Notices............................................................................... 77
9.2 Interpretation........................................................................ 79
9.3 Counterparts.......................................................................... 79
9.4 Entire Agreement; Assignment.......................................................... 79
9.5 Severability.......................................................................... 80
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9.6 Other Remedies........................................................................ 80
9.7 Governing Law......................................................................... 80
9.8 Rules of Construction................................................................. 80
9.9 WAIVER OF JURY TRIAL.................................................................. 80
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
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Exhibit A Form of Voting Agreement*
Exhibit B-1 Form of Non-Competition Agreement*
Exhibit B-2 Form of Non-Competition Agreement*
Exhibit C Form of Certificate of Merger*
Exhibit D Form of Standard Waiver of Vesting*
Exhibit E Form of Affiliate Agreement*
Exhibit F Form of Legal Opinion of Counsel of the Company*
Exhibit G Form of CEO and CFO Certification*
Exhibit H Form of Legal Opinion of Counsel of Parent*
Exhibit I Form of Tax Representation Letter*
SCHEDULES
Disclosure Schedule of Rhapsody Networks, Inc.*
Schedule 4.1 Conduct of the Business*
Schedule 5.15 Vesting Waivers*
Schedule 5.16 Affiliates to Sign Affiliate Agreements*
Schedule 5.24 Persons to Sign Voting Agreements*
Schedule 5.25 Persons to Sign Non-Competition Agreements*
Schedule 6.2(b) Required Consents*
Schedule 6.2(c) Termination of Agreements*
Schedule 6.2(l) Rhapsody Employee Hiring Requirements*
Annex A: Earn-Out Payment Conditions
* A copy of these omitted schedules will be provided supplementally to the
Commission upon request.
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THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of November 5, 2002 by and among Brocade Communications Systems,
Inc., a Delaware corporation ("PARENT"), Maverick Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent ("SUB"), Rhapsody Networks,
Inc., a Delaware corporation (the "COMPANY"), and, with respect to ARTICLE VII
and ARTICLE IX hereof only, Xxxxxxx X. Xxxxx as stockholder representative (the
"STOCKHOLDER REPRESENTATIVE"), and U.S. Bank, N.A. as escrow agent (the "ESCROW
AGENT").
RECITALS
A. The Boards of Directors of each of Parent, Sub and the Company
believe it is in the best interests of each company and its respective
stockholders that Parent acquire the Company through the statutory merger of Sub
with and into the Company (the "MERGER") and, in furtherance thereof, have
approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement (i) all of the issued and outstanding
capital stock of the Company shall be converted into the right to receive the
consideration set forth herein, and (ii) all issued and outstanding options to
purchase capital stock of the Company shall be assumed by Parent and converted
into options to purchase common stock of Parent.
C. A portion of the consideration otherwise payable by Parent in
connection with the Merger shall be placed in escrow by Parent as security for
the indemnification obligations set forth in this Agreement.
D. The Company, on the one hand, and Parent and Sub, on the other
hand, desire to make certain representations, warranties, covenants and other
agreements in connection with the Merger.
E. Concurrent with the execution and delivery of this Agreement,
as a material inducement to Parent and Sub to enter into this Agreement (i) all
executive officers and directors of the Company and certain principal
stockholders of the Company are entering into Voting Agreements, in form
attached hereto as EXHIBIT A (the "VOTING AGREEMENTS"), with Parent, (ii) Key
Employees (as defined in SECTION 1.6 hereof) and executive officers of the
Company who are listed on SECTION 5.25 of the Disclosure Schedule are entering
into Non-Competition Agreements, each in the form attached hereto as EXHIBIT B
(the "NON-COMPETITION AGREEMENTS"), with Parent effective as of the Effective
Time and (iii) the Key Employees are accepting offers of employment from Parent
effective as of the Effective Time.
F. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
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NOW, THEREFORE, in consideration of the mutual agreements, covenants
and other promises set forth herein, the mutual benefits to be gained by the
performance thereof, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged and accepted, the parties
hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER
At the Effective Time (as defined in SECTION 1.2 hereof) and subject to
and upon the terms and conditions of this Agreement and the applicable
provisions of the General Corporation Law of the State of Delaware ("DELAWARE
LAW"), Sub shall be merged with and into the Company, the separate corporate
existence of Sub shall cease, and the Company shall continue as the surviving
corporation and as a wholly-owned subsidiary of Parent. The surviving
corporation after the Merger is sometimes referred to hereinafter as the
"SURVIVING CORPORATION."
1.2 EFFECTIVE TIME
Unless this Agreement is earlier terminated pursuant to SECTION 8.1
hereof, the closing of the Merger (the "CLOSING") will take place as promptly as
practicable after the execution and delivery hereof by the parties hereto, and
following satisfaction or waiver of the conditions set forth in ARTICLE VI
hereof, at the offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional
Corporation, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx, unless another time or
place is mutually agreed upon in writing by Parent and the Company. The date
upon which the Closing actually occurs shall be referred to herein as the
"CLOSING DATE." On the Closing Date, the parties hereto shall cause the Merger
to be consummated by filing a Certificate of Merger in substantially the form
attached hereto as EXHIBIT C, with the Secretary of State of the State of
Delaware (the "CERTIFICATE OF MERGER"), in accordance with the applicable
provisions of Delaware Law (the time of acceptance by the Secretary of State of
the State of Delaware of such filing shall be 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 Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, except as otherwise
agreed to pursuant to the terms of this Agreement, all the property, rights,
privileges, powers and franchises of the Company and Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of the Company and
Sub shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS
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(a) Unless otherwise determined by Parent prior to the
Effective Time, the certificate of incorporation of the Surviving Corporation
shall be amended and restated as of the Effective Time to conform to the
certificate of incorporation of Sub as in effect immediately prior to the
Effective Time, until thereafter amended in accordance with Delaware Law and as
provided in such certificate of incorporation; provided, however, that at the
Effective Time, Article I of the certificate of incorporation of the Surviving
Corporation shall be amended and restated in its entirety to read as follows:
"The name of the corporation is Rhapsody Networks, Inc."
(b) Unless otherwise determined by Parent prior to the
Effective Time, the bylaws of Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation at the
Effective Time until thereafter amended in accordance with Delaware Law and as
provided in the certificate of incorporation of the Surviving Corporation and
such bylaws.
1.5 DIRECTORS AND OFFICERS
(a) DIRECTORS OF COMPANY. Unless otherwise determined by
Parent prior to the Effective Time, the directors of Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation
immediately after the Effective Time, each to hold the office of a director of
the Surviving Corporation in accordance with the provisions of Delaware Law and
the certificate of incorporation and bylaws of the Surviving Corporation until
their successors are duly elected and qualified.
(b) OFFICERS OF COMPANY. Unless otherwise determined by Parent
prior to the Effective Time, the officers of Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation immediately
after the Effective Time, each to hold office in accordance with the provisions
of the bylaws of the Surviving Corporation.
1.6 EFFECT OF MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS
(a) DEFINITIONS. For all purposes of this Agreement, the
following terms shall have the following respective meanings:
(i) "COMPANY ASSUMED WARRANT" shall mean any
issued and outstanding warrant to purchase Company Capital Stock listed on
SECTION 1.6(a)(i) of the Disclosure Schedule, to the extent it is not exercised
or cancelled prior to the Effective Time.
(ii) "COMPANY CAPITAL STOCK" shall mean the
Company Common Stock, the Company Preferred Stock and any other shares of
capital stock, if any, of the Company, taken together.
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(iii) "COMPANY COMMON STOCK" shall mean shares of
common stock, $0.001 par value per share, of the Company.
(iv) "COMPANY COMMON STOCKHOLDER" shall mean a
holder of Company Common Stock, each of whom are listed on SECTION 1.6(a)(IV) of
the Disclosure Schedule.
(v) "COMPANY MATERIAL ADVERSE EFFECT" shall mean
any change, event or effect that is materially adverse to the business, assets
(whether tangible or intangible), financial condition, operations or
capitalization of the Company; provided, however, that in no event shall any
change, event or effect (alone or in combination) be taken into account in
determining whether there has been or will be a Company Material Adverse Effect
to the extent such change, event or effect results from changes affecting any of
the industries in which the Company operates generally or the United States
economy generally (which changes in each case do not disproportionately affect
the Company).
(vi) "COMPANY OPTIONS" shall mean all issued and
outstanding options (including commitments to grant options) to purchase or
otherwise acquire Company Common Stock (whether or not vested) held by any
person or entity, each of which are listed on SECTION 1.6(a)(VI) of the
Disclosure Schedule.
(vii) "COMPANY PREFERRED STOCK" shall mean the
Company Series A Preferred Stock and the Company Series B Preferred Stock, taken
together.
(viii) "COMPANY PREFERRED STOCKHOLDER" shall mean a
holder of Company Preferred Stock, each of whom are listed on SECTION
1.6(a)(VIII) of the Disclosure Schedule.
(ix) "COMPANY SERIES A PREFERRED STOCK" shall
mean the Series A Redeemable Preferred Stock, par value $0.001 per share, of the
Company.
(x) "COMPANY SERIES B PREFERRED STOCK" shall
mean the Series B Convertible Preferred Stock, par value $0.001 per share, of
the Company.
(xi) "COMPANY UNVESTED COMMON STOCK" shall mean
any shares of Company Common Stock issued and outstanding immediately prior to
the Effective Time that are unvested or are subject to a repurchase option, risk
of forfeiture or other condition under any applicable stock restriction
agreement or other agreement with the Company.
(xii) "ESCROW AGENT" shall mean U.S. Bank, N.A.,
or another institution acceptable to Parent and the Stockholder Representative.
(xiii) "ESCROW AMOUNT" shall mean 2,018,843 shares
of Parent Common Stock escrowed pursuant to SECTION 1.8 hereof.
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(xiv) "ESTIMATED THIRD PARTY EXPENSES" shall mean
the amount of Third Party Expenses (as defined in SECTION 5.5 hereof) set forth
on the Statement of Expenses (as defined in SECTION 5.5 hereof).
(xv) "EXCHANGE RATIO" shall mean the Residual
Proceeds divided by (the Total Outstanding Shares, rounded to the nearest ten
thousandth (0.0001) (with amounts 0.00005 and above rounded up).
(xvi) "FAIR MARKET VALUE" shall mean the last
reported sale price of Parent Common Stock on the Nasdaq National Market or, if
no such reported sale takes place on any such day, the average of the closing
bid and asked prices.
(xvii) "GAAP" shall mean United States generally
accepted accounting principles consistently applied.
(xviii) "KEY EMPLOYEES" shall mean the employees
listed in SCHEDULE 1.6(a)(xviii) hereof.
(xix) "KNOWLEDGE" or "KNOWN" shall mean the actual
knowledge of the Company's officers and directors; provided, however, that such
persons shall have made due and diligent inquiry of those employees of the
Company whom such officers and directors reasonably believe would have actual
knowledge of the matters represented.
(xx) "LIEN" shall mean any lien, pledge, charge,
claim, mortgage, security interest or other encumbrance of any sort.
(xxi) "PARENT COMMON STOCK" shall mean shares of
the common stock, par value $0.001 per share, of Parent together with associated
preferred stock purchase rights.
(xxii) "PARENT OPTION" shall mean any option to
purchase shares of Parent Common Stock issued pursuant to the terms of SECTION
1.6(d) hereof in connection with the assumption of a Company Option.
(xxiii) "PLANS" shall mean the Company's 2000 Equity
Incentive Plan.
(xxiv) "PRO RATA PORTION" shall mean, with respect
to each Stockholder, an amount equal to the quotient obtained by dividing (x) a
number equal to (A) Total Consideration issuable pursuant to SECTION 1.6(b) in
respect of the shares of Company Capital Stock owned by such Stockholder as of
the Effective Time less (B) Total Consideration issuable pursuant to SECTION
1.6(b) in respect of the shares of Company Unvested Common Stock owned by such
Stockholder as of the Effective Time, by (y) a number equal to (C) Total
Consideration issuable to all Stockholders pursuant to SECTION 1.6(b) less (D)
Total Consideration issuable to all Stockholders for Company Unvested Common
Stock pursuant to SECTION 1.6(b).
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(xxv) "RELATED AGREEMENTS" shall mean the Voting
Agreements, Non-Competition Agreements, Certificate of Merger, Waivers of
Vesting and Affiliate Agreements.
(xxvi) "RESIDUAL PROCEEDS" shall mean the Total
Adjusted Consideration less the aggregate Series A Preference Amounts and the
aggregate Series B Preference Amounts.
(xxvii) "SEC" shall mean the United States
Securities and Exchange Commission.
(xxviii) "SERIES A PREFERENCE AMOUNT" shall mean a
number of shares of Parent Common Stock equal to $0.86667 divided by the Trading
Price.
(xxix) "SERIES B PREFERENCE AMOUNT" shall mean a
number of shares of Parent Common Stock equal to $2.06 divided by the Trading
Price.
(xxx) "STOCKHOLDER" shall mean any holder of any
Company Capital Stock immediately prior to the Effective Time.
(xxxi) "THIRD PARTY EXPENSE PURCHASE PRICE
ADJUSTMENT" shall mean the amount by which the Estimated Third Party Expenses
exceed $1,000,000, as reflected in the Statement of Expenses (as defined in
SECTION 5.17).
(xxxii) "THIRD PARTY EXPENSE PURCHASE PRICE
ADJUSTMENT SHARES" shall mean a number of shares of Parent Common Stock equal to
the quotient obtained by dividing the Third Party Expense Purchases Price
Adjustment by the Trading Price.
(xxxiii) "TOTAL CONSIDERATION" shall mean 20,475,000
shares of Parent Common Stock.
(xxxiv) "TOTAL ADJUSTED CONSIDERATION" shall mean
the sum obtained by subtracting the Third Party Expense Purchase Price
Adjustment Shares from the Total Consideration.
(xxxv) "TOTAL OUTSTANDING SHARES" shall mean the
aggregate number of shares of Company Capital Stock (including Company Options,
Company Assumed Warrants and any other rights whether vested or unvested
convertible into, exercisable for or exchangeable for, shares of Company Capital
Stock on an as-converted, exercised or exchanged to Company Capital Stock basis)
issued and outstanding immediately prior to the Effective Time.
(xxxvi) "TRADING PRICE" shall mean the average of
the closing price of one share of Parent Common Stock as reported on the Nasdaq
National Market for the ten (10) trading days ending two (2) business days prior
to the Closing Date (as adjusted as appropriate to reflect any stock splits,
stock dividends, combinations, reorganizations, reclassifications or similar
events).
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(b) EFFECT ON CAPITAL STOCK.
(i) Conversion of Company Series B Preferred
Stock. At the Effective Time, by virtue of the Merger and without any action on
the part of Sub, the Company or the holders of Company Series B Preferred Stock,
each outstanding share of Company Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares (as defined in SECTION 1.7(a) hereof), upon the terms and subject to
conditions set forth in this SECTION 1.6 and throughout this Agreement,
including, without limitation, the escrow provisions set forth in ARTICLE VII
hereof, will be canceled and extinguished and be converted automatically into
the right to receive, upon surrender of the certificate representing such shares
of Company Series B Preferred Stock in the manner provided in SECTION 1.8
hereof, a number of shares of Parent Common Stock equal to (i) the Series B
Preference Amount plus (ii) the Exchange Ratio; provided however that the number
of shares of Parent Common Stock in excess of the number that is three (3) times
the Series B Preference Amount shall be reallocated to the outstanding shares of
Company Common Stock.
(ii) Conversion of Company Series A Preferred
Stock. At the Effective Time, by virtue of the Merger and without any action on
the part of Sub, the Company or the holders of Company Series A Preferred Stock,
each outstanding share of Company Series A Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares (as defined in SECTION 1.7(a) hereof), upon the terms and subject to
conditions set forth in this SECTION 1.6 and throughout this Agreement,
including, without limitation, the escrow provisions set forth in ARTICLE VII
hereof, will be canceled and extinguished and be converted automatically into
the right to receive, upon surrender of the certificate representing such shares
of Company Series A Preferred Stock in the manner provided in SECTION 1.8
hereof, a number of shares of Parent Common Stock equal to (i) the Series A
Preference Amount plus (ii) the Exchange Ratio; provided however that the number
of shares of Parent Common Stock in excess of the number that is three (3) times
the Series A Preference Amount shall be reallocated to the outstanding shares of
Company Series B Preferred Stock and outstanding shares of Company Common Stock
on an as-converted-to-common-stock basis.
(iii) Conversion of Company Common Stock. At the
Effective Time, by virtue of the Merger and without any action on the part of
Sub, the Company or the holders of shares of Company Capital Stock, each
outstanding share of Company Common Stock, including Company Unvested Common
Stock (but excluding, for the avoidance of doubt, unexercised Company Options)
issued and outstanding immediately prior to the Effective Time (other than
Dissenting Shares (as defined in SECTION 1.7(a) hereof), upon the terms and
subject to conditions set forth in this SECTION 1.6 and throughout this
Agreement, including, without limitation, the escrow provisions set forth in
ARTICLE VII hereof, will be canceled and extinguished and be converted
automatically into the right to receive, upon surrender of the certificate
representing such shares of Company Capital Stock in the manner provided in
SECTION 1.8 hereof, a number of shares of Parent Common Stock equal to the
Exchange Ratio. Each share of Parent Common Stock exchanged for Company Unvested
Common Stock pursuant to this SECTION 1.6(a)(i) shall, except as otherwise set
forth in this
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Agreement or the Related Agreements, continue to have, and be subject to, the
same terms and conditions (including vesting terms) set forth in the Plans, as
applicable, and the agreements relating thereto, as in effect immediately prior
to the Effective Time. For the avoidance of doubt, at the Effective Time, Parent
will be deemed to have assumed the stock options of the Company upon exercise of
which all such Company Unvested Common Stock was issued. Certain holders of
Company Unvested Common Stock have waived and amended all rights regarding any
acceleration of vesting including, without limitation, acceleration upon a
change of control, termination without cause, or constructive termination or
similar provision contained in any agreement relating to Company Unvested Common
Stock, by execution of the form of waiver in the form attached hereto as EXHIBIT
D (each, a "WAIVER OF VESTING").
(iv) Notwithstanding the foregoing, in the event
of a discrepancy between the provisions of subparagraphs (i), (ii) and (iii)
of this SECTION 1.6(b) and the Company's Certificate of Incorporation regarding
the allocation of the Merger Consideration, it is the intent of the parties
hereto that the provisions of the Company's Certificate of Incorporation shall
control; provided however that the discount from market value attributable to
restrictions on free marketability specified in SECTION 3(c)(III)(B) of the
Company's Certificate of Incorporation shall be deemed to be zero; and provided
further that for the purposes of determining the allocation of the Merger
Consideration, shares of Company Common Stock issuable upon the exercise of
Company Options and Company Assumed Warrants shall be deemed outstanding.
(v) The shares of Parent Common Stock to be
received in connection with the Merger or to be received upon exercise of vested
or unvested Company Options assumed in connection with the Merger shall be
restricted such that each Stockholder may not: (i) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any shares of Parent Common Stock to be
received in connection with the Merger or to be received upon exercise of vested
or unvested Company Options assumed in connection with the Merger or (ii) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of the
Parent Common Stock to be received in connection with the Merger or to be
received upon exercise of vested or unvested Company Options assumed in
connection with the Merger, whether any such swap or transaction is to be
settled by delivery of Parent Common Stock or other securities, in cash or
otherwise (collectively, the "LOCK-UP PROVISION"). The Lock-up Provision shall
lapse as follows: (A) a number of shares equal to forty five percent (45%) of
the shares of Parent Common Stock to be received by each Stockholder (including
for the purpose of calculating the percentages in this sentence all shares
subject to assumed Company Options, whether vested or unvested, and the
aggregate number of additional shares that may be issued upon payment in full of
the Earn-Out Payment) shall be freely tradeable and transferable upon the
Closing, to the extent vested or, if forty five percent (45%) of such shares are
not vested, up to forty five percent (45%) of such shares upon vesting), (B) a
number of shares equal to thirty percent (30%) of the shares of Parent Common
Stock to be received by each Stockholder shall be freely tradeable and
transferable on the date that is six (6) months after the Closing, to the extent
vested or, if thirty percent (30%) of such shares are not vested, up to thirty
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percent (30%) of such shares upon vesting), and (C) the remaining twenty five
percent (25%) of the shares of Parent Common Stock to be received by such
Stockholder (including shares released from the escrow and shares received upon
payment of the Earn-Out Payment, if any) shall be freely tradeable and
transferable on the first anniversary of the Closing. Certificates that
represent shares of Parent Common Stock to be received in connection with the
Merger or issued upon exercise of vested or unvested Company Options assumed in
connection with the Merger shall be legended to reflect the Lock-up Provision
(the "LOCK-UP LEGEND").
(vi) For purposes of calculating the number of
shares of Parent Common Stock issuable to each Stockholder pursuant to this
SECTION 1.6(b), the number of shares of Parent Common Stock issuable to each
Stockholder shall be rounded down to the nearest whole number of shares of
Parent Common Stock, and no cash will be paid for fractional shares; provided,
however, that the maximum number of shares of Parent Common Stock issuable
pursuant to the Merger shall not exceed the Total Adjusted Consideration.
(c) EARN-OUT PAYMENT.
(i) Amount of Earn-Out Payment. As additional
Merger Consideration, Parent shall make available to the Exchange Agent (as
defined in SECTION 1.8), on behalf of and for distribution to the persons, in
the amounts and in the manner to be set forth on SCHEDULE 1.6(c) (the "EARN-OUT
PAYEES"), an aggregate amount of 2,925,000 shares of Parent Common Stock (the
"EARN-OUT PAYMENT"). The Company shall deliver SCHEDULE 1.6(c) at the same time
that it delivers the Spreadsheet (as defined in SECTION 5.22). Parent shall make
the Earn-Out Payment available to the Exchange Agent, on behalf of and for
distribution to the Earn-Out Payees, as soon as practicable following the date
on which it is determined, in the manner provided below, that the conditions for
payment of the Earn-Out Payment set forth on ANNEX A have been satisfied (the
"EARN-OUT PAYMENT DATE").
(ii) Determination of Earn-Out Payment; Dispute
Resolution. At any time at which Parent or the Stockholder Representative
believes in good faith that the conditions for payment of the Earn-Out Payment
have been satisfied, Parent or the Stockholder Representative (the "NOTIFIER"),
shall deliver to the other party (the "RECIPIENT"), as soon as practicable, a
written statement that summarizes such party's belief, and the basis therefor
(the "CONDITION SATISFACTION NOTICE"). The Notifier's determination under this
SECTION 1.6(c) of whether and when the conditions for payment of the Earn-Out
Payment were satisfied shall be conclusive and binding upon all parties hereto
unless, within ten (10) days following receipt by the Recipient of the Condition
Satisfaction Notice, the Recipient notifies the Notifier in writing that the
Recipient disagrees with the Notifier's determination. Such notice shall include
a summary of the reasons why the Recipient disagrees with the Notifier's
determination together with a copy of any information, other than that
previously provided by the Notifier, used in making such determination.
