Exhibit 2.1
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AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
EFFICIENT NETWORKS, INC.,
FIRE ACQUISITION CORPORATION
CABLETRON SYSTEMS, INC.
AND
FLOWPOINT CORPORATION
Dated as of November 21, 1999
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER...................................................... 1
1.1 The Merger 1
1.2 Effective Time; Closing.................................. 2
1.3 Effect of the Merger..................................... 2
1.4 Certificate of Incorporation; Bylaws..................... 2
1.5 Directors and Officers................................... 2
1.6 Effect on Capital Stock.................................. 3
1.7 Surrender of Certificates................................ 4
1.8 No Further Ownership Rights in Company Common Stock...... 5
1.9 Lost, Stolen or Destroyed Certificates................... 5
1.10 Tax and Accounting Consequences.......................... 5
1.11 Taking of Necessary Action; Further Action............... 5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND COMPANY........... 6
2.1 Organization and Qualification; Subsidiaries............. 6
2.2 Certificate of Incorporation and Bylaws.................. 6
2.3 Capitalization 6
2.4 Authority Relative to this Agreement..................... 7
2.5 No Conflict; Required Filings and Consents............... 8
2.6 Compliance; Permits...................................... 8
2.7 Financial Statements..................................... 9
2.8 Absence of Certain Changes or Events..................... 10
2.9 Absence of Litigation.................................... 14
2.10 Customers; Suppliers..................................... 14
2.11 Product and Service Warranties........................... 15
2.12 Employee Benefit Plans................................... 15
2.13 Labor Matters............................................ 17
2.14 Key Employees............................................ 17
2.15 Material Contracts....................................... 18
2.16 Guaranties, Intercompany Debt............................ 18
2.17 Restrictions on Business Activities...................... 18
2.18 Title to Property........................................ 19
2.19 Environmental Matters.................................... 19
2.20 Intellectual Property.................................... 19
2.21 Board Approval........................................... 22
2.22 Assets................................................... 22
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT...................... 23
3.1 Organization and Qualification........................... 23
3.2 Authority Relative to this Agreement..................... 23
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3.3 No Conflict; Required Filings and Consents............... 23
3.4 Brokers.................................................. 24
3.5 Intellectual Property.................................... 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB..... 25
4.1 Organization and Qualification; Subsidiaries............. 25
4.2 Certificate of Incorporation and Bylaws.................. 25
4.3 Capitalization........................................... 25
4.4 Authority Relative to this Agreement..................... 26
4.5 No Conflict; Required Filings and Consents............... 27
4.6 SEC Filings; Financial Statements........................ 27
4.7 Absence of Litigation.................................... 28
4.8 Title to Property........................................ 28
4.9 Environmental Matters.................................... 28
4.10 Board Approval........................................... 29
4.11 No Undisclosed Liabilities............................... 29
4.12 Compliance............................................... 29
4.13 Brokers.................................................. 30
4.14 Absence of Certain Changes or Events..................... 30
4.15 Intellectual Property.................................... 30
4.16 Customers................................................ 30
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME............................. 30
5.1 Conduct of Business by Company and Parent................ 30
5.2 Conduct of Business by Purchaser......................... 33
ARTICLE VI ADDITIONAL AGREEMENTS.......................................... 33
6.1 Information Statement; Filings; Board Recommendations.... 33
6.2 Meeting of Purchaser Stockholders........................ 34
6.3 Confidentiality; Access to Information................... 34
6.4 Public Disclosure........................................ 35
6.5 Reasonable Efforts; Notification......................... 35
6.6 Employee Benefits........................................ 36
6.7 Third Party Consents..................................... 37
6.8 Nasdaq Listing........................................... 37
6.9 Regulatory Filings; Reasonable Efforts................... 37
6.10 Non-Competition.......................................... 38
6.11 Intercompany Accounts; Cash Balance...................... 39
6.12 License of Intellectual Property......................... 39
6.13 Reseller Agreement....................................... 40
6.14 Transition Services Agreement............................ 40
6.15 SDA Agreement............................................ 40
6.16 License Agreements....................................... 40
6.17 WARN..................................................... 40
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6.18 Options................................................... 40
6.19 Retention................................................. 40
ARTICLE VII CONDITIONS TO THE MERGER....................................... 41
7.1 Conditions to Obligations of Each Party to Effect the
Merger.................................................... 41
7.2 Additional Conditions to Obligations of Company and Parent 41
7.3 Additional Conditions to the Obligations of Purchaser and
Merger Sub................................................ 42
ARTICLE VIII TAX MATTERS................................................... 43
8.1 Definition of Taxes....................................... 43
8.2 Tax Representations....................................... 43
8.3 Indemnity................................................. 44
8.4 Tax Returns............................................... 46
8.5 Refunds and Credits....................................... 46
8.6 Termination of Tax Sharing Agreements..................... 47
8.7 Tax-Free Reorganization................................... 47
8.8 Conduct of Audits and Other Procedural Matters............ 47
8.9 Assistance and Cooperation................................ 48
8.10 Survival.................................................. 49
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER............................... 49
9.1 Termination............................................... 49
9.2 Notice of Termination; Effect of Termination.............. 50
9.3 Fees and Expenses......................................... 50
9.4 Amendment................................................. 50
9.5 Extension; Waiver......................................... 50
ARTICLE X GENERAL PROVISIONS............................................... 51
10.1 Survival of Representations and Warranties................ 51
10.2 Indemnification by the Holders............................ 51
10.3 Notices................................................... 53
10.4 Interpretation; Knowledge................................. 54
10.5 Counterparts.............................................. 55
10.6 Entire Agreement; Third Party Beneficiaries............... 55
10.7 Severability.............................................. 55
10.8 Other Remedies; Specific Performance...................... 55
10.9 Governing Law............................................. 55
10.10 Rules of Construction..................................... 56
10.11 Assignment................................................ 56
10.12 WAIVER OF JURY TRIAL...................................... 56
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INDEX OF EXHIBITS
Exhibit A Form of Purchaser Voting Agreement
Exhibit B Form of Reseller Agreement
Exhibit C Form of Standstill and Disposition Agreement
Exhibit D Certificate of Designation
Exhibit E Form of Transition Services Agreement
Exhibit F Form of Cross License Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
November 21, 1999, among Efficient Networks, Inc., a Delaware corporation
("Purchaser"), Fire Acquisition Corporation, a California corporation and a
wholly-owned subsidiary of Purchaser ("Merger Sub"), Cabletron Systems, Inc., a
Delaware corporation ("Parent") and Flowpoint Corporation, a California
corporation and a wholly-owned subsidiary of Parent ("Company").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the California Corporations
Code (the "CCC"), Purchaser, Merger Sub, Parent and Company intend to enter into
a business combination transaction.
B. The Boards of Directors of Company, Parent, Purchaser and Merger Sub
(i) have determined that the Merger (as defined in Section 1.1) is consistent
with and in furtherance of their respective long-term business strategies and is
fair to, and in the best interests of their respective stockholders and (ii)
have approved this Agreement, the Merger and the other transactions contemplated
by this Agreement.
C. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's and Company's willingness to enter into this
Agreement, certain affiliates of Purchaser are entering into Voting Agreements
in substantially the form attached hereto as Exhibit A (the "Purchaser Voting
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Agreements").
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
E. It is also intended by the parties hereto that the Merger shall
qualify for accounting treatment as a purchase.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the CCC, the Company shall be merged with and into
Merger Sub (the "Merger"), the separate corporate existence of the Company shall
cease and Merger Sub shall continue as the surviving corporation. Merger Sub as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "Surviving Corporation."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
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the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger with the Secretary of State of the State of California in
accordance with the relevant provisions of California law (the "Merger
Documents") (the time of such filing (or such later time as may be agreed in
writing by Company and Purchaser and specified in the Merger Documents) being
the "Effective Time") as soon as practicable on or after the Closing Date (as
herein defined). Unless the context otherwise requires, the term "Agreement" as
used herein refers collectively to this Agreement and Plan of Reorganization and
the certificate of merger. The closing of the Merger (the "Closing") shall take
place at the offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional
Corporation, at a time and date to be specified by the parties, which shall be
no later than the second business day after the satisfaction or waiver of the
conditions set forth in Article VII, or at such other time, date and location as
the parties hereto agree in writing (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in this Agreement and the applicable provisions of the CCC.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
Company and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
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(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation of the
Surviving Corporation; provided, however, that at the Effective Time the
Certificate of Incorporation of the Surviving Corporation shall be amended so
that the name of the Surviving Corporation shall be "Flowpoint, Corp."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The initial directors of the Surviving
----------------------
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time.
1.6 Effect on Capital Stock. Subject to the terms and conditions of this
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Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Parent, Merger Sub, Company or the holders of any of the
following securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common Stock,
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par value $0.01 per share, of Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time, other than any shares of
Company Common Stock to be canceled pursuant to Section 1.6(b), will be canceled
and extinguished and automatically converted
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(subject to Sections 1.6(d) and (e)) into the right to receive 72,000 shares of
Common Stock of Purchaser (the "Purchaser Common Stock") and 63,000 shares of
Series A Non-Voting Convertible Preferred Stock having the terms set forth in
the Certificate of Designation attached hereto as Exhibit D (the "Preferred
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Stock", together with the Purchaser Common Stock, the "Merger Consideration")
upon surrender of the certificate representing such share of Company Common
Stock in the manner provided in Section 1.7 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit (and bond, if required) in
the manner provided in Section 1.9).
(b) Cancellation of Purchaser-Owned Stock. Each share of Company
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Common Stock held by Company or owned by Merger Sub, Purchaser or any direct or
indirect wholly-owned subsidiary of Company or of Purchaser immediately prior to
the Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Capital Stock of Merger Sub. Each certificate evidencing
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ownership of shares of Common Stock, par value $.001 per share, of Merger Sub
shall evidence ownership of such shares of capital stock of the Surviving
Corporation.
(d) Adjustments to Merger Consideration. The Merger Consideration
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shall be adjusted to reflect appropriately the effect of any stock split,
reverse stock split, stock dividend (including any dividend or distribution of
securities convertible into Purchaser Common Stock or Company Common Stock),
extraordinary cash dividends, reorganization, recapitalization,
reclassification, combination, exchange of shares or other like change with
respect to Purchaser Common Stock or Company Common Stock occurring on or after
the date hereof and prior to the Effective Time, or in the event that the number
of shares of Company Common Stock on a fully diluted basis is different from
that specified in Section 2.3 of this Agreement and disclosed in Section 2.3 of
the Company Schedule (regardless of whether such difference is a result of an
additional issuance or cancellation of capital stock or a correction to such
Sections).
(e) Fractional Shares. No fraction of a share of Purchaser Common
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Stock will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction of
a share of Purchaser Common Stock (after aggregating all fractional shares of
Purchaser Common Stock that otherwise would be received by such holder) shall,
upon surrender of such holder's Certificates(s) (as defined in Section 1.7(b))
receive from Purchaser an amount of cash (rounded to the nearest whole cent),
without interest, equal to the product of (i) such fraction, multiplied by (ii)
the average closing price of one share of Purchaser Common Stock for the five
(5) most recent days that Purchaser Common Stock has traded ending on the
trading day immediately prior to the Effective Time, as reported on the Nasdaq
National Market System ("Nasdaq").
1.7 Surrender of Certificates.
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(a) Purchaser to Provide Common Stock. At the Effective Time,
---------------------------------
Purchaser shall make available for exchange in accordance with this Article I,
the shares of Purchaser Common Stock and Preferred Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of Company Common Stock, and cash
in an amount sufficient for payment in lieu of fractional shares
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pursuant to Section 1.6(e) and any dividends or distributions to which holders
of shares of Company Common Stock may be entitled pursuant to Section 1.7(b).
(b) Distributions With Respect to Unexchanged Shares. No dividends or
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other distributions declared or made after the date of this Agreement with
respect to Purchaser Common Stock and Preferred Stock with a record date after
the Effective Time will be paid to the holders of any unsurrendered certificate
or certificates of Company Common Stock (the "Certificates") with respect to the
shares of Purchaser Common Stock and Preferred Stock represented thereby until
the holders of record of such Certificates shall surrender such Certificates.
Subject to applicable law, following surrender of any such Certificates, the
Purchaser shall deliver to the record holders thereof, without interest,
certificates representing whole shares of Purchaser Common Stock and Preferred
Stock issued in exchange therefor along with payment in lieu of fractional
shares pursuant to Section 1.6(e) hereof and the amount of any such dividends or
other distributions with a record date after the Effective Time payable with
respect to such whole shares of Purchaser Common Stock and Preferred Stock.
(c) Transfers of Ownership. If certificates representing shares of
----------------------
Purchaser Common Stock and Preferred Stock are to be issued in a name other than
that in which the Certificates surrendered in exchange therefor are registered,
it will be a condition of the issuance thereof that the Certificates so
surrendered will be properly endorsed and otherwise in proper form for transfer
and that the persons requesting such exchange will have paid to Purchaser or any
agent designated by it any transfer or other taxes required by reason of the
issuance of certificates representing shares of Purchaser Common Stock and
Preferred Stock in any name other than that of the registered holder of the
Certificates surrendered, or established to the satisfaction of Purchaser or any
agent designated by it that such tax has been paid or is not payable.
(d) No Liability. Notwithstanding anything to the contrary in this
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Section 1.7, neither the Purchaser nor the Surviving Corporation shall be liable
to a holder of shares of Purchaser Common Stock or Company Common Stock for any
amount properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law following the passage of time specified
therein.
1.8 No Further Ownership Rights in Company Common Stock. All shares of
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Purchaser Common Stock and Preferred Stock issued in accordance with the terms
hereof (including any cash paid in respect thereof pursuant to Section 1.6(e)
and 1.7(c)) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event that any
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Certificates shall have been lost, stolen or destroyed, Purchaser shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, certificates representing the
shares of Purchaser Common Stock and Preferred Stock into which the shares of
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Company Common Stock represented by such Certificates were converted pursuant to
Section 1.6, cash for fractional shares, if any, as may be required pursuant to
Section 1.6(e) and any dividends or distributions payable pursuant to Section
1.7(b); provided, however, that Purchaser may, in its sole and absolute
discretion and as a condition precedent to the issuance of such certificates
representing shares of Purchaser Common Stock and Preferred Stock, cash and
other distributions, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Purchaser or the Surviving
Corporation with respect to the Certificates alleged to have been lost, stolen
or destroyed.
1.10 Tax and Accounting Consequences.
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(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code. The
parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax
Regulations.
(b) It is intended by the parties hereto that the Merger shall be
treated as a purchase for accounting purposes.
1.11 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 Company and Merger Sub, the officers and directors of Company
and Merger Sub immediately prior to the Effective Time will take all such lawful
and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND COMPANY
As of the date hereof and as of the Closing Date, the Parent and the
Company represent and warrant to Purchaser and Merger Sub, jointly and
severally, subject to such exceptions as are disclosed in writing in the
disclosure letter supplied by Parent and Company to Purchaser dated as of the
date hereof and certified by duly authorized officers of Company and Parent (the
"Company Schedule"), as follows:
2.1 Organization and Qualification; Subsidiaries.
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(a) Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted.
