Exhibit 1
[Conformed Copy]
AGREEMENT AND PLAN OF REORGANIZATION
by and among
DIGITAL ISLAND, INC.
BEACH ACQUISITION CORP.
and
SANDPIPER NETWORKS, INC.
TABLE OF CONTENTS
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Page
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ARTICLE I THE MERGER............................................................. 2
1.1 The Merger............................................................. 2
1.2 Closing; Effective Time................................................ 2
1.3 Effect of the Merger................................................... 2
1.4 Articles of Incorporation; Bylaws...................................... 2
1.5 Directors and Officers................................................. 3
1.6 Effect on Capital Stock................................................ 3
1.7 Surrender of Certificates.............................................. 5
1.8 No Further Ownership Rights in Company Capital Stock................... 7
1.9 Lost, Stolen or Destroyed Certificates................................. 7
1.10 Tax Consequences....................................................... 8
1.11 Withholding............................................................ 8
1.12 Exemption from Registration; California Permit; Registration Rights.... 8
1.13 Taking of Necessary Action; Further Action............................. 9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY............................. 9
2.1 Organization, Standing and Power....................................... 9
2.2 Capital Structure...................................................... 10
2.3 Authority.............................................................. 11
2.4 Financial Statements................................................... 12
2.5 Absence of Certain Changes............................................. 13
2.6 Absence of Undisclosed Liabilities..................................... 13
2.7 Litigation............................................................. 13
2.8 Restrictions on Business Activities.................................... 14
2.9 Governmental Authorization............................................. 14
2.10 Title to Property...................................................... 14
2.11 Intellectual Property.................................................. 14
2.12 Environmental Matters.................................................. 15
2.13 Taxes.................................................................. 16
2.14 Employee Benefit Plans................................................. 17
2.15 Certain Agreements Affected by the Merger.............................. 20
2.16 Employee Matters....................................................... 20
2.17 Interested Party Transactions.......................................... 21
2.18 Insurance.............................................................. 21
2.19 Compliance With Laws................................................... 21
2.20 Minute Books........................................................... 21
2.21 Accounts Receivable.................................................... 21
2.22 Customers and Suppliers................................................ 21
2.23 Material Contracts..................................................... 21
2.24 No Breach of Material Contracts........................................ 22
2.25 Year 2000 Compliance................................................... 23
2.26 Export Control Laws.................................................... 24
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2.27 Product Releases....................................................... 24
2.28 Complete Copies of Materials........................................... 24
2.29 Shareholder Agreement; Irrevocable Proxies............................. 24
2.30 Vote Required.......................................................... 24
2.31 Board Approval......................................................... 24
2.32 Tax Treatment.......................................................... 24
2.33 Information Statement and Proxy Statement.............................. 25
2.34 Company Affiliates..................................................... 25
2.35 Brokers' and Finders' Fees............................................. 26
2.36 Representations Complete............................................... 26
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT............................. 26
3.1 Organization, Standing and Power....................................... 26
3.2 Capital Structure...................................................... 26
3.3 Authority.............................................................. 27
3.4 SEC Documents; Financial Statements.................................... 28
3.5 Absence of Certain Changes............................................. 29
3.6 Absence of Undisclosed Liabilities..................................... 29
3.7 Litigation............................................................. 29
3.8 Restrictions on Business Activities.................................... 30
3.9 Intellectual Property.................................................. 30
3.10 Certain Agreements Affected by the Merger.............................. 31
3.11 Principal Contracts.................................................... 31
3.12 Vote Required; Voting Agreements....................................... 32
3.13 Board Approval......................................................... 32
3.14 Information Statement and Proxy Statement.............................. 32
3.15 Tax Treatment.......................................................... 32
3.16 Broker's and Finders' Fees............................................. 32
3.17 Complete Copies of Materials; Representations Complete................. 33
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................................... 33
4.1 General Conduct of Business............................................ 33
4.2 Conduct of Business of Company......................................... 33
4.3 Conduct of Parent...................................................... 36
4.4 No Solicitation by Company............................................. 38
4.5 No Solicitation by Parent.............................................. 39
ARTICLE V ADDITIONAL AGREEMENTS.................................................. 40
5.1 Information Statement and Proxy Statement.............................. 40
5.2 Meetings of Securityholders............................................ 42
5.3 Access to Information.................................................. 42
5.4 Confidentiality........................................................ 43
5.5 Public Disclosure...................................................... 43
5.6 Consents; Cooperation.................................................. 43
5.7 Further Assurances..................................................... 44
5.8 Company Shareholder Agreements......................................... 45
5.9 Parent Voting Agreements............................................... 45
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5.10 Blue Sky Laws.......................................................... 45
5.11 Employee Benefit Plans................................................. 46
5.12 Form S-8............................................................... 47
5.13 Listing of Additional Shares........................................... 47
5.14 Escrow Agreement....................................................... 47
5.15 Expenses............................................................... 47
5.16 Director and Officer Indemnification................................... 47
5.17 Preferred Stock; Warrants.............................................. 47
5.18 Board Composition...................................................... 47
ARTICLE VI CONDITIONS TO THE MERGER.............................................. 48
6.1 Conditions to Obligations of Each Party to Effect the Merger........... 48
6.2 Additional Conditions to Obligations of Company........................ 49
6.3 Additional Conditions to the Obligations of Parent and Merger Sub...... 50
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................... 51
7.1 Termination............................................................ 51
7.2 Effect of Termination.................................................. 52
7.3 Expenses and Termination Fees.......................................... 53
7.4 Amendment.............................................................. 53
7.5 Extension; Waiver...................................................... 54
ARTICLE VIII ESCROW AND INDEMNIFICATION.......................................... 54
8.1 Escrow Fund............................................................ 54
8.2 Indemnification........................................................ 54
8.3 Escrow Period.......................................................... 55
8.4 Claims upon Escrow Fund................................................ 55
8.5 Objections to Claims................................................... 55
8.6 Resolution of Conflicts; Arbitration................................... 55
8.7 Shareholders' Agent.................................................... 56
8.8 Actions of the Shareholders' Agent..................................... 57
8.9 Third-Party Claims..................................................... 57
ARTICLE IX GENERAL PROVISIONS.................................................... 57
9.1 Non-Survival at Effective Time......................................... 58
9.2 Notices................................................................ 58
9.3 Interpretation......................................................... 59
9.4 Counterparts........................................................... 59
9.5 Entire Agreement; Nonassignability; Parties in Interest................ 59
9.6 Severability........................................................... 59
9.7 Remedies Cumulative.................................................... 59
9.8 Governing Law.......................................................... 60
9.9 Rules of Construction.................................................. 60
9.10 Definitions............................................................ 60
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Exhibits
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Exhibit A Form of Agreement of Merger
Exhibit B Declaration of Registration Rights
Exhibit C Form of Shareholder Agreement
Exhibit D Form of Shareholder Representation Agreement
Exhibit E Form of Escrow Agreement
Exhibit F Form of Voting Agreement
Exhibit G Form of Opinion of Counsel to Company
Exhibit H Form of Opinion of Counsel to Parent
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of October 24, 1999, by and among DIGITAL ISLAND, INC., a
Delaware corporation ("Parent"), BEACH ACQUISITION CORP., a California
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and
SANDPIPER NETWORKS, INC., a California corporation ("Company").
RECITALS
A. The Board of Directors of Company has unanimously (i) determined
that it is advisable and fair to, and in the best interests of, Company and its
shareholders that, upon the terms and subject to the conditions of this
Agreement, Merger Sub merge with and into Company, with Company being the
surviving corporation (the "Merger"), (ii) approved this Agreement, the Merger
and the other transactions contemplated hereby and (iii) determined to recommend
the approval of this Agreement and the Merger by the shareholders of Company.
B. The Board of Directors of Parent has (i) determined that the
Merger is advisable and fair to, and in the best interests of, Parent and its
stockholders, (ii) approved this Agreement, the Merger and the other
transactions contemplated hereby and (iii) determined to recommend the approval
by the stockholders of Parent of the issuance of shares of common stock, par
value $.001 per share, of Parent ("Parent Common Stock") pursuant to this
Agreement, as required under the rules and requirements of the Nasdaq National
Market.
C. Pursuant to the Merger, among other things, the outstanding shares
of Common Stock, par value $.001 per share ("Company Common Stock"), of Company
shall be converted into the right to receive shares of Parent Common Stock, at
the rate set forth herein.
D. The parties intend, by executing this Agreement, to adopt a plan
of reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
"reorganization" under the provisions of Section 368(a) of the Code.
E. Concurrently with the execution of this Agreement and as an
inducement to Parent and Merger Sub to enter into this Agreement, certain
affiliates of Company have on the date hereof entered into Shareholder
Agreements in the form attached hereto as Exhibit C (the "Shareholder
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Agreements") pursuant to which they have agreed, among other things, to vote the
shares of Company Common Stock over which such persons have voting power to
approve this Agreement and the Merger.
F. Concurrently with the execution of this Agreement and as an
inducement to Company to enter into this Agreement, certain affiliates of Parent
have on the date hereof entered into Voting Agreements in the form attached
hereto as Exhibit F (the "Voting Agreements") pursuant to which they have
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agreed, among other things, to vote the shares of Parent Common Stock over which
such persons have voting power to approve the issuance of shares of Parent
Common Stock pursuant to this Agreement.
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NOW, THEREFORE, in consideration of the foregoing, the respective
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I
THE MERGER
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1.1 The Merger. At the Effective Time (as defined in Section 1.2 below)
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and upon the terms and subject to the conditions of this Agreement, the
Agreement of Merger attached hereto as Exhibit A (the "Agreement of Merger") and
the applicable provisions of the California Corporations Code (the "California
Corporations Code"), Merger Sub shall be merged with and into Company, the
separate corporate existence of Merger Sub shall cease and Company shall
continue as the surviving corporation of the Merger. Company, as the surviving
corporation after the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 Closing; Effective Time. Unless this Agreement shall have been
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terminated and the transactions contemplated herein shall have been abandoned
pursuant to Section 7.1, the closing of the Merger (the "Closing") shall take
place as soon as practicable after the satisfaction or, if permissible, waiver
of the conditions set forth in Article VI or at such other time as the parties
hereto may agree (the "Closing Date"). The Closing shall take place at the
offices of Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, Two Embarcadero Place, 2200 Geng
Road, Palo Alto, California, or at such other location as the parties hereto may
agree. On the Closing Date, the parties hereto shall cause the Merger to be
consummated by filing the Agreement of Merger, together with the required
officers' certificates, with the Secretary of State of the State of California,
in accordance with the relevant provisions of the California Corporations Code
(the time of such filing or such later time as may be agreed upon by the parties
as set forth in the Merger Agreement being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in this Agreement, the Agreement of Merger and the
applicable provisions of the California Corporations Code. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Company and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
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(a) At the Effective Time, the Articles of Incorporation of Company,
as in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by the California Corporations Code and such Articles of Incorporation;
provided, however, that immediately after the Effective Time the Articles of
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Incorporation of the Surviving Corporation shall be amended and restated so as
to read in its entirety like the Articles of Incorporation of Merger Sub with
Article I of the Articles
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of Incorporation amended to read as follows: "The name of the corporation is
Sandpiper Networks, Inc."
(b) At the Effective Time, the Bylaws of Company, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended; provided, however, that immediately after
the Effective Time the Bylaws of the Surviving Corporation shall be amended and
restated in their entirety so as to read like the Bylaws of Merger Sub.
1.5 Directors and Officers. At the Effective Time, (a) the directors of
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Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, until their respective successors are duly elected or
appointed and qualified, and (b) the officers of Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, until
their respective successors are duly elected or appointed and qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
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Merger and without any action on the part of any of the parties hereto or the
holders of any of the following securities:
(a) Conversion of Company Capital Stock. Subject to adjustment
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pursuant to Section 1.6(f) below and subject to the other terms and conditions
of this Agreement, at the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any shares of capital stock of Company
("Company Capital Stock"), each share of Company Capital Stock outstanding
immediately prior to the Effective Time (other than shares, if any, held by
persons who shall have perfected, and not withdrawn or otherwise forfeited at or
prior to the Effective Time, dissenters' or appraisal rights in accordance with
the California Corporations Code ("Dissenting Shares")) shall be converted into
and exchanged for the right to receive 1.0727 shares of Parent Common Stock (the
"Exchange Ratio").
(b) Cancellation of Company Capital Stock Owned by Parent, Merger
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Sub or Company. At the Effective Time, all shares of Company Capital Stock that
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are owned by Company as treasury stock, and each share of Company Capital Stock
(if any) owned by Parent, Merger Sub or any other direct or indirect wholly
owned subsidiary of Parent or of Company immediately prior to the Effective
Time, shall be canceled and extinguished without any conversion thereof.
(c) Options and Warrants.
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(i) At the Effective Time, the Company Stock Option Plan, as
amended (the "Company Stock Option Plan"), and all options outstanding under the
Company Stock Option Plan immediately prior to the Effective Time ("Company
Options"), whether vested or unvested, shall be assumed by Parent and thereafter
constitute the right to receive options to purchase such number of shares of
Parent Common Stock determined in accordance with this Section 1.6(c).
(ii) Each such option so assumed by Parent under this Agreement
shall continue to have, and be subject to, the same terms and conditions set
forth in the Company Stock Option Plan and the applicable stock option agreement
as in effect
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immediately prior to the Effective Time, except that (i) such option will be
exercisable for that number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Common Stock that were issuable upon
exercise of such option immediately prior to the Effective Time multiplied by
the Exchange Ratio and rounded down to the next whole number of shares of Parent
Common Stock, and (ii) the per share exercise price for the shares of Parent
Common Stock issuable upon exercise of such assumed option will be equal to the
quotient determined by dividing the exercise price per share of Company Common
Stock at which such option was exercisable immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the next whole cent.
(iii) At the Effective Time, each warrant to acquire shares of
Company Capital Stock (each a "Company Warrant") outstanding immediately prior
to the Effective Time shall be converted and exchanged for warrants to purchase
such number of shares of Parent Common Stock as shall be equal to the product of
(a) the number of shares of Company Common Stock that were issuable upon
exercise of such Company Warrants immediately prior to the Effective Time and
(b) the Exchange Ratio, such product to be rounded down to the next whole number
of shares of Parent Common Stock. The per share exercise price of each Company
Warrant shall equal the quotient obtained by dividing (a) the per share exercise
price of the Company Warrant at which such warrant was exercisable immediately
prior to the Effective Time by (b) the Exchange Ratio rounded up to the next
whole cent.
(d) Unvested Company Common Stock. If any shares of Company Common
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Stock outstanding immediately prior to the Effective Time are unvested or are
subject to a repurchase option, risk of forfeiture or other condition under the
Company Stock Option Plan, any applicable restricted stock purchase agreement,
or other agreement with Company or under which Company has any rights, then
(unless such condition terminates by virtue of the Merger pursuant to the
express terms of such agreement) the shares of Parent Common Stock issued in
exchange for such shares of Company Common Stock will also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Parent Common Stock may
accordingly bear any appropriate legends. Company shall take all action that may
be necessary to ensure that, from and after the Effective Time, Parent is
entitled to exercise any such repurchase option or other right set forth in any
such restricted stock purchase agreement or other agreement.
(e) Capital Stock of Merger Sub. At the Effective Time, each share
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of common stock, no par value per share, of Merger Sub ("Merger Sub Common
Stock") issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $.001 per share, of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
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appropriately adjusted to reflect the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities convertible
into Parent Common Stock or Company Capital Stock), reorganization,
recapitalization or other like change with respect to
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Parent Common Stock or Company Capital Stock occurring after the date hereof and
prior to the Effective Time and of any increase in the number of shares of
Company Common Stock or Parent Common Stock outstanding resulting from any
failure of Section 2.2 or Section 3.2 to be correct on the date hereof or any
failure by Company to comply with its covenants under Section 4.2 of this
Agreement or any failure by Parent to comply with its covenants under Section
4.3 of this Agreement, so as to provide Parent and shareholders of Company the
same economic effect as contemplated by this Agreement prior to such stock
split, reverse split, stock dividend, reorganization, recapitalization, like
change or increase.
(g) Fractional Shares. No fraction of a share of Parent Common Stock
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will be issued, but in lieu thereof each holder of shares of Company Capital
Stock who would otherwise be entitled to a fraction of a share of Parent Common
Stock (after aggregating all fractional shares of Parent Common Stock to be
received by such holder) shall receive from Parent an amount of cash (rounded to
the nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the average of the closing bid prices for a share of Parent Common Stock as
quoted on the Nasdaq National Market for the twenty (20) trading days
immediately preceding (but not including) the last full trading day prior to
date on which the Effective Time occurs (the "Closing Market Value").
(h) Dissenters' Rights. Any Dissenting Shares shall not be converted
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into Parent Common Stock but shall instead be converted into the right to
receive such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to the California Corporations Code. Company agrees
that, except with the prior written consent of Parent, or as required under the
California Corporations Code, it will not voluntarily make any payment with
respect to, or settle or offer to settle, any such purchase demand. Each holder
of Dissenting Shares ("Dissenting Shareholder") who, pursuant to the provisions
of California law, becomes entitled to payment of the fair value for shares of
Company Capital Stock shall receive payment therefor (but only after the value
therefor shall have been agreed upon or finally determined pursuant to such
provisions). If, after the Effective Time, any Dissenting Shares shall lose
their status as Dissenting Shares, Parent shall issue and deliver, upon
surrender by such shareholder of certificate or certificates representing shares
of Company Capital Stock, the number of shares of Parent Common Stock to which
such shareholder would otherwise be entitled under this Section 1.6 less the
number of shares allocable to such shareholder that have been deposited in the
Escrow Fund (as defined below) in respect of such shares of Parent Common Stock
pursuant to Section 1.7 and Article VIII hereof.
1.7 Surrender of Certificates.
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(a) Exchange Agent. Parent's transfer agent or another institution
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selected by Parent and reasonably acceptable to Company shall act as exchange
agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock and Cash. Promptly after the
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Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article I, through such reasonable procedures as Parent
may adopt, (i) the shares of Parent Common Stock issuable pursuant to Section
1.6(a) in exchange for shares of Company Capital Stock outstanding immediately
prior to the Effective Time less the number of shares of
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Parent Common Stock to be deposited into an escrow fund (the "Escrow Fund")
pursuant to the requirements of Article VIII and (ii) cash in an amount
sufficient to permit payment of cash in lieu of fractional shares pursuant to
Section 1.6(g).
