EXHIBIT 2.8
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SEAGATE TECHNOLOGY, INC.,
TROUT ACQUISITION CORP.
AND
XIOTECH CORPORATION
Dated as of December 3, 1999
TABLE OF CONTENTS
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ARTICLE I THE MERGER.............................................. 2
1.1 The Merger................................................ 2
1.2 Effective Time............................................ 2
1.3 Effect of the Merger...................................... 2
1.4 Articles of Incorporation; Bylaws......................... 2
1.5 Directors and Officers.................................... 2
1.6 Aggregate Merger Consideration; Effect on Capital Stock... 3
1.7 Dissenters' Rights........................................ 7
1.8 Surrender of Certificates................................. 8
1.9 No Further Ownership Rights in Company Common Stock....... 9
1.10 Lost, Stolen or Destroyed Certificates.................... 9
1.11 Tax and Accounting Consequences........................... 10
1.12 Taking of Necessary Action; Further Action................ 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......... 10
2.1 Organization and Qualification............................ 10
2.2 Subsidiaries.............................................. 10
2.3 Company Capital Structure................................. 11
2.4 Authority................................................. 12
2.5 No Conflict............................................... 13
2.6 Consents.................................................. 13
2.7 Company Financial Statements.............................. 13
2.8 No Undisclosed Liabilities................................ 14
2.9 No Changes................................................ 14
2.10 Tax and Other Returns and Reports......................... 14
2.11 Restrictions on Business Activities....................... 16
2.12 Title to Properties; Absence of Liens and Encumbrances.... 16
2.13 Governmental Authorization................................ 17
2.14 Intellectual Property..................................... 17
2.15 Product Warranties; Defects; Liabilities.................. 22
2.16 Agreements, Contracts and Commitments..................... 22
2.17 Interested Party Transactions............................. 24
2.18 Compliance with Laws...................................... 24
2.19 Litigation................................................ 25
2.20 Insurance................................................. 25
2.21 Minute Books.............................................. 25
2.22 Environmental Matters..................................... 25
2.23 Brokers' and Finders' Fees................................ 27
2.24 Employee Matters and Benefit Plans........................ 27
2.25 Bank Accounts............................................. 32
2.26 Indemnification Obligations............................... 32
2.27 Board Approval............................................ 32
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(continued)
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2.28 Representations Complete.................................. 32
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB..................................................... 32
3.1 Organization of Parent and Merger Sub..................... 32
3.2 Authority................................................. 32
3.3 Parent Common Stock....................................... 33
3.4 SEC Filings; Parent Financial Statements.................. 33
3.5 Parent Capital Structure.................................. 34
3.6 Litigation................................................ 34
3.7 No Material Adverse Change................................ 34
3.8 Merger Sub................................................ 34
3.9 Brokers' and Finders' Fees................................ 34
3.10 Representations Complete.................................. 34
ARTICLE IV SECURITIES ACT COMPLIANCE; REGISTRATION................ 35
4.1 Securities Act Exemption.................................. 35
4.2 Stock Restrictions........................................ 35
4.3 The Company Shareholders' Restrictions Regarding
Securities Law Matters.................................... 35
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME..................... 36
5.1 Conduct of Business of the Company........................ 36
5.2 Reorganization............................................ 39
ARTICLE VI ADDITIONAL AGREEMENTS.................................. 40
6.1 Information Statement and Section 3(a)(10) Permit......... 40
6.2 Shareholder Approval...................................... 41
6.3 Access to Information..................................... 41
6.4 Confidentiality........................................... 41
6.5 Public Disclosure......................................... 41
6.6 Consents.................................................. 42
6.7 FIRPTA Compliance......................................... 42
6.8 Legal Conditions to the Merger............................ 42
6.9 Best Efforts; Additional Documents and Further Assurances. 42
6.10 Notification of Certain Matters........................... 43
6.11 Reorganization............................................ 43
6.12 Declaration of Registration Rights........................ 43
6.13 Form S-8.................................................. 43
6.14 New York Stock Exchange................................... 44
6.15 Voting Agreements......................................... 44
6.16 Non-Competition Agreements................................ 44
6.17 Blue Sky Laws............................................. 44
6.18 Benefit Arrangements...................................... 44
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(continued)
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6.19 Bonus Plan................................................ 44
6.20 Termination of Company Investor Rights.................... 45
6.21 No Solicitation........................................... 45
6.22 Termination of 401(k) Plan................................ 45
6.23 Termination of Company Severance Plans; Adoption of
Parent Severance Plan..................................... 45
6.24 Export Laws............................................... 46
6.25 Lock-Up Agreements........................................ 46
6.26 Xxxx-Xxxxx Xxxxxx......................................... 46
6.27 Preparation of Tax Returns................................ 47
6.28 Company Headquarters...................................... 48
6.29 Indemnification........................................... 48
6.30 Employee Plan Compliance.................................. 48
ARTICLE VII CONDITIONS TO THE MERGER.............................. 49
7.1 Conditions to Obligations of Each Party to Effect the
Merger.................................................... 49
7.2 Additional Conditions to Obligations of the Company....... 50
7.3 Additional Conditions to the Obligations of Parent and
Merger Sub................................................ 51
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ESCROW......................................................... 53
8.1 Survival of Representations and Warranties................ 53
8.2 Escrow Arrangements and Indemnification................... 53
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER...................... 61
9.1 Termination............................................... 61
9.2 Effect of Termination..................................... 62
9.3 Amendment................................................. 63
9.4 Extension; Waiver......................................... 63
ARTICLE X GENERAL PROVISIONS...................................... 63
10.1 Notices................................................... 63
10.2 Expenses.................................................. 65
10.3 Interpretation............................................ 65
10.4 Counterparts.............................................. 65
10.5 Entire Agreement; Assignment.............................. 65
10.6 Severability.............................................. 66
10.7 Other Remedies............................................ 66
10.8 Governing Law............................................. 66
10.9 Rules of Construction..................................... 66
10.10 Specific Performance...................................... 66
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INDEX OF SCHEDULES
Schedule Description
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2.3(a) Shareholder List
2.3(b) Option and Warrant Holder List
2.5 Conflicts
2.6 Governmental and Third Party Consents
2.8 Undisclosed Liabilities
2.9 No Changes
2.10 Tax Returns and Audits
2.12(a) Leased Real Property
2.12(b) Liens on Property
2.12(c) Equipment
2.13 Government Authorizations
2.14(b) Registered Intellectual Property Rights
2.14(c) IP Actions To Be Taken Within 120 Days of Closing Date; Special Status
2.14(h) Intellectual Property In-Licenses
2.14(j) Form of Proprietary Information, Confidentiality and Assignment Agreement
2.14(k) Third Party Ownership Rights to Licensed Technology or Intellectual Property
2.14(m) Form of "Shrink-Wrap" License; Outbound Licenses
2.14(n) Intellectual Property Obligations
2.14(t) Necessary Technology and Intellectual Property Rights
2.15 Product Warranties and Standard Forms of Agreements
2.16(a) Agreements, Contracts and Commitments
2.16(b) Breaches
2.17 Interested Party Transactions
2.19 Litigation
2.22 Hazardous Materials and Environmental Matters
2.23 Brokers/Finders Fees
2.24(b) Employee Benefit Plans and Employees
2.24(d) Employee Plan Compliance
2.24(g) Post-Employment Obligations
2.24(i)(i) Effect of Transaction
2.24(i)(ii) Excess Parachute Payments
2.24(j) Officers, Directors and Employees
2.24(k) Labor
2.25 Bank Accounts
6.15 Company Shareholders to Sign Voting Agreement
6.16 Employees to Sign Non-Competition Agreements
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of December 3, 1999 among Seagate Technology, Inc., a Delaware
corporation ("Parent"), Trout Acquisition Corp., a Minnesota corporation and a
wholly owned subsidiary of Parent ("Merger Sub"), XIOtech Corporation, a
Minnesota corporation (the "Company"), Xxxxxxx X. Xxxxxxx and Xxxx X. Xxxxxxxxx
(each such natural person a "Securityholders Agent" and collectively, the
"Securityholders Agents").
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger (the
"Merger") of Merger Sub with and into the Company in accordance with this
Agreement and the Minnesota Business Corporation Act (the "Minnesota Law").
Upon consummation of the Merger, the Merger Sub will cease to exist, and the
Company will be a wholly owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the Merger
be treated as a "purchase."
C. The Board of Directors of the Company has (i) determined that the
Merger is consistent with and in furtherance of the long-term strategy of the
Company and fair to, and in the best interests of, the Company and its
shareholders, (ii) approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) determined to unanimously
recommend that the shareholders of the Company adopt and approve the principal
terms of this Agreement and approve the Merger.
D. The respective Boards of Directors of Parent and Merger Sub have
approved this Agreement and the Merger.
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, each of the
shareholders of the Company listed on Schedule 6.17 hereto is entering into a
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Voting Agreement substantially in the form attached hereto as Exhibit A (the
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"Voting Agreement").
F. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, the
employees of the Company listed on Schedule 6.15 hereto are entering into Non-
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Competition Agreements substantially in the form attached hereto as Exhibit B
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(the "Non-Competition Agreements").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement and Minnesota
Law, the 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 as a wholly owned subsidiary of Parent. The
Company as the surviving corporation after the Merger is referred to hereinafter
sometimes as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
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to Section 9.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than three business days, following
satisfaction or waiver of the conditions set forth in Article VII, at the
offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, 000 Xxxx
Xxxx Xxxx, Xxxx Xxxx, 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 Date." On the Closing Date, the parties
hereto shall cause the Merger to be consummated by filing an Articles of Merger,
including a plan of merger, in substantially the form attached hereto as
Exhibit C (the "Articles of Merger"), with the Secretary of State of the State
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of Minnesota, in accordance with the relevant provisions of Minnesota Law (the
time of acceptance by the Secretary of State of Minnesota of such filing being
referred to herein as the "Effective Time"). Merger Sub and the Company shall
take such other actions as required to effect the Merger pursuant to Section
302A.651 of the Minnesota Revised Statutes.
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in the applicable provisions of Minnesota Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all of the rights and property of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Articles of Incorporation; Bylaws.
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(a) Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time, the Articles of Incorporation of the Surviving
Corporation shall be the Articles of Incorporation of the Company as amended and
restated by Parent in a form reasonably satisfactory to the Company prior to the
Effective Time until thereafter amended as provided by law and such Articles of
Incorporation.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
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prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
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Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 Aggregate Merger Consideration; Effect on Capital Stock. The
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aggregate maximum number of shares of common stock of Parent ("Parent Common
Stock") to be issued (including Parent Common Stock to be reserved for issuance
upon exercise of any of the Company's options to be assumed by Parent) in
exchange for the acquisition by Parent of all outstanding capital stock of the
Company ("Company Capital Stock") and all outstanding unexpired and unexercised
options, warrants or other rights to acquire or receive shares of Company
Capital Stock shall be referred to herein as the "Aggregate Share Number." The
Aggregate Share Number shall be the quotient of $360,000,000 divided by the
Average Closing Price (as defined below). No adjustment shall be made in the
number of shares of Parent Common Stock issued in the Merger as a result of any
cash proceeds received by the Company from the date hereof to the Closing Date
pursuant to the exercise of options or warrants to acquire Company Capital
Stock. 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
Merger Sub, the Company or the holder of any shares of Company Capital Stock,
the holder of any options, warrants or other rights to acquire or receive shares
of Company Capital Stock, the following shall occur (which is intended to comply
fully with the liquidation preference provisions set forth in the Articles of
Incorporation of the Company, as amended through the date hereof):
(a) Conversion of Company Common Stock. Each share of common stock of
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the Company, no par value per share, ("Company Common Stock") issued and
outstanding immediately prior to the Effective Time (other than any shares of
Company Common Stock to be canceled pursuant to Section 1.6(e) and any
"Dissenting Shares" (as defined and to the extent provided in Section 1.7(a)))
will be canceled and extinguished and be converted automatically into the right
to receive that number of shares of Parent Common Stock equal to the Common
Exchange Ratio (as defined in Section 1.6(c) below) upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 1.8.
(b) Conversion of Company Preferred Stock.
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(i) Series A Preferred Stock. Each share of Series A Preferred
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Stock of the Company, par value $1.00 per share, ("Series A Preferred") issued
and outstanding immediately prior to the Effective Time (other than any shares
of Series A Preferred to be canceled pursuant to Section 1.6(e) and any
Dissenting Shares (as defined and to the extent provided in Section 1.7(a)) will
be canceled and extinguished and be converted automatically into the right to
receive that number of shares of Parent Common Stock equal to the quotient
computed by dividing (A) the sum of $1.00 (the "Series A Preference Amount")
plus the Per Share Amount (as defined in Section 1.6(c) below), by (B) the
Average Closing Price upon surrender of the certificate representing such share
of Series A Preferred in the manner provided in Section 1.8.
(ii) Series B Preferred Stock. Each share of Series B Preferred
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Stock of the Company, par value $1.00 per share, ("Series B Preferred") issued
and outstanding immediately prior to the Effective Time (other than any shares
of Series B Preferred to be canceled pursuant to Section 1.6(e) and any
Dissenting Shares (as defined and to the extent provided in Section 1.7(a)) will
be canceled and extinguished and be converted automatically into the right to
receive that number of shares of Parent Common Stock equal to the quotient
computed by dividing (A) the sum
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of $1.25 (the "Series B Preference Amount") plus the Per Share Amount, by (B)
the Average Closing Price upon surrender of the certificate representing such
share of Series B Preferred in the manner provided in Section 1.8.
(iii) Series C Preferred Stock. Each share of Series C Preferred
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Stock of the Company, par value $1.00 per share, ("Series C Preferred") issued
and outstanding immediately prior to the Effective Time (other than any shares
of Series C Preferred to be canceled pursuant to Section 1.6(e) and any
Dissenting Shares (as defined and to the extent provided in Section 1.7(a)) will
be canceled and extinguished and be converted automatically into the right to
receive that number of shares of Parent Common Stock equal to the quotient
computed by dividing (A) the sum of $2.07 (the "Series C Preference Amount")
plus the Per Share Amount, by (B) the Average Closing Price upon surrender of
the certificate representing such share of Series C Preferred in the manner
provided in Section 1.8.
(iv) Series D Preferred Stock. Each share of Series D Preferred
------------------------
Stock of the Company, par value $1.00 per share, ("Series D Preferred") issued
and outstanding immediately prior to the Effective Time (other than any shares
of Series D Preferred to be canceled pursuant to Section 1.6(e) and any
Dissenting Shares (as defined and to the extent provided in Section 1.7(a)) will
be canceled and extinguished and be converted automatically into the right to
receive that number of shares of Parent Common Stock equal to the quotient
computed by dividing (A) the sum of $6.00 (the "Series D Preference Amount")
plus the Per Share Amount, by (B) the Average Closing Price upon surrender of
the certificate representing such share of Series D Preferred in the manner
provided in Section 1.8.
(c) Definitions.
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(i) Common Exchange Ratio. The "Common Exchange Ratio" shall
---------------------
be equal to the Per Share Amount divided by the Average Closing Price.
(ii) Per Share Amount. The "Per Share Amount" shall be equal to
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the quotient (rounded to the sixth decimal place) of (A) $360,000,000 minus the
Total Preference Amount divided by (B) the sum of the Diluted Common Shares plus
the Total Preferred Shares.
(iii) Total Preference Amount. The "Total Preference Amount"
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shall be equal to the sum of (A) the Series A Preference Amount multiplied by
the Total Series A Shares, plus (B) the Series B Preference Amount multiplied by
the Total Series B Shares, plus (C) the Series B Preference Amount multiplied by
the Total Series C Shares, plus (D) the Series D Preference Amount multiplied by
the Total Series D Shares.
(iv) Total Series A Shares. The "Total Series A Shares" shall be
---------------------
equal to the number of shares of Series A Preferred outstanding immediately
prior to the Effective Time (other than any shares of Series A Preferred to be
canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to
the extent provided in Section 1.7(a)).
(v) Total Series B Shares. The "Total Series B Shares" shall
---------------------
be equal to the number of shares of Series B Preferred outstanding immediately
prior to the Effective Time
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(other than any shares of Series B Preferred to be canceled pursuant to Section
1.6(e) and any Dissenting Shares (as defined and to the extent provided in
Section 1.7(a)).
(vi) Total Series C Shares. The "Total Series C Shares" shall
---------------------
be equal to the number of shares of Series C Preferred outstanding immediately
prior to the Effective Time (other than any shares of Series C Preferred to be
canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to
the extent provided in Section 1.7(a)).
(vii) Total Series D Shares. The "Total Series Shares" shall be
---------------------
equal to the number of shares of Series D Preferred outstanding immediately
prior to the Effective Time (other than any shares of Series D Preferred to be
canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to
the extent provided in Section 1.7(a)).
(viii) Average Closing Price. The "Average Closing Price"
---------------------
shall mean the average of closing prices of the Parent Common Stock as reported
on the New York Stock Exchange for the 20 trading days ending on and including
the third day immediately preceding the Closing Date.
(ix) Diluted Common Shares. The "Diluted Common Shares" shall
---------------------
mean that number equal to the sum of (A) the number of shares of Company Common
Stock issued and outstanding immediately prior to the Effective Time (regardless
of whether such shares are unvested, subject to any right of repurchase, risk of
forfeiture or other condition in favor of the Company at such time); plus (B)
the number of shares of Company Common stock issuable upon exercise of the
Company Options (as such term is defined in Section 1.6(f)) outstanding at the
Effective Time (regardless of whether such Company Options are vested); plus (C)
the number of shares of Company Common Stock issuable in connection with any
other options, warrants, calls, rights, exchangeable or convertible securities,
commitments or agreements of any character, written or oral, to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell or cause to be issued, delivered or sold any Company Capital Stock
immediately prior to the Effective Time.
