Exhibit 2.1
Agreement and Plan of Reorganization
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
LEVEL ONE COMMUNICATIONS, INCORPORATED
THUNDERHILL ACQUISITION CORP.
AND
JATO TECHNOLOGIES, INC.
DATED AS OF NOVEMBER 9, 1998
EXHIBIT LIST
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**EXHIBIT A Certificate of Merger
*EXHIBIT B Company Affiliate Agreement
*EXHIBIT C Parent Affiliate Agreement
*EXHIBIT D-1 Stockholder Certificate
*EXHIBIT D-2 Stockholder Certificate
*EXHIBIT E-1 Parent and Merger Sub Officer's Certificates
*EXHIBIT E-2 Parent and Merger Sub Secretary's Certificates
*EXHIBIT F Xxxxxx & Xxxxx LLP Legal Opinion
EXHIBIT G Registration Rights Agreement
*EXHIBIT H Parent Tax Representation Letter
*EXHIBIT I-1 Company Officer's Certificate
*EXHIBIT I-2 Company Secretary's Certificate
*EXHIBIT J Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx Legal Opinion
*EXHIBIT K-1 Non-Competition Agreement
*EXHIBIT K-2 Non-Competition Agreement
*EXHIBIT L Company Tax Representation Letter
*EXHIBIT M Escrow Agent Fee Schedule
*Level One will submit these exhibits to the Merger Agreement upon request
of the Securities and Exchange Commission.
**Filed as Exhibit 2.2 to this Form 8-K.
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
November 9, 1998, by and among Level One Communications, Incorporated, a
California corporation ("Parent"), Thunderhill Acquisition Corp., a Delaware
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corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and Jato
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Technologies, Inc., a Delaware corporation (the "Company"), and with respect to
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Section 7.2 only, Xxxxxx Xxxxxxx, as Stockholder Agent, and U.S. Bank Trust
National Association, as Escrow Agent. Capitalized terms used and not otherwise
defined herein have the meanings set forth in Article 10.
RECITALS
A. The Boards of Directors of each of Parent, Merger Sub and the Company
believe it is in the best interests of Parent, Merger Sub and the Company and
their respective shareholders that Parent acquire the Company through the merger
Merger Sub with and into the Company with the Company being the surviving
corporation (the "Merger") and, in furtherance thereof, have approved the
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Merger.
B. The Boards of Directors of each of Parent, Merger Sub and the Company
have approved the Merger and this Agreement and the transactions contemplated
hereby by resolutions dated November 6, 1998, November 6, 1998 and October 29,
1998, respectively.
C. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, (i) all of the issued and outstanding shares
of capital stock of the Company shall be converted into the right to receive
unregistered shares of Common Stock of Parent ("Parent Common Stock") and (ii)
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all outstanding Company Options will be assumed by Parent subject to the terms
and conditions set forth herein.
D. A portion of the shares of Parent Common Stock otherwise issuable or
reserved for issuance by Parent in connection with the Merger shall be placed in
escrow by Parent, the release of which amount shall be contingent upon certain
events and conditions, all as set forth in Article 7.
E. Parent, Merger Sub and the Company intend that the Merger shall (i)
constitute a reorganization within the meaning of Section 368(a) of the Code and
(ii) be accounted for pursuant to the Pooling of Interests accounting method.
F. The Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
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NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby the parties agree as
follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. At the Effective Time and subject to and upon the terms
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and conditions of this Agreement and the applicable provisions of Delaware Law,
Merger Sub shall be merged with and into the Company, the separate corporate
existence of the Merger Sub shall cease, and the Company shall continue as the
surviving corporation and wholly-owned subsidiary of Parent. The Company is
sometimes referred to herein as the "Surviving Corporation."
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated pursuant
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to Section 8.1, the closing of the Merger (the "Closing") will take place as
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promptly as practicable, but no later than 5 Business Days following
satisfaction or waiver of the conditions set forth in Article 6, at the offices
of Xxxxxx & Xxxxx LLP, 000 Xxxxxxx Xxxx, 00xx Xxxxx, Xxxxxxxxxx, Xxxxxxxxxx,
unless another place or time is agreed to by Parent and the Company. The date
upon which the Closing actually occurs is herein referred to as the "Closing
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Date." On the Closing Date, the parties hereto shall cause the Merger to be
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consummated by filing a Certificate of Merger (or like instrument), in
substantially the form attached hereto as Exhibit A (the "Certificate of
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Merger"), with the Secretary of State of the State of Delaware, in accordance
with the relevant provisions of applicable law (the time of acceptance by the
Secretary of State of the State of Delaware of such filing being referred to
herein as the "Effective Time"). The parties currently intend that the Closing
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Date and the Effective time will occur on or prior to November 27, 1998.
1.3 EFFECT OF THE MERGER ON CONSTITUENT CORPORATIONS. At the Effective
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Time, the effect of the Merger shall be as provided in the applicable provisions
of Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of Merger Sub and the Company shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions, disabilities
and duties of Merger Sub and the Company shall become the debts, liabilities,
obligations, restrictions, disabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING CORPORATION.
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(a) At the Effective Time, the certificate of incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation until thereafter
amended as provided by law and such certificate of incorporation and by-laws of
the Surviving Corporation.
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(b) The by-laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation until
thereafter amended as provided by such by-laws, the certificate of incorporation
and applicable law.
1.5 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The directors of
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Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, each to hold office in accordance with the certificate of
incorporation and by-laws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, each to hold office in accordance with the by-laws of the
Surviving Corporation.
1.6 MAXIMUM NUMBER OF SHARES OF PARENT COMMON STOCK TO BE ISSUED; EFFECT
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ON OUTSTANDING SECURITIES OF COMPANY. The maximum number of unregistered
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shares of Parent Common Stock to be issued (including Parent Common Stock to be
reserved for issuance upon exercise of the Company Options to be assumed by
Parent as provided herein) in exchange for the acquisition by Parent of all
outstanding shares of Company Capital Stock and all vested and unvested Company
Options which are unexpired and unexercised immediately prior to the Effective
Time shall be the Aggregate Share Number. No adjustment shall be made in the
number of shares of Parent Common Stock issued in the Merger as a result of any
consideration (in any form whatsoever) received by the Company from the date
hereof to the Effective Time as a result of any exercise, conversion or exchange
of Company Options. Subject to the terms and conditions of this Agreement, as
of the Effective Time, by virtue of the Merger and without any action on the
part of Parent or Merger Sub, the Company or the holder of any shares of the
Company Capital Stock and Company Options, the following shall occur:
(a) Conversion of Company Capital Stock. At the Effective Time, each
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share of Company Capital Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of Company Capital Stock to be canceled
pursuant to Section 1.6(b) and any Dissenting Shares as described in Section
1.7) will be canceled and extinguished and be converted automatically into the
right to receive that number of shares of unregistered Parent Common Stock equal
to the Exchange Ratio.
(b) Cancellation of Parent-Owned and Company-Owned Stock. Each share
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of Company Capital Stock, if any, owned by Parent or the Company or any
Subsidiary of Parent or the Company immediately prior to the Effective Time
shall be automatically canceled and extinguished without any conversion thereof
and without any further action on the part of Parent, Merger Sub or the Company.
(c) Company Options. At the Effective Time all unexpired and
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unexercised Company Options then outstanding, whether vested or unvested, shall
be assumed by Parent in accordance with provisions described below.
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(i) At the Effective Time, each unexpired and unexercised Company
Option then outstanding, whether vested or unvested, shall be, in connection
with the Merger, assumed by Parent. Each Company Option so assumed by Parent
under this Agreement shall continue to have, and be subject to, the same terms
and conditions as were applicable to such Company Option immediately prior to
the Effective Time, provided that (A) such Company Option shall be exercisable
for that number of whole shares of Parent Common Stock equal to the product of
the number of shares of Company Capital Stock that were issuable upon exercise
of such Company Option immediately prior to the Effective Time multiplied by the
Exchange Ratio (rounded down to the nearest whole number of shares of Parent
Common Stock) and (B) the per share exercise price for the shares of Parent
Common Stock issuable upon exercise of such assumed Company Option shall be
equal to the quotient determined by dividing the exercise price per share of
Company Capital Stock at which such Company Option was exercisable immediately
prior to the Effective Time by the Exchange Ratio (rounded up to the nearest
whole cent).
(ii) It is the intention of the parties that the Company Options
assumed by Parent shall qualify following the Effective Time as "incentive stock
options" as defined in Section 422 of the Code to the same extent the Company
Options qualified as incentive stock options immediately prior to the Effective
Time and the provisions of this Section 1.6(c) shall be applied consistent with
this intent.
(iii) Promptly following the Effective Time, Parent will issue to
each holder of an unexpired and unexercised Company Option an instrument
evidencing the foregoing assumption of such Company Option by Parent.
(iv) Parent will reserve a sufficient number of shares of Parent
Common Stock for issuance pursuant to this Section 1.6(c).
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be
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equitably adjusted to reflect fully the effect of any stock split, reverse
split, stock combination, stock dividend (including any dividend or distribution
of securities convertible into Parent Common Stock or Company Capital Stock),
reorganization, reclassification, recapitalization or other like change with
respect to Parent Common Stock or Company Capital Stock occurring after the date
hereof and prior to the Effective Time.
(e) 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 be entitled to receive from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of (a) such
fraction, multiplied by (b) the Average Price.
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1.7 DISSENTING SHARES.
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(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Capital Stock held by a holder who has demanded and
perfected appraisal rights for such shares in accordance with Delaware Law and
who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares") shall not be converted into or represent
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a right to receive Parent Common Stock pursuant to Section 1.6, but the holder
thereof shall only be entitled to such rights as are granted to the holder by
Delaware Law.
(b) Notwithstanding the provisions of subsection (a) above, if any
holder of shares of Company Capital Stock who demands appraisal of such shares
under Delaware Law shall effectively withdraw or lose (through failure to
perfect or otherwise) the right to appraisal, then, as of the later of (i) the
Effective Time or (ii) the occurrence of such event, such holder's shares of
Company Capital Stock shall automatically be converted into and represent only
the right to receive Parent Common Stock and fractional shares as provided in
Section 1.6, if any, without interest thereon, upon surrender of the certificate
representing such shares.
(c) The Company shall give Parent (i) prompt notice of its receipt of
any written demands for appraisal of any shares of Company Capital Stock,
withdrawals of such demands, and any other instruments relating to the Merger
served pursuant to Delaware Law and received by the Company and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
demands for appraisal under Delaware Law. The Company shall not, except with
the prior written consent of Parent or as may be required under applicable law,
voluntarily make any payment with respect to any demands for appraisal of
Company Capital Stock or offer to settle or settle any such demands.
1.8 EXCHANGE PROCEDURES.
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(a) Parent Common Stock. On the Closing Date, Parent shall deposit
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with the Exchange Agent for exchange in accordance with this Article 1, a number
of shares of Parent Common Stock equal to the Aggregate Share Number (and a
sufficient amount of cash for payment of fractional share interests, if any,
pursuant to Section 1.6(e) hereof); provided that, on behalf of the holders of
Company Capital Stock, Parent shall deposit into an escrow account a number of
shares of Parent Common Stock equal to the Escrow Amount. The portion of the
Escrow Amount contributed on behalf of each holder of Company Capital Stock
shall be in proportion to the aggregate number of shares of Parent Common Stock
which such holder would otherwise be entitled to receive by virtue of ownership
of outstanding shares of Company Capital Stock.
(b) Exchange Procedures. As soon as practicable after the Effective
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Time, the Surviving Corporation shall cause to be mailed to each holder of
record of a certificate or certificates (the "Certificates") which immediately
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prior to the Effective Time
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represented outstanding shares of Company Capital Stock and which shares were
converted into shares of Parent Common Stock pursuant to Section 1.6, (i) a
letter of transmittal in customary form (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as 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 plus cash
in lieu of fractional shares in accordance with Section 1.6(e) hereof. 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 7 hereof), plus cash in lieu of fractional shares in accordance with
Section 1.6(e), to which such holder is entitled pursuant to Section 1.6, and
the Certificate so surrendered shall be canceled. As soon as practicable after
the Effective Time, and subject to and in accordance with the provisions of
Article 7 hereof, Parent shall cause to be distributed to the Escrow Agent a
certificate or certificates (in such denominations as may be requested by the
Escrow Agent) representing that number of shares of Parent Common Stock equal
to the Escrow Amount, which certificate shall be registered in the name of the
Escrow Agent. Such shares shall be beneficially owned by the holders on whose
behalf such shares were deposited in the Escrow Fund and shall be available to
compensate Parent as provided in Article 7. Until 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 in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6(e).
(c) Distributions With Respect to Unexchanged Shares of Company
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Capital Stock. No dividends or other distributions with respect to Parent
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Common Stock declared or made after the Effective Time and 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 dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to such whole shares of Parent Common Stock.
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(d) Transfers of Ownership. If any certificate for shares of Parent
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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.
1.9 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
respect thereof) 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 Company 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 1.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
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certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue certificates representing
such shares of Parent Common Stock and cash for fractional shares, if any, as
may be required by Section 1.6(e) in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder
thereof.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
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the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company, the officers and directors of the
Surviving Corporation are fully authorized to take, and will take, all such
lawful and necessary action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and Merger
Sub, subject to such exceptions as are specifically disclosed in the Disclosure
Schedule delivered herewith and dated as of the date hereof, as follows:
2.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the state of
Delaware,
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and has full corporate power and authority to conduct its business as now
conducted and to own, use and lease its Assets and Properties. The Company is
duly qualified, licensed or admitted to do business and is in good standing in
each jurisdiction in which the ownership, use or leasing of its Assets and
Properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except for such failures to
be so duly qualified, licensed or admitted and in good standing that could not
reasonably be expected to have a material adverse effect on the Business or
Condition of the Company.
2.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Subject only to the requisite
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approval of the Merger and this Agreement by the stockholders of the Company,
the Company has full corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery by the Company of
this Agreement and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action by the Board of Directors of the Company, and no other action on the part
of the Board of Directors of the Company is required to authorize the execution,
delivery and performance of this Agreement and the consummation by the Company
of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Parent and Merger Sub, as
applicable, constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its respective terms, except
as the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar Laws relating
to the enforcement of creditors' rights generally and by general principles of
equity.
2.3 CAPITAL STOCK. The authorized capital stock of the Company
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consists only of 8,500,000 shares of Common Stock, $0.001 par value per share
(the "Company Common Stock"), of which 328,646 shares of Common Stock are issued
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and outstanding as of the date hereof, and 5,500,000 shares of Preferred Stock,
$0.001 par value per share (the "Company Preferred Stock"). The designation and
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status of the Company Preferred Stock is as follows: (i) 2,750,000 shares are
designated as Series A Preferred Stock, all of which are issued and outstanding
as of the date hereof and (ii) 2,750,000 shares are designated as Series B
Preferred Stock, 2,483,985 of which are issued and outstanding as of the date
hereof. All of the issued and outstanding shares of Company Common Stock and
Company Preferred Stock are validly issued, fully paid and nonassessable, and
have been issued in compliance with all applicable federal, state and foreign
securities Laws. Except as disclosed in Section 2.3 of the Disclosure Schedule,
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no shares of Company Common Stock or Company Preferred Stock are held in
treasury or are reserved for issuance. Section 2.3 of the Disclosure Schedule
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lists the name and state of residence of each holder of Company Common Stock and
Company Preferred Stock provided to the Company by such holder. Except as
disclosed in Section 2.3 of the Disclosure Schedule, as of the date hereof there
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are no outstanding Company Options or agreements, arrangements or
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understandings to which the Company is a party (written or oral) to issue
Options with respect to Company Capital Stock and there are no preemptive
rights or agreements, arrangements or understandings to issue preemptive
rights with respect to the issuance or sale of Company Capital Stock created
by statute, the restated certificate of incorporation or by-laws of the
Company, or any agreement or other arrangement to which the Company is a party
or to which it is bound and there are no agreements, arrangements or
understandings to which the Company is a party (written or oral) pursuant to
which the Company has the right to elect to satisfy any Liability by issuing
Company Capital Stock or Equity Equivalents. With respect to each Company
Option, Section 2.3 of the Disclosure Schedule sets forth the holder thereof,
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the number and type of securities issuable thereunder, and, if applicable, the
exercise price therefor, the exercise period and vesting schedule thereof. All
of the Company Options were issued in compliance with all applicable federal,
state and foreign securities Laws. The Company is not a party or subject to
any agreement or understanding, and, to the Company's knowledge, there is no
agreement or understanding between or among any Persons which affects or
relates to the voting, or giving of written consents, with respect to the
Company Capital Stock.
2.4 NO SUBSIDIARIES. The Company has no Subsidiaries and does not
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otherwise hold any equity, membership, partnership, joint venture or other
ownership interest in any Person.
2.5 DIRECTORS AND OFFICERS. The name of each director and officer of
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the Company on the date hereof, and his or her position with the Company, are
listed in Section 2.5 of the Disclosure Schedule.