(c) Exchange Procedures. Promptly after the Effective Time, Parent
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shall cause to be mailed to each holder of record of a certificate or
certificates (the "Certificates") which immediately prior to the Effective Time
represented outstanding shares of Company Capital Stock, whose shares were
converted into the right to receive shares of Parent Common Stock (and cash in
lieu of fractional shares) pursuant to Section 1.6, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon receipt of the Certificates by the
Exchange Agent, and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock (and cash in lieu of fractional shares). Upon surrender
of a Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by Parent, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock less the number of shares of Parent Common Stock
to be deposited in the Escrow Fund on such holder's behalf pursuant to Article
VIII hereof and payment in lieu of fractional shares which such holder has the
right to receive pursuant to Section 1.6, and the Certificate so surrendered
shall forthwith be canceled. Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of Company Capital Stock
will be deemed from and after the Effective Time, for all corporate purposes,
other than the payment of dividends, to evidence the ownership of the number of
full shares of Parent Common Stock into which such shares of Company Capital
Stock shall have been so converted and the right to receive an amount of cash in
lieu of the issuance of any fractional shares in accordance with Section 1.6. As
soon as practicable after the Effective Time, and subject to and in accordance
with the provisions of Article VIII hereof, Parent shall cause to be distributed
to the Escrow Agent (as defined in Article VIII hereof) a certificate or
certificates representing ten percent (10%) of the Merger Shares which shall be
registered in the name of the Escrow Agent as nominee for the holders of
Certificates cancelled pursuant to this Section 1.7. Such shares shall be
beneficially owned by such holders and shall be held in escrow and shall be
available to compensate Parent for certain damages as provided in Article VIII
hereof. To the extent not used for such purposes, such shares shall be released,
all as provided in Article VIII hereof.
(d) Distributions With Respect to Unexchanged Shares. No dividends
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or other distributions with respect to Parent Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable (but for the provisions of this Section 1.7(d)) with respect
to such shares of Parent Common Stock.
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(e) Transfers of Ownership. If any certificate for shares of Parent
----------------------
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
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Section 1.7, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to any person for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(g) Dissenting Shares. The provisions of this Section 1.7 shall
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also apply to Dissenting Shares that lose their status as such, except that the
obligations of Parent under this Section 1.7 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 Parent Common Stock to which
such holder is entitled pursuant to Section 1.6 hereof.
1.8 No Further Ownership Rights in Company Capital Stock. All shares of
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Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof (including any cash paid in
lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
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Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Parent
Common Stock (and cash in lieu of fractional shares) as may be required pursuant
to Section 1.6; provided, however, that Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
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Merger shall constitute a "reorganization" within the meaning of Section 368 of
the Code.
1.11 Withholding. Each of the Surviving Corporation, Parent and the
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Exchange Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Capital Stock such
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amounts, if any, as it is required to deduct and withhold with respect to the
making of such payment under the Code or any provision of state, local or
foreign tax law. To the extent that any amounts are so withheld by the Surviving
Corporation, Parent or the Exchange Agent, as the case may be, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of Company Capital Stock in respect of which such
deduction and withholding was made by the Surviving Corporation, Parent or the
Exchange Agent, as the case may be.
1.12 Exemption from Registration; California Permit; Registration Rights.
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(a) The shares of Parent Common Stock to be issued in the Merger
will be issued in a transaction exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act"), by reason of Section 3(a)(10)
thereof or, pursuant to Section 1.12(b), pursuant to a registration statement on
Form S-4 or by reason of Section 4(2) of the Securities Act and SEC rules and
regulations promulgated thereunder. Subject to the provisions of Section 5.1(c),
the shares of Parent Common Stock to be issued in the Merger will be qualified
under the California Corporations Code, pursuant to Section 25121 thereof, after
a fairness hearing has been held pursuant to the authority granted by Section
25142 of such law, and (if deemed necessary by Parent in its good faith
judgment) such fairness hearing shall also address the assumption by Parent of
all Company Options pursuant to this Agreement. Parent and Company shall each
use all requisite commercially reasonable efforts (i) to file, as promptly as
practicable following the execution and delivery of this Agreement an
application for issuance of a permit pursuant to Section 25121 of the California
Corporations Code to issue such securities (and, if deemed necessary by Parent
in its good faith judgment, to assume such Company Options) (the "California
Permit") and (ii) to obtain the California Permit as promptly as practicable.
(b) In the event that the California Permit cannot be obtained within
a reasonable time or without the imposition of burdensome conditions, then, at
Parent's election and with the consent of Company (which shall not be
unreasonably withheld), Parent and Company shall use commercially reasonable
efforts to effect the issuance of the shares of Parent Common Stock to be issued
in the Merger (x) pursuant to a registration statement on Form S-4 or (y)
subject to receipt of all required approvals pursuant to Section 1.12(c), in a
private placement pursuant to Section 4(2) of the Securities Act and SEC rules
and regulations promulgated thereunder, on terms and conditions (including
rights for the registration of such shares on Form S-3) that are reasonably
satisfactory to Parent and Company. The parties hereto acknowledge and agree
that in the event of such a private placement: (i) as a condition to effecting
such issuance as a private placement pursuant to Section 4(2) of the Securities
Act, Parent shall be entitled to obtain from each shareholder of Company a
Shareholder Representation Agreement in the form attached hereto as Exhibit D
---------
(or such other form as shall be reasonably satisfactory to Parent and Company)
and that Parent will be relying upon the representations made by each
shareholder of Company in the applicable Shareholder Representation Agreement in
connection with the issuance of Parent Common Stock to such shareholder, (ii)
the shares of Parent Common Stock so issued pursuant to Section 1.6 will not be
registered under the Securities Act and will constitute "restricted securities"
within the meaning of the Securities Act; and (iii) the certificates
representing the shares of Parent Common Stock shall bear appropriate legends to
identify such privately placed shares as being restricted under
8
the Securities Act, to comply with applicable state securities laws and, if
applicable, to notice the restrictions on transfer of such shares.
(c) Subject to receipt of all required approvals pursuant to the
Amended and Restated Investors' Rights Agreement (the "Investors' Rights
Agreement") dated as of February 19, 1999 among Parent and the securityholders
of Parent identified therein, at the Closing, Parent shall execute and deliver a
Declaration of Registration Rights in the form attached hereto as Exhibit B.
---------
1.13 Taking of Necessary Action; Further Action. If, at any time after
------------------------------------------
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company, the officers and directors of Company immediately
prior to the Effective Time are fully authorized to take, and will take, all
such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
-----------------------------------------
Except as disclosed in that section of the document of even date
herewith delivered by Company to Parent prior to the execution and delivery of
this Agreement (the "Company Disclosure Schedule") corresponding to the Section
of this Agreement to which any of the representations and warranties
specifically relate or as disclosed in another section of the Company Disclosure
Schedule if it is reasonably apparent on the face of the disclosure that it is
applicable to another Section of this Agreement, Company hereby represents and
warrants to each of Parent and Merger Sub as follows:
2.1 Organization, Standing and Power. Each of Company and its
--------------------------------
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Company has the
corporate power to own its properties and to carry on its business as now being
conducted and as currently proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which it is required by
law to be so qualified and in good standing. Company has made available to
Parent a true and complete copy of the certificate or articles of incorporation
or other charter or organizational documents, each as amended, of Company and
each of its subsidiaries. Neither Company nor any of its subsidiaries is in
violation of any of the provisions of its certificate or articles of
incorporation or bylaws or other charter or organizational documents, each as
amended. Neither Company nor any of its subsidiaries directly or indirectly owns
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
All of the outstanding shares of capital stock and voting securities of each of
Company's subsidiaries owned, directly or indirectly, by Company are duly
authorized, validly issued, fully paid and nonassessable, and those shares of
capital stock and voting securities of each of Company's subsidiaries owned by
Company, directly or indirectly, are free and clear of all liens, charges,
claims or encumbrances or rights of others. There are no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or
convertible securities or other commitments or
9
agreements of any character relating to the issued or unissued capital stock or
other securities of any such subsidiary, or otherwise obligating Company or any
such subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire
any such securities.
2.2 Capital Structure. The authorized capital stock of Company consists
-----------------
solely of 40,000,000 shares of Company Common Stock, par value $0.001 per share,
of which 6,967,575 shares are issued and outstanding, and 15,912,675 shares of
Preferred Stock, par value $0.001 per share, of which 9,885,981 shares have been
designated Series A Preferred Stock, 9,607,141 shares of which are issued and
outstanding and of which 6,026,694 shares have been designated Series B
Preferred Stock, 4,820,628 shares of which are issued and outstanding. There are
no other outstanding shares of capital stock or voting securities and no
outstanding commitments to issue any shares of capital stock or voting
securities, other than pursuant to the exercise of warrants to acquire Company
Capital Stock and pursuant to the exercise of Company Options outstanding under
the Company Stock Option Plan. Section 2.2 of the Company Disclosure Schedule
sets forth a true and complete list (including numbers of shares and/or rights)
of holders of Company's capital stock and voting securities, and any persons
with rights to acquire Company's capital stock and voting securities, which list
will be promptly updated from time to time prior to Closing to reflect any
changes thereto (which changes are in any event subject to the restrictions
imposed under Section 4.2 below). All outstanding shares of Company Capital
Stock are duly authorized, validly issued, fully paid and non-assessable and are
free and clear of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof, and are not subject to
preemptive rights or rights of first refusal created by statute, the Articles of
Incorporation or Bylaws, each as amended, of Company or any agreement to which
Company is a party or by which it is bound. Company has reserved 22,425 shares
of Company Common Stock for issuance upon the exercise of warrants to purchase
Company Common Stock with an exercise price of $1.00 per share, Company Warrants
to purchase 278,840 shares of Series A Preferred Stock with an exercise price of
$0.70 per share, and Company Warrants to purchase 1,206,066 shares of Series B
Preferred Stock with an exercise price between $4.46 and $10.00. Company has
reserved 7,524,629 shares of Company Common Stock for issuance pursuant to the
Company Stock Option Plan, of which 2,392,975 shares have been issued pursuant
to option exercises and 2,677,833 shares are subject to outstanding, unexercised
options (of which 728,080 such shares are vested). Except for (i) the rights
created pursuant to this Agreement, (ii) the outstanding options under the
Company Stock Option Plan, (iii) Company Warrants described above in this
Section 2.2, and (iv) Company's right to repurchase any unvested shares under
the Company Stock Option Plan, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Company is a party
or by which it is bound obligating Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock or voting securities of Company or obligating Company to
grant, extend, accelerate the vesting of, change the price of, or otherwise
amend or enter into any such option, warrant, call, right, commitment or
agreement. Except for this Agreement, there are no contracts, commitments or
agreements relating to voting, purchase or sale of Company's capital stock or
voting securities (x) between or among Company and any of its securityholders
and (y) to Company's knowledge, between or among any of Company's
securityholders. None of the outstanding options permit any accelerated vesting
or exercisability of those options or the shares of Company Common Stock subject
to those options by reason of the Merger or any other transactions contemplated
by this Agreement, and the terms of the Company Stock Option Plan
10
and the outstanding option agreements thereunder each permit the Parent's
assumption of those options as options to purchase Parent Common Stock as
provided in this Agreement, without the consent or approval of the holders of
those options, Company's shareholders, or otherwise, and without any
acceleration of the options. True and complete copies of all agreements and
instruments relating to or issued under the Company Stock Option Plan have been
provided to Parent and such agreements and instruments have not been amended,
modified or supplemented, and there are no agreements to amend, modify or
supplement such agreements or instruments in any case from the form provided to
Parent. All outstanding shares of Company Capital Stock and all Company Options
and warrants to acquire Company Capital Stock from Company were issued in
compliance in all material respects with all applicable federal and state
securities laws. Section 2.2 of the Company Disclosure Schedule sets forth all
notes, bonds, debentures or other evidences of indebtedness of Company,
including the name of the holder, the date of issuance, and the principal amount
and interest rate of each such debt, as well as the aggregate amount owed to the
holder of each such instrument as of September 30, 1999 (including accrued and
unpaid interest, and any premiums).
2.3 Authority. Company has all requisite corporate power and authority
---------
to enter into this Agreement and the other agreements set forth in the exhibits
hereto (the "Ancillary Agreements") to which Company is a party, to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Ancillary Agreements to which Company is a party and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Company, subject only to the
approval of the Merger by Company's shareholders as contemplated by Section
6.1(a). Each of this Agreement and the Ancillary Agreements to which Company is
a party has been duly executed and delivered by Company and constitutes the
valid and binding obligation of Company enforceable against Company in
accordance with its terms, except as enforcement may be limited by (i) the
effect of bankruptcy, insolvency, reorganization, receivership, conservatorship,
arrangement, moratorium or other similar laws affecting the rights of creditors
generally, or (ii) the availability of specific performance, injunctive relief
or other equitable remedies and general principles of equity, regardless of
whether considered in a proceeding in equity or at law. The execution and
delivery of this Agreement or any Ancillary Agreement by Company does not, and
the performance of Company's obligations hereunder or thereunder and the
consummation of the transactions contemplated hereby or thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit, or result
in any other consequence, under (i) any provision of the certificate or articles
of incorporation or bylaws or other charter or organizational documents, each as
amended, of Company or any of its subsidiaries or (ii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Company or any of its subsidiaries or any of their respective
properties or assets, except in the case of clause (i) for any conflicts,
violations, defaults or other occurrences that would not prevent or materially
impair or delay the consummation of the Merger or any of the other transactions
contemplated by this Agreement. No consent, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission, self-regulatory organization or other governmental authority or
instrumentality ("Governmental Entity") is required by or with respect to
Company in
11
connection with the execution and delivery of this Agreement, the
performance of Company's obligations hereunder or thereunder or the consummation
of the transactions contemplated hereby or thereby, except for (i) the filing of
the Agreement of Merger, as provided in Section 1.2, (ii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal or state securities laws or the
securities laws of any foreign country, and (iii) such filings as may be
required under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and (iv) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not prevent or
materially alter or delay the Merger or any of the other transactions
contemplated by this Agreement.
2.4 Financial Statements. Company has delivered to Parent the audited
--------------------
consolidated financial statements (including, without limitation, balance
sheets, statements of operations and statements of cash flows) of Company and
its subsidiaries for the fiscal years ended December 31, 1996, 1997 and 1998,
and the unaudited consolidated financial statements (including, without
limitation, balance sheet, statement of operations and statement of cash flows)
of Company and its subsidiaries as at, and for the nine-month period ended
September 30, 1999 (collectively, the "Company Financial Statements"). The
Company Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") (except that the financial statements
which are not audited do not have notes thereto) applied on a consistent basis
throughout the periods indicated and with each other. The Company Financial
Statements fairly present the financial condition and operating results of
Company as of the dates, and for the periods, indicated therein, subject to
normal and recurring year-end audit adjustments. Company maintains and will
continue to maintain until the Closing an adequate system of internal financial
and accounting controls for Company and its subsidiaries. There has been no
change in Company's accounting policies since January 1, 1996 except as
described in the notes to the Company Financial Statements.
2.5 Absence of Certain Changes. Since September 30, 1999 (the "Company
--------------------------
Balance Sheet Date"), Company has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
could reasonably be expected to result in, a Material Adverse Effect on Company;
(ii) any acquisition, sale or transfer of any material asset of Company or any
of its subsidiaries; (iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
Company or any revaluation by Company of any of its or its subsidiaries' assets;
(iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Company, or any direct or indirect
redemption, purchase or other acquisition by Company or any of its subsidiaries
of any of its shares of capital stock or other securities; (v) any amendment or
change to the certificate or articles of incorporation or bylaws or other
charter or organizational documents of Company or any of its subsidiaries; (vi)
any material increase in or modification of the compensation or benefits payable
or to become payable by Company or any of its subsidiaries to any of its
directors or employees, (vii) any acts or omissions of the types restricted by
Section 4.2, or (viii) any negotiation or agreement by Company or any of its
subsidiaries to do any of the things described in the preceding clauses (i)
through (vii) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
12
2.6 Absence of Undisclosed Liabilities. None of Company or any of its
----------------------------------
subsidiaries has any material obligations or liabilities of any nature (matured
or unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the consolidated balance sheet included in the Company Financial
Statements as of the Company Balance Sheet Date (the "Company Balance Sheet"),
(ii) those incurred in the ordinary course of business and not required to be
set forth in the Company Balance Sheet under GAAP, (iii) those incurred in the
ordinary course of business consistent with past practice since the Company
Balance Sheet Date, and (iv) those incurred in connection with the execution and
performance of this Agreement.
2.7 Litigation. There is no private or governmental action, suit,
----------
proceeding, arbitration or to the knowledge of Company, claim or investigation
pending or threatened by or before any agency, court or tribunal, foreign or
domestic, against Company or any of its subsidiaries or any of their respective
properties or officers or directors (in their capacities as such). There is no
judgment, decree or order binding upon or against Company or any of its
subsidiaries, or, to the knowledge of Company, any of their respective directors
or officers (in their capacities as such). As of the date of this Agreement,
there is no action, suit, proceeding, claim, arbitration or other litigation
that Company has pending or threatened against other parties.
2.8 Restrictions on Business Activities. There is no agreement, judgment,
-----------------------------------
injunction, order or decree binding upon Company or any of its subsidiaries
which has or could reasonably be expected to have the effect of prohibiting or
impairing any current or future business practice of Company or any of its
subsidiaries, any acquisition of property by Company or any of its subsidiaries
or the conduct of business by Company or any of its subsidiaries as currently
conducted or as currently proposed to be conducted by Company or any of its
subsidiaries.
2.9 Governmental Authorization. Each of Company and its subsidiaries has
--------------------------
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Company or any of its subsidiaries currently operates or holds
any interest in any of its properties or (ii) that is required for the operation
of the business of Company or any of its subsidiaries or the holding of any such
interest ((i) and (ii) herein collectively called "Company Authorizations"), and
all of such Company Authorizations are in full force and effect.
2.10 Title to Property. Company and its subsidiaries have good and
-----------------
marketable title to all of their respective properties, interests in properties
and assets, real and personal, reflected in the Company Balance Sheet or
acquired after the Company Balance Sheet Date (except properties, interests in
properties and assets sold or otherwise disposed of since the Company Balance
Sheet Date in the ordinary course of business), or with respect to leased
properties and assets, valid leasehold interests in, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the current use of the properties subject thereto
or affected thereby, or otherwise materially impair business operations
involving such properties and (iii) liens securing debt which is reflected on
the Company Balance Sheet. The plants, property and
13
equipment of Company and its subsidiaries that are used in the operations of
their respective businesses are in a state of repair sufficient for Company's
and its subsidiaries' current operations. All properties used in the operations
of Company and its subsidiaries are reflected in the Company Balance Sheet to
the extent GAAP requires the same to be reflected. Section 2.10 of the Company
Disclosure Schedule identifies each parcel of real property owned or leased by
Company or any of its subsidiaries.