(d) Escrow. A number of shares of Parent Common Stock to be issued at
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the Effective Time pursuant to Section 1.6(a) and (b) hereof (none of which
shares of Parent Common Stock shall be unvested, subject to any right of
repurchase, risk of forfeiture or other condition in favor of the Surviving
Corporation), determined by dividing $26 million by the Average Closing Price,
shall be held in escrow (the "Escrow Amount") pursuant to Article VIII of this
Agreement to compensate Parent and its affiliates (including the Surviving
Corporation) for any "Losses" (as defined in Section 8.2 hereof) incurred in
connection with this Agreement and the transactions contemplated hereby.
(e) Cancellation of Parent-Owned and Company-Owned Stock. Each share
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of Company Capital Stock owned by Merger Sub, Parent, the Company or any direct
or indirect wholly owned subsidiary of Parent or of the Company immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof.
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(f) Stock Options. At the Effective Time, all options to purchase
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Company Common Stock (each a "Company Option") then outstanding (whether or not
exercisable at such time) under the Company's Amended and Restated 1996 Stock
Option Plan (the "Option Plan") or otherwise, shall remain outstanding following
the Effective Time and shall be assumed by Parent in accordance with provisions
described below.
(i) Each Company Option so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Option Plan and/or as provided in the respective
option agreement governing such Company Option immediately prior to the
Effective Time, except 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 Common Stock that were issuable upon exercise of
such Company Option immediately prior to the Effective Time multiplied by the
Common 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 Common Stock at which such Company Option was exercisable immediately
prior to the Effective Time by the Common Exchange Ratio, rounded up to the
nearest whole cent.
(ii) In the case of any Company Option to which Section 421 of
the Code applies by reason of its qualification under Section 422 of the Code
("qualified stock option"), the option price, the number of shares purchasable
pursuant to such assumed Parent Common Stock option and the terms and conditions
of exercise of such assumed Parent Common Stock option shall be determined in
order to comply with Section 424(a) of the Code.
(iii) As soon as practicable after the Effective Time, Parent
shall deliver to the holders of Company Options appropriate notices setting
forth such holders' rights pursuant to the Option Plan, and the agreements
evidencing the grants of such Company Options shall be deemed to be
appropriately amended so that such Company Options shall represent rights to
acquire Parent Common Stock on the same terms and conditions as contained in the
outstanding Company Options (subject to the adjustments required by this Section
1.6(f) after giving effect to the assumption by Parent as set forth above).
Parent shall comply with the terms of the Company Stock Plan and use good faith
efforts to ensure, to the extent permitted by the Code and to the extent
required by, and subject to the provisions of, the Option Plan, that Company
Options which qualified as qualified stock options prior to the Effective Time
continue to qualify as qualified stock options of Parent after the Effective
Time.
(iv) Notwithstanding anything to the contrary in this Section
1.6, in lieu of assuming outstanding Company Options in accordance with this
Section 1.6(f), Parent may, at its election, cause such outstanding Company
Options to be replaced by issuing substantially similar replacement stock
options in substitution therefor pursuant to a stock option plan of Parent,
which is substantially similar to the Option Plan.
(g) Common Warrants. To the extent the warrant to purchase shares of
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Company Common Stock (the "Common Warrants") remain exercisable immediately
prior to the Effective Time, the Common Warrants shall, in connection with the
Merger and pursuant to its terms, be terminated and shall not be assumed by
Parent. After the Effective Time, any unexercised portion of
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the Common Warrants shall not represent any right to purchase any Company
Capital Stock or any Parent Common Stock.
(h) Series A Warrants. To the extent the warrant to purchase shares
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of Series A Preferred (the "Series A Warrants") remain exercisable immediately
prior to the Effective Time, the Series A Warrants shall, in connection with the
Merger and pursuant to its terms, be terminated and shall not be assumed by
Parent. After the Effective Time, any unexercised portion of the Series A
Warrants shall not represent any right to purchase any Company Capital Stock or
any Parent Common Stock.
(i) Capital Stock of Merger Sub. Each share of common stock of Merger
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Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(j) Adjustments to Exchange Ratios. The Per Share Amount shall be
------------------------------
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock or Company Capital Stock), reorganization, recapitalization
or other like change with respect to Parent Common Stock or Company Capital
Stock occurring after the date hereof and prior to the Effective Time.
(k) Fractional Shares. No fraction of a share of Parent Common Stock
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will be issued at the Effective Time, 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 (i) such fraction multiplied by (ii) the Average Closing Price.
1.7 Dissenters' Rights.
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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 dissenters' rights for such shares in accordance with Sections
302A.471 and 302A.473 of the Minnesota Revised Statutes and who, as of the
Effective Time, has not effectively withdrawn or lost such appraisal or
dissenters' rights ("Dissenting Shares"), shall not be converted into or
represent 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 by
Minnesota Law. From and after the Effective Time, a holder of Dissenting Shares
shall not be entitled to exercise any of the voting rights or other rights of a
shareholder of the Surviving Corporation.
(b) Notwithstanding the provisions of Sections 1.6(a) and (b) hereof,
if any holder of shares of Company Capital Stock who demands appraisal of such
shares under Minnesota Law shall effectively withdraw or lose (through failure
to perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Parent
Common Stock
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and fractional shares as provided in Section 1.6(a) or (b), as the case may be,
without interest thereon, upon surrender of the certificate representing such
shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Capital Stock, withdrawals of
such demands, and any other instruments served pursuant to Minnesota Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under
Minnesota Law. The Company shall not, except with the prior written consent of
Parent, which will not be unreasonably withheld, voluntarily make any payment
with respect to any demands for appraisal of capital stock of the Company or
offer to settle or settle any such demands.
1.8 Surrender of Certificates.
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(a) Exchange Agent. Prior to the Effective Time, Parent shall
--------------
designate Xxxxxx Trust Company of California to act as exchange agent (the
"Exchange Agent") in the Merger.
(b) Parent to Provide Parent Common Stock. Promptly after the
-------------------------------------
Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article I, the aggregate number of shares of Parent
Common Stock issuable pursuant to Section 1.6 in exchange for outstanding shares
of Company Capital Stock; provided, however, that, on behalf of the holders of
-------- -------
Company Capital Stock, and pursuant to Article VIII hereof, Parent shall deposit
into an escrow account a number of shares of Parent Common Stock equal to the
Escrow Amount out of the aggregate number of shares of Parent Common Stock
otherwise issuable pursuant to Section 1.6. 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 under Section 1.6 by virtue of
ownership of outstanding shares of Company Capital Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the
-------------------
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Capital Stock whose
shares were converted into the right to receive shares of Parent Common Stock
pursuant to Section 1.6, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent and the Company may agree)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock (less the number of shares of Parent Common Stock
to be deposited in the Escrow Fund on such holder's behalf pursuant to Article
VIII hereof), plus cash in lieu of fractional shares in accordance with Section
1.6, to which such holder is entitled pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. On the Effective Time,
and subject to and in accordance with the provisions of Article VIII hereof,
Parent shall cause to be distributed to the Escrow Agent (as defined in Article
VIII) a certificate or certificates representing that number of
-8-
shares of Parent Common Stock equal to the Escrow Amount which shall be
registered in the name of the Escrow Agent. As set forth in Section 8.2(c)(iii),
such shares shall be beneficially owned by the holders on whose behalf such
shares were deposited in the Escrow Fund and such shares shall be available to
compensate Parent as provided in Article VIII. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares of
Company Capital Stock will be deemed from and after the Effective Time, for all
corporate purposes, other than the payment of dividends, to evidence the
ownership of the number of full shares of Parent Common Stock into which such
shares of Company Capital Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered 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 paid with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
----------------------
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
------------
Section 1.8, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Capital Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 No Further Ownership Rights in Company Common Stock. All shares of
---------------------------------------------------
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 Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.10 Lost, Stolen or Destroyed Certificates. In the event any certificates
evidencing shares of Company Capital Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of Parent Common Stock and cash for fractional
shares, if any, as
-9-
may be required pursuant to Section 1.6; provided, however, that Parent may,
-------- -------
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificates to deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may be
made against Parent or the Exchange Agent with respect to the certificates
alleged to have been lost, stolen or destroyed.
1.11 Tax and Accounting Consequences. It is intended by the parties hereto
-------------------------------
that the Merger shall (a) constitute a reorganization within the meaning of
Section 368(a) of the Code (and this Agreement is intended to constitute a plan
of reorganization for purposes of Section 368(a) of the Code) and (b) qualify
for accounting treatment as a "purchase."
1.12 Taking of Necessary Action; Further Action. If, at any time after 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 and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to the exceptions specifically disclosed in writing in the disclosure
letter dated as of the date hereof and referencing a specific representation
supplied by the Company to Parent (the "Company Schedules"), as follows:
2.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Minnesota. The Company has the requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted and to perform its obligations under and Contracts (as such term is
defined in Section 2.16 hereto) by which it is bound. The Company is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified or
licensed would have a material adverse effect on the business, assets (including
intangible assets), financial condition or results of operations of the Company
(hereinafter referred to as a "Material Adverse Effect"); provided, however,
that changes in economic conditions or changes in the industry and markets in
which the Company competes shall not constitute a Material Adverse Effect,
whether occurring at any time or from time to time. The Company has delivered a
true and correct copy of its Articles of Incorporation and Bylaws, each as
amended to date, to Parent. Such Articles of Incorporation and Bylaws are in
full force and effect. Company is not in violation of any of the provisions of
its Articles of Incorporation or Bylaws.
2.2 Subsidiaries. The Company does not have and has never had any
------------
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned, directly or indirectly, any shares of capital stock or any
equity, debt or similar interest in or any interest convertible, exchangeable or
exercisable for any equity, debt or similar interest in, or control,
-10-
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity. Company has not agreed nor is Company
obligated to make or be bound by any written, oral or other agreement, contract,
sub-contract, lease, binding understanding, instrument, note, option, warranty,
purchase order, license, sub-license, insurance policy, benefit plan, commitment
or undertaking of any nature, as of the date hereof or as may hereafter be in
effect under which it may become obligated to make, any future investment in or
capital contribution to any other entity.
2.3 Company Capital Structure.
-------------------------
(a) The authorized capital stock of the Company consists of 50,000,000
shares of authorized Common Stock, of which 2,839,698 shares are issued and
outstanding and 25,000,000 shares of authorized Preferred Stock (the "Preferred
Stock"). The authorized Preferred Stock consists of 1,900,000 shares of
authorized Series A Preferred, 1,377,360 of which shares are issued and
outstanding, 5,600,000 shares of authorized Series B Preferred, 5,085,400 of
which shares are issued and outstanding, 5,320,000 shares of authorized Series C
Preferred, 4,879,331 of which shares are issued and outstanding, 3,333,334
shares of authorized Series D Preferred, 1,643,334 of which shares are issued
and outstanding and 7,469,305 of which are undesignated and are not issued or
outstanding. The Company Capital Stock, including all shares subject to the
Company's right of repurchase, is held of record by the persons, with the
addresses of record and in the amounts set forth on Schedule 2.3(a) of the
---------------
Company Schedules. Schedule 2.3(a) of the Company Schedules also indicates for
---------------
each Company shareholder (i) the share certificate numbers held by such person
and (ii) whether any shares of Company Capital Stock held by such shareholder
are subject to a repurchase right in favor of the Company, the lapsing schedule
for any such restricted shares, including the extent to which any such
repurchase right has lapsed as of the date of this Agreement and whether (and to
what extent) the lapsing will be accelerated by the transactions contemplated by
this Agreement. All outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
the Company or any agreement to which the Company is a party or by which it is
bound. All preferential rights of the Preferred Stock in connection with the
sale of substantially all of the assets of the Company or a merger involving the
Company are set forth in the Articles of Incorporation of the Company. Except
as set forth in Schedule 2.3(a) of the Company Schedules, all issued and
outstanding shares of Company Capital Stock have been offered, sold and
delivered by the Company in compliance with applicable federal and state
securities laws.
(b) The Company has reserved 1,000,000 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plan, of which
841,629 shares are subject to outstanding, unexercised options, and 18,673
shares remain available for future grant. Schedule 2.3(b) of the Company
---------------
Schedules sets forth each outstanding Company Option, including the name of the
holder of such option, the domicile address of such holder, an indication of
whether such holder is an employee of the Company, the status of the option as
either an incentive stock option under Section 422 of the Code or a nonstatutory
stock option, the date of grant or issuance of such option, the number of shares
of Common Stock subject to such option, the exercise price of such option and
the vesting schedule for such option, including the extent vested to the date of
this Agreement and whether and to what extent the exercisability of such option
will be accelerated and become exercisable by the transactions contemplated by
this Agreement. Company has made
-11-
available to Parent accurate and complete copies of all stock option plans
pursuant to which the Company has granted such Company Stock Options that are
currently outstanding and the form of all stock option agreements evidencing
such Company Stock Options. Except as set forth in Section 2.3(b) of the Company
Schedules, there are no commitments or agreements of any character to which the
Company is bound obligating the Company to accelerate the vesting of any Company
Stock Option as a result of the Merger. The Company has reserved 450,560 shares
of Series A Preferred for issuance upon exercise of the Series A Warrants and
450,560 shares of Company Common Stock issuable upon conversion of the shares of
Series A Preferred issuable upon exercise of the Series A Warrants. Schedule
--------
2.3(b) of the Company Schedules sets forth the name of the holders of the Common
------
Warrants and Series A Warrants and exercise price of such Warrant. All issued
and outstanding Company Options, Common Warrants and Series A Warrants have been
offered, issued and delivered in compliance with applicable federal and state
securities laws and all requirements set forth in applicable contracts,
agreements and instruments. All shares of Company Common Stock and Series A
Preferred subject to the issuance aforesaid, upon issuance in accordance with
the terms and conditions specified in the instrument pursuant to which they are
issuable, would be duly authorized, validly issued, fully paid and
nonassessable. As a result of the Merger, Parent will be the record and sole
beneficial owner of all Company Capital Stock and rights to acquire or receive
Company Capital Stock.
(c) Except for the Company Options, the Common Warrants and the Series
A Warrants described in Schedule 2.3(b) of the Company Schedules, there are no
---------------
subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which Company is a party or by
which it is bound obligating Company to issue, deliver or sell, or cause to be
issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause
the repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of the Company or
obligating the Company to grant, extend, accelerate the vesting of or enter into
any such subscription, option, warrant, equity security, call, right, commitment
or agreement.
(d) As of the date of this Agreement, except as contemplated by this
Agreement or set forth in Schedule 2.3(d) of the Company Schedules, there are no
registration rights agreements, no voting trust, proxy or other agreement or
understanding to which the Company is a party or by which it is bound with
respect to any equity security of any class of the Company.
2.4 Authority. Subject only to the requisite approval of the Merger and
---------
the principal terms of this Agreement by the Company's shareholders, the Company
has all requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby. The vote required of the
Company's shareholders to duly approve the principal terms of this Agreement and
the Merger is that number of shares as would constitute a majority of the
outstanding shares of (a) the Company Common Stock and Preferred Stock, voting
together as a single class, (b) the Company Common Stock and Series A Preferred
Stock, voting together as a single class, (c) the Series B Preferred Stock
voting separately as a single class, and (d) the Series D Preferred Stock voting
separately as a single class (in each case with each share of Preferred Stock
being entitled to a number of votes equal to the number of whole shares of
Common Stock into which such share of Preferred Stock could be converted on the
record date for the vote). In addition, the consent of not less than 80% of the
Series C Preferred Stock, voting separately as a single class, is required to
duly
-12-
approve the principal terms of this Agreement and the Merger. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company, subject only to the approval of the principal terms
of this Agreement and the Merger by the Company's shareholders. This Agreement
has been duly executed and delivered by the Company and constitutes the valid
and binding obligation of the Company, enforceable in accordance with its terms
except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
rights of creditors generally and by general equitable principles.
2.5 No Conflict. Assuming that all consents, waivers, approvals, orders,
-----------
authorizations, registrations, declarations and filings have been duly made or
obtained as contemplated by Section 2.6 hereof, and except as set forth on
Schedule 2.5, subject only to the approval of the principal terms of this
------------
Agreement and the Merger by the Company's shareholders, the execution and
delivery of this Agreement by the Company does not, and, as of the Effective
Time, the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under or
require any consent, waiver or approval to continue to enjoy the benefits under
(any such event, a "Conflict") (a) any provision of the Articles of
Incorporation or Bylaws of the Company or (b) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets.
2.6 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") (so as
not to trigger any Conflict), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby by the Company, except for (a) the
filing of the Articles of Merger with the Minnesota Secretary of State, (b) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, (c) the filing of such notices and the expiration of such
waiting periods as required by the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976, as amended (the "HSR Act") and (d) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 2.6.
------------
2.7 Company Financial Statements. The Company has delivered previously to
----------------------------
the Parent true and correct copies of the Company's audited balance sheets as of
December 31, 1998 and as of December 31, 1997 and the related audited statement
of income for the respective twelve-month periods then ended (the "Company Year-
End Financials," and the Company's unaudited balance sheet as of September 30,
1999 and the related unaudited statement of income for the 9-month period then
ended (the "Company Interim Financials," the Company Year-End Financials and the
Company Interim Financials shall be collectively referred to as the "Company
Financials"). The Company Year-End Financials and the Company Interim Financials
are complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated, except for the
-13-
absence of footnotes and year-end adjustments in the case of the Company Interim
Financials. The Company Year-End Financials and Company Interim Financials
present fairly the financial condition of the Company as of the dates thereof
and the operating results during the period indicated therein. The Company's
unaudited Balance Sheet as of September 30, 1999 shall be referred to herein as
the "Current Company Balance Sheet."