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2.6 NO CONFLICTS. The execution and delivery by the Company of this
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Agreement does not, the performance by the Company of its obligations under this
Agreement and the consummation of the transactions contemplated hereby do not
and will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the restated certificate of incorporation or
by-laws of the Company;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Section 2.6 of the Disclosure
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Schedule, if any, conflict with or result in a violation or breach of any Law or
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Order applicable to the Company or any of its Assets and Properties; or
(c) except as disclosed in Section 2.6 of the Disclosure Schedule and
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except as could not be reasonably expected to have a material adverse affect on
the Business or Condition of the Company, (i) conflict with or result in a
violation or breach of, (ii) constitute (with or without notice or lapse of time
or both) a default under, (iii) require the Company to obtain any consent,
approval or action of, make any filing with or give any notice to any Person as
a result or under the terms of, (iv) result in or give to any Person
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any right of termination, cancellation, acceleration or modification in or
with respect to, (v) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments under
or (vi) result in the creation or imposition of any Lien upon the Company or
any of its Assets and Properties under, any Contract or License to which the
Company is a party or by which any of its Assets and Properties is bound.
2.7 BOOKS AND RECORDS; ORGANIZATIONAL DOCUMENTS. The minute books and
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stock record books and other similar records of the Company have been provided
or made available to Parent or its counsel prior to the execution of this
Agreement. Such books and records are complete and correct in all material
respects and have been maintained in accordance with sound business practices.
Such minute books contain a true and complete record of all action taken at all
meetings and by all written consents in lieu of meetings of the directors,
stockholders and committees of the board of directors of the Company through the
date hereof. The Company has prior to the execution of this Agreement delivered
to Parent true and complete copies of its restated certificate of incorporation
and by-laws, both as amended through the date hereof.
2.8 COMPANY FINANCIAL STATEMENTS. Section 2.8 of the Disclosure
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Schedule sets forth the Company Financials. The Company Financials are correct
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in all material respects and have been prepared in accordance with GAAP applied
on a basis consistent throughout the periods indicated and consistent with each
other (except (i) as may be indicated in the notes thereto, and (ii) in the case
of the Interim Financial Statements, (A) subject to normal year-end adjustments,
which adjustments will not be material in amount or significance, and (B) except
that the Interim Financial Statements do not contain footnotes). The Company
Financials present fairly the financial condition and operating results of the
Company as of the dates and during the periods indicated therein, subject, in
the case of the Interim Financial Statements, to normal year-end adjustments,
which adjustments will not be material in amount or significance.
2.9 ABSENCE OF CHANGES. Since the Unaudited Financial Statement Date,
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except as set forth in Section 2.9 of the Disclosure Schedule, there has not
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been any material adverse change in the Business or Condition of the Company.
In addition, without limiting the foregoing, except as expressly contemplated
hereby and except as disclosed in Section 2.9 of the Disclosure Schedule, there
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has not occurred since the Unaudited Financial Statement Date:
(a) any declaration, setting aside or payment of any dividend or other
distribution in respect of the Company Capital Stock (or other equity interests
of the Company), or any direct or indirect redemption, purchase or other
acquisition by the Company of any such capital stock (or other equity
interests);
(b) any modification or amendment of any right of any holder of any
outstanding shares of Company Capital Stock or Company Options;
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(c) (i) any increase greater than 5% in salary, rate of commissions,
rate of consulting fees or any other compensation of any current or former
officer, director, stockholder, employee or consultant of the Company; (ii) any
payment by the Company of consideration of any nature whatsoever (other than
salary, commissions or consulting fees and customary benefits paid to any
current or former officer, director, stockholder, employee or consultant of the
Company) to any current or former officer, director, stockholder, employee or
consultant of the Company; (iii) any establishment or modification of (A)
targets, goals, pools or similar provisions under any Benefit Plan, employment
Contract or other employee compensation arrangement or (B) salary ranges,
increased guidelines or similar provisions in respect of any Benefit Plan,
employment Contract or other employee compensation arrangement; or (iv) any
adoption, entering into, amendment, modification or termination (partial or
complete) of any Benefit Plan;
(d) (i) any incurrence by the Company of Indebtedness or (ii) any
voluntary purchase, cancellation, prepayment or complete or partial discharge in
advance of a scheduled payment date with respect to, or waiver of any right of
the Company under, any Indebtedness of or owing to the Company;
(e) any physical damage, destruction or other casualty loss (whether
or not covered by insurance) affecting any of the real or personal property or
equipment of the Company in an aggregate amount exceeding $50,000;
(f) any write-off or write-down of or any determination to write off
or write-down any of the Assets and Properties of the Company in an aggregate
amount exceeding $50,000;
(g) any purchase of any Assets and Properties of any Person or
disposition of, or incurrence of a Lien on, any Assets and Properties of the
Company, other than acquisitions or dispositions in the ordinary course of
business of the Company consistent with past practice;
(h) any entering into, amendment, modification, termination (partial
or complete) or granting of a waiver under or giving any consent with respect to
(i) any Contract which is required (or had it been in effect on the date hereof
would have been required) to be disclosed in the Disclosure Schedule pursuant to
Section 2.15(a) or 2.18(a) or (ii) any other Contract related to Company
Intellectual Property;
(i) any capital expenditures or commitments by the Company for
additions to property, plant or equipment of the Company constituting capital
assets in an aggregate amount exceeding $50,000;
(j) any commencement, termination or change by the Company of any line
of business;
11
(k) any transaction by the Company with any officer, director,
stockholder, Affiliate or Associate of the Company, other than pursuant to any
Contract in effect on the Unaudited Financial Statement Date and disclosed to
Parent pursuant to Section 2.20 of the Disclosure Schedule or other than
---------------------------------------
pursuant to any contract of employment and listed pursuant to Section 2.20 of
---------------
the Disclosure Schedule;
-----------------------
(l) any change in the accounting or Tax methods or procedures of the
Company;
(m) any Contract or other transaction not in the ordinary course of
business consistent with past practice; or
(n) any entering into by the Company of any Contract to do or engage
in any of the foregoing, including with respect to any Business Combination not
otherwise restricted by the foregoing paragraphs.
2.10 NO UNDISCLOSED LIABILITIES. Except as reflected or reserved
--------------------------
against in the Company Financials (including the notes thereto) or as disclosed
in Section 2.10 of the Disclosure Schedule, there are no Liabilities of,
---------------------------------------
relating to or affecting the Company or any of its Assets and Properties, other
than Liabilities incurred in the ordinary course of business consistent with
past practice since the Unaudited Financial Statement Date and in accordance
with the provisions of this Agreement which, in the aggregate, are not material
to the Business or Condition of the Company and are not for tort or for breach
of contract.
2.11 TAXES. Except as disclosed in Section 2.11 of the Disclosure
----- ------------------------------
Schedule:
--------
(a) All Tax Returns required to have been filed by or with respect to
the Company have been duly and timely filed (including any extensions), and each
such Tax Return correctly and completely reflects Tax liability and all other
information required to be reported thereon. All Taxes due and payable by the
Company, whether or not shown on any Tax Return, have been paid or accrued on
the Company Financials. All such Tax Returns are complete and correct in all
material respects.
(b) The unpaid Taxes of the Company (i) did not, as of the most recent
fiscal month end, exceed by any material amount the reserve for income Tax
liability (other than the reserve for deferred taxes established to reflect
timing differences between book and tax income) set forth on the face of the
Company's most recent balance sheet and (ii) will not exceed by any material
amount that reserve as adjusted for operations and transactions through the
Closing Date.
(c) The Company is not a party to any agreement extending the time
within which to file any Tax Return. To the knowledge of the Company, no claim
has ever been made by a jurisdiction in which the Company does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction.
12
(d) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee or
independent contractor.
(e) The Company does not have knowledge of any actions by any Taxing
Authority in connection with assessing additional Taxes against or in respect of
it for any past period. There is no dispute or claim concerning any Tax
liability of the Company either (i) threatened, claimed or raised by any Taxing
Authority or (ii) of which the Company is aware. There are no Liens for Taxes
upon the Assets or Properties of the Company other than Liens for Taxes not yet
due. Section 2.11 of the Disclosure Schedule indicates those Tax Returns, if
---------------------------------------
any, of the Company that have been audited, and indicates those Tax Returns of
the Company that currently are the subject of audit. The Company has delivered
to Parent complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, the Company since the fiscal
year ended December 31, 1995.
(f) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to any Tax assessment
or deficiency.
(g) The Company has not received any written ruling related to Taxes
or entered into any agreement with a Taxing Authority relating to Taxes.
(h) The Company has no liability for the Taxes of any Person other
than the Company (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provision of state, local or foreign Law), (ii) as a transferee or
successor, (iii) by Contract or (iv) otherwise.
(i) The Company (i) has neither agreed to make nor is required to make
any adjustment under Section 481 of the Code by reason of a change in accounting
method and (ii) is not a "consenting corporation" within the meaning of Section
341(f)(1) of the Code.
(j) The Company is not a party to or is bound by any obligations under
any tax sharing, tax allocation, tax indemnity or similar agreement or
arrangement.
(k) The Company is not a party to any joint venture, partnership or
other arrangement that is treated as a partnership for federal income Tax
purposes.
(l) The Company has not made any payments, is not obligated to make
any payments, nor is a party to any Contract that under certain circumstances
could require it to make any payments that are not deductible as a result of the
provisions set forth in Section 280G of the Code.
13
(m) There is no limitation on the utilization of the net operating
losses, built-in losses, capital losses, Tax credits or other similar items of
the Company under (i) Section 382 of the Code, (ii) Section 383 of the Code,
(iii) Section 384 of the Code, and (iv) Section 1502 of the Code; provided,
however, that no representation and warranty is given as to the effect of the
transactions contemplated by this Agreement under the foregoing code sections.
(n) The Company is not nor has it ever been a United States real
property holding corporation within the meaning of Section 897(c)(1)(A)(ii) of
the Code.
2.12 LEGAL PROCEEDINGS.
-----------------
(a) Except as set forth in Section 2.12 of the Disclosure Schedule:
-------------------------------
(i) there are no Actions or Proceedings pending or, to the
knowledge of the Company, threatened against, relating to or affecting the
Company or its Assets and Properties;
(ii) there are no facts or circumstances known to the Company
that could reasonably be expected to give rise to any Action or Proceeding
against, relating to or affecting the Company; and
(iii) the Company has not received notice, and does not otherwise
have knowledge of any Orders outstanding against the Company.
(b) Prior to the execution of this Agreement, the Company has
delivered or made available to Parent all responses of counsel for the Company
to auditor's requests for information for the preceding three years (together
with any updates provided by such counsel) regarding Actions or Proceedings
pending or threatened against, relating to or affecting the Company. Section
-------
2.12(b) of the Disclosure Schedule sets forth all Actions or Proceedings
----------------------------------
relating to or affecting the Company or any of its Assets and Properties during
the three-year period prior to the date hereof.
2.13 COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed in Section
------------------------------- -------
2.13 of the Disclosure Schedule, the Company has not violated, and is not
-------------------------------
currently in default under, any Law or Order applicable to the Company or any of
its Assets and Properties, except for any such violations or defaults that could
not reasonably be expected to have a material adverse effect on the Business or
Condition of the Company.
2.14 BENEFIT PLANS; ERISA. All Benefit Plans of the Company are listed
--------------------
in Section 2.14 of the Disclosure Schedule, and copies of all plan documents,
---------------------------------------
written descriptions of plans, actuarial reports and filings with any
Governmental or Regulatory Authority and determinations with respect to such
Benefit Plans have been delivered or made available to
14
Parent. None of the Benefit Plans are Defined Benefit Plans. Except as
disclosed in Section 2.14 of the Disclosure Schedule:
---------------------------------------
(a) each Benefit Plan has at all times been maintained and
administered in accordance with its material terms, and each such Benefit Plan
and the administration thereof complies, and has at all times complied, in all
material respects with the requirements of all applicable Law, including ERISA
and the Code;
(b) to the Company's knowledge, each Benefit Plan intended to qualify
under Section 401(a) of the Code has at all times since its adoption been so
qualified, and each trust which forms a part of any such plan has at all times
since its adoption been tax exempt under Section 501(a) of the Code;
(c) the Company is not now, nor at any time has it been, a member of a
controlled group, as defined in Section 412(n)(6)(B) of the Code, with any other
company, entity or enterprise;
(d) the Company does not presently maintain or contribute to, nor any
time has it maintained or contributed to, any single-employer plan (within the
meaning of Section 3(41) of ERISA) subject to Title IV of ERISA, and the Company
is not aware of any circumstances pursuant to which the Company could have
liability to any party under Title IV of ERISA;
(e) no Benefit Plan is a "multiemployer" plan within the meaning of
Section 3(37) of ERISA;
(f) the Company has not incurred, nor does it reasonably expect to
incur, any liability for any tax imposed under Sections 4971 through 4980B of
the Code or civil liability under Section 502(i) or (l) of ERISA;
(g) no benefit under any Benefit Plan, including any severance or
parachute payment plan or agreement, will be established or become accelerated,
vested or payable by reason of any transaction contemplated under this
Agreement;
(h) no Benefit Plan provides health or death benefit coverage beyond
the termination of an employee's employment, except as required by Part 6 of
Subtitle B of Title I of ERISA or Section 4980B of the Code or comparable state
laws;
(i) no Action or Proceeding (excluding claims for benefits incurred in
the ordinary course of Plan activities) have been brought or, to the knowledge
of the Company, threatened against or with respect to any Benefit Plan and there
are no facts or circumstances known to the Company that could reasonably be
expected to give rise to any such Action or Proceeding;
15
(j) no tax has been incurred under Section 511 of the Code with
respect to any Benefit Plan (or trust or other funding vehicle pursuant
thereto); and
(k) all contributions to Benefit Plans that were required to be made
under such Benefit Plans have been made; and all benefits accrued under any
unfunded Benefit Plan have been paid, accrued or otherwise adequately reserved
in accordance with GAAP, and the Company has performed all material obligations
required to be performed as of such date under all Benefit Plans.
2.15 REAL PROPERTY.
-------------
(a) Section 2.15(a) of the Disclosure Schedule contains a true and
------------------------------------------
correct list of each parcel of real property leased by the Company (as lessor or
lessee) (the "Leased Real Property"). The Company owns no real property.
---------------------
(b) Subject to the terms of its respective leases, the Company has a
valid and subsisting leasehold estate in and the right to quiet enjoyment of the
Leased Real Properties for the full term of the leases relating thereto. Each
lease referred to in paragraph (a) above is a legal, valid and binding agreement
of the Company and, to the knowledge of the Company, each other Person that is a
party thereto, enforceable in accordance with its terms except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar Laws relating to the
enforcement of creditors' rights generally and by general principles of equity,
and except as set forth in Section 2.15(b) of the Disclosure Schedule, there is
------------------------------------------
no, and the Company has not received notice of any, material default (or any
condition or event which, after notice or lapse of time or both, would
constitute a material default) thereunder. The Company does not owe brokerage
commissions or finders fees with respect to any such Leased Real Property,
except to the extent that the Company may renew the term of any such lease, in
which case, any such commissions and fees would be in amounts that are
reasonable and customary for the spaces so leased, given their intended use and
terms.
(c) Except as disclosed in Section 2.15(c) of the Disclosure Schedule,
------------------------------------------
all material improvements on the Leased Real Property are in good operating
condition and in a state of good maintenance and repair, ordinary wear and tear
excepted, and such improvements are in all material respects adequate and
suitable for the purposes for which they are presently being used.
(d) The Company has no knowledge, nor has the Company received any
notice, of any Action or Proceeding, actual or threatened, against the Company
or the Leased Real Property by any Person which would materially affect the
future use, occupancy or value of the Leased Real Property or any part thereof.
16
2.16 TANGIBLE PERSONAL PROPERTY. The Company is in possession of and has
--------------------------
good and marketable title to, or has valid leasehold interests in or valid
rights under Contract to use, all tangible personal property used in the conduct
of its business, including all tangible personal property reflected on the
Company Financials and tangible personal property acquired since the Audited
Financial Statement Date, other than property disposed of since such date in the
ordinary course of business consistent with past practice. Except as disclosed
in Section 2.16 of the Disclosure Schedule, all such tangible personal property
---------------------------------------
is free and clear of all Liens and is adequate and suitable in all material
respects for the conduct by the Company of its business as presently conducted,
and is in good working order and condition in all material respects, ordinary
wear and tear excepted, and its use complies in all material respects with all
applicable Laws.
2.17 INTELLECTUAL PROPERTY.
---------------------
(a) Section 2.17(a) of the Disclosure Schedule lists all Company
------------------------------------------
Registered Intellectual Property and lists any proceedings or actions pending as
of the date hereof before any court, tribunal (including the PTO or equivalent
authority anywhere in the world) related to any of the Company Registered
Intellectual Property.
(b) Each item of Company Intellectual Property, including all Company
Registered Intellectual Property listed in Section 2.17(a) of the Disclosure
---------------------------------
Schedule is owned exclusively by the Company and is free and clear of any Liens
--------
(excluding Intellectual Property licensed to the Company). The Company (i) has
the right to all trademarks and trade names used in connection with the
operation or conduct of the business of the Company, including the sale of any
products or technology or the provision of any services by the Company and (ii)
owns exclusively, and has good title to, all copyrighted works that are Company
products or other works of authorship that the Company otherwise purports to own
provided that such works may incorporate copyrighted works or works of
authorship of third parties which are licensed to the Company or are in the
public domain.