2.11 Intellectual Property.
---------------------
(a) Company and its subsidiaries own, or are licensed or otherwise
possesses legally enforceable rights to use all patents, trademarks, trade
names, service marks, copyrights, domain names and any applications therefor,
maskworks, net lists, schematics, technology, know-how, trade secrets,
inventory, ideas, algorithms, processes, computer software programs or
applications (in source code and/or object code form), and tangible or
intangible proprietary information or material ("Intellectual Property") that
are used or proposed to be used in the business of Company and its subsidiaries
as currently conducted or as proposed to be conducted by Company and its
subsidiaries. Neither Company nor any of its subsidiaries has (i) licensed any
of its Intellectual Property in source code form to any party or (ii) entered
into any exclusive agreements relating to its Intellectual Property with any
party.
(b) Section 2.11 of the Company Disclosure Schedule lists (i) all
patents and patent applications and all registered and unregistered trademarks,
trade names and service marks, and all copyrights, domain names and maskworks
which are registered or as to which registration has been applied for, included
in the Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all material
licenses, sublicenses and other agreements as to which Company or any of its
subsidiaries is a party and pursuant to which any person is authorized to use
any Intellectual Property except for Company's standard form non-exclusive
licenses and sublicenses contained in purchase orders, and (iii) all material
licenses, sublicenses and other agreements as to which Company or any of its
subsidiaries is a party and pursuant to which Company or any of its subsidiaries
is authorized to use any third party patents, trademarks or copyrights,
including software ("Third Party Intellectual Property Rights") which are
incorporated in, are, or form a part of any product of Company or any of its
subsidiaries as of the date of this Agreement.
(c) To Company's knowledge, there is no unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of Company
or any of its subsidiaries, or any Intellectual Property right of any third
party to the extent licensed by or through Company or any of its subsidiaries,
by any third party, including any employee or former employee of Company or any
of its subsidiaries. Neither Company nor any of its subsidiaries has entered
into any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification provisions
contained in purchase orders or license agreements arising in the ordinary
course of business.
(d) Neither Company nor any of its subsidiaries is, nor will any of
them be as a result of the execution and delivery of this Agreement or the
Ancillary Agreements or the performance of any of their obligations under this
Agreement or the Ancillary
14
Agreements, in breach of any license, sublicense or other agreement relating to
any Intellectual Property or Third Party Intellectual Property Rights.
(e) All patents, registered trademarks, service marks and copyrights
held by Company or any of its subsidiaries are valid and subsisting. Neither
Company nor any of its subsidiaries (i) has been sued in any suit, action or
proceeding which involves a claim of infringement of any patents, trademarks,
service marks, copyrights or violation of any trade secret or other proprietary
right of any third party, (ii) has any knowledge that the manufacturing,
marketing, licensing or sale of its products infringes any patent, trademark,
service xxxx, copyright, trade secret or other proprietary right of any third
party or (iii) has brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(f) Each of Company and its subsidiaries has secured written
assignments from all consultants and employees who contributed to the creation
or development of Intellectual Property of the rights to such contributions that
Company and its subsidiaries do not already own by operation of law, and Company
has no reason to believe that any such assignment is not valid or binding.
(g) Each of Company and its subsidiaries has taken reasonable steps
consistent with prevailing industry practice to protect and preserve the
confidentiality of all Intellectual Property not otherwise protected by patents,
patent applications or copyright ("Confidential Information"). All use,
disclosure or appropriation of Confidential Information owned by Company or any
of its subsidiaries by or to a third party has, to the knowledge of Company,
been pursuant to the terms of a written agreement between Company and such third
party. All use, disclosure or appropriation of Confidential Information not
owned by Company or any of its subsidiaries has been pursuant to the terms of a
written agreement between Company and the owner of such Confidential
Information, or is otherwise lawful.
2.12 Environmental Matters.
---------------------
(a) The following terms shall be defined as follows:
(i) "Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders that are
intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants.
(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or infectious or
radioactive substance or material, including without limitation, those
substances, materials and wastes defined in or regulated under any Environmental
Laws.
(iii) "Property" shall mean all real property leased or owned
by Company or any of its subsidiaries either currently or in the past.
15
(iv) "Facilities" shall mean all buildings and improvements on
the Property of Company or any of its subsidiaries.
(b) (i) To the knowledge of Company, no methylene chloride or
asbestos is contained in or has been used at or released from the Facilities;
(ii) to the knowledge of Company, all Hazardous Materials and wastes have been
disposed of in accordance with all Environmental Laws; (iii) neither Company nor
any of its subsidiaries has received any notice (verbal or written) of any
noncompliance of the Facilities or its past or present operations with
Environmental Laws; (iv) no administrative actions or suits are pending or, to
the knowledge of Company, threatened against Company or any of its subsidiaries
relating to a violation of any Environmental Laws; (v) neither Company nor any
of its subsidiaries is a potentially responsible party under the federal
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
or state analog statute, arising out of events occurring at or prior to the
Effective Time; (vi) neither Company nor any subsidiary has received any written
or verbal notice that there has been in the past, or is now, any Hazardous
Materials on, under or migrating to or from the Facilities or Property; (vii) to
Company's knowledge, there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the Property
including without limitation, treatment or storage tanks, sumps, or water, gas
or oil xxxxx; (viii) to Company's knowledge, there are no polychlorinated
biphenyls (PCBs) deposited, stored, disposed of or located on the Property or
Facilities or any equipment on the Property containing PCBs at levels in excess
of 50 parts per million; (ix) to Company's knowledge, there is no formaldehyde
on the Property or in the Facilities, nor any insulating material containing
urea formaldehyde in the Facilities, the presence of which could reasonably be
expected to result in a liability to Company; (x) the Facilities and Company's
and its subsidiaries' uses and activities therein have at all times complied
with all Environmental and Safety Laws; and (xi) Company and its subsidiaries
have all the permits and licenses required to be issued under Federal, State or
local laws regarding Environmental and Safety Laws and are in full compliance
with the terms and conditions of those permits.
2.13 Taxes. Company and its subsidiaries, and any consolidated, combined,
-----
unitary or aggregate group for Tax (as defined below) purposes of which Company
is or has been a member, have timely filed all Tax Returns required to be filed
by them and have paid all Taxes shown thereon to be due. The Company Financial
Statements, as of September 30, 1999, reflect any unpaid taxes of Company and
its subsidiaries in periods through such date, to the extent such are shown as
being due on any Tax Returns. Neither Company nor any of its subsidiaries has
accrued any material tax liabilities for periods after September 30, 1999. There
is (i) no claim for Taxes that is a lien against the property of Company or any
of its subsidiaries or is being asserted against Company or any of its
subsidiaries other than liens for Taxes not yet due and payable, (ii) no audit
of any Tax Return of Company or any of its subsidiaries being conducted or
threatened by a Tax authority, (iii) no extension of the statute of limitations
on the assessment of any Taxes granted by Company and currently in effect, and
(iv) no agreement, contract or arrangement to which Company or any of its
subsidiaries is a party that may result in the payment of any amount that would
not be deductible by reason of Sections 280G (other than agreements or
arrangements for which shareholder approval meeting the requirements of Section
280G(b)(5)(B) will be obtained prior to the Closing) or 404 of the Code. Company
and its subsidiaries have not been and will not be required to include any
material adjustment in Taxable income for any Taxable period (or portion
thereof) pursuant to Section 481 or 263A of
16
the Code or any comparable provision under state or foreign Tax laws as a result
of transactions, events or accounting methods employed prior to the Merger.
Neither Company nor any of its subsidiaries has filed or will file any consent
to have the provisions of paragraph 341(f)(2) of the Code (or comparable
provisions of any state Tax laws) apply to Company or any of its subsidiaries.
Neither Company nor any of its subsidiaries is now or has ever been a party to
any Tax sharing or Tax allocation agreement. Neither Company nor any of its
subsidiaries has filed any disclosures under Section 6662 or comparable
provisions of state, local or foreign law to prevent the imposition of penalties
with respect to any Tax reporting position taken on any Tax Return. Neither
Company nor any of its subsidiaries has ever been a member of a consolidated,
combined or unitary group of which Company was not the ultimate parent
corporation. For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means (i) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental 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 or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "Tax authority") responsible for the
imposition of any such tax (domestic or foreign), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period and (iii) any liability for the payment of any amounts of the type
described in (i) or (ii) as a result of any express or implied obligation to
indemnify any other person. As used herein, "Tax Return" shall mean any return,
statement, report or form (including, without limitation, estimated Tax Returns
and reports, withholding Tax Returns and reports and information reports and
returns) required to be filed with respect to Taxes. Each of Company and its
subsidiaries is in compliance in all material respects with all terms and
conditions of any Tax exemptions or other Tax-sparing agreement or order of a
foreign government, and the consummation of the Merger shall not materially
impair the continued validity and effectiveness of any such Tax exemptions or
other Tax-sparing agreement or order. Target and each of its subsidiaries have
in their possession receipts for any Taxes paid to foreign Tax authorities.
Neither Target nor any of its subsidiaries has been a "United States real
property holding corporation" within the meaning of Section 897 of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
2.14 Employee Benefit Plans.
----------------------
(a) Section 2.14 of the Company Disclosure Schedule contains a true
and complete list, with respect to Company, its subsidiaries and any trade or
business (whether or not incorporated) which is treated as a single employer
with Company (an "ERISA Affiliate") within the meaning of Section 414(b), (c),
(m) or (o) of the Code, of (i) all material employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), (ii) each loan to a non-officer employee in excess of ten
thousand dollars ($10,000), and loans to officers and directors, (iii) any stock
option, stock purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Code Section 125) or dependent care
(Code Section 129), life insurance or accident insurance plans, programs
or arrangements, (iv) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (v) other material
fringe or employee benefit plans, programs
17
or arrangements that apply to senior management of Company and that do not
generally apply to all employees, and (vi) any current or former employment or
executive compensation or severance agreements, written or otherwise, as to
which unsatisfied obligations of Company of greater than ten thousand dollars
($10,000) remain for the benefit of, or relating to, any present or former
employee, consultant or director of Company or any of its subsidiaries
(together, the "Company Employee Plans").
(b) Company has furnished to Parent a copy of each of the Company
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and any employee communications that are materially
inconsistent with the terms of the written Company Employee Plan relating
thereto) and has, with respect to each Company Employee Plan which is subject to
ERISA reporting requirements, provided copies of the Form 5500 reports filed for
the last three plan years. Any Company Employee Plan intended to be qualified
under Section 401(a) of the Code has (i) obtained from the Internal Revenue
Service a favorable determination letter as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, (ii) has applied to the Internal Revenue
Service for such a determination letter prior to the expiration of the requisite
period under applicable Treasury Regulations or Internal Revenue Service
pronouncements in which to apply for such determination letter and to make any
amendments necessary to obtain a favorable determination, or (iii) has been
established under a standardized prototype plan for which an Internal Revenue
Service opinion letter has been obtained by the plan sponsor and is valid as to
the adopting employer, or (iv) the deadline for filing an application for a
determination letter has not yet expired. Company has also furnished Parent with
the most recent Internal Revenue Service determination or opinion letter issued
with respect to each such Company Employee Plan, and nothing has occurred since
the issuance of each such letter which could reasonably be expected to cause the
loss of the tax-qualified status of any Company Employee Plan subject to Code
Section 401(a). Company has also furnished Parent with all registration
statements and prospectuses prepared in connection with each Company Employee
Plan.
(c) (i) None of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Company Employee Plan;
(iii) each Company Employee Plan has been administered in accordance with its
terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), and Company, its
subsidiaries and each ERISA Affiliate have performed all obligations required to
be performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any material default or violation by any
other party to, any of the Company Employee Plans; (iv) neither Company nor any
of its subsidiaries or ERISA Affiliates is subject to any liability or penalty
under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to
any of the Company Employee Plans; (v) all material contributions required to be
made by Company or ERISA Affiliate to any Company Employee Plan have been made
on or before their due dates and a reasonable amount has been accrued for
contributions to each Company Employee Plan for the current plan years; (vi)
with respect to each Company Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding
18
any such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; (vii) no Company Employee Plan
is covered by, and neither Company nor any ERISA Affiliate has incurred or
expects to incur any liability under Title IV of ERISA or Section 412 of the
Code; and (viii) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
and applicable law without liability to Parent (other than the expense
associated with full vesting of employer contributions and the ordinary
administrative expenses typically incurred in a termination event). With respect
to each Company Employee Plan subject to ERISA as either an employee pension
plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit
plan within the meaning of Section 3(1) of ERISA, Company has, in all material
respects, prepared in good faith and timely filed all requisite governmental
reports (which were true and correct as of the date filed) and has, in all
material respects, properly and timely filed and distributed or posted all
notices and reports to employees required to be filed, distributed or posted
with respect to each such Company Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought or, to the knowledge of
Company, is threatened, against or with respect to any such Company Employee
Plan, including any audit or inquiry by the Internal Revenue Service or United
States Department of Labor. No payment or benefit which will or may be made by
Company or any of its subsidiaries to any Employee will be characterized as an
"excess parachute payment" within the meaning of Section 280G(b)(1) of the Code.
(d) With respect to each Company Employee Plan, Company has complied
with (i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
regulations (including proposed regulations) thereunder, (ii) the applicable
requirements of the Family and Medical Leave Act of 1993 and the regulations
thereunder, and (iii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996 and the regulations (including
proposed regulations) thereunder.
(e) The consummation of the transactions contemplated by this
Agreement or any Ancillary Agreement in and of themselves will not (i) entitle
any current or former employee of or other service provider to Company, any of
its subsidiaries or any other ERISA Affiliate to severance benefits or any other
payment, except as expressly provided in this Agreement or the Ancillary
Agreements, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or service provider, except as
provided in Section 2.14 of the Company Disclosure Schedule.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Company, any of its subsidiaries or any
other ERISA Affiliate relating to, or change in participation or coverage under,
any Company Employee Plan which would materially increase the expense of
maintaining such Plan above the level of expense incurred with respect to that
Plan for the most recent fiscal year included in Company's financial statements.
(g) Neither Company nor any of its subsidiaries currently maintain,
sponsor, participate in or contribute to, nor has any of them ever maintained,
established, sponsored, participated in, or contributed to, any pension plan
(within the meaning of
19
Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(h) Neither Company, any of its subsidiaries nor any other ERISA
Affiliate is a party to, or has made any contribution to or otherwise incurred
any obligation under, any "multiemployer plan" as defined in Section 3(37) of
ERISA.
2.15 Certain Agreements Affected by the Merger. Subject to Section 1.6,
-----------------------------------------
neither the execution and delivery of this Agreement or any Ancillary Agreements
nor the performance of any of Company's obligations hereunder or thereunder or
the consummation of the transaction contemplated hereby or thereby will (i)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of Company, (ii) materially increase any benefits otherwise payable
by Company or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
2.16 Employee Matters. Each of Company and its subsidiaries is in
----------------
compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice. Each of
Company and its subsidiaries has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries, and other payments to
employees; and is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing. Neither Company nor any
of its subsidiaries is liable for any payment to any trust or other fund or to
any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits (other than routine
payments to be made in the normal course of business and consistent with past
practice). There are no material pending claims against Company or any of its
subsidiaries under any workers compensation policy or for long term disability.
There are no material controversies pending or, to the knowledge of Company,
threatened, between Company or any of its subsidiaries, on one hand, and any of
their employees, on the other hand, which controversies have resulted in an
action, suit, arbitration or investigation before any agency, court or tribunal,
foreign or domestic. Neither Company nor any of its subsidiaries is a party to
any collective bargaining agreement or other labor union contract nor does
Company know of any activities of any labor union to organize any such
employees. To Company's knowledge, no employees of Company or any of its
subsidiaries are in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, or any restrictive covenant to a
former employer relating to the right of any such employee to be employed by
Company or any of its subsidiaries because of the nature of the business
conducted or presently proposed to be conducted by Company or any of its
subsidiaries or to the use of trade secrets or proprietary information of
others. Except as set forth in Section 2.16 of the Company Disclosure Schedule,
neither Company nor any of its subsidiaries is a party to or bound by any
employment contract with any of its officers or other employees. No key employee
of Company or any of its subsidiaries, other than any employee whose duties are
primarily secretarial or clerical, has given notice to Company or any of its
subsidiaries, nor is Company otherwise aware, that any such employee intends to
terminate his or her employment with Company or any of its subsidiaries.
20
2.17 Interested Party Transactions. Neither Company nor any of its
-----------------------------
subsidiaries is indebted to any director, officer, employee or agent of Company
or any such subsidiary (except for amounts due as normal salaries and bonuses
and in reimbursement of ordinary expenses), and no such person is indebted to
Company or any of its subsidiaries.
2.18 Insurance. Company and its subsidiaries have policies of insurance
---------
and bonds of the type and in amounts customarily carried by persons conducting
business or owning assets similar to those of Company and its subsidiaries.
There is no material claim pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Company or the applicable subsidiary is otherwise in
compliance with the terms of such policies and bonds. Company has no knowledge
of any threatened termination of, or material premium increase with respect to,
any of such policies.
2.19 Compliance With Laws. Each of Company and its subsidiaries has
--------------------
complied, and is in compliance, in all material respects with all applicable
federal, state, local, foreign and self-regulatory laws, statutes, rules and
regulations. Each of Company and its subsidiaries has, and is in compliance in
all material respects with, all Company Authorizations necessary to conduct its
business or to own and operate its assets.
2.20 Minute Books. The minute books of Company and its subsidiaries made
------------
available to Parent contain a fair summary of all meetings or actions by written
consent of directors and shareholders since the time of incorporation of Company
and its subsidiaries, and reflect all transactions referred to in such minutes
accurately in all material respects.
2.21 Accounts Receivable. Subject to any reserves set forth in the
-------------------
Company Financial Statements, the accounts receivable shown on the Company
Financial Statements represent and will represent bona fide claims against
debtors for sales and other charges, and are not subject to discount except for
normal cash and immaterial trade discounts. The amount carried for doubtful
accounts and allowances disclosed in the Company Financial Statements is
sufficient to provide for any losses which may be sustained on realization of
the receivables.