2.8 No Undisclosed Liabilities. Except as set forth in Schedule 2.8, the
-------------------------- ------------
Company does not have any material liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other (whether or not required to be
reflected in financial statements in accordance with GAAP), which individually
or in the aggregate, (a) has not been reflected in the Current Company Balance
Sheet or (b) has not arisen in the ordinary course of the Company's business
since December 31, 1998, consistent with past practices, none of which is
material to the business, results of operations or financial condition of the
Company.
2.9 No Changes. Except as set forth in Schedule 2.9, since September 30,
---------- ------------
1999 and through the date of this Agreement the Company has not taken any of the
actions set forth in Section 5.1 hereof.
2.10 Tax and Other Returns and Reports.
---------------------------------
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
-------------------
or, collectively, "Taxes," means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.10:
---------------------- -------------
(i) The Company has prepared and filed all required federal,
state, local and foreign returns, estimates, information statements and reports
("Returns") relating to any and all Taxes concerning or attributable to the
Company or its operations and such Returns are true and correct and have been
completed in accordance with applicable law.
(ii) The Company: (A) has paid timely or accrued all Taxes it is
required to pay or accrue and (B) has timely withheld (and paid over to the
appropriate governmental authorities) with respect to its employees all federal
and state income taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed against
the Company, nor has the Company executed any waiver of any statute of
limitations on or extended the period for the assessment or collection of any
Tax.
-14-
(iv) No audit or other examination of any Return of the Company
is presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company has no liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against in the
Company Financials, whether asserted or unasserted, contingent or otherwise, and
the Company has not incurred any liability for Taxes since the date of the
Current Company Balance Sheet other than in the ordinary course of business
consistent with past practice.
(vi) The Company has provided to Parent copies of all federal
and state income and all state sales and use Returns for all periods since the
date of Company's incorporation.
(vii) There are (and as of immediately following the Closing
there will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of the Company relating to or attributable to Taxes,
other than Liens for Taxes not yet due and payable as of such time.
(viii) There is no reasonable basis for the assertion of any
claim relating or attributable to Taxes which, if adversely determined, would
result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(x) There is no contract, agreement, plan or arrangement to
which the Company is a party, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 280G, 404 or 162(m) of the Code.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xii) The Company has (a) never been a member of an affiliated
group (within the meaning of Code (S)1504(a)) filing a consolidated federal
income Tax Return (other than a group the common parent of which was Company)
and (b) no liability for the Taxes of any person (other than Company or any of
its Subsidiaries) under Treas. Reg. (S) 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract, or
otherwise.
(xiii) The Company is not a party to any tax sharing,
indemnification or allocation agreement and does not owe any amount under any
such agreements.
(xiv) The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
-15-
(xv) No adjustment or deficiency relating to any Return filed or
required to be filed by the Company has been proposed in writing or, to the
knowledge of the Company, informally by any Tax authority to the Company or any
representative thereof except proposed adjustments or deficiencies that have
been resolved prior to the date hereof.
(xvi) The Company utilizes the accrual method of accounting for
U.S. federal income tax purposes.
(xvii) The Company has not constituted either a "distributing
corporation" or a "controlled corporation" in a distribution of stock qualifying
for tax-free treatment under Section 355 of the Code (x) in the two years prior
to the date of this Agreement or (y) in a distribution which could otherwise
constitute part of a "plan" or "series of related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction with the Merger.
2.11 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete or otherwise), judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company which has or reasonably
would be expected to have the effect of prohibiting or impairing any business
practice of the Company, any acquisition of property (tangible or intangible) by
the Company or the conduct of business by the Company. Without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any of
its products or services to any class of customers, in any geographic area,
during any period of time or in any segment of the market.
2.12 Title to Properties; Absence of Liens and Encumbrances
------------------------------------------------------
(a) The Company does not own any real property, nor has it ever owned
any real property. Schedule 2.12(a) sets forth a list of all real property
----------------
currently leased by the Company, the name of the lessor and the date of the
lease and each amendment thereto. All such current leases are in full force and
effect, are valid and effective in accordance with their respective terms, and
the Company is not, nor to the best of the Company's knowledge, no other party
is under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default).
Neither the operations of the Company on such real property nor, to the
Company's knowledge, such real property, including improvements thereon, violate
any applicable building code, zoning requirement, or classification or statute
relating to the particular property or such operations, and such non-violation
is not dependent, in any instance, on so-called non-conforming use exceptions.
(b) The Company has good and marketable title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens (as defined in Section 2.10(b)(vii)),
except as reflected in the Company Financials or in Schedule 2.12(b) and except
----------------
for liens for taxes not yet due and payable, Liens imposed by law and incurred
in the ordinary course of business for obligations not yet due to carriers,
warehouse men, laborers and material men and Liens in respect of pledges or
deposits under workers' compensation laws, and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
-16-
(c) Schedule 2.12(c) lists all fixed assets (the "Equipment") owned or
----------------
leased by the Company as of October 31, 1999, and since such date there have
been no material additions or deletions to such Equipment. All facilities,
machinery, equipment, fixtures, vehicles, and other properties owned, leased or
used by the Company are (i) adequate for the conduct of the business of the
Company as currently conducted and (ii) in good operating condition, regularly
and properly maintained, subject to normal wear and tear and reasonably fit and
usable for the purposes for which they are being used, except where a failure to
be in such condition would not have a Material Adverse Effect on the Company.
(d) The Company has not sold or otherwise released for distribution
any of its customer files and other customer information relating to the
Company's current and former customers (the "Company Customer Information"). No
person other than the Company possesses any claims or rights with respect to use
of the Company Customer Information.
2.13 Governmental Authorization. Schedule 2.13 accurately lists each
-------------------------- -------------
material consent, license, permit, grant or other authorization issued to the
Company by a Governmental Entity (a) pursuant to which the Company currently
operates or holds any interest in any of its properties or (b) which is required
for the operation of its business or the holding of any such interest (herein
collectively called "Company Authorizations"). The Company Authorizations are in
full force and effect and constitute all Company Authorizations required to
permit the Company to operate or conduct its business in all material respects
or hold any interest in its properties or assets in all material respects. The
Company is in compliance in all material respects with the terms of the Company
Authorizations.
2.14 Intellectual Property.
---------------------
(a) Definitions. For all purposes of this Agreement, the following
-----------
terms shall have the following respective meanings:
(i) "Technology" shall mean any or all of the following: (A) works
----------
of authorship including, without limitation, computer programs, source code and
executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, net lists, records, data and mask works; (B)
inventions (whether or not patentable), improvements and technology; (C)
proprietary and confidential information, including technical data and customer
and supplier lists, trade secrets and know how; (D) databases, data compilations
and collections and technical data; (E) tools, methods and processes; and (F)
all instantiations of the foregoing in any form and embodied in any media.
"Intellectual Property Rights" shall mean any or all of the following and
----------------------------
all rights in, arising out of, or associated therewith: (A) all United States
and foreign patents and utility models and applications therefor and all
reissues, divisions, re-examinations, renewals, extensions, provisionals,
continuations and continuations-in-part thereof and equivalent or similar rights
anywhere in the world in inventions and discoveries including without limitation
invention disclosures ("Patents"); (B) all trade secrets and other rights in
know-how and confidential or proprietary information; (C) all copyrights,
copyrights registrations and applications therefor and all other rights
corresponding thereto throughout the world ("Copyrights"); (D) all mask works,
mask work registrations and applications therefor, and any equivalent or similar
rights in semiconductor masks, layouts,
-17-
architectures or topology ("Maskworks"); (E) all industrial designs and any
registrations and applications therefor throughout the world; (F) all rights in
World Wide Web addresses and domain names and applications and registrations
therefor; (G) all trade dress, trade names, logos, common law trademarks and
service marks, trademark and service xxxx registrations and applications
therefor and all goodwill associated therewith throughout the world
("Trademarks"); (H) all World Wide Web addresses, domain names and sites and (I)
any similar, corresponding or equivalent rights to any of the foregoing anywhere
in the world.
(ii) "Company Intellectual Property" shall mean any Technology
-----------------------------
and Intellectual Property Rights including the Company Registered Intellectual
Property Rights (as defined below) that are owned (in whole or in part) by the
Company.
(iii) "Registered Intellectual Property Rights" shall mean all
---------------------------------------
United States, international and foreign: (A) Patents, to the extent issued or
the subject of pending patent applications (provisional or otherwise); (B)
registered Trademarks, applications to register Trademarks, including intent-to-
use applications, or other registrations or applications related to Trademarks
and World Wide Web domain name registrations; (C) Copyright registrations and
applications to register Copyrights; (D) Mask Work registrations and
applications to register Mask Works; and (E) any other Technology 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 or
private legal authority at any time.
(iv) For all purposes in this Section 2.14, the term "Company"
shall be deemed to refer to both Company and any of its subsidiaries.
(b) Schedule 2.14(b) lists all Registered Intellectual Property Rights
----------------
owned by, filed in the name of, or applied for by, the Company (the "Company
Registered Intellectual Property Rights") and lists any proceedings or actions
before any court, tribunal (including the United States Patent and Trademark
Office (the "PTO") or equivalent authority anywhere in the world) related to any
of the Company Registered Intellectual Property Rights or Company Intellectual
Property.
(c) Each item of Company Registered Intellectual Property Rights is
subsisting, and all necessary registration, maintenance and renewal fees in
connection with such Company Registered Intellectual Property Rights have been
paid and all necessary documents and certificates in connection with such
Company Registered Intellectual Property Rights have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Company Registered Intellectual Property Rights. Except as set forth on
Schedule 2.14(c), there are no actions that must be taken by the Company within
----------------
one hundred twenty (120) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any responses to PTO
office actions, documents, applications or certificates for the purposes of
obtaining, maintaining, perfecting or preserving or renewing any Registered
Intellectual Property Rights. In each case in which the Company has acquired
any Technology or Intellectual Property Right from any person, the Company or
such Subsidiary has obtained a valid and enforceable assignment sufficient to
irrevocably transfer (subject to any statutory limits on transfer or rights of
termination) all rights in such Technology and the associated Intellectual
Property Rights (including the right to seek past and future damages with
respect thereto) to the Company. To the maximum extent provided for by, and
-18-
in accordance with, applicable laws and regulations, the Company has recorded
each such assignment of a Registered Intellectual Property Right assigned to the
Company with the relevant Governmental Entity, including the PTO, the U.S.
Copyright Office, or their respective equivalents in any relevant foreign
jurisdiction, as the case may be. Except as set forth on Schedule 2.14(c), the
----------------
Company has not claimed a particular status, including "Small Business Status,"
in the application for any Intellectual Property Rights, which claim of status
was not at the time made, or which has since become, inaccurate or false or that
will no longer be true and accurate as a result of the Closing.
(d) The Company has no knowledge of any facts or circumstances that
would render any Company Intellectual Property invalid or unenforceable. Without
limiting the foregoing, Company knows of no information, materials, facts or
circumstances, including any information or fact that would constitute prior
art, that would render any of the Company Registered Intellectual Property
Rights invalid or unenforceable, or would adversely effect any pending
application for any Company Registered Intellectual Property Right and the
Company has not misrepresented, or failed to disclose, and has no knowledge of
any misrepresentation or failure to disclose, any fact or circumstances in any
application for any Company Registered Intellectual Property Right that would
constitute fraud or a misrepresentation with respect to such application or that
would otherwise affect the validity or enforceability of any Company Registered
Intellectual Property Right.
(e) Each item of Company Intellectual Property is free and clear of
any Liens except for non-exclusive licenses granted to end-user customers in the
ordinary course of business. The Company is the exclusive owner or exclusive
licensee of all Company Intellectual Property. Without limiting the foregoing:
(i) the Company is the exclusive owner of all Trademarks used in connection with
the operation or conduct of the business of the Company, including the sale,
licensing, distribution or provision of any products or services by the Company;
and (ii) the Company owns exclusively, and has good title to, all registered
copyrights that are products of the Company or which the Company otherwise
purports to own.
(f) All Company Intellectual Property will be fully transferable,
alienable or licensable by Surviving Corporation and/or Parent without
restriction and without payment of any kind to any third party.
(g) To the extent that any Technology used in the operation of the
Company's business has been developed or created by a third party for the
Company, the Company has a written agreement with such third party with respect
thereto and the Company thereby either (i) has obtained ownership of, and is the
exclusive owner of, or (ii) has obtained a license (sufficient for the conduct
of its business as currently conducted) to all such third party's Intellectual
Property Rights in such Technology by operation of law or by valid assignment.
(h) Except as set forth on Schedule 2.14(h) and with the exception of
----------------
"shrink-wrap" or similar widely-available commercial end-user licenses, all
Technology used in or necessary to the conduct of Company's business as
presently conducted or currently contemplated to be conducted by the Company was
written and created solely by either (i) employees of the Company acting within
the scope of their employment or (ii) by third parties who have validly and
irrevocably assigned (subject to any statutory limits on transfer or rights of
termination) all of their rights,
-19-
including Intellectual Property Rights therein, to the Company, and no third
party owns or has any rights to any of the Company Intellectual Property.
(i) Subject to any statutory limits on transfer or rights of
termination, all employees of the Company have entered into a valid and binding
written agreement with the Company sufficient to vest title in the Company of
all Technology, including all accompanying Intellectual Property Rights, created
by such employee in the scope of his or her employment with the Company.
(j) The Company has taken all steps that are reasonably required to
protect the Company's rights in confidential information and trade secrets of
the Company or provided by any other person in confidence to the Company.
Without limiting the foregoing, the Company has, and enforces, a policy
requiring each employee, consultant and contractor to execute a proprietary
information, confidentiality and assignment agreement, substantially in the form
attached hereto as Schedule 2.14(j), and all current and former employees,
----------------
consultants and contractors of the Company have executed such an agreement.
(k) Except as set forth on Schedule 2.14(k), no person who has
----------------
licensed Technology or Intellectual Property Rights to the Company has ownership
rights or license rights to improvements made by the Company in such Technology
or Intellectual Property Rights.
(l) The Company has not transferred ownership of, or granted any
exclusive license of or right to use, or authorized the retention of any
exclusive rights to use or joint ownership of, any Technology or Intellectual
Property Right that is or was Company Intellectual Property, to any other
person.
(m) Other than inbound "shrink-wrap" and similar publicly available
commercial binary code end-user licenses and outbound "shrink-wrap" licenses in
the form set forth on Schedule 2.14(m), the contracts, licenses and agreements
----------------
listed on Schedule 2.14(m) list all contracts, licenses and agreements to which
----------------
the Company is a party with respect to any Technology or Intellectual Property
Rights. The Company is not in material breach of nor has the Company failed to
perform under, any of the foregoing contracts, licenses or agreements and, to
the Company's knowledge, no other party to any such contract, license or
agreement is in breach thereof or has failed to perform thereunder.
(n) Schedule 2.14(n) lists all material 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 Rights of any person other than the Company.
(o) To the knowledge of the Company, 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 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.
-20-
(p) The operation of the business of the Company as it currently is
conducted, including but not limited to the design, development, use, import,
branding, advertising, promotion, marketing, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of the Company does not and will not and will not
when conducted by Parent and/or Surviving Corporation in substantially the same
manner following the Closing, to the knowledge of the Company (except with
respect to United States patents in existence on the date hereof as to which
such knowledge qualifer shall not apply), infringe or misappropriate any
Intellectual Property Right of any person, violate any right of any person
(including any right to privacy or publicity) or constitute unfair competition
or trade practices under the laws of any jurisdiction, 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 any
Intellectual Property Right of any person or constitutes unfair competition or
trade practices under the laws of any jurisdiction (nor does the Company have
knowledge of any basis therefor).
(q) To the Company's knowledge, no person is infringing or
misappropriating any Company Intellectual Property Right.
(r) No Company Intellectual Property or service of the Company is
subject to any proceeding or outstanding decree, order, judgment or settlement
agreement or stipulation that restricts in any manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
(s) No (i) product, technology, service or publication of the
Company, (ii) material published or distributed by the Company or (iii) conduct
or statement of the Company constitutes obscene material, a defamatory statement
or material, false advertising or otherwise violates in any material respect any
law or regulation (excluding laws relating to infringement of third party
Intellectual Property Rights).
(t) Neither this Agreement nor the transactions contemplated by this
Agreement, including the assignment to Parent or Surviving Corporation, by
operation of law or otherwise, of any contracts or agreements to which the
Company is a party, will result in (i) either Parent's or the Surviving
Corporation's granting to any third party any right to or with respect to any
Technology or Intellectual Property Right owned by, or licensed to, either of
them, (ii) either the Parent's or the Surviving Corporation's being bound by, or
subject to, any non-compete or other restriction on the operation or scope of
their respective businesses or (iii) either the Parent's or the Surviving
Corporation's being obligated to pay any royalties or other amounts to any third
party in excess of those payable by Parent or Surviving Corporation,
respectively, prior to the Closing.
(u) All of the Company's products (including products currently under
development): (i) will record, store, process, calculate and present calendar
dates falling on and after (and if applicable, spans of time including) January
1, 2000, and will calculate any information dependent on or relating to such
dates in the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "Year 2000 Compliant");
and (ii) will lose no functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000. All of the Company's
Information Technology (as defined below) is Year 2000 Compliant, and will not
cause an interruption in the ongoing operations of the Company's business on or
after January 1, 2000. For purposes of the foregoing, the term "Information
Technology" shall mean and include all software, hardware, firmware,
telecommunications systems, network systems, embedded systems and other systems,
components and/or services (other than general utility services including gas,
electric, telephone and postal) that are owned or used by the Company in and are
material to the conduct of its business, or purchased by the Company from third
party suppliers.