Except as set forth in Section 2.1(a) of the Company Schedule, Company is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders ("Approvals") necessary
to own, lease and operate the assets it
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purports to own, operate or lease and to carry on its business as it is now
being conducted except where the failure to have such Approvals would not have a
Material Adverse Effect on the Company.
(b) Company has no subsidiaries. Company has not agreed nor is
obligated to make nor is bound by any written, oral or other agreement,
contract, subcontract, lease, binding understanding, instrument, note, option,
warranty, purchase order, license, sublicense, insurance policy, benefit plan,
commitment or undertaking of any nature, as of the date hereof or as may
hereafter be in effect (a "Contract") under which it may become obligated to
make, any future investment in or capital contribution to any other entity.
Company does not directly or indirectly own any equity or similar interest in or
any interest convertible, exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business,
association or entity.
(c) Company is qualified or licensed to do business as a foreign
corporation, and is in good standing, in each jurisdiction where the nature of
their business makes such qualification or licensing necessary and where the
failure to be so duly qualified or licensed would either individually or in the
aggregate have a Material Adverse Effect on the Company.
2.2 Certificate of Incorporation and Bylaws. Company has previously
---------------------------------------
furnished to Purchaser a complete and correct copy of its Certificate of
Incorporation and Bylaws as amended to date (together, the "Company Charter
Documents"). Such Company Charter Documents are in full force and effect.
Company is not in violation of any of the provisions of the Company Charter
Documents.
2.3 Capitalization.
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(a) The authorized capital stock of Company consists of 1,000 shares
of Company Common Stock, par value of $0.01 per share. At the close of business
on the date of this Agreement (i) 100 shares of Company Common Stock were issued
and outstanding, all of which are validly issued, fully paid and nonassessable;
(ii) no shares of Company Common Stock were held by subsidiaries of Company;
(iii) no shares of Company Common Stock were available or reserved for issuance
pursuant to any employee stock plan or upon conversion of any warrants; and all
100 shares of issued and outstanding Company Common Stock were held by Parent.
All outstanding shares of Company Common Stock have been issued and granted in
compliance with (i) all applicable federal and state securities laws and other
applicable Legal Requirements (as defined below) and (ii) all requirements set
forth in applicable contracts, agreements, and instruments. For the purposes of
this Agreement, "Legal Requirements" means any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issues, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Entity (as defined
below).
(b) As of the date of this Agreement, there are no equity securities,
partnership interests or similar ownership interests of any class of equity
security of any subsidiary of the Company, or any security exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Section 2.3(b) of the Company Schedule or as
set forth in Section 2.3(a)
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hereof, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Company
or any of its subsidiaries is a party or by which it is bound obligating Company
or any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of the Company or any of
its subsidiaries or obligating the Company or any of its subsidiaries to grant,
extend, accelerate the vesting of or enter into any such subscription, option,
warrant, equity security, call, right, commitment or agreement. As of the date
of this Agreement, except as contemplated by this Agreement, there are no
registration rights and there is no voting trust, proxy, rights plan, anti
takeover plan or other agreement or understanding to which the Company or any of
its subsidiaries is a party or by which they are bound with respect to any
equity security of any class of the Company or with respect to any equity
security, partnership interest or similar ownership interest of any class of any
of its subsidiaries.
2.4 Authority Relative to this Agreement. Company has all necessary
------------------------------------
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Company and
the consummation by Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Company and no other corporate proceedings on the part of Company are necessary
to authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly and validly executed and delivered by Company and,
assuming the due authorization, execution and delivery by Purchaser and Merger
Sub, constitutes a legal and binding obligation of Company, enforceable against
Company in accordance with its terms, except (i) as may be limited by (x)
applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (y) the effect of rules of law governing the availability of
equitable remedies and (ii) as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of public policy
thereunder.
2.5 No Conflict; Required Filings and Consents.
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(a) Except as set forth in Section 2.5(a) of the Company Schedule,
the execution and delivery of this Agreement by Company do not, and the
performance of this Agreement by Company shall not, (i) conflict with or violate
the Company Charter Documents, (ii) subject to compliance with the requirements
set forth in Section 2.5(b) below, to the knowledge of Company, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
Company or by which its or any of their respective properties is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
materially impair Company's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Company pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Company is a party
or by which Company or its properties are bound or affected, except in any case
for such conflicts, violations, breaches, defaults
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or other occurrences that could not reasonably be expected to have a Material
Adverse Effect on the Company.
(b) Except as set forth in Section 2.5(b) of the Company Schedule, the
execution and delivery of this Agreement by Company do not, and the performance
of this Agreement by Company shall not, require any consent, approval,
authorization or permit of, or filing with or notification to, any court,
administrative agency, commission, governmental or regulatory authority,
domestic or foreign (a "Governmental Entity"), except for applicable
requirements, if any, of the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
state securities laws ("Blue Sky Laws"), the pre-merger notification
requirements (the "HSR Approval") of the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and of foreign Governmental
Entities and the rules and regulations thereunder, the rules and regulations of
Nasdaq, and the filing and recordation of the Merger Documents as required by
California Law and except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications would not
otherwise have a Material Adverse Effect.
2.6 Compliance; Permits.
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(a) Except as set forth in Section 2.6(a) of the Company Schedule, to
the knowledge of the Company, Company is not in conflict with, or in default or
violation of, (i) any law, rule, regulation, order, judgment or decree
applicable to Company or by which its properties are bound or affected, or (ii)
any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Company is
a party or by which Company or its properties are bound or affected, except for
any conflicts, defaults or violations that (individually or in the aggregate)
would not cause the Company to lose any material benefit or incur any material
liability. No investigation or review by any governmental or regulatory body or
authority is pending or, to the knowledge of Company, threatened against
Company, nor has any governmental or regulatory body or authority indicated to
the Company an intention to conduct the same, other than, in each such case,
those the outcome of which could not, individually or in the aggregate,
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of the Company, any acquisition of material property by
the Company or the conduct of business by the Company.
(b) Except as set forth in Section 2.6(b) of the Company Schedule, to
the knowledge of the Company, Company holds all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to operation of the business of Company taken as a whole as it is now
being conducted (collectively, the "Company Permits"). Company is in compliance
in all material respects with the terms of the Company Permits.
2.7 Financial Statements.
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(a) The Company has provided to Purchaser (i) unaudited consolidated
financial statements for the fiscal years ended March 31, 1997 and 1998, August
31, 1998 and February 28, 1999, and (ii) unaudited financial statements for the
period ended September 30, 1999 (collectively and as amended, the "Company
Reports").
-8-
(b) Except as set forth in Section 2.7(b) of the Company Schedule,
each of the financial statements (including, in each case, any notes thereto)
contained in the Company Reports was prepared in accordance with U.S. generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods indicated (except as may be indicated in the notes thereto) and each
presented fairly, in all material respects, the financial position of the
Company as at the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein (subject to normal and
recurring year-end adjustments which did not have and could not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect).
(c) Except as and to the extent set forth or reserved against on the
balance sheet of the Company as reported in the Company Reports, including the
notes thereto, the Company has no liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required to
be reflected on a balance sheet or in notes thereto prepared in accordance with
GAAP, except (i) liabilities provided for in Company's balance sheet as of
September 30, 1999; (ii) liabilities incurred since September 30, 1999 in the
ordinary course of business; or (iii) liabilities which are not material to the
business, results of operations or financial condition of Company.
2.8 Absence of Certain Changes or Events. Since September 30, 1999
------------------------------------
(the "Reference Balance Sheet Date"), except (i) as disclosed in Section 2.8 of
the Company Schedule, or (ii) provided for in or disclosed pursuant to
subsections (i) - (xxiv) below, the business of the Company has been conducted
in the ordinary course and consistent with past practice. As amplification and
not limitation of the foregoing, except as disclosed in Section 2.8 of the
Company Schedule, since the Reference Balance Sheet Date, the Company has not:
(i) transferred to any person or entity, including Parent, any
rights to its Intellectual Property (as defined in Section 2.20) other than
transfers necessary to conduct development and manufacturing activities and sell
products in the ordinary course of business consistent with past practice;
(ii) knowingly permitted or allowed any of the assets or
properties (whether tangible or intangible) of the Company to be subjected to
any security interest, pledge, mortgage, lien (including, without limitation,
environmental and tax liens), charge, encumbrance, adverse claim, preferential
arrangement or restriction of any kind, including, without limitation, any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attributes of ownership ("Encumbrance"), other than such of the following as
to which no enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced: (a) liens for taxes, assessments and governmental
charges or levies not yet due and payable which are not in excess of $50,000 in
the aggregate; (b) Encumbrances imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other similar liens
arising in the ordinary course of business securing obligations that (i) are not
overdue for a period of more than 30 days and (ii) are not in excess of $5,000
in the case of a single property or $50,000 in the aggregate at any time; (c)
pledges or deposits to secure obligations under workers' compensation laws or
similar legislation or to secure public or statutory obligations; and (d) minor
survey exceptions, reciprocal easement agreements and other customary
encumbrances on title to real property or assets that (i) were not
-9-
incurred in connection with any Indebtedness, (ii) do not render title to the
property encumbered thereby unmarketable, (iii) do not, individually or in the
aggregate, materially adversely affect the value or use of such property for its
current and anticipated purposes and (iv) Encumbrances that could not reasonably
be expected to have a Material Adverse Effect ("Permitted Encumbrances") and
Encumbrances that will be released at or prior to the Closing;
(iii) except in the ordinary course of business consistent with past
practice, discharged or otherwise obtained the release of any Encumbrance or
paid or otherwise discharged any liability, other than current liabilities
reflected on the Reference Balance Sheet and current liabilities incurred in the
ordinary course of business consistent with past practice since the Reference
Balance Sheet Date;
(iv) made any loan to, guaranteed any indebtedness for borrowed
money of or otherwise incurred any indebtedness for borrowed money on behalf of
any individual, corporation, partnership, limited partnership, limited liability
company, syndicate, person (including, without limitation, a "person" as defined
in Section 13(d)(3) of the Exchange Act), trust, association, entity or
government or political subdivision, agency or instrumentality of a government
("Person") other than payroll, travel guaranties and other advances made in the
ordinary course of business;
(v) failed to pay any creditor any material amount owed to such
creditor when due except as may be in accordance with the ordinary course of
business consistent with past practice;
(vi) redeemed any of the capital stock or declared, made or paid any
dividends or distributions (whether in cash, securities or other property) to
the holders of capital stock of the Company or otherwise;
(vii) made any material changes in the customary methods of
operations of the Company, including, without limitation, practices and policies
relating to manufacturing, purchasing, Inventories (as defined below),
marketing, selling and pricing;
(viii) merged with, entered into a consolidation with or acquired an
interest of 5% or more in any Person or acquired a substantial portion of the
assets or business of any Person or any division or line of business thereof, or
otherwise acquired any material assets other than in the ordinary course of
business consistent with past practice;
(ix) made any capital expenditure or commitment of any capital
expenditure in excess of $75,000 individually or $200,000 in the aggregate;
(x) issued any sales orders or otherwise entered into an agreement
that requires the Company to make any purchases involving payments by the
Company in excess of $250,000 individually or $1,000,000 in the aggregate;
(xi) sold, transferred, leased, subleased, licensed or otherwise
disposed of any material properties or assets, real, personal or mixed
(including, without limitation, leasehold
-10-
interests and intangible assets), other than the sale of Inventories in the
ordinary course of business consistent with past practice;
(xii) issued or sold any capital stock, notes, bonds or other
securities, or any option, warrant or other right to acquire the same, of, or
any other interest in, the Company;
(xiii) entered into any agreement, arrangement or transaction with
any of its directors, officers, employees or shareholders (or with any relative,
beneficiary, spouse or Affiliate of such Person);
(xiv) (A) granted any increase, or announced any increase, in the
wages, salaries, compensation, bonuses, incentives, pension or other benefits
payable by the Company to any of its employees, consultants or directors or (B)
established or increased or promised to increase any benefits under any Parent
employee benefit or option plans, in either case except as required by law or
any collective bargaining agreement or involving ordinary increases in the
ordinary course of business consistent with the past practices of the Company;
(xv) written down or written up the value of any Inventories or
receivables or revalued any assets of the Company other than in the ordinary
course of business consistent with past practice, and in accordance with U.S.
GAAP;
(xvi) amended, terminated, cancelled or compromised any material
claims of the Company or waived any other rights of substantial value to the
Company or settled any material litigation;
(xvii) made any change in any method of accounting or accounting
practice or policy used by the Company, other than such changes required by U.S.
GAAP or disclosed in Section 2.8 of the Company Schedule;
(xviii) amended or modified in any material respect, or consented to
the termination of, any Material Contract (as defined below) or the Company's
rights thereunder;
(xix) amended or restated the certificate of incorporation or the
bylaws (or other organizational documents) of the Company;
(xx) knowingly disclosed any secret or confidential Intellectual
Property (except by way of issuance of a patent or a valid confidentiality
agreement); or knowingly permitted to lapse or go abandoned any Intellectual
Property (or any registration or grant thereof or any application relating
thereto) to which, or under which, the Company has any right, title, interest or
license;
(xxi) made any express or deemed election (other than as set forth
on the Company's tax returns) or settled or compromised any material liability,
with respect to Taxes (as defined in Section 8.1) of the Company;
-11-
(xxii) suffered any casualty loss or damage with respect to any
of the assets which in the aggregate have a replacement cost of more than
$100,000, and which is not covered by insurance;
(xxiii) suffered any Material Adverse Effect; or
(xxiv) agreed, whether in writing or otherwise, to take any of
the actions specified in this Section 2.8 or granted any options to purchase,
rights of first refusal, rights of first offer or any other similar rights or
commitments with respect to any of the actions specified in this Section 2.8,
except as expressly contemplated by this Agreement.
For purposes of this Agreement, the term "Inventories" shall mean all
inventory, merchandise, finished goods, raw materials, packaging and supplies of
the Company.
