EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
among
WATCHGUARD TECHNOLOGIES, INC.,
XXXXX ACQUISITION CORPORATION,
QIAVE TECHNOLOGIES CORPORATION
and
CERTAIN COMMON STOCKHOLDERS OF QIAVE TECHNOLOGIES
CORPORATION
Dated as of October 4, 2000
TABLE OF CONTENTS
Page
ARTICLE 1 - THE MERGER............................................................................... 1
1.1 The Merger..................................................................................... 1
1.2 The Closing.................................................................................... 1
1.3 Effective Date and Time........................................................................ 2
1.4 Articles of Organization of the Surviving Corporation.......................................... 2
1.5 By-Laws of the Surviving Corporation........................................................... 2
1.6 Directors and Officers......................................................................... 2
1.7 Merger Consideration........................................................................... 3
1.7.1 Conversion of Shares................................................................... 3
1.7.2 Exchange of Certificates; Payment of Closing Cash...................................... 5
1.7.3 No Fractional Shares................................................................... 6
1.7.4 No Further Transfers................................................................... 6
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................ 6
2.1 Organization; Power and Authority.............................................................. 7
2.2 Enforceability................................................................................. 7
2.3 Capitalization................................................................................. 7
2.4 No Approvals; No Conflicts..................................................................... 9
2.5 Financial Statements........................................................................... 9
2.6 Absence of Certain Changes or Events........................................................... 10
2.7 Taxes.......................................................................................... 12
2.8 Property....................................................................................... 13
2.9 Contracts...................................................................................... 13
2.9.1 Material Contracts..................................................................... 13
2.9.2 Required Consents...................................................................... 15
2.10 Corporate Books and Records.................................................................... 15
2.11 Claims and Legal Proceedings................................................................... 15
2.12 Labor and Employment Matters................................................................... 15
2.13 Employee Benefit Plans......................................................................... 16
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TABLE OF CONTENTS
(continued)
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2.13.1 Employee Benefit Plan Listing......................................................... 16
2.13.2 Documents Provided.................................................................... 16
2.13.3 Compliance............................................................................ 16
2.13.4 Post-Termination Welfare Benefits..................................................... 17
2.13.5 Suits, Claims and Investigations...................................................... 17
2.13.6 Payments Resulting From Transactions.................................................. 17
2.13.7 Definitions........................................................................... 17
2.14 Intellectual Property......................................................................... 18
2.14.1 General............................................................................... 18
2.14.2 Company Technology.................................................................... 18
2.14.3 Third-Party Technology................................................................ 19
2.14.4 Trademarks............................................................................ 19
2.14.5 Intellectual Property Rights.......................................................... 20
2.14.6 Maintenance of Rights; Insider Interests.............................................. 20
2.14.7 Third-Party Claims.................................................................... 20
2.14.8 Infringement by the Company........................................................... 20
2.14.9 Confidentiality....................................................................... 21
2.14.10 Warranty Against Defects.............................................................. 21
2.14.11 Domain Names.......................................................................... 21
2.14.12 Year 2000............................................................................. 21
2.14.13 Nondisclosure and Invention Assignment Agreements..................................... 22
2.14.14 Indemnification....................................................................... 22
2.14.15 Restrictions on Intellectual Property................................................. 22
2.15 Compliance With Laws; Permits................................................................. 22
2.16 Insurance..................................................................................... 23
2.17 Brokers or Finders............................................................................ 23
2.18 Information Supplied by the Company........................................................... 23
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TABLE OF CONTENTS
(continued)
Page
2.19 Xxxx-Xxxxx-Xxxxxx............................................................................. 23
2.20 Full Disclosure............................................................................... 24
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF WATCHGUARD AND MERGER SUB............................. 24
3.1 Organization.................................................................................. 24
3.2 Enforceability................................................................................ 25
3.3 Securities.................................................................................... 25
3.4 Capitalization; Nasdaq Listing................................................................ 25
3.5 No Approvals or Notices Required; No Conflicts With Instruments............................... 25
3.6 SEC Documents; SEC Reporting.................................................................. 26
3.7 Absence of Certain Changes.................................................................... 26
3.8 Information Supplied by WatchGuard............................................................ 26
3.9 Brokers or Finders............................................................................ 26
3.10 Full Disclosure............................................................................... 27
ARTICLE 4 - DELIVERIES.............................................................................. 27
4.1 Deliveries of the Company and the Key Stockholders............................................ 27
4.2 Deliveries by WatchGuard and Merger Sub....................................................... 29
ARTICLE 5 - POST-CLOSING COVENANTS.................................................................. 30
5.1 Further Action; Commercially Reasonable Efforts............................................... 30
5.2 Publicity..................................................................................... 30
5.3 Noncompetition Agreement...................................................................... 30
5.4 Option Shares; Registration................................................................... 31
5.5 Option Grants................................................................................. 31
5.6 Audit......................................................................................... 32
5.7 Tax Matters - Company and Stockholders........................................................ 32
ARTICLE 6 - SURVIVAL AND INDEMNIFICATION............................................................ 32
6.1 Survival...................................................................................... 32
6.2 Indemnification by the Stockholders........................................................... 32
6.3 Indemnification by WatchGuard................................................................. 33
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TABLE OF CONTENTS
(continued)
Page
6.4 Threshold and Limitations..................................................................... 33
6.5 Escrow Fund................................................................................... 34
6.6 Escrow Period................................................................................. 35
6.7 Distributions; Voting......................................................................... 35
6.8 Method of Asserting Claims; Resolution of Conflicts........................................... 35
6.9 Stockholder Representative; Power of Attorney................................................. 36
6.10 Third-Party Claims............................................................................ 36
ARTICLE 7 - GENERAL................................................................................. 38
7.1 Amendment..................................................................................... 38
7.2 Expenses...................................................................................... 38
7.3 Notices....................................................................................... 38
7.4 Severability.................................................................................. 39
7.5 Entire Agreement.............................................................................. 40
7.6 Specific Performance.......................................................................... 40
7.7 Assignment.................................................................................... 40
7.8 Parties in Interest........................................................................... 40
7.9 Governing Law................................................................................. 40
7.10 Headings...................................................................................... 40
7.11 Counterparts.................................................................................. 41
7.12 Waiver of Jury Trial.......................................................................... 41
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TABLE OF CONTENTS
Page
EXHIBITS
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1.3(a) - Form of Articles of Merger
1.3(b) - Form of Certificate of Merger
1.7.1 - Form of Escrow Agreement
1.7.2 - Form of Letter of Transmittal
2 - Company Disclosure Memorandum
4.1(a) - Form of Opinion of Counsel for the Company and the Key Stockholders
4.1(d) - Form of FIRPTA Affidavit
4.1(f) - Form of Registration Rights Agreement
4.1(h) - Form of Employment Agreement
4.1(i) - Form of Retention Agreement
4.1(j) - Form of Investor Questionnaire and Agreement
4.1(k) - Form of Stock Option Letter Agreement (Waiver)
4.1(l) - Form of Proprietary Information, Invention and Noncompetition Agreement
4.2(a) - Form of Opinion of Counsel for WatchGuard and Merger Sub
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and
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entered into as of October 4, 2000, by and among WatchGuard Technologies, Inc.,
a Delaware corporation ("WatchGuard"), Xxxxx Acquisition Corporation, a Delaware
corporation and wholly owned subsidiary of WatchGuard ("Merger Sub"), Qiave
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Technologies Corporation, a Massachusetts corporation (the "Company"), and Xxxx
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X. Xxxxxx, Xxxxxxx Xxxxxxxx, Xxxxx Xxxx and Xxxx Xxxx (the "Key Stockholders").
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RECITALS
A. The Company, the Key Stockholders, WatchGuard and Merger Sub
believe it advisable and in their respective best interests to effect a merger
of the Company and Merger Sub pursuant to this Agreement (the "Merger").
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B. The Board of Directors of the Company and the stockholders of the
Company (the "Stockholders") have unanimously approved this Agreement and the
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Merger as required by applicable law.
C. The Boards of Directors of WatchGuard and Merger Sub and the
sole stockholder of Merger Sub have approved this Agreement and the Merger as
required by applicable law.
D. It is intended that the Merger will qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
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AGREEMENT
In consideration of the terms hereof, the parties hereto agree as
follows:
ARTICLE 1 - THE MERGER
1.1 The Merger
Upon the terms and subject to the conditions hereof, (a) at the
Effective Time (as defined in Section 1.3) the separate existence of Merger Sub
shall cease and Merger Sub shall be merged with and into the Company (the
Company as the surviving corporation after the Merger is sometimes referred to
herein as the "Surviving Corporation") and (b) from and after the Effective
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Time, the Merger shall have all the effects of a merger under the laws of the
Commonwealth of Massachusetts and the state of Delaware and other applicable
law.
1.2 The Closing
Subject to the terms and conditions of this Agreement, the closing of
the Merger (the "Closing") shall take place on the date hereof (the "Closing
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Date"), after the execution and/or delivery of the documents and instruments set
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forth in Article 4 hereof, at 9:00 a.m. local time at
the offices of Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP, 000 Xxxxx Xxxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxxxxxxx, or such other date, time or location as WatchGuard and the
Company shall agree.
1.3 Effective Date and Time
On the Closing Date and subject to the terms and conditions hereof,
articles of merger (the "Articles of Merger") substantially in the form attached
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hereto as Exhibit 1.3(a), complying with the applicable provisions of the
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Massachusetts Corporation Law ("Massachusetts Law") and in such form and
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executed in such manner as required by Massachusetts Law, shall be delivered for
filing with the Secretary of State of the Commonwealth of Massachusetts (the
"Massachusetts Secretary") and a certificate of merger (the "Certificate of
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Merger") substantially in the form attached hereto as Exhibit 1.3(b), complying
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with the applicable provisions of the Delaware General Corporation Law
("Delaware Law") and in such form and executed in such manner as required by
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Delaware Law, shall be delivered for filing with the Secretary of State of the
state of Delaware (the "Delaware Secretary"). The Merger shall become effective
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on the date (the "Effective Date") and at the time (the "Effective Time") of
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filing of the Articles of Merger and Certificate of Merger or at such other time
as may be specified in the Articles of Merger and the Certificate of Merger as
filed. If the Massachusetts Secretary or the Delaware Secretary requires any
changes in the Articles of Merger or the Certificate of Merger, as the case may
be, as a condition to filing or issuing a certificate to the effect that the
Merger is effective, WatchGuard, Merger Sub and the Company will execute any
necessary revisions incorporating such changes, provided such changes are not
inconsistent with and do not result in any material change in the terms of this
Agreement.
1.4 Articles of Organization of the Surviving Corporation
At the Effective Time, the Articles of Organization of the Surviving
Corporation shall be amended to conform substantially to the provisions of the
Certificate of Incorporation of Merger Sub as in effect immediately prior to the
Effective Time. Thereafter, the Articles of Organization of the Surviving
Corporation may be amended in accordance with their terms and as provided by
law.
1.5 By-Laws of the Surviving Corporation
At the Effective Time, the By-Laws of the Company as in effect
immediately prior to the Effective Time shall be the By-Laws of the Surviving
Corporation. Thereafter, the By-Laws may be amended or repealed in accordance
with their terms and the Articles of Organization of the Surviving Corporation
and as provided by law.
1.6 Directors and Officers
At the Effective Time, the directors and officers of the Company shall
resign and the directors and officers of Merger Sub shall continue in office as
the directors and officers of the Surviving Corporation, and such directors and
officers shall hold office in accordance with and subject to the Articles of
Organization and By-Laws of the Surviving Corporation.
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1.7 Merger Consideration
1.7.1 Conversion of Shares
As of the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof:
(a) All shares of any class of capital stock of the
Company held by the Company as treasury shares shall be canceled.
(b) Each issued and outstanding share of Common Stock,
no par value per share, of the Company (the "Company Common Stock"), and each
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issued and outstanding share of Series A Preferred Stock, no par value per
share, of the Company (the "Company Preferred Stock," and together with the
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Company Common Stock, the "Company Capital Stock"), other than shares to be
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cancelled as provided in Section 1.7.1(a) and Dissenting Shares (as defined in
Section 1.7.1(f)), shall be converted into the right to receive from WatchGuard
a number of shares of WatchGuard Common Stock, par value $.001 per share (the
"WatchGuard Common Stock"), equal to the quotient obtained by dividing (i) the
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Merger Consideration (as defined below) by (ii) the Fully Diluted Common Stock
Number (as defined below), rounded to ten decimal points. The quotient so
derived shall be referred to herein as the "Exchange Ratio." The "Merger
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Consideration" shall mean the total number of shares of WatchGuard Common Stock
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to be issued in the Merger, which shall be equal to $70 million (less any
adjustments pursuant to Section 7.2) divided by the average of the closing
prices of WatchGuard Common Stock, as reported on the Nasdaq National Market,
for each of the ten trading days in the ten-trading-day period ending on the
date that is three trading days prior to the Closing Date (the "Base Price").