(c) To the extent that any Company Intellectual Property has been
developed or created by any Person other than the Company, the Company has a
written agreement with such Person with respect thereto and the Company has
either obtained ownership of, and is the exclusive owner of, all such
Intellectual Property by operation of law or by valid assignment of any such
rights or has obtained a License under or to such Intellectual Property.
(d) Except pursuant to agreements described in Section 2.17(d) of the
----------------------
Disclosure Schedule, the Company has not transferred ownership of or granted any
-------------------
License of or other right to use or authorized the retention of any rights to
use any Intellectual Property that is or was Company Intellectual Property, to
any other Person other than nonexclusive rights to customers, licensees and
distributors of the Company in the ordinary course of business consistent with
industry or past practice.
17
(e) The Company Intellectual Property constitutes all the Intellectual
Property used in and/or necessary to the conduct of the Company's business as it
currently is conducted, including the design, development, manufacture, use,
import and sale of the products, technology and services of the Company
(including products, technology or services currently under development).
(f) Other than "shrink-wrap" and similar widely available commercial
end-user licenses, the Contracts and Licenses listed in Section 2.17(f) of the
----------------------
Disclosure Schedule include all Contracts and Licenses, to which the Company is
-------------------
a party with respect to any Intellectual Property. No Person other than the
Company has ownership rights to improvements made by the Company in Intellectual
Property which has been licensed to the Company.
(g) Section 2.17(g) of the Disclosure Schedule lists all Contracts,
------------------------------------------
Licenses and agreements between the Company and any other Person wherein or
whereby the Company has agreed to, or assumed, any obligation or duty to
warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or Liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other Person of
the Intellectual Property of any Person other than the Company.
(h) The operation of the business of the Company as currently
conducted, including the Company's design, development, use, import, manufacture
and sale of the products, technology or services (including products, technology
or services currently under development) of the Company does not infringe or
misappropriate the Intellectual Property of any Person, violate the rights of
any Person (including rights to privacy or publicity), or constitute unfair
competition or trade practices under any Laws, and the Company has not received
notice from any Person claiming that such operation or any act, product,
technology or service (including products, technology or services currently
under development) of the Company infringes or misappropriates the Intellectual
Property of any Person or constitutes unfair competition or trade practices
under any Law.
(i) Each item of Company Registered Intellectual Property is valid and
subsisting, and all necessary registration, maintenance, renewal fees, annuity
fees and taxes in connection with such Registered Intellectual Property have
been paid and all necessary documents and certificates in connection with such
Company Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property. Except as set forth on Section 2.17(i) of the
----------------------
Disclosure Schedule, the Company has registered the copyright with the U.S.
-------------------
Copyright Office for the latest version of each product or technology of the
Company that constitutes or includes a copyrightable work. In each case in
which the Company has acquired (other than by nonexclusive license) any
Intellectual Property rights from any Person, the Company has obtained a valid
and enforceable assignment sufficient
18
to irrevocably transfer all rights in such Intellectual Property (including
the right to seek past and future damages with respect to such Intellectual
Property) to the Company and, to the maximum extent provided for by, and in
accordance with, applicable Laws, the Company has recorded each such
assignment with the relevant Governmental or Regulatory Authority, including
the PTO, the U.S. Copyright Office, or their respective equivalents in any
relevant foreign jurisdiction, as the case may be.
(j) There are no Contracts, Licenses or agreements between the Company
and any other Person with respect to Company Intellectual Property under which
there is any dispute known to the Company regarding the scope of such agreement,
or performance under such agreement including with respect to any payments to be
made or received by the Company thereunder.
(k) To the knowledge of the Company, no Person is infringing or
misappropriating any Company Intellectual Property.
(l) The Company has taken all reasonable steps to protect the
Company's rights in confidential information and trade secrets of the Company or
provided by any other Person to the Company subject to a duty of
confidentiality. Without limiting the foregoing, the Company has, and enforces,
a policy requiring each employee, consultant and independent contractor to
execute proprietary information, confidentiality and invention and copyright
assignment agreements substantially in the form set forth in Section 2.17(l) of
------------------
the Disclosure Schedule, and all current and former employees, consultants and
-----------------------
independent contractors of the Company have executed such an agreement.
(m) No Company Intellectual Property or product, technology or service
of the Company is subject to any Order or Action or Proceeding that restricts,
or that is reasonably expected to restrict in any manner, the use, transfer or
licensing of any Company Intellectual Property by the Company or that may affect
the validity, use or enforceability of such Company Intellectual Property.
(n) To the knowledge of the Company, no (i) product, technology,
service or publication of the Company, (ii) material published or distributed by
the Company or (iii) conduct or statement of Company constitutes obscene
material, a defamatory statement or material, false advertising or otherwise
violates any Law.
(o) All of the Company's products (including products currently under
development) and, to the knowledge of the Company, all of its applications and
procedures, process systems, information technology systems and non-information
technology systems will record, store, process, calculate and present calendar
dates falling on and after (and if applicable, spans of time including) January
1, 2000, and will calculate any information dependent on or relating to such
dates in the same manner, and with the same functionality, data integrity and
performance, as such products record, store, process,
19
calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates.
2.18 CONTRACTS.
---------
(a) Section 2.18(a) of the Disclosure Schedule contains a true and
------------------------------------------
complete list of each of the Contracts or other arrangements (true and complete
copies or, if none, reasonably complete and accurate written descriptions of
which, together with all amendments and supplements thereto and all waivers of
any terms thereof, have been made available to Parent prior to the execution of
this Agreement), to which the Company is a party or by which any of its Assets
and Properties is bound and which involves or is reasonably expected to involve
more than $25,000 in annual expenses to the Company.
(b) Each Contract required to be disclosed in Section 2.18(a) of the
----------------------
Disclosure Schedule is in full force and effect and constitutes a legal, valid
-------------------
and binding agreement of the Company, enforceable against the Company in
accordance with its terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar Laws relating to the enforcement of creditors' rights generally
and by general principles of equity. To the knowledge of the Company, each
Contract required to be disclosed in Section 2.18(a) of the Disclosure Schedule
------------------------------------------
constitutes a legal, valid and binding agreement of the counter party thereto,
enforceable against such counter party in accordance with its terms except as
the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar Laws relating to the
enforcement of creditors' rights generally and by general principles of equity.
The Company is not, nor has it received notice that it is, in violation or
breach of or default under any Contract required to be disclosed in Section
-------
2.18(a) of the Disclosure Schedule and, to the knowledge of the Company, no
----------------------------------
counter party to such Contract is in violation or breach of or default under any
such Contract (or with notice or lapse of time or both, would be in violation or
breach of or default under any such Contract).
2.19 INSURANCE. Section 2.19 of the Disclosure Schedule contains a true
---------
and complete list (including the names and addresses of the insurers, the
expiration dates thereof, the annual premiums and payment terms thereof, the
period of time covered thereby and a brief description of the interests
insured thereby) of all liability, property, workers' compensation, directors'
and officers' liability and other insurance policies currently in effect that
insure the business, operations or employees of the Company or affect or
relate to the ownership, use or operation of any of the Assets and Properties
of the Company and that (a) have been issued to the Company or (b) to the
knowledge of the Company, have been issued to any Person (other than the
Company) for the benefit of the Company. The insurance coverage provided by
the policies described in clause (a) above will not terminate or lapse by
reason of any of the transactions contemplated by this Agreement. Each policy
listed in Section 2.19 of the Disclosure Schedule is valid and binding and in
---------------------------------------
full force and effect, all premiums due thereunder have been paid when due
20
and neither the Company or, to the knowledge of the Company, the Person to
whom such policy has been issued has received any notice of cancellation or
termination in respect of any such policy or is in default thereunder, and the
Company has no knowledge of any reason or state of facts that could reasonably
be expected to lead to the cancellation of such policies. The insurance
policies listed in Section 2.19 of the Disclosure Schedule, (i) in light of
---------------------------------------
the business, operations and Assets and Properties of the Company are in
amounts and have coverages that are reasonable and customary for Persons
engaged in similar businesses and operations and having similar Assets and
Properties and (ii) are in amounts and have coverages as required by any
Contract to which the Company is a party or by which any of its Assets and
Properties is bound. Section 2.19 of the Disclosure Schedule contains a list
---------------------------------------
of all material claims made under any insurance policies covering the Company
in the last two years. The Company has not received notice that any insurer
under any policy referred to in this Section is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause. The
Company has, in the reasonable judgment of the Company, in light of its
business, location, operations and Assets and Properties, maintained, at all
times, without interruption, appropriate insurance, both in scope and amount
of coverages.
2.20 AFFILIATE TRANSACTIONS. Except as disclosed in Section 2.20 of the
---------------------- -------------------
Disclosure Schedule, (i) there are no Contracts or Liabilities between the
-------------------
Company, on the one hand, and (A) any current or former officer, director,
stockholder, or to the Company's knowledge, any Affiliate or Associate of the
Company or (B) any Person who, to the Company's knowledge, is an Associate of
any such officer, director, stockholder or Affiliate, on the other hand, (ii)
the Company does not provide or cause to be provided any assets, services or
facilities to any such current or former officer, director, stockholder,
Affiliate or any Person who, to the Company's knowledge, is an Associate of
any such officer, director, stockholder or Affiliate, (iii) neither the
Company nor any such current or former officer, director, stockholder,
Affiliate or any Person who, to the Company's knowledge, is an Associate of
any such officer, director, stockholder or Affiliate, provides or causes to be
provided any assets, services or facilities to the Company and (iv) the
Company does not beneficially own, directly or indirectly, any Investment
Assets of any such current or former officer, director, stockholder, Affiliate
or any Person who, to the Company's knowledge, is an Associate of any such
officer, director, stockholder or Affiliate.
2.21 EMPLOYEES; LABOR RELATIONS.
---------------------------
(a) Section 2.21(a) of the Disclosure Schedule contains a list of the
------------------------------------------
name of each officer, employee and consultant of the Company, together with such
person's position or function, annual base salary or wages and any incentives or
bonus arrangement with respect to such person. The Company has not received any
information that would lead it to believe that any such person will or may cease
to be engaged by the Company for any reason, including because of the
consummation of the transactions contemplated by this Agreement.
21
(b) Except as disclosed in Section 2.21(b) of the Disclosure Schedule,
------------------------------------------
(i) there are no material controversies between the Company and any employee or
consultant of the Company, (ii) no employee of the Company is presently a member
of a collective bargaining unit and, to the knowledge of the Company, there are
no threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company and (iii) no unfair labor practice
complaint or sex or age discrimination claim has been brought against the
Company before the National Labor Relations Board or any other Governmental or
Regulatory Authority and there are no facts or circumstances known to the
Company that could reasonably be expected to give rise to such complaint or
claim. There has been no work stoppage, strike or other concerted action by
employees of the Company. The Company has complied in all material respects
with all applicable Laws relating to the employment of labor, including, those
relating to wages, hours and collective bargaining.
(c) To the knowledge of the Company, no officer, employee or
consultant of the Company is obligated under any Contract or other agreement or
subject to any Order or Law that would interfere with the Company's business as
currently conducted. Neither the execution nor delivery of this Agreement, nor
the carrying on of the Company's business as presently conducted nor any
activity of such officers, employees or consultants in connection with the
carrying on of the Company's business as presently conducted, will conflict with
or result in a breach of the terms, conditions or provisions of, constitute a
default under, or trigger a condition precedent to any rights under any Contract
or other agreement under which to the knowledge of the Company any of such
officer's, employees or consultants is now bound.
2.22 ENVIRONMENTAL MATTERS.
---------------------
(a) The Company has obtained all Environmental Permits necessary for
the operation of its business as currently conducted.
(b) The Company is in all material respects in compliance with all
terms, conditions and provisions of all applicable Environmental Permits and
(ii) Environmental Laws.
(c) There are no past, pending or threatened Environmental Claims
against the Company and the Company does not know of any facts or circumstances
which could reasonably be expected to form the basis for any Environmental Claim
against the Company.
(d) To the knowledge of the Company, no Releases of Hazardous
Materials have occurred at, from, in, to, on, or under any Site and no Hazardous
Materials are present in, on, about or migrating to or from any Site that could
give rise to an Environmental Claim against the Company.
22
(e) Neither the Company, nor any predecessor of the Company, nor any
entity previously owned by the Company, has transported or arranged for the
treatment, storage, handling, disposal or transportation of any Hazardous
Material to any off-Site location which could result in an Environmental Claim
against the Company.
(f) No Site is a current or proposed Environmental Clean-up Site.
(g) There are no Liens arising under or pursuant to any Environmental
Law on any Site.
(h) To the knowledge of the Company, there are no (i) underground
storage tanks, active or abandoned, (ii) polychlorinated biphenyl containing
equipment or (iii) friable asbestos-containing materials at any property
currently owned or operated by the Company.
(i) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, on behalf of, or which are in the
possession of the Company with respect to any Site which have not been delivered
to Parent prior to execution of this Agreement.
2.23 OTHER NEGOTIATIONS; BROKERS; THIRD PARTY EXPENSES. Neither the
-------------------------------------------------
Company nor, to the knowledge of the Company, any of its Affiliates (nor any
investment banker, financial advisor, attorney, accountant or other Person
retained by or acting for or on behalf of the Company or any such Affiliate) (a)
has entered into any Contract that conflicts with any of the transactions
contemplated by this Agreement or (b) has entered into any Contract or had any
discussions with any Person regarding any transaction involving the Company
which could result in Parent, the Company or any general partner, limited
partner, manager, officer, director, employee, agent or Affiliate of any of them
being subject to any claim for liability to said Person as a result of entering
into this Agreement or consummating the transactions contemplated hereby.
Section 2.23 of the Disclosure Schedule sets forth a reasonable estimate of all
---------------------------------------
Third Party Expenses expected to be incurred by the Company in connection with
the negotiation and effectuation of the terms and conditions of this Agreement
and the transactions contemplated hereby.
2.24 BANKS AND BROKERAGE ACCOUNTS. Section 2.24 of the Disclosure
---------------------------- ------------------------------
Schedule sets forth (a) a true and complete list of the names and locations of
--------
all banks, trust companies, securities brokers and other financial institutions
at which the Company has an account or safe deposit box or maintains a banking,
custodial, trading or other similar relationship, (b) a true and complete list
and description of each such account, box and relationship, indicating in each
case the account number and the names of the respective officers, employees,
agents or other similar representatives of the Company having signatory power
with respect thereto and (c) a list of each Investment Asset, the name of the
record and beneficial owner thereof, the location of the certificates, if any,
therefor, the
23
maturity date, if any, and any stock or bond powers or other authority for
transfer granted with respect thereto.
2.25 POOLING OF INTERESTS. Neither Company nor, to the knowledge of the
--------------------
Company, any of its directors, officers or stockholders has taken any action
which would reasonably be expected to preclude Parent's ability to account for
the Merger as a Pooling of Interests.
2.26 FINANCIAL PROJECTIONS. The Company has made available to Parent
---------------------
certain financial projections with respect to the Company's business which
projections were prepared for internal use only. The Company makes no
representation or warranty regarding the accuracy of such projections or as to
whether such projections will be achieved, except that the Company represents
and warrants that such projections were prepared in good faith and are based on
assumptions believed by it to be reasonable.
2.27 DISCLOSURE. No representation or warranty contained in this
----------
Agreement, and no statement contained in the Disclosure Schedule or in any
certificate, list or other writing furnished to Parent pursuant to any provision
of this Agreement (including the Company Financials and the notes thereto)
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements herein or therein, in the light
of the circumstances under which they were made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 ORGANIZATION AND QUALIFICATION. Each of Parent and Merger Sub is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California and Delaware, respectively, and has full corporate
power and authority to conduct its business as now conducted and as currently
proposed to be conducted and to own, use and lease its Assets and Properties.
Each of Parent and Merger Sub are duly qualified, licensed or admitted to do
business and are in good standing in each jurisdiction in which the ownership,
use or leasing of its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary, except for
such failures to be so duly qualified, licensed or admitted and in good standing
that could not reasonably be expected to have a material adverse effect on the
Business or Condition of Parent.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Merger Sub
------------------------------------
has full corporate power and authority to execute and deliver this Agreement, to
perform their
24
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery by Parent and Merger Sub of this Agreement and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
have been duly and validly authorized by all necessary action by the Board of
Directors of each of Parent and Merger Sub, and no other action on the part of
the Board of Directors of either Parent or Merger Sub is required to authorize
the execution, delivery and performance of this Agreement and the consummation
by Parent and Merger Sub of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Parent and
Merger Sub and, assuming the due authorization, execution and delivery hereof
by the Company, constitutes a legal, valid and binding obligation of Parent
and Merger Sub enforceable against Parent and Merger Sub in accordance with
its respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar Laws relating to the enforcement of creditors' rights generally
and by general principles of equity.