For purposes of this Agreement, the term "Material Contracts" shall
mean the following contracts and agreements (including, without limitation, oral
and informal arrangements) of the Company:
(i) each contract, agreement, invoice, purchase order and
other arrangement, for the purchase of Inventory, spare parts, other materials
or personal property with any supplier or for the furnishing of services to the
Company or otherwise related to the business of the Company under the term of
which the Company (A) is likely to pay or otherwise give consideration of more
than $100,000 in the aggregate during the calendar year ended December 31, 1999,
(B) is likely to pay or otherwise give consideration of more than $200,000 in
the aggregate over the remaining term of such contract, or (C) cannot be
cancelled by the Company without penalty or further payment and without more
than 90 days' notice;
(ii) each contract, agreement, invoice, sales order and other
arrangement, for the sale of Inventory or other personal property or for the
furnishing of services by the Company which: (A) is likely to involve
consideration of more than $100,000 in the aggregate during the calendar year
ended December 31, 1999, (B) is likely to involve consideration of more than
$200,000 in the aggregate over the remaining term of the contract, or (C) cannot
be cancelled by the Company without penalty or further payment and without more
than 90 days' notice;
(iii) all broker, distributor, label group, dealer,
manufacturer's representative, franchise, agency, sales promotion, market
research, marketing consulting and advertising contracts and agreements to which
the Company is a party involving the payment of more than $200,000 during the
calendar year ended December 31, 1999 and which are not cancelable without
penalty or further payment and without more than 90 days' notice;
(iv) all management contracts, and contracts with independent
contractors or consultants (or similar arrangements) to which the Company is a
party involving payments in excess of $50,000 per annum and which are not
cancelable without penalty or further payment and without more than 30 days'
notice;
(v) all contracts and agreements relating to indebtedness of
the Company;
-12-
(vi) all agreements relating to Intellectual Property,
including all licenses and sublicenses thereof, but excluding shrink wrap and
other commodity type licenses;
(vii) all contracts and agreements with any Governmental Entity
to which the Company is a party;
(viii) all contracts and agreements that limit or purport to
limit the ability of the Company to compete in any line of business or with any
Person or in any geographic area or during any period of time;
(ix) all contracts and agreements between or among the Company
and any Affiliate of the Company, including any shareholder agreements;
(x) all contracts and agreements for providing benefits to
Company employees, consultants or directors under any Parent employee benefit or
option plans;
(xi) all contracts and agreements of indemnification or any
guaranty other than an agreement of indemnification entered into in connection
with the sale or license of software products in the ordinary course of
business;
(xii) all dealer, distributor, joint marketing or development
contracts and agreements currently in force under which Company have continuing
material obligations to jointly market any product, technology or service and
which may not be canceled without penalty upon notice of ninety (90) days or
less, and all contracts and agreements pursuant to which Company have continuing
material obligations to jointly develop any intellectual property that will not
be owned, in whole or in part, by Company and which may not be canceled without
penalty upon notice of ninety (90) days or less;
(xiii) all contracts, agreement and commitments currently in
force to license any third party to manufacture or reproduce any Company
product, service or technology or any contract, agreement and commitment
currently in force to sell or distribute any Company products, service or
technology except agreements with distributors or sales representative in the
normal course of business cancelable without penalty upon notice of ninety (90)
days or less and substantially in the form previously provided to Purchaser; and
(xiv) all other contracts and agreements, whether or not made
in the ordinary course of the business, which are material to the Company, taken
as a whole, or the conduct of the business, or the absence of which would have a
Material Adverse Effect.
For purposes of this Agreement, the term "Regulations" means the
Treasury Regulations (including Temporary Regulations) promulgated by the United
States Department of Treasury with respect to the Code or other federal tax
statutes.
2.9 Absence of Litigation. Except as set forth in Section 2.9 of the
---------------------
Company Schedule, there are no claims, actions, suits or proceedings pending or,
to the knowledge of Company, threatened (or, to the knowledge of Company, any
governmental or regulatory investigation pending
-13-
or threatened) against Company or any properties or rights of Company, before
any court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign.
2.10 Customers; Suppliers.
--------------------
(a) Listed in Section 2.10(a) of the Company Schedule are the names
and addresses of all the customers of the Company which ordered goods or
merchandise from the Company with an aggregate value of $200,000 or more during
the twelve-month period ended September 30, 1999, and the amount for which each
such customer was invoiced during such period. Except as disclosed in Section
2.10 of the Company Schedule, none of Parent, the Company has not received any
notice written or oral that any significant customer of the Company has ceased,
or will cease, to use the products, equipment, goods or services of the Company,
or has substantially reduced, or will substantially reduce, the use of such
products, equipment, goods or services at any time.
(b) Listed in Section 2.10(b) of the Company Schedule are the names
and addresses of all the suppliers from which the Company ordered raw materials,
supplies, merchandise and other goods for the Company with an aggregate purchase
price of $200,000 or more during the twelve-month period ended September 30,
1999 and the amount for which each such supplier invoiced the Company during
such period. Except as disclosed in Section 2.10 of the Company Schedule, none
of Parent nor the Company has received any notice written or oral that any such
supplier will not sell raw materials, supplies, merchandise and other goods to
the Company at any time after the Closing Date on terms and conditions
substantially similar to those used in its current sales to the Company, subject
only to general and customary price increases.
2.11 Product and Service Warranties
------------------------------
Set forth on Section 2.11 of the Company Schedule are the standard written
forms of product and service warranties and guarantees utilized by the Company
as of the date of this Agreement. Except as set forth on Section 2.11 of the
Company Schedule, during a period of one (1) year prior to the Closing Date,
neither the Company or any of their Affiliates have made any other written
material warranties (which remain in effect) with regard to products and/or
services supplied by the Company.
2.12 Employee Benefit Plans. Except as set forth in Section 2.12 of the
----------------------
Company Schedule:
(a) For purposes of this Section 2.12, the following terms shall
have the meanings set forth below:
(i) "Affiliate" shall mean any person or entity under common control
---------
with the Company within the meaning of Code Section 414(b), (c), (m) or (o).
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
-----
Reconciliation Act of 1985, as amended.
-14-
(iii) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(iv) "Employee" shall mean any former or active employee,
--------
consultant, or director of the Company.
(v) "Employee Plan" shall mean each 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 or unwritten or otherwise, funded or unfunded,
including without limitation, each "employee benefit plan," within the meaning
of ERISA Section 3(3) which is or has been maintained, contributed to, or
required to be contributed to, by the Parent or any Affiliate for the benefit of
any Employee or for which the Company has or may have any liability or
obligation.
(vi) "ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as amended.
(b) (i) Each Employee Plan has been maintained in all material
respects in compliance with its terms and with all applicable requirements of
law (including the Code and ERISA). Parent and the Company have performed in
all material respects all obligations required to be performed by each of them
under, is not in default or violation of, and has no knowledge of any default or
violation by any other party to each Employee Plan; (ii) No suit, action or
other litigation (excluding claims for benefits incurred in the ordinary course)
has been brought, or to the knowledge of Parent or Company is threatened against
or with respect to any Employee Plan; (iii) There are no audits, inquiries or
proceedings pending or, to the knowledge of Parent or the Company, threatened by
the Internal Revenue Service ("IRS") or the Department of Labor with respect to
any Employee Plan; (iv) Each Employee Plan intended to qualify under Code
Section 401(a) and each trust intended to qualify under Code Section 501(a) has
either received a favorable determination, opinion, notification or advisory
letter from the IRS with respect to each such Employee Plan as to its qualified
status under the Code, including all amendments to the Code effected by the Tax
Reform Act of 1986 and subsequent legislation, or has remaining a period of time
under applicable Treasury regulations or IRS pronouncements in which to apply
for such a letter and make any amendments necessary to obtain a favorable
determination as to the qualified status of each such Employee Plan; (v) Neither
Parent nor Company has any plan or commitment, whether legally binding or not,
to establish any new Employee Plan solely for Employees of the Company prior to
Closing Date; and (vi) each Employee Plan can be amended, terminated or
otherwise discontinued by Parent after the Closing Date in accordance with its
terms, without liability to Company or Purchaser or any Affiliate of Company or
Purchaser.
(c) (i) No "prohibited transaction," within the meaning of Code Section
4975 or ERISA Sections 406 and 407, and not otherwise exempt under Code Section
4975 or ERISA Section 408 (or any administrative class exemption issued
thereunder), has occurred with respect to any Company Employee Plan; (ii)
Neither Company nor any Affiliate has at any time maintained, established,
sponsored, participated in, or contributed to any Employee Plan subject to Title
IV of ERISA or Code Section 412; (iii) Neither Company nor any Affiliate has
been required to contribute
-15-
or contributed to any "multiemployer plan," as defined in ERISA Section 3(37);
and (iv) Neither Company nor any Affiliate has ever maintained, established,
sponsored, participated in, or contributed to any "multiple employer plan," as
defined in Code Section 413(c).
(d) (i) Neither Company nor any Affiliate has in any material respect
violated any of the health care continuation requirements of COBRA with respect
to any Employee, the requirements of the Family Medical Leave Act of 1993, as
amended, the requirements of the Health Insurance Portability and Accountability
Act of 1996, as amended, the requirements of the Women's Health and Cancer
Rights Act, as amended, the requirements of the Newborns' and Mothers' Health
Protection Act of 1996, as amended, or any similar provision of state law
applicable to the Employees; (ii) None of the Employee Plans provides, reflects
or represents any liability to provide retiree health to any person for any
reason, except as may be required by COBRA or other applicable statute, and
Parent and the Company have never represented, promised, or contracted (whether
in oral or written form) to any Employee (either individually or to Employees as
a group) that such Employee(s) would be provided with retiree health, except to
the extent required by statute.
(e) Except as disclosed on Schedule 2.12(e) of the Company Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any stockholder, director or employee of Company under any Plan
or otherwise, (ii) materially increase any benefits otherwise payable under any
Plan, or (iii) result in the acceleration of the time of payment or vesting of
any such benefits.
(f) Each International Employee Plan (as defined below) has been
established, maintained and administered in all material respects in compliance
with its terms and conditions and with the requirements prescribed by any and
all statutory or regulatory laws that are applicable to such International
Employee Plan. Furthermore, no International Employee Plan has unfunded
liabilities that, as of the Effective Time, will not be offset by insurance or
fully accrued. Except as required by law, no condition exists that would prevent
the Company or Purchaser from terminating or amending any International Employee
Plan at any time for any reason. For purposes of this Section "International
Employee Plan" shall mean each Plan that has been adopted or maintained by the
Company, whether informally or formally, for the benefit of current or former
employees of the Company outside the United States.
2.13 Labor Matters. (i) There are no material work-related controversies
-------------
pending or, to the knowledge of Company, threatened, between Company and any of
its respective employees; (ii) as of the date of this Agreement, Company is not
a party to any collective bargaining agreement or other labor union contract
applicable to persons employed by Company nor does Company know of any
activities or proceedings of any labor union to organize any such employees; and
(iii) as of the date of this Agreement, Company has no knowledge of any strikes,
slowdowns, work stoppages or lockouts, or threats thereof, by or with respect to
any employees of Company. The Company and its subsidiaries are in compliance in
all material respects with all applicable material foreign, federal, state and
local laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours.
-16-
2.14 Key Employees.
-------------
(a) Section 2.14 of the Company Schedule lists the name, place of
employment, the current annual salary rates, bonuses, deferred or contingent
compensation, pension, accrued vacation, "golden parachute" and other like
benefits paid or payable (in cash or otherwise) in 1998 and 1999 the date of
employment and job title of each current salaried employee, officer, director,
consultant or agent of the Company whose annual compensation (excluding sales
commissions, the value of stock options and deferred compensation) exceeded (or,
in 1999, is expected to exceed) $100,000.
(b) All officers, management employees, and technical and professional
employees of the Company are under written obligation to the Company to maintain
in confidence all information that is confidential or proprietary acquired by
them in the course of their employment and to assign to the Company all
inventions made by them within the scope of their employment during such
employment.
2.15 Material Contracts.
------------------
(a) Except as disclosed in Section 2.15 of the Company Schedule, each
Material Contract: (i) is legal, valid and binding on the respective parties
thereto and is in full force and effect, and (ii) upon consummation of the
transactions contemplated by this Agreement, except to the extent that any
consents set forth in Section 2.15(a) of the Company Schedule are not obtained,
shall continue in full force and effect without penalty or other adverse
consequence except in a situation where the failure to be in full force and
effect could not reasonably be expected to have a Material Adverse Effect. The
Company is not in breach of, or default under, any Material Contract, except in
any such case for breaches or defaults that could not reasonably be expected to
have a Material Adverse Effect.
(b) Except as disclosed in Section 2.15(b) of the Company Schedule, to
the best knowledge of the Company and Parent, no other party to any Material
Contract is in material breach thereof or default thereunder.
2.16 Guaranties, Intercompany Contracts. Except as set forth in Section
----------------------------------
2.16 of the Company Schedule, the Company is not a party to any guaranty, and no
Person is a party to any guaranty for the benefit of the Company. Set forth in
Section 2.16 of the Company Schedule is a complete and accurate list of all
contracts and agreements between Company and Parent.
2.17 Restrictions on Business Activities. Except as set forth in Section
-----------------------------------
2.17 of the Company Schedule, to the knowledge of the Company, there is no
agreement, commitment, judgment, injunction, order or decree binding upon
Company or to which the Company is a party which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of Company, any acquisition of property by Company or the conduct of
business by Company as currently conducted, except for any prohibition or
impairment that could not reasonably be expected to have a Material Adverse
Effect.
-17-
2.18 Title to Property. Company owns no real property.
-----------------
2.19 Environmental Matters. Except as disclosed in Section 2.19 of the
---------------------
Company Schedule, (i) the Company is in material compliance with all applicable
laws relating to the protection of the environment ("Environmental Laws"); all
past noncompliance, if any, of the Company with respect to Environmental Laws,
known to the Company has been resolved without any pending, ongoing or future
obligation, cost or liability; and (iii) the Company has not released any
hazardous materials to or from any real property currently, or within the two
year period preceding the date hereof, owned, leased or occupied by the Company,
except in compliance with all Environmental Laws.
2.20 Intellectual Property. For the purposes of this Agreement, the
---------------------
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and all
worldwide common law and statutory rights in, arising out of, or associated
therewith: (i) patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof ("Patents"); (ii) inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing; (iii)
copyrights, copyrights registrations and applications therefor, and all
other rights corresponding thereto throughout the world; (iv) domain names,
uniform resource locators ("URLs") and other names and locators associated
with the Internet ("Domain Names"); (v) industrial designs and any
registrations and applications therefor; (vi) trade names, logos, common
law trademarks and service marks, trademark and service xxxx registrations
and applications therefor; (vii) all databases and data collections and all
rights therein; (viii) all moral and economic rights of authors and
inventors, however denominated, and (ix) any similar or equivalent rights
to any of the foregoing (as applicable).
"Company Intellectual Property" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, Company.
"Registered Intellectual Property" means all Intellectual Property that is
the subject of an application, certificate, filing, registration or other
document issued, filed with, or recorded by any private, state, government
or other legal authority.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company.
(a) Section 2.20(a) of the Company Schedule is a complete and accurate
list of all Company Registered Intellectual Property and specifies, where
applicable, the jurisdictions in which each such item of Company Registered
Intellectual Property has been issued or registered and lists any proceedings or
actions before any court or 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.
-18-
(b) Section 2.20(b) of the Company Schedule is a complete and accurate
list (by name and version number or other identifying code) of all products or
service offerings of the Company ("Company Products") that have been distributed
or provided in the one year period preceding the date hereof or which the
Company currently intends to distribute or provide in the future, including any
products or service offerings under development.
(c) No Company Intellectual Property or Company Product is subject to any
proceeding or outstanding decree, order, judgment, contract, license, agreement,
or stipulation restricting in any manner the use, transfer, or licensing thereof
by Company, or which may affect the validity, use or enforceability of such
Company Intellectual Property or Company Product.