2.22 Customers and Suppliers. No customer which individually accounted
-----------------------
for more than five percent (5%) of Company's consolidated gross revenues during
the 12-month period preceding the date hereof, and no supplier of Company or any
of its subsidiaries, has canceled or otherwise terminated, or made any written
threat to Company or any of its subsidiaries to cancel or otherwise terminates,
its relationship with Company or any of its subsidiaries, or has decreased
materially its services or supplies to Company or any of its subsidiaries in the
case of any such supplier, or its usage of the services or products of Company
or any of its subsidiaries in the case of such customer, and to Company's
knowledge, no such supplier or customer intends to cancel or otherwise terminate
its relationship with Company or any of its subsidiaries or to decrease
materially its services or supplies to Company or any of its subsidiaries or its
usage of the services or products of Company or any of its subsidiaries, as the
case may be.
2.23 Material Contracts. As of the date of this Agreement, except for
------------------
the material contracts described in Section 2.23 of the Company Disclosure
Schedule, neither
21
Company nor any of its subsidiaries is a party to or bound by any material
contract or agreement (a "Material Contract"), including without limitation:
(a) any distributor, sales, advertising, agency or similar contract
involving in the case of any such contract more than $100,000 in payments by or
to Company or any of its subsidiaries;
(b) any continuing contract for the purchase of materials, supplies,
equipment or services involving in the case of any such contract more than
$100,000 over the term of the contract;
(c) any contract that expires or may be renewed at the option of any
person other than Company so as to expire more than one year after the date of
this Agreement;
(d) any trust indenture, mortgage, promissory note, loan agreement or
other contract for the borrowing of money, any currency exchange, commodities or
other hedging arrangement or any leasing transaction of the type required to be
capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of $100,000 in
the aggregate;
(f) any contract limiting the freedom of Company or any of its
subsidiaries to engage in any line of business or to compete with any other
person as that term is defined in the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any confidentiality, secrecy or non-disclosure
contract;
(g) any contract pursuant to which Company or any of its subsidiaries
is a lessor of any machinery, equipment, motor vehicles, office furniture,
fixtures or other personal property for more than $100,000 over the term of the
contract;
(h) any contract with any person with whom Company or any of its
subsidiaries does not deal at arm's length within the meaning of the Code; or
(i) any agreement of guarantee, support, indemnification, assumption
or endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness
of any other person.
2.24 No Breach of Material Contracts. Each of Company and its
-------------------------------
subsidiaries has performed all of the material obligations required to be
performed by it and is entitled to all accrued benefits under, and, to Company's
knowledge, is not alleged to be in default in any material respect of any
Material Contract. Each of the Material Contracts is in full force and effect,
and there exists no default or event of default or event, occurrence, condition
or act, with respect to Company or any of its subsidiaries or to Company's
knowledge with respect to the other contracting party, which, with the giving of
notice, the lapse of the time or the happening of any other event or conditions,
would become a default or event of default under any Material Contract. Company
has provided true and complete copies of all Material Contracts to Parent.
22
2.25 Year 2000 Compliance. "Year 2000 Compliant" (or, as the context
--------------------
may require, "Year 2000 Compliance") means that any particular hardware or
software will: (i) process date data from at least the years 1900 through 2101,
or involving date information from more than one century, without error,
interruption, malfunction, corruption, ceasing to function, generating incorrect
data or otherwise producing incorrect results or adversely impacting current or
future operations; (ii) maintain functionality with respect to the introduction,
processing and output of records containing dates falling on or after January 1,
2000; and (iii) support numeric and date transitions from the twentieth century
to the twenty-first century, and back (including, without limitation, all
calculations, aging, reporting, printing, displays, reversals, disaster and
vital records recoveries) without error, interruption, malfunction, corruption,
ceasing to function, generating incorrect data or otherwise producing incorrect
results or adversely impacting current or future operations.
(a) All of Company's and its subsidiaries' products and services
(including products sold to date, products currently being sold or future
products), both individually and when operating in conjunction with all other
systems, products or services with which they are designed to interface
(assuming such other systems, products or services are Year 2000 Compliant), and
all material computer software and hardware (including, without limitation,
microcode, firmware, system and application programs, files, databases, computer
services and microcontrollers, including those embedded in computer and
noncomputer equipment) contained in Company's and its subsidiaries' products or
services (including products and services sold to date, products and services
currently being sold or future products and services) are Year 2000 Compliant.
(b) All of Company's and its subsidiaries' internal computer systems
are, both individually and in conjunction with all other systems with which they
interface (assuming such other systems, products or services are Year 2000
Compliant), Year 2000 Compliant.
(c) Each of Company and its subsidiaries has made inquiries of its key
suppliers of services and products and, to knowledge of Company, neither Company
nor any of its subsidiaries is relying on the products or services of any third
party whose systems, products or services are not Year 2000 Compliant.
(d) Company does not have any material expenses or other material
liabilities associated with securing Year 2000 Compliance, or making contingency
arrangements to address Year 2000 Compliance issues, with respect to Company's
or its subsidiaries' products or services (including products and services sold
to date, products and services currently being sold or future products and
services), internal computer systems or the computer systems of Company's or its
subsidiaries' key suppliers or customers.
(e) Neither Company nor any of its subsidiaries has made any
representations or warranties specifically relating to the ability of any
product or service sold, licensed, rendered, or otherwise provided by Company or
its subsidiaries in the conduct of its business to be Year 2000 Compliant.
23
2.26 Export Control Laws. Each of Company and its subsidiaries has
-------------------
conducted its export transactions in accordance with applicable provisions of
United States export control laws and regulations, including but not limited to
the Export Administration Act and implementing Export Administration
Regulations.
2.27 Product Releases. Company has provided Acquiror a schedule of
----------------
product releases, which schedule is attached hereto as Section 2.27 of the
Company Disclosure Schedule. Company has a good faith reasonable belief that it
can achieve the release of products on the schedule described in Section 2.27 of
the Company Disclosure Schedule and is not currently aware of any change in its
circumstances or other fact that has occurred that would cause it to believe
that it will be unable to meet such release schedule. Notwithstanding the
foregoing, Acquiror acknowledges that there may be events beyond the control of
Company that may cause it to be unable to meet such release schedule and that
Company makes no representations with respect thereto.
2.28 Complete Copies of Materials. Company has delivered or made
----------------------------
available to Parent true and complete copies of each material document that has
been requested in writing by, Parent or its counsel in connection with their
legal, financial and accounting review of Company and its subsidiaries.
2.29 Shareholder Agreement; Irrevocable Proxies. Holders of more than 50%
------------------------------------------
of the issued and outstanding Company Common Stock, more than 50% of the issued
and outstanding Company Series A Preferred Stock, more than 50% of the issued
and outstanding Company Series B Preferred Stock and more than 50% of the issued
and outstanding Company Capital Stock, have signed and delivered to Parent
Shareholder Agreements in the form of Exhibit C hereto and irrevocable proxies
---------
and market standoff letter agreements in the forms annexed thereto (the
"Irrevocable Proxies" and the "Market Standoff Agreements," respectively) and
have agreed in writing to vote for approval of the Merger and the transactions
contemplated thereby pursuant to such Shareholder Agreements and Irrevocable
Proxies. Schedule 2.29 to this Agreement sets forth the names and number
-------------
of shares held by each of the Holders who have signed and delivered such
Shareholder Agreement.
2.30 Vote Required. The affirmative vote of the holders of more than
-------------
fifty percent (50%) of the shares of Company Common Stock and each series of
Company Preferred Stock outstanding on the record date set for the Company
Shareholders Meeting is the only vote of the holders of any of Company's Capital
Stock necessary to approve this Agreement, the Merger and the other transactions
contemplated by this Agreement.
2.31 Board Approval. The Board of Directors of Company has unanimously
--------------
(i) approved and adopted this Agreement, the Merger and the other transactions
contemplated by this Agreement, (ii) determined that the Merger is advisable and
on terms fair to, and is in the best interests of, the shareholders of Company
and (iii) recommended that the shareholders of Company approve and adopt this
Agreement, the Merger and the other transactions contemplated by this Agreement.
2.32 Tax Treatment. Neither Company nor, to Company's knowledge, any of
-------------
its directors or officers has taken any action that would prevent the Merger
from qualifying as a
24
"reorganization" within the meaning of Section 368(a) of the Code. Neither
Company nor, to Company's knowledge, any of its affiliates or agents is aware of
any agreement, plan or other circumstance that would prevent the Merger from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code.
2.33 Information Statement and Proxy Statement. The information supplied
-----------------------------------------
by Company for inclusion in the information statement (as amended or
supplemented, the "Information Statement") to be sent to the shareholders of
Company in connection with the meeting of Company's shareholders to consider and
vote upon this Agreement, the Merger and the other transactions contemplated
hereby (the "Company Shareholders Meeting") or in the proxy statement (as
amended or supplemented, the "Proxy Statement") to be sent to the stockholders
of Parent in connection with the meeting of Parent's stockholders to consider
and vote upon the issuance of Parent Common Stock pursuant to this Agreement
(the "Parent Stockholders Meeting") or in any registration statement on Form S-4
or S-3 pursuant to Section 1.12 of this Agreement, shall not, on the date the
Information Statement (or prospectus in the event of a registration statement on
Form S-4) is first sent to Company's shareholders or on the date the Proxy
Statement is first sent to Parent's stockholders (as the case may be) , at the
time of the Company Shareholders Meeting or the Parent's Stockholders Meeting
(as the case may be), or at the Effective Time, contain any statement which, at
such time, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to matters to be voted on at
the Company Shareholders Meeting or the Parent Stockholders Meeting which has
become false or misleading. If at any time prior to the Effective Time any event
or information should be discovered by Company which should be set forth in a
supplement to the Information Statement or the Proxy Statement, Company shall
promptly inform Parent. Notwithstanding the foregoing, Company makes no
representation, warranty or covenant with respect to any information supplied by
Parent or Merger Sub which is contained in the Information Statement or the
Proxy Statement. The information supplied by Company for inclusion in the
application for issuance of a California Permit pursuant to which the shares of
Parent Common Stock to be issued in the Merger and the Company Options to be
assumed in the Merger will be qualified under the California Corporations Code
(the "Permit Application") shall not at the time the fairness hearing is held
pursuant to Section 25142 of the California Corporations Code and the time the
qualification of such securities is effective under Section 25122 of the
California Corporations Code contain any untrue statement of a material fact or
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 made, not misleading.
2.34 Company Affiliates. Section 2.34 of the Company Disclosure Schedule
------------------
contains a true and complete list of all persons who, to Company's knowledge,
may be deemed to be an "affiliate" within the meaning of Rule 144 and Rule 145
of the Rules and Regulations of the SEC promulgated under the Securities Act for
purposes of Accounting Series Releases 130 and 135, as amended (each such
person, an "Affiliate" and collectively "Affiliates") of Company.
25
2.35 Brokers' and Finders' Fees. Company has not incurred, nor will it
--------------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, other
than as set forth in Section 2.35 of the Company Disclosure Schedule. Company
has previously furnished to Parent a complete and correct copy of all agreements
between Company and the financial advisors set forth in Section 2.35 of the
Company Disclosure Schedule, pursuant to which such firms would be entitled to
any payment relating to the Merger.
2.36 Representations Complete. None of the representations or warranties
------------------------
made by Company herein or in any Schedule hereto, including the Company
Disclosure Schedule, or certificate furnished by Company pursuant to this
Agreement, contains or will contain at the Effective Time any untrue statement
of a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
----------------------------------------
Except as disclosed in that section of the document of even date
herewith delivered by Parent to Company prior to the execution and delivery of
this Agreement (the "Parent Disclosure Schedule") corresponding to the Section
of this Agreement to which any of the following representations and warranties
specifically relate or as disclosed in another section of the Parent Disclosure
Schedule if it is reasonably apparent on the face of the disclosure that it is
applicable to another Section of this Agreement, or as disclosed in the
statements, reports, registration statements (with the prospectus in the form
filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statements, and other filings filed with the Securities and Exchange Commission
(the "SEC") by Parent on or prior to the date hereof (collectively, the "Parent
SEC Documents"), Parent hereby represents and warrants to Company as follows:
3.1 Organization, Standing and Power. Each of Parent and Merger Sub is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Each of Parent and Merger Sub has the
corporate power and authority to enter into this Agreement and the Ancillary
Agreements, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. Parent has no
material subsidiaries.
3.2 Capital Structure.
-----------------
(a) The authorized capital stock of Parent consists of 100,000,000
shares of Common Stock, $0.001 par value per share, and 10,000,000 shares of
Preferred Stock, $0.001 par value per share, of which there were issued and
outstanding as of the close of business on June 30, 1999, 35,935,627 shares of
Common Stock and no shares of Preferred Stock. All outstanding shares of Parent
have been duly authorized, validly issued, fully paid and are nonassessable and
free of any liens or encumbrances other than any liens or encumbrances created
by or imposed upon the holders thereof. The shares of Parent Common Stock to be
26
issued pursuant to the Merger will be duly authorized, validly issued, fully
paid, and non-assessable. Parent has reserved 7,544,000 shares of Parent Common
Stock for issuance pursuant to the Parent Stock Option Plan, of which 1,476,351
shares have been issued pursuant to option exercises and 3,674,236 shares are
subject to outstanding, unexercised options. As of the date of this Agreement,
no warrants to purchase shares of Parent Common Stock are outstanding. Except
for (i) the rights created pursuant to this Agreement, (ii) the outstanding
options under the Parent's stock option plan, and (iii) Parent's right to
repurchase any unvested shares under its stock option plan, there are no other
options, warrants, calls, rights, commitments or agreements of any character to
which Parent is a party or by which it is bound obligating Parent to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of capital stock or voting securities of
Parent or obligating Parent to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except for this Agreement, there are no
contracts, commitments or agreement relating to voting, purchase or sale of
Parent's capital stock or voting securities (i) between or among Parent and any
of its securityholders, and (ii) to Parent's knowledge, between or among any of
Parent's securityholders. None of the outstanding options permit any accelerated
vesting or exercisability of those options or the shares of Parent Common Stock
subject to those options by reason of the Merger or any other transactions
contemplated by this Agreement. True and complete copies of all agreements and
instruments relating to or issued under Parent's stock option plan have been
provided to Company and such agreements and instruments have not been amended,
modified or supplemented, and there are no agreements to amend, modify or
supplement such agreements or instruments in any case from the form provided to
Company. All outstanding shares of Parent Common Stock and all Parent options
and warrants to acquire Parent Common Stock from Parent were issued in
compliance in all material respects with all applicable federal and state
securities laws.
(b) The authorized capital stock of Merger Sub consists of one
thousand (1,000) shares of common stock, no par value per share ("Merger Sub
Common Stock"), of which 1000 shares are issued and outstanding. Parent owns
directly all the outstanding shares of Merger Sub Common Stock. The outstanding
shares of Merger Sub Common Stock are duly authorized, validly issued, fully
paid and nonassessable and free of any preemptive rights.
3.3 Authority. The execution and delivery of this Agreement and the
---------
Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of each of Parent and Merger Sub, subject only to the approval by
Parent's stockholders of the issuance of the Merger Shares pursuant to this
Agreement (the "Parent Stockholder Approval"). This Agreement and each Ancillary
Agreement has been duly executed and delivered by each of Parent and Merger Sub,
as applicable, and constitutes the valid and binding obligation of each of them,
enforceable against each of them in accordance with its terms, except as
enforcement may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, receivership, conservatorship, arrangement, moratorium or other
laws affecting the rights of creditors generally, or (ii) the availability of
specific performance, injunctive relief or other equitable remedies and general
principles of equity, regardless or whether considered in a proceeding in equity
or at law. The execution and delivery of this Agreement or any Ancillary
Agreement do not, and the performance of Parent's obligations hereunder or
thereunder and the consummation
27
of the transactions contemplated hereby or thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit, or result in any other
consequence, under (i) any provision of the Certificate of Incorporation or
Bylaws of Parent or Merger Sub, as amended, or (ii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent, Merger Sub or their respective properties or assets,
except in the case of clause (i) for any conflicts, violations, defaults or
other occurrences that would not (A) individually or in the aggregate have a
Material Adverse Effect on Parent or any of its subsidiaries or (B) prevent or
materially impair or delay the consummation of the Merger or the other
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement or any Ancillary Agreement by
Parent and Merger Sub, the performance of Parent's obligations hereunder or
thereunder or the consummation by Parent and Merger Sub of the transactions
contemplated hereby or thereby, except for (i) the filing of the Agreement of
Merger, as provided in Section 1.2, (ii) the filing with and clearance by the
SEC of the Proxy Statement and such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal or state securities laws or the securities laws of any
foreign country, (iii) such filings as may be required under the HSR Act, (iv)
the filing with the Nasdaq National Market of a Notification Form for Listing of
Additional Shares with respect to the shares of Parent Common Stock issuable
upon conversion of the Company Capital Stock in the Merger and upon exercise of
the options under the Company Stock Option Plan and warrants assumed by Parent,
(v) such other consents, authorizations, filings, approvals and registrations
which, if not obtained or made, would not have a Material Adverse Effect on
Parent and would not prevent or materially alter or delay any of the
transactions contemplated by this Agreement or the Ancillary Agreements, and
(vi) the filing with the SEC of a registration statement on Form S-8, or other
applicable form, covering the shares of Parent Common Stock issuable pursuant to
outstanding options under the Company Stock Option Plan assumed by Parent.
3.4 SEC Documents; Financial Statements. Parent has made available to
-----------------------------------
Company, in the form filed with the SEC (including via XXXXX and XXXXX XX), the
Parent SEC Documents. As of their respective filing dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a subsequently filed Parent SEC Document. The
financial statements of Parent, including the notes thereto, included in the
Parent SEC Documents (the "Parent Financial Statements") were complete and
correct in all material respects as of their respective dates, complied as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in all material respects in accordance
with GAAP applied on a basis consistent throughout the periods indicated and
consistent with each other (except as may be indicated in the notes thereto or,
in the case of unaudited statements included in Quarterly Reports on Form 10-Q
or Current Reports on Form 8-K, as permitted by Form 10-Q or Form 8-K
28
of the SEC). The Parent Financial Statements fairly present the consolidated
financial condition and operating results of Parent and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments).