3.3 ISSUANCE OF PARENT COMMON STOCK. The shares of Parent Common Stock
-------------------------------
to be issued pursuant to the Merger, when issued, will be duly authorized,
validly issued, fully paid, non-assessable and issued in compliance with
applicable federal and state securities laws subject to the truth and accuracy
of the responses and representations made by the stockholders of the Company in
the stockholder certificates delivered to Parent.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished or
------------------------------------------
made available to the Company true and complete copies of all SEC Documents
filed by it with the SEC since December 31, 1997, and prior to the Effective
Time Parent will have made available to the Company or its counsel true and
complete copies of all SEC Documents filed by Parent after the date hereof but
before the Effective Time, all in the form so filed. As of their respective
filing dates, such SEC Documents filed by Parent and all SEC Documents filed
after the date hereof but before the Closing complied or will comply in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the SEC thereunder, as the case may be, and
none of the SEC Documents contained or will contain 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 such SEC Documents
have been corrected, updated or superseded by a document subsequently filed with
the SEC. The financial statements of Parent, including the notes thereto,
included in the SEC Documents (the "Parent Financial Statements") comply as to
----------------------------
form in all material respects with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with GAAP
consistently applied (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q under the Exchange Act)
and present fairly the consolidated financial position of Parent at the dates
thereof and the consolidated results of its operations and cash flows for the
periods then ended (subject, in the case of
25
unaudited financial statements, to normal year-end adjustments). There has
been no change in Parent accounting policies except as described in the notes
to the Parent Financial Statements. Except as reflected or reserved against in
the Parent Financial Statements, Parent has no material Liabilities or other
obligations, except for Liabilities and obligations (i) incurred in the
ordinary course of business or (ii) that would not be required to be reflected
or reserved against in the balance sheet of Parent prepared in accordance with
GAAP.
3.5 NO CONFLICTS. The execution and delivery by Parent and Merger Sub
------------
of this Agreement does not, and the performance by the Parent of its obligations
under this Agreement and the consummation of the transactions contemplated
hereby do not and will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the articles of incorporation or by-laws of
Parent or Merger Sub;
(b) conflict with or result in a violation or breach of any Law or
Order applicable to Parent or Merger Sub or their respective Assets or
Properties;
(c) except as would not have a material adverse effect on the Business
or Condition of Parent or Merger Sub, (i) conflict with or result in a violation
or breach of, (ii) constitute (with or without notice or lapse of time or both)
a default under, (iii) require the Parent to obtain any consent, approval or
action of, make any filing with or give any notice to any Person as a result of
the terms of, (iv) result in or give to any Person any right of termination,
cancellation, acceleration or modification in or with respect to, (v) result in
or give to any person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under or (vi) result in the
creation or imposition of any Lien upon the Parent or Merger Sub or any of their
respective Assets or Properties under, any Contract or License to which the
Parent or Merger Sub is a party or by which any of their Assets and Properties
are bound.
3.6 ABSENCE OF CHANGES. Since SEC Report Date, there has not been any
------------------
material adverse change, or any event or development which, individually or
together with other such events, could reasonably be expect to result in a
material adverse change in the Business or Condition of Parent.
3.7 POOLING OF INTERESTS. Neither the Parent nor, to the knowledge of
--------------------
Parent, any of its directors, officers or shareholders has taken any action
which would reasonably be expected to preclude Parent's ability to account for
the Merger as a Pooling of Interests.
3.8 INFORMATION TO BE SUPPLIED BY PARENT. The written information that
------------------------------------
Parent will supply to the Company expressly for inclusion by the Company in the
information or proxy statement the Company will send to its stockholders, in
connection with the Company's solicitation of written consents or proxies for a
stockholders meeting to be held
26
to vote upon the Merger and the transactions contemplated by this Agreement,
will not contain any untrue statement of material fact or omit any material
facts 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.
3.9 OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES. As of the date hereof
--------------------------------------------
and the Effective Time, except for obligations or Liabilities incurred in
connection with its incorporation or organization and the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Merger Sub has not
and will not have incurred, directly or indirectly, through any Subsidiary or
affiliate, any obligations or liabilities or engaged in any business activities
of any type or kind whatsoever or entered into any agreements or arrangements
with any Person.
ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY.
----------------------------------
(a) Company Conduct. During the period from the date of this
---------------
Agreement and continuing until the earlier of the termination of this Agreement
and the Effective Time, the Company agrees (unless Parent shall give its prior
consent in writing which consent will not be unreasonably withheld or delayed)
to carry on its business in the usual, regular and ordinary course consistent
with past practice, to pay its Liabilities and Taxes, to pay or perform other
obligations when due, subject to any good faith disputes over such Liabilities,
Taxes and other obligations and, to the extent consistent with such business, to
use commercially reasonable efforts and institute all policies to preserve
intact its present business organization, keep available the services of its
present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees and other Persons
having business dealings with it, all with the express purpose and intent of
preserving unimpaired its goodwill and ongoing businesses at the Effective Time.
Except as expressly contemplated by this Agreement or as set forth in the
Disclosure Schedule, the Company shall not, without the prior written consent of
Parent, which consent will not be unreasonably withheld or delayed:
(i) Enter into any Contract, commitment or transaction or incur
any Liabilities outside of the ordinary course of business consistent with
past practice.
(ii) Transfer (by way of a License or otherwise) to any Person
rights to any Company Intellectual Property other than the Company's
customers, distributors or other licensees in the ordinary course of business
consistent with past practice;
27
(iii) Enter into or amend any Contract pursuant to which any other
Person is granted manufacturing, marketing, distribution or similar rights of
any type or scope with respect to any products of the Company or Company
Intellectual Property other than as contemplated by the Company's Contracts or
Licenses disclosed in the Disclosure Schedule or otherwise in the ordinary
course of business consistent with past practice;
(iv) Materially amend or otherwise modify (or agree to do so),
except in the ordinary course of business consistent with past practice, or
violate the terms of, any of the Contracts set forth or described in the
Disclosure Schedule;
(v) Commence any Action or Proceeding;
(vi) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Capital Stock of the Company or Equity Equivalents, 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
Company Capital Stock, or repurchase, redeem or otherwise acquire, directly or
indirectly, any shares of Company Capital Stock or Company Options except for
repurchases of Company Capital Stock from employees upon the termination of
their employment pursuant to written agreements existing on the date hereof and
disclosed in the Disclosure Schedule;
(vii) Except for the issuance of shares of Company Capital Stock upon
exercise or conversion of presently outstanding Company Options listed in
Section 2.3 of the Disclosure Schedule, or the issuance of options available for
--------------------------------------
grant under the Company's existing stock option plan to employees who are not
officers of the Company, issue, grant, deliver, sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of Company Capital Stock, Equity Equivalents or Options to purchase
any other securities of the Company;
(viii) Cause or permit any amendments to its restated certificate of
incorporation or by-laws;
(ix) Enter into any Contract in connection with any transaction
involving a Business Combination;
(x) Sell, lease, license or otherwise dispose (or agree to do so)
of any of its Assets and Properties, except in the ordinary course of business
consistent with past practice;
(xi) Incur any Indebtedness or guarantee any such Indebtedness in an
aggregate amount exceeding $50,000, or issue or sell any debt securities of the
Company or guarantee any debt securities of others;
28
(xii) Grant any severance or termination pay to any director,
officer employee or consultant, except payments made pursuant to written
agreements outstanding on the date hereof, the terms of which are disclosed in
the Disclosure Schedule;
(xiii) Adopt or amend any Plan or Contract respecting employment,
extend any employment offer, pay or agree to pay any special bonus or special
remuneration to any director, officer, employee or consultant, or increase the
salaries or wage rates of its directors, officers, employees or consultants;
(xiv) Revalue any of its Assets and Properties, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business consistent with past
practice;
(xv) Take any action, including the acceleration of vesting of any
Company Options, or other rights to acquire shares of Company Capital Stock
which would be reasonably likely to interfere with Parent's ability to account
for the Merger as a Pooling of Interests or any other action that could
jeopardize the tax-free reorganization hereunder;
(xvi) Pay, discharge or satisfy, in an amount in excess of $50,000,
in any one case, or $100,000 in the aggregate, any claim, Liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of Liabilities that are either (i) reflected or reserved against in the
Company Financial Statements or (ii) were incurred in the ordinary course of
business subsequent to September 30, 1998;
(xvii) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any tax
allocation agreement, tax sharing agreement, tax indemnity agreement or closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes with any Taxing Authority or otherwise;
(xviii) Enter into any strategic alliance, joint development or
joint marketing Contract;
(xix) Fail to pay or otherwise satisfy its Liabilities consistent
with the Company's past practices, except such as are being contested in good
faith;
(xx) Waive or commit to waive any rights with a value in excess
of $25,000, in any one case, or $50,000, in the aggregate;
(xxi) Cancel, materially amend or renew any insurance policy other
than in the ordinary course of business consistent with past practice;
29
(xxii) Alter, or enter into any Contract or other commitment to
alter, its interest in any corporation, association, joint venture, partnership
or business entity in which the Company directly or indirectly holds any
interest on the date hereof; or
(xxiii) Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(i) through (xxii) above, or any other
action that would prevent the Company from performing or cause the Company not
to perform its agreements and covenants hereunder.
4.2 NO SOLICITATION. Until the earlier of the Effective Time and the
---------------
date of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, stockholders, attorneys, investment advisors, agents,
representatives, Affiliates or Associates to) directly or indirectly, take any
of the following actions with any Person other than Parent and its designees:
(a) solicit, initiate, entertain, review, or encourage any proposals or offers
from, or conduct discussions with or engage in negotiations with, any Person
relating to any possible Business Combination with the Company or any of its
Subsidiaries (whether such Subsidiaries are in existence on the date hereof or
are hereafter organized), (b) provide information with respect to the Company to
any Person relating to, or otherwise cooperate with, facilitate or encourage any
effort or attempt by any such Person with regard to, any possible Business
Combination with the Company or any Subsidiary of the Company (whether such
Subsidiaries are in existence on the date hereof or are hereafter organized),
(c) enter into a Contract with any Person, other than Parent, providing for a
Business Combination with the Company or any Subsidiary (whether such
Subsidiaries are in existence on the date hereof or are hereafter organized), or
(d) make or authorize any statement, recommendation or solicitation in support
of any possible Business Combination with the Company or any Subsidiary (whether
such Subsidiary is in existence on the date hereof or are hereafter organized)
other than by Parent. The Company shall immediately cease and cause to be
terminated any such Contacts or negotiations with any Person relating to any
such transaction or Business Combination. In addition to the foregoing, if the
Company receives prior to the Effective Time or the termination of this
Agreement any offer or proposal (formal or informal) relating to any of the
above, the Company shall immediately notify Parent thereof indicating in
reasonable detail the identity of the Person making the offer or proposal and
the terms and conditions of such offer or proposal. Each of the Company and
Parent acknowledge that this Section 4.2 was a significant inducement for Parent
to enter into this Agreement and the absence of such provision would have
resulted in either (i) a material reduction in the merger consideration to be
paid to the stockholders of the Company or (ii) a failure to induce Parent to
enter into this Agreement.
30
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 ISSUANCE OF PARENT COMMON STOCK. The parties hereto acknowledge and
-------------------------------
agree that the shares of Parent Common Stock to be issued pursuant to Section
1.6 will not be registered under the Securities Act and therefore shall
constitute "restricted securities" within the meaning of the Securities Act.
The certificates representing the shares of Parent Common Stock shall bear
appropriate legends to identify such privately placed shares as being restricted
under the Securities Act, to comply with applicable state securities laws and,
if applicable, to notice the restrictions on transfer of such shares. It is
acknowledged and understood that Parent is relying upon the representations made
by each stockholder of the Company in the stockholder certificates delivered to
Parent by such stockholders in connection with the issuance of Parent Common
Stock to such stockholders in the Merger.
5.2 STOCKHOLDER APPROVAL. The Company shall promptly submit this
--------------------
Agreement and the transactions contemplated hereby to its stockholders for
approval and adoption as provided by Delaware Law, its restated certificate of
incorporation and by-laws and shall provide such other documents as may be
necessary in order to satisfy the requirements of Section 4(2) of the Securities
Act in connection with the issuance and sale of Parent Common Stock in the
Merger. The Company shall use commercially reasonable efforts to obtain the
consent of its stockholders sufficient to approve the Merger and this Agreement
and the transactions contemplated hereby and to enable the Closing to occur as
promptly as practicable. The materials submitted to the stockholders of the
Company shall have been subject to prior review and comment by Parent and shall
include information regarding the Company, the terms of the Merger and this
Agreement and the unanimous recommendation of the Board of Directors of the
Company in favor of the Merger, this Agreement and the transactions contemplated
thereby.
5.3 ACCESS TO INFORMATION. Each party shall afford the other and its
---------------------
accountants, counsel, investment advisors and other representatives, reasonable
access during normal business hours during the period prior to the earlier of
the termination of this Agreement pursuant to Section 8.1 and the Effective Time
to (a) all of its Books and Records, and (b) all other information concerning
the business, Assets and Properties and personnel (subject to restrictions
imposed by applicable Law) of it as the others may reasonably request, subject,
in the case of Parent, to such reasonable limits on access to its technical and
other nonpublic information as counsel to Parent may reasonably advise are
necessary to comply with applicable Law. 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. Each of the parties hereto hereby agrees to keep
---------------
the terms of this Agreement (except to the extent contemplated hereby) and such
information or
31
knowledge obtained in any investigation pursuant to Section 5.3, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, confidential; provided, however, that the
foregoing shall not apply to information or knowledge which (a) the receiving
party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the disclosing party, (b) is generally known to the
public and did not become so known through any violation of Law, or a
confidentiality agreement or other contractual, legal or fiduciary obligation
of confidentiality of the disclosing party or any other party with respect to
such information, (c) became known to the public through no fault of the
receiving party, (d) is later lawfully acquired by the receiving party without
confidentiality restrictions from other sources not bound by confidentiality
restrictions, (e) is required to be disclosed by order of court or
Governmental or Regulatory Authority with subpoena powers (provided that such
party shall have provided the other party with prior notice of such order and
an opportunity to object or seek a protective order and take any other
available action), (f) which is disclosed in the course of any Action or
Proceeding between any of the parties hereto, or (g) is independently
developed by the receiving party without reference to the disclosing party's
confidential information.
5.5 EXPENSES. Whether or not the Merger is consummated, all fees and
--------
expenses incurred in connection with the Merger including all legal, accounting,
financial advisory, consulting and all other fees and expenses of third parties
("Third Party Expenses") incurred by a party in connection with the negotiation
---------------------
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses; provided, that, if the Merger is
consummated, Parent agrees to pay the Estimated Third Party Expenses (as set
forth on Section 2.23 of the Disclosure Schedule) incurred by the Company and
---------------------------------------
the Company agrees that Parent will have full recourse to the Escrow Fund for
payment of Third Party Expenses in excess of Estimated Third Party Expenses,
whether such Third Party Expenses have been paid by the Company, accrued by
the Company or have been incurred (and not accrued and paid) by the Company.
5.6 PUBLIC DISCLOSURE. Unless otherwise required by Law (including
-----------------
federal and state securities laws) or, as to Parent, by the rules and
regulations of the NASD, prior to the Effective Time, no disclosure (whether or
not in response to any inquiry) of the existence of any subject matter of, or
the terms and conditions of, this Agreement shall be made by any party hereto
unless approved by Parent and the Company prior to release, provided that such
approval shall not be unreasonably withheld.
5.7 CONSENTS. The Company shall use commercially reasonable efforts to
--------
obtain the consents, waivers and approvals under any of the Contracts or other
agreements as may be required in connection with the Merger (all of such
consents, waivers and approvals are set forth in the Disclosure Schedule) so as
to preserve all rights of and benefits to the Company thereunder and Parent
shall provide the Company with such assistance and information as is reasonably
required to obtain such consents.
32
5.8 FIRPTA COMPLIANCE. On or prior to the Closing Date, the Company
-----------------
shall deliver to Parent a properly executed statement in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
5.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
-------------------------------
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company, Parent
or Merger Sub, respectively, contained in this Agreement to be untrue or
inaccurate at or prior to the Closing Date and (ii) any failure of the Company,
Parent or Merger Sub, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.9 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
5.10 POOLING OF INTERESTS ACCOUNTING. The Company, Parent and Merger
-------------------------------
Sub shall each use commercially reasonable efforts to cause the business
combination to be effected by the Merger to be accounted for as a Pooling of
Interests. The Company and Parent shall each use commercially reasonable
efforts to cause their respective employees, directors, shareholders, Affiliates
and Associates not to take any action that would adversely affect the ability of
Parent to account for the business combination to be effected by the Merger as a
Pooling of Interests.
5.11 COMPANY AFFILIATE AGREEMENTS. Schedule 5.11 sets forth those persons
----------------------------
who, in the Company's reasonable judgment, are or may be "affiliates" of the
Company within the meaning of the SEC's Accounting Releases Nos. 130 and 135
(the "Company Affiliates"). The Company shall provide Parent such information
-------------------
and documents as Parent shall reasonably request for purposes of reviewing such
list. The Company shall use its best efforts to deliver or cause to be
delivered to Parent prior to the Closing from each of the Company Affiliates, an
executed Affiliate Agreement in the form attached hereto as Exhibit B ("Company
--------- -------
Affiliate Agreement").
-------------------
5.12 PARENT AFFILIATE AGREEMENTS. Schedule 5.12 sets forth those persons
---------------------------
who, in Parent's reasonable judgment, are or may be "affiliates" of Parent
within the meaning of the SEC's Accounting Releases Nos. 130 and 135 (the
"Parent Affiliates"). Parent shall use its best efforts to deliver or cause to
------------------
be delivered to Parent prior to the Closing from each of the Parent Affiliates,
an executed Parent Affiliate Agreement in the form attached hereto as Exhibit C
---------
("Parent Affiliate Agreement").