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The "Fully Diluted Common Stock Number" shall mean the total number of shares of
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Company Common Stock outstanding immediately prior to the Effective Time (other
than shares to be cancelled in accordance with Section 1.7.1(a)) on a fully
diluted basis, including (y) the exercise of all outstanding rights, warrants
and vested options to acquire Company Common Stock, and one-half of all
outstanding unvested options to acquire Company Common Stock, regardless of
restrictions on exercise or conversion and (z) the conversion of all outstanding
securities (including, without limitation, the Company Preferred Stock) and
notes convertible at any time into Company Common Stock (such rights, warrants,
notes, options (whether vested or unvested) and convertible securities
referenced in clauses (y) and (z) being referred to herein as "Stock Purchase
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Rights"). The number of shares of WatchGuard Common Stock to be issued to each
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Stockholder under this Section 1.7.1(b) shall be calculated by aggregating all
shares of Company Capital Stock held by each such Stockholder, so that such
number of shares of WatchGuard Common Stock to be issued to such Stockholder
shall be equal to the number of shares of Company Capital Stock held by such
Stockholder multiplied by the Exchange Ratio, with fractional shares rounded to
the nearest whole number of shares pursuant to Section 1.7.3.
(c) Notwithstanding the foregoing, subject to
effectiveness of the Merger, (i) the Retention Shares (as defined in the
Retention Agreement (as defined in Section 4.1(i)) shall be held by, and the
shares represented by such certificates shall be subject to forfeiture to,
WatchGuard pursuant to the Retention Agreement between WatchGuard and each
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Key Employee (as defined in Section 4.1(h)); and (ii) the number of shares of
WatchGuard Common Stock determined by dividing $7 million by the Base Price (the
"Indemnification Escrow Shares") shall be deposited in escrow with ChaseMellon
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Shareholder Services LLC ("ChaseMellon"), as escrow agent (the "Escrow Agent"),
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to be held and administered in accordance with an Escrow Agreement in the form
attached hereto as Exhibit 1.7.1 (the "Escrow Agreement"). Such Indemnification
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Escrow Shares shall be issued to the Stockholders and deposited by the
Stockholders with the Escrow Agent, pro rata, from the shares of WatchGuard
Common Stock issued to each Stockholder at the Effective Time. Fractional shares
of WatchGuard Common Stock shall not be pledged as Retention Shares or deposited
in escrow as Indemnification Escrow Shares. In lieu thereof, each Key Employee
or each Stockholder, as applicable, shall round up such fractional share to the
nearest whole number and pledge or deposit into escrow, as applicable, a full
share of WatchGuard Common Stock for such fractional share. The Retention Shares
shall be held by WatchGuard in certificated form. The Indemnification Escrow
Shares shall be held by the Escrow Agent in book entry form.
(d) For purposes of this Agreement, "Company Option
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Plan" means the Company's 2000 Stock Option Plan and "Option" means each
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outstanding option to purchase shares of Company Common Stock. Each outstanding
Option under the Company Option Plan, whether vested or unvested, will be
assumed by WatchGuard. Except as set forth below, each such Option so assumed by
WatchGuard under this Agreement shall continue to have, and be subject to, the
same terms and conditions set forth in such Option and in the Company Option
Plan, including provisions with respect to vesting; provided, however, that (i)
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such Option will be exercisable for that number of whole shares of WatchGuard
Common Stock, equal to the product (rounded down to the nearest whole share) of
the number of shares of Company Common Stock that were issuable upon exercise of
such option immediately prior to the Closing Date multiplied by the Exchange
Ratio; (ii) the per share exercise price under such Option shall be equal to the
quotient (rounded up to the nearest cent) of the per share exercise price of
such Option prior to the Effective Time divided by the Exchange Ratio; and (iii)
each holder of an Option (other than holders of Options who are not employees of
Qiave) shall waive any right to accelerated vesting as a result of the Merger,
as provided in Section 4.1(k). The terms of each such Option shall, in
accordance with its terms, be subject to further adjustment, as appropriate, to
reflect any stock split, stock dividend, recapitalization or other similar
transaction with respect to WatchGuard Common Stock on or subsequent to the
Closing Date.
(e) Each issued and outstanding share of capital stock
of Merger Sub shall be converted into one share of common stock of the Surviving
Corporation.
1.7.2 Exchange of Certificates; Payment of Closing Cash
(a) The Company shall mail prior to the Closing Date
to each holder of a certificate or certificates that immediately prior to the
Effective Time represented outstanding shares of Company Capital Stock, other
than shares to be cancelled in accordance with Section 1.7.1(a), (a) a letter of
transmittal in substantially the form attached hereto as Exhibit 1.7.2 (the
"Letter of Transmittal") and (b) instructions for effecting the surrender of the
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certificates in exchange for certificates representing WatchGuard Common Stock.
Upon surrender of a certificate for cancellation to WatchGuard or to such agent
or agents as may be
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appointed by WatchGuard, together with such Letter of Transmittal, duly
executed, and such other documents as may reasonably be required by ChaseMellon,
the holder of such certificate shall be entitled to receive in exchange
therefor, by the later of (y) 10 business days following the Effective Time and
(z) 10 business days following the surrender of such certificate, a certificate
representing that number of whole shares of WatchGuard Common Stock that such
holder has the right to receive pursuant to the provisions of Section 1.7.1, and
the certificate so surrendered shall forthwith be cancelled; provided, however,
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that the certificates representing the Retention Shares shall be delivered to
WatchGuard in accordance with the provisions of Section 1.7.1(c) and the
Retention Agreements, and the Indemnification Escrow Shares shall be held by
ChaseMellon in book-entry form. In the event that any certificates representing
shares of Company Capital Stock shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Stockholder claiming such
certificate to be lost, stolen or destroyed, WatchGuard shall issue in exchange
for such lost, stolen or destroyed certificate the shares of WatchGuard Common
Stock that such Stockholder is entitled to receive pursuant to Section 1.7.1;
provided, however, that WatchGuard may in its discretion and as a condition
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precedent to the issuance thereof, require such Stockholder to provide
WatchGuard with an indemnity agreement against any claim that may be made
against WatchGuard with respect to the certificate alleged to have been lost,
stolen or destroyed. The shares of WatchGuard Common Stock that each Stockholder
shall be entitled to receive pursuant to the Merger (including the
Indemnification Escrow Shares and the Retention Shares) shall be deemed to have
been issued at the Effective Time. No interest shall accrue on the Merger
Consideration. If the Merger Consideration (or any portion thereof) is to be
delivered to any person other than the person in whose name the certificate or
certificates representing shares of Company Capital Stock surrendered in
exchange therefor is registered, it shall be a condition to such exchange that
the person requesting such exchange shall pay to WatchGuard any transfer or
other taxes required to be paid by WatchGuard or ChaseMellon by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the certificate or certificates so surrendered, or shall establish to the
satisfaction of WatchGuard that such tax has been paid or is not applicable.
Notwithstanding anything to the contrary herein, neither WatchGuard nor any
other party hereto shall be liable to a holder of shares of Company Capital
Stock for any Merger Consideration delivered to a public official pursuant to
applicable law, including abandoned property, escheat and similar laws.
(b) The provisions of subsection (a) shall also apply
to Dissenting Shares that lose their status as such, except that the obligations
of WatchGuard and ChaseMellon under such subsection (a) shall commence on the
date of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the number of shares of WatchGuard Common
Stock to which such holder is entitled pursuant to Section 1.7.1.
1.7.3 No Fractional Shares
No certificates or scrip representing fractional shares of WatchGuard
Common Stock shall be issued by virtue of the Merger. The aggregate number of
shares of WatchGuard Common Stock a Stockholder is entitled to receive pursuant
to Section 1.7.1 shall be rounded to the nearest whole number of shares, with .5
being rounded up.
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1.7.4 No Further Transfers
After the Effective Time, there shall be no transfers of any shares of
Company Capital Stock on the stock transfer books of the Surviving Corporation.
If, after the Effective Time, certificates formerly representing shares of
Company Capital Stock are presented to the Surviving Corporation, they shall be
forwarded to WatchGuard and shall be canceled and exchanged in accordance with
this Section 1.7.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as is otherwise set forth with appropriate section references
in the Company Disclosure Memorandum attached as Exhibit 2 (the "Company
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Disclosure Memorandum"), each of which exceptions shall specifically identify or
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cross-reference the provision of this Article 2 to which such exception relates,
and which shall constitute in its entirety a representation and warranty under
this Article 2, and in order to induce WatchGuard and Merger Sub to enter into
and perform this Agreement, and the other agreements, certificates and
questionnaires that are required to be completed and executed pursuant to this
Agreement (collectively, the "Operative Documents"), the Company and the Key
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Stockholders represent and warrant to WatchGuard and Merger Sub as of the date
of this Agreement and as of the Closing Date as follows in this Article 2.
2.1 Organization; Power and Authority
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts. The Company
has all requisite corporate power and authority to own, operate and lease its
properties and assets, to carry on its business as now conducted and as
currently proposed to be conducted, to enter into and perform its obligations
under this Agreement and the Operative Documents to which it is a party, and to
consummate the transactions contemplated hereby and thereby. Each Key
Stockholder has the power, authority and capacity to execute, deliver and
perform his obligations under this Agreement and each of the Operative Documents
and to consummate the transactions contemplated hereby and thereby. The Company
is duly qualified and licensed as a foreign corporation to do business and is in
good standing in each jurisdiction in which the character of the Company's
properties occupied, owned or held under lease or the nature of the business
conducted by the Company makes such qualification or licensing necessary, except
where the failure to be so qualified and licensed or in good standing would not
have a material adverse effect on the business, operations, assets, liabilities
(absolute, accrued, contingent or otherwise), condition (financial or other) or
prospects of the Company (a "Company Material Adverse Effect").
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2.2 Enforceability
All corporate action on the part of the Company and its officers,
directors and Stockholders necessary for the authorization, execution and
delivery of this Agreement and the Operative Documents, the consummation of the
Merger and the performance of all of the Company's obligations under this
Agreement and the Operative Documents to which the
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Company is a party has been taken. This Agreement has been, and each of the
other Operative Documents to which the Company is a party at the Closing will
have been, duly executed and delivered by the Company, and this Agreement is,
and each of the other Operative Documents to which the Company is a party will
be at the Closing, a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as to the
effect, if any, of (a) applicable bankruptcy and other similar laws affecting
the rights of creditors generally, (b) rules of law governing specific
performance, injunctive relief and other equitable remedies and (c) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities (collectively, the "Enforceability
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Exceptions").
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2.3 Capitalization
(a) The authorized capital stock of the Company
consists of 14,150,000 shares of Company Common Stock and 7,293,542 shares of
preferred stock, no par value, all of which are designated as Company Preferred
Stock.
(b) As of the date of this Agreement, the issued and
outstanding capital stock of the Company consists solely of 4,793,833 shares of
Company Common Stock and 7,143,542 shares of Company Preferred Stock, which are
and as of the Closing will be held of record and, to the knowledge of the
Company and each Key Stockholder, beneficially by the Stockholders as set forth
on Schedule 2.3(b) to the Company Disclosure Memorandum. Such outstanding shares
are duly authorized and validly issued, fully paid and nonassessable, and were
issued in compliance with all applicable federal and state securities laws. To
the knowledge of the Company and each Key Stockholder, no Person (as defined in
Section 2.4) other than the Stockholders holds any interest in any of the
outstanding shares.
(c) As of the date of this Agreement, other than
7,143,542 shares of Company Preferred Stock and Options to purchase up to
931,113 shares of Company Common Stock that have been granted under the Company
Option Plan (of which options to purchase 15,200 shares are vested), there are
no outstanding rights of first refusal or offer, preemptive rights, options,
warrants, conversion rights, stock purchase rights or other agreements, either
directly or indirectly, for the purchase or acquisition from the Company or any
Stockholder of any shares of Company Capital Stock or any securities convertible
into or exchangeable for shares of Company Capital Stock. The Company has
reserved 2,248,125 shares of Company Common Stock for issuance under the Company
Option Plan. Set forth on Schedule 2.3(c) to the Company Disclosure Memorandum
is a spreadsheet accurately reflecting the number of all Options outstanding,
and, for each such Option, the identity of the holder, the number of shares of
Company Common Stock subject to the Option, the grant or issue date, the vesting
schedule, the exercise price and an indication of the holder's relationship to
the Company (if any exists other than as a security holder). The Company has
delivered to WatchGuard true and correct copies of the Company Option Plan and
all stock option agreements and exercise documentation relating to Options
granted thereunder. Schedule 2.3(c) to the Disclosure Memorandum also identifies
all Options or other Stock Purchase Rights that have been offered in connection
with any employee or consulting agreement but that, as of the date hereof, have
not been issued or granted.
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(d) The Company is not a party or subject to any
agreement or understanding and, to the knowledge of the Company or any Key
Stockholder, there is no agreement or understanding between any Persons that
affects or relates to the voting or giving of written consents with respect to
any securities of the Company or the voting by any director of the Company
(other than voting agreements entered into in connection with this Agreement).