If the Notifier disagrees with the Recipient's determination, Parent's
Chief Financial Officer, or his designee, shall promptly meet with the
Stockholder Representative, or his designee, and the parties shall attempt in
good faith to reach a resolution of such disagreement. If such disagreement
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is not resolved within five (5) days after delivery of the Recipient's notice,
then the dispute shall be resolved in accordance with SECTIONS 7.3(h)(ii), (iii)
AND (iv). Parent shall not be required to make the Earn-Out Payment, or any
portion thereof, to the Exchange Agent until the period during which the
Stockholder Representative may object to the amount of an Earn-Out Payment has
lapsed or, if properly contested in accordance with the provisions hereof, the
amount and timing of the Earn-Out Payment has been agreed upon by the parties or
resolved in accordance with Sections 7.3(h)(ii), (iii) and (iv).
(iii) Rights Not Transferable. The rights of
Earn-Out Payees to the Earn-Out Payment are personal to each Earn-Out Payee and
shall not be transferable for any reason other than by operation of law, will or
the laws of descent and distribution. Any attempted transfer of such right by
any holder thereof (other than as permitted by the immediately preceding
sentence) shall be null and void.
(iv) Method of Payment. The portion of the
Earn-Out Payment that is not subject to any contingencies shall be made
available by Parent to the Exchange Agent, on behalf of and for the account of
the Earn-Out Payees, and shall be issued by the Exchange Agent to the address of
the Earn-Out Payees provided to the Exchange Agent by the Stockholder
Representative, after taking such action as is necessary to assure that all
applicable federal or state income withholding and any other taxes are withheld
and deducted from such funds otherwise to be paid. The portion of the Earn-Out
Payment that is subject to contingencies shall be made available by Parent to
the Exchange Agent, on behalf of and for the account of the Earn-Out Payees, in
installments upon the satisfaction of all applicable contingencies. The Earn-Out
Payment shall be subject to a right of set-off as set forth in SECTION 7.6
below.
(d) ASSUMPTION OF COMPANY OPTIONS; TREATMENT OF COMPANY
WARRANTS.
(i) As soon as practicable following the Closing
but effective as of the Effective Time, each Company Option shall be assumed by
Parent as a Parent Option. Each Company Option so assumed by Parent pursuant to
this SECTION 1.6(d) shall continue to have, and be subject to, the same terms
and conditions (including vesting terms) set forth in the applicable Plan and
the option agreements relating thereto, as in effect immediately prior to the
Effective Time, except that (A) such assumed Company Option will be exercisable
for that number of whole shares of Parent Common Stock equal to the product of
the number of shares of Company Common Stock that were issuable upon exercise of
such Company Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded down to the nearest whole number of shares of Parent
Common Stock, (B) the per share exercise price for the shares of Parent Common
Stock issuable upon exercise of such assumed Company Option shall be equal to
the quotient obtained by dividing the exercise price per share of Company Common
Stock at which such assumed Company Option was exercisable immediately prior to
the Closing Date by the Exchange Ratio, rounded up to the nearest whole cent,
and (C) each holder of Company Options shall have waived and amended all rights
regarding any acceleration of vesting including, without limitation,
acceleration upon a change of control, termination without cause, or
constructive termination or similar provision contained in
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any agreement relating to Company Options, by execution of the Waiver of
Vesting; provided, however, that in the case of any Company Option to which
Section 421 of the Code applies by reason of its qualification under Section 422
of the Code, the exercise price of the option, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall be determined in order to comply with Section 424 of the Code.
(ii) At the Effective Time, each outstanding
Company Assumed Warrant shall be assumed by Parent. Each Company Assumed Warrant
so assumed by Parent pursuant to this SECTION 1.6(d) shall continue to have, and
be subject to, the same terms and conditions (including vesting terms) set forth
in such warrant agreements relating thereto, as in effect immediately prior to
the Effective Time, except that (A) such Company Assumed Warrant will be
exercisable for that number of whole shares of Parent Common Stock equal to the
number of shares of Parent Stock that would have been received by the holder of
such Company Assumed Warrant pursuant to SECTION 1.6(b) if such Company Assumed
Warrant had been exercised in its entirety prior to the Effective Time, rounded
down to the nearest whole number of Parent Common Stock; (B) the aggregate
exercise price for the shares of Parent Common Stock issuable upon exercise of
such Company Assumed Warrant shall be equal to the aggregate exercise price of
such Company Assumed Warrant as in effect immediately prior to the Effective
Time; and (C) the Parent Common Stock issuable upon exercise of such Company
Assumed Warrant shall be marked with the Lock-up Legend and subject to the
Lock-up Provision as set forth in SECTION 1.6(b)(V).
(iii) Prior to the Effective Time, the Company
shall take all action necessary to effect the transactions anticipated by this
SECTION 1.6(d) under all Company Option agreements, all agreements related to
Company Unvested Common Stock, all Company Assumed Warrant agreements and any
other plan or arrangement of the Company (whether written or oral, formal or
informal).
(e) ASSUMPTION AGREEMENT. As soon as administratively
practicable following the Closing, Parent shall issue to each holder of a
Company Option to be assumed by Parent pursuant to SECTION 1.6(d) hereof a
document evidencing the assumption of such Company Option, by Parent, and each
former holder of a Company Option so assumed by Parent shall acknowledge the
receipt of the same in exchange for such holder's Company Option.
(f) WITHHOLDING TAXES. Any number of shares of Parent Common
Stock issuable to a Stockholder pursuant to SECTION 1.6(b) or SECTION 1.6(c)
hereof shall be subject to, and reduced by, the number of shares of Parent
Common Stock with an aggregate value, based on the Trading Price, equal to the
required amount of any state, federal and foreign withholding taxes incurred
(and not previously paid by or on behalf of such Stockholder or the Company) in
connection with the acquisition of Company Capital Stock upon the exercise of
Company Options, upon the lapsing of repurchase rights in respect of shares of
Company Common Stock, or upon payment of a bonus in the form of Company Common
Stock, if any, to such Stockholder rounded to the nearest whole share (with
amounts greater than 0.5 shares rounded up).
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(g) STOCKHOLDER LOANS. In the event that any Stockholder has
outstanding loans from the Company as of the Effective Time, such loans may be
subject to repayment through the reduction of the consideration otherwise
payable to such Stockholder pursuant to this SECTION 1.6 pursuant to a separate
written agreement between Parent and such Stockholder.
(h) CAPITAL STOCK OF SUB. Each share of Common Stock of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the Surviving Corporation.
(i) SHARES SUBJECT TO VESTING. If any shares of Company
Capital Stock issued and outstanding immediately prior to the Effective Time are
unvested or are subject to a repurchase option, risk of forfeiture or other
condition under any applicable stock restriction agreement or other agreement
with the Company, then the shares of Parent Common Stock issued in exchange for
such shares of Company Capital Stock shall also be unvested and subject to the
same repurchase option, risk of forfeiture or other condition (including any
requirement that any unvested shares be held in escrow), and the certificate
representing such shares of Parent Common Stock may accordingly be marked with
appropriate legends in the discretion of Parent, except that certain holders of
Company Unvested Common Stock have waived and amended all rights regarding
acceleration or lapsing of repurchase rights upon a change of control,
termination without cause or constructive termination, to the extent such
provisions exist, by entering into a Waiver of Vesting.
1.7 DISSENTING SHARES
(a) Notwithstanding any other provisions of this Agreement to
the contrary, any shares of Company Capital Stock held by a holder who has not
effectively withdrawn or lost such holder's appraisal rights under Delaware Law
or the Corporations Code of the State of California ("CALIFORNIA LAW"), as
applicable ("DISSENTING SHARES") shall not be converted into or represent a
right to receive the applicable consideration for Company Capital Stock set
forth in SECTION 1.6 hereof, but the holder thereof shall only be entitled to
such rights as are provided by Delaware Law or California Law, as applicable.
(b) Notwithstanding the provisions of SECTION 1.7(a) hereof,
if any holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) such holder's appraisal rights under Delaware
Law or California Law, as applicable, then, as of the later of the Effective
Time and the occurrence of such event, such holder's shares shall automatically
be converted into and represent only the right to receive the consideration for
Company Capital Stock, as applicable, set forth in SECTION 1.6 hereof, without
interest thereon, and subject to the provisions of SECTION 7.3 hereof, upon
surrender of the certificate representing such shares.
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(c) The Company shall give Parent (i) prompt notice of any
written demand for appraisal received by the Company pursuant to the applicable
provisions of Delaware Law or California Law, as applicable, and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
such demands. The Company shall not, except with the prior written consent of
Parent, make any payment with respect to any such demands or offer to settle or
settle any such demands. Notwithstanding the foregoing, to the extent that
Parent or the Company (i) makes any payment or payments in respect of any
Dissenting Shares in excess of the consideration that otherwise would have been
payable in respect of such shares in accordance with this Agreement or (ii)
incurs any other costs or expenses, (including specifically, but without
limitation, attorneys' fees, costs and expenses in connection with any action or
proceeding or in connection with any investigation) in respect of any Dissenting
Shares (excluding payments for such shares) (together "DISSENTING SHARE
PAYMENTS"), Parent shall be entitled to recover under the terms of ARTICLE VII
hereof the amount of such Dissenting Share Payments without regard to the
Threshold Amount (as defined in SECTION 7.3(b) hereof).
1.8 SURRENDER OF CERTIFICATES
(a) EXCHANGE AGENT. The Secretary of Parent, or an institution
selected by Parent, shall serve as the exchange agent (the "EXCHANGE AGENT") for
the Merger.
(b) PARENT TO PROVIDE PARENT COMMON STOCK. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this ARTICLE I the shares of Parent Common Stock issuable
pursuant to SECTION 1.6 hereof in exchange for outstanding shares of Company
Capital Stock; provided, however, that, on behalf of the Stockholders, Parent
shall deposit into the Escrow Fund (as defined in SECTION 7.3(a) hereof) a
number of shares of Parent Common Stock (not including any Company Unvested
Common Stock equal to the Escrow Amount out of the aggregate number of shares of
Parent Common Stock otherwise issuable to the Stockholders pursuant to SECTION
1.6 hereof. Each Stockholder shall be deemed to have contributed his or her
Stockholder's Pro Rata Portion of the Escrow Amount to the Escrow Fund, rounded
to the nearest whole number of shares of Parent Common Stock. If the sum of the
Pro Rata Portions (each rounded to the nearest whole number of shares of Parent
Common Stock) for all Stockholders does not equal the Escrow Amount, then the
appropriate number of shares of Parent Common Stock will be added to or
subtracted from the Pro Rata Portion of Sequoia Capital X such that the sum of
the rounded Pro Rata Portions does equal the Escrow Amount.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
Parent shall mail a letter of transmittal in such form and having such
provisions as Parent may reasonably request to each Stockholder at the address
set forth opposite each such Stockholder's name on the Spreadsheet (as defined
in SECTION 5.22 hereof). After receipt of such letter of transmittal, the
Stockholders will surrender the certificates representing their shares of
Company Capital Stock (the "COMPANY STOCK CERTIFICATES") to the Exchange Agent
for cancellation together with a duly completed and validly executed letter of
transmittal. Upon surrender of a Company Stock Certificate for cancellation to
the
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Exchange Agent, or such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, subject to the terms of SECTION 1.8(e)
hereof, the holder of such Company Stock Certificate shall be entitled to
receive from the Exchange Agent in exchange therefor, a certificate representing
the number of whole shares of Parent Common Stock (less the number of shares of
Parent Common Stock to be deposited in the Escrow Fund on such holder's behalf
pursuant to SECTION 1.8(b) hereof and ARTICLE VII hereof) to which such holder
is entitled pursuant to SECTION 1.6(b) hereof in exchange for such Company Stock
Certificate, and the Company Stock Certificate so surrendered shall be canceled.
Until so surrendered, each Company Stock Certificate outstanding after the
Effective Time will be deemed from and for all corporate purposes, to evidence
only the right to receive the number of full shares of Parent Common Stock into
which such shares of Company Capital Stock shall have been so converted.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Parent Common Stock represented thereby until the
holder of record of such Company Stock Certificate shall surrender such Company
Stock Certificate. Subject to applicable law, following surrender of any such
Company Stock Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Company Stock Certificate surrendered in exchange therefor is registered, it
will be a condition of the issuance or delivery thereof that the certificate so
surrendered will be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange will have paid to Parent or any
agent designated by it any transfer or other taxes required by reason of the
issuance of a certificate for shares of Parent Common Stock in any name other
than that of the registered holder of the certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in
this SECTION 1.8, neither the Exchange Agent, the Surviving Corporation, nor any
party hereto shall be liable to a holder of shares of Company Capital Stock for
any amount paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK
The shares of Parent Common Stock paid in respect of the surrender for
exchange of shares of Company Capital Stock in accordance with the terms hereof
shall be deemed to be full satisfaction of all rights pertaining to such shares
of Company Capital Stock, and there shall be no
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further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Company Stock Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this ARTICLE I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES
In the event any Company Stock Certificates shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such amount, if any, as may be required pursuant to
SECTION 1.6 hereof; provided, however, that Parent may, in its discretion and as
a condition precedent to the issuance thereof, require the Stockholder who is
the owner of such lost, stolen or destroyed certificates to either (i) deliver a
bond in such amount as it may reasonably direct or (ii) provide an
indemnification agreement in a form and substance acceptable to Parent, against
any claim that may be made against Parent or the Exchange Agent with respect to
the certificates alleged to have been lost, stolen or destroyed.
1.11 TAX CONSEQUENCES
It is intended by the parties hereto that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Code.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION
If at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company, Parent, Sub,
and the officers and directors of the Company, Parent and Sub are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Sub, subject
to such exceptions as are specifically disclosed in the disclosure schedule
(referencing the appropriate section numbers) supplied by the Company to Parent
(the "DISCLOSURE SCHEDULE"), on the date hereof and as of the Effective Time, as
though made at the Effective Time, as follows:
2.1 ORGANIZATION OF THE COMPANY
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company has the
corporate power to own or lease its
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properties and to carry on its business as currently conducted and as currently
contemplated to be conducted. The Company is duly qualified or licensed to do
business and in good standing as a foreign corporation in each jurisdiction in
which the nature of the activities conducted by the Company requires such
qualification and the absence of such qualification or license would have a
Company Material Adverse Effect. The Company has delivered a true and correct
copy of its certificate of incorporation and bylaws, each as amended to date and
in full force and effect on the date hereof, to Parent. SECTION 2.1 of the
Disclosure Schedule lists the directors and officers of the Company as of the
date hereof. The operations now being conducted by the Company are not now and
have never been conducted by the Company under any other name. SECTION 2.1 of
the Disclosure Schedule also lists every state or foreign jurisdiction in which
the Company has employees or facilities or otherwise carries on business.
2.2 COMPANY CAPITAL STRUCTURE
(a) The authorized capital stock of the Company consists of
65,554,830 shares of Common Stock, of which 19,709,888 shares are issued and
outstanding, 14,226,092 shares of Series A Preferred Stock, of which 13,759,608
shares are issued and outstanding, and 24,900,000 shares of Series B Preferred
Stock, of which 24,271,844 shares are issued and outstanding. Each share of
Series A Preferred Stock and each share of Series B Preferred Stock is
convertible on a one-share for one-share basis into Company Common Stock. As of
the date hereof, the capitalization of the Company is as set forth in SECTION
2.2(a)(1) of the Disclosure Schedule. As of the date hereof, the Company Capital
Stock is held by the persons with the addresses and in the amounts set forth in
SECTIONS 1.6(a)(iv) AND 1.6(a)(viii) of the Disclosure Schedule. All outstanding
shares of Company Capital Stock are duly authorized, validly issued, fully paid
and non-assessable and not subject to preemptive rights created by statute, the
certificate of incorporation or bylaws of the Company, or any agreement to which
the Company is a party or by which it is bound, and have been issued in
compliance with federal and state securities laws. All outstanding shares of
Company Capital Stock and Company Options have been issued or repurchased (in
the case of shares that were outstanding and repurchased by the Company or any
stockholder of the Company) in compliance with all applicable federal, state,
foreign, or local statutes, laws, rules, or regulations, including federal and
state securities laws. The Company has not, and will not have, suffered or
incurred any liability (contingent or otherwise) or claim, loss, liability,
damage, deficiency, cost or expense relating to or arising out of the issuance
or repurchase of any Company Capital Stock or options to purchase Company
Capital Stock, or out of any agreements or arrangements relating thereto
(including any amendment of the terms of any such agreement or arrangement).
There are no declared or accrued but unpaid dividends with respect to any shares
of Company Capital Stock. The Company has no other capital stock authorized or,
as of the date hereof, issued or outstanding. SECTION 2.2(a)(2) of the
Disclosure Schedule sets forth for all holders of Company Unvested Common Stock
as of the date hereof, the name of such holder of such Company Unvested Common
Stock, the repurchase price of such Company Unvested Common Stock, and the
vesting schedule for such Company Unvested Common Stock, including the extent
vested as of October 25, 2002 and
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whether the vesting of such Company Unvested Common Stock will be accelerated by
the transactions contemplated by this Agreement. No vesting provisions
applicable to any shares of Company Unvested Common Stock, to Company Options,
or to any other rights to purchase Company Common Stock will accelerate as a
result of the Merger or as a result of any other events.
(b) Except for the Plans, the Company has never adopted,
sponsored or maintained any stock option plan or any other plan or agreement
providing for equity compensation to any person. The Company has reserved
21,304,471 shares of Company Common Stock for issuance to employees and
directors of, and consultants to, the Company upon the issuance of stock or the
exercise of options granted under the Plans or any other plan, agreement or
arrangement (whether written or oral, formal or informal), of which (i)
1,961,437 shares are issuable, as of the date hereof, upon the exercise of
outstanding, unexercised options granted under the Stock Plan, and (ii)
15,466,638 shares have been issued and remain outstanding, as of the date
hereof, upon the exercise of options granted under the Stock Plan. SECTION
2.2(b) of the Disclosure Schedule sets forth for each outstanding Company Option
as of the date hereof, the name of the holder of such option, the domicile
address of such holder, the number of shares of Company Capital Stock issuable
upon the exercise of such option, the exercise price of such option, the vesting
schedule for such option, including the extent vested as of October 25, 2002 and
whether the vesting of such option will be accelerated by the transactions
contemplated by this Agreement, and whether such option is a nonstatutory option
or intended to qualify as an incentive stock option as defined in Section 422 of
the Code. SECTION 2.2(b)(1) of the Disclosure Schedule sets forth the
outstanding principal, accrued interest and applicable rate of interest of all
outstanding Stockholder loans of the type described in SECTION 1.6(g) hereto. As
of the date hereof, an aggregate of 1,975,271 shares of Company Common Stock are
issuable upon the exercise of outstanding Company Options. Except for warrants
listed on SECTION 2.2(b)(2) and the Company Options, there are no options,
warrants, calls, rights, convertible securities, commitments or agreements of
any character, written or oral, to which the Company is a party or by which the
Company is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company. Except as
contemplated hereby, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting stock of the Company. There are no
agreements to which the Company is a party relating to the registration, sale or
transfer (including agreements relating to rights of first refusal, co-sale
rights or "drag-along" rights) of any Company Capital Stock. As a result of the
Merger, Parent will be the sole record and beneficial holder of all issued and
outstanding Company Capital Stock and all rights to acquire or receive any
shares of Company Capital Stock, whether or not such shares of Company Capital
Stock are outstanding.
(c) As of the Effective Time, the allocation of the Total
Consideration set forth in SCHEDULE 1.6(b) will be consistent with the
certificate of incorporation of the Company as of immediately prior to the
Effective Time. The valuation of the shares of Parent Common Stock
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subject to the Lock-up Provision (as reflected in SCHEDULE 1.6(b)) has been
approved by the Company's Board of Directors and, as of the Effective Time, will
have been approved by the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all Company Preferred in accordance with the
Company's charter.
2.3 SUBSIDIARIES
The Company does not have and never has had any subsidiaries. The
Company does not otherwise own and has never otherwise owned any shares of
capital stock or any interest in any other corporation, limited liability
company, partnership, association, joint venture or other business entity. The
Company does not control and has never controlled, directly or indirectly, any
other corporation, limited liability company, partnership, association, joint
venture or other business entity
2.4 AUTHORITY
The Company has all requisite power and authority to enter into this
Agreement and any Related Agreements to which it is a party and to perform its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and any Related Agreements to which the Company is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company and no
further action is required on the part of the Company to authorize the Agreement
and any Related Agreements to which it is a party and the transactions
contemplated hereby and thereby, subject only to the adoption of this Agreement
by the Stockholders. The vote required to approve this Agreement by the
Stockholders is set forth in SECTION 2.4 of the Disclosure Schedule. This
Agreement and the Merger have been approved by the Board of Directors of the
Company without any abstentions or dissentions. This Agreement and each of the
Related Agreements to which the Company is a party has been duly executed and
delivered by the Company and assuming the due authorization, execution and
delivery by the other parties hereto and thereto, constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms.
2.5 NO CONFLICT
(a) The execution and delivery by the Company of this
Agreement and any Related Agreement to which the Company is a party, and the
consummation of the transactions contemplated hereby and thereby, will not
conflict with or result in any violation of or default under (with or without
notice or lapse of time, or both) or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a "CONFLICT") (i) any provision of the
certificate of incorporation, bylaws or charter documents of the Company, as
amended, (ii) any mortgage, indenture, lease, contract, covenant or other
agreement, instrument or commitment, permit, concession, franchise or license
(each a "CONTRACT" and collectively the "CONTRACTS") to which the Company or any
of its respective properties or assets
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(whether tangible or intangible) is subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company or
any of its respective properties (whether tangible or intangible) or assets in
effect as of the date hereof.
(b) The Company is in compliance with and has not breached,
violated or defaulted under, or received notice that it has breached, violated
or defaulted under, any of the terms or conditions of any Contract, nor does the
Company have Knowledge of any event that would constitute such a breach,
violation or default with the lapse of time, giving of notice or both.
(c) Each Contract is in full force and effect, and the Company
is not subject to any default thereunder, nor to the Knowledge of the Company is
any party obligated to the Company pursuant to any such Contract subject to any
default thereunder.
(d) SECTION 2.5(d) of the Disclosure Schedule sets forth all
necessary consents, waivers and approvals of parties to any Contracts as are
required thereunder in connection with the Merger for any such Contract to
remain in full force and effect without limitation, modification or alteration
after the Effective Time so as to preserve all rights of, and benefits to, the
Company under such Contracts to the same extent as prior to the Effective Time.