3.5 Absence of Certain Changes. Since June 30, 1999 (the "Parent
---------------------------
Balance Sheet Date"), Parent has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
could reasonably be expected to result in, a Material Adverse Effect on Parent;
(ii) any acquisition, sale or transfer of any material asset of Parent or any of
its subsidiaries; (iii) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by Parent or any
revaluation by Parent of any of its or its subsidiaries' assets; (iv) any
declaration, setting aside, or payment of a dividend or other distribution with
respect to the shares of Parent, or any direct or indirect redemption, purchase
or other acquisition by Parent or any of its subsidiaries of any of its shares
of capital stock or other securities, except from former employees, directors
and consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of service to it or its subsidiaries;
(v) any amendment or change to the certificate or articles of incorporation or
bylaws or other charter or organizational documents of Parent or any of its
subsidiaries; (vi) any acts or omissions of the types restricted by Section 4.3,
or (vii) any agreement by Parent or any of its subsidiaries to do any of the
things described in the preceding clauses (i) through (vi) (other than
negotiations with Company and its representatives regarding the transactions
contemplated by this Agreement).
3.6 Absence of Undisclosed Liabilities. Parent has no material obligations
----------------------------------
or liabilities of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or adequately provided for in the balance sheet
included in Parent's Quarterly Report on Form 10-Q for the period ended June 30,
1999 (the "Parent Balance Sheet"), (ii) those incurred in the ordinary course of
business and not required to be set forth in the Parent Balance Sheet under
GAAP, and (iii) those incurred in the ordinary course of business consistent
with past practice since the Parent Balance Sheet Date which have not had and
could not reasonably be expected to have a Material Adverse Effect on Parent and
(iv) those incurred in connection with the execution and performance of this
Agreement.
3.7 Litigation. There is no private or governmental action, suit,
----------
proceeding, arbitration or, to the knowledge of Parent, claim or investigation
pending or threatened by or before any agency, court or tribunal, foreign or
domestic, against Parent or any of its subsidiaries or any of their respective
properties or officers or directors (in their capacities as such). There is no
judgment, decree or order against Parent or Merger Sub or any of their
respective subsidiaries or, to the knowledge of Parent, any of their respective
directors or officers (in their capacities as such), that could prevent, enjoin,
or materially alter or delay the Merger or any of the other transactions
contemplated by this Agreement or any Ancillary Agreement. Section 3.7 of the
Parent Disclosure Schedule contains a true and complete list of all actions,
suits, proceedings, claims, arbitrations or other litigation that Parent has
pending or threatened against other parties as of the date of this Agreement.
29
3.8 Restrictions on Business Activities. There is no agreement, judgment,
-----------------------------------
injunction, order or decree binding upon Parent or any of its subsidiaries which
has or could reasonably be expected to have the effect of prohibiting or
impairing any current or future business practice of Parent or any of its
subsidiaries, any acquisition of property by Parent or any of its subsidiaries
or the conduct of business by Parent or any of its subsidiaries as currently
conducted or as currently proposed to be conducted by Parent or any of its
subsidiaries.
3.9 Intellectual Property.
---------------------
(a) Parent and its subsidiaries own, or are licensed or otherwise
possesses legally enforceable rights to use all Intellectual Property that are
used or proposed to be used in the business of Parent and its subsidiaries as
currently conducted or as proposed to be conducted by Parent and its
subsidiaries. Neither Parent nor any of its subsidiaries has (i) licensed any of
its Intellectual Property in source code form to any party or (ii) entered into
any exclusive agreements relating to its Intellectual Property with any party.
(b) Section 3.9 of the Parent Disclosure Schedule lists (i) all
patents and patent applications and all registered and unregistered trademarks,
trade names, service marks, and copyrights, domain names and maskworks which are
registered or to which registration has been applied for, included in the
Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all material
licenses, sublicenses and other agreements as to which Parent or any of its
subsidiaries is a party and pursuant to which any person is authorized to use
any Intellectual Property except for Parent's standard form non-exclusive
licenses and sublicenses contained in purchase orders, and (iii) all material
licenses, sublicenses and other agreements as to which Parent or any of its
subsidiaries is a party and pursuant to which Parent or any of its subsidiaries
is authorized to use any third party patents, trademarks or copyrights,
including software ("Parent Third Party Intellectual Property Rights") which are
incorporated in, are, or form a part of any product of Parent or any of its
subsidiaries as of the date of this Agreement.
(c) To Parent's knowledge, there is no unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of Parent
or any of its subsidiaries, or any Intellectual Property right of any third
party to the extent licensed by or through Parent or any of its subsidiaries, by
any third party, including any employee or former employee of Parent or any of
its subsidiaries. Neither Parent nor any of its subsidiaries has entered into
any agreement to indemnify any other person against any charge of infringement
of any Intellectual Property, other than indemnification provisions contained in
purchase orders or license agreements arising in the ordinary course of
business.
(d) Neither Parent nor any of its subsidiaries is, nor will any of
them be as a result of the execution and delivery of this Agreement or the
Ancillary Agreements or the performance of any of their obligations under this
Agreement or the Ancillary Agreements, in breach of any license, sublicense or
other agreement relating to any Intellectual Property or Parent Third Party
Intellectual Property Rights.
30
(e) All patents, registered trademarks, service marks and copyrights
held by Parent or any of its subsidiaries are valid and subsisting. Neither
Parent nor any of its subsidiaries (i) has been sued in any suit, action or
proceeding which involves a claim of infringement of any patents, trademarks,
service marks, copyrights or violation of any trade secret or other proprietary
right of any third party, (ii) has any knowledge that the manufacturing,
marketing, licensing or sale of its products infringes any patent, trademark,
service xxxx, copyright, trade secret or other proprietary right of any third
party or (iii) has brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(f) Each of Parent and its subsidiaries has secured written
assignments from all consultants and employees who contributed to the creation
or development of Intellectual Property of the rights to such contributions that
Parent and its subsidiaries do not already own by operation of law, and Parent
has no reason to believe that any such assignment is not valid or binding.
(g) Each of Parent and its subsidiaries has taken reasonable steps
consistent with prevailing industry practice to protect and preserve the
patents, patent applications or copyright ("Confidential Information"). All use,
disclosure or appropriation of Confidential Information owned by Parent or any
of its subsidiaries by or to a third party has, to the knowledge of Parent, been
pursuant to the terms of a written agreement between Parent and such third
party. All use, disclosure or appropriation of Confidential Information not
owned by Parent or any of its subsidiaries has been pursuant to the terms of a
written agreement between Parent and the owner of such Confidential Information,
or is otherwise lawful.
3.10 Certain Agreements Affected by the Merger. Subject to Section 1.6,
-----------------------------------------
neither the execution and delivery of this Agreement or any Ancillary Agreements
nor the performance of any of Parent's obligations hereunder or thereunder or
the consummation of the transaction contemplated hereby or thereby will (i)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of Parent, (ii) materially increase any benefits otherwise payable
by Parent or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
3.11 Principal Contracts. Section 3.11 of the Parent Disclosure Schedule
-------------------
sets forth as of the date of this Agreement principal contracts of Parent (each
a "Principal Contract") relating to: (i) any trust indenture, mortgage,
promissory note, loan agreement or other contract for the borrowing of money,
any currency exchange, commodities or other hedging arrangement or any leasing
transaction of the type required to be capitalized in accordance with GAAP; (ii)
any contract limiting the freedom of Parent or any of its subsidiaries to engage
in any line of business or to compete with any other person or entity, or any
confidentiality, secrecy or non-disclosure contract; (iii) any contract with any
person with whom Parent or any of its subsidiaries does not deal at arm's length
within the meaning of the Code. Each of Parent and its subsidiaries has
performed all of the material obligations required to be performed by it and is
entitled to all accrued benefits under, and, to Parent's knowledge, is not
alleged to be in default in any material respect of any Principal Contract. Each
of the Principal Contracts is in full force and effect, and
31
there exists no default or event of default or event, occurrence, condition or
act, with respect to Parent or any of its subsidiaries or to Parent's knowledge
with respect to the other contracting party, which, with the giving of notice,
the lapse of the time or the happening of any other event or conditions, would
become a default or event of default under any Principal Contract. Parent has
made available true and complete copies of all Principal Contracts to Company.
3.12 Vote Required; Voting Agreements The affirmative vote of the
--------------------------------
holders of more than fifty percent (50%) of the shares of Parent Common Stock
outstanding on the record date set for the Parent Stockholders Meeting is the
only vote of the holders of any of Parent's capital stock necessary to obtain
the Parent Stockholder Approval. Holders of more than forty five percent (45%)
in the aggregate of all of the issued and outstanding shares of Parent Common
Stock as of the date of this Agreement have agreed in writing to vote for the
Parent Stockholder Approval pursuant to the Voting Agreements.
3.13 Board Approval. The Board of Directors of Parent has (i) approved
--------------
this Agreement and the issuance of the Merger Shares pursuant to this Agreement,
(ii) determined that the Merger is advisable and on terms fair to, and is in the
best interest of, the stockholders of Parent and (iii) recommended that the
stockholders of Parent approve the issuance of the Merger Shares pursuant to
this Agreement.
3.14 Information Statement and Proxy Statement. The information supplied
-----------------------------------------
by Parent for inclusion in the Information Statement, or in any registration
statement on Form S-4 or S-3 pursuant to Section 1.12 of this Agreement, shall
not, on the date the Information Statement (or prospectus in the event of a
registration statement on Form S-4) is first sent to Company's shareholders or
at the time of the Company Shareholders Meeting, contain any statement which at
such time is false or misleading with respect to any material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to matters to be voted on at
the Company Shareholders Meeting which has become false or misleading.
Notwithstanding the foregoing, Parent makes no representation, warranty or
covenant with respect to any information supplied by or on behalf of Company
which is contained in the Information Statement. The information supplied by
Parent and Merger Sub for inclusion in the Permit Application shall not, at the
time the fairness hearing is held pursuant to Section 25142 of the California
Corporations Code and the time the qualification of such securities is effective
under Section 25122 of the California Corporations Code, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
3.15 Tax Treatment. Neither Parent nor any of its directors or officers
-------------
has taken any action that would prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code. Neither
Parent nor, to Parent's knowledge, any of its affiliates or agents is aware of
any agreement, plan or other circumstance that would prevent the Merger from
qualifying under Section 368(a) of the Code.
3.16 Broker's and Finders' Fees. Parent and Merger Sub have not incurred,
--------------------------
nor will they incur, directly or indirectly, any liability for brokerage or
finders' fees or agents'
32
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby, other than as set
forth in Section 3.16 of the Parent Disclosure Schedule. Parent has previously
furnished to Company a complete and correct copy of all agreements between
Parent and the financial advisors set forth in Section 3.16 of the Parent
Disclosure Schedule, pursuant to which such firms would be entitled to any
payment relating to the Merger.
3.17 Complete Copies of Materials; Representations Complete. Parent has
------------------------------------------------------
delivered or made available to Company true and complete copies of each material
document that has been requested in writing by, Company or its counsel in
connection with their legal, financial and accounting review of Parent and its
subsidiaries. None of the representations or warranties made by Parent herein or
in any Schedule hereto, including the Parent Disclosure Schedule, or certificate
furnished by Parent pursuant to this Agreement contains or will contain at the
Effective Time any untrue statement of a material fact, or omits or will omit
(when read in conjunction with the Parent SEC Documents) at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
-----------------------------------
4.1 General Conduct of Business. During the period from the date of
---------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Company and Parent (except to the extent
expressly contemplated by this Agreement or as consented to in writing by the
other party or as approved by a majority of the Merger Integration Committee
established pursuant to Section 5.7(d) and except further, in the case of
Parent, as required by the fiduciary duties of the Board of Directors of Parent)
shall, and shall cause each of its subsidiaries to, carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted or as otherwise contemplated by the Company Budget as
defined in Section 4.2(i) below (in the case of Company) or Parent's FY2000 Plan
(in the case of Parent). Company further agrees to, and to cause its
subsidiaries to, pay debts and Taxes when due (subject to (i) good faith
disputes over such debts or Taxes and (ii) Parent's consent to the filing of
material Tax Returns if applicable), pay or perform other obligations when due,
and use reasonable efforts consistent with past practice and policies to
preserve intact its present business organizations, keep available the services
of its present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it so that its goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Company and Parent shall promptly notify each
other of any event or occurrence not in the ordinary course of its or its
subsidiaries' business, and of any event which could have a Material Adverse
Effect on the other.
4.2 Conduct of Business of Company. During the period from the date of
------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement or any Ancillary Agreement, Company shall (and shall cause its
subsidiaries to) not do, cause or permit any of the following without the prior
written consent of Parent or the prior approval of a majority of the Merger
33
Integration Committee established pursuant to Section 5.7(d) (including the
approval of at least one member thereof designated by Parent):
(a) Charter Documents. Amend, modify, alter or rescind its
-----------------
certificate or articles of incorporation or bylaws or other charter or
organizational documents;
(b) Dividends; Changes in Capital Stock. Declare or pay any
-----------------------------------
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
(c) Stock Option Plans. Grant any options or other rights to acquire
------------------
securities of Company (except grants of options to acquire Company Common Stock
in the ordinary course of business consistent with past practice, exercisable
for a total of not more than one million three hundred thirty three thousand
(1,333,000) shares of Company Common Stock), or accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans;
(d) Issuance of Securities. Issue, deliver or sell or authorize or
----------------------
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than (i) the issuance of shares of Company Common
Stock pursuant to the exercise of Company Options outstanding under the Company
Stock Option Plan (or upon the exercise of warrants to acquire Company Common
Stock from Company outstanding) as of the date of this Agreement and (ii) grants
of options permitted by Section 4.2(c);
(e) Material Contracts. Enter into any material contract or
------------------
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts, other than in the ordinary course of business
consistent with past practice;
(f) Intellectual Property. Transfer to any person or entity any
---------------------
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
(g) Exclusive Rights. Enter into or amend any agreements pursuant
----------------
to which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products or technology;
(h) Dispositions. Sell, lease, license or otherwise dispose of or
------------
encumber any of its properties or assets which are material, individually or in
the aggregate, to
34
its business, taken as a whole except for sales, leases or licenses of products
in the ordinary course of business;
(i) Indebtedness. Incur any indebtedness for borrowed money or
------------
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others, except in accordance with Company's
budget for October 1, 1999 through June 30, 2000 heretofore furnished to Parent
(the "Company Budget");
(j) Leases. Enter into any operating lease, except in accordance
------
with the Company Budget;
(k) Payment of Obligations. Pay, discharge or satisfy any claim,
----------------------
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the Company Financial Statements or in accordance with the Company
Budget;
(l) Capital Expenditures. Make any capital expenditures, capital
--------------------
additions or capital improvements except in accordance with the Company Budget;
(m) Insurance. Materially reduce the amount of any material
---------
insurance coverage provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of
---------------------
substantial value, other than in the ordinary course of business;
(o) Employee Benefit Plans; New Hires; Pay Increases. Adopt or
------------------------------------------------
amend any employee benefit or stock purchase or option plan, elect or appoint
any new director, or hire any new officer level employee, pay any special bonus
or special remuneration to any employee or director or, other than in the
ordinary course of business consistent with past practice, increase the salaries
or wage rates of its employees;
(p) Severance Arrangements. Grant any severance or termination pay
----------------------
(i) to any director or officer or (ii) to any other employee except payments
made pursuant to written agreements outstanding on the date hereof, identified
specifically on the Company Disclosure Schedule and furnished to Parent and its
counsel prior to the date hereof;
(q) Lawsuits. Commence a lawsuit other than (i) for the collection
--------
of bills, (ii) in such cases where it in good faith reasonably determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with Parent prior to the
filing of such a suit, or (iii) for a breach of this Agreement;
(r) Acquisitions. Acquire or agree to acquire, by merging or
------------
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its business, taken as a whole;
35
(s) Taxes. Make or change any material election in respect of Taxes,
-----
adopt or change any accounting method in respect of Taxes, file any material Tax
Return or any amendment to a material Tax Return, enter into any closing
agreement, settle any material claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(t) Notices. Fail to give all notices and other information
-------
required to be given by Company or any of its subsidiaries to the employees of
Company or any of its subsidiaries, any collective bargaining unit representing
any group of employees of Company, and any applicable government authority under
the WARN Act, the National Labor Relations Act, the Internal Revenue Code, the
Consolidated Omnibus Budget Reconciliation Act, and other applicable law in
connection with the transactions provided for in this Agreement;
(u) Revaluation. Revalue any of its assets, including without
-----------
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
(v) Domain Names. Change domain names or fail to renew existing
------------
domain name registrations on a timely basis, or
(w) Other. Take or agree in writing or otherwise to take, any of
-----
the actions described in Sections 4.2(a) through (v) above or (i) any action
which would make any of its representations or warranties contained in this
Agreement materially untrue or materially incorrect, or prevent it from
performing or cause it not to perform its covenants hereunder in any material
respect, (ii) any action that will result in any of the conditions to the Merger
as set forth in Article VI not being satisfied or in violation of any provision
of this Agreement, or any Ancillary Agreement, except, in every case, as may be
required by applicable law, or (iii) any other action that would materially
adversely delay or materially adversely impair the ability of Company to
consummate the Merger or the other transactions contemplated by this Agreement.
4.3 Conduct of Parent. During the period from the date of this Agreement
-----------------
and continuing until the earlier of the termination of this Agreement or the
Effective Time, except as expressly contemplated by this Agreement or any
Ancillary Agreement, Parent shall (and shall cause its subsidiaries to) not do,
cause, cause or permit any of the following without the prior written consent of
Company or approval of a majority of the Merger Integration Committee
established pursuant to Section 5.7(d) (including the approval of at least one
member thereof designated by Company):
(a) Certain Actions. Take or agree in writing or otherwise to take,
---------------
any of the actions described in Sections 4.3(b) through (j) below, or (i) any
action which would make any of its representations or warranties contained in
this Agreement materially untrue or materially incorrect, or prevent it from
performing or cause it not to perform its covenants hereunder in any material
respect, (ii) any action that will result in any of the conditions to the Merger
as set forth in Article VI not being satisfied or in violation of any provision
of this Agreement or any Ancillary Agreement, except, in every case, as may be
required by applicable law, or (iii) any other action that would materially
adversely delay or materially adversely impair
36
the ability of Parent to consummate the Merger or the other transactions
contemplated by this Agreement.