(v) The Company is not the exclusive licensee of any Technology or
Intellectual Property Rights.
2.15 Product Warranties; Defects; Liabilities. Each Company Product has
----------------------------------------
been in all material respects in conformity with all applicable contractual
commitments and all applicable express and implied warranties. The Company does
not have any liability or obligation (and to the Company's knowledge, there is
no current reasonable basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against the Company
giving rise to any liability or obligation) for replacement or repair thereof or
other damages in connection therewith except liabilities or obligations incurred
in the ordinary course of business consistent with past practice which do not
have a Material Adverse Effect on the Company. No Company Product is subject to
any guaranty, warranty or other indemnity beyond the applicable standard terms
and conditions of sale, license or lease or beyond that implied or imposed by
applicable law. Schedule 2.15 includes a copy of the standard terms and
-------------
conditions of sale, license or lease for each of the Company Products and copies
of the Company's standard forms of merchant agreements, portal agreements and
professional services agreements.
2.16 Agreements, Contracts and Commitments. Except as set forth on
-------------------------------------
Schedule 2.16(a), the Company does not have, is not a party to nor is it bound
----------------
by:
(a) any collective bargaining agreements,
(b) any employment or consulting agreement, contract or commitment
with any officer, director, employee or member of the Company's Board of
Directors, other than those that are terminable by the Company without liability
of financial obligation of the Company,
(c) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(d) any employment or consulting agreement with an employee or
individual consultant or salesperson or consulting or sales agreement, under
which a firm or other organization provides services to the Company,
(e) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, or under which payments are required to be made by the occurrence
of any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement,
(f) any fidelity or surety bond or completion bond,
(g) any lease of personal property having a value individually in
excess of $50,000,
(h) any agreement of indemnification or guaranty, except for
indemnification or guarantees provided in the ordinary course of business in
connection with the sale of the Company's products as set forth on Schedule
2.15,
(i) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Company to engage in any line of business
or to compete with any person or granting any exclusive distribution rights,
(j) any agreement relating to capital expenditures and involving
future payments in excess of $100,000,
(k) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by Company after the date of this Agreement of
a material amount of assets not in the ordinary course of business or pursuant
to which Company has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise,
(l) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, including guaranties referred to in clause (h) hereof,
(m) any purchase order or contract involving the expenditure by the
Company of $200,000 or more for the Company's products or $100,000 or more or
otherwise,
(n) any construction contracts,
(o) any dealer, distribution, joint marketing (including any pilot
program), development, content provider, destination site or merchant agreement,
(p) any agreement pursuant to which the Company has granted or may be
obligated to grant in the future, to any party a source code license or option
or other right to use or acquire source code, including any agreements which
provide for source code escrow arrangements,
(q) any sales representative, original equipment manufacturer, value
added, remarketer or other agreement for distribution of the Company's products
or services or the products or services of any other person or entity,
(r) any agreement pursuant to which the Company has advanced or loaned
any amount to any shareholder of the Company or any director, officer, employee
or consultant other than business travel advances in the ordinary course of
business consistent with past practice,
(s) any settlement agreement entered into since the Company's initial
incorporation, or
(t) any other agreement that involves $100,000 or more or is not
cancelable without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events that
would constitute a breach, violation or default with the lapse of time, giving
of notice, or both, as are all noted in Schedule 2.16(b), the Company has not
----------------
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment required to be set forth on Schedule 2.16(a), Schedule
---------------- --------
2.14(m) or Schedule 2.14(n) (any such agreement, contract or commitment, a
------- ----------------
"Contract"). Each Contract is in full force and effect and, except as otherwise
disclosed in Schedule 2.16(b), is not subject to any default thereunder of which
----------------
the Company has knowledge by any party obligated to the Company pursuant
thereto.
2.17 Interested Party Transactions. Except as set forth on Schedule 2.17,
----------------------------- -------------
to the Company's knowledge, no officer, director or affiliate (as defined under
Regulation C under the Securities Act) of the Company (nor any member of the
immediate family of any of such persons, or any trust, partnership or
corporation in which any of such persons has or has had an economic interest),
has or has had, directly or indirectly, (a) an economic interest in any entity
which furnished or sold, or furnishes or sells, services or products that the
Company furnishes or sells, or proposes to furnish or sell, or (b) an economic
interest in any entity that purchases from or sells or furnishes to, the
Company, any goods or services or (c) a beneficial interest in any contract or
agreement set forth in Schedule 2.16(a), Schedule 2.14(m) or Schedule 2.14(n);
---------------- ---------------- ----------------
provided, that ownership of less than five percent of the outstanding voting
--------
stock of a publicly traded corporation shall not be deemed an "economic interest
in any entity" for purposes of this Section 2.17. There are no receivables of
the Company owing by any director, officer, employee or consultant to the
Company (or any member of the immediate family of any such persons, or any
trust, partnership, or corporation in which any of such persons has an economic
interest), other than advances in the ordinary and usual course of business for
reimbursable business expenses (as determined in accordance with the Company's
established employee reimbursement policies and consistent with past practice).
None of the Company shareholders has agreed to, or assumed, any obligation or
duty to guaranty or otherwise assume or incur any obligation or liability of the
Company.
2.18 Compliance with Laws. Company is not in conflict with, or in default
--------------------
or violation of any law, rule, regulation, order, judgment or decree applicable
to Company or by which its properties is bound or affected other than, in each
such case, those the outcome of which could not, individually or in the
aggregate, reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company, any acquisition of
material property by the Company or the conduct of business by the Company. No
investigation or review by any governmental or regulatory body or authority is
pending or, to the knowledge of Company, threatened against Company or any of
its officers, directors or employees, nor has any governmental or regulatory
body or authority indicated an intention to conduct the same, other than, in
each such case, those the outcome of which could not, individually or in the
aggregate, reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company, any acquisition of
material property by the Company or the conduct of business by the Company.
2.19 Litigation. There is no action, suit or proceeding of any nature
----------
pending or to the Company's knowledge threatened against the Company, its
properties or any of its officers, directors or employees, nor, to the knowledge
of the Company, is there any reasonable basis therefor. Schedule 2.19 sets
-------------
forth, with respect to any pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages claimed or other remedy requested. The Company has not
received any notice of and has no reason to believe that any Governmental Entity
has at any time challenged or questioned the legal right of the Company to
conduct its operations as presently or previously conducted.
2.20 Insurance. With respect to the insurance policies and fidelity bonds
---------
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company, there is no claim by the Company pending
under any of such policies or bonds as to which coverage has been denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and the Company is
otherwise in material compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance coverage).
The Company has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.21 Minute Books. The minute books of the Company made available to
------------
Parent are the only minute books of the Company and contain an accurate summary
of all meetings of directors (or committees thereof) and shareholders or actions
by written consent since the time of incorporation of the Company.
2.22 Environmental Matters.
(a) Environmental Compliance. The Company (a) has obtained all
------------------------
applicable and material permits, licenses and other authorizations that are
required under Environmental Laws for the conduct of its business as currently
conducted ("Environmental Permits"); (b) is in compliance with all material
terms and conditions of such required permits, licenses and authorizations, and
also is in compliance in all material respects with all other laws, rules,
regulations, limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables applicable to the Company or
its assets, or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder; (c)
has not received written notice of any event, condition, circumstance, activity,
practice, incident, action or plan which constitutes a violation of any
Environmental Law applicable to the Company, any person or entity for which the
Company is legally liable or any of the Company's current or past locations or
assets for that is reasonably likely to interfere with the conduct of business
as currently conducted or prevent continued compliance with Environmental Laws
applicable to the conduct of its business as currently conducted or that would
reasonably be expected to give rise to any common law or statutory liability, or
otherwise form the basis of any Environmental Claim with respect to the Company
or any person or entity whose liability for any Environmental Claim the Company
has retained or assumed either contractually or by operation of law; (d) has not
disposed of, released, discharged or emitted any Hazardous Materials into the
soil, air, surface water, building materials or groundwater at any properties
owned or leased at any time by the Company, or at any other property, or exposed
any employee or other individual to any Hazardous Materials or condition in such
a manner as would reasonably be expected to result in any material liability or
result in any corrective
or remedial action obligation; and (e) has taken all actions necessary under
Environmental Laws to register any products or materials required to be
registered by the Company (or any person for whom the Company has legal
responsibility) thereunder. Except as set forth on Schedule 2.22, no Hazardous
-------------
Materials are present in, on, or under (or, to the knowledge of the Company, in
the vicinity of) any properties owned, leased or used at any time (including
both land and improvements thereon) by the Company so as to reasonably be
expected to give rise to any material liability or corrective or remedial
obligation of the Company under any Environmental Laws or any contract binding
on the Company. For the purposes of this Section 2.22, "Environmental Claim"
means any notice, claim, act, cause of action or investigation by any person
alleging potential liability (including potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries or penalties) arising out of, based on or
resulting from (a) the presence, or release into the environment, of any
Hazardous Materials (b) any violation, or alleged violation, of any
Environmental Laws, (c) the exposure of any person to a Hazardous Material or
(d) the use, storage, disposal, discharge, transportation, emission,
destruction, remediation or investigation of any Hazardous Material.
"Environmental Laws" means all federal, state, local and foreign laws and
regulations relating to pollution or the environment (including ambient air,
surface water, ground water, land surface or subsurface strata) or the
protection of human health and worker safety, including, without limitation,
laws and regulations relating to emissions, discharges, releases or threatened
releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials. "Hazardous Materials" means chemicals,
pollutants, contaminants, wastes, toxic substances, radioactive and biological
materials, asbestos-containing materials (ACM), hazardous substances, petroleum
and petroleum products or any fraction thereof or other substance which is or
has been designated as a threat to health or the environment, excluding,
however, Hazardous Materials contained in products typically used for office and
janitorial purposes properly, safely and legally maintained in accordance with
Environmental Laws.
(b) Hazardous Materials Activities: The Hazardous Material Activities
------------------------------
of the Company and its past or present subsidiaries (i) have been conducted in
compliance with applicable Environmental Laws and (ii) have not resulted in the
exposure of any person to a Hazardous Material in a manner which has or is
reasonably expected to cause an adverse health effect to said person. For the
purpose of the foregoing "Hazardous Materials Activity" is the transportation,
transfer, recycling, storage, use, treatment, manufacture, investigation,
removal, remediation, release, exposure of others to, sale, or distribution of
any Hazardous Material or any product containing a Hazardous Material.
(c) Effect of Transaction. To the best knowledge of the Company, no
---------------------
circumstances exist which could cause any Environmental Permit to be revoked,
modified, or rendered non-renewable upon payment of the permit fee or which
could impose upon the Company or any Subsidiary the obligation to obtain any
additional Environmental Permit. All Environmental Permits and all other
consents and clearances required by any Environmental Law or any agreement to
which the Company is bound as a condition to the performance and enforcement of
this Agreement (including without limitation, all so called "ECRA" environmental
clearances) which are required by any Governmental Authority in connection with
the transactions contemplated by this Agreement have been obtained or will be
obtained prior to the Closing.
(d) Offsite Hazardous Material Disposal: The Company, its
-----------------------------------
subsidiaries, and their respective agents, employees and contractors have
transferred or released Hazardous Materials only to those disposal sites,
transporters, recyclers, and handlers ("Disposal Site") described on Schedule
2.22; and no action, proceeding, liability or claim exists or, to the best
knowledge of the Company is threatened, against any Disposal Site or against the
Company or any person or entity for which the Company is legally responsible
with respect to any transfer or release of Hazardous Materials to a Disposal
Site and there is no valid basis for such claim.
(e) Environmental Liabilities: Company has complied with all
-------------------------
environmental disclosure, facility closure, and clearance obligations imposed
upon Company with respect to this transaction or otherwise by applicable law.
The Company is not aware of any other fact or circumstance, which could involve
the Company, any of its past or present subsidiary, or any person or entity for
which the Company is legally responsible in any environmental litigation or
impose upon the Company, its past or present subsidiary, or any such person or
entity any material environmental liability.
(f) Disclosure of Environmental Matters: Company has delivered to
-----------------------------------
Parent or made available for inspections by Parent and its agents and employees
all records concerning the Environmental Activities of the Company and its past
and present subsidiaries and all environmental audits and environmental
assessments of any current or past Company facility conducted at the request of,
or otherwise available to the Company.
2.23 Brokers' and Finders' Fees. Except as set forth on Schedule 2.23, the
-------------------------- -------------
Company has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby. Attached to Schedule 2.23 are copies of any written agreements and the
-------------
summary of terms for any oral agreements with respect to such fees.
2.24 Employee Matters and Benefit Plans.
----------------------------------
(a) Definitions. With the exception of the definition of "Affiliate"
-----------
set forth in Section 2.24(a)(i) below (such definition shall only apply to this
Section 2.24 and Section 6.22 of this Agreement), for purposes of this
Agreement, the following terms shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iii) "Company Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan",
within
the meaning of Section 3(3) of ERISA (as defined below) which is or has been
maintained, contributed to, or required to be contributed to, by the Company or
any Affiliate for the benefit of any Employee (as defined below), or with
respect to which the Company or any Affiliate has or may have any liability or
obligation;
(iv) "DOL" shall mean the United States Department of Labor.
(v) "Employee" shall mean any current, former, or retired
employee, officer, director or consultant of the Company or any Affiliate;
(vi) "Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or other agreement, contract or understanding between the Company or
any Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993,
as amended;
(ix) "International Employee Plan" shall mean each Company
Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of Employees
who perform services outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(xii) "Pension Plan" shall refer to each Company Employee Plan
which is an "employee pension benefit plan", within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Schedule 2.24(b) contains an accurate and complete list
-------- ----------------
of each Company Employee Plan and each Employee Agreement. The Company does not
have any plan or commitment to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement or as required to maintain tax qualification), or to enter into any
Company Employee Plan or Employee Agreement nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent correct and
---------
complete copies of: (i) all documents embodying each Company Employee Plan and
each Employee Agreement including, without limitation, all amendments thereto
and all related trust documents; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan;
(iii) the three most recent annual reports (Form Series 5500 and all schedules
and financial statements attached thereto), if any, required under ERISA or the
Code in connection with each Company Employee Plan; (iv) if the Company Employee
Plan is funded, the most recent annual and periodic accounting of Company
Employee Plan assets; (v) the most recent summary plan description together with
the most recent summary(ies) of material modifications thereto, if any, required
under ERISA with respect to each Company Employee Plan; (vi) all IRS
determination, opinion, notification and advisory letters and copies of all
applications and significant correspondence to or from the IRS or DOL, if any,
with respect to any such application or letter; (vii) all material written
agreements and contracts relating to each Company Employee Plan, including, but
not limited to, administrative service agreements, group annuity contracts and
group insurance contracts, if any; (viii) all communications, if any, material
to any Employee or Employees relating to any Company Employee Plan and any
proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company; (ix) all material correspondence, if any, to
or from any governmental agency relating to any Company Employee Plan; (x) all
COBRA forms and related notices presently being used, (or such forms and notices
as required under comparable law); (xi) all policies pertaining to fiduciary
liability insurance covering the fiduciaries for each Company Employee Plan, if
any; (xii) discrimination tests, if any, for each Company Employee Plan for the
three most recent plan years; and (xiii) all registration statements, annual
reports (Form 11-K and all attachments thereto) and prospectuses, if any,
prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
------------------------ --------
2.24(d), (i) the Company has performed in all material respects all obligations
-------
required to be performed by it under, is not in default or violation of, and has
no knowledge of any default or violation by any other party with respect to,
each Company Employee Plan, and each Company Employee Plan has been established
and maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination, opinion, notification or advisory letter from the IRS with
respect to each such Company Employee Plan as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has a remaining period of time under
applicable Treasury regulations or IRS pronouncements in which to apply for such
a letter and make any amendments necessary to obtain a favorable determination
as to the qualified status of each such Company Employee Plan; (iii) no
"prohibited transaction", within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of
the Code or Section 408 of ERISA (or any administrative class exemption issued
thereunder), has occurred with respect to any Company Employee Plan; (iv) there
are no actions, suits or claims pending, or, to the knowledge of the Company,
threatened or anticipated (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan; (v)
each Company Employee Plan (other than the Option Plan) can be amended,
terminated or otherwise discontinued after the Effective Time, without material
liability to the Company, Parent or any of its Affiliates (other than ordinary
administration expenses); (vi) there are no audits, inquiries or proceedings
pending or, to the knowledge of the Company or any
Affiliates, threatened by the IRS or DOL with respect to any Company Employee
Plan; (vii) neither the Company nor any Affiliate is subject to any penalty or
tax with respect to any Company Employee Plan under Section 502(i) of ERISA or
Sections 4975 through 4980 of the Code and (viii) no Employee has made a written
request for the Company's health insurance plan or flexible benefits plan
summary plan descriptions, and to the Company's knowledge, no Employee has made
an oral request for such summary plan descriptions.
(e) Pension Plans. Neither the Company nor any Affiliate has ever
-------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan, which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer and Multiple Employer Plans. At no time has the
-----------------------------------------
Company or any Affiliate contributed to or been obligated to contribute to any
Multiemployer Plan. Neither the Company nor any Affiliate has at any time ever
maintained, established, sponsored, participated in or contributed to any
multiple employer plan as described in Section 413(c) of the Code.
(g) No Post-Employment Obligations. Except as set forth in Schedule
------------------------------ --------
2.24(g), no Company Employee Plan provides, or reflects or represents any
-------
liability to provide, retiree health benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with retiree
health, except to the extent required by statute.