(e) As of immediately after the Effective Time, the Surviving
Corporation will be permitted to exercise all of its rights under the Contracts
without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which the Company would otherwise be
required to pay pursuant to the terms of such Contracts had the transactions
contemplated by this Agreement not occurred.
2.6 CONSENTS
No consent, notice, waiver, approval, order or authorization of, or
registration, declaration or filing with any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission (each, a "GOVERNMENTAL ENTITY")
or any third party, including a party to any agreement with the Company (so as
not to trigger any Conflict), is required by, or with respect to, the Company in
connection with the execution and delivery of this Agreement and any Related
Agreement to which the Company is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
notices, waivers, approvals, orders, authorizations, registrations, declarations
and filings as may be required under state and federal securities laws, (ii)
such consents listed on SECTION 2.5 of the Disclosure Schedule, (iii) the
issuance of the California Permit (as defined in SECTION 5.1) by the California
Department of Corporations, (iv) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended ("HSR
ACT"), (v) the filing of the Certificate of Merger with the Delaware Secretary
of State and (vi) the adoption of this Agreement and approval of the
transactions contemplated by this Agreement by the Stockholders.
2.7 COMPANY FINANCIAL STATEMENTS
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SECTION 2.7 of the Disclosure Schedule sets forth the Company's (i)
unaudited balance sheet as of January 26, 2002 (the "YEAR END BALANCE SHEET
DATE"), and January 31, 2001 and the related unaudited statements of operations,
stockholders' equity and cash flows for the respective twelve (12) month periods
then ended (the "YEAR-END FINANCIALS"), and (ii) unaudited balance sheet as of
September 28, 2002 (the "BALANCE SHEET DATE") and the related unaudited
statements of operations, stockholders' equity and cash flows for the eight (8)
month period then ended (the "Interim Financials"). The Year-End Financials and
the Interim Financials (collectively referred as the "FINANCIALS") are true and
correct in all material respects and have been prepared in accordance with GAAP
consistently applied on a consistent basis throughout the periods indicated and
consistent with each other (except that the Financials do not contain
footnotes). The Financials present fairly the Company's consolidated financial
condition, operating results and cash flows as of the dates and during the
periods indicated therein, subject in the case of the Interim Financials to
normal year-end adjustments, which are not material in amount or significance in
any individual case or in the aggregate. The Company's balance sheet as of the
Balance Sheet Date is referred to hereinafter as the "CURRENT BALANCE SHEET."
2.8 NO UNDISCLOSED LIABILITIES
The Company does not have any liability, indebtedness, obligation,
expense, claim, deficiency, guaranty or endorsement of any type, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with GAAP), which
individually or in the aggregate (i) has not been reflected in the Current
Balance Sheet, or (ii) has not arisen in the ordinary course of business
consistent with past practices since the Balance Sheet Date.
2.9 NO CHANGES
Except in compliance with this Agreement, since the Current Balance
Sheet Date (or, with respect to subsections (c) and (d) below, between the
Current Balance Sheet Date and the date hereof), there has not been, occurred or
arisen any:
(a) transaction by the Company except in the ordinary course
of business as conducted on that date and consistent with past practices;
(b) amendments or changes to the certificate of incorporation
or bylaws of the Company;
(c) capital expenditure by the Company exceeding $25,000
individually or $75,000 in the aggregate;
(d) payment, discharge or satisfaction, in any amount in
excess of $25,000 in any one case, or $50,000 in the aggregate, of any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise of the Company), other than payments, discharges or
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satisfactions in the ordinary course of business of obligations set forth in the
Balance Sheet or Disclosure Schedule;
(e) destruction of, damage to, or loss of any material assets
(whether tangible or intangible), material business or material customer of the
Company (whether or not covered by insurance);
(f) employment dispute, including but not limited to, claims
or matters raised by any individuals or any workers' representative
organization, bargaining unit or union regarding labor trouble or claim of
wrongful discharge or other unlawful employment or labor practice or action with
respect to the Company;
(g) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company other
than as required by GAAP;
(h) change in any material election in respect of Taxes (as
defined below), adoption or change in any accounting method in respect of Taxes,
agreement or settlement of any claim or assessment in respect of Taxes, or
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(i) revaluation by the Company of any of its assets (whether
tangible or intangible);
(j) declaration, setting aside or payment of a dividend or
other distribution (whether in cash, stock or property) in respect of any
Company Capital Stock, or any split, combination or reclassification in respect
of any shares of Company Capital Stock, or, except in accordance with the
Company's certificate of incorporation, any issuance or authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Company Capital Stock, or any direct or indirect repurchase,
redemption, or other acquisition by the Company of any shares of Company Capital
Stock (or options, warrants or other rights convertible into, exercisable or
exchangeable therefor), except in accordance with the agreements evidencing
Company Options, Company Unvested Common Stock or Company Warrants;
(k) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment (whether in cash or equity) by the Company of a severance
payment, termination payment, bonus or other additional salary or compensation
to any such person;
(l) material agreement, contract, covenant, instrument, lease,
license or commitment to which the Company is a party or by which it or any of
its assets (whether tangible or intangible) are bound or any termination,
extension, amendment or modification of the terms of any agreement, contract,
covenant, instrument, lease, license or commitment to which the Company is a
party or by which it or any of its assets are bound;
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(m) sale, lease, license or other disposition of any of the
assets (whether tangible or intangible) or properties of the Company, including,
but not limited to, the sale of any accounts receivable of the Company, or any
creation of any security interest in such assets or properties;
(n) loan by the Company to any person or entity, incurring by
the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others, except for advances to employees
for travel and business expenses in the ordinary course of business consistent
with past practices;
(o) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(p) commencement or settlement of any lawsuit by the Company,
the commencement, settlement, notice or, to the Knowledge of the Company, threat
of any lawsuit or proceeding or other investigation against the Company or its
affairs, or to the Knowledge of the Company, any reasonable basis for any of the
foregoing;
(q) notice of any claim or potential claim of ownership by any
person other than the Company of the Company Intellectual Property (as defined
in SECTION 2.13 hereof) owned by or developed or created by the Company or of
infringement by the Company of any other person's Intellectual Property (as
defined in SECTION 2.13 hereof);
(r) issuance or sale, or contract or agreement to issue or
sell, by the Company of any shares of Company Capital Stock or securities
convertible into, or exercisable or exchangeable for, shares of Company Capital
Stock, or any securities, warrants, options or rights to purchase any of the
foregoing, except for issuances of Company Capital Stock upon the exercise of
options issued under the Plans or upon the exercise of Company Warrants;
(s) (i) sale or license of any Company Intellectual Property
or execution, modification or amendment of any agreement with respect to the
Company Intellectual Property with any person or entity or with respect to the
Intellectual Property of any person or entity, or (ii) purchase or license of
any Intellectual Property or execution, modification or amendment of any
agreement with respect to the Intellectual Property of any person or entity,
(iii) agreement or modification or amendment of an existing agreement with
respect to the development of any Intellectual Property with a third party, or
(iv) change in pricing or royalties set or charged by the Company to its
customers or licensees or in pricing or royalties set or charged by persons who
have licensed Intellectual Property to the Company;
(t) agreement or modification to any agreement pursuant to
which any other party was granted marketing, distribution, development,
manufacturing or similar rights of any type or scope with respect to any
products or technology of the Company;
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(u) event or condition of any character that has had or is
reasonably likely to have a Company Material Adverse Effect;
(v) lease, license, sublease or other occupancy of any Leased
Real Property by the Company; or
(w) agreement or commitment by the Company, or any officer or
employees on behalf of the Company, to do any of the things described in the
preceding clauses (a) through (v) of this SECTION 2.9 (other than negotiations
with Parent and its representatives regarding the transactions contemplated by
this Agreement and the Related Agreements).
2.10 TAX MATTERS
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
the term "TAX" or, collectively, "TAXES" shall mean (i) any and all federal,
state, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes as well as public imposts, fees and social security
charges (including but not limited to health, unemployment and pension
insurance), together with all interest, penalties and additions imposed with
respect to such amounts, (ii) any liability for the payment of any amounts of
the type described in clause (i) of this SECTION 2.10(a) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any period,
and (iii) any liability for the payment of any amounts of the type described in
clauses (i) or (ii) of this SECTION 2.10(a) as a result of any express or
implied obligation to indemnify any other person or as a result of any
obligation under any agreement or arrangement with any other person with respect
to such amounts and including any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) The Company has (a) prepared and timely
filed all required federal, state, local and foreign returns, estimates,
information statements and reports relating to any and all Taxes concerning or
attributable to the Company or its operations ("RETURNS") when due and such
Returns are true and correct and have been completed in accordance with
applicable law and (b) timely paid all Taxes shown to be due on such Returns.
(ii) The Company has withheld with respect to its
Employees all federal, state and foreign income taxes and social security
charges and similar fees, Federal Insurance Contribution Act ("FICA"), Federal
Unemployment Tax Act ("FUTA") and other Taxes required to be withheld, and has
timely paid such taxes withheld over to the appropriate authorities.
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(iii) There is no Tax deficiency assessed or
proposed against the Company, and the Company has not executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) No audit or other examination of any Return
of the Company is presently in progress, nor has the Company been notified of
any request for such an audit or other examination.
(v) The Company does not have any liabilities
for unpaid Taxes for periods ending on or before the Balance Sheet Date which
have not been accrued or reserved on the Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has not incurred any
liability for Taxes since the Current Balance Sheet Date other than in the
ordinary course of business.
(vi) The Company has made available to Parent or
its legal counsel, copies of all foreign, federal, state and local income,
payroll and unemployment Returns and all state and local property and sales and
use Returns for the Company filed for all periods since its inception that have
been requested by Parent.
(vii) There are no Liens on the assets of the
Company relating to or attributable to Taxes other than Liens for Taxes not yet
due and payable.
(viii) To the Knowledge of the Company, there is no
basis for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets is treated as
"tax-exempt use property," within the meaning of Section 168(h) of the Code.
(x) The Company has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(4)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
(xi) The Company has (a) never been a member of
an affiliated group (within the meaning of Code Section 1504(a)) filing a
consolidated federal income Tax Return (other than a group the common parent of
which was Company), (b) never been a party to any Tax sharing, indemnification
or allocation agreement, (c) no liability for the Taxes of any person (other
than Company) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract or agreement, or otherwise and (d) never been a party to any joint
venture, partnership or other arrangement that could be treated as a partnership
for Tax purposes.
(xii) The Company has not been, at any time, a
"United States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code.
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(xiii) No adjustment relating to any Return filed
by the Company has been proposed formally or, to the Knowledge of the Company,
informally by any tax authority to the Company or any representative thereof.
(xiv) The Company has not constituted either a
"distributing corporation" or a "controlled corporation" in a distribution of
stock intended to qualify for tax-free treatment under Section 355 of the Code
(x) in the two (2) years prior to the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
(c) EXECUTIVE COMPENSATION TAX. There is no contract,
agreement, plan or arrangement to which the Company is a party, including,
without limitation, the provisions of this Agreement, covering any Employee of
the Company, which, individually or collectively, could give rise to the payment
of any amount that would have been deductible but for Sections 280G, 404 or
162(m) of the Code.
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES
There is no agreement (non-competition or otherwise), commitment,
judgment, injunction, order or decree to which the Company is a party or
otherwise binding upon the Company which has or may reasonably be expected to
have the effect of prohibiting or impairing any business practice of the
Company, any acquisition of property (tangible or intangible) by the Company,
the conduct of business by the Company, or otherwise limiting the freedom of the
Company to engage in any line of business or to compete with any person. Without
limiting the generality of the foregoing, the Company has not entered into any
agreement under which the Company is restricted from selling, licensing,
manufacturing or otherwise distributing any of its technology or products or
from providing services to customers or potential customers or any class of
customers, in any geographic area, during any period of time, or in any segment
of the market.
2.12 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION
OF EQUIPMENT; CUSTOMER INFORMATION
(a) The Company does not own any real property, nor has the
Company ever owned any real property. SECTION 2.12(a) of the Disclosure Schedule
sets forth a list of all real property currently leased, subleased or licensed
by or from the Company or otherwise used or occupied by the Company for the
operation of its business (the "LEASED REAL PROPERTY"), the name of the lessor,
licensor, sublessor, master lessor and/or lessee the date and term of the lease,
license, sublease or other occupancy right and each amendment thereto and, with
respect to any current lease, license, sublease or other occupancy right the
aggregate annual rental payable thereunder.
(b) The Company has provided Parent true, correct and complete
copies of all leases, lease guaranties, licenses, subleases, agreements for the
leasing, use or occupancy of, or otherwise granting a right in or relating to
the Leased Real Property, including all amendments, terminations
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and modifications thereof ("LEASE AGREEMENTS"); there are no other Lease
Agreements affecting the Leased Real Property to which the Company is a party
and, to the Knowledge of the Company there are no other Lease Agreements
affecting the Leased Real Property, other than those identified in SECTION
2.12(a) of the Disclosure Schedule. All such Lease Agreements are valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default by the Company or to the Knowledge of the
Company, by any party thereto, or event of default by the Company or to the
Knowledge of the Company, by any other party thereto (or event which with notice
or lapse of time, or both, would constitute a default by the Company or to the
Knowledge of the Company, by any other party thereto). The Company has not
received any notice of a default, alleged failure to perform, or any offset or
counterclaim with respect to any such Lease Agreement, which has not been fully
remedied and withdrawn. Except as set forth in SECTION 2.12(b) of the Disclosure
Schedule, the Closing will not affect the enforceability against any person of
any such Lease Agreement or the rights of the Company or the Surviving
Corporation to the continued use and possession of the Leased Real Property for
the conduct of business as presently conducted. The Company currently occupies
all of the Leased Real Property for the operation of its business except as set
forth in SECTION 2.12(a) of the Disclosure Schedule. There are no other parties
occupying, or with a right to occupy, the Leased Real Property, except as set
forth in SECTION 2.12(a) of the Disclosure Schedule. The Company has performed
all of its obligations under any termination agreements pursuant to which it has
terminated any leases of real property that are no longer in effect and has no
continuing liability with respect to such terminated real property leases.
(c) To the Knowledge of the Company, the Leased Real Property
is in good operating condition and repair, free from structural, physical and
mechanical defects, is maintained in a manner consistent with standards
generally followed with respect to similar properties, and is otherwise suitable
for the conduct of the business as presently conducted. Neither the operation of
the Company on the Leased Real Property nor, to the Company's knowledge, such
Leased Real Property, including the improvements thereon, violate in any
material respect any applicable building code, zoning requirement or statute
relating to such property or operations thereon.
(d) The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for use
in its business, free and clear of any Liens, except (i) as reflected in the
Current Balance Sheet, (ii) Liens for Taxes not yet due and payable, and (iii)
such imperfections of title and encumbrances, if any, which do not detract from
the value or interfere with the present use of the property subject thereto or
affected thereby.
(e) SECTION 2.12(e) of the Disclosure Schedule lists all
material items of equipment (the "EQUIPMENT") owned, leased or used by the
Company, and such Equipment is (i) adequate for the conduct of the business of
the Company as currently conducted and as currently contemplated to be
conducted, and (ii) in good operating condition, regularly and properly
maintained, subject to normal wear and tear. After the Effective Time, the
Surviving Corporation will have the same rights to, and use of, the Equipment
that the Company had prior to the Effective Time.
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(f) The Company has sole and exclusive ownership, free and
clear of any Liens, of all customer lists, customer contact information,
customer correspondence and customer licensing and purchasing histories relating
to its current and former customers (the "CUSTOMER INFORMATION"). No person
other than the Company possesses any claims or rights with respect to use of the
Customer Information.
2.13 INTELLECTUAL PROPERTY
(a) For all purposes of this Agreement, the following terms
shall have the following respective meanings:
"INTELLECTUAL PROPERTY" shall mean any or all of
the following (i) works of authorship including, without limitation, computer
programs, source code, and executable code, whether embodied in software,
firmware or otherwise, architecture, documentation, designs, files, records, and
data, (ii) inventions (whether or not patentable), discoveries, improvements,
and technology, (iii) proprietary and confidential information, trade secrets
and know how, (iv) databases, data compilations and collections and technical
data, (v) logos, trade names, trade dress, trademarks and service marks, (vi)
domain names, web addresses and sites, (vii) tools, methods and processes,
(viii) devices, prototypes, schematics, breadboards, netlists, maskworks, test
methodologies, Verilog files, emulation and simulation reports, test vectors and
hardware development tools, and (ix) any and all instantiations of the foregoing
in any form.
"INTELLECTUAL PROPERTY RIGHTS" shall mean worldwide
common law and statutory rights associated with (i) patents and patent
applications, (ii) copyrights, copyright registrations and copyright
applications, "moral" rights and mask work rights, (iii) the protection of
trade and industrial secrets and confidential information, (iv) other
proprietary rights relating to intangible intellectual property, (v)
trademarks, trade names, domain names and service marks, (vi) analogous rights
to those set forth above, and (vii) divisions, continuations, renewals,
reissuances and extensions of the foregoing (as applicable).
"COMPANY INTELLECTUAL PROPERTY" shall mean any and
all Intellectual Property and Intellectual Property Rights that are owned by or
exclusively licensed to the Company, including without limitation Company
Registered Intellectual Property.
"REGISTERED INTELLECTUAL PROPERTY" shall mean
Intellectual Property Rights that have been registered, filed, or otherwise
perfected or recorded with or by any state, government or other public or
quasi-public legal authority.
"SOFTWARE" means any and all computer software and
code, including assemblers, applets, compilers, source code, object code, data
(including image and sound data), design tools and user interfaces, in any form
or format, however fixed. Software shall include source code listings and
documentation.
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"COMPANY PRODUCTS" means all products, Software or
service offerings of the Company that have been sold, distributed or otherwise
disposed of prior to the date of this Agreement or which the Company intends to
sell, distribute or otherwise dispose of in the future, including any products,
Software or service offerings under development.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all
Registered Intellectual Property owned by, or filed in the name of, the Company.
When used in SECTION 2.13 of this Agreement, the phrase "AS THE COMPANY
CURRENTLY PLANS TO CONDUCT ITS BUSINESS" or any similar phrase thereto means,
with respect to products currently under development, the functionality and
feature set for such products based upon the current specifications, or, if no
such specifications exist, the functionality and feature set of the most recent
version of any prototype or development version of such products.
(b) SECTION 2.13(b) of the Disclosure Schedule contains a
complete and accurate list (by name and version number) of all Company Products.
(c) SECTION 2.13(c) of the Disclosure Schedule (i) lists all
Company Registered Intellectual Property and (ii) lists any proceedings or
actions pending before any court, tribunal (including the United States Patent
and Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property.
(d) Each item of Company Registered Intellectual Property
(other than pending applications) is in force, and all necessary registration,
maintenance and renewal fees in connection with such Company Registered
Intellectual Property have been paid and all necessary documents and
certificates in connection with such Company 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 Registered Intellectual Property. As of the
date of this Agreement, other than as set forth in SECTION 2.13(d) of the
Disclosure Schedule, there are no actions that must be taken by the Company
before February 28, 2003, that, if not taken, would result in the invalidity or
abandonment of such Company Registered Intellectual Property or would otherwise
cause such Company Registered Intellectual Property to not be in force,
including the payment of any registration, maintenance or renewal fees or the
filing of any documents, applications or certificates for the purposes of
maintaining, perfecting or preserving or renewing any Registered Intellectual
Property. In each case in which the Company has acquired ownership of, or
purports to have acquired ownership of, any material Intellectual Property
Rights from any person, the Company has obtained a valid and enforceable
assignment sufficient to irrevocably transfer all rights (other than "moral
rights" and other rights that are inherently non-assignable) in such
Intellectual Property Rights (including the right to seek past and future
damages with respect thereto) to the Company and, to the maximum extent provided
for by, and in accordance with, applicable laws and regulations, and except as
set forth in SECTION 2.13(d) of the Disclosure Schedule, the Company has
recorded each such assignment with the relevant governmental authorities,
including the PTO, the U.S. Copyright Office, or their respective equivalents in
any relevant foreign jurisdiction, as the case may be.
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(e) Each item of Company Intellectual Property owned by
Company, including all Company Registered Intellectual Property listed in
SECTION 2.13(c) of the Disclosure Schedule, is free and clear of any Liens or
other restrictions on, or payment obligations with respect to, the
transferability, alienability or licensability thereof, other than (i)
non-exclusive licenses of Intellectual Property granted by the Company, which do
not otherwise restrict Company's exploitation of such Intellectual Property, and
(ii) as set forth on SECTION 2.13(e) of the Disclosure Schedule. The Company is
the exclusive owner or exclusive licensee of all Company Intellectual Property.
(f) Except as set forth in SECTION 2.13(f) of the Disclosure
Schedule, to the extent that any Intellectual Property material to Company's
business has been developed or created independently or jointly by any person
other than the Company for which the Company has, directly paid compensation for
such development or creation, the Company has a written agreement with such
person with respect thereto, and the Company thereby has obtained ownership of,
and is the exclusive owner of, all such Intellectual Property therein and
associated Intellectual Property Rights by operation of law or by valid
assignment, and has required the waiver of all non-assignable rights, including
but not limited to, all author or moral rights.
(g) Except as set forth in SECTION 2.13(g) of the Disclosure
Schedule, the Company has not (i) transferred ownership of, or granted any
exclusive license of or exclusive right to use, or authorized the retention of
any exclusive rights to use or joint ownership of, any Intellectual Property or
Intellectual Property Rights that is or was Company Intellectual Property, to
any other person or (ii) permitted the Company's rights in such Company
Intellectual Property to enter into the public domain (other than through the
expiration of Registered Intellectual Property at the end of its statutory
term).
(h) Except as set forth on SECTION 2.13(h) of the Disclosure
Schedule, all Intellectual Property used in or necessary to the conduct of
Company's business as presently conducted or as the Company currently plans to
conduct it (other than Software licensed to Company pursuant to "shrink-wrap"
and other similar unsigned, generally available commercial licenses licensed on
a mass-market basis,) was written and created solely by either (i) employees of
the Company acting within the scope of their employment who have validly and
irrevocably assigned all of their rights, including all Intellectual Property
Rights therein, to the Company or (ii) by third parties who have validly and
irrevocably assigned all of their rights, including all Intellectual Property
Rights therein, to the Company, and no such third party owns or has any
exclusive rights to any such Company Intellectual Property.