(e) All rights of refusal, co-sale rights and
registration rights granted by the Company with respect to the Company Capital
Stock or Stock Purchase Rights are described on Schedule 2.3(e) to the
Disclosure Memorandum.
(f) All Options, Stock Purchase Rights and shares of
Company Capital Stock have been granted or issued at fair market value, as
determined by the Company's Board of Directors at the date of grant or issuance.
(g) All Options to be assumed by WatchGuard have been
granted pursuant to the exemption from registration provided for by Rule 701
promulgated by the Securities and Exchange Commission (the "SEC") under the
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Securities Act of 1933, as amended (the "Securities Act"), and comparable
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exemptions under state securities laws.
(h) The Company does not own or control, and has not
in the past owned or controlled, directly or indirectly, any corporation,
partnership, limited liability company or other business entity. The Company
does not own, directly or indirectly, any ownership, equity or voting interest
in any corporation, partnership, joint venture or other entity, and has no
agreement or commitment to purchase any such interest.
2.4 No Approvals; No Conflicts
The execution, delivery and performance by the Company and each Key
Stockholder of this Agreement and the other Operative Documents to which the
Company or any Key Stockholder is a party and the consummation of the
transactions contemplated hereby and thereby, the effectiveness of the Merger
and the performance by the Company and each Key Stockholder of its or his
obligations pursuant to this Agreement and the other Operative Documents to
which it or he is a party, will not (a) constitute a violation (with or without
the giving of notice or lapse of time, or both) of any provision of law or any
judgment, decree, order, regulation or rule of any court or other governmental
authority applicable to the Company or any Key Stockholder; (b) require any
consent, approval or authorization of, or declaration, filing or registration
with, any person, corporation, partnership, joint venture, association,
organization, other entity or governmental or regulatory authority (a "Person"),
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except for (i) compliance with applicable securities laws, (ii) the filing of
all documents necessary to consummate the Merger with the Massachusetts
Secretary and the Delaware Secretary, and (iii) Stockholder approval in
accordance with Massachusetts law; (c) except as would not have a Company
Material Adverse Effect, result in a default (with or without the giving of
notice or lapse of time, or both) under, or acceleration or termination of, or
the creation in any party of the right to accelerate, terminate, modify or
cancel, any agreement, lease, note or other restriction, encumbrance, obligation
or liability to which the Company is a party or by which it is bound or to which
any assets of the Company are subject; (d) result in the creation of any
Encumbrance (as defined in Section 2.8(d))
-8-
upon any material assets of the Company or, to the knowledge of the Company or
any Key Stockholder, upon any outstanding shares or other securities of the
Company; (e) conflict with or result in a breach of or constitute a default
under any provision of the Articles of Organization or By-Laws of the Company;
or (f) invalidate or adversely affect any permit, license or authorization
currently material to the conduct of the business of the Company.
2.5 Financial Statements
The Company has delivered to WatchGuard an unaudited balance sheet,
statement of income and expense, statement of cash flow and statement of
stockholders' equity of the Company as of and for the period from inception
until August 31, 2000. All the foregoing financial statements are herein
referred to as the "Company Financial Statements." The balance sheet of the
----------------------------
Company as of August 31, 2000 is herein referred to as the "Company Balance
---------------
Sheet." Except as set forth in Schedule 2.5 to the Company Disclosure
-----
Memorandum, the Company Financial Statements have been prepared in conformity
with generally accepted accounting principles (with the exception of year-end
audit adjustments and the absence of footnotes) in the United States ("GAAP") on
----
a basis consistent with prior accounting periods and fairly present the
financial position, results of operations and changes in financial position of
the Company as of the dates and for the periods indicated. The Company has no
material liabilities or obligations of any nature (absolute, contingent or
otherwise) that are not fully reflected or reserved against in the Company
Balance Sheet and that would be required under GAAP to be reflected or reserved,
except liabilities or obligations incurred since the date of the Company Balance
Sheet in the ordinary course of business and consistent with past practice that
are not in excess of $50,000 in the aggregate or $25,000 individually. The
Company maintains standard systems of accounting that are adequate for its
business. The Company is not a guarantor, indemnitor, surety or other obligor of
any indebtedness of any other Person.
2.6 Absence of Certain Changes or Events
Except for transactions specifically contemplated in this Agreement
and except as set forth on Schedule 2.6 to the Company Disclosure Memorandum,
since the date of the Company Balance Sheet, neither the Company nor any of its
officers or directors in their representative capacities on behalf of the
Company have:
(a) taken any action or entered into or agreed to
enter into any transaction, agreement or commitment other than in the ordinary
course of business;
(b) forgiven or canceled any indebtedness or waived
any claims or rights of material value (including, without limitation, any
indebtedness owing by any Stockholder, officer, director, employee or affiliate
of the Company);
(c) granted, other than in the ordinary course of
business and consistent with past practice, any increase in the compensation of
directors, officers, employees or consultants (including any such increase
pursuant to any employment agreement or bonus, pension, profit-sharing, lease
payment or other plan or commitment) or any increase in the compensation payable
or to become payable to any director, officer, employee or consultant;
-9-
(d) suffered any change having or reasonably likely to
have a Company Material Adverse Effect;
(e) borrowed or agreed to borrow any funds, incurred
or become subject to, whether directly or by way of assumption or guarantee or
otherwise, any obligations or liabilities (absolute, accrued, contingent or
otherwise) in excess of $10,000 individually or in excess of $20,000 in the
aggregate, except liabilities and obligations that (i) are incurred in the
ordinary course of business or (ii) would not be required to be reflected or
reserved against in a balance sheet prepared in accordance with GAAP, or
increased, or experienced any change in any assumptions underlying or methods of
calculating, any bad debt, contingency or other reserves;
(f) paid, discharged or satisfied any material claims,
liabilities or obligations (absolute, accrued, contingent or otherwise) other
than the payment, discharge or satisfaction in the ordinary course of business
of claims, liabilities and obligations reflected or reserved against in the
Company Balance Sheet or incurred in the ordinary course of business and
consistent with past practice since the date of the Company Balance Sheet, or
prepaid any obligation having a fixed maturity of more than 90 days from the
date such obligation was issued or incurred;
(g) knowingly permitted or allowed any of its property
or assets (real, personal or mixed, tangible or intangible) to be subjected to
any mortgage, pledge, lien, security interest, encumbrance, restriction or
charge, except in the ordinary course of business;
(h) purchased or sold, transferred or otherwise
disposed of any of its material properties or assets (real, personal or mixed,
tangible or intangible) except in the ordinary course of business;
(i) disposed of or permitted to lapse any rights to
the use of any trademark, trade name, patent or copyright, or disposed of or
disclosed to any Person without obtaining an appropriate confidentiality
agreement from any such Person any trade secret, formula, process or know-how
not theretofore a matter of public knowledge;
(j) made any single capital expenditure or commitment
in excess of $10,000 for additions to property, plant, equipment or intangible
capital assets or made aggregate capital expenditures in excess of $20,000 for
additions to property, plant, equipment or intangible capital assets;
(k) made any material change in accounting methods or
practices or internal control procedure;
(l) issued any capital stock or other securities,
other than pursuant to the Company Option Plan, or declared, paid or set aside
for payment any dividend or other distribution in respect of its capital stock,
or redeemed, purchased or otherwise acquired, directly or indirectly, any shares
of capital stock or other securities of the Company, or otherwise permitted the
withdrawal by any of the holders of Company Capital Stock of any cash or other
assets (real, personal or mixed, tangible or intangible), in compensation,
indebtedness or
-10-
otherwise, other than payments of compensation in the ordinary course of
business and consistent with past practice;
(m) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to any of the Company's Stockholders, officers,
directors or employees or any affiliate of any of the Company's Stockholders,
officers, directors or employees, except compensation paid to officers and
employees at the rates set forth in Schedule 2.12 to the Company Disclosure
Memorandum and except for advances for travel and other business-related
expenses;
(n) completed any sales of any of its Products (as defined
in Section 2.14.2) to any third party; or
(o) agreed, whether in writing or otherwise, to take any
action described in this Section 2.6.
2.7 Taxes
2.7.1 Compliance; Status
(a) (i) All Tax Returns (as defined below) required to be
filed by or on behalf of the Company have been filed on a timely basis with the
appropriate governmental authority in all jurisdictions in which such Tax
Returns are required to be filed, and all such Tax Returns were (at the time
they were filed) true, correct and complete in all material respects; (ii) all
Taxes (as defined below) of the Company (whether or not reflected on any Tax
Return) have been fully and timely paid; (iii) no waivers of statutes of
limitation have been given or requested with respect to the Company in
connection with any Tax Returns covering the Company with respect to any Taxes
payable by it; (iv) no taxing authority in a jurisdiction where the Company does
not file Tax Returns has made a claim, assertion or threat to the Company that
the Company is or may be subject to taxation by such jurisdiction; (v) the
Company has duly and timely withheld from employee salaries, wages and other
compensation and paid over to the appropriate governmental authority all amounts
required to be so withheld and paid over for all periods under all applicable
laws, and no amounts have been or would be required to be withheld with respect
to the lapse of restrictions on Company Capital Stock; (vi) there are no liens
with respect to Taxes on any of the Company's property or assets other than
liens for current Taxes not yet payable; (vii) there are no Tax rulings,
requests for rulings or closing agreements relating to the Company that could
affect the liability for Taxes or the amount of taxable income of the Company
for any period (or portion of a period) after the date hereof; and (viii) no
audits or other administrative or court proceedings are presently pending with
respect to any Taxes or Tax Returns of the Company.
(b) The Company has not made any payments, is not obligated
to make any payments and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Section 280G of the Code (or any similar provision of state, local or
foreign law).
-11-
(c) The Company has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(d) The Company is not a party to any Tax allocation or
sharing agreement and does not have any liability for Taxes of any Person as a
transferee or successor by contract or otherwise.
(e) All Options that the Company has treated as incentive
stock options under Section 421 of the Code meet the requirements of Section 422
of the Code.
2.7.2 Definitions
As used in this Agreement, the following terms shall have the following
meanings:
"Taxes" means all foreign, federal, state, county or local taxes, charges,
-----
fees, levies, imposts, duties and other assessments, including, but not limited
to, any income, alternative minimum or add-on, estimated, gross income, gross
receipts, sales, use, transfer, transactions, intangibles, ad valorem, value-
added, franchise, registration, title, license, capital, paid-up capital,
profits, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, real property, recording, personal property, federal highway use,
commercial rent, environmental (including, but not limited to, taxes under
Section 59A of the Code) or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalties or additions to tax; and "Tax" means any
---
of the foregoing Taxes.
"Tax Returns" means any return, declaration, report, claim or refund,
-----------
information return, statement or other similar document relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
2.8 Property
The Company owns no real property other than the leasehold interests
described on Schedule 2.8(a) to the Company Disclosure Memorandum (the "Real
----
Property"). Schedule 2.8(b) to the Company Disclosure Memorandum contains a
--------
complete and accurate list of each item of personal property having a value in
excess of $25,000 that is owned, leased, rented or used by the Company (the
"Personal Property"); provided, however, that such list need not describe the
-----------------
Technology or the IP Rights (as defined in Sections 2.14.2 and 2.14.5,
respectively). The Company has delivered to WatchGuard true and complete copies
of all leases, subleases, rental agreements, contracts of sale, tenancies or
licenses to which the Real Property and the Personal Property are subject. The
Company's offices and other structures and its Personal Property are of a
quality consistent with industry standards, are in good operating condition and
repair (normal wear and tear excepted) and are adequate for the uses to which
they are being put. The Company's leasehold interest in each parcel of the Real
Property is free and clear of all liens, mortgages, pledges, deeds of trust,
security interests, charges, encumbrances and other adverse claims or interests
of any kind (each, an "Encumbrance"), except for
-----------
-12-
Encumbrances related to Taxes not yet due and payable. The Personal Property is
free and clear of all Encumbrances, and, other than leased Personal Property
that is so noted in Schedule 2.8(b) to the Company Disclosure Memorandum, the
Company owns such Personal Property.
2.9 Contracts
2.9.1 Material Contracts
Schedule 2.9.1(a) to the Company Disclosure Memorandum contains a complete
and accurate list (other than the IP Rights) of all contracts, agreements and
understandings, oral or written, to which the Company is currently a party or by
which the Company is currently bound providing for potential payments by or to
the Company in excess of $25,000 (any such contract, a "Material Contract"). All
-----------------
Material Contracts are valid, binding and enforceable in accordance with their
terms against the Company and, to the knowledge of the Company and each Key
Stockholder, each other party thereto (except as to the effect, if any, of the
Enforceability Exceptions) and are in full force and effect; the Company has
performed in all material respects all obligations imposed on it under each such
Material Contract; neither the Company nor, to the knowledge of the Company or
any Key Stockholder, any other party thereto is in default under any such
Material Contract; and to the knowledge of the Company or any Key Stockholder,
there is no event that with notice or lapse of time, or both, would constitute a
default by the Company or, to the knowledge of the Company or any Key
Stockholder, any other party under any such Material Contract. True and complete
copies of each such written contract (or written summaries of the terms of any
such oral contract) have been delivered to WatchGuard by the Company.