--------------------------
5.13 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
-------------------------------------------
the request of the other 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.
33
5.14 INDEMNIFICATION. Parent, Merger Sub, the Company and the Surviving
---------------
Corporation agree that all rights to indemnification or exculpation now existing
in favor of the employees, agents, directors or officers of the Company (the
"Company Indemnified Parties") as provided in its restated certificate of
----------------------------
incorporation or by-laws, as each are in effect on the date of this Agreement,
or indemnification agreements, as disclosed to Parent prior to the date of this
Agreement, shall continue in full force and effect for a period of not less than
5 years from the Closing Date; provided, however, that, in the event any claim
or claims are asserted or made within such 5-year period, all rights to
indemnification in respect of any such claim or claims shall continue to
disposition of any and all such claims. Any determination required to be made
with respect to whether a Company Indemnified Party's conduct complies with the
standards set forth in the restated certificate of incorporation or by-laws or
indemnification agreements of the Surviving Corporation or otherwise shall be
made by independent counsel selected by the Surviving Corporation reasonably
satisfactory to the Company Indemnified Party (whose fees and expenses shall be
paid by the Surviving Corporation).
5.15 FORM S-8. Promptly after the Effective Time, Parent shall file a
--------
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to Company Options assumed by Parent to the extent the
shares of Parent Common Stock issuable upon exercise of such Company Options
qualify for registration on Form S-8.
5.16 NNM LISTING OF ADDITIONAL SHARES APPLICATION. Parent shall cause
--------------------------------------------
to be authorized for listing on the NNM the shares of Parent Common Stock
issuable, and those required to be reserved for issuance, in connection with the
Merger, upon official notice of issuance.
5.17 COMPANY'S AUDITORS. The Company will use commercially reasonable
------------------
efforts to cause its management and its independent auditors to facilitate on a
timely basis (i) the preparation of financial statements (including pro forma
financial statements if required) as required by Parent to comply with
applicable SEC rules and regulations, (ii) the review of any Company audit or
review work papers for up to the past 3 complete fiscal years, including the
examination of selected interim financial statements and data and (iii) the
delivery of such representations from the Company's independent accountants as
may be reasonably requested by Parent or its accountants.
5.18 COMPANY PREFERRED STOCK AND COMPANY INDEBTEDNESS. Prior to the
------------------------------------------------
Effective Time, the Company shall use commercially reasonable efforts to (i)
comply with any notice provisions or other rights of the holders of Company
Preferred Stock that may arise as a result of the Merger or the transactions
contemplated thereby in accordance with the provisions contained in the restated
certificate of incorporation of the Company, and (ii) comply with any notice
provisions or other rights of the holders of Indebtedness of the Company that
may arise as a result of the Merger of the transactions contemplated thereby in
accordance with the instruments evidencing such Indebtedness.
34
5.19 HSR FILING. Within 5 Business Days after the date hereof, the
----------
Company (and any other Person who shall be reasonably determined to be required
to make such filing) shall file or cause to be filed, with the Federal Trade
Commission and the Antitrust Division of the Department of Justice the
notifications and other information required to be filed under the HSR Act with
respect to the transactions contemplated hereby. The Company will use
commercially reasonable efforts to ensure that all such filings by it shall be,
as of the date filed, true and accurate and in accordance with the requirements
of the HSR Act and any similar rules and regulations whether of a domestic or
foreign jurisdiction. Each of Parent and the Company agrees to make available,
or cause to be made available, to the other such information as each of them may
reasonably request relative to their business and Assets and Properties as may
be required of each of them to file any additional information requested by such
agencies under the HSR Act; provided that the parties shall have entered into
mutually acceptable arrangements to ensure the continued confidentiality of any
such information.
5.20 COMPANY STOCKHOLDER CERTIFICATES. The Company shall use
--------------------------------
commercially reasonable efforts to (i) cause each of the stockholders of the
Company that are "accredited" investors within the meaning of Rule 501 of
Regulation D under the Securities Act to execute and deliver to Parent executed
copies of a stockholder certificate containing certain investment
representations in substantially the form attached as Exhibit D-1 and (ii) cause
-----------
each of the stockholders of the Company that are not "accredited" investors
within the meaning of Rule 501 of Regulation D under the Securities Act to
execute and deliver to Parent executed copies of a stockholder certificate
containing an investor qualification questionnaire and certain investment
representations in substantially the form attached as Exhibit D-2.
-----------
ARTICLE 6
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 effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) HSR and Other Governmental and Regulatory Approvals.
---------------------------------------------------
(i) The waiting period (and any extension thereof) applicable
to the consummation of the Merger under the HSR Act shall have expired or been
terminated; and
(ii) All authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting
periods imposed by, any Governmental or Regulatory Authority, domestic or
foreign, which the failure to obtain,
35
make or occur would have a material adverse effect on the Business or
Condition of Parent or the Surviving Corporation, shall have been obtained,
made or occurred.
(b) No Injunctions or Regulatory Restraints; Illegality. No temporary
---------------------------------------------------
restraining order, preliminary or permanent injunction or other Order issued by
any court of competent jurisdiction or Governmental or Regulatory Authority or
other legal or regulatory restraint or prohibition preventing the consummation
of the Merger shall be in effect; nor shall there be any action taken, or any
Law or Order enacted, entered, enforced or deemed applicable to the Merger or
the other transactions contemplated by the terms of this Agreement.
(c) Tax Opinions. Parent and the Company shall each have received
------------
written opinions from their counsel, in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. The parties to
this Agreement agree to make such reasonable representations as requested by
such counsel for the purpose of rendering such opinions.
(d) Company Stockholder Approval. This Agreement and the transactions
----------------------------
contemplated hereby shall have been approved and adopted, and the Merger shall
have been duly approved, by the requisite vote under applicable law and the
Company's restated certificate of incorporation by the stockholders of the
Company.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
---------------------------------------------------
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by Parent and Merger Sub in this Agreement shall be true and
correct in all material respects (if not qualified by materiality) and in all
respects (if qualified by materiality) on and as of the Closing Date as though
such representation or warranty was made on and as of the Closing Date except
for changes contemplated by this Agreement and except for those representations
and warranties which address matters as of a particular date which shall remain
true and correct as of such particular date.
(b) Performance. Parent and Merger Sub shall have performed and
-----------
complied with in all material respects each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by the Parent or
Merger Sub at or before the Closing.
(c) Officers' Certificates. Parent and Merger Sub shall have
----------------------
delivered to the Company certificates, dated the Closing Date and executed by
their respective President and Chief Executive Officers, substantially in the
forms set forth in Exhibit E-1
------------
36
hereto, and certificates, dated the Closing Date and executed by the Secretary
of Parent and Merger Sub, substantially in the forms set forth in Exhibit E-2
-----------
hereto.
(d) Legal Opinion. The Company shall have received a legal opinion
-------------
from Xxxxxx & Xxxxx LLP, counsel to Parent, in substantially the form attached
hereto as Exhibit F.
---------
(e) Registration Rights Agreement. Parent shall have delivered to the
-----------------------------
Company a duly executed Registration Rights Agreement in the form attached
hereto as Exhibit G, which Registration Rights Agreement shall be in full force
---------
and effect.
(f) Material Adverse Change. There shall have occurred no material
-----------------------
adverse change in the Business or Condition of Parent since the date hereof.
For purposes of this condition, a decline in the trading price of Parent Common
Stock, whether occurring at any time or from time to time, as reported on the
NNM or any other automated quotation system or exchange shall not constitute a
material adverse change in the Business or Condition of Parent.
(g) NNM Listing. The shares of Parent Common Stock issuable to
-----------
stockholders of the Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on the NNM upon official notice of issuance.
(h) Tax Representation Letter. Parent shall have executed and
-------------------------
delivered to the Company a Tax Representation Letter in substantially the form
attached as Exhibit I.
----------
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
-----------------------------------------------------------------
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Company in this Agreement shall be true and correct in
all material respects (if not qualified by materiality) and in all respects (if
qualified by materiality) on and as of the Closing Date as though such
representation or warranty was made on and as of the Closing Date except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters as of a particular date which shall remain true
and correct as of such particular date.
(b) Performance. The Company shall have performed and complied with in
-----------
all material respects each agreement, covenant and obligation required by this
Agreement to be so performed or complied with by the Company on or before the
Closing Date.
37
(c) Officers' Certificates. The Company shall have delivered to
----------------------
Parent a certificate, dated the Closing Date and executed by its President and
Chief Executive Officer of the Company, substantially in the form set forth in
Exhibit I-1 hereto, and a certificate, dated the Closing Date and executed by
-----------
the Secretary of the Company, substantially in the form set forth in Exhibit I-2
-----------
hereto.
(d) Third Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers listed in Section 2.6 of the Disclosure Schedule (except
------------------------------------
for such consents, approvals and waivers which could not reasonably be
expected to have a material adverse effect on the Surviving Corporation).
(e) Legal Opinion. Parent shall have received a legal opinion from
-------------
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, legal counsel to the
Company, in substantially the form attached hereto as Exhibit J.
---------
(f) Non-Competition Agreements. Xxxxxx Xxxxxxx shall have executed
--------------------------
and delivered to Parent a Non-Competition Agreement in substantially the form
attached as Exhibit K-1, and Xxxxx Xxxxx and Xxxxxxx Xxxxxxx shall have executed
-----------
and delivered to Parent a Non-Competition Agreement substantially in the form
attached as Exhibit K-2, and all of the Non-Competition Agreements shall be in
-----------
full force and effect.
(g) Tax Representation Letter. The Company shall have executed and
-------------------------
delivered to Parent a Tax Representation Letter in substantially the form
attached as Exhibit L.
---------
(h) Company Affiliate Agreements. Each Company Affiliate shall have
----------------------------
executed and delivered to Parent a Company Affiliate Agreement, and such
agreements shall be in full force and effect.
(i) Pooling Letters.
---------------
(i) Parent shall have received an opinion letter from
PricewaterhouseCoopers, the Company's independent auditors, to the effect that
the Company qualifies as an entity that may be a party to a business combination
for which the pooling-of-interests method of accounting would be available;
provided, however, Parent shall not be entitled to rely on the preceding
condition unless (i) the Company misrepresented facts or failed to disclose
facts prior to the execution of this Agreement, and the actual facts as later
corrected or disclosed by the Company preclude Parent from accounting for the
Merger under the pooling-of-interests method of accounting, or (ii) the Company
violates the covenant set forth Section 5.10.
(ii) Parent shall have received an opinion letter from Xxxxxx
Xxxxxxxx LLP, Parent's independent auditors, to the effect that Parent
qualifies as an entity
38
that may be a party to a business combination for which the pooling-of-
interests method of accounting would be available; provided, however, Parent
shall not be entitled to rely on the preceding condition to avoid closing or
to terminate this Agreement as a result of any action taken by Parent, Merger
Sub or by any Affiliate of Parent or Merger Sub, subsequent to the date of
this Agreement that would cause Parent or Merger Sub not to so qualify.
(j) Limitation on Dissent. Holders of no more than 5% of the
---------------------
outstanding shares of Company Capital Stock shall have exercised, nor shall they
have any continued right to exercise, appraisal, dissenters' or similar rights
under applicable law with respect to their shares by virtue of the Merger.
(k) No Adverse Change. There shall have occurred no material adverse
-----------------
change in the Business or Condition of the Company since the date hereof.
ARTICLE 7
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS; ESCROW PROVISIONS
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
-----------------------------------------------------------------
Notwithstanding any right of Parent, Merger Sub or the Company (whether or not
exercised) to investigate the affairs of Parent, Merger Sub or the Company
(whether pursuant to Section 5.3 or otherwise), each party shall have the
right to rely fully upon the representations, warranties, covenants and
agreements of the other party contained in this Agreement or in any instrument
delivered pursuant to this Agreement. All of the representations, warranties,
covenants and agreements of the Company, Parent and Merger Sub contained in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Merger and continue until the earlier of (i) the first anniversary
of the Closing Date or (ii) the date on which Parent publishes the combined
audited financial statements of the Company and Parent for the fiscal year
which includes the Closing Date (the earlier to occur of (i) and (ii) is
referred to herein as the "Expiration Date").
---------------
7.2 ESCROW PROVISIONS.
-----------------
(a) Establishment of the Escrow Fund. As soon as practicable after
--------------------------------
the Effective Time, the Escrow Amount, without any act of any stockholder of the
Company, will be deposited with the Escrow Agent (plus a proportionate share of
any additional shares of Parent Common Stock as may be issued upon any stock
splits, stock combinations, stock dividends or recapitalizations effected by
Parent following the Effective Time), such deposit to constitute the Escrow
Amount portion of the Escrow Fund to be governed by the terms set forth herein
and at Parent's sole cost and expense. The portion of the Escrow Amount
contributed on behalf of each stockholder of the Company shall be in proportion
to the
39
aggregate number of shares of Parent Common Stock which such holder would
otherwise be entitled under Section 1.6.
(b) Recourse to the Escrow Fund. Subject to the limitation contained
---------------------------
in Section 7.2(e)(iii), the Escrow Fund shall be available to compensate
Parent and Merger Sub, and their respective officers, directors, employees,
agents, Affiliates and Associates (the "Indemnified Parties") for any and all
-------------------
Losses (whether or not involving a Third Party Claim), incurred or sustained
by the Indemnified Parties, directly or indirectly, as a result of any
inaccuracy or breach of any representation, warranty, covenant or agreement of
the Company contained herein or in any instrument delivered pursuant to this
Agreement. Parent, Merger Sub and the Company each acknowledge that such
Losses, 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 aggregate consideration to be paid to the stockholders of the
Company in the Merger; provided, that, the aggregate amount that the
Indemnified Parties may recover, directly or indirectly, as a result of any
inaccuracy or breach of any representation, warranty, covenant or agreement of
the Company contained herein or in any instrument delivered pursuant to this
Agreement shall be limited to any amounts in the Escrow Fund.
(c) Escrow Period; Distribution of Escrow Fund upon Termination of
--------------------------------------------------------------
Escrow Period. Subject to the following requirements, the Escrow Fund shall be
-------------
in existence immediately following the Effective Time and shall terminate at
5:00 p.m., Pacific Standard Time, on the Expiration Date (the period of time
from the Effective Time through and including the Expiration Date is referred to
herein as the "Escrow Period"); and all shares of Parent Common Stock remaining
--------------
in the Escrow Fund shall be distributed as set forth in the last sentence of
this Section 7.2(c); provided, however, that the Escrow Period shall not
terminate with respect to such amount (or some portion thereof) that is
necessary in the reasonable judgment of Parent, subject to the objection of the
Stockholder Agent and the subsequent arbitration of the matter in the manner as
provided in Section 7.2(g) hereof, to satisfy any unsatisfied claims under this
Section 7.2 concerning facts and circumstances existing prior to the termination
of such Escrow Period which claims are specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as all such claims, if any, have been resolved, the Escrow Agent shall
deliver to the stockholders of the Company the remaining portion of the Escrow
Fund not required to satisfy such claims. Deliveries of shares of Parent Common
Stock remaining in the Escrow Fund to the stockholders of the Company pursuant
to this Section 7.2(c) shall be made ratably in proportion to their respective
contributions to the Escrow Fund and Parent shall use all its commercially
reasonable efforts to have such shares delivered within 5 Business Days.
(d) Protection of Escrow Fund.
-------------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms
40
of this Agreement and not as the property of Parent and shall hold and dispose
of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other Equity
Equivalents securities issued or distributed by Parent ("New Shares") in
----------
respect of Parent Common Stock in the Escrow Fund which have not been released
from the Escrow Fund shall be added to the Escrow Fund. New Shares issued in
respect of shares of Parent Common Stock which have been released from the
Escrow Fund shall not be added to the Escrow Fund but shall be distributed to
the recordholders thereof. Cash dividends on Parent Common Stock shall not be
added to the Escrow Fund but shall be distributed to the beneficial holders of
the Parent Common Stock on the record date set for any such dividend.
(iii) Each stockholder shall have voting rights with respect
to the shares of Parent Common Stock contributed to the Escrow Fund by such
stockholder (and on any voting securities added to the Escrow Fund in respect
of such shares of Parent Common Stock).
(e) Claims Upon Escrow Fund.
-----------------------
(i) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any
officer of Parent (an "Officer's Certificate"): (A) stating that Parent has
---------------------
paid or properly accrued or reasonably anticipates that it will have to pay or
accrue Losses, directly or indirectly, as a result of any inaccuracy or breach
of any representation, warranty, covenant or agreement of the Company
contained herein or in any instrument delivered pursuant to this Agreement,
and (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty, agreement or covenant to which such
item is related, the Escrow Agent shall, subject to the provisions of Section
7.2(f) hereof, deliver to Parent out of the Escrow Fund, as promptly as
practicable, shares of Parent Common Stock held in the Escrow Fund in an
amount equal to such Losses.
(ii) For the purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant
to Section 7.2(e)(i), the shares of Parent Common Stock shall be valued at the
Average Price.
(iii) Notwithstanding the foregoing, Parent may not receive any
shares of Parent Common Stock from the Escrow Fund unless and until Parent has
delivered to the Escrow Agent Officer's Certificates that are undisputed
pursuant to Section 7.2(f) or that have been resolved in favor of Parent
through the conflict resolution process set forth in Section 7.2(g) and that
identify Losses in the aggregate amount in excess of
41
$250,000 (the "Basket Amount"), in which case Parent shall receive shares of
-------------
Parent Common Stock equal to the amount of all Losses including the Basket
Amount.