(i) Other than (i) the Intellectual Property licensed to
Company pursuant to "shrink-wrap" and other similar unsigned, generally
available commercial licenses licensed on a mass-market basis, and (ii) the
Intellectual Property licensed to the Company pursuant to the licenses set forth
on SECTION 2.13(i) of the Disclosure Schedule, (a) the Company Intellectual
Property, other than patents owned by or exclusively licensed to the Company,
constitutes all of the Intellectual Property and Intellectual Property Rights,
other than patents, that are used in, or necessary to or that
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otherwise would be infringed by the conduct of the business of the Company as it
currently is conducted or as the Company currently plans to conduct it, and (b)
to the Knowledge of the Company, the patents owned by or exclusively licensed to
the Company constitute all patents that are used in, or necessary to or that
otherwise would be infringed by the conduct of the business of the Company as it
currently is conducted or as the Company currently plans to conduct it.
(j) Other than "shrink-wrap" and other similar unsigned,
generally available commercial licenses licensed on a mass-market basis, SECTION
2.13(j) of the Disclosure Schedule lists all contracts, licenses and agreements
to which the Company is a party pursuant to which Company grants a license or
any rights to any Company Registered Intellectual Property or any other material
Company Intellectual Property, to any third party.
(k) Except as set forth in SECTION 2.13(k) of the Disclosure
Schedule, other than pursuant to "shrink-wrap" and other similar unsigned,
generally available commercial licenses licensed on a mass-market basis, but not
including public or open technology, no third party who has licensed
Intellectual Property or Intellectual Property Rights to the Company has
ownership rights or license rights to improvements made by the Company in such
Intellectual Property which has been licensed to the Company.
(l) Other than "shrink-wrap" and other similar unsigned,
generally available commercial licenses licensed on a mass-market basis, SECTION
2.13(l) of the Disclosure Schedule lists all contracts, licenses and agreements
between the Company and any other person wherein or whereby the Company has
agreed to, or assumed, any obligation or duty to indemnify, reimburse, hold
harmless, guaranty, or otherwise assume or incur any obligation or liability
with respect to, or to provide such person a right to terminate or rescind such
agreement as a result of, or has made any express warranty concerning the
absence of, the infringement or misappropriation by the Company, or such other
person of the Intellectual Property Rights of any person other than the Company
or such other person.
(m) There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property or
other Intellectual Property used in and/or necessary to the conduct of the
business as it is currently conducted or as the Company currently plans to
conduct it, under which there is any material dispute regarding the scope of
such agreement, or performance under such agreement (other than routine warranty
claims) including with respect to any payments to be made or received by the
Company thereunder.
(n) Except as set forth in SECTION 2.13(n) of the Disclosure
Schedule, the operation of the business of the Company as it is currently
conducted, or is currently contemplated to be conducted, by the Company,
including but not limited to the design, development, use, import, branding,
advertising, promotion, marketing, manufacture and sale of any product,
technology or service (including products, technology or services currently
under development) of the Company does not (i) infringe or misappropriate any
Intellectual Property Rights, other than patents, of any person, (ii) to the
Knowledge of the Company, infringe any patent of any person, (iii) violate any
proprietary right, other than patents, of any person (including any right to
privacy or publicity) under
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the laws of any jurisdiction, or (iv) constitute unfair competition or trade
practices under the laws of any jurisdiction in which the Company or its
Subsidiaries, as applicable, do business, and, with respect to each of
subsections (i), (ii), (iii) and (iv) above, the Company has not received
written notice from any person claiming that such operation or any product,
technology or service (including products, technology or services currently
under development) or Intellectual Property of the Company infringes or
misappropriates any Intellectual Property Rights of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction (nor
does the Company have Knowledge of any legitimate basis for any claim).
(o) Except as set forth in SECTION 2.13(o) of the Disclosure
Schedule, neither this Agreement nor the completion of the transactions
contemplated by this Agreement will, pursuant to any express provision(s) of any
written agreements to which the Company is a party, in and of itself, directly
result in: (i) Parent or the Surviving Corporation granting to any third party
any right to any Intellectual Property Rights owned by or licensed to Parent or
the Surviving Corporation, which would not have been granted in the absence of
this Agreement or the completion of the transactions contemplated hereby, (ii)
Parent or the Surviving Corporation, becoming bound by, or made subject to any
non-compete or other material restriction on the operation or scope of their
respective businesses to which the Surviving Corporation or Parent would not
have been bound or subject in the absence of this Agreement or the transactions
contemplated hereby, (iii) Parent or the Surviving Corporation being obligated
to pay any royalties or other material amounts to either third party in excess
of those payable by any of them, respectively, in the absence of this Agreement
or the transactions contemplated hereby, (iv) Parent or the Surviving
Corporation becoming bound by, or made subject to, any restriction on, or
payment obligation with respect to, the transferability, alienability or
licensability of any Company Intellectual Property to which the Surviving
Corporation or Parent would not have been bound or subject in the absence of
this Agreement or the transactions contemplated hereby, or (v) the Surviving
Corporation not having all of the Intellectual Property Rights possessed by
Company immediately prior to the Closing Date; in each of (i), (ii), (iii), (iv)
and (v), without reference to any contractual commitment between Parent and any
third party other than the Related Agreements, any other agreements entered into
concurrently with this Agreement or as of the Closing Date as part of the
transactions contemplated by this Agreement, and agreements Parent automatically
becomes subject to as a direct result of the transactions contemplated by this
Agreement.
(p) To the Knowledge of the Company, no person or entity is
infringing or misappropriating any Company Intellectual Property.
(q) The Company has taken all reasonable steps that are
required or necessary to protect the Company's rights in trade secrets and other
material confidential information of the Company or provided by any other person
to the Company under a duty of confidentiality binding on the Company. Without
limiting the foregoing, the Company has, and enforces, a policy requiring each
employee to execute proprietary information, confidentiality and assignment
agreements substantially in the Company's standard forms, and all current and
former employees of the Company have executed such an agreement in substantially
the Company's standard form. In
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addition, except as set forth in SECTION 2.13(q) of the Disclosure Schedule,
Company has entered into a written agreement with each current and former
consultant or contractor whom Company specifically retained to develop or create
for Company any Intellectual Property material to the Company's business,
requiring each such current and former consultant or contractor to assign such
Intellectual Property to Company.
(r) No Company Intellectual Property, or Intellectual Property
Rights subsisting therein, is subject to any proceeding or outstanding decree,
order, judgment or settlement agreement or stipulation that restricts in any
manner the use, transfer or licensing thereof by the Company or adversely
affects the use or enforceability of such Company Intellectual Property by the
Company.
(s) To the Knowledge of the Company, no (i) product,
technology, service or publication of the Company, (ii) material published or
distributed by the Company, or (iii) conduct or statement of the Company
constitutes a defamatory statement, false advertising or otherwise violates any
law or regulation regarding advertising, publishing or distribution of content.
(t) (i) (A) No government funding, facilities or
resources of a university, college, or other educational institution or research
center was used in the development of the Company Intellectual Property owned by
the Company, and (B) no Governmental Entity, university, college, other
educational institution or research center has any claim or right in or to the
Company Intellectual Property owned by the Company.
(ii) Except as set forth on SECTION 2.13(t)(ii)
of the Disclosure Schedule, no current or former employee, consultant or
independent contractor of the Company who was involved in, or who contributed
to, the creation or development of any Company Intellectual Property, also
performed research or development services for the government, a university,
college or other higher educational institution, or a similar research center,
during a period of time during which such employee, consultant or independent
contractor was also performing services for the Company, in a manner that would
cause the government or such university, college or other higher educational
institution, or similar research center, to have any rights in or to any Company
Intellectual Property owned by the Company or purported to be owned by Company,
or which, but for such person's services performed for such educational
institution or research center, would have been owned by Company.
(u) SECTION 2.13(u) of the Disclosure Schedule sets forth all
Intellectual Property, other than Company Intellectual Property, that (i)
Company has incorporated into, integrated or bundled with any Company Product,
or (ii) other than Software licensed to Company pursuant to "shrink-wrap" and
other similar unsigned, generally available commercial licenses licensed on a
mass-market basis, is used in the development or compilation of any Company
Product.
(v) (i) SECTION 2.13(v)(i) of the Disclosure
Schedule sets forth all Software that constitutes open source, public source or
freeware Intellectual Property (excluding immaterial Software for which no
license terms, including attribution requirements, are applicable), or any
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modification or derivative thereof, including any version of any Software
licensed pursuant to any GNU-, GPL-, or Mozilla-based, or any other similar
public license or limited public license, that was directly used in,
incorporated into, integrated or bundled with any Company Intellectual Property,
or incorporated into, integrated or bundled with, or directly used in the
development or compilation of any Company Products.
(ii) Except as set forth in SECTION 2.13(v)(ii)
of the Disclosure Schedule, the use or distribution of the Software identified
in SECTION 2.13(v)(i) of the Disclosure Schedule (the "Open Software"), as used
or distributed by Company, or contemplated to be used or distributed by Company,
does not impose any material obligations or restrictions (other than attribution
requirements) upon the use, disclosure or distribution of any Software or
Intellectual Property other than the Open Software, including without limitation
obligating the disclosure of the source code of any Software or Intellectual
Property other than the Open Software, or the distribution without charge of any
Software or Intellectual Property other than the Open Software.
(w) Company has the right to use all Software development
tools, library functions, compilers and all other third-party Software that
Company uses to create, modify, compile, operate or support any Software that is
Company Intellectual Property or is incorporated into any Company Product.
(x) SECTION 2.13(x) of the Disclosure Schedule sets forth a
true and accurate list of all agreements to which Company is a party or which
govern Company's use of any Software used by Company in the conduct of its
business (including unsigned, generally available commercial licenses licensed
on a mass-market basis) pursuant to which: (i) Company is granted the right to
distribute Software not owned by Company that Company distributes or plans to
distribute; (ii) Company is granted access to, or any rights to use, the source
code of any Software not owned by Company that the Company uses or plans to use
in source code form; or (iii) Company is granted the right to use any Software
that constitutes open source, public source or freeware Intellectual Property
and that is used in the Company's business (excluding immaterial Software for
which no license terms, including attribution requirements, are applicable), or
any modification or derivative thereof, including any version of any Software
licensed pursuant to any GNU-, GPL-, or Mozilla-based, or any other similar
public license or limited public license.
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS
Except as set forth in SECTION 2.14 of the Disclosure Schedule, the
Company is not a party to, nor is it bound by:
(a) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson, or
consulting or sales agreement, contract, or commitment with a firm or other
organization;
(b) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the
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vesting of benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(c) any fidelity or surety bond or completion bond;
(d) any lease of personal property having a value in excess of
$25,000 individually or $75,000 in the aggregate;
(e) any agreement of indemnification or guaranty;
(f) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000 individually or
$75,000 in the aggregate;
(g) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
(h) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(i) any purchase order or contract for the purchase of
materials involving in excess of $25,000 individually or $75,000 in the
aggregate;
(j) any construction contracts;
(k) any dealer, distribution, joint marketing or development
agreement;
(l) any sales representative, original equipment manufacturer,
manufacturing, value added, remarketer, reseller, or independent software
vendor, or other agreement for use or distribution of the products, technology
or services of the Company; or
(m) any other agreement, contract or commitment that involves
$25,000 individually or $75,000 in the aggregate or more and is not cancelable
without penalty within thirty (30) days.
2.15 INTERESTED PARTY TRANSACTIONS
No officer of the Company (nor to the Company's Knowledge, any
ancestor, sibling, descendant or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an interest in any entity
which furnished or sold, or furnishes or sells, services, products, technology
or Intellectual Property that the Company furnishes or sells, or currently
proposes to furnish or sell, or (ii) any interest in any entity that purchases
from or sells or furnishes to the Company, any goods or services, or (iii) a
beneficial interest in any Contract to which the Company is a party; provided,
however, that
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ownership of no more than one percent (1%) of the outstanding voting stock of a
publicly traded corporation shall not be deemed to be an "interest in any
entity" for purposes of this SECTION 2.15.
No affiliate (as defined in Rule 405 under the Securities Act) of the
Company (nor to the Company's Knowledge, any ancestor, sibling, descendant or
spouse of any of such persons, or any trust, partnership or corporation in which
any of such persons has or has had an interest), has or has had, directly or
indirectly, (i) any interest in any entity that purchases from or sells or
furnishes to the Company, any goods or services, other than such terms as would
be on an arm's length basis or (ii) a beneficial interest in any Contract to
which the Company is a party, other than Contracts having such terms as would be
on an arm's length basis; provided, however, that ownership of no more than one
percent (1%) of the outstanding voting stock of a publicly traded corporation
shall not be deemed to be an "interest in any entity" for purposes of this
SECTION 2.15. To the Company's Knowledge, there are no agreements, contracts, or
commitments with regard to contribution or indemnification between or among any
of the Stockholders.
2.16 GOVERNMENTAL AUTHORIZATION
Each consent, license, permit, grant or other authorization (i)
pursuant to which the Company currently operates or holds any interest in any of
its properties, or (ii) which is required for the operation of the Company's
business as currently conducted or currently contemplated to be conducted or the
holding of any such interest (collectively, "COMPANY AUTHORIZATIONS") has been
issued or granted to the Company. The Company Authorizations are in full force
and effect and constitute all Company Authorizations required to permit the
Company to operate or conduct its business or hold any interest in its
properties or assets.
2.17 LITIGATION
There is no action, suit, claim or proceeding of any nature pending, or
to the Knowledge of the Company, threatened, against the Company, its properties
(tangible or intangible) or any of its officers or directors, nor to the
Knowledge of the Company is there any reasonable basis therefor. There is no
investigation or other proceeding pending or, to the Knowledge of the Company,
threatened, against the Company, any of its properties (tangible or intangible)
or any of its officers or directors by or before any Governmental Entity, nor to
the Knowledge of the Company is there any reasonable basis therefor. No
Governmental Entity has at any time challenged or questioned the legal right of
the Company to conduct its operations as presently or previously conducted or as
presently contemplated to be conducted. There is no action, suit, claim, order,
injunction or proceeding of any nature pending, or overtly threatened, against
the Company, its properties or any of its officers or directors arising out of,
or in any way connected with, the Merger or the other transactions contemplated
by the terms of this Agreement.
2.18 MINUTE BOOKS
The minutes of the Company made available to counsel for Parent contain
complete and accurate records of all actions taken, and summaries of all
meetings held, by the stockholders, the
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Board of Directors of the Company (and any committees thereof) since the time of
incorporation of the Company. The minute books of the Company are in the
possession of the Company.
2.19 ENVIRONMENTAL MATTERS
(a) HAZARDOUS MATERIAL. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased, or (ii) released any amount of any
substance that has been designated by any Governmental Entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health, reproduction or the environment, including, without
limitation, PCBs, asbestos, petroleum, and urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act of 1976, as amended, and the regulations promulgated pursuant to said laws
(a "HAZARDOUS MATERIAL"), but excluding office and janitorial supplies properly
and safely maintained. As of the Closing, except in compliance with
Environmental Laws and in a manner that could not reasonably be expected to
subject the Company to liability, no Hazardous Materials are present in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Company has at any time owned, operated,
occupied or leased. The Company's operations and business have been and are in
compliance in all material respects with Environmental Laws. "ENVIRONMENTAL
LAWS" means all applicable Federal, state, local and foreign laws, regulations,
statutes, rules, and codes which prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity or which relate to pollution of the
environment (including ambient air, surface water, groundwater, land surface or
subsurface strata) or the protection of human health, reproduction, and worker
safety, and any and all amendments and modifications or any of the foregoing.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not (i)
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials or (ii) disposed of, transported,
sold, or manufactured any product containing a Hazardous Material in violation
of any rule, regulation, treaty or statute promulgated by any Governmental
Entity to prohibit, regulate or control Hazardous Materials (each or both of the
foregoing (i) or (ii) being collectively referred to herein as "HAZARDOUS
MATERIALS ACTIVITIES").
(c) PERMITS. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of its Hazardous Materials Activities and
other businesses of the Company as such activities and businesses are currently
being conducted and as currently contemplated to be conducted. SECTION 2.19(c)
of the Disclosure Schedule accurately describes all of the Environmental Permits
currently held by the Company.
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(d) ENVIRONMENTAL LIABILITIES. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, nor to the Knowledge of the Company threatened, concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
the Company. The Company has no Knowledge of any fact or circumstance that could
reasonably be expected to impose upon the Company any environmental liability.
(e) REPORTS AND RECORDS. The Company has delivered to Parent
all records in the Company's possession concerning the Hazardous Materials
Activities of the Company relating to its business and all environmental audits,
environmental assessments and sampling data related to any Leased Real Property
or any property formerly owned, operated, occupied or leased by the Company or
otherwise in the possession of the Company or its agents. The Company has
complied with all environmental disclosure obligations imposed by applicable law
with respect to this transaction.
2.20 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES
Other than fees payable to Xxxxxxx, Xxxxx & Co., the Company has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions, fees related to investment banking or
similar advisory services or any similar charges in connection with the
Agreement or any transaction contemplated hereby. SECTION 2.20 of the Disclosure
Schedule sets forth the principal terms and conditions of any agreement, written
or oral, with respect to such fees. SECTION 2.20 of the Disclosure Schedule sets
forth the Company's current reasonable estimate of all Third Party Expenses (as
defined in SECTION 5.5 hereof) expected to be incurred by the Company in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby.
2.21 EMPLOYEE BENEFIT PLANS AND COMPENSATION
(a) DEFINITIONS. For all purposes of this Agreement, the
following terms shall have the following respective meanings:
"AFFILIATE" shall mean any other person or entity
under common control with the Company within the meaning of Section 414(b), (c),
(m) or (o) of the Code, and the regulations issued thereunder.
"COMPANY EMPLOYEE PLAN" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the
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Company or any Affiliate has or may have any liability or obligation and any
International Employee Plan.
"COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
"DOL" shall mean the United States Department of
Labor.
"EMPLOYEE" shall mean any current or former employee,
consultant or director of the Company or any Affiliate.
"EMPLOYEE AGREEMENT" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement, or contract (including, without
limitation, any offer letter or any agreement providing for acceleration of
Company Options or Company Unvested Common Stock, or any other agreement
providing for compensation or benefits) between the Company or any Affiliate and
any Employee.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"FMLA" shall mean the Family Medical Leave Act of
1993, as amended.
"HIPAA" shall mean the Health Insurance Portability
and Accountability Act of 1996, as amended.
"INTERNATIONAL EMPLOYEE PLAN" shall mean each Company
Employee Plan or Employee Agreement that has been adopted or maintained by the
Company or any Affiliate, whether formally or informally or with respect to
which the Company or any Affiliate will or may have any liability with respect
to Employees who perform services outside the United States.
"IRS" shall mean the United States Internal Revenue
Service.
"PBGC" shall mean the United States Pension Benefit
Guaranty Corporation.
"PENSION PLAN" shall mean each Company Employee Plan
which is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) SCHEDULE. SECTION 2.21(b)(1) of the Disclosure Schedule
contains an accurate and complete list of each Company Employee Plan, each
Employee Agreement under each Company Employee Plan, and each Employee
Agreement. The Company has not made any plan or commitment to establish any new
Company Employee Plan or Employee Agreement, to modify any Company Employee Plan
or Employee Agreement (except to the extent required by law or to conform any
such Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this
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Agreement), or to enter into any Company Employee Plan or Employee Agreement.
SECTION 2.21(b)(2) of the Disclosure Schedule sets forth a table setting forth
the name and salary of each employee of the Company.
(c) DOCUMENTS. The Company has provided to Parent (i) correct
and complete copies of all documents embodying each Company Employee Plan and
each Employee Agreement including, without limitation, all amendments thereto
and all related trust documents, (ii) the three (3) most recent annual reports
(Form Series 5500 and all schedules and financial statements attached thereto),
if any, required under ERISA or the Code in connection with each Company
Employee Plan, (iii) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets, (iv) the most
recent summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each Company
Employee Plan, (v) all material written agreements and contracts relating to
each Company Employee Plan, including, without limitation, administrative
service agreements and group insurance contracts, (vi) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
liability to the Company, (vii) all correspondence to or from any governmental
agency relating to any Company Employee Plan, (viii) all current COBRA forms and
related notices, (ix) all current policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Company Employee Plan, (x) all
discrimination tests for each Company Employee Plan for the three (3) most
recent plan years, (xi) all registration statements, annual reports (Form 11-K
and all attachments thereto) and prospectuses prepared in connection with each
Company Employee Plan, and (xii) the most recent IRS determination or opinion
letter issued with respect to each Company Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. The Company has performed all
obligations required to be performed by it under, is not in default or violation
of, and the Company has no Knowledge of any default or violation by any other
party to, any Company Employee Plan, and each Company Employee Plan has been
established and maintained in all material respects in accordance with its terms
and in material compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code. Any Company
Employee Plan intended to be qualified under Section 401(a) of the Code has
obtained or timely applied for a favorable determination letter (or opinion
letter, if applicable) as to its qualified status under the Code. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Company Employee Plan. There are no actions, suits or claims
pending or, to the Knowledge of the Company, threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan. Each Company
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Parent, the
Company or any Affiliate (other than for payment of benefits or ordinary
administration expenses). There are no audits, inquiries or proceedings pending
or to the Knowledge of the Company or any Affiliates,
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threatened by the IRS, DOL, or any other Governmental Entity with respect to any
Company Employee Plan. Neither the Company nor any Affiliate is subject to any
penalty or tax with respect to any Company Employee Plan under Section 502(i) of
ERISA or Sections 4975 through 4980 of the Code. The Company has timely made all
contributions and other payments required by and due under the terms of each
Company Employee Plan.
(e) NO PENSION PLANS. Neither the Company nor any Affiliate
has ever maintained, established, sponsored, participated in, or contributed to,
any (i) Pension Plans subject to Title IV of ERISA.
(f) NO SELF-INSURED PLANS. Neither the Company nor any
Affiliate has ever maintained, established sponsored, participated in or
contributed to any self-insured plan that provides benefits to Employees
(including, without limitation, any such plan pursuant to which a stop-loss
policy or contract applies).
(g) COLLECTIVELY BARGAINED, MULTIEMPLOYER AND
MULTIPLE-EMPLOYER PLANS. At no time has the Company or any Affiliate contributed
to or been obligated to contribute to any Multiemployer Plan. Neither the
Company nor any Affiliate has at any time ever maintained, established,
sponsored, participated in or contributed to any multiple employer plan or to
any plan described in Section 413 of the Code.
(h) NO POST-EMPLOYMENT OBLIGATIONS. No Company Employee Plan
provides, or reflects or represents any liability to provide, retiree life
insurance, retiree health or other retiree employee welfare benefits to any
person for any reason, except as may be required by COBRA or other applicable
statute, and the Company has not ever represented, promised or contracted
(whether in oral or written form) to any Employee (either individually or to
Employees as a group) or any other person that such Employee(s) or other person
would be provided with retiree life insurance, retiree health or other retiree
employee welfare benefits, except to the extent required by statute or by
individual conversion policies provided under the terms of the Company Employee
Plan.