(d) Each material item of Company Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual Property
have been made and all necessary documents, recordations 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 Company Registered Intellectual Property.
(e) Section 2.20(e) of the Company Schedule is a complete and accurate
list of all material actions that are required to be taken by the Company within
ninety (90) days of the date hereof with respect to any of the foregoing
Registered Intellectual Property.
(f) Company owns and has good and exclusive title to, each material item
of Company Intellectual Property owned by it free and clear of any lien or
encumbrance (excluding non-exclusive licenses and related restrictions granted
in the ordinary course). Without limiting the foregoing: (i) Company is the
exclusive owner or licensee of all trademarks and trade names used in connection
with the operation or conduct of the business of Company, including the sale,
distribution or provision of any Company Products by Company; except for the
trademarks listed on Section 2.20(f) of the Company Disclosure Schedule; (ii)
Company owns exclusively, and has good title to, all copyrighted works that are
Company Products or which Company otherwise purports to own; and (iii) the
Company is the exclusive owner of all Patents that it purports to own.
(g) To the extent that any material technology, software or Intellectual
Property has been developed or created independently or jointly by a third party
for Company and is incorporated into any of the Company Products, Company has a
written agreement with such third party with respect thereto and Company thereby
either (i) has obtained ownership of, and is the exclusive owner of, or (ii) has
obtained a perpetual, non-terminable license (sufficient for the conduct of its
business as currently conducted and as proposed to be conducted) to all such
third party's Intellectual Property in such work, material or invention by
operation of law or by valid assignment, to the fullest extent it is legally
possible to do so.
(h) Company has not transferred ownership of, or granted any exclusive
license with respect to, any Intellectual Property that is or was in the last
year material Company Intellectual Property, to any third party, or knowingly
permitted Company's rights in such material Company Intellectual Property to
lapse or enter the public domain.
-19-
(i) Section 2.20(i) of the Company Schedule lists all material contracts,
licenses and agreements to which Company is a party: (i) with respect to Company
Intellectual Property licensed or transferred to any third party (other than
end-user licenses in the ordinary course); or (ii) pursuant to which a third
party has licensed or transferred any material Intellectual Property to Company.
(j) All material contracts, licenses and agreements relating to either
(i) Company Intellectual Property or (ii) between the Company and a third party
relating to Intellectual Property of a third party licensed to Company, are in
full force and effect. Except as set forth on Schedule 2.5, the consummation of
the transactions contemplated by this Agreement will neither violate nor result
in the breach, modification, cancellation, termination or suspension of such
contracts, licenses and agreements. Company is in material compliance with, and
has not materially breached any term of any such contracts, licenses and
agreements and, to the knowledge of Company, all other parties to such
contracts, licenses and agreements are in compliance with, and have not
materially breached any term of, such contracts, licenses and agreements.
Except as set forth on Schedule 2.5, Parent is not aware of any fact that would
prevent the Surviving Corporation following the Closing Date from exercising all
of Company's rights under such contracts, licenses and agreements to the same
extent Company would have been able to had the transactions contemplated by this
Agreement not occurred and without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which Company would
otherwise be required to pay. Neither this Agreement nor the transactions
contemplated by this Agreement, including the assignment to Purchaser or Merger
Sub by operation of law or otherwise of any contracts or agreements to which the
Company is a party, will result in (i) either Purchaser's or the Merger Sub's
granting to any third party any right to or with respect to any material
Intellectual Property right owned by, or licensed to, either of them, (ii)
either the Purchaser's or the Merger Sub's being bound by, or subject to, any
non-compete or other material restriction on the operation or scope of their
respective businesses, or (iii) either the Purchaser's or the Merger Sub's being
obligated to pay any royalties or other material amounts to any third party in
excess of those payable by Purchaser or Merger Sub, respectively, prior to the
Closing.
(k) The operation of the business of the Company as such business
currently is conducted, including (i) Company's design, development,
manufacture, distribution, reproduction, marketing or sale of the products or
services of Company (including Company Products ) and (ii) the Company's use of
any product, device or process in connection with the foregoing, has not, does
not and, to its knowledge, will not infringe or misappropriate the Intellectual
Property of any third party or constitute unfair competition or trade practices
under the laws of any jurisdiction.
(l) Company has not received notice from any third party that the
operation of the business of Company or any product or service of Company,
infringes or misappropriates the Intellectual Property of any third party or
constitutes unfair competition or trade practices under the laws of any
jurisdiction.
(m) To the knowledge of Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
-20-
(n) Company has taken reasonable steps to protect Company's rights in
Company's confidential information and trade secrets that it wishes to protect
or any trade secrets or confidential information of third parties provided to
Company, and, without limiting the foregoing, Company has and uses its best
efforts to enforce a policy requiring each employee and contractor to execute a
proprietary information/confidentiality agreement substantially in the form
provided to Purchaser and all current and former employees and contractors of
Company have executed such an agreement, except where the failure to do so is
not reasonably expected to be material to Company.
(o) All of the Company Products (i) will record, store, process,
calculate and present calendar dates falling on and after (and if applicable,
spans of time including) January 1, 2000, and will calculate any information
dependent on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the products record, store,
process, calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates (collectively,
"Year 2000 Compliant") and (ii) will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000.
All of Company's Information Technology (as defined below) is Year 2000
Compliant, and will not cause an interruption in the ongoing operations of the
Company's business on or after January 1, 2000. For purposes of the foregoing,
the term "Information Technology" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems and/or components that are owned or used by the Company in the
conduct of their business. The Company has taken reasonable steps to confirm
that any third parties providing services that are material to the operation of
the Company's business are Year 2000 compliant and delivered to Purchaser the
documentation it has received from such third parties.
2.21 Board Approval. The Board of Directors of Company has, as of the
--------------
date of this Agreement unanimously (i) approved this Agreement and the
transactions contemplated hereby and (ii) determined that the Merger is in the
best interests of the stockholders of Company and is on terms that are fair to
such stockholders.
2.22 Assets. Except as set forth in the Company Schedule, at the Closing,
------
the Company shall have right, title or interest in and to such assets (tangible
and intangible), taking into account the Transition Services Agreement,
necessary to manufacture, develop and sell the Company Products as currently
manufactured, developed and sold by the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
As of the date hereof and as of the Closing Date, the Parent represents and
warrants to Purchaser and Merger Sub, subject to such exceptions as are
disclosed in writing in the disclosure letter supplied by Parent to Purchaser
dated as of the date hereof and certified by a duly authorized officer of Parent
(the "Parent Schedule"), as follows:
-21-
3.1 Organization and Qualification. Parent is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws Delaware, the
jurisdiction of its incorporation, and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Parent is qualified or licensed to do
business as a foreign corporation, and is in good standing, in each jurisdiction
where the nature of their business makes such qualification or licensing
necessary and where the failure to so qualify would have a Material Adverse
Effect.
3.2 Authority Relative to this Agreement. Parent has all necessary
------------------------------------
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent and
the consummation by Parent of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Parent and no other corporate proceedings on the part of Parent are necessary to
authorize this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Parent and,
assuming the due authorization, execution and delivery by Purchaser and Merger
Sub, constitutes legal and binding obligations of Parent, enforceable against
Parent in accordance with their respective terms, except (i) as may be limited
by (x) applicable bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (y) the effect of rules of law governing the availability
of equitable remedies and (ii) as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of public policy
thereunder. Parent has executed an irrevocable written consent voting all of its
shares of Company Common Stock in favor of the Merger.
3.3 No Conflict; Required Filings and Consents.
------------------------------------------
(a) The execution and delivery of this Agreement by Parent do not, and
the performance of this Agreement by Parent shall not, (i) conflict with or
violate the Parent organizational documents, (ii) subject to compliance with the
requirements set forth in Section 3.3(b) below, to the knowledge of Parent,
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to Parent or by which its or any of their respective properties is
bound or affected, or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or materially impair Parent's rights or alter the rights or obligations
of any third party under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the properties or assets of Parent pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent is a party
or by which Parent or its properties are bound or affected, except in any case
for such conflicts, violations, breaches, defaults or other occurrences that
could not reasonably be expected to have a Material Adverse Effect on the
Company.
(b) The execution and delivery of this Agreement by Parent do not, and
the performance of this Agreement by Parent shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except for applicable requirements, if any, of the
Securities Act, the Exchange Act, the Blue Sky Laws, the XXX Xxxxxxxx
-00-
xx xxx XXX Xxx and of foreign Governmental Entities and the rules and
regulations thereunder, the rules and regulations of Nasdaq, and the filing and
recordation of the Merger Documents as required by California Law and except
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications would not otherwise have a Material
Adverse Effect on the Company.
3.4 Brokers. No broker, finder or investment banker (other than XX Xxxxx
-------
Securities Corp.) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger based upon arrangements made by or on
behalf of the Parent.
3.5 Intellectual Property.
---------------------
Except as is set forth in Section 3.5 of the Company Schedule:
(a) Parent has not disclosed any portion of the Company's
Intellectual Property to any third party [except pursuant to a valid and
enforceable confidentiality agreement] and has no violated any confidentiality
or use restrictions regarding the Company's Intellectual Property.
(b) Parent is not aware of any third party rights that are or may be
infringed by products currently or previously manufactured, used, or sold by the
Company.
(c) Parent has not filed any patent application or obtained any
issued patent covering any technology invented, created or developed solely by
the Company, or invented, created or developed jointly by Parent and the
Company.
(d) No patent or patent application filed by, issued to or assigned
to Parent identifies any current or former employee of the Company as an
inventor.
(e) Parent is not aware of any Parent patent or patent application
which covers technology used in products manufactured by the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
As of the date hereof and as of the Closing Date, Purchaser and Merger Sub
jointly and severally represent and warrant to Company and Parent, subject to
such exceptions as are specifically disclosed in writing in the disclosure
letter and referencing a specific representation supplied by Purchaser to
Company and Parent dated as of the date hereof and certified by a duly
authorized officer of Purchaser (the "Purchaser Schedule"), as follows:
4.1 Organization and Qualification; Subsidiaries. Each of Purchaser and
--------------------------------------------
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect
-23-
on Purchaser. Each of Purchaser and its subsidiaries is in possession of all
Approvals necessary to own, lease and operate the properties it purports to own,
operate or lease and to carry on its business as it is now being conducted,
except where the failure to have such Approvals would not, individually or in
the aggregate, have a Material Adverse Effect on Purchaser. Each of Purchaser
and its subsidiaries is duly qualified or licensed as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect on
Purchaser.
4.2 Certificate of Incorporation and Bylaws. Purchaser has previously
---------------------------------------
furnished to Company and Parent complete and correct copies of its Certificate
of Incorporation and Bylaws, as amended to date (together the "Charter
Documents"). Such Purchaser Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Purchaser is
not in violation of any of the provisions of the Purchaser Charter Documents,
and no subsidiary of Purchaser is in violation of any of its equivalent
organizational documents.
4.3 Capitalization. The authorized capital stock of Purchaser consists
--------------
of (i) 200,000,000 shares of Purchaser Common Stock, par value $0.001 per share,
and 10,000,000 shares of Preferred Stock, par value $0.001 per share. At the
close of business on November 19, 1999, (i) 37,498,724 shares of Purchaser
Common Stock were issued and outstanding, (ii) no shares of Purchaser Common
Stock were held in treasury by Purchaser or by subsidiaries of Purchaser, and
(iii) as of October 30, 1999, 200,000 shares of Purchaser Common Stock were
reserved for issuance pursuant to Purchaser's 1999 employee stock purchase plan,
and an aggregate of 10,279,329 shares were either issued or reserved for
issuance, under the Purchaser's 1999 stock plan, 1998 director's plan, and the
Purchaser's option plan, together, as well as warrants to purchase 34,246 shares
of Purchaser's Common Stock. No shares of Preferred Stock are outstanding. The
authorized capital stock of Merger Sub consists of 1,000 shares of common stock,
no par value, all of which, as of the date hereof, are issued and outstanding.
All of the outstanding shares of Purchaser's and Merger Sub's respective capital
stock have been duly authorized and validly issued and are fully paid and
nonassessable. All shares of Purchaser Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall, and the shares of
Purchaser Common Stock and Preferred Stock to be issued pursuant to the Merger
will be, duly authorized, validly issued, fully paid and nonassessable. All of
the outstanding shares of capital stock (other than directors' qualifying
shares) of each of Purchaser's subsidiaries is duly authorized, validly issued,
fully paid and nonassessable and all such shares (other than directors'
qualifying shares) are owned by Purchaser or another subsidiary free and clear
of all security interests, liens, claims, pledges, agreements, limitations in
Purchaser's voting rights, charges or other encumbrances of any nature
whatsoever. Except as set forth in Section 4.3 of the Purchaser Schedule or as
set forth in this Section, there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character to
which the Purchaser or any of its subsidiaries is a party or by which it is
bound obligating Purchaser or any of its subsidiaries to issue, deliver or sell,
or cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar
-24-
ownership interests of the Purchaser or any of its subsidiaries or obligating
the Purchaser of any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement. As of the date of this
Agreement, except as set forth in Section 4.3 of the Purchaser Schedule and
except as contemplated by this Agreement, there are no registration rights and
there is no voting trust, proxy, rights plan, antitakeover plan or other
agreement or understanding to which the Purchaser or any of its subsidiaries is
a party or by which they are bound with respect to any equity security of any
class of Purchaser or with respect to any equity security, partnership interest
or similar ownership interest of any class of any of its subsidiaries.
4.4 Authority Relative to this Agreement. Each of Purchaser and Merger
------------------------------------
Sub has all necessary corporate power and authority to execute and deliver this
Agreement and the Purchaser Voting Agreements attached hereto as Exhibit A, and
---------
to perform its obligations hereunder and thereunder and, to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Purchaser Voting Agreements by Purchaser and Merger Sub and
the consummation by Purchaser and Merger Sub of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of Purchaser and Merger Sub, and no other corporate
proceedings on the part of Purchaser or Merger Sub are necessary to authorize
this Agreement and the Purchaser Voting Agreements, or to consummate the
transactions so contemplated. This Agreement and the Purchaser Voting Agreements
have been duly and validly executed and delivered by Purchaser and Merger Sub
and, assuming the due authorization, execution and delivery by Company,
constitute legal and binding obligations of Purchaser and Merger Sub,
enforceable against Purchaser and Merger Sub in accordance with their respective
terms.
4.5 No Conflict; Required Filings and Consents.
------------------------------------------
(a) The execution and delivery of this Agreement by Purchaser and
Merger Sub do not, and the performance of this Agreement by Purchaser and Merger
Sub shall not, (i) conflict with or violate the Certificate of Incorporation,
Bylaws or equivalent organizational documents of Purchaser or any of its
subsidiaries, (ii) subject to compliance with the requirements set forth in
Section 4.5(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Purchaser or any of its subsidiaries or by
which it or their respective properties are bound or affected, or (iii) result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or impair Purchaser's or any such
subsidiary's rights or alter the rights or obligations of any third party under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Purchaser or any of its subsidiaries pursuant to,
any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Purchaser
or any of its subsidiaries is a party or by which Purchaser or any of its
subsidiaries or its or any of their respective properties are bound or affected,
except to the extent such conflict, violation, breach, default, impairment or
other effect could not in the case of clauses (ii) or (iii) individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
Purchaser.