(h) Health Care Compliance. Neither the Company nor any Affiliate
----------------------
has, prior to the Effective Time and in any material respect, violated any of
the health care continuation requirements of COBRA, the requirements of FMLA,
the requirements of the Health Insurance Portability and Accountability Act of
1996, the requirements of the Women's Health and Cancer Rights Act, the
requirements of the Newborns' and Mothers' Health Protection Act of 1996 or any
amendment to each such Act or any similar provisions of state law applicable to
its Employees.
(i) Effect of Transaction.
---------------------
(i) Except as provided in Section 1.6 of this Agreement or as set
forth on Schedule 2.25(i)(i), the execution of this Agreement and the
-------------------
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) Except as set forth on Schedule 2.24(i)(ii), no payment or
--------------------
benefit which will or may be made by the Company or Parent or any of their
respective affiliates with respect to any Employee resulting from the
transactions contemplated by this Agreement or otherwise will be characterized
as a "parachute payment", within the meaning of Section 280G(b)(2) of the Code.
(j) Employment Matters. Schedule 2.24(j) lists all current officers,
------------------ ----------------
directors and employees of the Company. The Company (i) is in compliance in all
respects with all applicable federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees
(including any immigration laws with respect to the same); (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages, salaries
and other payments to Employees; (iii) is not liable for any arrears of wages or
any taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending, threatened
or reasonably anticipated claims or actions against the Company under any
workers compensation policy or long-term disability policy. Each person who is
acting or has acted as a consultant to the Company is acting or acted as an
"independent contractor" and could not, based on the facts and circumstances of
his consultancy, reasonably be deemed to be or have been "employed" with the
Company. Schedule 2.24(j) also sets forth all outstanding offers of employment,
----------------
whether written or oral, made to any employee or prospective employee, which
offer has not been rejected by the offeree.
(k) Labor. No work stoppage or labor strike against the Company is
-----
pending, threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. Except
as set forth in Schedule 2.24(k), there are no actions, suits, claims, labor
----------------
disputes or grievances pending, or, to the knowledge of the Company, threatened
or reasonably anticipated relating to any labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of unfair
labor practices or discrimination complaints, which, if adversely determined,
would, individually or in the aggregate, result in any material liability to the
Company. The Company has not engaged in any unfair labor practices within the
meaning of the National Labor Relations Act. Except as set forth in Schedule
--------
2.24(k), the Company is not presently, nor has it been in the past, a party to,
-------
or bound by, any collective bargaining agreement or union contract with respect
to Employees and no collective bargaining agreement is being negotiated by the
Company.
(l) International Employee Plan. The Company does not now, nor has it
---------------------------
ever had the obligation to, maintain, establish, sponsor, participate in or
contribute to any International Employee Plan.
(m) No Interference or Conflict. To the knowledge of the Company, no
---------------------------
shareholder, officer, employee or consultant of the Company is obligated under
any contract or agreement subject to any judgement, decree or order of any court
or administrative agency that would interfere with such person's efforts to
promote the interests of the Company or that would interfere with the Company's
business. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business as presently conducted nor any activity of
such officers, directors, 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, or constitute a
default under, any contract or agreement under which any of such officers,
directors, employees or consultants is now bound.
2.25 Bank Accounts. Schedule 2.25 constitutes a full and complete list of
------------- -------------
all the bank accounts and safe deposit boxes of the Company, the number of each
such account or box, and the names of the persons authorized to draw on such
accounts or to access such boxes. All cash in such accounts is held in demand
deposits and is not subject to any restriction or documentation as to
withdrawal.
2.26 Indemnification Obligations. The Company has no knowledge of any
---------------------------
action, proceeding or other event pending or threatened against any officer or
director of the Company which would give rise to any indemnification obligation
of Company to its officers and directors under its Articles of Incorporation,
Bylaws or any agreement between the Company and any of its officers or
directors.
2.27 Board Approval. The Board of Directors of Company has, as of the date
--------------
of this Agreement unanimously (a) approved and deemed advisable, subject to
shareholder approval, this Agreement and the transactions contemplated hereby,
(b) determined that the Merger is in the best interests of the shareholders of
Company and is on terms that are fair to such shareholders and (c) recommended
that the shareholders of Company approve the principal terms of this Agreement
and approve the Merger.
2.28 Representations Complete. None of the representations or warranties
------------------------
made by the Company (as modified by the Company Schedules), nor any statement
made in any Schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the shareholders of the Company in connection with soliciting their consent
to the principal terms of this Agreement and the Merger (to the extent that such
documents were prepared by or include information provided by the Company),
contains any untrue statement of a material fact, or omits to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Organization of Parent and Merger Sub. Parent is a corporation duly
-------------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota. Each of Parent and
Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on Parent or Merger Sub or the ability of either
to consummate the transactions contemplated hereby.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
---------
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Merger Sub. This Agreement has been duly executed and
delivered by Parent and Merger Sub and constitutes the valid and binding
obligations of Parent and Merger Sub, enforceable in accordance with its terms.
The execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a benefit under (a) any provision of the
Certificate of Incorporation or Bylaws of Parent or the Certificate of
Incorporation or Bylaws of Merger Sub or (b) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
representation applicable to Parent or on which Parent's business, financial
condition or operations is substantially dependent, the breach, violation,
default, termination or forfeiture of which would result in a material adverse
effect upon the ability of Parent or Merger Sub to consummate the Merger, or a
material adverse effect on Parent or Merger Sub. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement by Parent and Merger Sub or
the consummation by Parent and Merger Sub of the transactions contemplated
hereby except for (a) the filing of the Articles of Merger with the Secretary of
State of the State of Minnesota, or (b) such consents, approvals, order,
authorizations, registrations, declarations and filings as may be required under
applicable state and federal securities laws or (c) approval pursuant to the HSR
Act.
3.3 Parent Common Stock. The shares of Parent Common Stock to be issued
-------------------
pursuant to the Merger and upon exercise of Company Options assumed by Parent
hereunder will, when issued and delivered in accordance with this Agreement, be
duly authorized, validly issued, fully paid and non-assessable; provided,
however, that the Parent Common Stock to be issued hereunder will be subject to
restrictions on transfer under applicable federal and state securities laws.
3.4 SEC Filings; Parent Financial Statements.
----------------------------------------
(a) Parent has timely filed all forms, reports, registration
statements and documents required to be filed by Parent with the SEC and has
made available to the Company such forms, reports, and documents in the form
filed with the SEC. All such required forms, reports and documents (including
those that Parent may file subsequent to the date hereof until the Closing) are
referred to herein as the "Parent SEC Reports;" provided, that any Parent SEC
Report shall be deemed to include all amendments to such report through the date
hereof. As of their respective filing dates (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing),
the Parent SEC Reports (i) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Parent SEC
Reports and (ii) did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(b) Each of the consolidated financial statements of Parent
(including, in each case, the notes thereto), included in the Parent SEC Reports
(the "Parent Financial Statements"),
including each Parent SEC Report filed after the date hereof until the Closing,
(i) complied as to form in all material respects with the applicable rules and
regulations of the SEC with respect thereto; (ii) was prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated (other
than the provision of notes to the financial statements for quarterly periods);
and (iii) fairly presented the consolidated financial position of Parent and its
subsidiaries at the respective dates thereof and the consolidated results of
Parent's operations and cash flows for the periods indicated (subject, in the
case of unaudited financial statements, to audit adjustments). There has been no
change in Parent's accounting policies except as described in the notes to the
Parent Financial Statements.
3.5 Parent Capital Structure. The authorized capital stock of the Parent
------------------------
consists of 600,000,000 shares of authorized Common Stock, $0.01 par value per
share, of which 208,304,096 shares were issued and outstanding as of October 1,
1999 and 1,000,000 shares of authorized Preferred Stock, par value $0.01 per
share, of which no shares were issued and outstanding as of October 1, 1999.
3.6 Litigation. Other than as set forth in the Parent SEC Reports, there
----------
is no action, suit or proceeding of any nature pending or to the Parent's
knowledge threatened against the Parent, its properties or any of its officers,
directors or employees, nor, to the knowledge of the Parent, is there any
reasonable basis therefor.
3.7 No Material Adverse Change. Since the date of the balance sheet
--------------------------
included in the Parent's most recently filed report on Form 10-Q, there has not
occurred any material adverse change in the financial condition, liabilities,
assets, business or results of operations of Parent. For purposes of this
section, fluctuation in the trading price of Parent's Common Stock, as reported
by the New York Stock Exchange, changes in economic conditions or changes in the
industry and markets in which the Parent competes shall not constitute a
material adverse change, whether occurring at any time or from time to time.
3.8 Merger Sub. All of the outstanding capital stock of Merger Sub is
----------
owned by Parent free and clear of any lien, claim or encumbrance or any
agreement with respect thereto, since the date of its incorporation, Merger Sub
has not engaged in any activity of any nature except in connection with or as
contemplated by this Agreement and the Articles of Merger.
3.9 Brokers' and Finders' Fees. The Parent and Merger Sub have not
--------------------------
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
3.10 Representations Complete. None of the information provided by the
------------------------
Parent or Merger Sub (including information incorporated by reference from
Parent SEC Reports) for the purpose of making statements or furnishing in or in
connection with documents mailed or delivered to the shareholders of the Company
in connection with soliciting their consent to the principal terms of this
Agreement and the Merger (to the extent that such documents were prepared by or
include information provided by the Parent or Merger Sub), contains any untrue
statement of a material fact, or omits to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE IV
SECURITIES ACT COMPLIANCE; REGISTRATION
4.1 Securities Act Exemption. In the event that the (i) Parent does not
------------------------
obtain a Section 3(a)(10) Permit (as defined in Section 6.1 hereof) or (ii)
Parent, Company and the Securityholder Agents agree to withdraw the Parent's
application for such Section 3(a)(10) Permit, then Parent and the Company agree
that the Parent Common Stock to be issued pursuant to this Agreement will be
issued pursuant to an exemption (other than under Section 3(a)(10)) from the
registration requirements of the Securities Act or pursuant to a registration
statement on Form S-4 under the Securities Act, as the parties may mutually
agree If such Parent Common Stock is issued pursuant to such an exemption, prior
to the Closing Date, each of the Company's shareholders shall have provided
Parent such representations, warranties, certifications and additional
information as Parent may reasonably request to ensure the availability of such
exemption from the registration requirements of the Securities Act.
4.2 Stock Restrictions. If Parent obtains a Section 3(a)(10) Permit, the
------------------
certificates representing the shares of Parent Common Stock issued pursuant to
this Agreement shall bear no restrictive legends (and no stop transfer orders
shall be placed against the transfer thereof with Parent's transfer agent)
except to the extent required pursuant to the Lock-Up Agreements (as defined in
Section 6.25 hereunder). If such shares of Parent Common Stock are issued in
reliance upon an exemption from the registration requirements of Section 5 of
the Securities Act as set forth in Section 4(2) thereof, the certificates
representing the shares of Parent Common Stock issued pursuant to this Agreement
shall bear a restrictive legend (and stop transfer orders shall be placed
against the transfer thereof with Parent's transfer agent) stating substantially
as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHE-
CATED EXCEPT IN COMPLIANCE WITH RULE 144 IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE ACT, OR A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION.
4.3 The Company Shareholders' Restrictions Regarding Securities Law
---------------------------------------------------------------
Matters. Each shareholder of the Company, by virtue of the Merger and the
-------
conversion into Parent Common Stock of the Company Capital Stock held by such
shareholder, shall be bound by the following provisions:
(a) If Parent issues the shares of Parent Common Stock in the Merger
in reliance on a Section 3(a)(10) Permit for an exemption from registration,
such shareholder will not offer or sell any shares of Parent Common Stock except
in compliance with Rule 145 promulgated under the Securities Act or otherwise
dispose of any such shares except in compliance with the Securities Act and the
rules and regulations thereunder.
(b) In the event that the shares of Parent Common Stock to be issued
pursuant to this Agreement are issued pursuant to an exemption from registration
pursuant to Section 4(2) of the Securities Act, then such shareholder agrees
that such shareholder will not sell, transfer or otherwise dispose of any shares
of Parent Common Stock unless (i) such sale, transfer or other disposition is
within the limitations of and in compliance with Rule 144 promulgated by the SEC
under the Securities Act and the Shareholder furnishes Parent with reasonable
proof of compliance with such Rule, (ii) in the opinion of counsel, reasonably
satisfactory to Parent and its counsel, some other exemption from registration
under the Securities Act is available with respect to any such proposed sale,
transfer, or other disposition of Parent Common Stock or (iii) the offer and
sale of Parent Common Stock is registered under the Securities Act.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of the Company. During the period from the date of
----------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, the Company agrees
(except to the extent that Parent shall otherwise consent in writing or as
contemplated by this Agreement) to carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted, to
pay its debts and Taxes when due, to pay or perform other obligations when due,
and, to the extent consistent with such business, to use all reasonable efforts
consistent with past practice and 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 others having business dealings with it,
all with the goal of preserving unimpaired its goodwill and ongoing businesses
at the Effective Time. The Company shall promptly notify Parent of any
materially negative event involving or adversely affecting the Company or its
business.
In addition, except as permitted by the terms of this Agreement,
without the prior written consent of Parent, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company shall not do any
of the following:
(a) Except as set forth in Schedule 5.1(a), waive any stock repurchase
---------------
rights, accelerate, amend, or change the period of exercisability of any
outstanding Company Options or Company Common Stock subject to vesting, or
reprice Company Options granted under the Option Plan or authorize cash payments
in exchange for any such options;
(b) Make any payments or enter into any commitment or transaction
outside of the ordinary course of business in excess of $100,000 or in the
ordinary course of business in excess of $200,000;
(c) Make any capital expenditure or capital commitment of $100,000 in
any individual case or $200,000 in the aggregate (other than commitments to pay
expenses incurred in connection with the transactions contemplated by this
Agreement)
(d) Permit the destruction of, damage to or loss of any material
asset, business or customer of the Company (whether or not covered by
insurance);
(e) Change accounting methods, principles or practices (including any
change in depreciation or amortization policies or rates), except as required by
GAAP;
(f) Except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which the Company is a party or
waive, release or assign any material rights or claims thereunder;
(g) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property Rights (other
than pursuant to end-user licenses granted to customers of the Company in the
ordinary course of business, provided that no such license shall (i) contain any
right of refusal to the license, (ii) involve the transfer of product(s) to any
person or entity in violation of applicable U.S. export laws and regulations) or
enter into grants to future patent rights or (iii) contain a change in pricing
or royalties set or charged by the Company to its customers or licensees;
(h) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(i) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the Contracts,
including any material change in the pricing or royalties charged to the Company
by persons who have licensed Intellectual Property to the Company;
(j) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Capital Stock, or split, combine or reclassify any Company Capital Stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for any Company Capital Stock;
(k) Purchase, redeem or otherwise acquire, directly or indirectly, any
Company Capital Stock, except repurchases of unvested shares at cost in
connection with the termination of the employment relationship with any employee
or consultant pursuant to stock option or purchase agreements in effect on the
date hereof;
(l) Issue, grant, deliver, sell, pledge or authorize, or otherwise
encumber or propose to do any of the foregoing, any Company Capital Stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities (except for the issuance
of any Company Capital Stock upon exercise or conversion of presently
outstanding Company Options, warrants or Preferred Stock, or the grant of stock
options to new employees pursuant to outstanding written offers of employment);
(m) Cause or permit any amendments to its Articles of Incorporation or
Bylaws;
(n) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association, joint venture or other
business organization or division thereof, or otherwise acquire or agree to
acquire outside of the ordinary course of business any assets in any amount, or
in the ordinary course of business in an amount in excess of $100,000 in the
case of a single transaction or in excess of $200,000 in the aggregate;
(o) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice and except for the sale, lease or
disposition (other than through licensing) of a property or assets which are not
material, individually or in the aggregate, to the business of Company;
(p) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Company, enter
into any "keep well" or other agreement to maintain any financial statement
condition or enter into any arrangement having the economic effect of any of the
foregoing other than in connection with the financing of ordinary course trade
payables consistent with past practice or the borrowing of working capital under
lines of credit existing as of the date hereof and in the ordinary course of
business;
(q) Loan to any person or entity any funds or guarantee any
indebtedness or debt securities of others other than advances to employees for
travel and business expenses in the ordinary course of business, consistent with
past practices;
(r) Grant any or increase of any existing agreement to provide
severance or termination pay (i) to any director or officer or (ii) to any other
employee except payments made pursuant to written agreements outstanding on the
date hereof and as disclosed in the Company Schedules, adopt any new severance ,
termination, indemnification or other agreement the benefits of which are
contingent upon the occurrence of a transaction involving the Company of the
nature contemplated hereunder;
(s) Adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers, pay or agree to pay any special
bonus or special remuneration to any director, officer, employee or consultant,
or increase the salaries, wage rates or fringe benefits (including rights to
severance or indemnification of its directors, officers, employees or
consultants or the modification of any existing compensation or equity
arrangements with such individuals or the change of vesting terms of any Company
Options), except as consistent with the ordinary course of the business of the
Company consistent with past practice or in accordance with existing contracts;
(t) Effect or agree to effect, including by way of hiring or
involuntary termination, any change in the Company's directors, officers or key
employees;
(u) Materially, revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business, or except as required
by GAAP or applicable law, make any change in accounting methods, principles or
practices;
(v) Pay, discharge or satisfy, in an amount in excess of $100,000 (in
any one case) or $200,000 (in the aggregate), any claim, liability or obligation
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Company Financial
Statements (or the notes thereto) or that arose in the ordinary course of
business subsequent to December 31, 1998 or expenses consistent with the
provisions of this Agreement incurred in connection with any transaction
contemplated hereby;
(w) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(x) Enter into any strategic alliance, joint development or joint
marketing agreement other than such agreements entered into in the ordinary
course of business consistent with past practice;
(y) Commence a lawsuit other than (i) for the routine collection of
bills, (ii) in such cases where it, in good faith, determines that failure to
commence suit would result in the material impairment of a valuable aspect of
its business, provided that it consults with Parent prior to the filing of such
a suit or (iii) to enforce its rights hereunder or under any agreements related
hereto;
(z) Materially reduce the amount of any insurance coverage provided
by or fail to renew any existing insurance policies;
(aa) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement;
(bb) Engage in any action that could reasonably be expected to cause
the Merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code whether or not otherwise permitted by the provisions of this Article V;
(cc) Waive or release any material right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(dd) Engage in any other transaction except in the ordinary course of
business as conducted on or prior to the date hereof and consistent with past
practices;
(ee) Cause any event or condition of any character that has or
reasonably would be expected to have a Material Adverse Effect on the Company;
or
(ff) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (y) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
5.2 Reorganization. From the date of this Agreement until the Effective
--------------
Time, neither Parent nor any of its affiliates shall engage in any action that
could reasonably be expected to cause
the Merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code whether or not otherwise permitted by the provisions of this Article V.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Information Statement and Section 3(a)(10) Permit.