(i) COBRA; FMLA; HIPAA. The Company and each Affiliate has,
prior to the Effective Time, complied with COBRA, FMLA, HIPAA, the Women's
Health and Cancer Rights Act of 1998, the Newborns' and Mothers' Health
Protection Act of 1996, and any similar provisions of state law applicable to
its Employees. To the Knowledge of the Company has no unsatisfied obligations to
any Employees or qualified beneficiaries pursuant to COBRA, HIPAA or any state
law governing health care coverage or extension.
(j) EFFECT OF TRANSACTION. The execution of this Agreement and
the consummation of the transactions contemplated hereby will not (either alone
or upon the occurrence of any additional or subsequent events) constitute (i) an
event under any Company Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits or (ii) be deemed a "parachute payment"
under Section 280G of the Code with respect to any Employee.
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(k) EMPLOYMENT MATTERS. The Company is in compliance with all
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment,
employee safety and wages and hours, and in each case, with respect to
Employees: (i) has withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and other
payments to Employees, (ii) is not liable for any arrears of wages, severance
pay or any taxes or any penalty for failure to comply with any of the foregoing,
and (iii) is not liable for any payment to any trust or other fund governed by
or maintained by or on behalf of any governmental authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no action,
suits, claims or administrative matters pending, threatened or reasonably
anticipated against the Company or any of its Employees relating to any
Employee, Employee Agreement or Company Employee Plan. There are no pending or
threatened or reasonably anticipated claims or actions against Company or any
Company trustee under any worker's compensation policy. The services provided by
each of the Company's and its Affiliates' Employees is terminable at the will of
the Company.
(l) LABOR. As of the date hereof, no work stoppage or labor
strike against the Company is pending, or to the Knowledge of the Company,
threatened, or reasonably anticipated. As of the date hereof, the Company does
not know of any activities or proceedings of any labor union to organize any
Employees. As of the date hereof, there are no actions, suits, claims, labor
disputes or grievances pending or threatened or reasonably anticipated relating
to any labor matters involving any Employee, including, without limitation,
charges of unfair labor practices. The Company has not engaged in any unfair
labor practices within the meaning of the National Labor Relations Act. The
Company does not presently, nor has it been in the past, a party to, or bound
by, any collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by the
Company.
(m) NO INTERFERENCE OR CONFLICT. To the Knowledge of the
Company, no officer or Employee of the Company is obligated under any contract
or agreement, subject to any judgment, decree, or order of any court or
administrative agency that would interfere with such person's efforts to promote
the interests of the Company or that would interfere with the Company's
business. Neither the execution nor delivery of this Agreement, nor the carrying
on of the Company's business as presently conducted or proposed to be conducted
nor any activity of such officers or Employees in connection with the carrying
on of the Company's business as presently conducted or currently proposed to be
conducted, to the Knowledge of the Company, conflicts with or result in a breach
of the terms, conditions, or provisions of, or constitute a default under, any
contract or agreement under which any of such officers or Employees is now
bound.
(n) INTERNATIONAL EMPLOYEE PLAN. Neither the Company nor any
Affiliate currently or has it ever had the obligation to maintain, establish,
sponsor, participate in, be bound by or contribute to any International Employee
Plan.
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(o) RETENTION MATTERS. Except as contemplated by this
Agreement, the Company has no Knowledge that any employee or group of employees
that the Parent has expressed to the Company that it intends to employ following
the Effective Time intends not to continue in the employ of the Company, the
Surviving Corporation or Parent, as applicable.
2.22 INSURANCE
SECTION 2.22 of the Disclosure Schedule lists all insurance policies and
fidelity bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company or any Affiliate, including the
type of coverage, the carrier, the amount of coverage, the term and the annual
premiums of such policies. There is no claim by the Company or any Affiliate
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed or that the Company or any Affiliate has a reason
to believe will be denied or disputed by the underwriters of such policies or
bonds. In addition, there is no pending claim of which its total value
(inclusive of defense expenses) will exceed the policy limits. All premiums due
and payable under all such policies and bonds have been paid, (or if installment
payments are due, will be paid if incurred prior to the Closing Date) and the
Company and its Affiliates are otherwise in material compliance with the terms
of such policies and bonds (or other policies and bonds providing substantially
similar insurance coverage). The Company has no Knowledge or reasonable belief
of threatened termination of, or premium increase with respect to, any of such
policies. Neither the Company nor any Affiliate has ever maintained,
established, sponsored, participated in or contributed to any self-insurance
plan.
2.23 COMPLIANCE WITH LAWS
The Company has complied with, is not in violation of, and has not
received any notices of violation with respect to, any foreign, federal, state
or local statute, law or regulation.
2.24 FOREIGN CORRUPT PRACTICES ACT
The Company (including any of its officers or directors) has not taken
any action which would cause it to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any rules or regulations thereunder.
2.25 WARRANTIES; INDEMNITIES
Except for the warranties and indemnities contained in those contracts
and agreements set forth in SECTION 2.13(l) of the Disclosure Schedule and
warranties implied by law, the Company has not given any warranties or
indemnities relating to products or technology sold or services rendered by the
Company.
2.26 COMPLETE COPIES OF MATERIALS
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The Company has delivered or made available true and complete copies of
each document that has been requested by Parent or its counsel.
2.27 REPRESENTATIONS COMPLETE
None of the representations or warranties made by the Company (as
modified by the Disclosure Schedule) in this Agreement, and none of the
statements made in any exhibit, schedule or certificate furnished by the Company
pursuant to this Agreement, taken as a whole, contains, or will contain at the
Effective Time, any untrue statement of a material fact, or omits or will omit
at the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
2.28 INFORMATION STATEMENT
Except for information furnished in writing by Parent to the Company
for inclusion in any document mailed, delivered or otherwise furnished to
Stockholders by the Company in connection with the solicitation of their consent
to this Agreement and the Merger, such document will not contain, at or prior to
the Effective Time, any untrue statement of a material fact and will not omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which made not misleading.
2.29 SPREADSHEET
The information contained in the Spreadsheet (as defined in SECTION
5.22) shall be complete and correct as of the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Each of Parent and Sub hereby represents and warrants to the Company
that on the date hereof and as of the Effective Time, as though made at the
Effective Time, as follows:
3.1 ORGANIZATION, STANDING AND POWER
Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Sub is a corporation duly
organized, validly existing and in good standing under the laws of Delaware.
Each of Parent and Sub has the corporate power to own its properties and to
carry on its business as now being conducted and is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the failure
to be so qualified or licensed would have a material adverse effect on the
business, assets (including intangible assets), condition (financial or
otherwise), results of operations or capitalization of Parent (a "PARENT
MATERIAL ADVERSE EFFECT"); provided, however, that in no event shall any of the
following, alone or in combination, be taken into account in determining whether
there has been or will be a Parent
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Material Adverse Effect: (i) any change in the price per share of Parent Common
Stock or a change in the trading volume of Parent Common Stock, (ii) event or
effect to the extent such change, event or effect results from changes affecting
any of the industries in which Parent operates generally or the United States
economy generally (which changes in each case do not disproportionately affect
Parent).
3.2 AUTHORITY
Each of Parent and Sub has all requisite corporate power and authority
to enter into this Agreement and any Related Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and any Related Agreements to which it
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Parent and Sub. This Agreement and any Related Agreements to which Parent and
Sub are parties have been duly executed and delivered by Parent and Sub and
constitute the valid and binding obligations of Parent and Sub, enforceable
against each of Parent and Sub in accordance with their terms.
3.3 CONSENTS
No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, or any third
party is required by or with respect to Parent or Sub in connection with the
execution and delivery of this Agreement and any Related Agreements to which
Parent or Sub is a party or the consummation of the transactions contemplated
hereby and thereby, except for (i) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
state and federal securities laws, (ii) such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not have a Parent Material Adverse Effect, (iii) the
issuance of the California Permit, (iv) such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under the HSR Act, and (v) the filing of the Certificate of Merger with
the Delaware Secretary of State.
3.4 PARENT COMMON STOCK
The Parent Common Stock which constitutes the Total Adjusted
Consideration has been duly authorized and, upon consummation of the
transactions contemplated by this Agreement, will be validly issued, fully paid
and nonassessable.
3.5 BROKER'S AND FINDERS' FEES
Other than fees payable to Xxxxxx Xxxxxxx & Co., Inc., which fees are
the responsibility of Parent, neither Parent nor Sub has incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
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3.6 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS
A true and complete copy of each annual, quarterly and current report,
and definitive proxy statement filed by Parent with the SEC on or after January
24, 2002 (the "PARENT SEC DOCUMENTS") is available on the Web site maintained by
the SEC at xxxx://xxx.xxx.xxx. As of their respective filing dates, the Parent
SEC Documents complied in all material respects with the requirements of the
Exchange Act, and the rules and regulations of the SEC promulgated thereunder
applicable to such Parent SEC Documents, and none of the Parent SEC Documents
contained on their filing dates any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except to the extent corrected by a subsequently filed
Parent SEC Document. The financial statements of Parent included in the Parent
SEC Documents (the "PARENT FINANCIAL STATEMENTS") complied as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto, except in the case of pro forma statements, or, in the case of
unaudited financial statements, except as permitted under Form 10-Q under the
Exchange Act) and fairly presented the consolidated financial position of Parent
and its consolidated subsidiaries as of the respective dates thereof and the
consolidated results of Parent's operations and cash flows for the periods
indicated (subject to, in the case of unaudited statements, normal and recurring
year-end audit adjustments).
3.7 NO VOTE REQUIRED
No vote of the holders of Parent capital stock is required to authorize
the Merger.
3.8 NO CONFLICTS
The execution and delivery of this Agreement and any Related Agreement
to which Parent or Sub is a party do not, and the consummation of the
transactions contemplated hereby will not result in any Conflict with (i) any
provision of the certificate of incorporation or bylaws of Parent or Sub, as
amended, (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise or license to which Parent or any of
its respective properties or assets are subject and which has been filed as an
exhibit to Parent's Annual Report on Form 10-K for the fiscal year ended October
27, 2001 ("PARENT 10-K") and such other filings under the Exchange Act which are
made subsequent to the Parent 10-K and prior to the date hereof, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Parent or Sub or their respective properties or assets, except in each case
where such conflict will not have a Parent Material Adverse Effect.
3.9 INFORMATION STATEMENT
The information provided in writing by Parent or Sub to the Company for
the express purpose of including in any documents mailed, delivered or otherwise
furnished to Stockholders by the Company in connection with the solicitation of
their consent to this Agreement and the Merger,
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will not contain, at or prior to the Effective Time, any untrue statement of a
material fact and will not omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which
made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY
Except as otherwise contemplated herein, during the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, the Company agrees to conduct the business
of the Company, except to the extent that Parent shall otherwise consent in
writing, in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay the debts and Taxes of the Company when
due in accordance with past practice, to pay or perform other obligations when
due in accordance with past practice, and, to the extent consistent with such
business, to preserve intact the present business organizations of the Company,
keep available the services of the present officers and key employees of the
Company and preserve the relationships of the Company with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
them, all with the goal of preserving unimpaired the goodwill and ongoing
businesses of the Company at the Effective Time. The Company shall promptly
notify Parent of any event or occurrence or emergency known to it not in the
ordinary course of business of the Company and any material event known to it
involving the Company that arises during the period from the date of this
Agreement and continuing until the earlier of the termination date of this
Agreement or the Effective Time. Except as expressly contemplated by this
Agreement and except as expressly set forth in the Disclosure Schedule, the
Company shall not, without the prior written consent of Parent, from and after
the date of this Agreement:
(a) enter into any commitment, activity or transaction not in
the ordinary course of business consistent with past practice;
(b) make any expenditures or enter into any commitment or
transaction exceeding $25,000 individually or $75,000 in the aggregate other
than pursuant to purchase orders disclosed in the Disclosure Schedules and the
following items in the ordinary course of business consistent with past
practice: payroll, interest, rent and utiltites.
(c) (i) sell, license or transfer to any person or entity any
rights to any Company Intellectual Property or enter into any agreement with
respect to any Company Intellectual Property with any person or entity, (ii) buy
or license any Intellectual Property or enter into any agreement with respect to
the Intellectual Property of any person or entity, (iii) enter into any
agreement with respect to the development of any Intellectual Property with a
third party, (iv) or change pricing or
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royalties charged by the Company to its customers or licensees, or the pricing
or royalties set or charged by persons who have licensed Intellectual Property
to the Company;
(d) enter into or amend any Contract pursuant to which any
other party is granted marketing, distribution, development, manufacturing or
similar rights of any type or scope with respect to any products or technology
of the Company;
(e) amend or otherwise modify (or agree to do so), or violate
the terms of, any of the Contracts set forth or described in the Disclosure
Schedule;
(f) commence or settle any litigation;
(g) declare, set aside, or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
Company Capital Stock, or split, combine or reclassify any Company Capital Stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of Company Capital Stock, except for the
issuance of Company Common Stock pursuant to the conversion of Company Preferred
Stock, or repurchase, redeem or otherwise acquire, directly or indirectly, any
shares of Company Capital Stock (or options, warrants or other rights
exercisable therefor) except in accordance with the agreements evidencing
Company Unvested Common Stock;
(h) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any Company Capital Stock or any securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue or purchase any such shares or other
convertible securities, except for (i) the issuance of Company Common Stock
pursuant to the conversion of Company Preferred Stock and (ii) the issuance of
Company Capital Stock pursuant to the exercise of outstanding Company Assumed
Warrants or Company Options, including by way of net issue exercise provisions
of such Company Assumed Warrants or Company Options;
(i) cause or permit any amendments to the certificate of
incorporation, bylaws or other organizational documents of the Company;
(j) acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of the Company;
(k) sell, lease, license or otherwise dispose of any of its
properties or assets, including without limitation the sale of any accounts
receivable of the Company, except properties or assets (whether tangible or
intangible) which are not Intellectual Property and only in the ordinary course
of business as conducted on that date and consistent with past practices;
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(l) incur any indebtedness or guarantee any indebtedness or
issue or sell any debt securities or guarantee any debt securities of others;
(m) grant any loans to others or purchase debt securities of
others or amend the terms of any outstanding loan agreement;
(n) grant any severance or termination pay (in cash or
otherwise) to any Employee, including any officer, except payments made pursuant
to standard written agreements outstanding on the date hereof and disclosed in
the Disclosure Schedule;
(o) adopt or amend any Company Employee Plan, enter into any
employment contract, pay or agree to pay any bonus or special remuneration to
any director or Employee, or increase or modify the salaries, wage rates, or
other compensation (including, without limitation, any equity-based
compensation) of its Employees except payments made pursuant to standard written
agreements outstanding on the date hereof and disclosed in SECTION 4.1(o) of the
Disclosure Schedule or except to the extent required to conform any such Company
Employee Plan with the Uruguay Round Agreements Act, the Small Business Job
Protection Act of 1996, the Uniformed Services Employment and Reemployment
Rights Act of 1994, the Taxpayer Relief Act of 1997 and the Internal Revenue
Service Restructuring and Reform Act of 1998 or Employee Agreement to the
requirements of applicable law or as required by this Agreement;
(p) revalue any of its assets (whether tangible or
intangible), including without limitation writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business consistent with past practice;
(q) pay, discharge, waive or satisfy any claim, liability,
right or obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business consistent with past practice of liabilities reflected or
reserved against in the Current Balance Sheet or incurred in compliance with
this Agreement;
(r) make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(s) enter into any strategic alliance, affiliate agreement or
joint marketing arrangement or agreement;
(t) take any action to accelerate the vesting schedule of any
of the outstanding Company Options, Company Unvested Common Stock or Company
Common Stock;
(u) except as set forth on SECTION 4.1(u) of the Disclosure
Schedule, hire or terminate any Employees, or encourage any Employees to resign
from the Company;
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(v) promote or terminate any employees or change the
employment status or titles of any of the employees of the Company;
(w) alter, or enter into any commitment to alter, its interest
in any corporation, association, joint venture, partnership or business entity
in which the Company directly or indirectly holds any interest;
(x) cancel, amend or renew any insurance policy;
(y) enter into any agreement to purchase or sell any interest
in real property, grant any security interest in any real property, enter into
any lease, sublease, license or other occupancy agreement with respect to any
real property or alter, amend, modify or terminate any of the terms of any Lease
Agreements; or
(z) take, or agree in writing or otherwise to take, any of the
actions described in SECTIONS 4.1(a) through 4.1(y) hereof, or any other action
that would (i) prevent the Company from performing, or cause the Company not to
perform, its covenants hereunder or (ii) cause or result in any of its
respective representations and warranties contained herein being untrue or
incorrect.
4.2 NO SOLICITATION
Until the earlier of (i) the Effective Time, or (ii) the date of
termination of this Agreement pursuant to the provisions of SECTION 8.1 hereof,
the Company shall not (nor shall the Company permit any of its officers,
directors, employees, stockholders, agents, representatives or affiliates to),
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, encourage, seek, entertain, support,
assist, initiate or participate in any inquiry, negotiations or discussions, or
enter into any agreement, with respect to any offer or proposal to acquire all
or any material part of the business, properties or technologies of the Company
or any amount of the Company Capital Stock (whether or not outstanding), whether
by merger, purchase of assets, tender offer, license or otherwise, or effect any
such transaction, (b) disclose any information not customarily disclosed to any
person concerning the business, technologies or properties of the Company, or
afford to any person or entity access to its properties, technologies, books or
records, not customarily afforded such access, (c) assist or cooperate with any
person to make any proposal to purchase all or any part of the Company Capital
Stock or assets of the Company, or (d) enter into any agreement with any person
providing for the acquisition of the Company, whether by merger, purchase of
assets, license, tender offer or otherwise. The Company shall immediately cease
and cause to be terminated any such negotiations, discussion or agreements
(other than with Parent) that are the subject matter of clause (a), (b), (c) or
(d) above. In the event that the Company or any of the Company's affiliates
shall receive, prior to the Effective Time or the termination of this Agreement
in accordance with SECTION 8.1 hereof, any offer, proposal, or request, directly
or indirectly, of the type referenced in clause (a), (c), or (d) above, or any
request for disclosure or access as referenced in clause (b) above, the Company
shall immediately (x) suspend any discussions with such offeror or party with
regard to such offers, proposals, or requests and (y) notify Parent thereof,
including information as to the identity of the offeror or the party making any
such offer or proposal and the
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specific terms of such offer or proposal, as the case may be, and such other
information (including a copy of any written offer or proposal related thereto)
as Parent may reasonably request. The parties hereto agree that irreparable
damage would occur in the event that the provisions of this SECTION 4.2 were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed by the parties hereto that Parent shall be entitled to an
immediate injunction or injunctions, without the necessity of proving the
inadequacy of money damages as a remedy and without the necessity of posting any
bond or other security, to prevent breaches of the provisions of this SECTION
4.2 and to enforce specifically the terms and provisions hereof in any court of
the United States or any state having jurisdiction, this being in addition to
any other remedy to which Parent may be entitled at law or in equity. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth above by any officer, director, agent, representative or affiliate of
Company shall be deemed to be a breach of this Agreement by Company.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FAIRNESS HEARING; STOCKHOLDER APPROVAL
(a) As soon as reasonably practicable following the execution
of this Agreement, Parent and the Company shall prepare the necessary documents
to apply to obtain, and Parent shall apply to obtain, a permit (a "CALIFORNIA
PERMIT") from the California Commissioner of Corporations (after a hearing
before such Commissioner) pursuant to Sections 25121 and 25142 of the California
Corporate Securities Law of 1968 (the "FAIRNESS HEARING LAW"), so that (i) the
issuance of Parent Common Stock in the Merger, and (ii) the assumption of
Company Options, shall be exempt from registration under the Securities Act, by
virtue of the exemption provided by Section 3(a)(10) thereof, and the Company
shall prepare, with the cooperation of Parent, a related information statement
or other disclosure document (the "INFORMATION STATEMENT"). The Information
Statement shall constitute a disclosure document for the offer and issuance of
the shares of Parent Common Stock to be received by the holders of Company
Common Stock in the Merger. The Company shall cooperate with, and provide
information to, Parent in connection with Parent's application for the
California Permit. Company and Parent will respond to any comments from the
California Department of Corporations and work together in good faith to use
their commercially reasonable efforts to have the California Permit granted as
soon as practicable after such filing. Each of Parent and the Company agrees to
provide promptly to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the providing
party or its counsel, may be required or appropriate under the Fairness Hearing
Law for inclusion in the Information Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in preparation of the Information Statement.
Anything to the contrary contained herein notwithstanding, the Company shall not
include in the Information Statement any information with respect to Parent or
its affiliates or
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associates, the form and content of which shall not have been approved by Parent
prior to such inclusion, except as required pursuant to the Fairness Hearing Law
or other applicable law. As promptly as practical after the date of this
Agreement, Parent and Company shall prepare and make such filings as are
required of them under applicable blue sky laws relating to the transactions
contemplated by this Agreement. Company shall use reasonable and good faith
efforts to assist Parent as may be necessary to comply with the securities and
blue sky laws relating to the transactions contemplated by this Agreement.
Company Assumed Warrants which are not exercised for Company Capital Stock prior
to the Effective Time shall be converted into warrants to purchase Parent Common
Stock which shall be restricted securities.
(b) If the California Commissioner of Corporations denies the
California Permit (after Parent has exhausted all opportunities of appeal)
provided that the Company and the signatories to the Voting Agreements have
cooperated in good faith to obtain the California Permit, Parent will prepare
and file with the SEC a Registration Statement on Form S-4 (the "REGISTRATION
STATEMENT") with respect to the Total Consideration. Company and Parent will
respond to any comments of the SEC, and Parent will use its reasonable efforts
to have the Registration Statement declared effective under the Securities Act
as promptly as practicable after such filing. Notwithstanding the foregoing, if
Parent shall determine pursuant to the good faith judgment of its Chief
Executive Officer, or alternatively, the Board of Directors of Parent, that it
would be significantly harmful to Parent and its stockholders to file the
Registration Statement (or an amendment thereto), due to the existence of a
material development or potential material development with respect to or
involving Parent which Parent would be obligated to disclose in the Prospectus
contained in the Registration Statement, which disclosure would in the good
faith judgment of the Chief Executive Officer or the Board of Directors of
Parent be premature or otherwise inadvisable at such time and would not be in
the best interests Parent and its stockholders, then Parent shall notify the
Company in writing to the effect of the foregoing, and Parent will not be
required to file the Registration Statement or amendment thereto until the
earlier of (1) 90 days after the denial of the Permit and (2) as soon, in the
judgment of Parent, as disclosure of the material information relating to such
pending development would not have a adverse effect on Parent's ability to
consummate the transaction, if any, to which such development relates.