-25-
(b) The execution and delivery of this Agreement by Purchaser and
Merger Sub do not, and the performance of this Agreement by Purchaser and Merger
Sub shall not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity except (i) for
applicable requirements, if any, of the Securities Act, the Exchange Act, Blue
Sky Laws, the pre-merger notification requirements of the HSR Act and of foreign
governmental entities and the rules and regulations thereunder, the rules and
regulations of Nasdaq, and the filing and recordation of the certificate of
merger as required by California Law and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, (x) would not prevent consummation of the Merger or otherwise
prevent Purchaser or Merger Sub from performing their respective obligations
under this Agreement or (y) could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Purchaser.
4.6 SEC Filings; Financial Statements.
---------------------------------
(a) Purchaser has made available to Company a correct and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Purchaser with the SEC on or after July 15, 1999 (the
"Purchaser SEC Reports"), which are all the forms, reports and documents
required to be filed by Purchaser with the SEC since July 15, 1999. The
Purchaser SEC Reports (A) were prepared in accordance with the requirements of
the Securities Act or the Exchange Act and the rules and regulations of the SEC
promulgated thereunder, as the case may be, and (B) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. None of Purchaser's subsidiaries is
required to file any reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including, in each
case, any related notes thereto) contained in the Purchaser SEC Reports was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain footnotes as permitted by Form 10-Q
of the Exchange Act) and each presented fairly in all material respects the
consolidated financial position of Purchaser and its subsidiaries at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal adjustments which were not or are not
expected to be material in amount.
(c) Since the date of the balance sheet included in Purchaser's report
on Form 10-Q filed on October 20, 1999, and until the date hereof, there has not
occurred any Material Adverse Effect on Purchaser.
4.7 Absence of Litigation. There are no claims, actions, suits or
---------------------
proceedings pending or, to the knowledge of each of Purchaser and Merger Sub,
threatened (or, to the knowledge of each of Purchaser and Merger Sub, any
governmental or regulatory investigation pending or threatened) against
Purchaser, Merger Sub or any other subsidiary of Purchaser or any properties or
rights of
-26-
Purchaser, Merger Sub or any other subsidiary of Purchaser, before any court,
arbitrator or administrative, governmental or regulatory authority or body,
domestic or foreign.
4.8 Title to Property. Purchaser, Merger Sub and all other subsidiaries
-----------------
of Purchaser have good and defensible title to all of their material properties
and assets, free and clear of all liens, charges and encumbrances except liens
for taxes not yet due and payable and such liens or other imperfections of
title, if any, as do not materially detract from the value of or materially
interfere with the present use of the property affected thereby; and all leases
pursuant to which Purchaser, Merger Sub or any other subsidiary of Purchaser
lease from others material real or personal property are in good standing, valid
and effective in accordance with their respective terms, and there is not, under
any of such leases, any existing material default or event of default of
Purchaser or any of its subsidiaries or, to Purchaser's knowledge, any other
party (or any event which with notice or lapse of time, or both, would
constitute a material default and in respect of which Purchaser or subsidiary
has not taken adequate steps to prevent such default from occurring).
4.9 Environmental Matters. Except as disclosed in Section 4.9 of the
---------------------
Purchaser Schedule, (i) the Purchaser, Merger Sub or any other subsidiary of
Purchaser are in material compliance with all applicable laws relating to
pollution and environment; all past noncompliance, if any, of the Purchaser,
Merger Sub or any other subsidiary of Purchaser with respect to such laws or
environmental related permits, known to the Purchaser has been resolved without
any pending, ongoing or future obligation, cost or liability; and (iii) neither
the Purchaser, Merger Sub nor any other subsidiary of Purchaser has released any
hazardous materials to or from, any real property currently or within the two
year period preceding the date hereof, owned, leased or occupied by the
Purchaser, Merger Sub or any other subsidiary of Purchaser, in violation of any
environmental related laws.
4.10 Board Approval. The Boards of Directors of each of Purchaser and
--------------
Merger Sub have, as of the date of this Agreement unanimously (i) approved this
Agreement and the transactions contemplated hereby and (ii) determined that the
Merger is in the best interests of the stockholders of each of Purchaser and
Merger Sub and is on terms that are fair to such stockholders.
4.11 No Undisclosed Liabilities. Neither Purchaser, Merger Sub or any
--------------------------
other subsidiary of Purchaser has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required to
be reflected on a balance sheet or in notes thereto prepared in accordance with
U.S. GAAP, except (i) liabilities provided for in Purchaser's balance sheet as
of September 30, 1999 or (ii) liabilities incurred since September 30, 1999 in
the ordinary course of business, none of which is material to the business,
results of operations or financial condition of Purchaser and its subsidiaries,
taken as a whole.
4.12 Compliance. Neither Purchaser, Merger Sub nor any other subsidiary of
----------
Purchaser is in conflict with, or in default or violation of, (i) any law, rule,
regulation, order, judgment or decree applicable to Purchaser, Merger Sub or any
other subsidiary of Purchaser or by which its or any of their respective
properties is bound or affected, or (ii) any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Purchaser, Merger Sub or any other subsidiary
of Purchaser is a party or by which Purchaser, Merger
-27-
Sub or any other subsidiary of Purchaser or its or any of their respective
properties is bound or affected, except for any conflicts, defaults or
violations that (individually or in the aggregate) would not cause the Purchaser
to lose any material benefit or incur any material liability. No investigation
or review by any governmental or regulatory body or authority is pending or, to
the knowledge of Purchaser, threatened against Purchaser, Merger Sub or any
other subsidiary of Purchaser, nor has any governmental or regulatory body or
authority indicated to the Purchaser an intention to conduct the same, other
than, in each such case, those the outcome of which could not, individually or
in the aggregate, reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Purchaser, Merger Sub or any
other subsidiary of Purchaser, any acquisition of material property by the
Purchaser, Merger Sub or any other subsidiary of Purchaser or the conduct of
business by the Purchaser, Merger Sub or any other subsidiary of Purchaser.
4.13 Brokers. No broker, finder or investment banker (other than Credit
-------
Suisse First Boston) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger based upon arrangements made by or on
behalf of the Purchaser.
4.14 Absence of Certain Changes or Events. Since October 20, 1999, (i)
------------------------------------
the business of the Purchaser and its subsidiaries has been conducted in the
ordinary course of business consistent with past practice and (ii) there has not
occurred any event, development or change which, individually or in the
aggregate, has resulted in or is reasonably likely to result in a Material
Adverse Effect on Purchaser.
4.15 Intellectual Property. For the purposes of this Agreement,
---------------------
"Purchaser Intellectual Property" shall mean any Intellectual Property that is
owned by, or exclusively licensed to, Purchaser and its subsidiaries. The
operation of the business of Purchaser and its subsidiaries as such business
currently is conducted, including (i) Purchaser's and its subsidiaries' design,
development, manufacture, distribution, reproduction, marketing or sale of
products or services of Purchaser and its subsidiaries, and (ii) Purchaser's use
of any product, device or process to its knowledge does not, infringe or
misappropriate the Intellectual Property of any third party or constitute unfair
competition or trade practices under the laws of any jurisdiction. Purchaser has
not received notice from any third party that the operation of the business of
Purchaser, any of its subsidiaries or any product or service of Purchaser,
infringes or misappropriates the Intellectual Property of any third party or
constitutes unfair competition or trade practices under the laws of any
jurisdiction.
4.16 Customers. Neither Purchaser nor any of its subsidiaries has
---------
received any notice oral or written that any significant customer of Purchaser
has ceased, or will cease, to use the products, equipment, goods or services of
the Purchaser or any subsidiary of Purchaser, or has substantially reduced, or
will substantially reduce, the use of such products, equipment, goods or
services at any time.
-28-
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business by Company and Parent. During the period from the
-----------------------------------------
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms or the Effective Time, Company and each of
its subsidiaries shall, except to the extent that Purchaser shall otherwise
consent in writing, carry on its business, in the usual, regular and ordinary
course, in substantially the same manner as heretofore conducted and in
compliance with all applicable laws and regulations, pay its debts and taxes
when due subject to good faith disputes over such debts or taxes, pay or perform
other material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (i) preserve intact its present
business organization, (ii) keep available the services of its present officers
and employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has significant
business dealings.
In addition, except as permitted by the terms of this Agreement, and the
transactions contemplated hereby, and except as provided in Section 5.1 of the
Company Schedule, without the prior written consent of Purchaser, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Effective Time,
Company shall not, and with respect to Section (a) below, the Parent shall not
permit the Company or any of the Company's subsidiaries to, do any of the
following:
(a) With respect to Parent, waive any stock repurchase rights,
accelerate, amend or change the period of exercisability of options or
restricted stock, or reprice options granted under any employee, consultant,
director or other stock plans or authorize cash payments in exchange for any
options granted under any of such plans to any employee, consultant or director
of the Company, except as provided for under this Agreement or the attached
exhibits;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on the
date hereof and as previously disclosed in writing or made available to
Purchaser, or adopt any new severance plan, or amend or modify or alter in any
manner any severance plan, agreement or arrangement existing on the date hereof;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property, or enter into
grants to transfer or license to any person future patent rights, other than in
the ordinary course of business consistent with past practices, provided that in
no event shall Company license on an exclusive basis or sell any Company
Intellectual Property;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
-29-
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to any shares of capital stock, or
enter into other agreements or commitments of any character obligating it to
issue any such shares;
(g) Cause, permit or propose any amendments to the Company Charter
Documents (or similar governing instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
enter into any joint ventures, strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Company, enter
into any "keep well" or other agreement to maintain any financial statement
condition or enter into any arrangement having the economic effect of any of the
foregoing other than in connection with the financing of ordinary course trade
payables consistent with past practice;
(k) Adopt or amend any material employee policy or arrangement, or
enter into any employment contract or collective bargaining agreement (other
than offer letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable "at
will"), pay any special bonus or special remuneration to any director or
employee, or, except in the ordinary course of business consistent with past
practice, increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) of its directors, officers, employees or
consultants;
(l) (i) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the date of this
Agreement) other than the payment, discharge, settlement or satisfaction, in the
ordinary course of business consistent with past practice or in accordance with
their terms, or liabilities recognized or disclosed in the most recent
consolidated financial statements (or the notes thereto) of Company as provided
to the Purchasers or incurred since the date of such financial statements, or
(ii) waive the benefits of, agree to modify in any manner, terminate, release
any person from or knowingly fail to enforce any confidentiality or similar
agreement to which Company or any of its subsidiaries is a party or of which
Company or any of its subsidiaries is a beneficiary;
(m) Make any individual or series of related payments outside of the
ordinary course of business in excess of $100,000;
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(n) Except in the ordinary course of business consistent with past
practice, modify, amend or terminate any Material Contract or agreement to which
Company or any subsidiary thereof is a party or waive, delay the exercise of,
release or assign any material rights or claims thereunder;
(o) Enter into, renew or materially modify any contracts, agreements,
or obligations relating to the distribution, sale, license or marketing by third
parties of Company's products or products licensed by Company other than
renewals of existing nonexclusive contracts, agreements or obligations;
(p) Except as required by GAAP, revalue any of its assets or make any
change in accounting methods, principles or practices;
(q) Incur or enter into any agreement, contract or commitment
requiring Company or any of its subsidiaries to pay in excess of $100,000,
excluding routine purchase orders consistent with past practices;
(r) Settle any material litigation;
(s) Agree in writing or otherwise to take any of the actions described
in Section 5.1(a) through (s) above.
5.2 Conduct of Business by Purchaser. During the period from the date of
--------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, except as permitted by
the terms of this Agreement and except as provided in Section 5.2 of the
Purchaser Schedule, without the prior written consent of Company, Purchaser
shall not engage in any action that could reasonably be expected to cause the
Merger to fail to qualify as a "reorganization" under Section 368(a) of the Code
or that could reasonably be expected to delay the Closing of the Merger.
In addition, except as permitted by the terms of this Agreement and the
transactions contemplated hereby, and except as provided in Section 5.2 of the
Purchaser Schedule, without the prior written consent of Parent, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Effective Time,
Purchaser shall not acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or a portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to enter into any joint ventures, strategic partnerships or alliances, if
such acquisition or agreement to acquire would materially delay or impede the
Closing of the Merger or other transactions contemplated hereby.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Information Statement; Filings; Board Recommendations. As promptly
-----------------------------------------------------
as practicable after the execution of this Agreement, Purchaser will prepare,
and file with the SEC, an information statement with respect to the Merger and
the conversion of the Preferred Stock (the "Information Statement"). Each of
Purchaser and Company shall provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the Information Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Information Statement.
Each of Company and Purchaser will respond to any comments of the SEC, and
Purchaser will cause the Information Statement to be mailed to its stockholders
at the earliest practicable time after approval by the SEC. As promptly as
practicable after the date of this Agreement, each of Company and Purchaser will
prepare and file any other filings required to be filed by it under the Exchange
Act, the Securities Act or any other federal, foreign or Blue Sky or related
laws relating to the Merger and the transactions contemplated by this Agreement
(the "Other Filings"). Each of Company and Purchaser will notify the other
promptly upon the receipt of any comments from the SEC or its staff or any other
government officials and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Information Statement
or any Other Filing or for additional information and will supply the other with
copies of all correspondence between such party or any of its representatives,
on the one hand, and the SEC or its staff or any other government officials, on
the other hand, with respect to the Information Statement, the Merger or any
Other Filing. Each of Company and Purchaser will cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under this
Section 6.1(a) to comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Information Statement or any Other Filing, Company or
Purchaser, as the case may be, will promptly inform the other of such occurrence
and cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to stockholders of Purchaser, such amendment or
supplement.
6.2 Meeting of Purchaser Stockholders. Promptly after the date hereof,
---------------------------------
Purchaser will take all action necessary in accordance with Delaware Law and the
Purchaser Charter Documents to convene a meeting to approve the Merger and the
conversion of the Preferred Stock into shares of Purchaser Common Stock in
accordance with the terms of the Preferred Stock, such meeting to be held as
soon as reasonably practicable after the Closing but in any event within 90 days
of the Closing. Purchaser will vote all proxies obtained under the Purchaser
Voting Agreements in favor of conversion of the Preferred Stock.
6.3 Confidentiality; Access to Information.
--------------------------------------
(a) The parties acknowledge that Company, Parent and Purchaser have
previously executed a Mutual Confidentiality Agreement, between the Parent and
the Purchaser (the
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"Confidentiality Agreement"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.