-------------------------------------------------
(a) Preparation of Information Statement. As soon as practicable
------------------------------------
after the execution of this Agreement, the Company shall prepare, with the
cooperation of Parent, an information statement and form of proxy for the
shareholders of the Company to approve the principal terms of this Agreement and
the Merger (such information statement, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to the Company's
shareholders, the "Information Statement"). The Information Statement shall
also constitute a disclosure document for the offer and issuance of the shares
of Parent Common Stock to be received by the holders of Company Capital Stock in
the Merger. Parent and the Company shall each use its best efforts to cause the
Information Statement to comply in all material respects with applicable federal
and state securities laws requirements. Each of Parent and the Company agrees
to provide promptly to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the providing
party or its counsel, may be required or appropriate for inclusion in the
Information Statement, or in any amendments or supplements thereto, and to cause
its counsel and auditors to cooperate with the other's counsel and auditors in
the preparation of the Information Statement. The Company will promptly advise
Parent and Parent will promptly advise the Company, in writing if at any time
prior to the Effective Time either the Company or Parent shall obtain knowledge
of any facts that might make it necessary or appropriate to amend or supplement
the Information Statement in order to make the statements contained or
incorporated by reference therein not misleading or to comply with applicable
law. The Information Statement shall contain the unanimous recommendation of
the Board of Directors of the Company that the Company shareholders approve the
principal terms of this Agreement and the Merger and the conclusion of the Board
of Directors that the terms and conditions of the Merger are fair and reasonable
to the shareholders of the Company. Anything to the contrary contained herein
notwithstanding, the Company shall not include in the Information Statement any
information with respect to Parent or its affiliates or associates, the form and
content of which information shall not have been approved by Parent prior to
such inclusion, which consent shall not be unreasonably withheld.
(b) Section 3(a)(10) Permit. As promptly as practicable after the
-----------------------
execution of this Agreement, Parent and the Company shall prepare the necessary
documentation to seek a permit (a "3(a)(10) Permit") from the Commissioner of
the Department of Corporations of the State of California (after a hearing
before such Department) pursuant to Section 25121 of the California Corporate
Securities Law of 1968, so that the issuance of Parent Common Stock and the
assumption of the Company Options in the Merger shall be exempt from
registration under Section 3(a)(10) of the Securities Act. If the shares of
Parent Common Stock to be issued in connection with the Merger cannot be issued
in a transaction exempt from registration pursuant to Section 3(a)(10) of the
Securities Act of Section 25121 of the California Corporate Securities Law of
1968, then such shares
shall be issued in a transaction exempt from registration under the Securities
Act by reason of Section 4(2) thereof. In the event that the (i) Parent does not
obtain a Section 3(a)(10) Permit or (ii) Parent, Company and the Securityholder
Agents agree to withdraw Parent's application for such 3(a)(10) Permit prior to
the Effective Time, then Parent, Company and the Securityholder Agents agree to
take such actions to (A) issue the shares of Parent Common Stock in a private
placement pursuant to Section 4(2) of the Securities Act and to facilitate the
registration such shares for resale pursuant to Form S-3 under the Securities
Act (as set forth in the Declaration of Registration Rights attached hereto as
Exhibit D) or (B) facilitate the issuance of such Parent Common Stock pursuant
---------
to a registration statement on Form S-4 under the Securities Act. With regard to
the 3(a)(10) hearing, if necessary, the Company will obtain from its
shareholders holding a majority of the Company Capital Stock their consent to
the jurisdiction of the California Department of Corporations. With regard to
any exemptions from the Securities Act or state securities laws, the Company
will use its reasonable best efforts to identify and obtain the approval of
those of its shareholders, who are not "accredited" within the meaning of Rule
501 promulgated under the Securities Act, to appoint an accredited investor to
act as a "purchasers representative" as such term is defined in Rule 501 for
each such unaccredited stockholder. Such purchasers representative shall be
reasonably accepted to Parent, and Parent's consent shall not be unreasonably
withheld.
6.2 Shareholder Approval. As promptly as practicable after the execution
--------------------
of this Agreement and at such time as Parent may request, the Company shall use
its best efforts, in accordance with Minnesota Law and the Company's Articles of
Incorporation and Bylaws, obtain the approval of the Company's shareholders of
the principal terms of this Agreement and the Merger. The Company shall use its
best efforts to ensure that the shareholder approval is solicited in compliance
with Minnesota Law, the Articles of Incorporation and Bylaws of the Company and
all other applicable legal requirements. The Company agrees to use its best
efforts and to take all action necessary or advisable to secure the necessary
votes required by Minnesota Law to effect the Merger. Parent will make a
representative available to shareholders to answer any questions Company
shareholders may have regarding the Parent's business, management and financial
affairs.
6.3 Access to Information. The Company shall afford Parent and its
---------------------
accountants, legal counsel and other representatives reasonable access during
normal business hours during the period prior to the Effective Time to (a) all
of the properties, books, contracts, commitments and records of the Company and
(b) all other information concerning the business, properties, and personnel of
the Company as Parent may reasonably request. The Company agrees to provide
Parent and its accountants, legal counsel and other representatives copies of
internal financial statements promptly upon request. No information or knowledge
obtained in any investigation pursuant to this Section 6.3 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.
6.4 Confidentiality. The parties acknowledge that the Company and Parent
---------------
have previously executed confidentiality agreements dated November 5, 1999 and
December 1, 1997 (the "Confidentiality Agreements"), which Confidentiality
Agreements will continue in full force and effect in accordance with their
terms.
6.5 Public Disclosure. Unless otherwise required by law (including,
-----------------
without limitation, securities laws) or, as to Parent, by the rules and
regulations of the New York Stock Exchange), prior
to the Effective Time, no disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement shall be made by any party hereto (other
than disclosures to Company shareholders pursuant to Section 6.2) unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld. If any such press release or public
announcement is so required, the party making such disclosure shall consult with
the other party prior to making such disclosure, and the parties shall use all
reasonable efforts, acting in good faith, to agree when a text for such
disclosure that is satisfactory to both parties. The parties have agreed to the
text of the joint press release announcing the signing of this Agreement.
6.6 Consents. The Company shall promptly apply for or otherwise seek and
--------
use its reasonable best efforts to obtain all consents and approvals required to
be obtained by it for the consummation of the Merger, including all consents,
waivers or approvals under any of the Contracts in order to preserve the
benefits thereunder for the Surviving Corporation and otherwise in connection
with the Merger. All of such consents and approvals are set forth in Schedule
--------
2.5.
---
6.7 FIRPTA Compliance. On 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).
6.8 Legal Conditions to the Merger. Each of Parent, Merger Sub and the
------------------------------
Company will take all reasonable actions necessary to comply promptly with all
legal requirements which may be imposed on such party with respect to the Merger
and will promptly cooperate with and furnish information to any other party
hereto in connection with any such requirements imposed upon such other party in
connection with the Merger. Each party will take all reasonable actions to
obtain (and will cooperate with the other parties in obtaining) any consent,
authorization, order or approval of or any registration, declaration or filing
with, or an exemption by, any Governmental Entity, or other third party,
required to be obtained or made by such party or its subsidiaries in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement; provided, however, that Parent shall not be required to agree to any
divestiture by Parent or the Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or of any business, assets or property of
Parent or its subsidiaries or affiliates or of the Company or its affiliates or
the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock.
6.9 Best Efforts; Additional Documents and Further Assurances. Each of the
---------------------------------------------------------
parties agrees to use its best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including using best
efforts to accomplish the following: (a) the taking of all acts necessary to
cause the conditions precedent set forth in Article VI to be satisfied, (b) the
obtaining of all necessary actions or nonactions, waivers, consents, approvals,
orders and authorizations from Governmental Entities and the making of all
necessary registrations, declarations and filings (including registrations,
declarations and filings with Governmental Entities, if any) and the taking of
all reasonable steps as may be necessary to avoid any suit, claim, action,
investigation or proceeding by any Governmental Entity (provided, however, that
Parent shall not be required to agree to any divestiture by Parent or the
Company or any Parent's subsidiaries or
affiliates of shares of capital stock or of any business, assets or property of
Parent or its subsidiaries or affiliates or of the Company or its affiliates, or
the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock), (c) the obtaining of all necessary consents, approvals or
waivers from third parties, (d) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed and (e) the execution or
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement.
6.10 Notification of Certain Matters. The Company shall give prompt notice
-------------------------------
to Parent, and Parent shall give prompt notice to the Company, of (a) the
occurrence or non-occurrence of any event which is likely to cause any
representation or warranty of the Company and Parent or Merger Sub,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time except as contemplated by
this Agreement (including the Company Schedules) and (b) any failure of the
Company or Parent, as the case may be, to comply with or satisfy in any material
respect 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 6.10 shall not limit or otherwise affect any remedies available to
the party receiving such notice or affect the representations, warranties,
covenants or agreements of the parties or conditions to the obligation of the
parties under this Agreement.
6.11 Reorganization. It is the intent of the Company, Parent, Merger Sub
--------------
and the Surviving Corporation that this Merger qualifies as a tax-free
reorganization under Section 368(a) of the Code, and the Company, Parent, Merger
Sub and the Surviving Corporation covenant and agree not to take any actions
inconsistent with such intent.
6.12 Declaration of Registration Rights. In the event that (i) Parent does
----------------------------------
not obtain an exemption from registration pursuant to Section 3(a)(10) of the
Securities Act prior to the Effective Time or (ii) Parent, Company and the
Securityholder Agents agree to withdraw Parent's application to obtain a Section
3(a)(10) Permit prior to the Effective Time and (iii) Parent and the Company
agree that the Parent Common Stock will be issued pursuant to an exemption from
the registration requirements of the Securities Act, then Parent and the Company
agree that the that the shareholders of the Company receiving Parent Common
Stock in the Merger pursuant to Sections 1.6(a) and (b) hereto shall be entitled
to the registration rights set forth in the Declaration of Registration Rights
attached hereto as Exhibit D (the "Declaration of Registration Rights") and
---------
which is hereby incorporated by reference.
6.13 Form S-8. Parent shall file a Registration Statement on Form S-8 with
--------
the SEC covering the shares of Parent Common Stock issuable with respect to
assumed Company Options on or prior to the Closing Date or the next business day
upon which the Securities and Exchange Commission is open to accept such filings
after the Effective Time and will use its reasonable best efforts to maintain
the effectiveness of such registration statement thereafter for so long as any
of such Company Options remain outstanding.
6.14 New York Stock Exchange. On or prior to the date of filing of the
-----------------------
Registration Statement on Form S-8, as set forth in Section 6.13, the Parent
shall apply for the listing on the New York Stock Exchange of shares of the
Parent Common Stock issuable with respect to the assumed Company Options, upon
official notice of issuance and shall take all other acts as necessary or
appropriate to cause such shares to become and remain so listed. On or prior to
the Closing Date (or if no exemption pursuant to Section 3(a)(10) is obtained
the effective date of the Registration Statement provided for in the Declaration
of Registration Rights), Parent shall apply for the listing on the New York
Stock Exchange of the shares of Parent Common Stock issuable, in connection with
the Merger, upon official notice of issuance and shall take all other acts as
necessary or appropriate to cause such shares to become and remain so listed.
6.15 Voting Agreements. Concurrently with the execution of this
-----------------
Agreement, the Company will cause the persons and entities listed on Schedule
--------
6.15 hereto to execute a Voting Agreement, agreeing, among other things, to vote
----
in favor of the Merger and against any competing proposals.
6.16 Non-Competition Agreements. On or before the Closing, the Company
--------------------------
will use its best efforts to cause the employees listed on Schedule 6.16 to
-------------
execute a Non-Competition Agreement.
6.17 Blue Sky Laws. Parent shall use its reasonable best efforts to
-------------
comply with the securities and blue sky laws of all jurisdictions that are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Company shall use its reasonable best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
that are applicable in connection with the issuance of Parent Common Stock
pursuant hereto.
6.18 Benefit Arrangements. Parent covenants and agrees that to the extent
--------------------
permitted by applicable law and to the extent the existing benefit plans and
arrangements provided by the Company to its employees are terminated on or after
the Effective Time, such employees shall be entitled to benefits which are
available or subsequently become available to Parent's employees, and on a basis
which is on parity with Parent's employees. For purposes of satisfying the terms
and conditions of such plans, Parent shall give full credit for eligibility or
vesting and shall make commercially reasonable efforts to give full credit for
benefit accrual for each participant's period of service at the Company prior to
the Effective Time.
6.19 Bonus Plan. Parent covenants and agrees that it will adopt a bonus
----------
plan in the form attached hereto as Exhibit E (the "Bonus Plan") at the
---------
Effective Time to provide bonus payments in the aggregate of a maximum of $10.0
million to all of the employees of the Company as of the date hereof who remain
employed by the Parent or one of its subsidiaries on or after December 15, 2000.
The Bonus Plan shall be reasonably acceptable to the Company. If any such person
is not an employee of the Company immediately prior to the Effective Time and is
no longer an employee of Parent or any of its subsidiaries on December 15, 2000,
the bonus payment allocated to such person shall be retained by the Parent,
unless such person is no longer an employee of the Parent or one of its
subsidiaries as a result of (i) death, (ii) long-term disability as defined in
the Bonus Plan or (iii) actual or constructive termination of such person's
employment with the Parent or one of its subsidiaries without cause (as such
terms are defined in the Bonus Plan and in each such instance set forth in (i),
(ii) or (iii) Parent shall make such bonus payment to such employee.
-44-
6.20 Termination of Company Investor Rights. The Company shall take such
--------------------------------------
steps as may be necessary to provide for the termination as of the Closing of
all Company investor rights granted by the Company to its shareholders and in
effect prior to the Closing, including but not limited to rights of co-sale,
voting, registration, first refusal, board observation or information or
operational covenants.
6.21 No Solicitation. From and after the date of this Agreement until the
---------------
earlier to occur of the Effective Time or termination of this Agreement pursuant
to its terms, the Company will not, and the Company will instruct its directors,
officers, employees, representatives, investment bankers, agents and affiliates
not to, directly or indirectly, (a) solicit or encourage submission of any
"Acquisition Proposal" (as defined herein) by any person, entity or group (other
than Parent and its affiliates, agents, and representatives) or (b) participate
in any discussions or negotiations with, or disclose any non-public information
concerning the Company to, or afford access to the properties, books, or records
of the Company, or otherwise assist or facilitate, or enter into any agreement
or understanding with, any person, entity or group (other than Parent and its
affiliates, agents, and representatives) in connection with any Acquisition
Proposal with respect to the Company. For purposes of this Agreement, an
"Acquisition Proposal" means any proposal or offer relating to (a) any merger,
consolidation, sale or license of substantial assets or similar transactions
involving the Company (other than sales or licenses of assets or inventory in
the ordinary course of business or as permitted by this Agreement) or (b) sales
by the Company of any Company Capital Stock (including, without limitation, by
way of a tender offer or an exchange offer). The Company will immediately cease
any and all existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. The Company will
within one business day of receipt (a) notify Parent if, after the date of this
Agreement, it receives any proposal or inquiry or request for information in
connection with an Acquisition Proposal or potential Acquisition Proposal and
(b) notify Parent of the significant terms and conditions of any such
Acquisition Proposal including the identity of the party making an Acquisition
Proposal. In addition, from and after the date of this Agreement, until the
earlier to occur of the Effective Time or termination of this Agreement pursuant
to its terms, the Company will not, and will instruct its directors, officers,
employees, representatives, investment bankers, agents and affiliates not to,
directly or indirectly, make or authorize any public statement, recommendation
or solicitation in support of any Acquisition Proposal made by any person,
entity or group (other than Parent).
6.22 Termination of 401(k) Plan. The Company agrees to adopt resolutions
--------------------------
to terminate its 401(k) plan immediately prior to Closing, unless the Parent, in
its sole and absolute discretion, agrees to sponsor and maintain such plans by
providing the Company with written notice of such election at least three (3)
days before the Effective Time. Unless the Parent provides such notice to the
Company, the Parent shall receive from the Company evidence that the Company's
Board of Directors has adopted resolutions to terminate the 401(k) plan (the
form and substance of which resolutions shall be subject to review and approval
of the Parent), effective as of the day immediately preceding the Closing Date
but contingent on the Closing.