Except as set forth on Schedule 2.9.1(b) to the Disclosure Schedule, the
Company has no:
(a) contracts with directors, officers, Stockholders,
employees, agents, consultants, advisors, salespeople, sales representatives,
distributors or dealers that cannot be canceled by the Company within 30 days'
notice without liability, penalty or premium, any agreement or arrangement
providing for the payment of any bonus or commission based on sales or earnings,
or any compensation agreement or arrangement affecting or relating to former
employees of the Company;
(b) employment agreement, whether express or implied, or any
other agreement for services that contains severance or termination pay
liabilities or obligations;
(c) noncompetition agreement or other arrangement that would
prevent the Company from carrying on its business anywhere in the world;
(d) notice that any party to a Material Contract intends to
cancel, terminate or refuse to renew such contract (if such contract is
renewable);
(e) material dispute with any of its suppliers, customers,
distributors, OEM resellers, licensors or licensees;
(f) product distribution agreement, development agreement or
license agreement as licensor or licensee (except for standard nonexclusive
software licenses granted to
-13-
end-user customers in the ordinary course of business, the form of which has
been provided to WatchGuard, or standard licenses purchased by the Company for
off-the-shelf software);
(g) joint venture contract or arrangement or any other
agreement that involves a sharing of profits with other Persons;
(h) instrument evidencing indebtedness for borrowed money by
way of a direct loan, sale of debt securities, purchase money obligation,
conditional sale or guarantee, or otherwise, except for trade indebtedness
incurred in the ordinary course of business, and except as disclosed in the
Company Financial Statements, or any agreement for borrowing money under which
the Company is indebted to any of its officers, directors or employees; or
(i) agreements or commitments to provide indemnification
(other than those contained in the Company's Articles of Organization or By-
Laws).
2.9.2 Required Consents
The execution and delivery of this Agreement and the performance of the
obligations of the Company hereunder will not constitute a default under any
Material Contract and do not require the consent of any other party to any
Material Contract, except for those consents listed on Schedule 2.9.2 to the
Company Disclosure Memorandum, all of which will be obtained on or prior to the
Closing.
2.10 Corporate Books and Records
The Company has furnished to WatchGuard or its representatives for their
examination true and complete copies of (a) the Articles of Organization and By-
Laws of the Company as currently in effect, including all amendments thereto,
(b) the minute books of the Company, and (c) the stock transfer books of the
Company. Such minutes reflect all meetings of the Stockholders, Board of
Directors and any committees thereof since the Company's inception, and such
minutes accurately reflect in all material respects the events of and actions
taken at such meetings. Such stock transfer books accurately reflect all
issuances and transfers of shares of capital stock of the Company since its
inception.
2.11 Claims and Legal Proceedings
There are no claims, actions, suits, arbitrations, investigations or
proceedings pending or involving or, to the knowledge of the Company or any Key
Stockholder, threatened against the Company before or by any court or
governmental or nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person. To the knowledge of the Company or any Key
Stockholder, there is no valid basis for any claim, action, suit, arbitration,
proceeding or investigation before or by any Person. There are no outstanding or
unsatisfied judgments, orders, decrees or stipulations to which the Company is a
party. Schedule 2.11 to the Company Disclosure Memorandum sets forth a
description of any material disputes that have been settled or resolved by
litigation or arbitration since the Company's inception.
2.12 Labor and Employment Matters
-14-
There are no material labor disputes, employee grievances or disciplinary
actions pending or, to the knowledge of the Company or any Key Stockholder,
threatened against or involving the Company or any of its present or former
employees. The Company is not engaged in any unfair labor practice and has no
liability for any arrears of wages or Taxes or penalties for failure to comply
with any such provisions of law. There is no labor strike, dispute, slowdown or
stoppage pending or, to the knowledge of the Company or any Key Stockholder,
threatened against or affecting the Company, and the Company has not experienced
any work stoppage or other labor difficulty since its incorporation. No
collective bargaining agreement is binding on the Company. Neither the Company
nor any Key Stockholder has any knowledge of any organizational efforts
presently being made or threatened by or on behalf of any labor union with
respect to employees of the Company. Schedule 2.12 to the Company Disclosure
Memorandum lists (a) the names and current compensation amounts of all directors
and officers of the Company; (b) the wage rates for nonsalaried and nonofficer
salaried employees of the Company, by classification, and all union contracts
(if any); (c) all group insurance programs in effect for employees of the
Company; and (d) the names and current compensation packages of all independent
contractors and consultants of the Company. The Company is not in default with
respect to any of its obligations referred to above and has no, and will not
incur any, material obligation or liability for severance or back pay owed
through or by virtue of the Merger. All employees of the Company are employed on
an "at will" basis and are eligible to work and are lawfully employed in the
United States.
2.13 Employee Benefit Plans
2.13.1 Employee Benefit Plan Listing
Schedule 2.13.1 to the Company Disclosure Memorandum contains a complete
and accurate list and description of all Employee Benefit Plans (as defined
below). The Company does not have any agreement, commitment or obligation, to
create, enter into or contribute to any additional Employee Benefit Plan, or to
modify or amend any existing Employee Benefit Plan. Each Employee Benefit Plan
permits the Company to amend or terminate such Employee Benefit Plan, at any
time and for any reason, without penalty. The Company has never maintained or
contributed to (or been obligated to contribute to), any Employee Benefit Plan
that is, or was, subject to Section 412 of the Code, Section 302 of ERISA or
Title IV of ERISA.
2.13.2 Documents Provided
The Company has delivered to WatchGuard true, correct and complete copies
(or, in the case of unwritten Employee Benefit Plans, descriptions) of all
Employee Benefit Plans (and all amendments thereto), together with, as
applicable to any such plan: (a) copies of the last annual reports filed with
respect to such Employee Benefit Plan; (b) copies of the summary plan
descriptions, summaries of material modifications and all material employee
manuals or employee communications (including, without limitation, COBRA and
HIPAA forms) with respect to such Employee Benefit Plan; (c) copies of all
contracts and agreements (and any amendments thereto) relating to such Employee
Benefit Plan; (d) the most recent determination letter issued by the IRS with
respect to such Employee Benefit Plan; and (e) all compliance computations
performed with respect to such Employee Benefit Plan.
-15-
2.13.3 Compliance
Each Employee Benefit Plan is, and at all times since its inception has
been, maintained, administered, operated and funded in all respects in
accordance with its terms and in material compliance with all applicable
requirements of all applicable laws, statutes, orders, rules and regulations,
including, but not limited to, ERISA and the Code. Each Employee Benefit Plan
that is intended to be qualified under Section 401(a) of the Code is, and at all
times since inception has been, so qualified and its related trust is, and at
all times since inception has been, exempt from taxation under Section 501(a) of
the Code. The Company has never been a member of a controlled group of
corporations, a group of trades or businesses under common control, an
affiliated service group or any other group that must be treated as a single
employer under Section 414( b), (c), (m) or (o) of the Code. No Employee Benefit
Plan is maintained outside the United States or is subject to any law or
regulation of any foreign country.
2.13.4 Post-Termination Welfare Benefits
Neither the Company nor any Employee Benefit Plan provides or has any
obligation to provide (or contribute toward the cost of) post-employment or
post-termination medical or life insurance benefits with respect to any current
or former officer, employee, agent, director or independent contractor of the
Company, other than coverage mandated by Sections 601 through 608 of ERISA.
2.13.5 Suits, Claims and Investigations
There are no actions, suits or claims (other than routine claims for
benefits) pending or, to the knowledge of the Company or any Key Stockholder,
threatened with respect to (or against the assets of) any Employee Benefit Plan,
nor is there a basis for any such action, suit or claim. To the knowledge of the
Company or any Key Stockholder, no Employee Benefit Plan is currently under
investigation, audit or review, directly or indirectly, by the IRS, the DOL (as
defined below) or any other governmental entity or agency and, to the knowledge
of the Company and each Key Stockholder, no such action is contemplated or under
consideration by the IRS, the DOL or any other governmental entity or agency.
2.13.6 Payments Resulting From Transactions
Neither the execution and delivery of this Agreement or any Operative
Document nor the consummation of the transactions contemplated in (or by) this
Agreement or any Operative Document will, either alone or in connection with any
other action or event, (a) entitle any individual to severance pay, unemployment
compensation or any other payment from the Company or any Employee Benefit Plan,
(b) otherwise increase the amount of compensation due to any individual, (c)
result in any benefit or right becoming established or increased, or accelerate
the time of payment or vesting of any benefit, under any Employee Benefit Plan,
or (d) require the Company to transfer or set aside any assets to fund or
otherwise provide for any benefits for any individual.
2.13.7 Definitions
-16-
As used in this Agreement, the following terms shall have the following
meanings:
(a) "DOL" means the United States Department of Labor.
---
(b) "Employee Benefit Plan" means any retirement, pension,
---------------------
profit-sharing, deferred compensation, stock bonus, savings, bonus, incentive,
cafeteria, medical, dental, vision, hospitalization, life insurance, accidental
death and dismemberment, medical expense reimbursement, dependent care
assistance, tuition reimbursement, disability, sick pay, holiday, vacation,
severance, change of control, stock purchase, stock option, stock appreciation
rights, fringe benefit or other employee benefit plan, fund, policy, program,
contract, arrangement or payroll practice (including, without limitation, any
"employee benefit plan," as defined in Section 3(3) of ERISA) or any employment,
consulting or personal services contract, whether written or oral, qualified or
nonqualified, or funded or unfunded, (i) sponsored, maintained or contributed to
by the Company or to which the Company is a party, (ii) covering or benefiting
any current or former officer, employee, agent, director or independent
contractor of the Company (or any dependent or beneficiary of any such
individual), or (iii) with respect to which the Company has (or could have) any
obligation or liability.
(c) "ERISA" means the Employee Retirement Income Security Act
-----
of 1974, as amended.
2.14 Intellectual Property
2.14.1 General
The Company owns or is licensed and has all rights in and to the following
as required to conduct its business as now conducted and as currently proposed
to be conducted: (a) all products, tools, computer programs, specifications,
source code, object code, graphics, devices, techniques, algorithms, methods,
processes, procedures, packaging, trade dress, formulae, drawings, designs,
improvements, discoveries, concepts, user interfaces, software, "look and feel,"
development and other tools, content, inventions (whether or not patentable or
copyrightable and whether or not reduced to practice), designs, logos, themes,
know-how, concepts and other technology that are now, or since inception have
been, or are currently proposed to be, developed, produced, used, marketed or
sold by the Company (collectively, the "Technology-Related Assets"); and (b) all
-------------------------
intellectual property and other proprietary rights in the Technology-Related
Assets, including, without limitation, all trade names, trademarks, domain
names, service marks, logos, brand names and other identifiers, trade secrets,
copyrights and domestic and foreign letters patent, and the registrations,
applications, renewals, extensions and continuations (in whole or in part)
thereof, all goodwill associated therewith and all rights and causes of action
for infringement, misappropriation, misuse, dilution or unfair trade practices
associated therewith.
2.14.2 Company Technology
Schedule 2.14.2 to the Company Disclosure Memorandum sets forth a list of
all material products and tools developed, produced, used, marketed or sold by
the Company since inception,
-17-
together with all prior versions, predecessors or precursors to such products or
tools (collectively, the "Products"). Except for the Third-Party Technologies
--------
(as defined in Section 2.14.3), the Company owns all right, title and interest
in and to the following (collectively, the "Technology"), free and clear of all
----------
Encumbrances: (a) the Products, together with any and all codes, techniques,
software tools, formats, designs, user interfaces, content and "look and feel"
related thereto; (b) any and all updates, enhancements, corrections,
modifications, improvements and new releases related to the items set forth in
clause (a) above; (c) any and all Technology-Related Assets and all intellectual
property and other proprietary rights in the Technology-Related Assets and work
in progress related to the items set forth in clauses (a) and (b) above; and (d)
all inventions and discoveries (whether or not patentable), processes, designs,
trade secrets, copyrights, know-how and other confidential or proprietary
information related to the items set forth in clauses (a), (b) and (c) above.
The Technology, excluding the Third-Party Technologies (as defined in Section
2.14.3), is sometimes referred to herein as the "Company Technology."
------------------
2.14.3 Third-Party Technology
Schedule 2.14.3 to the Company Disclosure Memorandum sets forth a list of
all Technology used in the Company's business for which the Company does not own
all right, title and interest (collectively, the "Third-Party Technologies"),
------------------------
and all license agreements or other contracts pursuant to which the Company has
the right to use (in the manner used by the Company, or intended or necessary
for use with the Company Technology) the Third-Party Technologies (the "Third-
------
Party Licenses"), indicating, with respect to each of the Third-Party
--------------
Technologies, the owner thereof and the Third-Party License applicable thereto.