(c) As promptly as practicable after the receipt of a
California Permit or following the effectiveness of the Registration Statement,
the Company shall submit this Agreement and the transactions contemplated hereby
to the Stockholders for approval and adoption as provided by Delaware Law and
the certificate of incorporation and bylaws of the Company. Such submission, and
any proxy or consent in connection therewith, shall specify that adoption of
this Agreement shall constitute approval by the Stockholders of: (i) the escrow
and indemnification obligations of the Stockholders set forth in ARTICLE VII
hereof and the deposit of Parent Common Stock equal to the Escrow Amount into
the Escrow Fund, (ii) the Lock-up Provision, and (iii) in favor of the
appointment of Xxxxxxx X. Xxxxx as Stockholder Representative, under and as
defined in this Agreement. Any materials to be submitted to the Stockholders in
connection with the solicitation of their approval of the Merger and this
Agreement (the "SOLICITING MATERIALS") shall be subject to review and approval
by Parent and shall include information regarding the Company, the terms of
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the Merger and this Agreement, and the unanimous recommendation of the Board of
Directors of the Company in favor of the Merger and this Agreement and
conversion of Company Preferred Stock into Company Common Stock. Anything to the
contrary contained herein notwithstanding, the Company shall not include in the
Soliciting Materials any information with respect to Parent or its affiliates or
associates, the form and content of which shall not have been approved by Parent
prior to such inclusion. The Company shall consult with Parent regarding the
date of the Company Stockholders' meeting or the date of the solicitation of
stockholder approval by written consent to approve this Agreement and the Merger
(the "COMPANY STOCKHOLDERS' MEETING/SOLICITATION") and shall not postpone or
adjourn (other than for absence of a quorum) the Company Stockholder
Meeting/Solicitation without the consent of the Parent. The Company shall use
its best efforts to obtain the consent of its Stockholders sufficient to approve
the Merger and this Agreement and to enable the Closing to occur as promptly as
practicable following the date hereof and, in any event, within thirty (30) days
following the receipt of the California Permit. Notwithstanding the foregoing,
the Company shall give Stockholders sufficient notice such that no Stockholder
will be able to exercise appraisal rights pursuant to Section 262 of Delaware
Law if such Stockholder has not perfected such appraisal rights prior to
Closing.
5.2 RESTRICTIONS ON TRANSFER
All certificates representing Parent Common Stock deliverable to any
Stockholder of the Company pursuant to this Agreement and in connection with the
Merger and any certificates subsequently issued with respect thereto or in
substitution therefor (including any shares issued or issuable in respect of any
such shares upon any stock split, stock dividend, recapitalization, or similar
event) shall bear the Lock-up Legend (as defined in section 1.6(b)) as well as
any legend required by the California Commissioner of Corporations or such as
are required pursuant to any federal, state, local or foreign law governing such
securities.
5.3 ACCESS TO INFORMATION
The Company shall afford Parent and its accountants, counsel and other
representatives, reasonable access during the period from the date hereof and
prior to the Effective Time to (i) all of the properties, books, contracts,
commitments and records of the Company, including the Company's source code,
(ii) all other information concerning the business, properties and personnel
(subject to restrictions imposed by applicable law) of the Company as Parent may
reasonably request, and (iii) all Employees of the Company as identified by
Parent. The Company agrees to provide to Parent and its accountants, counsel and
other representatives copies of internal financial statements (including Tax
Returns and supporting documentation) promptly upon request. No information or
knowledge obtained in any investigation pursuant to this SECTION 5.3 or
otherwise shall affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Merger in accordance with the terms and provisions hereof.
5.4 CONFIDENTIALITY
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Each of the parties hereto hereby agrees that the information obtained
in any investigation pursuant to SECTION 5.3 hereof, or pursuant to the
negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, shall be governed by the terms of the
Confidentiality Agreement effective as of October 14, 2002 (the "CONFIDENTIALITY
AGREEMENT") between the Company and Parent. In this regard, the Company
acknowledges that the Parent Common Stock is publicly traded and that any
information obtained during the course of its due diligence could be considered
to be material non-public information within the meaning of federal and state
securities laws. In addition, the Company shall use commercially reasonable
efforts to inform the Company's Representatives (as defined in the
Confidentiality Agreement) that any information obtained during the course of
its due diligence could be considered to be material non-public information
within the meaning of federal and state securities laws. Accordingly, the
Company acknowledges and agrees not to engage in, and will use commercially
reasonable efforts to prevent the Company's Representatives from engaging in,
any transactions in the Parent Common Stock in violation of applicable xxxxxxx
xxxxxxx laws.
5.5 EXPENSES
Whether or not the Merger is consummated, all fees and expenses
incurred in connection with the Merger including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby ("THIRD PARTY EXPENSES"), shall be the obligation of the
respective party incurring such fees and expenses; provided, however, that all
expenses incurred by the Company in the preparation of the Required Financial
Statements (as defined below) shall not be Third Party Expenses. Any Third Party
Expenses incurred by the Company in excess of $1,000,000 that are not reflected
on the Statement of Expenses, and thus are not part of the Third Party Expense
Purchase Price Adjustment, if any ("EXCESS THIRD PARTY EXPENSES"), shall be paid
out of the Escrow Amount in accordance with ARTICLE VII and shall not be limited
by the Threshold Amount (as defined in SECTION 7.3(b) hereof). Third Party
Expenses shall not be incurred by the Company after the Closing Date without the
express prior written consent of Parent. "REQUIRED FINANCIAL STATEMENTS" shall
mean financial statements meeting the requirements of Rule 3-05 of SEC
Regulation S-X required or advisable to be included by Parent in (i) any Current
Report on Form 8-K, (ii) any other annual, quarterly or other report,
registration statement, and definitive proxy statement required to be filed by
Parent with the SEC, or (iii) the application for the California Permit and the
Information Statement.
5.6 PUBLIC DISCLOSURE
No party shall issue any statement or communication to any third party
(other than their respective agents that are bound by confidentiality
restrictions) regarding the subject matter of this Agreement or the transactions
contemplated hereby, including, if applicable, the termination of this Agreement
and the reasons therefor, without the consent of the other party (provided,
however, that Parent, in its sole discretion, can determine the timing of any
such statement or communication made
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on or after the execution of this Agreement), except that this restriction shall
be subject to Parent's obligation to comply with applicable securities laws and
the rules of the Nasdaq Stock Market.
5.7 CONSENTS
The Company shall use commercially reasonable efforts to obtain all
necessary consents, waivers and approvals of any parties to any Contract
(including with respect to the Lease Agreements) as are required thereunder in
connection with the Merger or for any such Contracts to remain in full force and
effect, all of which are listed in SECTION 2.5 of the Disclosure Schedule, so as
to preserve all rights of, and benefits to, the Company under such Contract from
and after the Effective Time. Such consents, waivers and approvals shall be in a
form reasonably acceptable to Parent. Notwithstanding the terms of SECTION 5.5
above, in the event that the other parties to any such Contract, including
lessor or licensor of any Leased Real Property, conditions its grant of a
consent, waiver or approval (including by threatening to exercise a "recapture"
or other termination right) upon the payment of a consent fee, "profit sharing"
payment or other consideration, including increased rent payments or other
payments under the Contract, the Company shall be responsible for making all
payments required to obtain such consent, waiver or approval and shall
indemnify, defend, protect and hold harmless Parent from all losses, costs,
claims, liabilities and damages arising from the same. On or prior to the
Closing, the Company shall enter into a written agreement with LSI Logic
Corporation and/or Avnet, Inc., or a written amendment to an existing agreement
between the Company and LSI Logic Corporation and/or Avnet, Inc., pursuant to
which Company shall receive rights to use and incorporate into its products the
ARM966 (encrypted and unencrypted), Merlin3 and Gigablaze semiconductor cores,
in substantially the same manner as Company was authorized to use and
incorporate such cores under the Coreware Product License Agreements by and
between LSI Logic Corporation and the Company dated as of January 10, 2001 and
March 12, 2001.
5.8 FIRPTA COMPLIANCE
On the Closing Date, the Company shall deliver to Parent a properly
executed statement (a "FIRPTA COMPLIANCE CERTIFICATE") in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
5.9 REASONABLE EFFORTS
Subject to the terms and conditions provided in this Agreement, each of
the parties hereto shall use commercially reasonable efforts to take promptly,
or cause to be taken, all actions, and to do promptly, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby, to obtain
all necessary waivers, consents and approvals and to effect all necessary
registrations and filings and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement; provided, however,
that Parent shall not be required to agree to any divestiture by Parent or the
Company or any of Parent's subsidiaries
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or affiliates, of shares of capital stock or of any business, assets or property
of Parent or its subsidiaries or affiliates, or of the Company, its affiliates,
or the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock. In addition, the Company shall use commercially reasonable
efforts to obtain from all lessors, licensors, sublessees and licensees of
Leased Real Property estoppel certificates confirming that the applicable lease
agreements are in full force and effect and that there are no defaults
thereunder.
5.10 NOTIFICATION OF CERTAIN MATTERS
Each party shall give prompt notice (in any event within 24 hours) to
the other parties of: (i) the occurrence or non-occurrence of any event known to
such party, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate at or prior to the Effective Time, and (ii) any failure of
such party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this SECTION 5.10 shall not (a) limit or otherwise
affect any remedies available to the party receiving such notice or (b)
constitute an acknowledgment or admission of a breach of this Agreement. No
disclosure by the Company pursuant to this SECTION 5.10, however, shall be
deemed to amend or supplement the Disclosure Schedule or prevent or cure any
misrepresentations, breach of warranty or breach of covenant.
5.11 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES
Each party hereto, at the request of another party hereto, shall
execute and deliver such other instruments and do and perform such other acts
and things as may be necessary or desirable for effecting completely the
consummation of the Merger and the transactions contemplated hereby.
5.12 S-8 REGISTRATION
Not later than sixty (60) days after the Closing Date, Parent agrees to
file, if available for use by Parent, with the SEC a registration statement on
Form S-8 registering that number of shares of Parent Common Stock equal to the
number of shares of Parent Common Stock issuable upon the exercise of all
Company Options assumed by Parent pursuant to SECTION 1.6(d) hereof.
5.13 NEW EMPLOYMENT ARRANGEMENTS
(a) Parent may offer certain Employees "at-will" employment by
Parent and/or the Surviving Corporation, to be effective as of the Closing Date,
upon proof of a legal right to work in the United States, and/or continued
"at-will" employment by the Surviving Corporation from and after the Closing
Date on terms that are the same as or different than the employment terms
presently applicable to such Employees. Such "at-will" employment will: (i) be
set forth in offer letters on Parent's standard form (each, an "OFFER LETTER"),
(ii) be subject to and in compliance with Parent's
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applicable policies and procedures, including, but not limited to, employment
background checks and the execution of an employee proprietary information
agreement, governing employment conduct and performance, (iii) have terms,
including the position and salary, which will be determined by Parent, and (iv)
supersede any prior express or implied employment agreements, arrangement or
offer letter in effect prior to the Closing Date. At the same time as the
execution of this Agreement, each Key Employee has executed an Offer Letter.
Each employee of the Company who remains an employee of Parent or the Surviving
Corporation after the Closing Date shall be referred to hereafter as a
"CONTINUING EMPLOYEE." Continuing Employees shall be eligible to receive
benefits consistent with Parent's applicable human resources policies. Parent
will or will cause the Surviving Corporation or appropriate subsidiary of Parent
to give Continuing Employees full credit under such policies for prior service
at the Company for purposes of eligibility, benefit accrual, and determination
of the level of benefits under Parent's benefit plans, programs or policies,
provided that such credit does not result in duplication of benefits. In
furtherance of the foregoing, and at Parent's request the Company shall
terminate all employment agreements and other arrangements with its employees
effective as of the Closing Date. Parent shall use commercially reasonable
efforts to provide to Continuing Employees the opportunity to enroll in a
special offering period under the Parent Employee Stock Purchase Plan, the
offering period of which shall commence as soon as is administratively
practicable following the Effective Time.
5.14 SEVERANCE OR TRANSITIONAL PACKAGES
Parent shall work with Company to provide certain employees of the
Company who are not offered employment with Parent or who will be offered
transitional employment with Parent severance or transitional packages; provided
however, that such severance or transitional packages shall be no more favorable
than severance or transitional packages offered to similarly situated employees
of Parent.
5.15 VESTING WAIVERS
Concurrently with the execution of this Agreement, each individual
listed in SCHEDULE 5.15 has entered into a vesting waiver with Parent in the
form attached hereto as EXHIBIT D.
5.16 AFFILIATE AGREEMENTS
SCHEDULE 5.16 to this Agreement sets forth those persons who, in the
Company's reasonable judgment, are or may be "affiliates" of the Company within
the meaning of Rule 145 (each such person, a "RULE 145 AFFILIATE") promulgated
under the Securities Act ("RULE 145"). The Company shall provide Parent such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. Parent and Sub shall be entitled to issue appropriate stop
transfer instructions to the transfer agent for Parent Common Stock and to place
the following legend on the certificates evidencing any Parent Common Stock to
be received by such Affiliates pursuant to the terms of this Agreement:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 APPLIES AND MAY ONLY BE
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TRANSFERRED IN CONFORMITY WITH RULE 145(d) OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
IN ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE
TO THE ISSUER IN FORM AND SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
The legend set forth above shall be removed (by delivery of a
substitute certificate without such legend) and Parent shall so instruct its
transfer agent, if Affiliate delivers to Parent (i) satisfactory written
evidence that the shares have been sold in compliance with Rule 145 (in which
case, the substitute certificate shall be issued in the name of the transferee),
or (ii) an opinion of counsel, in form and substance reasonably satisfactory to
Parent, to the effect that public sale of the shares by the holder thereof is no
longer subject to Rule 145.
5.17 STATEMENT OF EXPENSES
The Company shall provide Parent with a statement of Estimated Third
Party Expenses incurred by the Company three (3) business days prior to the
Closing Date in form reasonably satisfactory to Parent (the "STATEMENT OF
EXPENSES").
5.18 TERMINATION OF 401(k) PLAN
Effective as of the day immediately preceding the Closing Date, each of
the Company and any Affiliate (as such term is defined in SECTION 2.21) shall
terminate any and all Company Employee Plans intended to include a Code Section
401(k) arrangement (each, a "401(k) PLAN") (unless Parent provides written
notice to the Company that such 401(k) plans shall not be terminated). Unless
Parent provides such written notice to the Company, no later than five (5)
business days prior to the Closing Date, the Company shall provide Parent with
evidence that such Company Employee Plan(s) have been terminated (effective as
of the day immediately preceding the Closing Date) pursuant to resolutions of
the Board of Directors of the Company or such Affiliate, as the case may be. The
form and substance of such resolutions shall be subject to review and approval
of Parent. The Company also shall take such other actions in furtherance of
terminating such Company Employee Plan(s) as Parent may reasonably require. In
the event that termination of a 401(k) Plan would reasonably be anticipated to
trigger liquidation charges, surrender charges or other fees then the Company
shall take such actions as are necessary to reasonably estimate the amount of
such charges and/or fees and provide such estimate in writing to Parent no later
than fifteen (15) calendar days prior to the Closing Date.
5.19 RESIGNATION OF OFFICERS AND DIRECTORS
The Company shall obtain the resignations of all officers and directors
of the Company, effective as of the Effective Time.
5.20 PROPRIETARY INFORMATION AND INVENTIONS ASSIGNMENT AGREEMENT
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Between the date hereof and the Closing, each new employee and new
independent contractor of the Company shall enter into and execute a proprietary
information and inventions assignment agreement with the Company in the form
approved by Parent prior to the date hereof.
5.21 HSR ACT
To the extent applicable, as soon as may be reasonably practicable,
Company and Parent (and any applicable Stockholder of the Company) each shall
file, and the Company shall use best efforts to cause any applicable Stockholder
of the Company to file, with the United States Federal Trade Commission (the
"FTC") and the Antitrust Division of the United States Department of Justice
("DOJ") Notification and Report Forms relating to the transactions contemplated
herein as required by the HSR Act as well as comparable pre-merger notification
forms required by the merger notification or control laws and regulations of any
applicable jurisdiction, as agreed to by the parties. Company and Parent (and/or
any applicable Stockholder) each shall, the Company shall use best efforts to
cause any applicable Stockholder of the Company to, promptly (a) supply the
others with any information which reasonably may be required in order to
effectuate such filings and (b) supply any additional information which
reasonably may be required by the FTC, the DOJ or the competition or merger
control authorities of any other jurisdiction and which the parties may
reasonably deem appropriate; provided, however, that Parent shall not be
required to agree to any divestiture by Parent or the Company or any of Parent's
affiliates of shares of capital stock or of any business, assets or property of
Parent or its affiliates or of the Company or its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, property and stock.
5.22 SPREADSHEET
The Company shall deliver a spreadsheet (as the same may be updated as
described below, the "Spreadsheet") substantially in the form attached hereto as
SCHEDULE 5.23, which spreadsheet shall be certified as complete and correct by
the Chief Executive Officer and Chief Financial Officer of the Company as of the
Closing and which shall separately list, as of the Closing, (i) all Stockholders
and their respective addresses of record, the number of shares of Company
Capital Stock held by such persons (including the respective certificate numbers
and whether such shares constitute Company Unvested Common Stock (including, for
each certificate, the number of shares that are vested as of the Closing), the
date of acquisition of such shares, the Exchange Ratio applicable to each
holder, Total Consideration to be issued to each holder, the number of shares,
if any, to be paid by the Stockholder in settlement of outstanding Stockholder
loans, the number of shares of the Total Consideration to be deposited into the
Escrow Fund on behalf of each holder, and such other information relevant
thereto or which the Exchange Agent may reasonably request, and (ii) all holders
of Company Options and their respective addresses, the number of shares of
Company Capital Stock underlying each such Company Option, the grant dates of
such Company Options and the vesting arrangement with respect to such Company
Options and such other information relevant thereto or which Parent may
reasonably request. The Company shall deliver the Spreadsheet three (3) business
days prior to the Closing Date. The certification of the
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completeness and correctness of the Spreadsheet as of the Closing will be based
on the assumption that there are no changes in the information required to be
set forth therein between the date of delivery and the Closing. The Company will
use commercially reasonable efforts to avoid the occurrence of any such changes
and will deliver an updated Spreadsheet, similarly certified, promptly after the
occurrence of any such changes; provided, however, that no updates may be made
to the Spreadsheet after the Effective Time.
5.23 NO LIABILITY FOR NEW EMPLOYEES
The parties hereto agree that neither Parent nor Sub shall have any
liability for any Employees hired by Company after the date hereof, in the event
the Merger is not consummated.
5.24 VOTING AGREEMENTS
Concurrently with execution of this Agreement, the persons listed on
SECTION 5.24 of the Disclosure Schedule have executed and delivered to Parent
Voting Agreements in the form attached hereto as EXHIBIT A.
5.25 NON-COMPETITION AGREEMENTS
Concurrently with execution of this Agreement, the Key Employees of the
Company listed on SECTION 5.25 of the Disclosure Schedule have executed and
delivered to Parent a Non-Competition Agreement in the form attached hereto as
EXHIBIT B.
5.26 TERMINATION OF AGREEMENTS
The Company shall use its best efforts to terminate each of the
agreements listed on Schedule 6.2(c) to this Agreement (the "TERMINATED
AGREEMENTS"), concurrent with or prior to Closing, such that each such agreement
shall be of no further force or effect. Prior to Closing, the Company shall pay
all amounts owed under the Terminated Agreements (as a result of the termination
of the Terminated Agreements or otherwise), and the Surviving Corporation will
not incur any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise) under any Terminated Agreement following
the Closing Date.
5.27 CLOSING FINANCIAL STATEMENTS
The Company shall prepare or cause to be prepared and delivered to
Parent, as promptly as practicable at the Company's expense, the Required
Financial Statements (as defined in SECTION 5.5 hereof). The Company shall use
commercially reasonable efforts to assist Parent in the preparation of pro forma
financial statements meeting the requirements of Article 11 of SEC Regulation
S-X required or advisable to be included by Parent (i) any current report on
Current Report on Form 8-K, (ii) any other annual, quarterly or other report,
registration statement, and definitive proxy statement required to be filed by
Parent with the SEC, or (iii) the application for the California Permit and the
Information Statement.
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5.28 TAX MATTERS
At or prior to Closing, the Company and Parent shall execute and
deliver to Xxxxxx Godward LLP (or Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., if
Xxxxxx Godward LLP fails to deliver the tax opinion contemplated by SECTION
6.3(d)) tax representation letters in substantially the form attached hereto as
EXHIBIT I (which will be used in connection with the legal opinion contemplated
by SECTION 6.3(d).
5.29 NASDAQ LISTING
Parent shall use reasonable efforts to cause the shares of Parent
Common Stock to be received by Stockholders in connection with the Merger or
issuable with respect to Parent Options to be authorized for listing on the
Nasdaq National Market.
5.30 TERMINATION OF WARRANTS
The Company shall use its commercially reasonable efforts to terminate
all outstanding unexercised Company Assumed Warrants, if any, as of immediately
prior to the effective time.
5.31 INDEMNIFICATION
Subject to the last paragraph of SECTION 7.2 hereof, from the Effective Time
until the sixth anniversary of the Effective Time, Parent shall cause the
Surviving Corporation to fulfill and honor all obligations of the Company
pursuant to the Company's Certificate of Incorporation and Bylaws as they are in
effect on the date hereof and pay all amounts that become due and payable under
such provisions; provided that such indemnification shall be subject to any
limitation imposed from time to time under applicable law. If any claim, action,
suit, proceeding or investigation is asserted for which a person is entitled to
indemnification under the Company's Certificate of Incorporation or Bylaws, any
counsel retained by the indemnified parties shall be reasonably satisfactory to
Parent and the Surviving Corporation. This Section shall survive the
consummation of the Merger, is intended to benefit each indemnified party and
shall be enforceable by the indemnified parties.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER
The respective obligations of the Company and Parent to effect the
Merger shall be subject to the satisfaction, at or prior to the Effective Time,
of the following conditions:
(a) CALIFORNIA PERMIT; REGISTRATION STATEMENT. (i) The
Commissioner of Corporations for the State of California shall have approved the
terms and conditions of the transactions contemplated by this Agreement, and the
fairness of such terms and conditions
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following a hearing for such purpose, and shall have issued a California Permit
or (ii) the SEC shall have declared the Registration Statement effective.
(b) NO ORDER. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be threatened or pending.
(d) HSR ACT. If applicable, all waiting periods under the HSR
Act relating to the transactions contemplated hereby will have expired or
terminated early and all material foreign antitrust approvals required to be
obtained prior to the Merger in connection with the transactions contemplated
hereby have been obtained.