6.23 Termination of Company Severance Plans; Adoption of Parent Severance
--------------------------------------------------------------------
Plan. The Company and its Affiliates, as applicable, each agrees to terminate
----
any and all group severance, separation or salary continuation plans, programs
or arrangements that are covered under ERISA immediately prior to Closing. The
Parent shall receive from the Company evidence that the
-45-
Company's and each Affiliate's (as applicable) plan(s) has been terminated
pursuant to resolution of each such entity's Board of Directors (the form and
substance of which resolutions shall be subject to review and approval of the
Parent), effective as of the day immediately preceding the Closing Date but
contingent on the Closing. Parent covenants and agrees that it will adopt a
severance plan in the form attached hereto as Exhibit F (the "Severance Plan")
---------
at the Effective Time to provide severance payments to the employees of the
Company as of the date hereof who remain employed by the Company as of the
Effective Time. The Severance Plan shall be reasonably acceptable to the
Company.
6.24 Export Laws. Promptly after the execution of this Agreement but in
-----------
any event prior to the Effective Time, if it has not already done so, the
Company shall apply to the U.S. Commerce Department's Bureau of Export
Administration for export classification determinations for all of the Company's
Products which (a) incorporate any encryption functions, features or
characteristics; or (b) include an interface to any other software products with
encryption functions, features or characteristics in order to confirm that all
such products may be exported from the United States without an export license,
under authority of a license exception, in accordance with the Export
Administration Regulations, 15 C.F.R. Parts 730-774.
6.25 Lock-Up Agreements. Each of Xxxxxx Xxxxx, Xxxx Xxxxxxx, Xxxxx
------------------
Aszmann, Xxx Xxxxx, Xxxxxxx Xxxxxxxx and Xxxx Xxxxx (collectively, the "Lock-up
Holders") will enter into a lock-up agreement with the Parent substantially in
the form attached hereto as Exhibit G (the "Lock-up Agreement"). Pursuant to
such Lock-up Agreements, each of the Lock-up Holders will agree to limit sales
or other dispositions of the Parent Common Stock he or she receives in
connection with the closing of the Merger to: (i) 50% or less of such Parent
Common Stock prior to June 15, 2000 and (ii) an additional 25% or less of such
Parent Common Stock prior to December 1, 2000. In addition, such Lock-up Holders
will agree to dispose of such shares of Parent Common Stock in compliance with
applicable securities laws, including Rule 145, as promulgated under the
Securities Act.
6.26 Xxxx-Xxxxx Xxxxxx. Parent, Sub and the Company will, and the Company
-----------------
shall use its reasonable best efforts to cause any of its shareholders so
required (the "Reporting Shareholders") to, as promptly as practicable prepare
and file the applicable notices and forms (if any) required to be filed by them
under the HSR Act or comparable laws of non-U.S. governmental entities, and
comply promptly with any appropriate requests from the Federal Trade Commission,
the United States Department of Justice or any other Governmental Antitrust
Authority for additional information and documentary material. The parties
hereto will not take any action that will have the effect of delaying, impairing
or impeding the termination of any waiting period or the receipt of any required
approvals of a Government Antitrust Authority. Without limiting the generality
of the parties' undertakings pursuant to this Section 6.27, the parties shall
use their reasonable best efforts to prevent the entry in a judicial or
administrative proceeding brought under any antitrust law by any Governmental
Antitrust Authority or any other party of any permanent or preliminary
injunction or other order that would make consummation of the Merger in
accordance with the terms of this Agreement unlawful under appropriate anti-
trust laws or that would prevent or delay such consummation as a consequence of
such laws; provided, however, that Parent shall not be required to agree to any
divestiture by Parent or the Company or any Parent's subsidiaries or affiliates
of shares of capital stock or of any business, assets or property of Parent or
its subsidiaries or affiliates
-46-
or of the Company or its affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock. Each party hereto
shall promptly inform the other of any material communication between such party
and the Federal Trade Commission, the Department of Justice or any other
governmental antitrust authority regarding any of the transactions contemplated
hereby. If any party or any affiliate of such party receives a request for
additional information or for documents or any material from any such
governmental antitrust authority with respect to the transactions contemplated
hereby, then such party shall endeavor in good faith to make or cause to be
made, as soon as reasonably practicable and after consultation with the other
parties, an appropriate response in compliance with such request. Further, no
written materials shall be submitted by any party to the Federal Trade
Commission, the Department of Justice or any other governmental antitrust
authority in connection with HSR Act compliance or the merger control
regulations of any other state or country, nor shall any oral communications be
initiated with such governmental entities by any party, without prior disclosure
to and coordination with the other parties and their counsel. Each party hereto
will cooperate in connection with reaching any understandings, undertakings or
agreements (oral or written) involving the Federal Trade Commission, the
Department of Justice or any other governmental antitrust authority in
connection with the transactions contemplated hereby.
6.27 Preparation of Tax Returns.
--------------------------
(a) Parent shall file (or cause to be filed) at its own expense, on
or prior to the due date thereof, all Tax Returns of the Company required to be
filed for all Tax periods ending on or before the Closing Date (each a "Pre-
Closing Period") which have not been filed during a Pre-Closing Period (other
than Tax Returns that were required to be filed during a Pre-Closing Period,
which shall be filed (or caused to be filed) by Parent and will give rise to a
right to indemnification under Section 8.2). Company or its representative shall
have the right to participate in the preparation and filing of such Tax Returns.
Parent and its affiliates covenant and agree that they shall not take any action
or position with respect to the filing of such Tax Returns or positions taken on
such Tax Returns that will cause the Company to breach any of the
representations, warranties and covenants of the Company contained in this
Agreement, unless Parent waives its right to indemnification under Section 8.2
with respect to such breach. If and only if Parent does not waive its right to
indemnification under Section 8.2 with respect to any such breach described in
the immediately preceding sentence, Parent shall provide the Securityholder
Agents with a copy of appropriate workpapers, schedules, drafts and final copies
of each Tax Return or election of the Company (including returns of all employee
benefit plans) at least ten days before filing such Return or election and shall
reasonably cooperate with any request by the Securityholder Agents in connection
therewith.
(b) Parent will file (or cause to be filed) all Tax Returns of the
Company for all Tax periods ending after the Closing Date.
(c) In the event that the Internal Revenue Service ("IRS") conducts
an audit of the Company's Tax Returns for any periods ending after the Closing
Date, such audit proceedings shall be the sole responsibility, and under the
sole control, of Parent. In the event of an audit of the Company's Tax Returns
for any Pre-Closing Period, if and only if Parent does not waive its right to
indemnification under Section 8.2 with respect to matters under audit, the
Securityholder Agents
-47-
shall be entitled to participate in such audit proceedings. In the event that
the Securityholder Agents are entitled and elect in accordance with this
paragraph to participate in such audit proceedings, any settlement with the IRS
with respect to such audit proceedings may be entered into only with the prior
written consent of Parent, which consent shall not be unreasonably withheld.
Parent shall notify the Securityholder Agents promptly after receipt by Parent
of written notice of pending audit proceedings for any Pre-Closing Period and
shall indicate whether Parent waives its right to indemnification under Section
8.2 with respect to matters under audit. If, in accordance with the foregoing,
the Securityholder Agents are entitled and elect to participate in such audit
proceedings, it shall, within 30 calendar days after receiving such notice from
Parent, notify Parent of its intent to do so. The parties agree to cooperate
with each other in the conduct of any audit proceedings relating to the
Company's Tax Returns.
6.28 Company Headquarters. For a period of one year from the Closing
--------------------
Date, Parent shall not relocate the Company's headquarters from the Minneapolis,
Minnesota metropolitan area.
6.29 Indemnification.
---------------
(a) Upon the Effective Time, the Surviving Corporation or, to the
extent the Surviving Corporation is unable to do so, Parent shall assume all of
the obligations of the Company under the Company's existing indemnification
agreements with each of the directors and officers of the Company, as such
agreements relate to the indemnification of such persons for expenses and
liabilities arising from facts or events which occurred on or before the
Effective Time or relating to the Merger or transactions contemplated by this
Agreement.
(b) The Bylaws and Articles of Incorporation of the Surviving
Corporation shall contain provisions identical with respect to indemnification
to those set forth in the Bylaws and Articles of Incorporation of Merger Sub as
in effect on the date hereof, which provisions shall not be amended, repealed or
otherwise modified for a period of two years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
the Effective Time were directors or officers of the Company. The Parent and
Company agree that the provisions with respect to indemnification in the Bylaws
and Articles of Incorporation of the Surviving Corporation shall be no less
favorable to the directors and officers of the Company than those set forth in
the Articles of Incorporation of the Company on the date hereof.
6.30 Employee Plan Compliance. The Company shall prepare, or have
------------------------
prepared on its behalf, in compliance with the requirements of ERISA, summary
plan descriptions for both the Company health insurance plan and the Company
flex plan; provided, however, that Parent shall have the opportunity to review
and approve such summary plan descriptions (with Parent approval not to be
unreasonably withheld), prior to the distribution thereof. The Company shall
have prepared, have provided Parent the opportunity to review, and have
distributed such summary plan descriptions by the later of: (i) thirty (30) days
after the execution of this Agreement; or (ii) the Closing Date.
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ARTICLE VII
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Shareholder Approval. The principal terms of this Agreement, the
--------------------
Merger and the transactions contemplated hereby shall have been approved and
adopted by the shareholders of the Company by the requisite vote under
applicable law and the Company's Articles of Incorporation.
(b) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(c) Tax Opinions. Parent and the Company shall each have received
------------
written opinions from their counsel, Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., and
Xxxxxx & Whitney LLP, respectively, in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. The parties to
this Agreement agree to make reasonable representations as requested by such
counsel for the purpose of rendering such opinion.
(d) Closing Date Payment Schedule. Parent and the Company shall each
-----------------------------
have reviewed and approved and the Company shall have executed and delivered a
schedule (the "Closing Date Payment Schedule") reflecting, as of the Effective
Time (i) for each holder of Company Capital Stock, the number of shares of
Company Capital Stock held of record, the aggregate number of shares of Parent
Common Stock payable to such holder in the Merger, the number of such shares
payable promptly after the Effective Time (in accordance with Section 1.6) and
payable into the Escrow Fund (as defined in Section 8.2(a)), the amount of cash
payable to such holder for any fractional shares, the stock certificate numbers
held by each such person and such person's federal tax identification number to
the extent such number is known, and (ii) for each holder of Company Options,
the number of shares of Company Common Stock issuable upon exercise thereof
immediately prior to the Effective Time, the number of shares of Parent Common
Stock issuable upon exercise thereof following their assumption by Parent (in
accordance with Section 1.6(f)), and the per share exercise price thereof upon
such assumption.
(e) Governmental Approvals. Any waiting period applicable to the
----------------------
consummation of the Merger under the HSR Act shall have expired or been
terminated and no action shall have been instituted by the Department of Justice
or Federal Trade Commission challenging or seeking to enjoin the consummation of
the Merger, which action shall not have been withdrawn or terminated, and all
other material governmental filings, authorizations and approvals that are
required for the consummation of the transactions contemplated hereby will have
been duly made and obtained.
-49-
7.2 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, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Parent and Sub in this Agreement shall be true and correct in
all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time, except that any
such representation or warranty made as of a specified date (other than the date
hereof) shall only need to have been true on and as of such date; provided that
this condition shall be deemed satisfied solely for purposes of this Section
7.2(a) and not for any other purpose (including, without limitation, any purpose
in Article VIII hereof), if all of the changes in the representations and
warranties in Article III between the date hereof and the Effective Time do not,
in the aggregate, have a Material Adverse Effect on Parent, and the Company
shall have received a certificate to such effect signed by a duly authorized
officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have
------------------------
performed or complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed or complied with by
them on or prior to the Closing Date, and the Company shall have received a
certificate to such effect signed by a duly authorized officer of Parent.
(c) Legal Opinion. The Company shall have received a legal opinion
-------------
from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., counsel to Parent and Merger Sub,
in form and substance reasonably satisfactory to the Company and Xxxxxx Xxxxxxx
Xxxxxxxx & Xxxxxx.
(d) No Material Adverse Change. There shall not have occurred any
--------------------------
material adverse change in the business, assets (including intangible assets),
financial condition or results of operations of Parent. For purposes of this
condition, changes in the trading price of Parent's Common Stock, as reported on
the New York Stock Exchange, changes in economic conditions or changes in the
industry and markets in which the Parent competes shall not constitute a
material adverse change, whether occurring at any time or from time to time.
(e) Section 3(a)(10) Permit or Declaration of Registration Rights.
-------------------------------------------------------------
Parent shall have obtained a permit from the Department of Corporations of the
State of California upon which Parent can rely to issue the Parent Common Stock
exempt from registration pursuant to Section 3(a)(10) of the Securities Act. In
the event that Parent has not obtained such a Section 3(a)(10) Permit or the
parties have agreed that Parent's application for a Section 3(a)(10) Permit be
withdrawn, Parent shall have executed and delivered the Declaration of
Registration Rights.
(f) Affiliate Agreement. The shareholders of the Company who are
-------------------
affiliates within the meaning of Rule 144 of the Securities Act shall have
entered into an Affiliate Agreement regarding compliance with Rule 145 under the
Securities Act (the "Affiliate Agreements") with the Parent in a form reasonably
acceptable to the Parent and the Company.
-50-
(g) Bonus Plan. The Bonus Plan shall have been duly approved and
----------
adopted by Parent.
(h) Severance Plan. The Severance Plan shall have been duly approved
--------------
and adopted by Parent.
(i) Escrow Agreement. Parent, Merger Sub and the Escrow Agent shall
----------------
have executed and delivered the Escrow Agreement in the form substantially
agreeable to the Company, the Parent and the Escrow Agent (as such term is
defined in Section 8.2 hereof) and consistent with Article VIII hereof.
(j) Secretary's Certificate. Each of Parent and Merger Sub shall have
-----------------------
delivered to the Company a copy of (i) the text of the resolutions adopted by
the Board of Directors of Parent and Merger Sub authorizing the execution,
delivery and performance of this Agreement and the Articles of Merger and the
consummation of all of the transactions contemplated by this Agreement and the
Articles of Merger and (ii) the certificates of incorporation and bylaws of
Parent and Merger Sub, along with certificates executed on behalf of each of
Parent and Merger Sub by such entity's corporate secretary certifying to the
Company that such copies are true, correct and complete copies of such
resolutions, certificate of incorporation and bylaws, respectively, and the such
resolutions, certificate of incorporation and bylaws were duly adopted and have
not been amended or rescinded.
7.3 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. The representations and
------------------------------
warranties of the Company set forth in this Agreement shall be true and correct
(determined without regard to any materiality qualifiers, including without
limitation "Material Adverse Effect") (i) as of the date hereof and (ii) as of
the Closing Date, as though made on and as of the Closing Date (provided that in
the cases of clauses (i) and (ii) any such representation and warranty made as
of a specific date shall be true and correct as of such specific date); provided
that this condition shall be deemed satisfied, solely for purposes of this
Section 7.3(a) and not for any other purpose (including, without limitation, any
purpose in Article VIII hereof), if all of the changes in the Company's
representations and warranties from the date of this Agreement to the Effective
Time do not individually or in the aggregate have a Material Adverse Effect on
the Company and its subsidiaries taken as a whole and the Parent shall have
received a certificate signed by the chief executive officer and the chief
financial officer of the Company to such effect;
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date, and Parent and Merger Sub shall have received a certificate to such effect
signed by the President and Chief Financial Officer of the Company;
-51-
(c) Third Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 2.5.
------------
(d) Legal Opinion. Parent shall have received a legal opinion from
-------------
Xxxxxx & Xxxxxxx LLP, legal counsel to the Company, in form and substance
reasonably satisfactory to Parent and Xxxxxx & Whitney LLP.
(e) No Material Adverse Change. There shall not have occurred any
--------------------------
material adverse change in the business, assets (including intangible assets)
financial condition or results of operations of the Company. For purposes of
this condition, changes in economic conditions or changes in the industry or
markets in which the Company competes shall not constitute a Material Adverse
changes, whether occurring at anytime or from time to time.
(f) Dissenters' Rights. Holders of not more than 3% of the
------------------
outstanding shares of Company Capital Stock shall have exercised, nor shall they
have any rights or continued right to exercise, dissenters' rights under
Minnesota Law with respect to the transactions contemplated by this Agreement.
(g) Termination of Company Investor Rights. Parent shall have been
--------------------------------------
furnished evidence satisfactory to it that all investor rights granted by the
Company to its shareholders and in effect prior to the Closing, including but
not limited to rights of co-sale, voting, registration, first refusal, board
observation or information or operational covenants, shall have terminated as of
the Closing.
(h) Affiliate Agreement. The shareholders of the Company who are
-------------------
affiliates within the meaning of Rule 144 of the Securities Act shall have
entered into an Affiliate Agreement regarding compliance with Rule 145 under the
Securities Act with the Parent in a form reasonably acceptable to the Parent and
the Company.
(i) Non-Competition Agreements. The Non-Competition Agreements as
--------------------------
required by Section 6.16 hereof shall have been duly executed and delivered to
Parent.
(j) Lock-up Agreements. The Lock-up Agreements as required by Section
------------------
6.27 shall have been duly executed and delivered to Parent.
(k) Escrow Agreement. The Company and the Escrow Agent shall have
----------------
executed and delivered the Escrow Agreement in the form substantially agreeable
to the Company, the Parent and the Escrow Agent (as such term is defined in
Section 8.2 hereof) and consistent with Article VIII hereof.