The Company has the lawful right to use (free of any material restriction not
expressly set forth in the Third-Party Licenses) (a) all Third-Party Technology
that is incorporated in or used in the development or production of the Company
Technology and (b) all other Third-Party Technology necessary for the conduct of
the Company's business as now conducted and as currently proposed to be
conducted. All Third-Party Licenses are valid, binding and in full force and
effect and the Company and, to the knowledge of the Company and each Key
Stockholder, each other party thereto have performed in all material respects
their obligations under each such Third-Party License. Neither the Company nor,
to the knowledge of the Company or any Key Stockholder, any other party thereto
is in default under any Third-Party License nor, to the knowledge of the Company
or any Key Stockholder, has there occurred any event or circumstance that with
notice or lapse of time or both would constitute a default or event of default
on the part of the Company or, to the knowledge of the Company or any Key
Stockholder, any other party thereto or give to any other party thereto the
right to terminate or modify any Third-Party License. The Company has not
received notice that any party to any Third-Party License intends to cancel,
terminate or refuse to renew (if renewable) such Third-Party License or to
exercise or decline to exercise any option or right thereunder.
2.14.4 Trademarks
Schedule 2.14.4 to the Company Disclosure Memorandum sets forth a list of
all trademarks, trade names, brand names, service marks, logos or other
identifiers for the Products or otherwise used by the Company in its business
(the "Marks"). The Company has full legal
-----
-18-
and beneficial ownership, free and clear of any Encumbrances, of all rights
conferred by use of the Marks in connection with the Products or otherwise in
the Company's business and, as to those Marks that have been registered in the
United States Patent and Trademark Office, by federal registration of the Marks.
2.14.5 Intellectual Property Rights
Schedule 2.14.5 to the Company Disclosure Memorandum sets forth all
patents, patent applications, copyright registrations (and applications
therefor) and trademark registrations (and applications therefor) (collectively,
the "IP Registrations") associated with the Company Technology and the Marks.
----------------
The Company owns all right, title and interest, free and clear of any
Encumbrances, in and to the IP Registrations, together with any other rights in
or to any copyrights (registered or unregistered), rights in the Marks
(registered or unregistered), trade secret rights and other intellectual
property rights (including, without limitation, rights of enforcement) contained
or embodied in the Company Technology and the Marks (collectively, the "IP
--
Rights").
------
2.14.6 Maintenance of Rights; Insider Interests
The Company has not conducted its business, and has not used or enforced
(or, to its knowledge, failed to use or enforce) the IP Rights, in a manner that
would result in the abandonment, cancellation or unenforceability of any item of
the IP Rights or the IP Registrations, and the Company has not taken (or, to its
knowledge, failed to take) any action that would result in the forfeiture or
relinquishment of any IP Rights or IP Registrations, in each case where such
abandonment, cancellation, unenforceability, forfeiture or relinquishment would
have a Company Material Adverse Effect. The Company has not granted to any third
party any rights or permissions to use any of the Company Technology or the IP
Rights. To the knowledge of the Company or any Key Stockholder, except pursuant
to reasonably prudent safeguards, (a) no third party has received any
confidential information relating to the Technology or the IP Rights and (b) the
Company is not under any contractual or other obligation to disclose to any
third party any Company Technology. No Stockholder or officer or director of the
Company has any interest (other than as a stockholder of the Company) in the
Technology or the IP Rights.
2.14.7 Third-Party Claims
The Company has not received any notice or claim (whether written, oral or
otherwise) challenging the Company's ownership or rights in the Company
Technology or the IP Rights or claiming that any other Person has any legal or
beneficial ownership with respect thereto. All the IP Rights are legally valid
and enforceable without any material qualification, limitation or restriction on
their use, and the Company has not received any notice or claim (whether
written, oral or otherwise) challenging the validity or enforceability of any of
the IP Rights. To the knowledge of the Company or any Key Stockholder, no other
Person is infringing or misappropriating any part of the IP Rights or otherwise
making any unauthorized use of the Company Technology.
2.14.8 Infringement by the Company
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The use of any of the Technology in the Company's business, as presently
conducted or as currently proposed to be conducted, does not and will not
infringe, violate or interfere with or constitute an appropriation of any right,
title or interest (including, without limitation, any patent, copyright or trade
secret right) held by any other Person, and there have been no claims made with
respect thereto. The use of any of the Marks and other IP Rights in the
Company's business, as presently conducted or as currently proposed to be
conducted, does not and will not infringe, violate or interfere with or
constitute an appropriation of any right, title or interest (including, without
limitation, any patent, copyright, trademark or trade secret right) held by any
other Person, and there have been no claims made with respect thereto. The
Company has not received any notice or claim (whether written, oral or
otherwise) regarding any infringement, misappropriation, misuse, abuse or other
interference with any third-party intellectual property or proprietary rights
(including, without limitation, infringement of any patent, copyright, trademark
or trade secret right of any third party) by the Company, the Technology, the
Marks or other IP Rights, or claiming that any other entity has any claim of
infringement with respect thereto.
2.14.9 Confidentiality
The Company has not disclosed any source code regarding the Technology to
any Person other than to (a) an employee of the Company, (b) Mitre Corporation,
(c) Predictive Networks and (d) WatchGuard, each of whom is subject to a written
nondisclosure agreement with the Company. The Company has at all times
maintained and diligently enforced commercially reasonable procedures to protect
all confidential information relating to the Technology. Neither the Company nor
any escrow agent is under any contractual or other obligation to disclose the
source code or any other proprietary information included in or relating to the
Technology. The Company has not deposited any source code relating to the
Technology into any source code escrows or similar arrangements. If, as
disclosed on Schedule 2.14.9 to the Company Disclosure Memorandum, the Company
has deposited any source code to the Technology into source code escrows or
similar arrangements, no event has occurred that has or could reasonably form
the basis for a release of such source code from such escrows or arrangements.
2.14.10 Warranty Against Defects
The Technology substantially conforms to the applicable specifications,
documentation and samples of such Technology and, to our knowledge and except as
set forth in Schedule 2.14.10 of the Company Disclosure Schedule, is free from
known material defects.
2.14.11 Domain Names
Schedule 2.14.11 to the Company Disclosure Memorandum sets forth a list of
all Internet domain names used by the Company in its business (collectively, the
"Domain Names"). The Company has, and after the Closing the Surviving
Corporation will have, a valid registration and all material rights (free of any
material restriction) in and to the Domain Names, including, without limitation,
all rights necessary to continue to conduct the Company's business as it is
currently conducted.
2.14.12 Year 2000
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Each hardware, software and firmware product used by the Company in its
business (collectively, the "Software") will accurately process date data
--------
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the twentieth and twenty-first centuries, including, without
limitation, leap-year calculations, without a decrease in the functionality of
the Software. The Software is designed to be used prior to, during and after the
calendar year 2000 and will operate during each such time period without error
relating to date data, specifically including any error relating to, or the
product of, date data that represents or references different centuries or more
than one century.
2.14.13 Nondisclosure and Invention Assignment Agreements
Each employee, officer and consultant of the Company (a) who has had
access to proprietary information with respect to the Company or the Company
Technology or (b) who has, at any time or in any way, participated in or
contributed to the development of the Company Technology has executed a
nondisclosure and invention assignment agreement in the form provided to
WatchGuard. To the knowledge of the Company or any Key Stockholder, no such
employee, officer or consultant of the Company is in violation of any such
agreement.
2.14.14 Indemnification
The Company has not entered into any agreement or offered to indemnify
any Person against any charge of infringement by the Technology or IP Rights, or
any other intellectual property or right. The Company has not entered into any
agreement granting any Person the right to bring any infringement action with
respect to, or otherwise to enforce, any of the Technology or IP Rights.
2.14.15 Restrictions on Intellectual Property
Except as set forth on Schedule 2.14.15 to the Company Disclosure
Memorandum, none of the Company's officers or employees has entered into any
agreement regarding know-how, trade secrets, assignment of rights in inventions,
or prohibition or restriction of competition or solicitation of customers, or
any other similar restrictive agreement or covenant, whether written or oral,
with any Person other than the Company.
2.15 Compliance With Laws; Permits
(a) The Company is in compliance with all federal,
state, local and foreign laws, rules, regulations, ordinances, decrees and
orders applicable to it, to its employees or to the Real Property and the
Personal Property, including, without limitation, all such laws, rules,
regulations, ordinances, decrees and orders relating to intellectual property
protection, antitrust matters, consumer protection, currency exchange,
environmental protection, equal employment opportunity, health and occupational
safety, pension and employee benefit matters, securities and investor protection
matters, labor and employment matters and trading-with-the-enemy matters, except
where the failure of the Company to so comply would not have a Company Material
Adverse Effect. The Company has not received any notification of
-21-
any asserted present or past unremedied failure by the Company to comply with
any of such laws, rules, regulations, ordinances, decrees or orders.
(b) The Company has received all governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign, required to conduct its
business, as presently conducted, the failure to obtain of which would have a
Company Material Adverse Effect. The Company has not received any notifications
of any asserted present failure by it to have obtained any such governmental
approval, authorization, consent, license, order, registration or permit, or any
past and unremedied failure to obtain such items.
2.16 Insurance
Schedule 2.16 to the Company Disclosure Memorandum sets forth a true and
correct list of all insurance policies maintained by the Company and includes
the policy number, amount of coverage and contact information for each such
policy. All insurance policies of the Company are in full force and effect, all
premiums with respect thereto covering all periods up to and including the date
hereof have been paid, and no notice of cancellation or termination has been
received with respect to any such policy or binder. The Company has not been
refused any insurance with respect to its assets or operations, nor has its
coverage been limited, by any insurance carrier to which it has applied for any
such insurance or with which it has carried insurance.
2.17 Brokers or Finders
The Company has not incurred, and will not incur, directly or indirectly,
as a result of any action taken by or on behalf of the Company, any liability
for brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Merger, this Agreement or any transaction contemplated
hereby.
2.18 Information Supplied by the Company
None of the information supplied or to be supplied by the Company for
inclusion in the proxy statement to be delivered to the Stockholders in
connection with any written consent by or meeting of the Stockholders
(collectively, "Stockholder Materials"), at the date on which such information
---------------------
was or is supplied, contained or will contain any untrue statement of a material
fact or did omit or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not materially misleading; provided,
however, that the Company makes no representations or warranties regarding
information furnished by or related to WatchGuard or Merger Sub.
2.19 Xxxx-Xxxxx-Xxxxxx
The Company is its own ultimate parent entity as defined under the rules
and regulations promulgated under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended (the "Xxxx-Xxxxx-Xxxxxx Act"). The Company is not a $10
---------------------
million person as defined thereunder. The Company is not "engaged in
manufacturing" for purposes of the Xxxx-Xxxxx-Xxxxxx Act. Each Key Stockholder
either (a) is not a $10 million person as defined thereunder or (b) is a
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$10 million person but is acquiring the WatchGuard Common Stock solely for the
purpose of investment within the meaning of 16 C.F.R. 802.9.
2.20 Full Disclosure
No information furnished by the Company or the Key Stockholders to
WatchGuard or its representatives in connection with this Agreement (including,
but not limited to, the Company Financial Statements and all information in the
Company Disclosure Memorandum and the other Exhibits hereto) or the Operative
Documents contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements so made or information
so delivered not misleading.
ARTICLE 3- REPRESENTATIONS AND WARRANTIES OF WATCHGUARD AND MERGER SUB
In order to induce the Company and the Key Stockholders to enter into and
perform this Agreement and the Operative Documents, WatchGuard and Merger Sub
jointly and severally represent and warrant to the Company and the Key
Stockholders as of the date of this Agreement and as of the Closing Date as
follows in this Article 3:
3.1 Organization
WatchGuard is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware. Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Delaware. Each of WatchGuard and Merger Sub has all requisite corporate
power and authority to own, operate and lease its respective properties and
assets, to carry on its respective business as now conducted and as currently
proposed to be conducted, to enter into and perform its obligations under this
Agreement and the Operative Documents to which WatchGuard or Merger Sub is a
party, and to consummate the transactions contemplated hereby and thereby. Each
of WatchGuard and Merger Sub is duly qualified and licensed as a foreign
corporation to do business and is in good standing in each jurisdiction in which
the character of properties occupied, owned or held under lease by WatchGuard or
Merger Sub, as applicable, or the nature of the business conducted by WatchGuard
or Merger Sub, as applicable, makes such qualification or licensing necessary,
except where the failure to be so qualified or in good standing would not have a
material adverse effect on the business, operations, assets, liabilities
(absolute, accrued, contingent or otherwise), condition (financial or other) or
prospects of WatchGuard and its subsidiaries taken as a whole (a "WatchGuard
----------
Material Adverse Effect"); provided, however, that a WatchGuard Material Adverse
-----------------------
Effect shall not include (a) any change, circumstance, event or effect that
relates to or results from the announcement or other disclosure or consummation
of the transactions contemplated by this Agreement or the Operative Documents or
general economic conditions or (b) changes in the trading price of the
WatchGuard Common Stock. Each of WatchGuard and Merger Sub has full corporate
power and authority to execute, deliver and perform this Agreement and the
Operative Documents to which it is a party, and to carry out the transactions
contemplated hereby and thereby. All the issued and outstanding shares of
capital stock of Merger Sub are held of record and beneficially by WatchGuard.