(b) Charter Documents. Amend, modify, alter or rescind its
-----------------
certificate or articles of incorporation or bylaws or other charter or
organizational documents;
(c) Dividends; Changes in Capital Stock. Declare or pay any
-----------------------------------
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
(d) Intellectual Property. Transfer to any person or entity any
---------------------
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
(e) Dispositions. Sell, lease, license or otherwise dispose of or
------------
encumber any of its properties or assets which are material, individually or in
the aggregate, to its business, taken as a whole except for sales, leases or
licenses of products in the ordinary course of business;
(f) Taxes. Make or change any material election in respect of
-----
Taxes, adopt or change any accounting method in respect of Taxes, file any
material Tax Return or any amendment to a material Tax Return, enter into any
closing agreement, settle any material claim or assessment in respect of Taxes;
(g) Domain Names. Change domain names or fail to renew existing
------------
domain name registrations on a timely basis;
(h) Stock Option Plans. Grant any options or other rights to acquire
------------------
securities of Parent (except grants of options to acquire Parent Common Stock in
the ordinary course of business consistent with past practice, exercisable for a
total of not more than two million (2,000,000) shares of Parent Common Stock),
or accelerate, amend or change the period of exercisability or vesting of
options or other rights granted under its stock plans or authorize cash payments
in exchange for any options or other rights granted under any of such plans;
(i) Issuance of Securities. Issue, deliver or sell or authorize or
----------------------
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of Parent Common Stock
(i) pursuant to the exercise of Parent Options outstanding under the Parent
Stock Option Plan (or upon the exercise of warrants to acquire Parent Common
Stock from Parent outstanding) as of the date of this Agreement or (ii) pursuant
to a transaction permitted by Section 4.3(j) below;
37
(j) Acquisitions. Acquire or agree to acquire, by merging or
------------
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof.
4.4 No Solicitation by Company.
--------------------------
(a) Company agrees that neither it nor any of its subsidiaries nor
any of their respective officers, directors, employees, agents and
representatives, (including without limitation any investment banker, attorney
or accountant retained by it or any of its subsidiaries) (collectively,
"Representatives"), will, directly or indirectly, initiate, solicit, encourage
or otherwise facilitate any inquiries or the making of any Company Takeover
Proposal (as defined below). Company further agrees that neither it nor any of
its subsidiaries nor any of their Representatives will, directly or indirectly,
engage in any negotiations concerning, or provide any confidential or non-public
information or data to, afford access to the properties, books or records of
Company or any of its subsidiaries to, or have any discussions with, any person
relating to a Company Takeover Proposal, enter into any agreement or instrument
relating to a Company Takeover Proposal or otherwise facilitate any effort or
attempt to make or implement a Company Takeover Proposal. Company agrees that it
will immediately cease and cause to be terminated all existing activities,
discussions or negotiations with any parties heretofore with respect to any of
the foregoing (if any). Company agrees that it will take the necessary steps to
promptly inform each of its Representatives of the obligations undertaken in
this Section 4.4 and in the Confidentiality Agreement (as defined in Section
5.4). Company agrees that it will notify Parent promptly if any inquiries,
proposals or offers relating to a Company Takeover Proposal are received by, any
such information is requested from, or any such discussions or negotiations are
sought to be initiated or continued with, Company or any of its representatives
indicating, in connection with such notice, the name of the person making the
inquiry, proposal or offer and the material terms and conditions of any
proposals or offers and thereafter shall provide Parent with a true and complete
copy of such Company Takeover Proposal communication (if it is in writing) and
otherwise keep Parent informed, on a current basis, on the status and terms of
any such proposals or offers and the status of any such negotiations or
discussions. Company also agrees that it will promptly request each person that
has heretofore executed a confidentiality or non-disclosure agreement in
connection with its consideration of acquiring it or any of its subsidiaries to
return to Company all confidential information heretofore furnished to such
person by or on behalf of it or any of its subsidiaries. At the Closing, Company
shall assign to Parent the non-exclusive right to enforce the rights of Company
and its subsidiaries under any and all confidentiality or non-disclosure
agreements entered into between Company and prospective acquirors of Company or
any of its subsidiaries.
(b) The parties hereto agree that irreparable damage would occur in
the event that the provisions of this Section 4.4 were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed by the parties hereto that Parent shall be entitled to seek
an injunction or injunctions to prevent breaches of this Section 4.4 and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which the parties may be entitled at law or in equity.
38
(c) For purposes of this Agreement, "Company Takeover Proposal" means
any offer or proposal for, or any indication of interest in, a merger or other
business combination involving Company or the acquisition of ten percent (10%)
or more of the outstanding shares of capital stock of Company, or a material
portion of the assets of, Company (other than the transactions contemplated by
this Agreement), or any other transaction inconsistent with consummation of the
transactions contemplated hereby.
4.5 No Solicitation by Parent.
-------------------------
(a) Parent agrees that neither it nor any of its subsidiaries nor
any of their respective Representatives, will, directly or indirectly, initiate,
solicit, encourage or otherwise facilitate any inquiries or the making of any
Parent Takeover Proposal (as hereinafter defined). Parent further agrees that
neither it nor any of its subsidiaries nor any of their Representatives will,
directly or indirectly, engage in any negotiations concerning, or provide any
confidential or non-public information or data to, afford access to the
properties, books or records of Parent or any of its subsidiaries to, or have
any discussions with, any person relating to a Parent Takeover Proposal, enter
into any agreement or instrument relating to a Parent Takeover Proposal or
otherwise facilitate any effort or attempt to make or implement a Parent
Takeover Proposal (other than a confidentiality agreement covering the
information contemplated by the following proviso); provided, however, that
-------- -------
nothing contained in this Section 4.5 shall prohibit the Board of Directors of
Parent (i) from complying with Rule 14d-9 or 14e-2(a) promulgated under the
Exchange Act with regard to a tender or exchange offer not made in violation of
this Section 4.5 or (ii) from providing information in connection with, and
negotiating concerning, an unsolicited, bona fide Parent Takeover Proposal if
Parent's Board of Directors (x) shall have concluded in good faith, after
considering applicable state law, on the basis of written advice of independent
outside counsel, that failure to take such action would not be a proper exercise
of the fiduciary duties of Parent's Board of Directors to Parent's stockholders
under applicable law, and (y) shall have in the exercise of such fiduciary
duties to Parent's stockholders determined (taking into account the advice of
Parent's independent financial advisor) that such Parent Takeover Proposal
provides materially greater value to Parent or its stockholders than the Merger
(any such Parent Takeover Proposal being referred to herein as a "Parent
Superior Proposal"). Parent agrees that it will immediately cease and cause to
be terminated all existing activities, discussions or negotiations with any
parties heretofore with respect to any of the foregoing (if any). Parent agrees
that it will take the necessary steps to promptly inform each of its
Representatives of the obligations undertaken in this Section 4.5 and in the
Confidentiality Agreement (as defined in Section 5.4). Parent agrees that it
will notify Company promptly if any inquiries, proposals or offers with respect
to a Parent Takeover Proposal are received by, any such information is requested
from, or any such discussions or negotiations are sought to be initiated or
continued with, Parent or any of its Representatives indicating, in connection
with such notice, the name of such person and the material terms and conditions
of any proposals or offers and thereafter shall provide Company with a true and
complete copy of such Parent Takeover Proposal communication (if it is in
writing) and otherwise keep Company informed, on a current basis, on the status
and terms of any such proposals or offers and the status of any such
negotiations or discussions. Parent also agrees that it will promptly request
each person that has heretofore executed a confidentiality or non-disclosure
agreement in connection with its consideration of acquiring it or any of its
subsidiaries
39
to return to Parent all confidential information heretofore furnished to such
person by or on behalf of it or any of its subsidiaries.
(b) The parties hereto agree that irreparable damage would occur in
the event that the provisions of this Section 4.5 were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed by the parties hereto that Company shall be entitled to seek
an injunction or injunctions to prevent breaches of this Section 4.5 and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which the parties may be entitled at law or in equity.
(c) For purposes of this Agreement, "Parent Takeover Proposal" means
any offer or proposal for, or any indication of interest in, a merger or other
business combination involving Parent or the acquisition of a majority of the
outstanding shares of capital stock of Parent, or all or substantially all of
the assets of Parent, or any other transaction inconsistent with consummation of
the transactions contemplated hereby, that is conditioned on the denial by
Parent stockholders of the Parent Stockholder Approval.
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
5.1 Information Statement and Proxy Statement.
-----------------------------------------
(a) As soon as practicable after the execution of this Agreement,
Company shall prepare, with the cooperation and reasonable assistance of Parent,
and furnish to its shareholders an Information Statement for the shareholders of
Company to approve and adopt this Agreement, the Merger and the other
transactions contemplated by this Agreement. The Information Statement shall
constitute a disclosure document for the offer and issuance of the shares of
Parent Common Stock to be received by the holders of Company Capital Stock in
the Merger and a proxy statement for solicitation of shareholder consent to or
approval of this Agreement, the Merger and the other transactions contemplated
hereby, and may be combined with the Proxy Statement as a joint
proxy/information statement. Parent and Company shall each use its reasonable
best efforts to cause the Information Statement to comply with applicable
federal and state securities laws requirements. Each of Parent and Company
agrees to provide promptly to the other such information concerning it and its
respective affiliates, directors, officers and securityholders as, in the
reasonable judgment of the other party or its counsel, may be required or
appropriate for inclusion in the Information Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Information Statement.
Company will promptly advise Parent, and Parent will promptly advise Company, in
writing if at any time prior to the Effective Time either Company or Parent
shall obtain knowledge of any facts that might make it necessary or appropriate
to amend or supplement the Information Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. The Information Statement shall contain the recommendation of
the Board of Directors of Company that Company shareholders approve and adopt
this Agreement, the Merger and the other transactions contemplated by this
Agreement, and the conclusion of the
40
Board of Directors that the terms and conditions of the Merger are fair and
reasonable and in the best interests of Company and its shareholders. Anything
to the contrary contained herein notwithstanding, Company shall not include in
the Information Statement any information with respect to Parent or its
affiliates or associates, the form and content of which information shall not
have been approved by Parent prior to such inclusion.
(b) As soon as practicable after the execution of this Agreement,
Parent shall prepare, with the cooperation of Company, and file with the SEC
preliminary proxy materials relating to the Parent Stockholders Meeting and the
vote of the stockholders of Parent on the issuance of the Merger Shares pursuant
to this Agreement. Parent and Company shall each use its reasonable best efforts
to cause the Proxy Statement to comply in all material respects with the
Exchange Act and all other applicable federal and state securities law
requirements. Each of Parent and Company shall, and shall cause its respective
representatives to, fully cooperate with the other such party and its
representatives in the preparation of the Proxy Statement, and shall promptly
provide to the other such information concerning it and its respective
affiliates, directors, officers and securityholders as the other may reasonably
request in connection with the preparation of the Proxy Statement. If at any
time prior to the Effective Time Company or Parent shall become aware of any
fact, event or circumstance that is required to be set forth in an amendment or
supplement to the Proxy Statement, such party shall promptly notify the other of
such fact, event or circumstance and the other parties shall cooperate with each
other in filing with the SEC or any other governmental official and mailing to
Parent stockholders such amendment or supplement. The Proxy Statement shall
contain the recommendation of the Board of Directors of Parent in favor of the
Parent Stockholder Approval; provided, that the Board of Directors of Parent
--------
shall have the right to omit, withdraw or modify such recommendation in the
event that a Parent Superior Proposal has been made and Parent's Board of
Directors has concluded in good faith, after considering applicable state law,
on the basis of written advice of outside counsel, that inclusion of such
recommendation would not be a proper exercise of the Parent's board of
directors' fiduciary duties to Parent's stockholders under applicable law.
Notwithstanding any such omission, withdrawal or modification, Parent shall
convene and hold (and shall take all action otherwise required by this Agreement
to convene and hold) the Parent Stockholders Meeting. Without limiting the
generality of the foregoing, Parent shall use its reasonable best efforts to
respond promptly to any comments made by the SEC with respect to the Proxy
Statement (including each preliminary version thereof) and to clear the Proxy
Statement as promptly as practicable hereafter. As promptly as practicable after
SEC clearance of the Proxy Statement, Parent shall file with the SEC the
definitive Proxy Statement and mail or cause to be mailed the Proxy Statement to
its stockholders.
(c) As soon as practicable after the execution of this Agreement,
Parent shall prepare, with the cooperation of Company, the Permit Application.
Parent and Company shall each use commercially reasonable efforts to cause the
Permit Application to comply with the requirements of applicable federal and
state laws. Each of Parent and Company agrees to provide promptly to the other
such information concerning its business and financial statements and affairs
as, in the reasonable judgment of the providing party or its counsel, may be
required or appropriate for inclusion in the Permit Application, or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the Permit
Application. Company will promptly advise Parent,
41
and Parent will promptly advise Company, in writing if at any time prior to the
Effective Time either Company or Parent shall obtain knowledge of any facts that
might make it necessary or appropriate to amend or supplement the Permit
Application in order to make the statements contained or incorporated by
reference therein not misleading or to comply with applicable law.
5.2 Meetings of Securityholders.
---------------------------
(a) Company shall promptly after the date hereof take all action
necessary in accordance with California Corporations Code and its Articles of
Incorporation and Bylaws to convene the Company Shareholders Meeting or to
secure the written consent of its shareholders within sixty (60) days of the
date of this Agreement. Company shall consult with Parent regarding the date of
the Company Shareholders Meeting and shall not postpone or adjourn (other than
for the absence of a quorum) the Company Shareholders Meeting without the
consent of Parent. Company shall use its reasonable best efforts to solicit from
shareholders of Company proxies or consent in favor of approval and adoption of
this Agreement, the Merger and the other transactions contemplated hereby and
shall take all other action necessary or advisable to secure the vote or consent
of securityholders required to effect the Merger and the other transactions
contemplated hereby.
(b) Parent shall promptly after the date hereof take all action
necessary in accordance with Delaware Law and its Certificate of Incorporation
and Bylaws to convene the Parent Stockholders Meeting within sixty (60) days of
mailing of the Proxy Statement to stockholders of Parent and in no event later
than May 31, 2000. Parent shall consult with Company regarding the date of the
Parent Stockholders Meeting and shall not postpone or adjourn (other than for
the absence of a quorum) the Parent Stockholders Meeting without the consent of
Company. Parent shall use its reasonable best efforts to solicit from
stockholders of Parent proxies in favor of the Parent Stockholder Approval and
shall take all other action necessary or advisable to secure the vote or consent
of Parent securityholders required to effect the Merger.
5.3 Access to Information.
---------------------
(a) Each of Parent and Company shall afford the other and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (i) all of their
respective properties, books, contracts, commitments and records, and (ii) all
other information concerning their respective business, properties and personnel
as the other may reasonably request. Each of Parent and Company agrees to
provide to the other and its accountants, counsel and other representatives
copies of internal financial statements, budgets, operating plans and
projections promptly upon request.
(b) Subject to compliance with applicable law, from the date hereof
until the Effective Time, each of Parent and Company shall confer on a regular
and frequent basis with one or more representatives of the other party to report
material operational matters and the general status of ongoing operations.
42
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4 Confidentiality. The parties acknowledge that Parent and Company
---------------
have previously executed a mutual Confidentiality Agreement dated September 21,
1999 (the "Confidentiality Agreement"), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement,
-----------------
Parent and Company shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD after consultation with Company.
5.6 Consents; Cooperation. Each of Parent, Merger Sub and Company will,
---------------------
and will cause their respective subsidiaries to, take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to the consummation of the transactions contemplated by this
Agreement and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon such
other party in connection with the consummation of the transactions contemplated
by this Agreement or any Ancillary Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement or any Ancillary Agreement, including
without limitation under the HSR Act. Parent and Company shall have the right to
review in advance, and to the extent practicable each will consult with the
other as to, in each case subject to applicable laws relating to the exchange of
information, all of the information which will appear in any filing made with,
or written materials submitted to, any third party or Governmental Entity in
connection with the transactions contemplated by this Agreement. In the event an
injunction or other order shall have been issued which prevents, alters or
delays the Merger or any other transaction contemplated hereby, each party
agrees to use its reasonable best efforts to have such injunction or other order
lifted. Parent and Company and their respective subsidiaries shall cooperate and
use their respective reasonable best efforts to prepare all documentation, to
effect all filings and to obtain all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary to
consummate the transactions contemplated by this Agreement or any Ancillary
Agreement, and to consult with the other party with respect to obtaining such
permits, consents, approvals and authorizations. Each of Parent and Company
agrees, upon request, to furnish the other party with all information concerning
itself, its subsidiaries, directors, officers and shareholders and such other
matters as may be reasonably necessary or advisable in connection with any
filing, notice or application made by or on behalf of such other party or any of
its subsidiaries to any third party or Governmental Entity.
43
5.7 Further Assurances. Each of the parties to this Agreement shall use
------------------
its reasonable best efforts to effect the transactions contemplated hereby and
to fulfill and cause to be fulfilled the conditions to closing under this
Agreement. Without limiting the generality of the foregoing:
(a) Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
(b) FIRPTA Certificate. Company shall, prior to the Closing Date,
------------------
provide Parent with a properly executed FIRPTA Certificate, in form and
substance reasonably acceptable to Parent, which states that shares of capital
stock of Company do not constitute "United States real property interests" under
Section 897(c) of the Code, for purposes of satisfying Parent's obligations
under Treasury Regulation Section 1.1445-2(c)(3), and simultaneously with
delivery of such FIRPTA Certificate, Company shall provide to Parent, as agent
for Company, a form of notice to the Internal Revenue Service in accordance with
the requirements of Treasury Regulation Section 1.897-2(h)(2) and in form and
substance reasonably acceptable to Parent along with written authorization for
Parent to deliver such notice form to the Internal Revenue Service on behalf of
Company upon the Closing of the Merger.
(c) Submission of Expenses. Not less than two (2) business days
----------------------
prior to the Closing Date, Company shall deliver to Parent statements of all
fees and expenses paid or payable by Company in connection with the Merger
(including, without limitation, the fees and expenses of any financial advisors,
legal counsel, accountants or other service providers engaged by Company).
(d) Merger Integration Committee. Promptly after the date of this
----------------------------
Agreement, Parent and Company shall establish a committee (the "Merger
Integration Committee") to plan for the integration of the parties following the
Effective Time and to assist in carrying out certain provisions of this
Agreement, as provided herein. The Merger Integration Committee shall consist of
seven members, four of whom shall be members of the Board of Directors of Parent
and shall be designated by Parent and three of whom shall be members of the
Board of Directors of Company and shall be designated by Company. All
determinations by the Merger Integration Committee shall be made on the basis of
what is in the best interests of Parent and Company as a combined company
following the Effective Time.
(e) Resignation of Directors. The directors of Company in office
------------------------
immediately prior to the Effective Time shall have resigned as directors of
Company effective as of the Effective Time.
(f) Termination of Certain Company Securityholder Agreements.