(f) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Stockholder Agent and for a period of 30 days after such
delivery, the Escrow Agent shall make no delivery to Parent of any Escrow
Amounts pursuant to Section 7.2(e) hereof unless the Escrow Agent shall have
received written authorization from the Stockholder Agent to make such delivery.
After the expiration of such 30 day period, the Escrow Agent shall make delivery
of shares of Parent Common Stock from the Escrow Fund in accordance with Section
7.2(e) hereof, provided that no such payment or delivery may be made if the
Stockholder 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 prior to the expiration of such 30 day period.
(g) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Stockholder Agent shall object in writing to
any claim or claims made in any Officer's Certificate, the Stockholder Agent
and Parent shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the Stockholder
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 distribute shares of Parent Common Stock from the Escrow Fund
in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Stockholder Agent may demand arbitration of
the dispute unless the amount of the damage or loss is at issue in a pending
Action or Proceeding involving a Third Party Claim, in which event arbitration
shall not be commenced until such amount is ascertained or both parties agree
to arbitration; and in either event the matter shall be settled by arbitration
conducted by 3 arbitrators, 1 selected by Parent and 1 selected by the
Stockholder Agent, and the 2 arbitrators selected by Parent and Stockholder
Agent shall select a third arbitrator. The arbitrators shall set a limited
time period and establish procedures designed to reduce the cost and time for
discovery of information relating to any dispute while allowing the parties an
opportunity, adequate as determined in the sole judgment of the arbitrators,
to discover relevant information from the opposing parties about the subject
matter of the dispute. The arbitrators shall rule upon motions to compel,
limit or allow discovery as they shall deem appropriate given the nature and
extent of the disputed claim. The arbitrators shall also have the authority to
impose sanctions, including attorneys' fees and other costs incurred by the
parties, to the same extent as a court of law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to by a party without
substantial justification. The decision of a majority of the 3 arbitrators as
to
42
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 7.2(f) 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. Such decision shall be written and shall be
supported by written findings of fact and conclusions regarding the dispute
which shall set forth the award, judgment, decree or order awarded by the
arbitrators.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having competent jurisdiction. Any such arbitration shall
be held in the city and county of Sacramento, California under the commercial
rules of arbitration then in effect of the American Arbitration Association.
For purposes of this Section 7.2(g), 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 in the event that the
arbitrators award Parent less than the sum of one-half (1/2) of the disputed
amount of any Losses plus any amounts not in dispute; otherwise, the
stockholders of the Company as represented by the Stockholder Agent 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 costs of the arbitration and the expenses, including without
limitation, reasonable attorneys' fees and costs incurred by the other party
to the arbitration.
(h) Stockholder Agent of the Stockholders; Power of Attorney.
--------------------------------------------------------
(i) In the event that the Merger is approved by the
stockholders of the Company, effective upon such vote, and without further act
of any stockholder, Xxxxxx Xxxxxxx shall be appointed as agent and attorney-in-
fact (the "Stockholder Agent") for each stockholder of the Company (except
-----------------
such stockholders, if any, as shall have perfected their appraisal or
dissenters' rights under Delaware Law), for and on behalf of stockholders of
the Company, to give and receive notices and communications, to authorize
delivery to Parent of shares of Parent Common Stock 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 Stockholder Agent for the accomplishment of the foregoing. Such agency may
be changed by the stockholders of the Company from time to time upon not less
than 30 days prior written notice to Parent; provided that the Stockholder
Agent may not be removed unless holders of a two-thirds interest in the Escrow
Fund agree to such removal and to the identity of the substituted stockholder
agent. Any vacancy in the position of Stockholder Agent may be filled by
approval of the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Stockholder Agent, and the Stockholder Agent shall
not receive compensation for his services. Notices or communications to or
from the Stockholder Agent shall constitute notice to or from each of the
stockholders of the Company.
43
(ii) The Stockholder Agent shall not be liable for any act done or
omitted hereunder as Stockholder Agent while acting in good faith and in the
exercise of reasonable judgment.
(i) Actions of the Stockholder Agent. A decision, act, consent or
--------------------------------
instruction of the Stockholder Agent shall constitute a decision of all the
stockholders for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of such stockholders, and the Escrow Agent and Parent may rely upon any
such decision, act, consent or instruction of the Stockholder Agent as being the
decision, act, consent or instruction of every such stockholder of the Company.
The Escrow Agent and Parent are hereby relieved from any liability to any person
for any acts done by them in accordance with such decision, act, consent or
instruction of the Stockholder Agent.
(j) Third-Party Claims. In the event Parent becomes aware of a third-
------------------
party claim (a "Third Party Claim") which Parent reasonably expects may result
------------------
in a demand against the Escrow Fund, Parent shall notify the Stockholder Agent
of such claim, and the Stockholder Agent, as representative for the stockholders
of the Company, 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 Third Party Claim; provided, however, that if Parent settles any
Third Party Claim without the Stockholder Agent's consent (which consent shall
not be unreasonably withheld or delayed), Parent may not make a claim against
the Escrow Fund with respect to the amount of Losses incurred by Parent in such
settlement. In the event that the Stockholder Agent has consented to any such
settlement, the Stockholder Agent shall have no power or authority to object
under any provision of this Article 7 to the amount of any claim by Parent
against the Escrow Fund with respect to the amount of Losses incurred by Parent
in such settlement.
(k) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Stockholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties.
The Escrow Agent shall not be liable for any act done or omitted hereunder as
Escrow Agent while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice of counsel shall
be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to comply
with and obey Orders of any court of law or Governmental or Regulatory
Authority, notwithstanding any notices, warnings or other communications from
any party or any other person to the contrary. In case the Escrow Agent obeys
or complies with any such Order,
44
the Escrow Agent shall not be liable to any of the parties hereto or to any
other person by reason of such compliance, notwithstanding any such Order
being subsequently reversed, modified, annulled, set aside, vacated or found
to have been entered without jurisdiction or proper authority.
(iii) The Escrow Agent shall not be liable in any respect on account
of the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow Agent
shall not be liable to any party for damages, losses, or expenses, except for
gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by him/her in good faith in accordance with
the advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for any damages. Furthermore, the
Escrow Agent may at its option, file an action of interpleader requiring the
parties to answer and litigate any claims and rights among themselves. The
Escrow Agent is authorized to deposit with the clerk of the court all
documents and shares of Parent Common Stock held in escrow, except all costs,
expenses, charges and reasonable attorney fees incurred by the Escrow Agent
due to the interpleader action and which the parties jointly and severally
agree to pay. Upon initiating such action, the Escrow Agent shall be fully
released and discharged of and from all obligations and liability imposed by
the terms of this Agreement.
45
(vii) The parties and their respective successors and assigns
agree jointly and severally to indemnify and hold Escrow Agent harmless
against any and all Losses incurred by Escrow Agent in connection with the
performance of his/her duties under this Agreement, including but not limited
to any litigation arising from this Agreement or involving its subject matter.
(viii) The Escrow Agent may resign at any time upon giving at
least 30 days written notice to the parties; provided, however, that no such
-------- -------
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: the parties shall use their best
efforts to mutually agree on a successor escrow agent within 30 days after
receiving such notice. If the parties fail to agree upon a successor escrow
agent within such time, the Escrow Agent shall have the right to appoint a
successor escrow agent authorized to do business in the State of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. The Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(l) Fees. All fees of the Escrow Agent for performance of its duties
----
hereunder shall be paid by Parent in accordance with the fee schedule attached
as Exhibit M. In the event that the conditions of this Agreement are not
---------
promptly fulfilled, or if the Escrow Agent renders any service not provided for
in this Agreement, or if the parties request a substantial modification of its
terms, or if any controversy arises, or if the Escrow Agent is made a party to,
or intervenes in, any Action or Proceeding pertaining to this escrow or its
subject matter, the Escrow Agent shall be reasonably compensated for such
extraordinary services and reimbursed for all costs, attorney's fees, and
expenses occasioned by such default, delay, controversy or Action or Proceeding.
Parent agrees to pay these sums upon demand.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this
-----------
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual agreement of the Company, Parent and Merger Sub;
(b) by Parent, Merger Sub or the Company if: (i) the Effective Time
has not occurred before 5:00 p.m. (Pacific Standard Time) on December 31, 1998
(provided that (A) the right to terminate this Agreement under this clause
8.1(b)(i) shall not be available to any party whose willful failure to fulfill
any obligation hereunder has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date
46
and (B) such date shall be automatically extended where the failure of the
Effective Time to occur is a result of not obtaining HSR clearance and the
parties are continuing to use commercially reasonable efforts to pursue such
clearance); (ii) there shall be a final nonappealable Order of a Governmental
or Regulatory Authority in effect preventing consummation of the Merger; or
(iii) there shall be any Law or Order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental or Regulatory Authority that
would make consummation of the Merger illegal;
(c) by Parent and Merger Sub if there shall be any action taken, or
any Law or Order enacted, promulgated or issued or deemed applicable to the
Merger, by any Governmental or Regulatory Authority, which would: (i) prohibit
Parent's or the Merger Sub's ownership or operation of all or any portion of the
business of the Company or (ii) compel Parent or Merger Sub to dispose of or
hold separate all or a portion of the Assets and Properties of the Surviving
Corporation as a result of the Merger;
(d) by Parent if neither it nor Merger Sub are in material breach of
their obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company and (i) the Company has not cured such breach within 10
Business Days after notice of such breach has been given to the Company
(provided that, no cure period shall be required for a breach which by its
nature cannot be cured) and (ii) as a result of such breach the conditions set
forth in Section 6.3(a) or 6.3(b), as the case may be, would not then be
satisfied; or
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Parent or Merger Sub and (i) Parent has not cured such breach within 10 Business
Days after notice of such breach has been given to Parent (provided that, no
cure period shall be required for a breach which by its nature cannot be cured)
and (ii) as a result of such breach the conditions set forth in Section 6.2(a)
or 6.2(b), as the case may be, would not then be satisfied.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of a valid termination of this
---------------------
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent or the
Company, or their respective officers, directors or shareholders or Affiliates
or Associates, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination; and provided further that, the
provisions of Sections 5.4, 5.5, 9.6, 9.9, 9.10 and 9.11 and Article 8 of this
Agreement shall remain in full force and effect and survive any termination of
this Agreement.
47
8.3 AMENDMENT. Except as is otherwise required by applicable Law after
---------
the stockholders of the Company approve the Merger and this Agreement, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent,
-----------------
Merger Sub and the Company may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements, covenants 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 9
MISCELLANEOUS PROVISIONS
9.1 NOTICES. All notices, requests and other communications hereunder
-------
must be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission against
facsimile confirmation or mailed by prepaid first class certified mail, return
receipt requested, or mailed by overnight courier prepaid, to the parties at the
following addresses or facsimile numbers:
If to Parent to:
Level One Communications, Incorporated
0000 Xxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: President and Chief Executive Officer
with a copy to:
Xxxxxx & Xxxxx LLP
000 Xxxxxxx Xxxx, 00xx Xxxxx
Xxxxxxxxxx, XX 00000-0000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. Xxxxx, Esq.
If to the Company to:
Jato Technologies, Inc.
000 X. Xxxxxxxx Xxxxx, Xxxxx 000
00
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: President and Chief Executive Officer
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000-0000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxx, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided for in this Section, be deemed given upon facsimile confirmation, (iii)
if delivered by mail in the manner described above to the address as provided
for in this Section, be deemed given on the earlier of the third Business Day
following mailing or upon receipt and (iv) if delivered by overnight courier to
the address as provided in this Section, be deemed given on the earlier of the
first Business Day following the date sent by such overnight courier or upon
receipt (in each case regardless of whether such notice, request or other
communication is received by any other Person to whom a copy of such notice is
to be delivered pursuant to this Section). Any party from time to time may
change its address, facsimile number or other information for the purpose of
notices to that party by giving notice specifying such change to the other party
hereto.
9.2 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions
----------------
and agreements between the parties with respect to the subject matter hereof and
thereof and contain the sole and entire agreement between the parties hereto
with respect to the subject matter hereof and thereof.
9.3 FURTHER ASSURANCES; POST-CLOSING COOPERATION. At any time or from
--------------------------------------------
time to time after the Closing, the parties shall execute and deliver to the
other party such other documents and instruments, provide such materials and
information and take such other actions as the other party may reasonably
request to consummate the transactions contemplated by this Agreement and
otherwise to cause the other party to fulfill its obligations under this
Agreement and the transactions contemplated hereby.
9.4 WAIVER. Any term or condition of this Agreement may be waived at
------
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same
49
or any other term or condition of this Agreement on any future occasion. All
remedies, either under this Agreement or by Law or otherwise afforded, will be
cumulative and not alternative.
9.5 THIRD PARTY BENEFICIARIES. The terms and provisions of this
-------------------------
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights, and this Agreement does not
confer any such rights, upon any other Person other than any Person entitled to
indemnity under Section 5.14 and Article 7.
9.6 NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any
-----------------------------
right, interest or obligation hereunder may be assigned (by operation of law or
otherwise) by any party without the prior written consent of the other party and
any attempt to do so will be rendered null and void. Subject to the preceding
sentence, this Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.
9.7 HEADINGS. The headings used in this Agreement have been inserted
--------
for convenience of reference only and do not define or limit the provisions
hereof.
9.8 INVALID PROVISIONS. If any provision of this Agreement is held to
------------------
be illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
9.9 GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of California, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of California or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of California.
9.10 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. EACH OF THE PARENT
----------------------------------------------
AND COMPANY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
WITHIN THE STATE OF CALIFORNIA AND IRREVOCABLY AGREES THAT ALL ACTIONS OR
PROCEEDINGS RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
MAY BE LITIGATED IN SUCH COURTS. EACH OF THE COMPANY AND PARENT ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS RESPECTIVE PROPERTIES, GENERALLY AND
50
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARENT AND COMPANY FURTHER
IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PARTY AT THE ADDRESS
SPECIFIED IN THIS AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE FIFTEEN DAYS AFTER
SUCH MAILING. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF
ANY PARTY HERETO TO SERVE ANY SUCH LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS
IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER
OR TO BRING ACTIONS, SUITS OR PROCEEDINGS AGAINST ANY OF THE OTHER PARTIES
HERETO IN SUCH OTHER JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED BY
ANY APPLICABLE LAW.
9.11 CONSTRUCTION. The parties hereto agree that this Agreement is the
------------
product of negotiation between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
------
preferentum. 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.
9.12 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
9.13 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
--------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Except where this Agreement specifically provides for arbitration, it
is agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
51
ARTICLE 10
DEFINITIONS
10.1 DEFINITIONS. (a) As used in this Agreement, the following defined
-----------
terms shall have the meanings indicated below:
"Actions or Proceedings" means any action, suit, proceeding,
----------------------
arbitration or Governmental or Regulatory Authority investigation or audit.
"Additional Escrow Amount" has the meaning ascribed to it in Section
------------------------
7.2(a).
"Affiliate" means, as applied to any Person, (a) any other Person
---------
directly or indirectly controlling, controlled by or under common control with,
that Person, (b) any other Person that owns or controls (i) 5% or more of any
class of equity securities of that Person or any of its Affiliates or (ii) 5% or
more of any class of equity securities (including any equity securities issuable
upon the exercise of any option or convertible security) of that Person or any
of its Affiliates, or (c) any director, partner, officer, manager, agent,
employee or relative of such Person. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlling",
"controlled by", and "under common control with") as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through
ownership of voting securities or by contract or otherwise.
"Aggregate Share Number" means a number of shares of Parent Common
----------------------
Stock equal to the quotient obtained by dividing (x) $77,200,000, by (y) the
Average Price; provided, however, in no event shall the Aggregate Share Number
be less than 2,800,000 nor greater than 3,800,000. The maximum and minimum
Aggregate Share Number set forth in the preceding sentence shall be
appropriately adjusted to reflect the effect of any stock split, stock dividend,
stock combination, reorganization, reclassification or similar change in Parent
Common Stock occurring after the date of this Agreement and prior to the
Effective Time.
"Agreement" means this Agreement and Plan of Reorganization, the
---------
Exhibits and the Disclosure Schedule and the certificates and instruments
delivered in connection herewith, as the same may be amended from time to time
in accordance with the terms hereof.
"Assets and Properties" of any Person means all assets and properties
---------------------
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned or leased by such Person, including cash, cash
equivalents, Investment Assets, accounts and notes
52
receivable, chattel paper, documents, instruments, general intangibles, real
estate, equipment, inventory, goods and Intellectual Property.
"Associate" means, with respect to any Person, any corporation or
---------
other business organization of which such Person is an officer or partner or is
the beneficial owner, directly or indirectly, of 10% or more of any class of
equity securities, any trust or estate in which such Person has a substantial
beneficial interest or as to which such Person serves as a trustee or in a
similar capacity and any relative or spouse of such Person, or any relative of
such spouse, who has the same home as such Person.
"Audited Financial Statement Date" means December 31, 1997.
--------------------------------
"Audited Financial Statements" means the audited consolidated balance
----------------------------
sheets of the Company for the year ended December 31, 1997, and the related
audited consolidated statements of operations, stockholders' equity and cash
flows for the fiscal year then ended, in each case, including the notes thereto.