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3.2 Enforceability
All corporate action on the part of WatchGuard and Merger Sub and their
respective officers, directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement and the Operative
Documents to which WatchGuard or Merger Sub is a party, the consummation of the
Merger and the performance of all their respective obligations under this
Agreement and the Operative Documents to which WatchGuard or Merger Sub is a
party has been taken or will be taken prior to the Effective Time. All such
corporate action of the Board of Directors of each of WatchGuard and Merger Sub
has been taken. This Agreement has been, and each of the Operative Documents to
which WatchGuard is a party will have been at the Closing, duly executed and
delivered by WatchGuard, and this Agreement is, and each of the Operative
Documents to which WatchGuard is a party will be at the Closing, a legal, valid
and binding obligation of WatchGuard, enforceable against WatchGuard in
accordance with its terms, except as to the effect, if any, of the
Enforceability Exceptions. This Agreement has been, and each of the Operative
Documents to which Merger Sub is a party will have been at the Closing, duly
executed and delivered by Merger Sub, and this Agreement is, and each of the
Operative Documents to which Merger Sub is a party will be at the Closing, a
legal, valid and binding obligation of Merger Sub, enforceable against Merger
Sub in accordance with its terms, except as to the effect, if any, of the
Enforceability Exceptions.
3.3 Securities
The WatchGuard Common Stock to be issued pursuant to this Agreement has
been duly authorized for issuance, and such WatchGuard Common Stock, when issued
and delivered to the Stockholders pursuant to this Agreement, shall be validly
issued, fully paid and nonassessable.
3.4 Capitalization; Nasdaq Listing
The authorized capital stock of WatchGuard consists of 80,000,000 shares of
WatchGuard Common Stock and 10,000,000 shares of preferred stock, $.001 par
value (the "WatchGuard Preferred Stock"). As of September 22, 2000, (a)
24,448,961 shares of WatchGuard Common Stock were issued and outstanding, (b)
options to purchase 5,803,095 shares of WatchGuard Common Stock were
outstanding, and (c) no shares of WatchGuard Preferred Stock were issued and
outstanding. The WatchGuard Common Stock is quoted and traded on the Nasdaq
National Market, no suspension of trading in the WatchGuard Common Stock is in
effect or, to WatchGuard's knowledge, threatened, and the WatchGuard Common
Stock meets the criteria for listing and trading on the Nasdaq National Market.
3.5 No Approvals or Notices Required; No Conflicts With Instruments
The execution, delivery and performance of this Agreement and the Operative
Documents by Merger Sub and WatchGuard, as applicable, and the consummation by
each of them of the transactions contemplated hereby and thereby will not (a)
constitute a violation (with or without the giving of notice or lapse of time,
or both) of any provision of law or any judgment, decree, order, regulation or
rule of any court or other governmental authority applicable to WatchGuard
-24-
or Merger Sub; (b) require any consent, approval or authorization of any Person,
except (i) compliance with applicable securities laws and (ii) the filing of all
documents necessary to consummate the Merger with the Massachusetts Secretary
and the Delaware Secretary; (c) result in a default (with or without the giving
of notice or lapse of time, or both) under, or acceleration or termination of,
or the creation in any party of the right to accelerate, terminate, modify or
cancel, any agreement, lease, note or other restriction, encumbrance, obligation
or liability to which WatchGuard or Merger Sub is a party or by which it is
bound or to which any assets of WatchGuard or Merger Sub are subject; or (d)
conflict with or result in a breach of or constitute a default under any
provision of the Restated Certificate of Incorporation or Restated Bylaws of
WatchGuard or the Certificate of Incorporation or Bylaws of Merger Sub.
3.6 SEC Documents; SEC Reporting
WatchGuard has made available to the Stockholders true and complete copies
of (a) its Annual Report on Form 10-K/A for the year ended December 31, 2000 and
(b) its Quarterly Reports for the quarters ended March 31, 2000 and June 30,
2000 (collectively, the "SEC Documents"). As of the date hereof, there have been
-------------
no amendments to any of the SEC Documents delivered to the Stockholders. As of
their respective filing dates, each of the SEC Documents complied in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended, as applicable, and the applicable rules and regulations of the
Commission promulgated thereunder.
3.7 Absence of Certain Changes
Since the June 30, 2000 consolidated financial statements included in the
SEC Documents delivered to the Stockholders, there has not been any change that,
by itself or in conjunction with all other such changes, has had or could
reasonably be expected to have a WatchGuard Material Adverse Effect, except as
disclosed in the SEC Documents to the date of this Agreement.
3.8 Information Supplied by WatchGuard
None of the information supplied or to be supplied by WatchGuard for
inclusion in the Stockholder Materials, including, without limitation, the SEC
Documents, at the date on which such information was or is supplied contained or
will contain any untrue statement of a material fact or did omit or will omit to
state any 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
or are made, not materially misleading; provided, however, that WatchGuard makes
no representations or warranties regarding information furnished by or related
to the Stockholders or the Company.
3.9 Brokers or Finders
WatchGuard has not incurred, and will not incur, directly or indirectly, as
a result of any action taken by or on behalf of WatchGuard, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Merger, this Agreement or any
-25-
transaction contemplated hereby that would result in a claim against the Company
or the Stockholders.
3.10 Full Disclosure
No information furnished by WatchGuard or Merger Sub to the Company, the
Key Stockholders or their representatives in connection with this Agreement or
the Operative Documents (including the SEC Documents) contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements so made or information so delivered not misleading.
ARTICLE 4 - DELIVERIES
4.1 Deliveries of the Company and the Key Stockholders
Prior to the Effective Time, the Company and the Key Stockholders shall
deliver to WatchGuard and the Merger Sub:
(a) the opinion letter of Xxxxxx, Xxxx & Xxxxxxx,
counsel for the Company and the Key Stockholders, dated the Closing Date, in the
form attached hereto as Exhibit 4.1(a);
---------------
(b) a certificate of the Secretary of the Company, in
form and substance reasonably satisfactory to WatchGuard, certifying as to the
authenticity and effectiveness of the actions of the Board of Directors and the
Stockholders, the authorization of the Merger and the transactions contemplated
by this Agreement and the Operative Documents and the Articles of Organization
and By-laws of the Company;
(c) a certificate of the Massachusetts Secretary to the
effect that the Company is a corporation duly incorporated, validly existing and
in good standing under Massachusetts Law;
(d) a Foreign Investment in Real Property Tax Act
Affidavit pursuant to Section 1445 of the Code, in the form attached hereto as
Exhibit 4.1(d);
---------------
(e) a copy of the resignation, effective as of the
Effective Time, of each of the directors and officers of the Company;
(f) the Registration Rights Agreement in the form
attached hereto as Exhibit 4.1(f) (the "Registration Rights Agreement"), duly
-----------------------------
executed by each of the Stockholders;
(g) the Escrow Agreement, duly executed by the Company
and the Stockholder Representative (as defined in Section 6.9);
(h) an employment agreement in the form attached hereto
as Exhibit 4.1(h) (the "Employment Agreement"), duly executed by each of Xxxx X.
-------------- --------------------
Xxxxxx, Xxxxxxx Xxxxxxxx, Xxxxx Xxxx and Xxxx Xxxx (the "Key Employees");
-------------
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(i) a retention agreement in the form attached hereto
as Exhibit 4.1(i) (the "Retention Agreement"), duly executed by each of the Key
-------------- -------------------
Employees;
(j) an Investor Questionnaire and Agreement in the form
attached hereto as Exhibit 4.1(j) (the "Investor Questionnaire"), completed and
-------------- ----------------------
duly executed by each of the Stockholders;
(k) a Stock Option Letter Agreement (Waiver) in the
form attached hereto as Exhibit 4.1(k), duly executed by each holder of an
--------------
Option (other than holders of Options who are not employees of the Company), in
which each such holder shall agree to waive any acceleration of vesting as a
result of the Merger;
(l) a WatchGuard standard Form of Proprietary
Information, Invention and Noncompetition Agreement in the form attached hereto
as Exhibit 4.1(l), executed by each of the Company's employees;
--------------
(m) written consents to the Merger or waivers, as
applicable, reasonably satisfactory in all respects to WatchGuard, from each of
the parties (other than the Company) to the agreements, leases, notes or other
documents, if any, identified in the Schedules to the Company Disclosure
Memorandum as requiring consent or waiver to consummate the Merger;
(n) evidence reasonably satisfactory to WatchGuard that
the Company has all notes, bonds or other debt and paid all amounts owing under
any loans or other lending agreements or arrangements, and has obtained the
release of any and all Encumbrances with respect to any of the Company's assets;
(o) evidence reasonably satisfactory to WatchGuard of
the termination of (i) the Company's Stockholders' Agreement dated as of March
23, 2000 by and among the Company and certain Stockholders and (ii) the
Company's Investor Rights Agreement dated as of March 23, 2000, by and among the
Company and certain Stockholders;
(p) a spreadsheet (the "Merger Consideration
--------------------
Spreadsheet"), in a form reasonably acceptable to WatchGuard and certified by an
-----------
officer of the Company, detailing (i) the number of shares of Company Capital
Stock held by each Stockholder, (ii) the amount of WatchGuard Common Stock and
cash to be received by each such Stockholder at the Effective Time, (iii) with
respect to each Stockholder, the number of Indemnification Escrow Shares to be
deposited in the Escrow Fund, and (iv) with respect to each Key Employee, the
number of Retention Shares to be held by WatchGuard pursuant to the Retention
Agreements;
(q) a spreadsheet (the "Option Consideration
--------------------
Spreadsheet"), in a form reasonably acceptable to WatchGuard and certified by an
-----------
officer of the Company, detailing, with respect to each Option, the number of
shares of Company Capital Stock subject to such Option and the exercise price
thereof, the amount of options to purchase shares of WatchGuard Common Stock to
be received by the holder of such Option following the assumption of such Option
by
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WatchGuard, the exercise price thereof after the assumption of such Option by
WatchGuard, and the vesting schedule with respect to such Option;
(r) stock powers, in a form and in such number as is
reasonably acceptable to WatchGuard, endorsed in blank by each of the
Stockholders, and such other documentation as WatchGuard or the Escrow Agent may
prescribe to carry out the purposes of the Retention Agreements and Article 6
hereof and the Escrow Agreement; and
(s) evidence of termination, in form and substance
reasonably satisfactory to WatchGuard, of the Stockholders' Agreement and the
Investors' Rights Agreement between the Company and certain of its stockholders,
each dated March 23, 2000.
4.2 Deliveries by WatchGuard and Merger Sub
Prior to the Effective Time, WatchGuard and Merger Sub shall deliver to the
Company and the Key Stockholders:
(a) the opinion letter of Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx
LLP, counsel for WatchGuard and Merger Sub, dated the Closing Date, in the form
attached hereto as Exhibit 4.2(a);
---------------
(b) certificates of the Secretary of WatchGuard and of
Merger Sub, in form and substance reasonably satisfactory to the Company, as to
the authenticity and effectiveness of the actions of the Board of Directors of
WatchGuard and the Board of Directors and sole stockholder of Merger Sub and the
authorization of the Merger and the transactions contemplated by this Agreement
and the Operative Documents;
(c) certificates of the Delaware Secretary to the effect
that each of WatchGuard and Merger Sub is a corporation duly incorporated,
validly existing and in good standing under Delaware Law;
(d) an Employment Agreement, duly executed by Merger
Sub, with respect to each of the Key Employees;
(e) the Registration Rights Agreement, duly executed by
WatchGuard; and
(f) the Escrow Agreement, duly executed by WatchGuard.
ARTICLE 5- POST-CLOSING COVENANTS
The parties covenant and agree as set forth in this Article 5.
5.1 Further Action; Commercially Reasonable Efforts
In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, each party
to this Agreement shall use its reasonable
-28-
best efforts to take all such action. Neither the Company nor any Key
Stockholder shall undertake any course of action inconsistent with this
Agreement or that would make any representations, warranties or agreements made
by the Company or the Key Stockholders in this Agreement or in the Operative
Documents untrue or misleading. After the Effective Time, each party hereto, at
the request of and without any further cost or expense to the other parties,
shall take any further actions necessary or desirable to carry out the purposes
of this Agreement or the Operative Documents, to vest in the Surviving
Corporation full title to all properties, assets and rights of the Company and
to effect the issuance of the WatchGuard Common Stock to the Stockholders
pursuant to the terms and conditions hereof.