(b) Access to Information. Company and Parent will afford Purchaser
---------------------
and its accountants, counsel and other representatives, and Purchaser will
afford Company and Parent and their accountants, counsel and other
representatives, reasonable access during normal business hours, upon reasonable
notice, to the properties, books, records and personnel of Company and
Purchaser, respectively, during the period prior to the Effective Time to obtain
all information concerning the business of the Company and Purchaser,
respectively, including the status of product development efforts, properties,
results of operations and personnel of Company and Purchaser, as Purchaser and
Company may reasonably request. No information or knowledge obtained by
Purchaser or Company in any investigation pursuant to this Section 6.3 will
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
6.4 Public Disclosure. Purchaser, Merger Sub, Parent and Company will
-----------------
consult with each other, and to the extent practicable, agree, before issuing
any press release or otherwise making any public statement with respect to the
Merger, this Agreement and will not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law or any listing agreement with a national securities exchange. The parties
have agreed to the text of the joint press release announcing the signing of
this Agreement.
6.5 Reasonable Efforts; Notification.
--------------------------------
Upon the terms and subject to the conditions set forth in this Agreement,
each of the parties agrees to use all reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by this Agreement, including
using reasonable efforts to accomplish the following: (i) the taking of all
reasonable acts necessary to cause the conditions precedent set forth in Article
VII to be satisfied, (ii) the obtaining of all necessary actions or nonactions,
waivers, consents, approvals, orders and authorizations from Governmental
Entities and the making of all necessary registrations, declarations and filings
(including registrations, declarations and filings with Governmental Entities,
if any) and the taking of all reasonable steps as may be necessary to avoid any
suit, claim, action, investigation or proceeding by any Governmental Entity,
(iii) the obtaining of all consents, approvals or waivers from third parties
required as a result of the transactions contemplated in this Agreement, (iv)
the defending of any suits, claims, actions, investigations or proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby, including seeking to have
any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (v) the execution or delivery of any
additional instruments reasonably necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement.
(a) Parent and Company shall give prompt notice to Purchaser upon
becoming aware that any representation or warranty made by it contained in this
Agreement has become untrue
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or inaccurate, or of any failure of Company or Parent to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement, in each case, such that the conditions
set forth in Section 7.3(a) or 7.3(b) would not be satisfied; provided, however,
-------- -------
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
(b) Purchaser shall give prompt notice to Company upon becoming aware
that any representation or warranty made by it or Merger Sub contained in this
Agreement has become untrue or inaccurate, or of any failure of Purchaser or
Merger Sub to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, in each case, such that the conditions set forth in Section 7.2(a) or
7.2(b) would not be satisfied; provided, however, that no such notification
-------- -------
shall affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
6.6 Employee Benefits.
-----------------
(a) To the extent permitted by the Purchaser's 401k plan, Purchaser
shall cause a tax-qualified defined contribution plan maintained by Purchaser or
a subsidiary of Purchaser to accept rollovers (including direct rollovers) from
the 401(k) plan maintained for the benefit of employees of Company and its
subsidiaries (the "Transferor Plan") in respect of distributions made on account
of the transactions contemplated by this Agreement; provided however, Purchaser
is reasonably satisfied that such plan is qualified under Code Section 401(a)
and that the trust is exempt under Code Section 501(a). If rollovers meet the
aforementioned criteria, loan balances of participants who have borrowed from
the Transferor Plan may be rolled over without requiring that the participant
first repay the loan. Purchaser shall provide or cause to be provided that
under each employee benefit plan, policy, program or arrangement where service
is relevant to a determination of an employee's eligibility to participate,
vesting, or level or amount of benefits, employees of Company shall be credited
with their periods of service with Company and its affiliates prior to the
Closing; provided, that Parent provides Company with all applicable accurate
records to facilitate such credits. Purchaser shall make its commercially
reasonable best efforts available, or cause to be made available, to employees
of Company, medical, dental, disability and other welfare benefits plans and
programs without regard to any preexisting condition limitation, actively-at-
work requirement or similar limitation. In determining an employee's share of
the cost of coverage under any plan or program of Purchaser or its subsidiaries
for the year in which the Closing Date falls, the Purchaser shall cause the
employee to be credited with any pre-Closing co-pays and deductibles granted
under corresponding plans of Company for such year.
(b) Neither Purchaser nor the Company will maintain, sponsor,
participate in, or be obligated to contribute to any Employee Plan, effective
upon the Closing Date; and Parent shall satisfy any and all of the Company's
obligations and liabilities relating to, arising out of or resulting from its
participation in the Employee Plans. Effective not later than the Effective
Time, the Company shall cease to participate in those Employee Plans (the
"Parent-group Employee Plans") (i) in which it participated prior to the
Effective Time, and (ii) which were not sponsored or
-34-
maintained by the Company solely for the benefit of its Employees, former
Employees or beneficiaries. Prior to Closing, Parent shall furnish Purchaser
with a list and copies of relevant documents of all Employee Plans other than
Parent-group Employee Plans. Upon and following the Effective Time, the Company
shall have no liability for contributions, premiums, benefits, or other
payments, or any other obligation, under any Parent-group Employee Plan.
(c) (i) Parent and the Company agree that the Merger will result in,
and constitute, a distribution event for the Employees under the Code Section
401(k) plan maintained by Parent. (ii) Parent and the Company further agree that
on or prior to the Closing Date, all accounts of Company employees participating
in the Parent's 401(k) Plan shall be fully vested.
(d) Parent assumes any and all liability relating to, arising out of,
or resulting from COBRA (or similar state statute) attributable to Employees and
any and all related Qualified Beneficiaries (as such term is defined in COBRA)
with respect to qualifying events occurring at or prior to the Effective Time
(including, without limitation, by reason of the transactions contemplated by
this Agreement) under a Parent-group Employee Plan (as that term is defined at
(b) above); provided, that Company shall cooperate with Parent in facilitating
the delivery by Parent of required notices and other COBRA-related
communications to Employees and Qualified Beneficiaries.
(e) Parent shall make its commercially reasonable best efforts to
transfer to Purchaser all records attributable to each Employee's participation
in the flexible spending accounts (pursuant to Code Sections 105 and/or 129)
maintained by Parent or Company; and the aggregate cash amount of contributions
paid by or on behalf of Employees to, net of the aggregate amount of
reimbursements and payments to Employees from, such flexible spending accounts
for the year in which the Closing occurs.
(f) Purchaser and Parent agree that all employees of Parent who accept
employment by Purchaser and/or Company shall be transferred to the Company prior
to the Closing Date. In addition, Parent shall assume all liabilities relating
to, arising out of or resulting from the transfer of such individuals from
Parent to Company. For the one year period following the Effective Time,
Purchaser agrees not to solicit for employment the Parent employees listed on
Section 6.6 of the Company Schedule
6.7 Third Party Consents. As soon as practicable following the date
--------------------
hereof, Purchaser, Parent and Company will each use its commercially reasonable
efforts to obtain any consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions contemplated
hereby.
6.8 Nasdaq Listing. Purchaser agrees to cause the listing on Nasdaq the
--------------
shares of Purchaser Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger, subject to official notice of issuance.
6.9 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
--------------------------------------
practicable, Parent, Company and Purchaser each shall file with the United
States Federal Trade Commission (the "FTC") and the Antitrust Division of the
United States Department of Justice ("DOJ")
-35-
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 Purchaser each
shall promptly (a) supply the other with any information which 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 Purchaser shall not be
required to agree to any divestiture by Purchaser or the Company or any of
Purchaser's subsidiaries or affiliates of shares of capital stock or of any
business, assets or property of Purchaser 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.
6.10 Non-Competition.
---------------
(a) Parent agrees that for a period of 3 years after the Closing,
Parent and each entity that Parent directly (or indirectly through a controlled
Affiliate) controls, including any entity acquired subsequent to the date hereof
(Parent and each such entity a "Restricted Entity") shall not develop, have
developed, and shall not manufacture for its own behalf or on behalf of another
Restricted Entity, xDSL and ISDN customer premise or customer located equipment,
including but not limited to modems, bridges, routers, and voice/data integrated
access devices excluding the products specifically listed in Section 6.10(a) of
the Parent Disclosure Schedule (the "Restricted Products"),
(b) Parent agrees that for a period of 3 years after the Closing, no
Restricted Entity may distribute, market, sell or resell for its own behalf or
on behalf of another Restricted Entity any Restricted Products except as
provided for under the Reseller Agreement the form of which is attached hereto
as Exhibit B.
---------
(c) Parent agrees that for a period of 3 years after the Closing, no
Restricted Entity shall acquire (whether by acquisition of assets, merger or
otherwise) any entity for whom the sale of Restricted Products: (x) accounted
for greater than twenty percent (25%) of such entity's revenues during its last
year; (y) is projected to account for greater than twenty percent (25%) of such
entity's revenues during its next year; or (z) would have accounted for greater
than ten percent (10%) of Purchaser's revenues during the last year (a "Relevant
Acquisition").
A Restricted Entity may make a Relevant Acquisition if, and only if, (i) it
is making such Relevant Acquisition by itself and not as part of a group that
includes a person described in subclause (x), (y) or (z), (ii) its primary
purpose in making such Relevant Acquisition is not to exploit for profit such
Restricted Products (iii) within six months of the consummation of such Relevant
Acquisition Parent has disposed of (or ceased operating) the entity or portion
thereof whose business constituted the manufacture or sale of Restricted
Products and (iv) in connection with such disposition Parent shall grant
Purchaser the right or option to acquire such entity or portion in any sale or
disposition process that Parent may conduct. If Parent or another Restricted
Entity makes an acquisition of an entity for whom the sale of Restricted
Products is below the levels specified in
-36-
subclauses (x) (y) or (z) (a "Permitted Acquisition"), the entity so acquired
may continue to sell Restricted Products under its own brand name only and as
otherwise may be permitted in the Reseller Agreement; provided, however, that
for the purpose of determining whether an acquisition is a Relevant Acquisition
or a Permitted Acquisition all entities previously acquired under the Permitted
Acquisition exception shall be included in a person proposed to be acquired. All
restrictions specified in this Section 6.10 shall not apply to any person who
purchases more than 50% of the voting common stock of Parent or more than 50% of
Parent's assets (a "Change of Control") and shall not apply to Parent or any
Restricted Entity after such Change of Control if Parent discontinues using its
brand name in business or legally ceases to exit.
(d) Notwithstanding subsections (a), (b) and (c), the obligations and
restrictions on Parent in this Section 6.10 shall be extinguished concurrently
with the termination of the Reseller Agreement.
For the purposes of this Section 6.10, "control" means the ability (through
the ownership of securities or similar interests, by contract or otherwise and
whether or not exercised) to elect a majority of the board of directors or
similar governing body of a Person.
6.11 Intercompany Accounts; Cash Balance. At the Effective Time (i) all
-----------------------------------
intercompany payables or liabilities of the Company to Parent shall be cancelled
and extinguished and (ii) all intercompany payables or liabilities of Parent to
the Company (excluding Commercial Payables) shall be cancelled and extinguished
and all Commercial Payables shall be paid in cash by Parent. In addition, on or
immediately prior to the Effective Time Parent shall contribute $5,450,000 in
cash to the Company in respect of Parent's equity ownership of the Company. At
the Effective Time, all indemnification and similar obligations of Company in
favor of Parent and the Master Purchaser Agreement and Master Escrow Agreement
between Parent and the Company shall be cancelled and extinguished. A
"Commercial Payable" is an intercompany payable on the account of the sale of a
Company Product to Parent consistent with past practice.
6.12 License of Intellectual Property. Effective as of the Closing Date,
--------------------------------
subject to the Terms and conditions of this Agreement and subject to any
restrictions in the Cross-License Agreement entered into between Purchaser and
Parent attached hereto as Exhibit F:
---------
(a) Parent hereby grants to Purchaser, under all of the rights to
Parent Intellectual Property, an irrevocable, perpetual, non-terminable, fully-
paid, sublicensable, worldwide, royalty-free license: (i) to make, have made,
use, offer for sale, sell and import the products which were being made, used or
sold by Company immediately prior to the Closing and (ii) to otherwise exploit
the Company products and any improvements and derivatives thereof, for any and
all purposes whatsoever.
(b) To the extent that the operation of the Parent's operations as
conducted by Parent as of the Closing Date would infringe any transferred
Company Intellectual Property, Purchaser grants to Parent, under Purchaser's
rights in such transferred Company Intellectual Property a perpetual,
irrevocable, non-terminable, worldwide, royalty-free license to continue the
operations of the Parent as currently conducted.
-37-
6.13 Reseller Agreement. Purchaser and Parent agree that at the Closing
------------------
Purchaser and Parent shall enter an Reseller Agreement in substantially the form
attached hereto as Exhibit B.
6.14 Transition Services Agreement. Parent agrees at the Closing to enter
-----------------------------
into a Transition Services Agreement with Purchaser in substantially the form
attached hereto as Exhibit E.
---------
6.15 SDA Agreement. The Parent and the Purchaser agree at the Closing to
-------------
enter into the SDA Agreement attached hereto as Exhibit C.
---------
6.16 License Agreement. The Parent and Purchaser agree at the Closing to
-----------------
enter into the License Agreements attached hereto as Exhibits F.
----------
6.17 WARN. For a period of 90 days after the Closing, Parent and the
----
Surviving Corporation shall not conduct any layoffs or plant closings involving
the Surviving Corporation that could trigger obligations under the Worker
Adjustment and Retraining Notification Act of 1988 or any state plant closing or
notification law.
6.18 Options. At the Closing, Purchaser shall have reserved for issuance
-------
to the Company's employees not less than 950,000 options on shares of Purchaser
Common Stock under the terms of its Purchaser Stock Option Plan.
6.19 Retention. At the Effective Time, Parent shall accelerate the
---------
vesting of all options that were granted under the Company's Option Plan prior
to Parent's acquisition of the Company in September 1998 then held by employees
of the Company such that all such options then held by such Company employees
are 100% vested and free from blackout, trading window or similar restrictions.
In addition, immediately prior to the Effective Time, Parent shall have
established a cash payout pool in an amount equal to the closing price per share
of Purchaser Common Stock on November 24, 1999 multiplied by one hundred thirty
five thousand (135,000) shares (the "Retention Pool"). The Retention Pool shall
be allocated among Company employees as mutually agreed between Purchaser and
Parent or may be structured in another manner that is mutually satisfactory to
Parent and Purchaser.
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) No Order; HSR Act. 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. All
waiting periods, if any, under the HSR Act relating to the transactions
contemplated hereby will have
-38-
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 shall have been obtained.
(b) Tax Opinions. Purchaser and Parent shall each have received
------------
written opinions from their respective tax counsel (Xxxxxx Xxxxxxx Xxxxxxxx &
Xxxxxx, Professional Corporation, and Ropes & Xxxx, respectively), in form and
substance reasonably satisfactory to them, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code and
such opinions shall not have been withdrawn. The parties to this Agreement
agree to make such reasonable representations as requested by such counsel for
the purpose of rendering such opinions.