--------------------------------------------------------
Company shall, effective from and after the Effective Time, cause the following
agreements to be terminated and of no further force or effect: (i) the Amended
and Restated Investors Rights Agreement dated as of January 29, 1999, by and
among Company and the investors listed on the signature page thereto, and (ii)
the Amended and Restated Co-Sale Agreement dated as of January 29, 1999 and the
individuals and entities listed on Exhibit A and Exhibit B thereto.
44
5.8 Company Shareholder Agreements.
------------------------------
(a) Company shall provide Parent such information and documents as
Parent shall reasonably request for purposes of reviewing the list of Affiliates
contained in Section 2.34 of the Company Disclosure Schedule and promptly advise
Parent of any person who becomes an Affiliate of Company hereafter.
(b) Company shall use its reasonable best efforts to deliver or cause
to be delivered to Parent, concurrently with the execution of this Agreement
(and in any event prior to the time that the Information Statement is mailed to
shareholders of Company), from each Affiliate of Company, an executed
Shareholder Agreement substantially in the form attached hereto as Exhibit C
---------
and an Irrevocable Proxy and Market Standoff Agreements substantially in the
forms attached as an annexes thereto.
(c) Company shall use its reasonable best efforts to deliver or cause
to be delivered to Parent, concurrently with the execution of this Agreement
(and in each case prior to the Effective Time), from each securityholder of
Company (whether or not an Affiliate thereof), an executed Shareholder
Representation Agreement substantially in the form attached hereto as
Exhibit D (the "Shareholder Representation Agreement") and a duly completed
---------
Investor Suitability Questionnaire in the form attached as an annex thereto
(an "Investor Suitability Questionnaire").
(d) Company shall not permit the transfer of any shares of Company
Capital Stock beneficially owned or held of record by any Company shareholder
who has executed a Shareholder Agreement pursuant to Section 5.8(b) above, issue
a new certificate representing any such shares or record the vote with respect
to any such shares unless and until such Company shareholder shall have complied
with the terms of such Shareholder Agreement.
5.9 Parent Voting Agreements. Section 5.9 of the Parent Disclosure
------------------------
Schedule sets forth those persons who may be deemed to be Affiliates of Parent.
Parent shall provide Company with such information and documents as Company
shall reasonably request for purposes of reviewing such list. Subject to
applicable law, Parent shall use its reasonable best efforts to deliver or cause
to be delivered to Company a duly executed Voting Agreement in the form of
Exhibit F attached hereto from each of the persons identified in Schedule 5.9
---------
as soon as practicable after the execution hereof (to the extent not executed
heretofore). Parent shall not permit the transfer of any shares of Parent Common
Stock beneficially owned or held of record by any Parent stockholder who has
executed a Voting Agreement pursuant to this Section 5.9, issue a new
certificate representing any such shares or record the vote with respect to any
such shares unless and until such Parent stockholder shall have complied with
the terms of such Voting Agreement.
5.10 Blue Sky Laws. Parent shall take such steps as may be necessary to
-------------
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Merger Shares in connection with the Merger.
Company shall use its reasonable best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of the Merger Shares in
connection with the Merger.
45
5.11 Employee Benefit Plans.
----------------------
(a) Assumption of Options. Company hereby represents and warrants
---------------------
to Parent that Schedule 5.11 hereto sets forth a true and complete list as of
the date hereof of all holders of outstanding options under the Company Stock
Option Plan, including the number of shares of Company Capital Stock subject to
each such option, the exercise or vesting schedule, the exercise price per share
and the term of each such option. On the day immediately preceding the Closing
Date, Company shall deliver to Parent an updated Schedule 5.11, current as of
the Closing Date. Consistent with the terms of the Company Stock Option Plan and
the documents governing the outstanding options under such Plan, the Merger will
not terminate any of the outstanding options under the Company Stock Option Plan
or accelerate the exercisability or vesting of such options or the shares of
Parent Common Stock which will be subject to those options upon the Parent's
assumption of the options in the Merger. It is the intention of the parties that
the options assumed by Parent pursuant to Section 1.6(c) of this Agreement
qualify, to the maximum extent permissible, following the Effective Time as
incentive stock options as defined in Section 422 of the Code to the extent such
options qualified as incentive stock options prior to the Effective Time. Within
twenty (20) business days after the Effective Time, Parent will issue to each
person who, immediately prior to the Effective Time was a holder of an
outstanding option under the Company Stock Option Plan, a document in form and
substance reasonably satisfactory to the Shareholders' Agent (as defined below)
evidencing the foregoing assumption of such option by Parent.
(b) Assignment of Repurchase Options. All outstanding rights of
-------------------------------- \
Company which it may hold immediately prior to the Effective Time to repurchase
unvested shares of Company Common Stock (the "Repurchase Options") shall be
assigned to Parent in the Merger and shall thereafter be exercisable by Parent
upon the same terms and conditions in effect immediately prior to the Effective
Time, except that the shares purchasable pursuant to the Repurchase Options and
the purchase price per share shall be adjusted to reflect the Exchange Ratio.
Except as disclosed in Schedule 5.11, the consummation of the Merger will not
-------------
result in the termination of any Repurchase Options or accelerate the vesting of
any shares of Company Common Stock subject to those Repurchase Options.
(c) Employee Service Credit. Company employees who become employed
-----------------------
by Parent upon or immediately following the Closing shall be given full credit
for their Company service under Parent employee benefit plans for purposes of
seniority, eligibility and vesting to the extent allowable by law and not
inconsistent with the applicable plan documents. Parent agrees that for purposes
of accrual of vacation, PTO benefits or other such benefits, Parent will use the
effective date of Company's employees' respective employment with Company. Such
Company employees shall, to the extent then otherwise eligible, be allowed to
participate in Parent's employee stock purchase plan on the first entry date
under such plan following the Closing. Furthermore, to the extent practicable,
Parent shall also administer its medical plans so as to credit Company employees
with amounts that they have paid prior to the Closing toward satisfying any
applicable deductible and "out-of-pocket" maximum applicable under Parent's
medical plans.
(d) Termination of SIMPLE Plan. Unless Parent consents otherwise
--------------------------
in writing, Company shall, immediately prior to the Closing Date, terminate the
Company SIMPLE
46
Plan described in Section 408(p) of the Code (the "Plan"). Company shall provide
to Parent executed resolutions by the Board of Directors of Company authorizing
the termination.
5.12 Form S-8. Parent shall use its reasonable best efforts to file, as
--------
soon as practicable after the Effective Date, a registration statement on Form
S-8 covering the shares of Parent Common Stock issuable pursuant to outstanding
options under the Company Stock Option Plan assumed by Parent. As soon as
practicable after the date hereof and prior to the Closing, Company will use its
reasonable best efforts to cause all holders of assumed Company Options to agree
in writing not to exercise their options pursuant to Section 1.6 until Company
has filed a registration statement on Form S-8 in accordance with this Section.
Company shall cooperate with and assist Parent in the preparation of such
registration statement.
5.13 Listing of Additional Shares. As soon as practicable after the
----------------------------
Closing, Parent shall file with the Nasdaq National Market a Notification Form
for Listing of Additional Shares with respect to the shares of Parent Capital
Stock issuable upon conversion of the Company Capital Stock in the Merger and
upon exercise of options and warrants to acquire Company's Capital Stock assumed
by Parent as a result of the Merger.
5.14 Escrow Agreement. At or before the Effective Time, the parties will
----------------
cause the Escrow Agent and the Shareholders' Agent to execute the Escrow
Agreement contemplated by Article VIII in substantially the form attached hereto
as Exhibit E, with such reasonable and customary modifications as the escrow
---------
agent thereunder may require (the "Escrow Agreement").
5.15 Expenses. Whether or not the Merger is consummated, all costs and
--------
expenses incurred in connection with this Agreement, the Ancillary Agreements
and the transactions contemplated hereby and thereby shall be paid by the party
incurring such expense.
5.16 Director and Officer Indemnification. Parent agrees not to cause
------------------------------------
or allow the Surviving Corporation to modify, and to cause the Surviving
Corporation to honor, any rights to indemnification or exculpation from
liabilities for acts or omissions occurring at or prior to the Effective Time
now existing in favor of the officers and directors of Company and its
subsidiaries as provided in their respective certificates or articles of
incorporation or by-laws, as currently in effect.
5.17 Preferred Stock; Warrants. Company shall use its reasonable best
-------------------------
efforts to (i) ensure that either all of Company's outstanding Preferred Stock
shall have been converted into Company Common Stock in accordance with the
Articles of Incorporation of Company or that the Articles of Incorporation of
Company shall provide that the Merger shall cause a liquidation event with
respect to the Company Preferred Stock and (ii) ensure that all outstanding
warrants have been exercised at or prior to the Effective Time.
5.18 Board Composition. From and after the Effective Time, the Board of
-----------------
Directors of Parent shall consist of not more than nine (9) members, and shall
initially consist of four (4) members designated by Parent, three (3) members
designated by Company and reasonably acceptable to Parent, and two independent
members mutually designated by Parent and Company, each of whom shall serve
(unless earlier removed in accordance with law) until their respective
successors have been elected or appointed and duly qualified. The persons so
47
designated who are not already members of the Board of Directors of Parent shall
be duly nominated and elected or appointed as directors of Parent, effective
upon the Effective Time, to serve until their successors are duly elected or
appointed and qualified. Six months after the Effective Time, one of the four
directors designated by Parent and one of the three directors designated by
Company shall resign.
ARTICLE VI
CONDITIONS TO THE MERGER
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger.
------------------------------------------------------------
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Securityholder Approval. This Agreement and the Merger shall
-----------------------
have been duly approved and adopted by the requisite vote of the holders of
Company Capital Stock, and any agreements or arrangements that may result in the
payment of any amount that would not be deductible by reason of Section 280G of
the Code shall have been approved by such number of shareholders of Company as
is required by the terms of Section 280G(b)(5)(B) and shall be obtained in a
manner which satisfies all applicable requirements of such Code Section
280G(b)(5)(B) and the proposed Treasury Regulations thereunder, including
(without limitation) Q-7 of Section 1.280G-1 of such proposed regulations. The
Parent Stockholder Approval shall have been duly obtained.
(b) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable efforts to have such injunction or other order lifted.
(c) Governmental Approval. Parent, Company and their respective
---------------------
subsidiaries shall have timely obtained from each Governmental Entity all
approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the other transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Exchange Act and the HSR Act; provided, however, that none of the preceding
shall be deemed obtained or made for purposes of satisfying the foregoing
condition to Parent's obligation to effect the Merger if it shall impose a non-
customary condition or restriction that Parent reasonably determines in good
faith could reasonably be expected to result in a Material Adverse Effect on
Parent or the Surviving Corporation.
48
(d) Escrow Agreement. Parent, Company, Escrow Agent and the
----------------
Shareholders' Agent shall have entered into the Escrow Agreement.
(e) Issuance of Shares. The fairness hearing shall have been held,
------------------
and the terms of the Merger shall have been determined to be fair, by the
Commissioner of Corporations of the State of California and the California
Permit shall have been issued by the State of California or a registration
statement on Form S-4 with respect to the shares of Parent Common Stock issuable
pursuant to Section 1.6(a) shall have been declared effective by the SEC and no
stop order with respect thereto shall be in effect. In the alternative, each of
the shareholders of Company who is an "accredited investor" shall have delivered
an executed copy of the Shareholder Representation Agreement, and the parties
shall be reasonably satisfied that the shares of Parent Common Stock to be
issued in connection with the Merger pursuant to Section 1.6(a) are issuable
without registration pursuant to Section 4(2) of the Securities Act and SEC
rules and regulations promulgated thereunder and shall be coupled with Form S-3
registration rights reasonably acceptable to Parent and Company. If the shares
of Parent Common Stock issuable pursuant to Section 1.6(a) have not been
registered on Form S-4, the Declaration of Registration Rights in substantially
the form of Exhibit B hereto shall have been approved pursuant to the Investors'
---------
Rights Agreement and shall be in full force and effect.
6.2 Additional Conditions to Obligations of Company. The obligations of
-----------------------------------------------
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, by Company:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Parent and Merger Sub in this Agreement shall
be true and correct in all respects on and as of the Effective Time as though
such representations and warranties were made on and as of the Effective Time
(other than representations and warranties expressly made as of an earlier date,
which shall have been so true and correct as of such earlier date), except where
the failure to be true and correct could not reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect on Parent,
and (ii) Parent in all material respects shall have performed and complied with
all covenants, obligations and conditions of this Agreement and Ancillary
Agreements required to be performed and complied with by it as of or prior to
the Effective Time (except, in the case of the covenants of Parent in Section
4.1 and Section 4.3, where the failure to perform or comply with such covenants
could not reasonably be expected to have a Material Adverse Effect on Parent).
(b) Certificate of Parent. Company shall have been provided with a
---------------------
certificate executed on behalf of Parent by its President and its Chief
Financial Officer to the effect that the condition set forth in Section 6.2(a)
has been satisfied.
(c) Third Party Consents. Company shall have been furnished with
--------------------
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under any
Principal Contract of Parent or any of its subsidiaries or otherwise, the
failure of which to obtain could reasonably be expected to have a Material
Adverse Effect on Parent or the Surviving Corporation.
49
(d) Injunctions or Restraints on Merger and Conduct of Business.
-----------------------------------------------------------
No proceeding brought by any Governmental Entity, domestic or foreign, seeking
to prevent the consummation of the Merger shall be pending. In addition, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent's conduct or operation of the
business of Company, following the Merger shall be in effect, nor shall any
proceeding brought by any Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(e) Legal Opinion. Company shall have received a legal opinion
-------------
from Parent's legal counsel, Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, in substantially
the form of Exhibit H.
---------
(f) Tax Opinion. Company shall have received a written opinion of
-----------
company's legal counsel, Xxxxxxx & XxXxxxxx LLP, dated as of the Closing Date,
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and such opinion shall not have been
withdrawn. In rendering such opinion, counsel shall be entitled to rely upon,
among other things, reasonable assumptions as well as representations of Parent,
Merger Sub and Company.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
-----------------------------------------------------------------
The obligations of Parent and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, by Parent:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Company in this Agreement shall be true and
correct in all respects on and as of the Effective Time as though such
representations and warranties were made on and as of the Effective Time (other
than representations and warranties expressly made as of an earlier date, which
shall have been so true and correct as of such earlier date), except where the
failure to be true and correct could not reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect on Company
or the Surviving Corporation and (ii) Company in all material respects shall
have performed and complied with all covenants, obligations and conditions of
this Agreement and the Ancillary Agreements to which it is a party required to
be performed and complied with by it as of or prior to the Effective Time
(except, in the case of the covenants of Company in Section 4.1 and Section 4.2,
where the failure to perform or comply with such covenants could not reasonably
be expected to have a Material Adverse Effect on Company or the Surviving
Corporation).
(b) Certificate of Company. Parent shall have been provided with a
----------------------
certificate executed on behalf of Company by its President and Chief Financial
Officer to the effect that the condition set forth in Section 6.3(a) has been
satisfied.
(c) Third Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under any
Material Contract of Company or any of its subsidiaries or otherwise, the
failure of which to obtain could reasonably be expected to have a Material
Adverse Effect on Parent, Company or the Surviving Corporation.
50
(d) Injunctions or Restraints on Merger and Conduct of Business.
-----------------------------------------------------------
No proceeding brought by any Governmental Entity, domestic or foreign, seeking
to prevent the consummation of the Merger shall be pending. In addition, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent's conduct or operation of the
business of Company, following the Merger shall be in effect, nor shall any
proceeding brought by any Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(e) Legal Opinion. Parent shall have received a legal opinion
-------------
from Company's legal counsel, Xxxxxxx & XxXxxxxx LLP, in substantially the form
of Exhibit G.
---------
(f) Tax Opinion. Parent shall have received a written opinion of
-----------
Parent's legal counsel, Xxxxxxx, Phleger & Xxxxxxxx LLP, dated as of the Closing
Date to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and such opinion shall not have been
withdrawn. In rendering such opinion, counsel shall be entitled to rely upon,
among other things, reasonable assumptions as well as representations of Parent,
Merger Sub and Company.
(g) Employment and Non-Competition Agreements. Each of the
-----------------------------------------
Employment and Non-Competition Agreements executed and delivered by employees
of Company set forth on Schedule 6.3(h) contemporaneously with the execution and
---------------
delivery of this Agreement shall be in full force and effect.
(h) Certificates. Company shall, prior to the Closing Date,
------------
provide Parent a certificate from the Secretary of State of California and the
California Franchise Tax Board as to Company's good standing and payment of all
applicable taxes, and such other certificates and closing documents as are
reasonably requested by Parent and customary for transactions of the type
contemplated hereby.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 Termination. At any time prior to the Effective Time, whether before
-----------
or after approval of the matters presented in connection with the Merger by the
shareholders of Company, this Agreement may be terminated:
(a) by mutual consent duly authorized by the Boards of Directors of
Parent and Company;
(b) by either Parent or Company, if the Closing shall not have
occurred on or before May 31, 2000 (provided, that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party whose
action or failure to act has been the cause or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a material breach of this Agreement);
51
(c) by Parent, if (i) Company shall breach any representation,
warranty, obligation or agreement hereunder in a manner causing conditions
precedent to the Closing not to be satisfied and such breach shall not have been
cured within twenty (20) business days of receipt by Company of written notice
of such breach, provided that the right to terminate this Agreement
--------
by Parent under this Section 7.1(c)(i) shall not be available to Parent where
Parent is at that time in material breach of this Agreement, or (ii) the Board
of Directors of Company shall have omitted, withdrawn or modified its
recommendation of this Agreement or the Merger in a manner adverse to Parent or
recommended, endorsed, accepted or agreed to a Company Takeover Proposal or
shall have resolved to do any of the foregoing (it being acknowledged that such
action would constitute a breach of this Agreement);
(d) by Company, if (i) Parent shall breach any representation,
warranty, obligation or agreement hereunder in a manner causing conditions
precedent to the Closing not to be satisfied and such breach shall not have been
cured within twenty (20) business days following receipt by Parent of written
notice of such breach, provided that the right to terminate this Agreement by
Company under this Section 7.1(d)(i) shall not be available to Company where
Company is at that time in material breach of this Agreement, or (ii) the Board
of Directors of Parent shall have omitted, withdrawn or modified its
recommendation of this Agreement or the Merger in a manner adverse to Company or
recommended or endorsed a Parent Takeover Proposal or shall have resolved to do
any of the foregoing;
(e) by Parent if (i) any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable, (ii) if any required approval of the
shareholders of Company shall not have been obtained by reason of the failure to
obtain the required vote upon a vote held at a duly held meeting of shareholders
or at any adjournment thereof, or (iii) the Parent Stockholder Approval is not
obtained at the Parent Stockholders Meeting or at any adjournment thereof; or
(f) by Company if (i) any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable, (ii) if any required approval of the
shareholders of Company shall not have been obtained by reason of the failure to
obtain the required vote upon a vote held at a duly held meeting of shareholders
or at any adjournment thereof, or (iii) the Parent Stockholder Approval is not
obtained at the Parent Stockholders Meeting or at any adjournment thereof.