(e) STOCKHOLDER APPROVAL. Stockholders holding a sufficient
number of outstanding shares of Company Capital Stock (as required under the
Company's certificate of incorporation, Delaware Law and California Law) shall
have approved this Agreement, the Merger, and the transactions contemplated
hereby and thereby, including the appointment of the Stockholder Representative,
the Lock-up Provisions and the deposit of the Escrow Amount into the Escrow
Fund.
6.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB
The obligations of Parent and Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent and
Sub:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the Company contained in this Agreement and
all other documents delivered pursuant hereto to which it is a party shall have
been true and correct in all material respects (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth therein)
when made and shall be true and correct on and as of the Closing Date as though
such representations and warranties were made on and as of such time, except for
(i) inaccuracies which, individually or in the aggregate, would not have a
Company Material Adverse Effect (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein) and (ii)
representations and warranties of the Company as of a specified date, which
shall be true and correct in all material respects as of such date (without
giving effect to any limitation as to "materiality" or "Material Adverse Effect"
set forth therein). In addition, the representations and warranties contained in
Sections 2.1, 2.2, 2.4 and
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2.13 shall each be true and correct in all material respects (without giving
effect to any limitation as to "materiality" or "Material Adverse Effect" set
forth therein) on and as of the Closing Date (other than the representations and
warranties of the Company as of a specified date, which shall be true and
correct in all material respects as of such date (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth therein)).
The Company shall have performed and complied in all material respects with all
covenants and obligations under this Agreement required to be performed and
complied with by it as of the Closing.
(b) THIRD PARTY CONSENTS. Company shall have delivered to
Parent all necessary consents, waivers and approvals of parties to any Contract
(including Lease Agreements) set forth on SCHEDULE 6.2(b) hereto as are required
thereunder in connection with the Merger, or for any such Contract to remain in
full force and effect without limitation, modification or alteration after the
Effective Time.
(c) TERMINATION OF AGREEMENTS. The Company shall have
terminated each of those agreements listed on SCHEDULE 6.2(c) to this Agreement
and each such agreement shall be of no further force or effect.
(d) NO MATERIAL ADVERSE EFFECT. There shall not have occurred
since the date of this Agreement any event or condition of any character that
has had or is reasonably likely to have a Company Material Adverse Effect.
(e) RESIGNATION OF OFFICERS AND DIRECTORS. Parent shall have
received a written resignation from each of the officers and directors of the
Company effective as of the Effective Time.
(f) LEGAL OPINION. Parent shall have received a legal opinion
from legal counsel to the Company, substantially in the form attached hereto as
EXHIBIT F.
(g) APPRAISAL RIGHTS. Stockholders holding no more than ten
percent (10%) of the Total Outstanding Shares shall continue to have a right to
exercise appraisal, dissenters' or similar rights under applicable law with
respect to their Company Capital Stock by virtue of the Merger.
(h) CERTIFICATE OF THE COMPANY. Parent shall have received a
certificate, validly executed by each of the Chief Executive Officer and Chief
Financial Officer of the Company for and on the Company's behalf, to the effect
that, as of the Closing:
(i) (A) all representations and warranties of
the Company contained in this Agreement and all other documents delivered
pursuant hereto to which it is a party shall have been true and correct in all
material respects (without giving effect to any limitation as to "materiality"
or "Material Adverse Effect" set forth therein) when made; (B) all
representations and warranties of the Company contained in this Agreement and
all other documents delivered pursuant hereto to which it is a party shall be
true and correct on and as of the Closing Date as though such representations
and warranties were made on and as of such time, except for (i) inaccuracies
which,
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individually or in the aggregate, would not have a Company Material Adverse
Effect (without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) and (ii) representations and warranties of
the Company as of a specified date, which shall be true and correct in all
material respects as of such date (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein); and (C) the
representations and warranties contained in SECTIONS 2.1, 2.2, 2.4 and 2.13
shall each be true and correct in all material respects (without giving effect
to any limitation as to "materiality" or "Material Adverse Effect" set forth
therein) on and as of the Closing Date (other than the representations and
warranties of the Company as of a specified date, which shall be true and
correct in all material respects as of such date (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth therein));
(ii) all covenants and obligations under this
Agreement to be performed or complied with by the Company or on or before the
Closing have been so performed or completed with in all material respects; and
(iii) as of the Closing, all other conditions to
the obligations of Parent and Sub set forth in this SECTION 6.2 have been
satisfied (unless otherwise waived in accordance with the terms hereof).
(i) CERTIFICATE OF SECRETARY OF COMPANY. Parent shall have
received a certificate, validly executed by the Secretary of the Company,
certifying as to (i) the terms and effectiveness of the certificate of
incorporation and the bylaws of the Company, (ii) the valid adoption of
resolutions of the Board of Directors of the Company (whereby the Merger and the
transactions contemplated hereunder, were approved by the Board of Directors)
and (iii) the valid adoption by the Stockholders of resolutions adopting this
Agreement.
(j) FIRPTA CERTIFICATE. Parent shall have received a copy of
the FIRPTA Compliance Certificate, validly executed by a duly authorized officer
of the Company.
(k) STATEMENT OF EXPENSES. Parent shall have received from the
Company the Statement of Expenses pursuant to SECTION 5.17 hereof three (3)
business days prior to the Closing Date.
(l) NEW EMPLOYMENT ARRANGEMENTS. (i) Each of the Key Employees
(A) shall have entered into "at-will" employment arrangements with Parent and/or
the Surviving Corporation pursuant to their execution of an Offer Letter which
shall be in full force and effect, (B) shall have agreed to be employees of
Parent after the Closing and (C) shall be employees of the Company immediately
prior to the Effective Time. (ii) At least ninety percent (90%) of the
individuals listed on SCHEDULE 6.2(l)(ii) (A) shall have entered into "at-will"
employment arrangements with Parent and/or the Surviving Corporation pursuant to
their execution of an Offer Letter which shall be in full force and effect, (B)
shall have agreed to be employees of Parent after the Closing and (C) shall be
employees of the Company immediately prior to the Effective Time; provided
however that this condition shall not be deemed to have been satisfied if more
than two (2) employees in Groups B, D or F listed on SCHEDULE 6.2(l)(ii) shall
have declined the Parent Offer Letter and provided further
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that this condition shall not be deemed to have been satisfied if more than
three (3) employees in Groups A, C or E listed on SCHEDULE 6.2(l)(ii) shall have
declined the Parent Offer Letter. (iii) At least seventy percent (70%) of the
individuals listed on SCHEDULE 6.2(l)(iii) (A) shall have entered into "at-will"
employment arrangements with Parent and/or the Surviving Corporation pursuant to
their execution of an Offer Letter which shall be in full force and effect, (B)
shall have agreed to be employees of Parent after the Closing and (C) shall be
employees of the Company immediately prior to the Effective Time.
(m) VESTING WAIVER. Each individual listed on SCHEDULE 5.15
shall have entered into a vesting waiver in the form attached hereto as EXHIBIT
D.
(n) NON-COMPETITION AGREEMENTS. The Key Employees and
executive officers of the Company shall have executed and delivered to Parent a
Non-Competition Agreement in the form attached hereto as EXHIBIT B, and all of
such Non-Competition Agreements shall be in full force and effect.
(o) AFFILIATE AGREEMENTS. Each of the persons listed in
SECTION 5.16 of the Disclosure Schedule shall have executed an Affiliate
Agreement substantially in the form attached hereto as EXHIBIT E and such
Affiliate Agreements shall be in full force and effect.
(p) REQUIRED FINANCIAL STATEMENTS. The Company shall have
delivered to Parent the Required Financial Statements, including any audit
letter required therein, which shall have been certified by the form of
certification attached hereto as EXHIBIT G, by the Chief Executive Officer and
Chief Financial Officer of the Company.
(q) SPREADSHEET. The Company shall have delivered three (3)
business days prior to the Closing Date to Parent and the Exchange Agent the
Spreadsheet, which shall have been certified as true and correct by the Chief
Executive Officer and the Chief Financial Officer of the Company.
6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate and effect this Agreement
and the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by the Company:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Parent and Sub contained in this Agreement and
all other documents delivered pursuant hereto to which it is a party shall have
been true and correct in all material respects (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth therein)
when made and shall be true and correct on and as of the Closing Date as though
such representations and warranties were made on and as of such time, except for
(i) inaccuracies which, individually or in the aggregate, would not have a
Parent Material Adverse Effect (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein) and (ii)
representations and warranties
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as of a specified date, which shall be true and correct in all material respects
as of such date (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein). In addition, the representations
and warranties contained in Section 3.1 shall be true and correct in all
material respects (without giving effect to any limitation as to "materiality"
or "Material Adverse Effect" set forth therein) on and as of the Closing Date
(other than the representations and warranties of the Parent as of a specified
date, which shall be true and correct in all material respects as of such date
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein)). Each of Parent and Sub shall have performed
and complied with in all material respects with all covenants and obligations
under this Agreement required to be performed and complied with by such parties
as of the Closing Date.
(b) CERTIFICATE OF PARENT. Company shall have received a
certificate executed on behalf of Parent by a Vice President for and on its
behalf to the effect that, as of the Closing:
(i) (A) all representations and warranties of
Parent and Sub contained in this Agreement and all other documents delivered
pursuant hereto to which it is a party shall have been true and correct in all
material respects (without giving effect to any limitation as to "materiality"
or "Material Adverse Effect" set forth therein) when made; (B) all
representations and warranties of Parent and Sub contained in this Agreement and
all other documents delivered pursuant hereto to which it is a party shall be
true and correct on and as of the Closing Date as though such representations
and warranties were made on and as of such time, except for (i) inaccuracies
which, individually or in the aggregate, would not have a Parent Material
Adverse Effect (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein) and (ii) representations and
warranties as of a specified date, which shall be true and correct in all
material respects as of such date (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein); and (C) the
representations and warranties contained in SECTION 3.1 shall be true and
correct in all material respects (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein) on and as of the
Closing Date (other than the representations and warranties of the Parent as of
a specified date, which shall be true and correct in all material respects as of
such date (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein));
(ii) all covenants and obligations under this
Agreement to be performed by Parent and Sub on or before the Closing have been
so performed in all material respects;
(iii) as of the Closing, all other conditions to
the obligations of the Company set forth in this SECTION 6.3 have been satisfied
(unless otherwise waived in accordance with the terms hereof).
(c) LEGAL OPINION. The Company shall have received a legal
opinion from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., legal counsel to the
Parent, substantially in the form attached hereto as EXHIBIT H.
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(d) TAX OPINION. The Company shall have received a legal
opinion of Xxxxxx Godward LLP, dated as of the Closing Date, to the effect that
the Merger will constitute a reorganization within the meaning of Code Section
368(a) (it being understood that in rendering such opinion, Xxxxxx Godward LLP
may rely upon the tax representation letters referenced in SECTION 5.28).
Notwithstanding the foregoing, if the Company's counsel does not render such
opinion, this condition shall nevertheless be deemed satisfied if Xxxxxx Xxxxxxx
Xxxxxxxx & Xxxxxx, counsel to Parent, renders such opinion to the Company.
(e) NO MATERIAL ADVERSE EFFECT. There shall not have occurred
since the date of this Agreement any event or condition of any character that
has had or is reasonably likely to have a Parent Material Adverse Effect.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
The representations and warranties of the Company contained in this
Agreement, or in any certificate or other instruments delivered pursuant to this
Agreement, shall survive until 5:00 pm San Jose, California time on the first
anniversary of the Closing Date (such date, the "SURVIVAL DATE"). The
representations and warranties of Parent and Sub contained in this Agreement, or
in any certificate or other instrument delivered pursuant to this Agreement,
shall terminate at the Closing.
7.2 INDEMNIFICATION
From and after the Effective Time (but subject to SECTION 7.1 hereof),
the Stockholders agree to indemnify and hold Parent and its officers, directors,
and affiliates, including the Surviving Corporation (the "INDEMNIFIED PARTIES"),
harmless against all claims, losses, liabilities, damages, deficiencies, costs
and expenses, including reasonable attorneys' fees and expenses of investigation
and defense and diminution in value (hereinafter individually a "LOSS" and
collectively "LOSSES") discovered by an Indemnified Party on or prior to the
Survival Date that was incurred or sustained by the Indemnified Parties, or any
of them (including the Surviving Corporation), directly or indirectly, as a
result of (i) any breach or inaccuracy of a representation or warranty of the
Company contained in this Agreement or in any certificate or other instruments
delivered pursuant to this Agreement, (ii) any failure by the Company to perform
or comply with any covenant applicable to it contained in this Agreement, (iii)
any Dissenting Share Payments, or (iv) any Excess Third Party Expenses. The
Stockholders shall not have any right of contribution from the Surviving
Corporation or Parent with respect to any Loss claimed by an Indemnified Party.
Notwithstanding any provision of this Agreement, the Certificate of
Incorporation or Bylaws of the Company, or in any agreement between the Company
and any Company Stockholder to the contrary entered into prior to the Closing,
in no event shall the Surviving Corporation, as the successor in interest to the
Company by virtue of the Merger, be obligated to reimburse, contribute,
indemnify or hold harmless any
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Company Stockholder for or in connection with any Losses or obligations of the
Company Stockholder under this ARTICLE VII, whether or not such person would
otherwise be entitled to payment pursuant to SECTION 5.31 hereof.
7.3 ESCROW ARRANGEMENTS
(a) ESCROW FUND. By virtue of this Agreement and as security
for the indemnity obligations provided for in SECTION 7.2 hereof, at the
Effective Time, the Stockholders will be deemed to have received and deposited
with the Escrow Agent the Escrow Amount (plus any New Shares as defined in
SECTION 7.3(e)(II) hereof) without any act of the Stockholders. The Escrow
Amount shall be available to compensate the Indemnified Parties for any claims
by such parties for any Losses suffered or incurred by them and for which they
are entitled to recovery under this ARTICLE VII. Promptly after the Closing, the
Escrow Amount, without any act of the Stockholders, will be deposited with the
Escrow Agent, such deposit of the Escrow Amount to constitute an escrow fund
(the "ESCROW FUND") to be governed by the terms set forth herein. The Escrow
Fund shall be funded exclusively with shares of Parent Common Stock that are not
unvested or subject to a repurchase option, risk of forfeiture or other
condition under any applicable stock restriction agreement or other agreement.
The Escrow Agent may execute this Agreement following the date hereof and prior
to the Closing, and such later execution, if so executed after the date hereof,
shall not affect the binding nature of this Agreement as of the date hereof
between the other signatories hereto.
(b) THRESHOLD AMOUNT. Notwithstanding any provision of this
Agreement to the contrary, except as set forth in the second sentence of this
SECTION 7.3(b), an Indemnified Party may not recover any Losses under SECTION
7.2 unless and until one or more Officer's Certificates (as defined below)
identifying such Losses under SECTION 7.2 in excess of $200,000 in the aggregate
(the "THRESHOLD AMOUNT") has or have been delivered to the Escrow Agent or the
Stockholder Representative (as defined IN SECTION 7.4 hereof) as provided in
SECTION 7.3(f) hereof, in which case Parent shall be entitled to recover all
Losses so identified. Notwithstanding the foregoing, Parent shall be entitled to
recover for, and the Threshold Amount shall not apply as a threshold to, any and
all claims or payments made with respect to (A) Losses resulting from any breach
of representation or warranty contained in SECTION 2.2 (Company Capital
Structure) or in SECTION 2.10 (Tax Matters) hereof, (B) any Dissenting Share
Payments, (C) any Excess Third Party Expenses, and (D) Losses resulting from the
failure of any Stockholder to pay Agent Interpleader Expenses or Agent
Indemnification Expenses pursuant to clauses (vi) and (vii) of SECTION 7.3(j)
hereof or Independent Accounting Firm Expenses pursuant to SECTION 5.5 hereof.
Losses not subject to the Threshold Amount shall not be included in determining
whether the Threshold amount has been exceeded. For the purposes hereof,
"OFFICER'S CERTIFICATE" shall mean a certificate signed by any officer of Parent
in good faith: (1) stating that an Indemnified Party has paid, sustained,
incurred, or properly accrued, or reasonably anticipates that it will have to
pay, sustain, incur, or accrue Losses, and (2) specifying in reasonable detail
the individual items of Losses included in the amount so stated, the date each
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such item was paid, sustained, incurred, or properly accrued, or the basis for
such anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant to which such item is related.
(c) ESCROW SOLE REMEDY. Except to the extent that the Losses
resulted from fraud or any knowing and intentional breaches of covenants
committed by the Company, claims by an Indemnified Party for Losses shall be
satisfied solely from the Escrow Fund.
(d) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW
PERIODS. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate at 5:00
p.m., local time at Parent's headquarters, on the date thirty (30) days after
the Survival Date (the "ESCROW PERIOD") and the shares held in Escrow shall be
delivered to Stockholders promptly thereafter; provided, however, that the
Escrow Period shall not terminate with respect to any amount which, in the good
faith judgment of Parent, is necessary to satisfy any unsatisfied claims
specified in any Officer's Certificate delivered to the Escrow Agent and the
Stockholder Representative prior to the Escrow Period termination date with
respect Losses arising prior to the Survival Date. As soon as each such claim
has been resolved, the Escrow Agent shall deliver the remaining portion of the
Escrow Fund, if any, not required to satisfy such claim or any remaining claim.
Deliveries of the Escrow Amount out of the Escrow Fund to the Stockholders
pursuant to this SECTION 7.3(d) shall be made in proportion to their respective
Pro Rata Portions of the remaining shares in the Escrow Fund, with the amount
delivered to each Stockholder rounded to the nearest whole number of shares of
Parent Common Stock. If the sum of the Pro Rata Portions (each rounded to the
nearest whole number of shares of Parent Common Stock) does not equal the
remaining shares in the Escrow Fund, then the appropriate number of shares of
Parent Common Stock will be added to or subtracted from the Pro Rata Portion of
Sequoia Capital X such that the sum of the rounded Pro Rata Portions does equal
the remaining shares in the Escrow Fund.
(e) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard
the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund
in accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
of this ARTICLE VII.
(ii) Any shares of Parent Common Stock or other
equity securities issued or distributed by Parent after the Effective Time
(including shares issued upon a stock split) ("NEW SHARES") in respect of Parent
Common Stock in the Escrow Fund which have not been released from the Escrow
Fund shall be added to the Escrow Fund and become a part thereof. New Shares
issued in respect of shares of Parent Common Stock which have been released from
the Escrow Fund shall not be added to the Escrow Fund but shall be distributed
to the record holders thereof. Cash dividends on Parent Common Stock shall not
be added to the Escrow Fund but shall be distributed to the record holders
thereof.
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(iii) Each of the Stockholders shall have voting
rights with respect to the shares of Parent Common Stock contributed to and held
in the Escrow Fund by such Stockholder (and on any voting securities added to
the Escrow Fund in respect of such shares of Parent Common Stock).
(f) CLAIMS FOR INDEMNIFICATION.
(i) Upon receipt by the Escrow Agent at any time
on or before the last day of the Escrow Period of an Officer's Certificate, the
Escrow Agent shall, subject to the provisions of SECTION 7.3(g) and SECTION
7.3(h) hereof, deliver to Parent, as promptly as practicable, Parent Common
Stock held in the Escrow Fund equal to such Losses (as calculated based on the
Trading Price).
(ii) Failure by the Stockholder Representative to
object in writing within the 30-day period after delivery by the Parent of the
Officer's Certificate shall be an irrevocable acknowledgment by the Stockholder
Representative and the Stockholders that the Indemnified Party is entitled to
the full amount of the claim for Losses set forth in such Officer's Certificate.
(g) OBJECTIONS TO CLAIMS AGAINST THE ESCROW FUND. At the time
of delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy
of such certificate shall be delivered to the Stockholder Representative, and
for a period of thirty (30) days after such delivery, the Escrow Agent shall
make no delivery to Parent of any Escrow Amount pursuant to SECTION 7.3(f)
(other than Agreed-Upon Losses as described below) hereof unless the Escrow
Agent shall have received written authorization from the Stockholder
Representative to make such delivery. After the expiration of such thirty (30)
day period, subject to the limitations set forth in SECTION 7.3(f)(i), the
Escrow Agent shall make delivery of shares of Parent Common Stock from the
Escrow Fund equal to the amount of Losses claimed in the Officer's Certificate,
provided that no such payment or delivery may be made if the Stockholder
Representative, shall object in a written statement to the claim made in the
Officer's Certificate (an "OBJECTION NOTICE"), and such Objection Notice shall
have been delivered to the Escrow Agent prior to the expiration of such thirty
(30) day period. Notwithstanding the foregoing, the Stockholder Representative
hereby waives the right to object to any claims against the Escrow Fund in
respect of any Agreed-Upon Loss (as defined in SECTION 7.3(h)(v) hereof). The
Stockholder Representative hereby authorizes the Escrow Agent to deliver shares
of Parent Common Stock from the Escrow Fund equal to the amount of Losses
claimed in any Officer's Certificate in respect of any Agreed-Upon Loss upon
receipt of such Officer's Certificate without regard to the thirty (30) day
period set forth in this SECTION 7.3(g).
(h) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Stockholder Representative
delivers an Objection Notice in accordance with SECTION 7.3(g) (other than
Agreed-Upon Losses as defined in SECTION 7.3(h)(v) hereof), the Stockholder
Representative and Parent shall attempt in good faith to agree upon the rights
of the respective parties with respect to each of such claims. If the
Stockholder Representative and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and
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signed by both parties and shall be furnished to the Escrow Agent. The Escrow
Agent shall be entitled to rely on any such memorandum and make distributions
from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after
good faith negotiation and prior to thirty (30) days after delivery of an
Objection Notice, either Parent or the Stockholder Representative may demand
arbitration of the matter unless the amount of the Loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration, and in
either such event the matter shall be settled by arbitration conducted by one
arbitrator mutually agreeable to Parent and the Stockholder Representative. In
the event that, within thirty (30) days after submission of any dispute to
arbitration, Parent and the Stockholder Representative cannot mutually agree on
one arbitrator, then, within fifteen (15) days after the end of such thirty (30)
day period, Parent and the Stockholder Representative shall each select one
arbitrator. The two arbitrators so selected shall select a third arbitrator. If
either Parent or the Stockholder Representative fails to select an arbitrator
during this fifteen (15) day period, then the parties agree that the arbitration
will be conducted by one arbitrator selected by the party not so failing to
select an arbitrator.
(iii) Any such arbitration shall be held in Santa
Xxxxx County, California, under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association. The arbitrator or
arbitrators, as the case may be, shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgment of the arbitrator or
majority of the three arbitrators, as the case may be, to discover relevant
information from the opposing parties about the subject matter of the dispute.