(c) SDA Agreement. The Parent and the Purchaser shall have entered
-------------
into the SDA Agreement in substantially the form attached hereto as Exhibit C.
---------
(d) License Agreements. Purchaser and Parent shall have entered into
------------------
the License Agreement in substantially the form attached hereto as Exhibit F.
---------
7.2 Additional Conditions to Obligations of Company and Parent. The
----------------------------------------------------------
obligation of Company and Parent to consummate and effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Company:
(a) Representations and Warranties. Each representation and warranty
------------------------------
of Purchaser and Merger Sub contained in this Agreement (i) shall have been true
and correct as of the date of this Agreement and (ii) shall be true and correct
on and as of the Closing Date with the same force and effect as if made on the
Closing Date except (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on Purchaser and Merger Sub, (B) for
changes contemplated by this Agreement and (C) for those representations and
warranties which address matters only as of a particular date (which
representations shall have been true and correct (subject to the qualifications
as set forth in the preceding clause A) as of such particular date) (it being
understood that, for purposes of determining the accuracy of such
representations and warranties, (i) all "Material Adverse Effect" qualifications
and other qualifications based on the word "material" or similar phrases
contained in such representations and warranties shall be disregarded and (ii)
any update of or modification to the Purchaser Schedule made or purported to
have been made after the date of this Agreement shall be disregarded). Company
shall have received a certificate with respect to the foregoing signed on behalf
of Purchaser by an authorized officer of Purchaser.
(b) Agreements and Covenants. Purchaser and Merger Sub shall have
------------------------
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Closing Date, and Company shall have received a certificate to such
effect signed on behalf of Purchaser by an authorized officer of Purchaser.
(c) Nasdaq Listing. The shares of Purchaser Common Stock issuable to
--------------
the stockholders of Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on Nasdaq upon official notice of issuance.
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(d) Material Adverse Effect. No Material Adverse Effect with respect
-----------------------
to Purchaser and its subsidiaries shall have occurred since the date of this
Agreement.
(e) Reseller Agreement. Purchaser shall have entered into the
------------------
Reseller Agreement in substantially the form attached hereto as Exhibit B.
---------
7.3 Additional Conditions to the Obligations of Purchaser and Merger Sub.
--------------------------------------------------------------------
The obligations of Purchaser and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
Purchaser:
(a) Representations and Warranties. Each representation and warranty
------------------------------
of Company and Parent contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and correct on
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date except (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on Company, (B) for changes contemplated by
this Agreement and (C) for those representations and warranties which address
matters only as of a particular date (which representations shall have been true
and correct (subject to the qualifications as set forth in the preceding clause
A) as of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other qualifications based on the
word "material" or similar phrases contained in such representations and
warranties shall be disregarded and (ii) any update of or modification to the
Company Schedule made or purported to have been made after the date of this
Agreement shall be disregarded). Purchaser shall have received a certificate
with respect to the foregoing signed on behalf of Company by an authorized
officer of Company.
(b) Agreements and Covenants. Company and Parent shall have performed
------------------------
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it at or prior to the
Closing Date, and Purchaser shall have received a certificate to such effect
signed on behalf of Company by the Chief Executive Officer and the Chief
Financial Officer of Company.
(c) Material Adverse Effect. No Material Adverse Effect with respect
-----------------------
to Company and its subsidiaries shall have occurred since the date of this
Agreement.
(d) Consents. Company shall have obtained all consents, waivers and
--------
approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses or
leases set forth on Schedule 7.3(d).
(e) Transition Services Agreement. Purchaser and Parent shall have
-----------------------------
entered into the Transition Services Agreement in substantially the form
attached hereto as Exhibit E.
---------
(f) Reseller Agreement. Purchaser and Parent shall have entered
------------------
into the Reseller Agreement in substantially the form attached hereto as
Exhibit B
---------
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ARTICLE VIII
TAX MATTERS
8.1 Definition of Taxes. For the purposes of this Agreement, "Tax" or
-------------------
"Taxes" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges constituting taxes, including taxes
based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
8.2 Tax Representations. Parent and Company represent and warrant to the
-------------------
Purchaser and Merger Sub as set forth below:
(a) The Company (or Parent on behalf of the Company) has (i) timely
filed within the time period for filing or any extension granted with respect
thereto all applicable federal, state, local, foreign and other returns,
declarations, reports, claims for refund, or information statements relating to
Taxes including any schedule attached thereto and any amendment thereto
("Returns") required to be filed relating to or pertaining to any and all Taxes
attributable to, levied or imposed upon, or incurred in connection with the
Company and (ii) paid all of the Taxes due and payable prior to the date hereof.
(b) With respect to the Company, (i) there are not pending or
threatened in writing any audits, examinations, assessments, asserted
deficiencies or written claims for Taxes and (ii) there are (and immediately
after the Closing there will be) no Encumbrances for Taxes upon any assets of
the Company other than for Taxes not yet due and payable.
(c) No Tax deficiencies, assessments or audit adjustments have been
proposed in writing, assessed or asserted against the Company).
(d) The Company is not delinquent in the payment of its Taxes.
(e) Except as set forth in Section 8.2(e) of Company Schedule Parent
has not requested any extension of time within which to file any Returns related
to the Company in respect of any taxable period which have not since been filed
and no request for waivers of the time to assess any Taxes are pending or
outstanding.
(f) The Company has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes (including, without limitation, withholding of Taxes pursuant to
Sections 1441 and 1442 of the Code or similar provisions under any foreign Laws)
and have, within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities all
employment, FICA, FUTA and other Taxes and similar amounts required to be so
withheld and paid over under all applicable laws.
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(g) Except as set forth in Section 8.2(g) of the Company Schedule, no
power of attorney for Taxes has been granted with respect to the Company.
(h) Parent is not a foreign corporation (as defined in the Code and
Income Tax Regulations) and Parent's U.S. employer identification number is
__________________.
(i) The accruals and reserves for Taxes reflected in the balance sheet
of the Company as of September 30, 1999 are in all material respects adequate to
cover all Taxes required to be accrued through the date thereof (including
interest and penalties, if any, thereon and Taxes being contested) in accordance
with U.S. GAAP applied on a consistent basis with the balance sheet included in
the Company Reports, and the accrual and reserves for Taxes reflected in the
books and records of the Company as of the last day of the Company's most
recently complete fiscal month end are in all material respects adequate to
cover all Taxes required to be accrued through such date (including interest and
penalties, if any, thereon and Taxes being contested) in accordance with GAAP
applied on a consistent basis with the balance sheet included in the Company
Reports.
8.3 Indemnity.
---------
(a) Parent shall indemnify, defend and hold harmless, the Purchaser
from and against and in respect of and shall be responsible for and shall timely
pay or cause to be paid (i) any and all Taxes whensoever arising with respect to
or relating to the Company that are attributable to any taxable period ending on
or prior to the Closing Date and, in the case of a taxable period that includes,
but does not end on the Closing Date, the portion of such taxable period that
ends on the Closing Date, (ii) any and all Taxes of Parent or any subsidiaries
or Affiliates thereof other than the Company, whensoever arising, regardless of
the period to which such Taxes relate, imposed on the Company arising out of
Treasury Regulation (S) 1.1502-6 or any comparable provision of foreign, state,
local or subnational law or Taxes of such entities for which the Company is
otherwise liable, (iii) any and all Taxes arising out of or constituting a
breach of any representation, warranty, or covenant of the Parent or the Company
contained in this Article VIII; provided that no indemnity shall be provided by
Parent for Taxes resulting from any transaction of the Company, not including
the Merger, occurring on the Closing Date after the Closing. (The foregoing
items (i) through (iii) shall collectively be referred to herein as "Parent's
Taxes"). Parent's Taxes shall include, with respect to any taxable period
commencing before the Closing Date and ending after the Closing Date (a
"Straddle Period"), all Taxes relating to the Company attributable to the
portion of the Straddle Period prior to and including the Closing Date (the
"Pre-Closing Period"). For purposes of such Straddle Periods, the portion of
any Tax that is attributable to the Pre-Closing Period shall be (i) in the case
of a Tax that is not based on net income, gross income, sales, premiums or gross
receipts, the total amount of such Tax for the period in question multiplied by
a fraction, the numerator of which is the number of days in the Pre-Closing
Period, and the denominator of which is the total number of days in such
Straddle Period, and (ii) in the case of a Tax that is based on any of net
income, gross income, sales, premiums or gross receipts, the Tax that would be
due with respect to the Pre-Closing Period if such Pre-Closing Period were a
separate taxable period, except that exemptions, allowances, deductions or
credits, exclusive of the amount by which they are increased or decreased as a
result of the transactions contemplated hereby, and which are calculated on an
annual basis (such as the deduction for depreciation or capital allowances)
shall be apportioned on a
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per diem basis. If there is an indemnification obligation under this Section and
there is a correlative adjustment which makes allowable to Purchaser, any of its
Affiliates or, following the Closing, the Company, and deduction, amortization,
exclusion from income or other allowance which produces an actual tax savings or
actual reduction in such Person's Tax liability after taking into account such
indemnity payments which would not, but for such adjustment, be allowable, then
this indemnification obligation shall be reduced by such amount.
(b) Purchaser shall indemnify, defend and hold harmless Parent and its
affiliates from and against and in respect of and shall be responsible for and
shall timely pay or cause to be paid (i) any and all Taxes with respect to the
Company, that are attributable to any taxable period commencing after the
Closing Date and, in the case of a Straddle Period, the portion of such taxable
period that begins on the day after the Closing Date and all other Taxes imposed
on the Company which are not Parent's Taxes ("Purchaser's Taxes") and (ii) any
losses incurred by Parent attributable to a breach of any representation,
warranty or covenant of Purchaser or Merger Sub contained in this Article VIII.
(c) If Purchaser or any Affiliate files any Return which includes
payment of Parent's Taxes, Parent shall reimburse Purchaser for such Parent's
Taxes within ten (10) days following written notice that payment of such amounts
to the appropriate tax authority is due, provided that payment shall not be
required earlier than two (2) days before it is due to the appropriate tax
authority. If Parent files any Return which includes payments of Purchaser's
Taxes, Purchaser shall reimburse Parent for such Purchaser's Taxes within ten
(10) days following written notice that payment of such amounts to the
appropriate tax authority is due, provided that payment shall not be required
earlier than two (2) days before it is due to the appropriate tax authority.
Parent shall timely provide to Purchaser all information and documents within
the possession of Parent (or their auditors, advisors or Affiliates) and
signatures and consents necessary for Purchaser to properly prepare and file the
Returns described in the second preceding sentence or in connection with the
determination of any Tax liability or any audit, examination or proceeding.
Purchaser shall timely provide to Parent all information and documents within
its possession or the possession of its auditors, advisors or affiliates and
signatures and consents necessary for Parent properly to prepare and file the
Returns described in the second preceding sentence or in connection with the
determination of any Tax liability or any audit, examination or proceeding.
Each party hereto shall reasonably cooperate with the other (at their own
expense) party to obtain other information or documents necessary or appropriate
to prepare and file Returns or elections or necessary or appropriate in
connection with the determination of any Tax liability or any audit, examination
or proceeding.
8.4 Tax Returns.
-----------
(a) Subject to each Parties' obligation to make payment pursuant to
Section 8.3(a) of this Agreement, Parent shall prepare and file (or cause to be
prepared and filed) on a timely basis all Returns with respect to the Company
("Company Tax Returns") for all taxable periods ending on or before the Closing
Date. Such Returns shall be prepared in a manner consistent with past practice.
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(b) Subject to each Parties' obligation to make payment pursuant to
Section 8.3(a) of this Agreement, Purchaser shall prepare and file (or cause to
be prepared and filed) on a timely basis all Company Tax Returns for periods
ending after the Closing Date. Parent shall have the right to review and
comment on all Returns filed by the Purchaser for taxable periods or portions
thereof prior to and including the Closing Date, which Returns shall be prepared
in a manner consistent with past practice. Purchaser shall provide Parent such
Returns at least ten (10) business days before each such Return is due to be
filed.
8.5 Refunds and Credits. All refunds or credits of Parent's Taxes (other
-------------------
than refunds or credits of Taxes shown on the Closing Balance Sheet) shall be
for the account of Parent. All refunds or credits of Purchaser's Taxes and Taxes
shown on the Closing Balance Sheet shall be for the account of Purchaser.
Following the Closing, Purchaser shall cause any such refunds or credits due
Parent pursuant to this section to be promptly forwarded to Parent after receipt
or realization thereof by Purchaser, and Parent shall promptly forward (or cause
to be forwarded) to Purchaser any refunds or credits due to Purchaser pursuant
to this section after receipt or realization thereof by Parent. Purchaser shall,
if Parent so requests, cause the Company to file for and use its commercially
reasonable efforts to obtain the receipt of any refund to which Parent is
entitled.
8.6 Termination of Tax Sharing Agreements. Parent hereby agrees and
-------------------------------------
covenants that there are and will be no obligations relating to the Company
pursuant to any Tax sharing agreement or any similar arrangement in effect at
any time before or on the Closing Date, and any further obligations that might
otherwise have existed thereunder shall be extinguished as of the Closing Date.
8.7 Tax-Free Reorganization. Parent, the Company and Purchaser will each
-----------------------
use its best efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368 of the Code, and neither party will take any
action that would cause the Merger to fail to qualify as a reorganization within
the meaning of Section 368(a) of the Code. Each of the parties shall report the
Merger for income tax purposes as a reorganization within the meaning of Section
368(a) of the Code (and any comparable state or local tax statute).
8.8 Conduct of Audits and Other Procedural Matters.
----------------------------------------------
(a) Parent shall, at its own expense, control any audit or examination
by any Taxing authority, and have the right to initiate any claim for refund or
amended return, and contest, resolve and defend against any assessment, notice
of deficiency or other adjustment or proposed adjustment of Taxes ("Tax
Proceedings") for any taxable period ending on or before the Closing Date.
Purchaser shall, at its own expense, control any audit or examination by any
Taxing authority, and have the right to initiate any claim for refund or amended
return, any contest, resolve and defend against any Tax Proceeding for any
taxable period beginning after the Closing Date.
(b) In the case of any Proceedings relating to any Straddle Period,
Purchaser and Parent shall jointly control such Tax Proceedings and shall
consult in good faith with each other as to the conduct of such Tax Proceedings.
Each party shall pay its own costs, including legal costs, of conducting such
Tax Proceedings; provided, however, that either party may instead elect to pay
-------- -------
or cause to be paid to the other the allocable amount of the applicable Taxes
that constitute its Taxes
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(which amount shall not be less than the portion allocable to it hereunder of
the Tax as asserted by the applicable Taxing authority) including any interest,
penalties, or additions thereto asserted in such proceeding. Each party shall,
at the expense of the requesting party, execute or cause to be executed any
powers of attorney or other documents reasonably requested by such requesting
party to enable it to take any and all actions such party reasonably requests
with respect to any Tax Proceedings which the requesting party controls.