7.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent or Company or their
respective officers, directors, securityholders or affiliates, except as
provided in Section 7.3 and/or except to the extent that such termination
results from the breach by a party hereto of any of its representations,
warranties or covenants set forth in this Agreement involving fraud, intentional
misrepresentation or willful misconduct; provided that the provisions of Section
5.4 (Confidentiality), Section 7.3 (Expenses and Termination Fees) and this
Section 7.2 shall remain in full force and effect and survive any termination of
this Agreement.
52
7.3 Expenses and Termination Fees. Subject to Sections 7.3(b) and 7.3(c),
-----------------------------
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement, the Ancillary Agreements and the transactions
contemplated hereby and thereby (including, without limitation, the fees and
expenses of its advisers, accountants and legal counsel) shall be paid by the
party incurring such expense.
(b) In the event that (i) Parent shall terminate this Agreement
pursuant to Section 7.1(c)(ii) or (ii) this Agreement shall be terminated by
Parent pursuant to Section 7.1(e)(ii) or by Company pursuant to Section
7.1(f)(ii), in either case following a failure of Company's shareholders to
approve this Agreement and, prior to the time of the Company Shareholders
Meeting, a Company Takeover Proposal shall have been made which at the time of
the Company Shareholders Meeting shall not have been definitively withdrawn by
the third party making such proposal, or (iii) Parent shall terminate this
Agreement pursuant to Section 7.1(c)(i) and prior to the breach giving rise to
such termination a Company Takeover Proposal shall have been made, then, in any
such event, in addition to any other remedies Parent may have, Company shall
promptly pay to Parent the sum of five million dollars ($5,000,000), and in the
event that a Company Takeover Proposal is consummated within twelve months after
such termination of this Agreement, Company shall pay to Parent the additional
sum of twenty-five million dollars ($25,000,000) upon the consummation of such
Company Takeover Proposal.
(c) In the event that (i) Company shall terminate this Agreement
pursuant to Section 7.1(d)(ii), or (ii) this Agreement shall be terminated by
Parent pursuant to Section 7.1(e)(iii), or by Company pursuant to Section
7.1(f)(iii), following a failure of Parent stockholders to grant the Parent
Stockholder Approval and, prior to the time of the Parent Stockholders Meeting,
a Parent Takeover Proposal shall have been publicly announced which shall not
have been publicly and definitively withdrawn by the third party making such
proposal, or (iii) Company shall terminate this Agreement pursuant to Section
7.1(d)(i) and prior to the breach giving rise to such termination a Parent
Takeover Proposal shall have been publicly announced, then, in any such event,
in addition to any other remedies Company may have, Parent shall promptly pay to
Company the sum of five million dollars ($5,000,000), and, in the event that a
Parent Takeover Proposal is consummated within twelve months after such
termination of this Agreement, Parent shall pay to Company the additional sum of
twenty-five million dollars ($25,000,000) upon the consummation of such Parent
Takeover Proposal. In the event that a Parent Takeover Proposal is publicly
announced and is thereafter withdrawn, the fact of such withdrawal shall be
communicated to Parent stockholders a reasonable time before the Parent
Stockholders Meeting, and the Parent Stockholders Meeting shall, if necessary,
be adjourned or postponed for a reasonable period to permit dissemination of
such information to Parent stockholders, withdrawal of proxies that may have
been affected by the announcement or pendency of such Parent Takeover Proposal
and resolicitation and submission of new proxies in favor of the Parent
Stockholder Approval.
7.4 Amendment. The boards of directors of the parties hereto may cause
---------
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to approval of the Merger by the shareholders of
Company shall not (i) alter or change the amount or kind of consideration to be
received on conversion of the Company Capital Stock, (ii) alter or change any
term of the Articles of Incorporation of the Surviving Corporation to be
effected by the
53
Merger, or (iii) alter or change any of the terms and conditions of the
Agreement if such alteration or change would materially adversely affect the
holders of Company Capital Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
-----------------
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto or (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
ESCROW AND INDEMNIFICATION
--------------------------
8.1 Escrow Fund. As soon as practicable after the Effective Time, ten
-----------
percent (10%) of the Merger Shares issued at the Closing or to which holders of
Company Capital Stock are entitled to receive by virtue of the Merger (the
"Escrow Shares") shall be registered in the name of, and be deposited with,
State Street Bank and Trust Company (or another institution selected by Parent
with the reasonable consent of Company) as escrow agent (the "Escrow Agent"),
such deposit (together with interest and other income thereon) to constitute the
Escrow Fund and to be governed by the terms set forth herein and in the Escrow
Agreement attached hereto as Exhibit E. The Escrow Fund shall be available to
compensate Parent pursuant to the indemnification obligations of the
shareholders of Company.
8.2 Indemnification. Subject to the limitations set forth in this
---------------
Article VIII, the shareholders of Company will indemnify and hold harmless
Parent and its officers, directors, agents and employees, and each person, if
any, who controls or may control Parent within the meaning of the Securities Act
(hereinafter referred to individually as an "Indemnified Person" and
collectively as "Indemnified Persons") from and against any and all losses,
costs, damages, liabilities and expenses arising from claims, demands, actions,
causes of action, including, without limitation, reasonable legal fees, net of
any recoveries by Parent under existing insurance policies or indemnities from
third parties (collectively, "Damages") arising out of any misrepresentation or
breach of or default in any of the representations, warranties, covenants and
agreements given or made by Company in or pursuant to this Agreement, the
Company Disclosure Schedules or any exhibit or schedule to this Agreement,
including any agreement entered into by Parent and Company in connection with
this Agreement and any certificates delivered pursuant to Article VI hereof. The
Escrow Fund shall be security for this indemnity obligation subject to the
limitations in this Agreement. Parent and Company each acknowledge that such
Damages, if any, would relate to unresolved contingencies existing at the
Effective Time, which if resolved at the Effective Time would have led to a
reduction in the total number of shares Parent would have agreed to issue in
connection with the Merger. If the Merger is consummated, recovery from the
Escrow Fund shall be the sole and exclusive remedy under this Agreement for any
breach or default in connection with any of the representations, warranties,
covenants or agreements set forth in this Agreement or any exhibit hereto,
absent fraud, intentional misrepresentation or willful breach. Nothing in this
Agreement shall limit the
54
liability (i) of Company for any breach of any representation, warranty or
covenant if the Merger is not consummated, or (ii) of any Company shareholder in
connection with any breach by such shareholder of the Shareholder Representation
Agreement, the Shareholder Agreement or the Irrevocable Proxy. No claim for
indemnification after the Effective Time shall be made under this Article VIII
unless and until aggregate Damages (including Damages pursuant to all prior
claims) exceed two million dollars ($2,000,000), and then only to the extent
that aggregate Damages exceed such amount.
8.3 Escrow Period. The Escrow Period shall terminate upon the following
-------------
dates: (a) for matters expected to be encountered and resolved in the audit of
Parent's financial statements for its fiscal year ending September 30, 2000, the
earlier of the first anniversary of the Closing Date or the date on which Parent
publishes the combined audited financial statements of Parent and Company for
the fiscal year which includes the Closing Date and (b) for all other matters,
the first anniversary of the Closing Date; provided, however, that a portion of
-------- -------
the Escrow Shares, which is necessary to satisfy any unsatisfied claims
specified in any Officer's Certificate theretofore delivered to the Escrow Agent
prior to termination of the Escrow Period with respect to facts and
circumstances existing prior to expiration of the Escrow Period, shall remain in
the Escrow Fund until such claims have been resolved. Parent shall deliver to
the Escrow Agent a certificate specifying the Effective Time.
8.4 Claims upon Escrow Fund. Upon receipt by the Escrow Agent on or
-----------------------
before the last day of the Escrow Period of a certificate signed by any officer
of Parent (an "Officer's Certificate"), setting forth the estimate of Damages
and specifying in reasonable detail the individual items of such Damages
included in the amount so stated, the date each such item was paid, or properly
accrued or arose, and the nature of the misrepresentation, breach of warranty or
claim to which such item is related, the Escrow Agent shall, subject to the
provisions of Section 8.5 and 8.6 below, deliver to Parent out of the Escrow
Fund, as promptly as practicable, Parent Common Stock or other assets held in
the Escrow Fund having a value equal to such Damages. For the purpose of
compensating Parent for its Damages pursuant to this Agreement, the Parent
Common Stock in the Escrow Fund shall be valued at the Closing Market Value (the
"Escrow Value").
8.5 Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Shareholders' Agent (defined in Section 8.7 below) and
for a period of twenty (20) days after such delivery to the Shareholders' Agent
of such Officer's Certificate, the Escrow Agent shall make no delivery of Parent
Common Stock or other property pursuant to Section 8.4 hereof unless the Escrow
Agent shall have received written authorization from the Shareholders' Agent to
make such delivery. After the expiration of such twenty (20) day period, the
Escrow Agent shall make delivery of the Parent Common Stock or other property in
the Escrow Fund in accordance with Section 8.4 hereof, provided that no such
payment or delivery may be made if the Shareholders' Agent shall object in a
written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Escrow Agent and to Parent prior to
the expiration of such twenty (20) day period.
8.6 Resolution of Conflicts; Arbitration.
------------------------------------
55
(a) In case the Shareholders' Agent shall so object in writing to any
claim or claims by Parent made in any Officer's Certificate, Parent shall have
ten (10) days after receipt by the Escrow Agent of an objection by the
Shareholders' Agent to respond in a written statement to the objection of the
Shareholders' Agent. If after such ten (10) day period there remains a dispute
as to any claims, the Shareholders' Agent and Parent shall attempt in good faith
for ten (10) days to agree upon the rights of the respective parties with
respect to each of such claims. If the Shareholders' Agent and Parent should so
agree, a memorandum setting forth such agreement shall be prepared and signed by
both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall
be entitled to rely on any such memorandum and shall distribute the Parent
Common Stock or other property from the Escrow Fund in accordance with the terms
thereof.
(b) If no such agreement can be reached after good faith negotiation,
either Parent or the Shareholders' Agent may, by written notice to the other,
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by one arbitrator. The decision of the arbitrator as to the validity
and amount of any claim in such Officer's Certificate shall be binding and
conclusive upon the parties to this Agreement, and notwithstanding anything in
Section 8.5 hereof, the Escrow Agent shall be entitled to act in accordance with
such decision and make or withhold payments out of the Escrow Fund in accordance
therewith.
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in Santa
Xxxxx, San Mateo or San Francisco County, California under the commercial rules
then in effect of the American Arbitration Association. For purposes of this
Section 8.6(c), in any arbitration hereunder in which any claim or the amount
thereof stated in the Officer's Certificate is at issue, Parent shall be deemed
to be the Non-Prevailing Party unless the arbitrators award Parent more than
one-half (1/2) of the amount in dispute, plus any amounts not in dispute;
otherwise, Company shareholders for whom shares of Company Common Stock
otherwise issuable to them have been deposited in the Escrow Fund shall be
deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including without limitation, attorneys' fees and costs, reasonably incurred by
the other party to the arbitration.
8.7 Shareholders' Agent.
-------------------
(a) Xxxxxx X. Xxxxxxx shall be constituted and appointed as agent
("Shareholders' Agent") for and on behalf of Company shareholders to give and
receive notices and communications, to authorize delivery to Parent of the
Parent Common Stock or other property from the Escrow Fund in satisfaction of
claims by Parent, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Shareholders'
Agent for the accomplishment of the foregoing. Such agency may be changed by the
holders of a majority in interest of the Escrow Fund from time to time upon not
less than ten (10) days' prior written
56
notice to Parent. No bond shall be required of the Shareholders' Agent, and the
Shareholders' Agent shall receive no compensation for his services. Notices or
communications to or from the Shareholders' Agent shall constitute notice to or
from each Company shareholder.
(b) The Shareholders' Agent shall not be liable for any act done or
omitted hereunder as Shareholders' Agent while acting in good faith and in the
exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. Each Company
shareholder shall jointly and severally indemnify the Shareholders Agent and
hold him harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Shareholders' Agent shall have reasonable access to
information about Company and the reasonable assistance of Company's officers
and employees for purposes of performing his duties and exercising his rights
hereunder, provided that the Shareholders' Agent shall treat confidentially and
not disclose any nonpublic information from or about Company to anyone (except
on a need to know basis to individuals who agree to treat such information
confidentially).
8.8 Actions of the Shareholders' Agent. A decision, act, consent or
----------------------------------
instruction of the Shareholders' Agent shall constitute a decision of all
Company shareholders for whom shares of Parent Common Stock otherwise issuable
to them are deposited in the Escrow Fund and shall be final, binding and
conclusive upon each such Company shareholder, and the Escrow Agent and Parent
may rely upon any decision, act, consent or instruction of the Shareholders'
Agent as being the decision, act, consent or instruction of each and every such
Company shareholder. The Escrow Agent and Parent are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Shareholders' Agent.
8.9 Third-Party Claims. In the event Parent becomes aware of a
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third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall promptly notify the Shareholders' Agent of such claim,
and the Shareholders' Agent and the Company shareholders for whom shares of
Parent Common Stock otherwise issuable to them are deposited in the Escrow Fund
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that Parent may not effect the settlement of any such
claim without the consent of the Shareholders' Agent, which consent shall not be
unreasonably withheld. In the event that the Shareholders' Agent has consented
to any such settlement, the Shareholders' Agent shall have no power or authority
to object under Section 8.6 or any other provision of this Article VIII to the
amount of any claim by Parent against the Escrow Fund for indemnity with respect
to such settlement.
ARTICLE IX
GENERAL PROVISIONS
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9.1 Non-Survival at Effective Time. The representations and warranties
------------------------------
set forth herein shall survive until the expiration of twelve (12) months after
the Effective Time. The agreements set forth in this Agreement shall terminate
at the Effective Time, except that the agreements set forth in Article I,
Section 5.4 (Confidentiality), 5.7 (Further Assurances), 5.8 (Company
Shareholder Agreements), 5.10 (Blue Sky Laws), 5.11 (Employee Benefit Plans),
5.12 (Form S-8), 5.13 (Listing of Additional Shares), 5.16 (Expenses), 5.18
(Director and Officer Indemnification), 7.3 (Expenses and Termination Fees), 7.4
(Amendment), Article VIII and this Article IX shall survive the Effective Date
and the Closing.
9.2 Notices. All notices and other communications hereunder shall be in
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writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or by reputable overnight courier or sent via facsimile (with
confirmation of receipt and followed by delivery by one of the other methods
described in this Section) to the parties at the following address (or at such
other address for a party as shall be specified by like notice):
(a) if to Parent, to:
Digital Island, Inc.
00 Xxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
Xxxxxxx, Phleger & Xxxxxxxx LLP
0000 Xxxx Xxxx
Xxx Xxxxxxxxxxx Xxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxx X. Mo, Esq.
with a copy to Xxx X. Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
(b) if to Company, to:
Sandpiper Networks, Inc.
000 X. Xxxxxxxxx Xx.
Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Attention: Xxx X. Xxxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
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Xxxxxxx & XxXxxxxx
0000 Xxxxx Xxx.
Xxxxx 000
Xxxxxxxx Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxx, Esq.
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
9.3 Interpretation. When a reference is made in this Agreement to
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Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to the date set forth in the first
paragraph of this Agreement. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
9.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement; Nonassignability; Parties in Interest. This
-------------------------------------------------------
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Company Disclosure Schedule, the Parent Disclosure Schedule and the other
Schedules (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.6(a), (c), (d), (f) and (g), 1.7, 1.9, 1.12, 5.11, 5.12 and 5.18; and (c)
shall not be assigned by operation of law or otherwise except as otherwise
specifically provided.
9.6 Severability. In the event that any provision of this Agreement, or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.7 Remedies Cumulative. Except as otherwise provided herein, any and
-------------------
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not
59
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of California without reference to such state's
principles of conflicts of law. Each of the parties hereto irrevocably consents
to the exclusive jurisdiction of any court located within the State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction and such process.
9.9 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by legal counsel during the negotiation, preparation and execution
of this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.10 Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings set forth below:
(a) "Material Adverse Effect" means, with respect to any person or
entity, any event, change or effect that is materially adverse to the business,
operations, personnel, condition (financial or otherwise), properties, assets
(including intangible assets), liabilities, or results of operations of such
person or entity and its subsidiaries, taking such person or entity together
with its subsidiaries as a whole, provided, that none of the following, either
--------
alone or in combination, shall constitute, in and of itself or in and of
themselves, a Material Adverse Effect: changes, events and effects that are
directly caused by (i) conditions affecting national, regional or world
economies as a whole (to the extent such person or entity is not
disproportionately affected), (ii) conditions affecting the industry or
industries, as a whole, in which such person or entity participates (to the
extent such person or entity is not disproportionately affected), (iii) the
announcement or pendency of this Agreement or the transactions contemplated by
this Agreement, (iv) failure of Parent to meet the revenue or earnings
predictions of equity analysts (as reflected in the First Call consensus
estimate), or any other published revenue or earnings predictions or
expectations, for any period ending on or after the date of this Agreement, or
(v) changes in the market price or trading volume of Parent capital stock.
(b) The term "knowledge" means, with respect to any party, the actual
knowledge after reasonable inquiry of the directors and officers of such party
and employees of such party charged with senior administrative or operational
responsibility for matters as to which knowledge is ascribed.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its respective officer thereunto duly
authorized, all as of the date first written above.
DIGITAL ISLAND, INC.
By: /s/ X.X. Xxxxxxxx
-------------------------------
Name: X.X. Xxxxxxxx
Title: Chief Financial Officer & Secretary
BEACH ACQUISITION CORP.
By: /s/ X.X. Xxxxxxxx
-------------------------------
Name: X.X. Xxxxxxxx
Title: Chief Financial Officer & Secretary
SANDPIPER NETWORKS, INC.
By: /s/ Xxx X. Xxxxxxx
-------------------------------
Name: Xxx X. Xxxxxxx
Title: Chairman, President and CEO
61