5.2 Publicity
No party hereto shall issue any press release or otherwise make any
statements to any third party with respect to this Agreement or the transactions
contemplated hereby, other than the issuance by WatchGuard of a press release
reasonably acceptable to the Company announcing this Agreement and the
transactions contemplated hereby or as required by law. Any party who is
required by law to make any such disclosure shall provide notice in advance of
the disclosure to all other parties. Such notice shall contain (a) the contents
of the proposed disclosure; (b) the reasons that the party contemplating
disclosure believes that disclosure is required by law; and (c) the proposed
time and place of such disclosure.
5.3 Noncompetition Agreement
(a) During the two-year period commencing on the Closing
Date, neither the Company nor any Key Stockholder shall engage in any Restricted
Activities (as defined below), whether directly or indirectly, for their
accounts or otherwise, or as a member, shareholder, owner, partner, principal,
agent, joint venturer, consultant, advisor, franchisor or franchisee,
independent contractor or otherwise, in, with or of any Person that engages
directly or indirectly in any Restricted Activities. As used herein, "Restricted
----------
Activities" shall mean the research, development, manufacture, marketing,
----------
promotion, sale or distribution of any of the Products or any other computer
network security products or services that compete with products or services
that are currently (or, to the actual knowledge of such Key Stockholder, are
proposed to be) developed, produced, marketed or sold by WatchGuard, worldwide.
(b) During the two-year period commencing on the Closing
Date, neither the Company nor any Key Stockholder shall, directly or indirectly,
(i) hire, solicit or encourage to leave the employment of WatchGuard or its
affiliates (A) any former employee of the Company hired by WatchGuard or its
affiliates or (B) any employee of WatchGuard or its affiliates engaged in any
Restricted Activities, or have any arrangement (financial, consulting or
otherwise) with any such individual or (ii) solicit or encourage any licensor,
licensee, distributor, reseller or customer of, or any other person or entity in
a business relationship with, WatchGuard with respect to any computer network
security products or services that compete with any of the Products or services
that are currently (or, to the actual knowledge of such Key Stockholder, are
proposed to be, developed, produced, marketed or sold by WatchGuard.
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(c) Notwithstanding the provisions above, the Company
and the Key Stockholders may at any time own, directly or indirectly, for
investment purposes only, 1% or less, in the aggregate (as determined at the
time of acquisition), of any class of securities of any entity traded on any
national securities exchange or quoted on the Nasdaq National Market.
(d) The provisions of this Section 5.3 shall be in
addition to the noncompetition and nonsolicitation agreements of any Key
Stockholder made in connection with such Key Stockholder's employment by the
Surviving Corporation or WatchGuard.
5.4 Option Shares; Registration
WatchGuard shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of WatchGuard Common Stock for delivery
upon exercise of the Options assumed in accordance with Section 1.7.1(d).
WatchGuard shall use commercially reasonable efforts to cause to be filed with
respect to WatchGuard Common Stock subject to such Options a registration
statement on Form S-8 (or any successor form) with respect to those shares
eligible to be registered on a primary basis on such form, such Form S-8 to be
effective as promptly as practicable after the date on which the requirements of
Items 2, 5 and 7 of Form 8-K have been satisfied and the responsive Current
Report on Form 8-K, as it may be amended, with respect to the Merger has been
filed with the SEC. WatchGuard shall use all commercially reasonable efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such Options remain outstanding.
5.5 Option Grants
No later than 30 days after the Effective Time, WatchGuard will grant
stock options under one of its existing employee stock option plans (the "New
---
Options") to acquire at least 500,000 shares of WatchGuard Common Stock, at an
-------
exercise price per share equal to the fair market value of WatchGuard Common
Stock on the date of grant, to the Key Employees and other employees of the
Company (with the allocation of such grants among such employees to be
determined by WatchGuard in its sole discretion, subject to any provision of the
Employment Agreements). The vesting schedule for each grant of New Options shall
be as follows: 25% of the New Options shall vest on the date that is 12 months
after the grant date and an additional 2.0833% shall vest each month thereafter,
with 100% of the New Options vested and exercisable four years after the grant
date.
5.6 Audit
WatchGuard, the Company and the Key Stockholders shall cooperate with one
another and shall use commercially reasonable efforts to prepare as promptly as
practicable after the Closing the audited financial statements of the Company
required to be filed by WatchGuard pursuant to Item 7 of Form 8-K under the
Securities Act.
5.7 Tax Matters - Company and Stockholders
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Unless otherwise required by law, the parties hereto shall treat the Merger
as a reorganization under Section 368 of the Code and the underlying Treasury
Regulations for all Tax reporting purposes; provided, however, that none of the
-------- -------
Company, WatchGuard nor the Merger Sub makes any representation or warranty with
respect to, and expressly disclaims any responsibility for, any tax consequences
to the Company or Stockholders arising out of the structure or terms of this
Agreement, except for the representations, warranties and agreements of the
Company with respect to taxes set forth in Sections 1.7.2, 2.7 and 6.2).
ARTICLE 6 - SURVIVAL AND INDEMNIFICATION
6.1 Survival
All representations and warranties contained in this Agreement or in the
Operative Documents or in any certificate delivered pursuant hereto or thereto
shall survive until the first anniversary of the Closing Date (the "Escrow
------
Termination Date"), and shall not be deemed waived or otherwise affected by any
----------------
investigation made or any knowledge acquired with respect thereto; provided,
however, that (a) the representations and warranties of the Company and the Key
Stockholders contained in Section 2.3 (Capitalization) shall survive
indefinitely; (b) the representations and warranties of the Company and the Key
Stockholders contained in Section 2.7 (Taxes) and Section 2.13 (Employee Benefit
Plans) shall survive the Effective Time until the expiration of the applicable
statute of limitations plus 30 days, for the matter addressed in each such
representation and warranty; (c) the representations and warranties of the
Company and the Key Stockholders contained in Section 2.14 (Intellectual
Property) shall survive the Effective Time until the second anniversary of the
Closing Date; and (d) any claim relating to fraud shall survive the Effective
Time until the expiration of the applicable statute of limitations. The
covenants and agreements contained in this Agreement shall survive and continue
until all obligations with respect thereto shall have been performed or
satisfied or shall have been terminated in accordance with their terms.
Notwithstanding the foregoing, any claim asserted in writing, setting forth in
sufficient detail the basis for such claim, before the Escrow Termination Date
shall survive until finally resolved and satisfied in full if the party entitled
to indemnification prevails in establishing its right to indemnification.
6.2 Indemnification by the Stockholders
The Stockholders severally and not jointly shall indemnify and hold
WatchGuard, the Surviving Corporation and each of their respective officers,
directors and affiliates (the "WatchGuard Indemnified Parties") harmless from
------------------------------
and against, and shall reimburse the WatchGuard Indemnified Parties for, any and
all loss, obligation, deficiency, damage, claim, liability, cost and expense
(including, without limitation, in the case of a claim by a third party, the
amount of any settlement entered into pursuant hereto, and all reasonable legal
fees and other expenses) ("Losses") arising out of (a) any inaccuracy or
------
misrepresentation in, or breach of, any representation or warranty made by the
Company or any Key Stockholder in this Agreement or in any Operative Document or
in any certificate delivered pursuant hereto or thereto; (b) any failure by the
Company or the Key Stockholders to perform or comply, in whole or in part, with
any covenant or agreement in this Agreement or in any Operative Document; (c)
all liability for Taxes of the Company assessed during or attributable to any
taxable period ending on or prior to
-31-
the Effective Date, and the portion of any taxable period that includes, but
does not end on, the Effective Date, to the extent such Taxes exceed the reserve
for Tax liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the face of
the Closing Balance Sheet (rather than in any notes thereto); (d) any liability
for Taxes resulting from the transactions contemplated by this Agreement,
including, without limitation, transfer, sales, use, excise, conveyance and
similar taxes, excluding any Taxes resulting from a reassessment of Real
Property or Personal Property occurring as a result of the Merger; (e) those
expenses of the Company incurred in connection with the transactions
contemplated hereby that are unreasonable; and (f) any fees of the Escrow Agent
that are not deducted from the Merger Consideration as set forth in Sections
1.7.1(b)(i) and 7.2.
6.3 Indemnification by WatchGuard
WatchGuard shall indemnify and hold the Stockholders, the Company and the
Company's officers, directors and affiliates (the "Company Indemnified Parties"
---------------------------
and, together with the WatchGuard Indemnified Parties, the "Indemnified
-----------
Parties") harmless from and against, and shall reimburse the Company Indemnified
-------
Parties for, any and all Losses arising out of or in connection with (a) any
inaccuracy in, or misrepresentation or breach of, any representation or warranty
made by WatchGuard or Merger Sub in this Agreement or in any Operative Document
or in any certificate delivered pursuant hereto or thereto and (b) any failure
by WatchGuard or Merger Sub to perform or comply, in whole or in part, with any
covenant or agreement in this Agreement or in any Operative Document.
6.4 Threshold and Limitations
(a) The Indemnified Parties shall not be entitled to receive any
indemnification payment with respect to any claims for indemnification under
this Article 6 until the aggregate Losses for which such Indemnified Parties
would be otherwise entitled to receive indemnification exceed $200,000 (the
"Threshold"); provided, however, that once the aggregate losses exceed the
--------- -------- -------
Threshold, such Indemnified Parties shall be entitled to indemnification for the
aggregate amount of all Losses without regard to the Threshold.
(b) Except for Losses based on fraud,
(i) with respect to any Key Stockholder, the total
liability of such Key Stockholder pursuant to this Article 6 shall be limited to
the dollar value of the Merger Consideration to which such Key Stockholder was
entitled at the Effective Time, and any claims for indemnification made by any
WatchGuard Indemnified Party against the Key Stockholders shall be satisfied
first by forfeiture of the Escrow Shares pursuant to the terms of the Escrow
Agreement and, to the extent the Escrow Shares are insufficient to satisfy such
claims, by forfeiture of Retention Shares pursuant to the terms of the Retention
Agreements or by payment of cash by the Key Stockholders pursuant to the terms
of this Article 6;
(ii) with respect to any other Stockholder, the total
liability of such Stockholder pursuant to this Article 6 shall be limited to the
dollar value of such Stockholder's pro rata portion of the Escrow Shares, and
resort to such Escrow Shares shall be
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the sole remedy and method of recourse for any claim for indemnification made by
any WatchGuard Indemnified Party under this Article 6; and
(iii) the total liability of WatchGuard pursuant to this
Article 6 shall be limited to the aggregate dollar value of the Merger
Consideration (with shares of WatchGuard Common Stock valued for purposes of
this Section 6.4(b) according to the Base Price).
(c) An indemnifying party shall not be obligated to defend and
hold harmless an Indemnified Party, or otherwise be liable to such party, with
respect to any claims made by the Indemnified Party after the Escrow Termination
Date or other applicable time limitation described in Section 6.1.
(d) Notwithstanding anything to the contrary herein, any
Stockholder may elect to pay any claim for indemnification under this Article 6
in cash in lieu of Indemnification Escrow Shares in accordance with the
procedures set forth in the Escrow Agreement or, in the case of the Key
Stockholders, in lieu of Retention Shares, in accordance with the procedures set
forth in the Retention Agreement.
6.5 Escrow Fund
The Indemnification Escrow Shares shall be deemed, as of the Effective Time
(in the case of the Indemnification Escrow Shares) or as of the time of issuance
(in the case of any New Shares (as defined in Section 6.7), to be pledged by the
Stockholders to, and shall be held by, the Escrow Agent or any successor thereto
pursuant to this Agreement and the Escrow Agreement. The Indemnification Escrow
Shares and any New Shares shall be collectively referred to as the "Escrow
------
Shares" and shall constitute the "Escrow Fund". So long as any Escrow Shares are
------ -----------
held by the Escrow Agent hereunder and under the Escrow Agreement, WatchGuard
shall have, and the Stockholders by execution of the Investor Questionnaire
shall be deemed to have granted to WatchGuard, effective as of the Effective
Time (in the case of the Indemnification Escrow Shares) or at the time of
issuance (in the case of any New Shares), a perfected, first-priority security
interest in such Escrow Shares to secure payment of amounts payable by the
Stockholders in respect of claims under this Article 6. In connection therewith,
each Stockholder shall execute and deliver such instruments as WatchGuard may
from time to time reasonably request for the purpose of evidencing and
perfecting such security interest.
6.6 Escrow Period
Subject to the provisions of this Section 6.6, the Escrow Shares shall
remain in the Escrow Fund, which shall remain in existence until the Escrow
Termination Date (the "Escrow Period"). Upon the expiration of the Escrow
-------------
Period, the Escrow Fund shall terminate with respect to all remaining Escrow
Shares and the Escrow Agent shall deliver all such Escrow Shares to the
Stockholders; provided, however, that the number of Escrow Shares that, in the
-------- -------
reasonable judgment of WatchGuard, subject to the objection of the Stockholder
Representative and the subsequent arbitration of the claim in accordance with
Section 4(e) of the Escrow Agreement, is necessary to satisfy any unsatisfied
claims of which proper notice is delivered to
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the Escrow Agent, in accordance with the Escrow Agreement, before the expiration
of the Escrow Period with respect to facts and circumstances existing on or
before the Escrow Termination Date, shall remain in the Escrow Fund (and the
Escrow Fund shall remain in existence) until such claims have been resolved. As
soon as all such claims have been resolved, the Escrow Agent shall deliver to
the Stockholders all Escrow Shares and other property then remaining in the
Escrow Fund that is not required to satisfy such claims. Deliveries of Escrow
Shares to the Stockholders pursuant to this Section 6.6 shall be made in
accordance with each Stockholder's proportionate interest in the Escrow Fund, as
determined in accordance with Section 3(a) of the Escrow Agreement.