(c) Each party shall promptly forward to the other all written
notifications and other written communications from any Taxing authority
received by such party or its affiliates relating to any liability for Taxes for
any taxable period for which such other party or any of its affiliates is
charged with payment or indemnification responsibility under this Agreement and
each indemnifying party shall promptly notify, and consult with, each
indemnified party as to any action it proposes to take with respect to any
liability for Taxes for which it is required to indemnify another party or which
may affect the Taxes of another party and shall not enter into any closing
agreement or final settlement with any Taxing authority with respect to any such
liability without the written consent of the indemnified or affected parties,
which consent shall not be unreasonably withheld.
(d) The failure by a party to provide timely notice under this
subsection shall not relieve the other party from its obligations under this
Section 8.8 with respect to the subject matter of any notification not timely
forwarded, unless and to the extent that the other party can demonstrate that
the other party has suffered an economic detriment because of such failure to
provide notification in a timely fashion.
8.9 Assistance and Cooperation. Each of Parent and Purchaser (and their
--------------------------
respective Affiliates) shall at their own expense:
(a) assist the other party in preparing any Returns which such other
party is responsible for preparing and filing in accordance with this Article
VIII;
(b) cooperate fully in preparing for any audits of, or disputes with
Taxing authorities regarding, any Returns relating to the Company;
(c) make available to the other and to any Taxing authority as
reasonably requested all information, records, and documents relating to Taxes
concerning the Company;
(d) make available to the other and to any Taxing authority as
reasonably requested employees and independent auditors to provide explanations
and additional information relating to Taxes concerning the Company;
(e) provide timely notice to the other in writing of any pending or
threatened Tax audits, assessments or Tax Proceedings with respect to the
Company for taxable periods for which the other may have a liability under this
Article VIII;
(f) furnish the other with copies of all correspondence received from
any Taxing authority in connection with any Tax audit or Tax Proceedings with
respect to any taxable period for which the other may have a liability under
this Article VIII; and
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(g) retain any books and records that could reasonably be expected to
be necessary or useful in connection with Purchaser's or Parent's preparation,
as the case may be, of any Return, or for any audit, examination, or Proceeding
relating to Taxes. Such books and records shall be retained until the
expiration of the applicable statute of limitations (including extensions
thereof to the extent the party has been notified thereof); provided, however,
that in the event of an audit, examination, investigation or Proceeding has been
instituted prior to the expiration of the applicable statute of limitations (or
in the event of any claim under this Agreement), the books and records shall be
retained until there is a final determination thereof (and the time for any
appeal has expired).
8.10 Survival. Notwithstanding anything in this Agreement to the contrary,
--------
the provisions of this Article VIII shall survive for the full period of all
statutes of limitations (giving effect to any waiver, mitigation or extension
thereof).
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time:
(a) by mutual written consent duly authorized by the Boards of
Directors of Purchaser and Company;
(b) by either Company or Purchaser if the Merger shall not have been
consummated by March 31, 2000 for any reason; provided, however, that the right
-------- -------
to terminate this Agreement under this Section 9.1(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 a breach of this Agreement;
(c) by either Company or Purchaser if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree, ruling or other action is final and nonappealable;
(d) by Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Purchaser set forth in this Agreement, or
if any representation or warranty of Purchaser shall have become untrue, in
either case such that the conditions set forth in Section 7.2(a) or Section
7.2(b) would not be satisfied as of the time of such breach or as of the time
such representation or warranty shall have become untrue, provided, that if such
--------
inaccuracy in Purchaser's representations and warranties or breach by Purchaser
is curable by Purchaser through the exercise of its commercially reasonable
efforts, then Company may not terminate this Agreement under this Section 9.1(d)
for thirty (30) days after delivery of written notice from Company to Purchaser
of such breach, provided Purchaser continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Company may not terminate
this Agreement pursuant
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to this Section 9.1(d) if it shall have materially breached this Agreement or if
such breach by Purchaser is cured during such thirty (30)-day period); or
(e) by Purchaser, upon a breach of any representation, warranty,
covenant or agreement on the part of Company set forth in this Agreement, or if
any representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 7.3(a) or Section 7.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
--------
inaccuracy in Company's representations and warranties or breach by Company is
curable by Company through the exercise of its commercially reasonable efforts,
then Purchaser may not terminate this Agreement under this Section 9.1(e) for
thirty (30) days after delivery of written notice from Purchaser to Company of
such breach, provided Company continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Purchaser may not
terminate this Agreement pursuant to this Section 9.1(e) if it shall have
materially breached this Agreement or if such breach by Company is cured during
such thirty (30)-day period).
9.2 Notice of Termination; Effect of Termination. Any termination of
--------------------------------------------
this Agreement under Section 9.1 above will be effective immediately upon (or,
if the termination is pursuant to Section 9.1(d) or Section 9.1(e) and the
proviso therein is applicable, thirty (30) days after) the delivery of written
notice of the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 9.1, this Agreement shall
be of no further force or effect, except (i) as set forth in this Section 9.2,
Section 9.3 and Article X (General Provisions), each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for any intentional or willful breach of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
9.3 Fees and Expenses. Except as set forth in this Section 9.3, all fees
-----------------
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby by the Purchaser shall be paid by the Purchaser whether or
not the Merger is consummated and all fees and expenses incurred in connection
with this Agreement and the transactions contemplated hereby by the Parent and
the Company shall be paid by the Parent whether or not the Merger is
consummated.
9.4 Amendment. Subject to applicable law, this Agreement may be amended
---------
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of Purchaser, Parent and Company.
9.5 Extension; Waiver. At any time prior to the Effective Time, any
-----------------
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
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ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the Parent, the Company, Merger Sub and the Purchaser contained in
this Agreement, and all statements contained in this Agreement, the Disclosure
Schedule and any certificate delivered pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement (collectively,
the "Acquisition Documents"), shall survive the Closing by one year; provided,
however, that the representation and warranty contained in Section 2.20 shall
survive until the third anniversary of the Closing Date; and provided further,
however, that the obligations under Article 8 shall survive as provided therein.
If written notice of a claim has been given prior to the expiration of the
applicable representations and warranties, then the relevant representations and
warranties shall survive as to such claim, until such claim has been finally
resolved.
10.2 Indemnification by the Holders.
------------------------------
(a) From and after the Closing, Purchaser and its Affiliates,
officers, directors, employees, agents, successors and assigns (each an
"Indemnified Party") shall be indemnified and held harmless, jointly and
severally, by each holder (a "Holder") of Company Capital Stock for any and all
Liabilities, losses, damages, claims, costs (including business interruption
costs) and expenses, interest, awards, judgments and penalties (including,
without limitation, attorneys' and consultants' fees and expenses) actually
suffered or incurred by them (including, without limitation, any Action brought
or otherwise initiated by any of them) (hereinafter a "Loss" and in the
aggregate the "Losses"), arising out of or resulting from the breach of any
representation or warranty made by the Company or Parent contained in the
Acquisition Documents and for any Losses related to ERISA liabilities of Parent
or any of Parent's ERISA Affiliates ("ERISA Liabilities"). For the purposes of
determining whether there has been a breach of any representation or warranty
made by the Company or Parent, all "Material Adverse Effect" qualifications and
other qualifications based on the word material or similar phrases shall be
disregarded and all qualifications based on "knowledge" other than in the case
of threatened litigation or governmental proceedings shall also be disregarded.
Indemnification payments under this Agreement (including under Article 8 hereof)
shall be reduced by any Tax benefit (net of Tax cost including, without
limitation, receipt of indemnification payments) actually realized by the
indemnified party as a result of the indemnification payment.
(b) An Indemnified Party shall give Parent notice of any matter which
an Indemnified Party has determined has given or could give rise to a right of
indemnification under this Agreement, within 60 days of such determination,
stating the amount of the Loss, if known, and method of computation thereof, and
containing a reference to the provisions of this Agreement in respect of which
such right of indemnification is claimed or arises. The obligation and
Liabilities of the Holders under this Article X with respect to Losses arising
from claims of any third party which are subject to the indemnification provided
for in this Article X ("Third Party Claims") shall be governed by and contingent
upon the following additional terms and conditions: if an Indemnified Party
shall receive notice of any Third Party Claim, the Indemnified Party shall give
the Parent
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notice of such Third Party Claim within 30 days of the receipt by the
Indemnified Party of such notice; provided, however, that the failure to provide
such notice shall not release the Holders from any of its obligations under this
Article X except to the extent the Holders are materially prejudiced by such
failure and shall not relieve the Holders from any other obligation or Liability
that it may have to any Indemnified Party otherwise than under this Article X.
If the Parent acknowledges in writing the Holders' obligation to indemnify the
Indemnified Party hereunder against any Losses that may result from such Third
Party Claim, then the Parent shall be entitled to assume and control the defense
of such Third Party Claim on behalf of the Holders at its expense and through
counsel of its choice if it gives notice of its intention to do so to the
Indemnified Party within ten days of the receipt of such notice from the
Indemnified Party; provided, however, that if there exists or is reasonably
likely to exist a conflict of interest that would make it appropriate in the
judgment of the Indemnified Party, in its sole and absolute discretion, for the
same counsel to represent both the Indemnified Party and the Holders, then the
Indemnified Party shall be entitled to retain its own counsel, in each
jurisdiction for which the Indemnified Party determines counsel is required, at
the expense of the Holders. In any event the Parent exercises the right to
undertake any such defense against any such Third Party Claim on behalf of the
Holders as provided above, the Indemnified Party shall cooperate with the Parent
in such defense and make available to the Parent, at the Holders' expense, all
witnesses, pertinent records, materials and information in the Indemnified
Party's possession or under the Indemnified Party's control relating thereto as
is reasonably required by the Parent. Similarly, in the event the Indemnified
Party is, directly or indirectly, conducting the defense against any such Third
Party Claim, the Holders shall cooperate with the Indemnified Party in such
defense and make available to the Indemnified Party, at the Holders' expense,
all such witnesses, records, materials and information in the Holders'
possession or under the Holders' control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may be settled by
the Holders without the prior written consent of the Indemnified Party;
provided, however, that if the Indemnified Party does not consent to a
settlement that is otherwise acceptable to the Holders, in no event shall the
Holders be required to indemnify the Indemnified Party for any judgment amount
in excess of the proposed settlement amount.
(c) The Holders shall not have any obligation to indemnify the
Indemnified Parties pursuant to Sections 10.2(a) and (b) unless the aggregate
amount of all Losses arising under Section 10.2 (excluding claims related to
ERISA Liabilities) exceeds $2 million, in which case the Indemnified Parties
shall be entitled to indemnification pursuant to Section 10.2 only to the extent
to which such Losses exceed $2 million. The total maximum aggregate
indemnification liability of the Holders for any Losses arising under Sections
10.2(a) and (b) (including Losses arising from a breach of Section 2.20 of this
Agreement but excluding claims related to ERISA Liabilities) shall not exceed
$150 million, provided, however, that of such $150 million maximum, the total
maximum aggregate indemnification liability of the Holders for any Losses
arising under Section 10.2(a) and (b) other than as a result of a breach of
Section 2.20 of this Agreement shall not exceed $75 million. The Holders shall
indemnify Purchaser dollar for dollar with respect to any losses associated with
ERISA Liabilities.
(d) From and after the Closing, in the absence of fraud, willful
misconduct or bad faith breach ("Excepted Claims"), the sole and exclusive
remedy of Purchaser and its Affiliates,
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officers, directors, employees, agents, successors and assigns against Parent or
any of its Affiliates, officers, directors, employees, agents, successors and
assigns with respect to any and all claims relating to the Acquisition Documents
shall be pursuant to the indemnification provisions set forth in this Section
10.2. Except with respect to Excepted Claims, the Purchaser hereby, on its own
behalf and on behalf of its Affiliates, to the fullest extent permitted under
applicable law, waives, and agrees that neither it nor any of its Affiliates
will assert in any action or proceeding of any kind, any and all rights, claims
or causes of action it or such Affiliate may now or hereafter have against the
Parent (including, without limitation, any such rights, claims or causes of
action arising under or based upon common law or other Legal Requirements) other
than claims for indemnification that are asserted as permitted by and in
accordance with the provisions set forth in this Article.
(e) Upon making any payment to an Indemnified Party for any
indemnification claim pursuant to this Section 10.2, the Parent shall be
subrogated, to the extent of such payment to any rights which the Indemnified
Party may have against other Persons with respect to the subject matter
underlying such indemnification claim.
10.3 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Purchaser or Merger Sub, to:
Efficient Networks, Inc.
0000 Xxxxxx Xxxxxx Xxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxx Xxxxxxx, CFO
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxxx Xxxxxxx, Esq.
Xxxxxxx Xxxxxx, Esq.
Telephone No.:(000) 000-0000
Telecopy No.:(000) 000-0000
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(b) if to Parent or Company, to:
Cabletron Systems, Inc.
00 Xxxxxxxxxx Xxx
Xxxxxxxxx, XX 00000
Attention: General Counsel
Telephone No.: (000) 000-0000
with a copy to:
Ropes & Xxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attention: Xxxxx X. Fine, Esq.
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
10.4 Interpretation; Knowledge.
-------------------------
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." 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. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to the subsidiaries of an entity shall be deemed to include all direct
and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "Material Adverse Effect"
when used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect, individually or when aggregated with other
changes, events, violations, inaccuracies, circumstances or effects, that is
materially adverse to the business, assets (including intangible assets),
capitalization, financial condition or results of operations of such entity and
its subsidiaries taken as a whole; provided that a decline in a Person's stock
price shall not in and of itself constitute a Material Adverse Effect.
(c) For purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
10.5 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
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counterparts have been signed by each of the parties and delivered to the other
party, it being understood that all parties need not sign the same counterpart.
10.6 Entire Agreement; Third Party Beneficiaries. This Agreement and the
-------------------------------------------
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Purchaser Disclosure Schedule (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder.
10.7 Severability. In the event that any provision of this Agreement, or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.8 Other Remedies; Specific Performance. Except as otherwise provided
------------------------------------
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement 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 they are entitled at law or in
equity.
10.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
10.10 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
10.11 Assignment. No party may assign either this Agreement or any of its
----------
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
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10.12 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY, PURCHASER AND
--------------------
MERGER SUB HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY,
PURCHASER OR MERGER SUB IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT HEREOF.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
EFFICIENT NETWORKS, INC.
By: /s/ Xxxx Xxxxx
--------------------------------
Name: Xxxx Xxxxx
------------------------------
Title: Chief Executive Officer
-----------------------------
FIRE ACQUISITION CORPORATION
By: /s/ Xxxx Xxxxx
--------------------------------
Name: Xxxx Xxxxx
------------------------------
Title: Chief Executive Officer
-----------------------------
CABLETRON SYSTEMS, INC.
By: /s/ Xxxxxx Xxxxx
--------------------------------
Name: Xxxxxx Xxxxx
------------------------------
Title: Chief Executive Officer
-----------------------------
FLOWPOINT CORP.
By: /s/ Xxxxxx Xxxxx
--------------------------------
Name: Xxxxxx Xxxxx
------------------------------
Title: President
-----------------------------