"Average Price" means the average closing sales price of Parent Common
-------------
Stock as traded on the NNM and reported by the Wall Street Journal, for the 10
consecutive market trading days commencing on the twelfth market trading day
prior to the Closing Date and ending on and inclusive of the third market
trading day prior to the Closing Date.
"Basket Amount" has the meaning ascribed to it in Section
-------
7.2(d)(iii).
-----------
"Benefit Plan" means any Plan maintained, established or to which
------------
contributions have at any time been made, by the Company or any predecessor or
Affiliate of the Company existing at the Closing Date or prior thereto, to which
the Company contributes or has contributed, or under which any employee, former
employee or director of the Company or any beneficiary thereof is covered, is
eligible for coverage or has benefit rights.
"Books and Records" means all files, documents, instruments, papers,
-----------------
books and records relating to the Business or Condition of the Company,
including financial statements, Tax Returns and related work papers and letters
from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title
policies, minute books, stock certificates and books, stock transfer ledgers,
Contracts, Licenses, customer lists, computer files and programs, retrieval
programs, operating data and plans and environmental studies and plans.
"Business Combination" means, with respect to any Person, any (i) any
--------------------
merger, consolidation or combination to which such Person is a party, (ii) any
sale, dividend, split or other disposition of any capital stock or other equity
interests of such Person, (iii) any tender offer (including a self tender),
exchange offer, recapitalization,
53
liquidation, dissolution or similar transaction, (iv) any sale, dividend or
other disposition of all or a material portion of the Assets and Properties of
such Person or (v) the entering into of any agreement or understanding, or the
granting of any rights or options, with respect to any of the foregoing.
"Business Day" means a day other than Saturday, Sunday or any day on
------------
which banks located in the State of California are authorized or obligated to
close.
"Business or Condition of Parent" means the business, condition
-------------------------------
(financial or otherwise), results of operations, and Assets and Properties of
the Parent and each of its Subsidiaries, in the aggregate.
"Business or Condition of the Company" means the business, condition
------------------------------------
(financial or otherwise), results of operations, and Assets and Properties of
the Company.
"Certificates" has the meaning ascribed to them in Section 1.8(b).
------------
"Certificate of Merger" has the meaning ascribed to it in Section 1.2.
---------------------
"Closing" means the closing of the transactions contemplated by
-------
Section 1.2.
"Closing Date" has the meaning ascribed to it in Section 1.2.
------------
"Code" means the Internal Revenue Code of 1986, as amended, and the
----
rules and regulations promulgated thereunder.
"Company" has the meaning ascribed to it in the forepart of this
-------
Agreement.
"Company Affiliates" has the meaning ascribed to it in Section 5.11.
------------------
"Company Affiliate Agreement" has the meaning ascribed to it in
---------------------------
Section 5.11.
"Company Capital Stock" means the Company Common Stock and Company
---------------------
Preferred Stock.
"Company Common Stock" has the meaning ascribed to it in Section 2.3.
--------------------
"Company Financials" means the Audited Financial Statements and the
------------------
Interim Financial Statements.
"Company Indemnified Party" has the meaning ascribed to it in Section
-------------------------
5.14.
"Company Intellectual Property" shall mean any Intellectual Property
-----------------------------
that is (i) owned by; (ii) licensed to; or (iii) was developed or created by or
for the Company.
54
"Company Option(s)" means any Option to purchase Company Capital
-----------------
Stock.
"Company Preferred Stock" has the meaning ascribed to it in Section
-------
2.3.
---
"Company Registered Intellectual Property" means all Registered
----------------------------------------
Intellectual Property owned by, or filed in the name of, the Company.
"Contract" means any legally binding agreement, lease, evidence of
--------
Indebtedness, mortgage, indenture, security agreement or other contract or
business arrangement (whether written or oral).
"Defined Benefit Plan" means each Plan which is subject to Part 3 of
--------------------
Title 1 of ERISA, Section 412 of the Code or Title IV of ERISA.
"Delaware Law" means the Delaware General Corporation Law and all
------------
amendments and additions thereto.
"Disclosure Schedule" means the schedules delivered to Parent and
-------------------
Merger Sub by or on behalf of the Company, containing all lists, descriptions,
exceptions and other information and materials as are required to be included
therein in connection within the representations and warranties made by the
Company in Article 2 of this Agreement or otherwise.
"Dissenting Shares" has the meaning ascribed to it in Section 1.7(a).
-----------------
"Effective Time" has the meaning ascribed to it in Section 1.2.
--------------
"Environment" means all air, surface water, groundwater, or land,
-----------
including land surface or subsurface, including all fish, wildlife, biota and
all other natural resources.
"Environmental Claim" means any and all administrative or judicial
-------------------
proceedings, suits, orders, claims, liens, notices, notices of violations,
investigations, complaints, proceedings, or other communication (written or
oral), whether criminal or civil, pursuant to or relating to any applicable
Environmental Law by any Person (including any Governmental or Regulatory
Authority, private person and citizens' group) based upon, alleging, asserting,
or claiming any actual or potential (i) violation of or liability under any
Environmental Law, (ii) violation of any Environmental Permit or (iii) liability
for investigatory costs, cleanup costs, removal costs, remedial costs, response
costs, natural resource damages, property damage, personal injury, fines, or
penalties arising out of, based on, resulting from, or related to the presence,
Release, or threatened Release into the Environment, of any Hazardous Materials
at any location, including any off-Site location to which Hazardous Materials or
materials containing Hazardous Materials were sent for handling, storage,
treatment, or disposal.
55
"Environmental Clean-up Site" means any location which is listed or
---------------------------
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System, or on any
similar state list of sites requiring investigation or cleanup, or which is the
subject of any pending or threatened action, suit, proceeding, or investigation
related to or arising from any location at which there has been a Release,
threatened or suspected Release of a Hazardous Material.
"Environmental Law" means all federal, state, local and foreign
-----------------
environmental, health and safety Laws, and ordinances and all rules and
regulations promulgated thereunder, civil or criminal Laws relating to
emissions, discharges, releases or threatened releases of Hazardous Materials,
pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes
into the Environment.
"Environmental Permit" means any federal, state, local, provincial, or
--------------------
foreign permits, licenses, approvals, consents or authorizations required by any
Governmental or Regulatory Authority under or in connection with any
Environmental Law and includes any and all orders, consent orders or binding
agreements issued or entered into by a Governmental or Regulatory Authority
under any applicable Environmental Law.
"Equity Equivalents" means securities which, by their terms, are or
------------------
may be exercisable, convertible or exchangeable for or into common stock,
preferred stock or other securities at the election of the holder thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and the rules and regulations promulgated thereunder.
"Escrow Agent" means U.S. Bank Trust National Association (or other
------------
institution acceptable to Parent and the Stockholder Agent).
"Escrow Fund" means the sum of (i) the Escrow Amount and (ii)
-----------
Additional Escrow Amount (as such amount may be increased from time to time
during the Escrow Period upon exercise of Company Options assumed by Parent as
provided in Section 7.2(a)).
"Escrow Period" has the meaning ascribed to it in Section 7.2(c).
-------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated by the SEC thereunder.
"Exchange Agent" means Bank Boston, N.A., c/o Boston EquiServe, L.P.
--------------
"Exchange Ratio" means the quotient obtained by dividing (x) the
--------------
Aggregate Share Number by (y) the Outstanding Share Number.
"Expiration Date" has the meaning ascribed to it in Section 7.2(a).
---------------
56
"GAAP" means United States of America generally accepted accounting
----
principles, consistently applied.
"Governmental or Regulatory Authority" means any court, tribunal,
------------------------------------
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision, and shall include any stock exchange,
quotation service and the National Association of Securities Dealers.
"Hazardous Material" means (a) any petroleum or petroleum products,
------------------
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation and transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls (PCBs),
(b) any chemicals, materials, substances or wastes which are now defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants" or words of similar import,
under any Environmental Law; and (c) any other chemical, material, substance or
waste, exposure to which is now prohibited, limited or regulated by any
Governmental or Regulatory Authority.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
--------
1976, as amended, and the rules and regulations thereunder.
"Indebtedness" of any Person means all obligations of such Person (a)
------------
for borrowed money, (b) evidenced by notes, bonds, debentures or similar
instruments, (c) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(d) under capital leases and (e) in the nature of guarantees of the obligations
described in clauses (a) through (d) above of any other Person.
"Indemnified Parties" has the meaning ascribed to it in Section
-------
7.2(b).
------
"Intellectual Property" means all trademarks and trademark rights,
---------------------
trade names and trade name rights, service marks and service xxxx rights,
service names and service name rights, patents and patent rights, utility models
and utility model rights, copyrights, brand names, trade dress, product designs,
product packaging, business and product names, logos, slogans, rights of
publicity, trade secrets, inventions, processes, formulae, industrial models,
processes, designs, specifications, data, technology, methodologies, computer
programs (including all source codes), any other confidential and proprietary
right or information, whether or not subject to statutory registration, and all
related technical information, manufacturing, engineering and technical
drawings, know-how and all pending applications for and registrations of
patents, utility models, trademarks, service marks and copyrights, and the right
to xxx for past infringement, if any, in
57
connection with any of the foregoing, and all documents, disks and other media
on which any of the foregoing is stored.
"Investment Assets" means all debentures, notes and other evidences of
-----------------
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by the Company.
"Interim Financial Statements" means the unaudited balance sheet of
----------------------------
the Company for the nine month period ended September 30, 1998, and the related
unaudited statement of operations and statement of cash flows for such period.
"IRS" means the United States Internal Revenue Service.
---
"Law" or "Laws" means all laws, statutes, rules, regulations,
--- ----
ordinances and other pronouncements having the effect of law of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision or of any Governmental or Regulatory Authority.
"Leased Real Property(ies)" has the meaning ascribed to it in Section
-------------------------
2.15(a).
"Liabilities" means all Indebtedness, obligations and other
-----------
liabilities of a Person, whether absolute, accrued, contingent (or based upon
any contingency), fixed or otherwise, or whether due or to become due which
would be required to be reflected in financial statements prepared in accordance
with GAAP.
"License" means any Contract that grants a Person the right to use or
-------
otherwise enjoy the benefits of any Intellectual Property (including without
limitation any covenants not to xxx with respect to any Intellectual Property).
"Liens" means any mortgage, pledge, assessment, security interest,
-----
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing.
"Loss(es)" means any and all damages, fines, fees, Taxes, penalties,
--------
deficiencies, losses and expenses, including interest, reasonable expenses of
investigation, court costs, reasonable fees and expenses of attorneys,
accountants and other experts or other expenses of litigation or other
proceedings or of any claim, default or assessment (such fees and expenses to
include all fees and expenses, including fees and expenses of attorneys,
incurred in connection with (i) the investigation or defense of any Third Party
Claims or (ii) asserting or disputing any rights under this Agreement against
any party hereto or otherwise).
58
"Merger" has the meaning ascribed to it in the recitals to this
------
Agreement.
"Merger Sub" has the meaning ascribed to it in the forepart of this
----------
Agreement
"NASD" means the National Association of Securities Dealers, Inc.
----
"New Shares" has the meaning ascribed to it in Section 7.2(d)(ii).
----------
"NNM" means the means the distinct tier of The Nasdaq Stock Market
----
referred to as the Nasdaq National Market.
"Officer's Certificate" has the meaning ascribed to it in Section
---------------------
7.2(e)(i).
"Option" with respect to any Person means any security, right,
------
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock or other equity interests of such Person or any security of any
kind convertible into or exchangeable or exercisable for any shares of capital
stock or other equity interests of such Person or (ii) receive any benefits or
rights similar to any rights enjoyed by or accruing to the holder of shares of
capital stock or other equity interests of such Person, including any rights to
participate in the equity, income or election of directors or officers of such
Person.
"Order" means any writ, judgment, decree, injunction or similar order
-----
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Outstanding Share Number" shall mean the sum of (i) the aggregate
------------------------
number of shares of Company Common Stock outstanding immediately prior to the
Effective Time, plus (ii) the aggregate number of shares of Company Common Stock
issuable upon exercise of all outstanding Company Options immediately prior to
the Effective Time, plus (iii) the aggregate number of shares of Company Common
Stock issuable upon conversion of all shares of Company Preferred Stock
outstanding immediately prior to the Effective Time.
"Parent" has the meaning ascribed to it in the forepart of this
-------
Agreement.
"Parent Affiliate" has the meaning ascribed to it in Section 5.12.
----------------
"Parent Affiliate Agreement" has the meaning ascribed to it in Section
--------------------------
5.12.
"Parent Common Stock" has the meaning ascribed to it in the recitals
-------------------
to this Agreement.
"Parent Financial Statements" has the meaning ascribed to it in the
---------------------------
forepart in Section 3.4.
59
"PBGC" means the Pension Benefit Guaranty Corporation established
----
under ERISA.
"Person" means any natural person, corporation, general partnership,
------
limited partnership, limited liability company or partnership, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
----
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, including any "employee benefit plan" within
the meaning of Section 3(3) of ERISA.
"Pooling of Interests" shall mean pooling of interests accounting
--------------------
treatment under Accounting Principles Board Opinion No. 16 and the
interpretations thereof.
"PTO" means the United States Patent and Trademark Office.
---
"Registered Intellectual Property" shall mean all United States,
--------------------------------
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
to trademarks; (iii) registered copyrights and applications for copyright
registration; (iv) any mask work registrations and applications to register mask
works; and (v) any other Intellectual Property that is the subject of an
application, certificate, filing, registration or other document issued by,
filed with, or recorded by, any state, government or other public legal
authority.
"Release" means any spilling, leaking, pumping, pouring, emitting,
-------
emptying, discharging, injecting, escaping, leaching, dumping or disposing of a
Hazardous Material into the Environment.
"SEC" means the Securities and Exchange Commission.
---
"SEC Documents" means, with respect to any Person, each report,
-------------
schedule, form, statement or other document filed or required to be filed with
the SEC by such Person.
"SEC Report Date" means June 28, 1998, the date representing the last
---------------
day of the last reporting period for which Parent has filed a periodic report
with the SEC under the Exchange Act.
60
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Site" means any of the real properties currently or previously owned,
----
leased or operated by the Company, any predecessors of the Company, or any
entities previously owned by the Company, including all soil, subsoil, surface
waters and groundwater.
"Stockholder Agent" has the meaning ascribed to it in Section
-----------------
7.2(h)(i).
"Subsidiary" means any Person in which the Company, directly or
----------
indirectly through Subsidiaries or otherwise, beneficially owns at least 50% of
either the equity interest in, or the voting control of, such Person, whether or
not existing on the date hereof.
"Surviving Corporation" has the meaning ascribed to it in Section 1.1.
---------------------
"Tax" or "Taxes" means all federal, state, local or foreign net or
--- -----
gross income, sales, use or other taxes of any nature whatever, whether disputed
or not, together with any interest, penalties, additions to tax or additional
amounts with respect thereto.
"Tax Returns" means any returns, reports or statements (including any
-----------
information returns) required to be filed for purposes of a particular Tax.
"Taxing Authority" means any governmental agency, board, bureau, body,
----------------
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
"Third Party Claim" has the meaning ascribed to it in Section 7.2(j).
-----------------
"Third Party Expenses" has the meaning ascribed to it in Section 5.5.
--------------------
"Unaudited Financial Statement Date" means September 30, 1998.
----------------------------------
(b) Unless the context of this Agreement otherwise requires, (i) words
of any gender include each other gender, (ii) words using the singular or plural
number also include the plural or singular number, respectively, (iii) the terms
"hereof," "herein," "hereby" and derivative or similar words refer to this
entire Agreement, (iv) the terms "Article" or "Section" refer to the specified
Article or Section of this Agreement, (v) the phrases "ordinary course of
business" and "ordinary course of business consistent with past practice" refer
to the business and practice of the Company, (vi) the words "include,"
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation," and (vii) when a reference is made in this Agreement to Exhibits,
such reference shall be to an Exhibit to this Agreement unless otherwise
indicated. All accounting terms used herein and not expressly defined herein
shall have the meanings given to them under GAAP.
61
(c) When used herein, the phrase "to the knowledge of" any Person, "to
the best knowledge of" any Person, "known to" any Person or any similar phrase,
means (i) with respect to any Person who is an individual, the actual knowledge
of such Person, (ii) with respect to any other Person, the actual knowledge of
the directors and officers of such Person and other individuals that have a
similar position or have similar powers and duties as the officers and directors
of such Person, and (iii) in the case of each of (i) and (ii), the knowledge of
facts that such individuals should have after reasonable inquiry.
[SIGNATURE PAGE FOLLOWS]
62
IN WITNESS WHEREOF, Parent, Merger Sub and Company, and with respect to
Section 7.2 only, the Stockholder Agent and Escrow Agent, have caused this
Agreement to be signed by their duly authorized representatives, all as of the
date first written above.