The arbitrator, or a majority of the three arbitrators, as the case may be,
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys' fees and costs, to the same
extent as a competent court of law or equity, should the arbitrators or a
majority of the three arbitrators, as the case may be, determine that discovery
was sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of the arbitrator or
a majority of the three arbitrators, as the case may be, as to the validity and
amount of any claim in such Officer's Certificate shall be final, binding, and
conclusive upon the parties to this Agreement. Such decision shall be written
and shall be supported by written findings of fact and conclusions which shall
set forth the award, judgment, decree or order awarded by the arbitrator(s), and
the Escrow Agent shall be entitled to rely on, and make distributions from the
Escrow Fund in accordance with, the terms of such award, judgment, decree or
order as applicable. Within thirty (30) days of a decision of the arbitrator(s)
requiring payment by one party to another, such party shall make the payment to
such other party.
(iv) Judgment upon any award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The forgoing
arbitration provision shall apply to any dispute among
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the Stockholders and the Indemnified Party under this ARTICLE VII hereof,
whether relating to claims upon the Escrow Fund or to the other indemnification
obligations set forth in this ARTICLE VII.
(v) This SECTION 7.3(h) shall not apply to
claims against the Escrow Fund made in respect of (A) any Dissenting Share
Payments (as defined in SECTION 1.7(c)), (B) any Excess Third Party Expenses (as
defined in SECTION 5.5) and (C) any Agent Interpleader Expenses or Agent
Indemnification Expenses pursuant to clauses (vi) and (vii) of SECTION 7.3(j)
hereof (each of (A), (B) and (C), an "AGREED-UPON LOSS"). Claims against the
Escrow Fund made in respect of any Agreed-Upon Loss shall be resolved in the
manner described in SECTION 7.3(g) above. Notwithstanding the foregoing, at any
time within thirty (30) days after the payment of any such claim, the
Stockholder Representative may challenge the appropriateness of such claim by
delivering an Objection Notice as described above, in which case the procedures
set forth in this SECTION 7.3(h) shall apply to the resolution of such
challenge.
(i) THIRD-PARTY CLAIMS. In the event Parent becomes aware of a
third party claim (other than a claim that is the subject of an Agreed-Upon
Loss) (a "THIRD PARTY CLAIM") which Parent reasonably believes may result in a
demand against the Escrow Fund or for other indemnification pursuant to this
ARTICLE VII, Parent shall notify the Stockholder Representative of such claim,
and the Stockholder Representative shall be entitled on behalf of the
Stockholders, at its expense, to participate in, but not to determine or
conduct, the defense of such Third Party Claim. Parent shall have the right in
its sole discretion to conduct the defense of, and to settle, any such claim;
provided, however, that except with the consent of the Stockholder
Representative, no settlement of any such Third Party Claim with third party
claimants shall be determinative of the amount of Losses relating to such
matter. In the event that the Stockholder Representative has consented to any
such settlement, the Stockholders shall have no power or authority to object
under any provision of this ARTICLE VII to the amount of any Third Party Claim
by Parent against the Escrow Fund with respect to such settlement.
Notwithstanding anything in this Agreement to the contrary, this SECTION 7.3(i)
shall not apply to any third party claim that is the subject of an Agreed-Upon
Loss. Claims against the Escrow Fund made in respect of any Agreed-Upon Loss
shall be resolved in the manner described in SECTION 7.3(h)(v) above.
(j) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for
the performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Stockholder Representative, and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of legal counsel shall be
conclusive evidence of such good faith.
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(ii) The Escrow Agent is hereby expressly
authorized to disregard any and all warnings given by any of the parties hereto
or by any other person, excepting only orders or process of courts of law, and
is hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be liable to
any of the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties executing
or delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under this
Agreement, the Escrow Agent shall not be liable to any party for damages,
losses, or expenses, except for negligence or willful misconduct on the part of
the Escrow Agent. The Escrow Agent shall not incur any such liability for (A)
any act or failure to act made or omitted in good faith, or (B) any action taken
or omitted in reliance upon any instrument, including any written statement or
affidavit provided for in this Agreement that the Escrow Agent shall in good
faith believe to be genuine, nor will the Escrow Agent be liable or responsible
for forgeries, fraud, impersonations, or determining the scope of any
representative authority. In addition, the Escrow Agent may consult with legal
counsel in connection with performing the Escrow Agent's duties under this
Agreement and shall be fully protected in any act taken, suffered, or permitted
by him/her in good faith in accordance with the advice of counsel. The Escrow
Agent is not responsible for determining and verifying the authority of any
person acting or purporting to act on behalf of any party to this Agreement.
(vi) If any controversy arises between the
parties to this Agreement, or with any other party, concerning the subject
matter of this Agreement, its terms or conditions, the Escrow Agent will not be
required to determine the controversy or to take any action regarding it. The
Escrow Agent may hold all documents and the Escrow Amount and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, may be required, despite what
may be set forth elsewhere in this Agreement. In such event, the Escrow Agent
will not be liable for damages. Furthermore, the Escrow Agent may at its option,
file an action of interpleader requiring the parties to answer and litigate any
claims and rights among themselves. The Escrow Agent is authorized to deposit
with the clerk of the court all documents and the Escrow Amounts held in escrow,
except all costs, expenses, charges and reasonable attorney fees incurred by the
Escrow Agent due to the interpleader action (the "AGENT INTERPLEADER EXPENSES")
and which the parties agree to pay as follows: fifty percent (50%) to be paid by
Parent and fifty percent (50%) to be paid by the Stockholders on the basis of
the
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Stockholders' respective Pro Rata Portions; provided, however, that in the event
any Stockholder fails to timely pay his or her Pro Rata Portion of the Agent
Interpleader Expenses, the parties agree that Parent may at its option pay such
Stockholder's Pro Rata Portion of the Agent Interpleader Expenses and recover an
equal amount (which shall be deemed a Loss) from such Stockholder's Pro Rata
Portion of the Escrow Fund. Upon initiating such action, the Escrow Agent shall
be fully released and discharged of and from all obligations and liability
imposed by the terms of this Agreement.
(vii) The parties and their respective successors
and assigns agree jointly and severally to indemnify and hold Escrow Agent
harmless against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on Escrow Agent
or incurred by Escrow Agent in connection with the performance of his/her duties
under this Agreement, including but not limited to any litigation arising from
this Agreement or involving its subject matter, other than those arising out of
the negligence or willful misconduct of the Escrow Agent (the "AGENT
INDEMNIFICATION EXPENSES") as follows: fifty percent (50%) to be paid by Parent
and fifty percent (50%) to be paid by the Stockholders on the basis of the
Stockholders' Pro Rata Portions; provided, however, that in the event any
Stockholder fails to timely pay his or her Pro Rata Portion of the Agent
Indemnification Expenses, the parties agree that Parent may at its option pay
such Stockholder's Pro Rata Portion of the Agent Indemnification Expenses and
recover an equal amount (which shall be deemed a Loss) from such Stockholder's
Pro Rata Portion of the Escrow Fund; and provided further, that in no event
shall any Stockholder's liability pursuant to this paragraph exceed amounts
actually received by it pursuant to the Merger.
(viii) The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice to the Parent and the
Stockholder Representative; provided, however, that no such resignation shall
become effective until the appointment of a successor escrow agent which shall
be accomplished as follows: Parent and the Stockholder Representative shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the State of
California. The successor escrow agent shall execute and deliver an instrument
accepting such appointment and it shall, without further acts, be vested with
all the estates, properties, rights, powers, and duties of the predecessor
escrow agent as if originally named as escrow agent. Upon appointment of a
successor escrow agent and delivery to such successor all documents and Escrow
Amounts held hereunder, the Escrow Agent shall be discharged from any further
duties and liability under this Agreement.
(k) FEES. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent in accordance with the standard fee
schedule of the Escrow Agent. It is understood that the fees and usual charges
agreed upon for services of the Escrow Agent shall be considered compensation
for ordinary services as contemplated by this Agreement. In the event that the
conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any
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service not provided for in this Agreement but that has been requested by an
officer of Parent, or if the parties request a substantial modification of the
terms of the Agreement, or if any controversy arises, or if the Escrow Agent is
made a party to, or intervenes in, any litigation pertaining to the Escrow Fund
or its subject matter, the Escrow Agent shall be reasonably compensated for such
extraordinary services and reimbursed for all costs, attorney's fees, including
allocated costs of in-house counsel, and expenses occasioned by such default,
delay, controversy or litigation.
(l) SUCCESSOR ESCROW AGENTS. Any corporation into which the
Escrow Agent in its individual capacity may be merged or converted or with which
it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
7.4 STOCKHOLDER REPRESENTATIVE
(a) By virtue of the approval of the Merger and this Agreement
by the requisite vote of the Stockholders, with respect to the Escrow and
SECTION 1.6(c) each of the Stockholders shall be deemed to have agreed to
appoint Xxxxxxx X. Xxxxx as its agent and attorney-in-fact, as the Stockholder
Representative for and on behalf of the Stockholders to give and receive notices
and communications, to authorize payment to any Indemnified Party from the
Escrow in satisfaction of claims by any Indemnified Party, to agree or disagree
with the determination of the Earn-Out Payment, to object to such payments, 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 or disputes related to the Earn-Out Payment, to assert,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to, any
other claim by any Indemnified Party pursuant to the Escrow or SECTION 1.8(c),
in each case relating to this Agreement or the transactions contemplated hereby,
and to take all other actions that are either (i) necessary or appropriate in
the judgment of the Stockholder Representative for the accomplishment of the
foregoing or (ii) specifically mandated by the terms of this Agreement. Such
agency may be changed by the Stockholders from time to time upon not less than
thirty (30) days prior written notice to Parent; provided, however, that the
Stockholder Representative may not be removed unless holders of a two-thirds
interest of the Escrow Fund agree to such removal and to the identity of the
substituted agent. A vacancy in the position of Stockholder Representative may
be filled by the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Stockholder Representative, and the Stockholder
Representative shall not receive any compensation for its services. With respect
to the Escrow or SECTION 1.8(c), notices or communications to or from the
Stockholder Representative shall constitute notice to or from the Stockholders.
(b) The Stockholder Representative shall not be liable for any
act done or omitted hereunder as Stockholder Representative while acting in good
faith and in the exercise of reasonable
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judgment. The Stockholders on whose behalf the Escrow Amount was contributed to
the Escrow Fund shall indemnify the Stockholder Representative and hold the
Stockholder Representative harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Stockholder
Representative and arising out of or in connection with the acceptance or
administration of the Stockholder Representative's duties hereunder, including
the reasonable fees and expenses of any legal counsel retained by the
Stockholder Representative ("STOCKHOLDER REPRESENTATIVE EXPENSES"). A decision,
act, consent or instruction of the Stockholder Representative with respect to
SECTION 1.6(c) or the Escrow, including but not limited to an amendment,
extension or waiver of this Agreement pursuant to SECTION 7.3 and SECTION 7.4
hereof, shall constitute a decision of the Stockholders and shall be final,
binding and conclusive upon the Stockholders; and the Escrow Agent and Parent
may rely upon any such decision, act, consent or instruction of the Stockholder
Representative as being the decision, act, consent or instruction of the
Stockholders. The Escrow Agent and Parent are hereby relieved from any liability
to any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Stockholder Representative.
7.5 MAXIMUM PAYMENTS; REMEDY
(a) Except as set forth in SECTION 7.5(b) and SECTION 7.5(c)
hereof, the maximum amount an Indemnified Party may recover from a Stockholder
individually pursuant to the indemnity set forth in SECTION 7.2 hereof for
Losses shall be limited to a number of shares equal to such Stockholder's Pro
Rata Portion of the Escrow Fund.
(b) Notwithstanding anything to the contrary set forth in
this Agreement, nothing in this Agreement shall limit the liability of any
Stockholder (and the Escrow Fund shall not be the exclusive remedy) in respect
of Losses arising out of any fraud committed by such Stockholder or any knowing
and intentional breaches of covenants on the part of such Stockholder. For the
avoidance of doubt, a Stockholder shall not be liable for any amount in excess
of its Pro Rata Portion of the Escrow Fund for any fraud committed by another
Stockholder or any knowing and intentional breaches of covenants on the part of
another Stockholder.
(c) Nothing herein shall limit the liability of the Company or
the Stockholders for any breach or inaccuracy of any representation, warranty or
covenant contained in this Agreement or any Related Agreement if the Merger does
not close. For the avoidance of doubt, nothing herein shall be construed to mean
that any representation, warranty or covenant made by the Company is also made
by any of the Stockholders, or vice versa.
7.6 RIGHT OF SET-OFF
Notwithstanding anything set forth in this Agreement to the contrary,
if the Escrow Fund shall be insufficient to satisfy any and all Losses incurred
by Parent, its officers, directors or affiliates (including the Surviving
Corporation) with respect to which any of them would otherwise
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be entitled to indemnification under this Article VII ("EXCESS LOSSES"), Parent
shall be entitled to set-off any such Excess Losses against the Earn-Out Payment
payable by Parent under this Agreement as and when it becomes due. Any such
payment shall be withheld on a pro rata basis from the Earn-Out Payments
otherwise then payable with respect to each Earn-Out Payee. Neither the exercise
of nor the failure to exercise such right of set-off will constitute an election
of remedies or limit Parent in any manner in the enforcement of any other
remedies that may be available to it.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION
Except as provided in SECTION 8.2 hereof, this Agreement may be
terminated and the Merger abandoned at any time prior to the Closing:
(a) by unanimous agreement of the Company and Parent;
(b) by Parent or the Company if the Closing Date shall not
have occurred by March 31, 2003; provided, however, that such date shall be
extended to June 30, 2003 in the event that the condition set forth in SECTION
6.1(a) or the condition set forth in SECTION 6.1(b) has not been met; provided
further, however, that the right to terminate this Agreement under this SECTION
8.1(b) shall not be available to any party whose action or failure to act has
been a principal cause of or resulted in the failure of the Merger to occur on
or before such date and such action or failure to act constitutes breach of this
Agreement;
(c) by Parent or the Company if: (i) there shall be a final
non-appealable order of a federal or state court in effect preventing
consummation of the Merger, or (ii) there shall be any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable to the Closing by
any Governmental Entity that would make consummation of the Closing illegal;
(d) by Parent if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity, which would: (i) prohibit
Parent's ownership or operation of any portion of the business of the Company or
(ii) compel Parent or the Company to dispose of or hold separate all or any
portion of the business or assets of the Company or Parent as a result of the
Merger;
(e) by Parent if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement of the Company contained in this
Agreement such that the conditions set forth in SECTION 6.2(a) hereof would not
be satisfied and such breach has not been cured within fifteen (15) calendar
days after written notice thereof to the Company; provided, however, that no
cure period shall be required for a breach which by its nature cannot be cured;
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(f) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement of Parent contained in this
Agreement such that the conditions set forth in SECTION 6.3(a) hereof would not
be satisfied and such breach has not been cured within fifteen (15) calendar
days after written notice thereof to Parent; provided, however, that no cure
period shall be required for a breach which by its nature cannot be cured;
(g) by Parent if there is a Company Material Adverse Effect;
or
(h) by the Company if there is a Parent Material Adverse
Effect.
8.2 EFFECT OF TERMINATION
In the event of termination of this Agreement as provided in SECTION
8.1 hereof, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Parent, the Company, or their respective
officers, directors or stockholders, if applicable; provided, however, that each
party hereto shall remain liable for any breaches of this Agreement prior to its
termination; and provided further, however, that, the provisions of SECTIONS
5.4, 5.5 and 5.6 hereof, ARTICLE IX hereof and this SECTION 8.2 shall remain in
full force and effect and survive any termination of this Agreement pursuant to
the terms of this ARTICLE VIII.
8.3 AMENDMENT
This Agreement may be amended by the parties hereto at any time by
execution of an instrument in writing signed on behalf of the party against whom
enforcement is sought. For purposes of this SECTION 8.3, the Stockholders agree
that any amendment of this Agreement signed by the Stockholder Representative
shall be binding upon and effective against the Stockholders whether or not they
have signed such amendment.
8.4 EXTENSION; WAIVER
At any time prior to the Closing, Parent, on the one hand, and the
Company, on the other hand, may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the covenants, agreements or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES
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All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by commercial messenger or
courier service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice); provided, however, that notices sent by
mail will not be deemed given until received:
(a) if to Parent or Sub, to:
Brocade Communications Systems, Inc.
0000 Xxxxxxxxxx Xxxxx
Xxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
(b) if to the Company to:
Rhapsody Networks, Inc.
0000 X. Xxxxxx Xxx.
Xxxxxxx, XX 00000
Attention: Attn: Xxxxxxx Xxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Godward LLP
Xxx Xxxxxxxx Xxxxx, Xxxxx 00
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx
Facsimile No.: (000) 000-0000
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(c) if to the Stockholder Representative, to:
Xxxxxxx X. Xxxxx
c/o Sequoia Capital
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx xxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Godward LLP
Xxx Xxxxxxxx Xxxxx, Xxxxx 00
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx
Facsimile No.: (000) 000-0000
(d) if to the Escrow Agent, to:
U.S. Bank, N.A.
Corporate Trust Services
Xxx Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxx Xxxxxx
Facsimile No.: (000) 000-0000
9.2 INTERPRETATION
The words "include," "includes" and "including" when used herein shall
be deemed in each case to be followed by the words "without limitation." The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.3 COUNTERPARTS
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other party, it being understood that all parties need not sign
the same counterpart.
9.4 ENTIRE AGREEMENT; ASSIGNMENT
This Agreement, the Exhibits hereto, the Disclosure Schedule, the
Confidentiality Agreement, 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
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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 any rights or remedies hereunder,
and (iii) shall not be assigned by operation of law or otherwise, except that
Parent may assign its rights and delegate its obligations hereunder to its
affiliates as long as Parent remains ultimately liable for all of Parent's
obligations hereunder.
9.5 SEVERABILITY
In the event that any provision of this Agreement or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
9.6 OTHER REMEDIES
Any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy.
9.7 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof. Each of the
parties hereto irrevocably consents to the exclusive jurisdiction and venue of
any court within Santa Xxxxx County, State of California, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
herein, agrees that process may be served upon them in any manner authorized by
the laws of the State of California for such persons and waives and covenants
not to assert or plead any objection which they might otherwise have to such
jurisdiction, venue and such process.
9.8 RULES OF CONSTRUCTION
The parties hereto agree that they have been represented by counsel
during the negotiation and execution of this Agreement and, therefor, waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
9.9 WAIVER OF JURY TRIAL
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY AND ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
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BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT HEREOF.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Parent, Sub, the Company, the Escrow Agent and the
Stockholder Representative have caused this Agreement to be signed, all as of
the date first written above.
BROCADE COMMUNICATIONS SYSTEMS, INC.
By: /s/ Xxxxxxx X. Xxxxx
----------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chief Executive Officer
RHAPSODY NETWORKS, INC.
By: /s/ Xxxxxxx Xxxxxx
----------------------------------------
Name: Xxxxxxx Xxxxxx
Title: Chief Executive Officer and President
MAVERICK ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxx
----------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chief Executive Officer
U.S. BANK, N.A.
By: /s/ Xxx Xxxxxx
----------------------------------------
Name: Xxx Xxxxxx
Title: Vice President
STOCKHOLDERS' REPRESENTATIVE
/s/ Xxxxxxx X. Xxxxx
--------------------------------------------
Xxxxxxx X. Xxxxx
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
EXECUTION COPY
ANNEX A
EARN-OUT PAYMENT CONDITIONS
The Earn-Out Payment shall be paid if, and only if, one or more of the
following occurs on or before November 30, 2003:
1. The Company's Mercury product ("Target Product") has been qualified for
general release to customers by either XXX Xxxxxxxxxxx or
Hewlett-Packard Company (the "Qualification Condition"). Such
qualification shall be deemed to occur upon notification by XXX
Xxxxxxxxxxx or Hewlett-Packard Company that the product has been
qualified in a manner consistent with the manner in which other
products of Parent have been qualified. This condition will not be
deemed to be satisfied if the resources expended to satisfy it exceed
the resources contemplated by the Qualification Project Plan (as
defined below).
2. Parent cancels or requires the cancellation of the Target Product
development and commercialization effort, unless the reason for such
abandonment is Parent's good faith determination that the Qualification
Condition is no longer achievable due to schedule delays or budget
overruns.
3. Parent fails to devote to the Qualification Project Plan at least the
number and type of personnel and all or substantially all of the other
resources contemplated by the Qualification Project Plan and such
failure is not corrected within fifteen (15) business days after Parent
receives written notification thereof setting forth in reasonable
detail the nature of the failure(s).
4. Parent makes or requires to be made any material modification to the
Target Product specifications or features, as in effect at the
Effective Date, which has the effect of materially increasing the
amount of effort or time required to satisfy the Qualification
Condition; unless the modification is approved by Xxxxxxx Xxxxxx.
5. Parent makes or requires to be made a material change in the required
application for the Target Product after agreement to such application
by either XXX Xxxxxxxxxxx or Hewlett-Packard Company; unless the
modification is approved by Xxxxxxx Xxxxxx.
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
CONFIDENTIAL
WSGR DRAFT / /
QUALIFICATION PROJECT PLAN
Beginning promptly after the date hereof, representatives of
Parent and the Company will work together in good faith to develop, by January
15, 2003, a plan for the Target Product development and other activities
necessary to satisfy the Qualification Condition on or before November 30, 2003
(the "Qualification Project Plan"). The Qualification Project Plan will be based
on the Company's third quarter 2002 financial plan for engineering and marketing
attached hereto, with such additions and subtractions to spending and headcount
outlined in such plan to adjust for (i) reprioritization of the Company's
products (other than Mercury) and (ii) Parent's undertaking to provide SQA, ops,
manufacturing, and general and administrative support. The Qualification Project
Plan may be amended, from time to time, in a writing signed by an authorized
officer of Parent and Xxxxxxx Xxxxxx (or any successor designated by Xxxxxxx
Xxxxxx or by any such successor).
The Qualification Project Plan will set forth, among other things, the
feature set, anticipated timetable, milestones, required resources,
responsibilities and target application(s). The Qualification Project Plan will
also identify the non-development resources of Parent that will be required for
execution of the plan, which will include documentation, test, manufacturing,
operations, information technology infrastructure, source code, APIs and design
specifications.
The Qualification Project Plan will be approved by continuing Company
management and the management of Parent and will thereafter constitute the plan
of record for qualification of the Target Product.
If the parties cannot agree on the Qualification Project Plan, then (i)
the Qualification Project Plan shall be the financial and headcount resources
identified for the Company's engineering and marketing organizations in the Q3
Plan, (ii) the feature set shall be the feature set of the Mercury product as
contemplated on the date hereof as modified to ensure (a) Eport functionality
compatible with Parent's products, (b) manufacturability of the Target Product,
(c) compatibility with Parent's manageability APIs, and (d) quality control
acceptable to end-user customers.
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
Page: 32
For the same reasons explained above, this rep MUST be dated unless the buyer
wants the Company to freeze all development activity between signing and
closing.