6.7 Distributions; Voting
(a) Any shares of WatchGuard Common Stock or other equity
securities issued or distributed by WatchGuard (including shares issued upon a
stock split) with respect to the Indemnification Escrow Shares that have not
been released from the Escrow Fund (the "New Shares") shall be added to the
----------
Escrow Fund and become a part of the Escrow Shares. When and if cash dividends
on Escrow Shares in the Escrow Fund shall be declared and paid, they shall be
distributed to the beneficial owners of such shares on the applicable
distribution date. Such dividends will not become part of the Escrow Fund and
will not be available to satisfy Losses. The beneficial owners of such shares
shall pay any taxes on such dividends.
(b) Each Stockholder shall possess voting rights with respect to
that number of Escrow Shares issued to and deposited in the Escrow Fund on
behalf of such Stockholder (and on any voting securities added to the Escrow
Fund with respect to such shares), so long as such shares or other voting
securities are held in the Escrow Fund. WatchGuard shall promptly deliver to the
Escrow Agent, and the Escrow Agent shall promptly deliver to each Stockholder,
copies of all proxy solicitation materials.
6.8 Method of Asserting Claims; Resolution of Conflicts
All claims for indemnification against the Escrow Fund by WatchGuard, the
Surviving Corporation or any other Indemnified Party pursuant to this Article 6
shall be made in accordance with the provisions of the Escrow Agreement, and any
conflicts with respect to the subject matter of this Article 6 (except for the
provisions set forth in Section 6.10(b)) shall be resolved in accordance with
the provisions of the Escrow Agreement. All claims for indemnification against
the Retention Shares by WatchGuard, the Surviving Corporation or any other
Indemnified Party pursuant to this Article 6 shall be made in accordance with
the provisions of the Retention Agreement, and any conflicts with respect to the
subject matter of this Article 6 shall be resolved in accordance with the
provisions of the Retention Agreement.
6.9 Stockholder Representative; Power of Attorney
(a) By executing the Investor Questionnaire, each Stockholder
shall (a) agree to be bound by the indemnification obligations of the
Stockholders set forth in this Article 6, (b) consent to the establishment of
the Escrow Fund to secure the obligations of the Stockholders under Section 6.2,
(c) irrevocably authorize and appoint Xxxx X. Xxxxxx (the
-34-
"Stockholder Representative"), with full power of substitution and
--------------------------
resubstitution, as his, her or its representative and true and lawful attorney-
in-fact and agent to act in his, her or its name, place and stead as
contemplated by this Article 6 and the Escrow Agreement and to execute in his,
her or its name and on behalf of such Stockholder the Escrow Agreement and any
other agreement, certificate, instrument or document to be delivered by the
Stockholders in connection with the Escrow Fund.
(b) The Stockholder Representative may resign at any time. Upon
such resignation, the Stockholder Representative shall appoint a new Stockholder
Representative to replace such resigning Stockholder Representative with the
same powers and duties as such resigning Stockholder Representative, provided
that such newly appointed Stockholder Representative shall have been a
Stockholder immediately prior to the Effective Time.
(c) If the Stockholder Representative or any successor shall
die, or become unable to act as the Stockholder Representative, a replacement
shall promptly be appointed by a writing signed by Stockholders who received a
majority of the Merger Consideration, provided that such newly appointed
Stockholder Representative shall have been a Stockholder immediately prior to
the Effective Time.
6.10 Third-Party Claims
(a) In the event an Indemnified Party becomes aware of a third-
party claim that WatchGuard or such Indemnified Party believes is reasonably
likely to result in a demand for indemnification under this Article 6,
WatchGuard shall notify the Stockholder Representative of such claim; provided,
however, that failure to so notify the Stockholder Representative shall not
relieve the Stockholders from any liability they have under this Article 6 or
the Escrow Agreement with respect to such third-party claim, except to the
extent the Stockholder Representative demonstrates that the indemnifying party's
ability to resolve such third-party claim is adversely affected by WatchGuard's
failure to notify or such notice is not given prior to the Escrow Termination
Date. That number of Escrow Shares that, in the reasonable judgment of
WatchGuard, subject to the objection of the Stockholder Representative and the
subsequent arbitration of the claim in accordance with Section 4(e) of the
Escrow Agreement, would be necessary to satisfy a claim for indemnification with
respect to such third-party claim, if such third-party claim were to be
determined in a matter adverse to the Indemnified Party and the Indemnified
Party were to prevail in establishing its right to indemnification, shall remain
in the Escrow Fund until such third-party claim and claim for indemnification
have been resolved, subject to the provisions of Section 6.4 of this Agreement.
(b) Within 10 days of receipt of such notice of a third-party
claim, the Stockholder Representative shall be entitled to elect to participate
in the defense of such claim and, to the extent that the Stockholder
Representative so desires (unless any Stockholder is also party to such claim
and either of the Indemnified Party or WatchGuard determines in good faith that
joint representation would be inappropriate), to assume the defense of such
claim; provided that (i) the participation in or defense of such claim by the
Stockholder Representative shall be at the sole cost and expense of the
Stockholders; (ii) the Stockholder Representative shall not be entitled to
assume defense of such claim without WatchGuard's written approval of legal
counsel
-35-
for such defense (which consent shall not be unreasonably withheld or delayed);
(iii) the assumption of the defense of such claim shall conclusively establish
that such claim is within the scope of and subject to indemnification by the
Stockholders; and (iv) no compromise or settlement of such claim may be effected
by the Stockholder Representative without the prior written consent of the
Indemnified Party and WatchGuard unless (A) there is no finding or admission of
any violation of law or any violation of the rights of any Person and no effect
on any claims that may be made against the Indemnified Party or WatchGuard, (B)
the sole relief provided is monetary damages that are paid in full by the
Stockholders, and (C) neither the Indemnified Party nor WatchGuard will have any
liability with respect to any compromise or settlement of such claim without its
consent. In all other cases, WatchGuard shall have the right in its discretion
to defend, compromise or settle any such claim; provided, however, that
-------- -------
WatchGuard shall not settle such claim without the consent of the Stockholder
Representative (which consent shall not be unreasonably withheld or delayed). If
the Stockholder Representative consents in writing to any such settlement, the
Stockholder Representative shall have no power or authority to object under any
provision of this Article 6 or the Escrow Agreement to the amount of any claim
by WatchGuard against the Escrow Shares consistent with such settlement.
Notwithstanding the foregoing, if an Indemnified Party or WatchGuard determines
in good faith that there is a reasonable probability that a claim or a
compromise, settlement or adjudication of a claim may have a WatchGuard Material
Adverse Effect, other than as a result of monetary damages for which it would be
entitled to indemnification under this Article 6 or the Escrow Agreement, such
Indemnified Party or WatchGuard may, by notice to the Stockholder
Representative, assume the exclusive right to defend, compromise, or settle such
claim.
6.11 Adjustments to Escrow Fund
In the event that WatchGuard or the Surviving Corporation pays out any
amounts to holders of Dissenting Shares with respect to such shares, the
Indemnification Escrow Shares shall be automatically reduced by the number of
Indemnification Escrow Shares allocable to such Dissenting Shares. Upon
certification by WatchGuard to the Stockholder Representative of such event, the
Indemnification Escrow Shares and any New Shares allocable to such Dissenting
Shares shall be promptly retransferred to WatchGuard.
ARTICLE 7 - GENERAL
7.1 Amendment
This Agreement may not be amended except by an instrument in writing signed
by WatchGuard, the Company and the Stockholder Representative; provided,
however, that no amendment may be made that would reduce the amount or change
the type of consideration into which the Company Capital Stock is to be
converted upon consummation of the Merger without the approval of Stockholders
holding a majority of the shares of Company Capital Stock.
7.2 Expenses
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(a) Regardless of whether the transactions contemplated by this
Agreement are consummated, each party will pay its own fees and expenses
incident to the negotiation, preparation and execution of this Agreement
(including legal fees and accounting expenses); provided, however, that the
-------- -------
Merger Consideration shall be reduced by (i) any fees incurred by the Company in
connection with this Agreement and the Operative Documents that are unreasonable
(or, to the extent such unreasonable fees and expenses are not deducted from the
Merger Consideration, they shall be deemed to constitute Losses under Article 6
hereof) and (ii) the fees of the Escrow Agent; and provided, further, should any
-------- -------
action be brought hereunder, the attorneys' fees and expenses of the prevailing
party shall be paid by the other party to such action.
7.3 Notices
Any notice, request or demand desired or required to be given hereunder
shall be in writing given by personal delivery, confirmed facsimile transmission
or overnight courier service, in each case addressed as set forth below or to
such other address as any party shall have previously designated by such a
notice. The effective date of any notice, request or demand shall be the date of
personal delivery, the date on which successful facsimile transmission is
confirmed or the date actually delivered by a reputable overnight courier
service, as the case may be, in each case properly addressed as provided herein
and with all charges prepaid.
TO WATCHGUARD OR MERGER SUB:
WatchGuard Technologies, Inc.
000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: General Counsel
with a copy to:
Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
Xxxx X. Xxxxx
TO THE COMPANY OR THE KEY STOCKHOLDERS:
Qiave Technologies Corporation
000 Xxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxx X. Xxxxxx
TO THE STOCKHOLDER REPRESENTATIVE:
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Xxxx X. Xxxxxx
c/o Qiave Technologies Corporation
000 Xxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Fax: (000) 000-0000
in the case of any of the Company, the Key Stockholders or the Stockholder
Representative, with a copy to:
Xxxxxx, Hall & Xxxxxxx
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxx X. Xxxxxx, Xx.
7.4 Severability
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
7.5 Entire Agreement
This Agreement, the Operative Documents and that certain Non-Disclosure
Agreement between WatchGuard and the Company dated as of April 27, 2000
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof and thereof.
7.6 Specific Performance
Each of the parties hereto acknowledges and agrees that the other parties
hereto would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties hereto agrees that the other
parties hereto shall be entitled to an injunction to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof (including, without limitation, Article 6 and
Sections 5.3, 5.4 and 5.5) in any competent court having jurisdiction over the
parties, in addition to any other remedy to which they may be entitled at law or
in equity.
7.7 Assignment
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This Agreement shall not be assigned by operation of law or otherwise;
provided, however, that Merger Sub's rights and obligations may be assigned to
-------- -------
and assumed by WatchGuard or any other corporation wholly owned (directly or
through intermediate wholly owned subsidiaries) by WatchGuard, so long as any
such assignment does not (a) effect the economic or legal substance of the
transactions contemplated hereby or (b) create adverse tax consequences for the
Company or the Stockholders.
7.8 Parties in Interest
This Agreement shall be binding upon and inure solely to the benefit of the
parties hereto and their respective successors heirs, legal representatives and
permitted assigns, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
7.9 Governing Law
This Agreement shall be governed by, and construed in accordance with, the
laws of the state of Delaware applicable to contracts executed in and to be
performed in that state.
7.10 Headings
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.11 Counterparts
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
7.12 Waiver of Jury Trial
Each of WatchGuard, the Company, Merger Sub and each Key Stockholder 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, the transactions contemplated hereby or the actions
of such parties in the negotiation, administration, performance and enforcement
hereof.
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IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement and Plan of Merger as of the date and year first above written.
WATCHGUARD TECHNOLOGIES, INC.
By /s/ Xxxxxx X. Xxxxx
--------------------------------------
Name Xxxxxx X. Xxxxx
------------------------------------
Its Ex. VP, Fin., CFO, Sec. & Treas.
-------------------------------------
XXXXX ACQUISITION CORPORATION
By /s/ Xxxxxx X. Xxxxx
--------------------------------------
Name Xxxxxx X. Xxxxx
------------------------------------
Its VP, Treas. & Sec.
-------------------------------------
QIAVE TECHNOLOGIES CORPORATION
By /s/ Xxxx X. Xxxxxx
--------------------------------------
Name Xxxx X. Xxxxxx
------------------------------------
Its CEO
-------------------------------------
KEY STOCKHOLDERS
/s/ Xxxx X. Xxxxxx
-----------------------------------------
Xxxx X. Xxxxxx
/s/ Xxxxxxx Xxxxxxxx
-----------------------------------------
Xxxxxxx Xxxxxxxx
/s/ Xxxxx Xxxx
-----------------------------------------
Xxxxx Xxxx
/s/ Xxxx Xxxx
-----------------------------------------
Xxxx Xxxx