JATO TECHNOLOGIES, INC. LEVEL ONE COMMUNICATIONS,
INCORPORATED
By /s/ Xxxxxx X. Xxxxxxx By /s/ Xxxx Xxxxx
--------------------- --------------
Xxxxxx X. Xxxxxxx Xxxx Xxxxx
President and Chief Executive Officer Senior Vice President and Chief
Financial Officer
THUNDERHILL ACQUISITION CORP. STOCKHOLDER AGENT
By /s/ Xxxx Xxxxx By /s/ Xxxxxx X. Xxxxxxx
--------------- ---------------------
Xxxx Xxxxx Xxxxxx X. Xxxxxxx
Chief Financial Officer
U.S. BANK TRUST NATIONAL ASSOCATION
By /s/ Xxxxxxx X. Xxxx
-------------------
Xxxxxxx X. Xxxx
Vice President
63
EXHIBIT G
---------
FORM OF REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made as of the Closing
---------
Date (as defined in the Merger Agreement) by Level One Communications,
Incorporated, a California corporation ("Parent"), and the stockholders of Jato
------
Technologies, Inc., a Delaware corporation (the "Company"), listed on Exhibit A
-------
hereto (the "Stockholders").
------------
RECITALS
--------
WHEREAS, Parent, Thunderhill Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of Parent ("Merger Sub"), and the Company, have
----------
entered into an Agreement and Plan of Reorganization, dated as of November 9,
1998 (the "Merger Agreement"), which provides for, among other things, the
----------------
merger of Merger Sub with and into the Company (the "Merger"). Pursuant to the
------
Merger, all of the shares of capital stock of the Company will be converted into
shares of unregistered Common Stock of Parent ("Parent Common Stock") on the
-------------------
basis described in the Merger Agreement;
WHEREAS, as a material inducement for the Company to enter into the Merger
Agreement, Parent is willing to grant each Stockholder the registration rights
set forth in this Agreement with respect to the Parent Common Stock to be
received by the Stockholders in the Merger; and
WHEREAS, the Company's obligation to consummate the Merger and the
transactions contemplated by the Merger Agreement is subject to the condition,
among others, that Parent shall have entered into this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, Parent and each of the Stockholders, intending
to be legally bound, hereby agree as follows:
1. DEFINITIONS. As used in this Agreement the following terms shall have the
following meanings:
(a) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
(b) "Securities Act" means the Securities Act of 1933, as amended.
--------------
(c) "Form S-3" means such form under the Securities Act as in effect on the
--------
date hereof or any registration form under the Securities Act subsequently
adopted by the SEC which similarly permits inclusion or incorporation of
substantial information by reference to other documents filed by Parent with the
SEC.
(d) "Holder" means: (i) a Stockholder to whom shares of Registrable
------
Securities are issued pursuant to the Merger Agreement, for so long as such
holder continues to hold such shares, or (ii) any transferee of Registrable
Securities to whom registration rights under this Agreement are assigned
pursuant to Section 10 of this Agreement.
(e) "Registrable Securities" means the shares of Parent Common Stock issued
----------------------
to each Stockholder pursuant to the Merger Agreement, together with all other
shares of Parent Common Stock issued in respect thereof (by way of stock split,
dividend or otherwise). Registrable Securities shall include any shares of
Parent Common Stock transferred by a Holder in accordance with Section 10. As
to any particular Registrable Securities, such securities will cease to be
Registrable Securities when they have been distributed to the public pursuant
to an offering registered under the Securities Act or sold to the public
through a broker, dealer or market maker in compliance with any exemption from
the registration provisions of Section 5 under the Securities Act, including,
without limitation, Rule 144 promulgated by the SEC under the Securities Act
(or any similar rule then in force).
(f) "SEC" means the Securities and Exchange Commission.
---
(g) The terms "register," "registered," and "registration" refer to a
registration of securities effected by preparing and filing a registration
statement or similar document in compliance with the provisions of the
Securities Act, and the declaration or ordering of effectiveness by the SEC of
such registration statement or other document.
(h) Capitalized terms not otherwise defined herein have the meanings given
to them in the Merger Agreement.
2. REGISTRATION. Parent shall use commercially reasonable efforts to cause
the Registrable Securities held by each Holder to be registered under the
Securities Act so as to permit the resale thereof, and in connection therewith
shall use commercially reasonable efforts to prepare and file with the SEC a
registration statement on Form S-3 (or such other form as may then be
available under the Securities Act to permit the Holders to sell the
Registrable Securities) covering the Registrable Securities and cause such
registration statement to be declared effective by the SEC under the
Securities Act by not later than the date which is 2 Business Days after the
date that Parent publicly announces financial results covering at least 30
days of combined operations of Parent and the Company; provided, however, that
each Holder shall provide all such information and materials to Parent and
take all other action as may be required in order to permit Parent to comply
with all applicable requirements of the Securities Act and to obtain any
desired acceleration of the effective date of such registration statement.
Such provision of information and materials by the Holders is a condition
precedent to the obligations of Parent under this Agreement. Parent shall not
be required to effect more than 1 registration statement covering the
Registrable Securities. The offering made pursuant to such registration by the
Stockholders shall not be underwritten.
3. POSTPONEMENT OF REGISTRATION. Notwithstanding Section 2 above, Parent shall
be entitled to postpone the declaration of effectiveness of the registration
statement prepared and filed pursuant to Section 2 for a reasonable period of
time, but not in excess of 30 calendar days after the applicable deadline, if
the Board of Directors of Parent, acting in good faith, determines that there
exists material nonpublic information about Parent which the Board does not wish
to disclose in a registration statement (due to the fact that such disclosure
may not be in the best interests of Parent or Parent's shareholders) which
information would otherwise be required by the Securities Act to be disclosed in
the registration statement to be filed pursuant to Section 2 above.
2
4. OBLIGATIONS OF PARENT. Subject to the limitations of Sections 3, 5 and
11, Parent shall (i) keep the registration statement filed by Parent in
accordance with Section 2 hereof effective until the earlier of (A) such time
as each Holder may sell all of their Registrable Securities pursuant to Rule
144 under the Securities Act in a single 3 month period or (B) such time as
all Registrable Securities have been sold hereunder; (ii) prepare and file
with the SEC such amendments and supplements to such registration statement
and the related prospectus as may be necessary to comply with the provisions
of the Securities Act with respect to the sale or other disposition of all
Registrable Securities proposed to be registered in such registration
statement; (iii) furnish to each Holder such number of copies of any
prospectus (including any preliminary prospectus and any amended or
supplemented prospectus) in conformity with the requirements of the Securities
Act, and such other documents, as each Holder may reasonably request in order
to effect the offering and sale of the Registrable Securities to be offered
and sold, but only while Parent shall be required under the provisions hereof
to cause the registration statement to remain current; and (iv) use
commercially reasonable efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or blue
sky laws of such jurisdictions as each Holder shall reasonably request
(provided that Parent shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such jurisdiction where it has not been so
qualified).
5. OTHER EVENTS. Any sale of Registrable Securities pursuant to the
registration statement filed in accordance with Section 2 hereof shall be
subject to the following conditions:
(a) Parent shall notify each Holder in writing as soon as practicable
following the occurrence of any of the following:
(i) any request by the SEC or any other federal or state
governmental authority during the period of effectiveness of the registration
statement for amendments or supplements to the registration statement or
related prospectus or for additional information relating to the registration
statement or related prospectus,
(ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for that purpose,
(iii) the receipt by Parent of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or threat
of any proceeding for such purpose, or
(iv) the happening of any event which makes any statement made in
the registration statement or related prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or which requires the making of any changes in the registration
statement or prospectus so that, in the case of the registration statement, it
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the prospectus, it
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
3
(b) Upon the happening of an event described in Section 5(a)(iv), Parent
may suspend use of the prospectus on written notice to each Holder, in which
case each Holder shall not dispose of Registrable Securities covered by the
registration statement or prospectus until copies of a supplemented or amended
prospectus are distributed to the Holders or until the Holders are advised in
writing by Parent that the use of the applicable prospectus may be resumed.
Parent shall, as soon as reasonably practicable following the occurrence of
such event, in any event within 30 calendar days, and use commercially
reasonable efforts to prepare a supplement or post-effective amendment to the
registration statement or a supplement to the related prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder, such prospectus will not contain an untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(c) Parent shall use commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the securities for sale in any jurisdiction, at
the earliest practicable moment.
6. AVAILABILITY OF FORM S-3. Parent represents that it is currently eligible
to utilize Form S-3 and agrees that, for the period that Parent is required to
keep the registration effective under this Agreement, Parent will not
intentionally take any action which would preclude Parent's eligibility to use
Form S-3.
7. EXPENSES. Parent shall pay all of the out-of-pocket expenses incurred
(other than selling discounts, commissions, broker fees or similar selling
expenses) in connection with the registration of Registrable Securities pursuant
to this Agreement, including but not limited to, all SEC, NASD and blue sky
registration and filing fees, printing expenses, transfer agents' and
registrars' fees, and the reasonable fees and disbursements of Parent's outside
counsel.
8. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. Parent agrees to:
(a) use commercially reasonable efforts to file with the SEC in a timely
manner all reports and other documents required of Parent under the Securities
Act and the Exchange Act; and
(b) furnish to each Holder forthwith upon request (i) a written statement
by Parent that it has complied with the reporting requirements of the Securities
Act and the Exchange Act, or that it qualifies as a registrant whose securities
may be resold pursuant to Form S-3 (at any time that it so qualifies), (ii) a
copy of the most recent annual or quarterly report of Parent, and (iii) such
other information as may be reasonably requested in availing each Holder of any
rule or regulation under the Securities Act which permits the selling of any
such securities pursuant to Form S-3.
9. INDEMNIFICATION.
(a) Indemnification by Parent. Parent agrees to indemnify and hold
-------------------------
harmless, to the fullest extent permitted by law, each of the Holders of any
Registrable Securities covered by a registration statement that has been filed
with the SEC pursuant to this Agreement, each other
4
person, if any, who controls such Holder within the meaning of the Securities
Act or the Exchange Act, and each of their respective directors, partners
(general and limited), stockholders, members, managers, officers, employees
and agents and any broker or dealer selling Registrable Securities on behalf
of a Holder, as follows:
(i) against any and all loss, liability, claim, damage, cost or
expense (other than amounts paid in settlement) incurred by such Holder arising
out of or based upon an untrue statement or alleged untrue statement of a
material fact contained in such registration statement (or any amendment or
supplement thereto), including all documents incorporated therein by reference,
or in any preliminary prospectus or prospectus included therein (or any
amendment or supplement thereto) or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage, cost or
expense incurred by such Holder to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, in each case whether commenced or threatened, or of
any claim whatsoever, that arises out of or is based upon any such untrue
statement or omission or any such alleged untrue statement or omission, if such
settlement is effected with the written consent of Parent (which consent shall
not be unreasonably withheld or delayed); and
(iii) against any and all expense incurred by such Holder in
connection with investigating, preparing or defending against any litigation or
any investigation or proceeding by any governmental agency or body, in each case
whether commenced or threatened in writing, or against any claim whatsoever,
that arises out of or is based upon any such untrue statement or omission or any
such alleged untrue statement or omission, to the extent that any such expense
is not paid under clause (i) or (ii) above;
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage, cost or expense to the extent arising out of or based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
Parent by or on behalf of such Holder expressly for use in the preparation of
any registration statement (or any amendment or supplement thereto), including
all documents incorporated therein by reference, or in any preliminary
prospectus or prospectus included therein (or any amendment or supplement
thereto); and provided further, however, that Parent will not be liable to any
Holder (or any other indemnified person) under the indemnity agreement in this
Section 9, with respect to any prospectus to the extent that any such loss,
liability, claim, damage, cost or expense of such Holder (or other indemnified
person) results from the fact that such Holder sold Registrable Securities to a
person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the final or amended prospectus, if Parent
has previously and timely furnished copies thereof to such Holder, and if such
final or amended prospectus would have corrected such untrue statement or
omission. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Holder or any other person
eligible for indemnification under this Section 9, and shall survive the
transfer of such securities by such selling Holder.
5
(b) Indemnification by Holders. In connection with any registration
--------------------------
statement in which a Holder of Registrable Securities is participating, each
such Holder agrees to indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 9(a) of this Agreement), to the extent
permitted by law, Parent and its directors, officers and controlling persons,
and their respective directors, officers and controlling persons, with respect
to any statement or alleged statement in or omission or alleged omission from
such registration statement, any preliminary, final or summary prospectus
included therein, or any amendment or supplement thereto, or to any such
prospectus, if such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written information
that relates only to such Holder or the plan of distribution that is expressly
furnished to Parent by or on behalf of such Holder for use in the preparation of
such registration statement, preliminary, final or summary prospectus or
amendment or supplement thereto. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of Parent, or such
Holder, as the case may be, or any of their respective directors, officers, or
controlling persons and shall survive the transfer of Registrable Securities by
such Holder. With respect to each claim pursuant to this Section 9(b), each
Holder's maximum liability under this Section 9(b) shall be limited to an amount
equal to the net proceeds actually received by such Holder (after deducting any
selling discounts, commissions, broker fees or similar selling expenses) from
the sale of Registrable Securities being sold pursuant to such registration
statement or prospectus by such Holder.
(c) Indemnification Procedure. Within 10 days after receipt by an
-------------------------
indemnified party hereunder of written notice of the commencement of any action
or proceeding involving a claim referred to in Section 9(a) or Section 9(b),
such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the indemnifying party
of the commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under Section 9(a) or Section 9(b)
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action or proceeding is brought
against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal fees and expenses subsequently incurred by the
latter in connection with the defense thereof, unless in such indemnified
party's reasonable judgment an actual or potential conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim, in which case the indemnifying party shall not be liable for the fees
and expenses of (i) in the case of a claim referred to in Section 9(a), more
than one counsel (in addition to any local counsel) for all indemnified
parties selected by (x) Parent, if Parent is defending against such claim, or
(y) the holders of a majority (by number of shares) of the Registrable
Securities held by such indemnified parties, if Parent is not defending
against such claim, or (ii) in the case of a claim referred to in Section
9(b), more than one counsel (in addition to any local counsel) for Parent, in
each case in connection with any one action or separate but similar or related
actions or proceedings. An indemnifying party who is not entitled to (pursuant
to the immediately preceding sentence), or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any
6
indemnified party an actual or potential conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels
as may be reasonable in light of such conflict. The indemnifying party will
not, without the prior written consent of each indemnified party, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit, investigation or proceeding in respect of
which indemnification may be sought hereunder (whether or not such indemnified
party or any person who controls such indemnified party is a party to such
claim, action, suit, investigation or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such indemnified
party from all liability arising out of such claim, action, suit,
investigation or proceeding and such settlement, compromise or consent
involves only the payment of money and such money is actually paid by the
indemnifying party. Whether or not the defense of any claim or action is
assumed by the indemnifying party, such indemnifying party will not be subject
to any liability for any settlement made without its consent, which consent
will not be unreasonably delayed or withheld.
10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of a Holder pursuant to this
Agreement may be assigned to a transferee of Registrable Securities only if: (a)
Parent is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee and a copy of a duly executed
written instrument in form reasonably satisfactory to Parent pursuant to which
such transferee assumes all of the obligations and liabilities of its transferor
hereunder, agrees itself to be bound hereby and provides Parent with such
information as Parent may reasonably request to permit the transferee to sell
such Registrable Securities pursuant to the registration statement filed in
accordance with Section 2 hereof, and (b) immediately following such transfer,
the disposition of such Registrable Securities by the transferee is restricted
under the Securities Act.
11. TERMINATION. The registration rights set forth in this Agreement shall
terminate with respect to a Holder (and the shares held by such Holder shall
cease to constitute Registrable Securities) at such time the Holder may first
sell all of such Holder's Registrable Securities under Rule 144 under the
Securities Act in any single 3 month period.
12. MISCELLANEOUS.
(a) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
(b) Subject to Section 10, this Agreement shall be enforceable by, and
shall inure to the benefit of and be binding upon, the parties hereto and
their respective successors and assigns. As used herein, the term "successors
and assigns" shall mean, where the context so permits, heirs, executors,
administrators, trustees and successor trustees, and personal and other
representatives.
(c) This Agreement shall be governed by and construed in accordance with
the domestic laws of the State of California, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
7
(d) This Agreement shall not be modified or amended, or any right hereunder
waived or any obligation excused, except by a written instrument signed by
Parent and the Holders of a majority of the Registrable Securities (based on
number of shares) then outstanding.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first written above.
LEVEL ONE COMMUNICATIONS, STOCKHOLDER
INCORPORATED
--------------------------------------- -------------------------------
Xxxxxx X. Xxxxxx, Ph.D. Signature
President and Chief Executive Officer
-------------------------------
0000 Xxxxxx Xxxx Print Name and Title (if any)
Xxxxxxxxxx, XX 00000
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Address
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9
EXHIBIT A
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LIST OF STOCKHOLDERS OF JATO TECHNOLOGIES, INC.
Xxxx Elwsick
Xxxxxxx Xxxxxx
Xxxxxx Guest
Xxxxxx Xxxx
Xxxxx Xxxxx
MSD & LSD Charitable Trusts Investing Partnership
Xxxxx Xxxxx
Xxxx Xxxxxxx
Xxxxxx Xxxxx
Xxxxxx X. Xxxxxx
Xxxxxx Xxxxxxx
Xxxxx Xxxxxx
WS Investment Company 97B
Trustee, WSGR Retirement Plan FBO Xxxxx X. Xxxxx
Trustee, WSGR Retirement Plan FBO Xxxxx X. Xxxxx
Trustee, WSGR Retirement Plan FBO Xxxxxxx X. Xxxxxx
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