(l) Secretary's Certificate. The Company shall have delivered to
-----------------------
Parent a copy of (i) the text of the resolutions adopted by the Board of
Directors of the Company authorizing the execution, delivery and performance of
this Agreement and the Articles of Merger and the consummation of all of the
transactions contemplated by this Agreement and the Articles of Merger and (ii)
the articles of incorporation and bylaws of the Company, along with a
certificate executed on behalf of the Company by its corporate secretary
certifying to Parent that such copies are true,
-52-
correct and complete copies of such resolutions, articles of incorporation and
bylaws, respectively, and the such resolutions, articles of incorporation and
bylaws were duly adopted and have not been amended or rescinded.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
8.1 Survival of Representations and Warranties. All of the Company's
------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Schedules) shall
survive the Merger and continue until 5:00 p.m., Minnesota time, on the date
which is one year following the Closing Date (the "Expiration Date"). The
representations and warranties of Parent and Merger Sub in this Agreement or in
any instrument delivered pursuant to this Agreement shall not survive the
Effective Time or be of any further force and effect thereafter.
8.2 Escrow Arrangements and Indemnification.
(a) Escrow Fund and Indemnification by the Company. At the Effective
----------------------------------------------
Time the Company's shareholders will be deemed to have received and deposited
with the Escrow Agent (as defined below) the Escrow Amount (plus any additional
shares as may be issued upon any stock split, stock dividend or recapitalization
effected by Parent after the Effective Time) without any act of any shareholder
pursuant to an Escrow Agreement to be negotiated by the Parent, Company and the
Escrow Agent in a form reasonably satisfactory to them and consistent with this
Article VIII (the "Escrow Agreement"). As soon as practicable after the
Effective Time, the Escrow Amount, without any act of any Company shareholder,
will be deposited by Parent with The Bank of New York (or other institution
acceptable to Parent and the Securityholder Agents (as defined in Section 8.2(g)
below)) as Escrow Agent (the "Escrow Agent"), such deposit to constitute an
escrow fund (the "Escrow Fund") to be governed by the terms set forth herein and
in the Escrow Agreement. The portion of the Escrow Amount contributed on behalf
of each shareholder of the Company shall be in proportion to the aggregate
Parent Common Stock, which such holder would otherwise be entitled under
Sections 1.6(a) and (b) and shall be in the respective share amounts and
percentages listed on the Closing Date Payment Schedule opposite each Company
shareholder's name. All shares of Parent Common Stock contributed to the Escrow
Fund shall not be unvested or subject to any right of repurchase, risk of
forfeiture or other condition in favor of the Surviving Corporation. The Escrow
Fund shall be available to compensate Parent and its affiliates (including the
Surviving Corporation) for any claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses, and expenses of investigation and defense (hereinafter individually a
"Loss" and collectively "Losses") incurred by Parent, its officers, directors,
or affiliates (including the Surviving Corporation) directly or indirectly as a
result of (i) any inaccuracy or breach of a representation or warranty of the
Company contained herein (or in any certificate, instrument, schedule or
document attached to this Agreement and delivered by the Company in connection
with the Merger) or (ii) any failure by the Company to perform or comply with
any covenant contained herein (or in any certificate, instrument, schedule or
document attached to this Agreement and delivered by the Company in connection
with the Merger); provided any such claims must be asserted on or before 5:00
p.m. (Minnesota Time) on the Expiration Date. Except as
-53-
otherwise provided herein, Parent may not receive any shares from the Escrow
Fund unless and until Officer's Certificates (as defined in Section 8.2(d)
below) identifying Losses, the aggregate amount of which exceed $500,000, have
been delivered to the Escrow Agent as provided in paragraph (e) and such amount
is determined pursuant to this Article VIII to be payable; in such case, Parent
may recover shares from the Escrow Fund equal in value to all indemnified Losses
(excluding any Losses within the $500,000 threshold) for which there is no
objection or any objection had been resolved in accordance with the provisions
of this Article VIII; provided, however, that to the extent Third Party Expenses
-------- -------
(as defined in Section 10.2), incurred by the Company in connection with this
Agreement and the Merger exceed $250,000 in the aggregate, such excess shall be
deemed a Loss for purposes of Article VIII and shall be immediately reimbursable
to Parent in accordance with this Article VIII (without regard to the $500,000
minimum threshold for Losses and without counting toward the $500,000
threshold).
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
--------------------------------------------------------------
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
Minnesota time, on the Expiration Date (the "Escrow Period"); 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 Securityholder Agents and the subsequent
arbitration of the matter in the manner provided in Section 8.2(f) hereof, to
satisfy any unsatisfied claims concerning facts and circumstances existing prior
to the termination of such Escrow Period specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as all such claims have been resolved, as evidenced by written memorandum
of the Securityholder Agents and Parent, the Escrow Agent shall deliver to the
shareholders of the Company the remaining portion of the Escrow Fund not
required to satisfy such claims. Deliveries of Escrow Amounts to the
shareholders of the Company pursuant to this Section 8.2(b) shall be made in
proportion to their respective original contributions to the Escrow Fund (as set
forth on the Closing Date Payment Schedule). At all times during the Escrow
Period, the Company shareholders shall be deemed to be the record holders of
their respective amounts of the Parent Common Stock comprising the Escrow
Amount.
(c) Protection of Escrow Fund.
-------------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Parent and shall
hold and dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split or stock dividend) ("New Shares") in respect of Parent Common Stock in the
Escrow Fund which have not been released from the Escrow Fund shall be added to
the Escrow Fund and become a part thereof. New Shares issued in respect of
shares of Parent Common Stock which have been released from the Escrow Fund
shall not be added to the Escrow Fund but shall be distributed to the
recordholders thereof. Cash dividends on Parent Common Stock shall not be added
to the Escrow Fund but shall be distributed to the recordholders thereof.
-54-
(iii) Each Company shareholder shall be deemed the record holder
of, and shall have voting, dividend, distribution and all other rights with
respect to the shares of Parent Common Stock contributed to the Escrow Fund by
such shareholder (and on any voting securities and other equity securities added
to the Escrow Fund in respect of such shares of Parent Common Stock).
(d) Claims Upon Escrow Fund.
-----------------------
(i) Upon receipt by the Escrow Agent at any time on or before
the Expiration Date 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, 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 or covenant to which such item is related, the Escrow Agent
shall, subject to the provisions of Section 8.2(e) 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 8.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at
the Average Closing Price. Parent and the Securityholder Agents shall certify
such determined value in a certificate signed by both Parent and the
Securityholder Agents, and shall deliver such certificate to the Escrow Agent.
(e) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, Parent shall deliver a duplicate copy of such
certificate to the Securityholder Agents and for a period of thirty (30) days
after such delivery, the Escrow Agent shall not deliver to Parent any Escrow
Amounts pursuant to Section 8.2(d) hereof unless the Escrow Agent shall have
received written authorization from the Securityholder Agents to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of shares of Parent Common Stock from the Escrow Fund in
accordance with Section 8.2(d) hereof, provided that no such payment or delivery
may be made if the Securityholder Agents 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 thirty (30) day
period.
-55-
(f) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Securityholder Agents shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agents 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
Securityholder Agents 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, and in any event not later than sixty (60) days after receipt of
the written objection of the Securityholder Agents, either Parent or the
Securityholder Agents may demand arbitration of the matter unless the amount of
the damage or loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter shall
be settled by arbitration conducted by three arbitrators. Any such arbitration
shall be held in Hennepin County, Minnesota under the American Arbitration
Association Commercial Arbitration Rules then in effect. Parent and the
Securityholder Agents shall each select one arbitrator, and the two arbitrators
so selected shall select a third arbitrator, each of which arbitrators shall be
independent, meaning that they may not be current or former employees or
consultants or the Parent, Merger Sub, Company or Surviving Corporation. The
arbitrators must disclosure any circumstances likely to affect their
independence pursuant to Rule 19 of the American Arbitration Association
Commercial Arbitration Rules. The period of discovery shall be limited to 60
days and limited to relevant information from the opposing parties about the
subject matter of the dispute. The arbitrators shall rule upon motions to compel
or limit discovery and shall have the authority to impose sanctions, including
attorneys fees and costs, to the extent as a court of competent law or equity,
should the arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 8.2(e) 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 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 jurisdiction. For purposes of this Section 8.2(f),
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 the sum of one-
half ( 1/2) or less of the disputed amount plus any amounts not in dispute;
otherwise, the shareholders of the Company as represented by the Securityholder
Agents shall be deemed to be the Non-Prevailing Party. Each party to an
arbitration shall pay its own expenses and one half of (i) the fees of each
arbitrator and (ii) the administrative costs of the arbitration.
-56-
(g) Securityholder Agents of the Shareholders; Power of Attorney.
------------------------------------------------------------
(i) In the event that the Merger is approved, effective upon
such vote, and without further act of any shareholder, Xxxxxxx X. Xxxxxxx and
Xxxx X. Xxxxxxxxx shall be appointed as agents and attorneys-in-fact (each such
natural person a "Securityholder Agent" and collectively, the "Securityholder
Agents") for each shareholder of the Company (except such shareholders, if any,
as shall have perfected their dissenters' rights under Minnesota Law), for and
on behalf of shareholders 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 Securityholder Agents for the accomplishment of
the foregoing. Such agency may be changed by the shareholders of the Company
from time to time upon not less than thirty (30) days prior written notice to
Parent; provided that the each of the persons acting as Securityholder Agents
may not be removed unless holders of a majority in interest of the Escrow Fund
agree to such removal and to the identity of the substituted agent. Any vacancy
in either of the positions of Securityholder Agents may be filled by approval of
the holders of a majority in interest of the Escrow Fund. No bond shall be
required of the Securityholder Agents, and the Securityholder Agents shall not
receive compensation for their services. The reasonable legal fees and expenses
and other professional fees incurred by the Securityholder Agents in connection
with the performance of such persons' duties hereunder shall be reimbursed from
the Escrow Fund upon written request pursuant to Section 8.2(d) hereof;
provided, however, that such expenses shall be paid from the Escrow Fund after
all allowed claims shall have been paid or sufficient amounts thereof have been
set aside. Notices or communications to or from the Securityholder Agents shall
constitute notice to or from each of the shareholders of the Company.
(ii) Neither or the Securityholder Agents shall be liable for any
act done or omitted hereunder as Securityholder Agents while acting in good
faith and in the exercise of reasonable judgment. The shareholders of the
Company on whose behalf the Escrow Amount was contributed to the Escrow Fund
shall jointly and severally indemnify each of the Securityholder Agents and hold
each of the Securityholder Agents harmless against any loss, liability or
expense incurred without negligence or bad faith on the part of such
Securityholder Agent and arising out of or in connection with the acceptance or
administration of the Securityholder Agents' duties hereunder, including the
reasonable fees and expenses of any legal counsel retained by the Securityholder
Agents.
(h) Actions of the Securityholder Agents. A decision, act, consent or
------------------------------------
instruction of both of the Securityholder Agents shall constitute a decision of
all the shareholders 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 shareholders, and the Escrow Agent and Parent may
rely upon any such written decision, consent or instruction of the
Securityholder Agents as being the decision, consent or instruction of each
every such shareholder 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, consent or instruction of the Securityholder
Agents.
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(i) Third Party Claims.
------------------
(i) If any third party shall notify Parent or its affiliates
hereto with respect to any matter (hereinafter referred to as a "Third Party
Claim"), which may give rise to a claim by Parent against the Escrow Fund, then
Parent shall give notice to the Securityholder Agents within 30 days of Parent
becoming aware of any such Third Party Claim or of facts upon which any such
Third Party Claim will be based (but in all events, at least five business days
prior to the date that an answer to such Third Party Claim is due to be filed)
setting forth such material information with respect to the Third Party Claim as
is reasonably available to Parent; provided, however, that no delay or failure
-------- -------
on the part of Parent in notifying the Securityholder Agents shall relieve the
Securityholder Agents and the Company shareholders from any obligation hereunder
unless the Securityholder Agents and the Company shareholders are thereby
materially prejudiced (and then solely to the extent of such prejudice). The
Securityholder Agents and the Company shareholders shall not be liable for any
attorneys fees and expenses incurred by Parent prior to Parent's giving notice
to the Securityholder Agents of a Third Party Claim. The notice from Parent to
the Securityholder Agents shall set forth such material information with respect
to the Third Party Claim as is then reasonably available to Parent.
(ii) In case any Third Party Claim is asserted against Parent
or its affiliates, and Parent notifies the Securityholder Agents thereof
pursuant to Section 8.2(i)(a) hereinabove, the Securityholder Agents and the
Company shareholders will be entitled, if the Securityholder Agents so elect by
written notice delivered to Parent within 30 days after receiving Parent's
notice, to assume the defense thereof, at the expense of the Company
shareholders independent of the Escrow Fund, with counsel reasonably
satisfactory to Parent, so long as:
(A) Parent has reasonably determined that Losses which
may be incurred as a result of the Third Party Claim do not exceed either
individually, or when aggregated with all other Third Party Claims, the total
dollar value of the Escrow Fund determined in accordance with Section 8.2(d)(ii)
hereof;
(B) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief; and
(C) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of Parent, likely
to establish a precedential custom or practice materially adverse to the
continuing business interests of Parent.
If the Securityholder Agents and the Company shareholders so assume any
such defense, the Securityholder Agents and the Company shareholders shall
conduct the defense of the Third Party Claim actively and diligently. The
Securityholder Agents and the Company shareholders shall not compromise or
settle such Third Party Claim or consent to entry of any judgment in respect
thereof without the prior written consent of Parent and/or its affiliates, as
applicable.
(iii) In the event that the Securityholder Agents assume the
defense of the Third Party Claim in accordance with Section 8.2(i)(ii) above,
Parent or its affiliates may retain separate counsel and participate in the
defense of the Third Party Claim, but the fees and expenses of such counsel
shall be at the expense of Parent unless Parent or its affiliates shall
reasonably
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determine that there is a material conflict of interest between or among Parent
or its affiliates and the Securityholder Agents and the Company shareholders
with respect to such Third Party Claim, in which case the reasonable fees and
expenses of such counsel will be borne by the Securityholder Agents and the
Company shareholders out of the Escrow Fund. Parent or its affiliates will not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the Securityholder
Agents. Parent will cooperate in the defense of the Third Party Claim and will
provide full access to documents, assets, properties, books and records
reasonably requested by Securityholder Agents and material to the claim and will
make available all officers, directors and employees reasonably requested by
Securityholder Agents for investigation, depositions and trial.
(iv) In the event that the Securityholder Agents fail or elect not to
assume the defense of Parent or its affiliates against such Third Party Claim,
which Securityholder Agents had the right to assume under Section 8.2(i)(ii)
above, Parent or its affiliates shall have the right to undertake the defense
and Parent shall not compromise or settle such Third Party Claim or consent to
entry of any judgment in respect thereof without the prior written consent of
Securityholder Agents. In the event that the Securityholder Agents are not
entitled to assume the defense of Parent or its affiliates against such Third
Party Claim pursuant to Section 8.2(i)(ii) above, Parent or its affiliates shall
have the right to undertake the defense, consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim in any manner it
may deem appropriate (and Parent or its affiliates need not consult with, or
obtain any consent from, the Securityholder Agents in connection therewith);
provided, however, that except with the written consent of the Securityholder
-------- -------
Agents, no settlement of any such claim or consent to the entry of any judgment
with respect to such Third Party Claim shall alone be determinative of the
validity of the claim against the Escrow Fund. In each case, Parent or its
affiliates shall conduct the defense of the Third Party Claim actively and
diligently, and the Securityholder Agents will cooperate with Parent or its
affiliates, and will use its best efforts to cause the Company's shareholders,
to cooperate in the defense of that claim and will provide full access to
documents, assets, properties, books and records reasonably requested by Parent
and material to the claim and will make available all individuals reasonably
requested by Parent for investigation, depositions and trial.
(j) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Parent and the
Securityholder 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 disregard
any and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders,
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judgments or decrees of any court. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any court, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
(v) In performing any duties under 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 written 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 the
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 damage. 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 cost, 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.
(vii) Parent and the Surviving Corporation agree jointly and
severally to indemnify and hold Escrow Agent harmless against any and all
losses, claims, damages, liabilities, and expenses, including reasonable costs
of investigation, counsel fees, and disbursements that may be imposed on Escrow
Agent or incurred by Escrow Agent in connection with the performance of his/her
duties under this Agreement, including but not limited to any litigation arising
from this
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Agreement or involving its subject matter; provided, however, that in the event
-------- -------
the Securityholder Agents shall be the Non-Prevailing Party in connection with
any claim or action initiated by a Company shareholder or Company shareholders,
then such Company shareholder or Company shareholders shall be responsible for
the indemnification of the Escrow Agent to the full extent provided by this
paragraph.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (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 thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the state of
Minnesota. 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.
(k) Fees. All fees of the Escrow Agent for performance of its duties
----
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any 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 litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorneys' fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
(l) Maximum Liability and Remedies. Except for fraud, the rights of
------------------------------
Parent to make claims upon the Escrow Fund in accordance with this Article VIII
shall be the sole and exclusive remedy of Parent and the Surviving Corporation
after the Closing with respect to any representation, warranty, covenant or
agreement made by Company under this Agreement and no former shareholder, option
holder, warrant holder, director, officer, employee or agent of Company shall
have any personal liability to Parent or the Surviving Corporation after the
Closing in connection with the Merger.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this Agreement
-----------
may be terminated and the Merger abandoned at any time prior to the Closing
Date:
(a) by mutual written consent duly authorized by the Board of
Directors of the Company and Parent;
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(b) by either Parent or the Company if: (i) the Closing Date has not
occurred by February 29, 2000 (or March 31, 2000 if HSR Approval has not been
obtained prior to February 29, 2000) (provided that the right to terminate this
Agreement under this clause 9.1(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
and such action or failure constitutes a breach of this Agreement); (ii) there
shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the Merger; or (iii) there shall be any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity that would make consummation of the Merger
illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of any portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate, as
a result of the Merger, any portion of the business or assets of the Company or
Parent;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and as a result of such breach the conditions set forth in Section
7.3(a) or 7.3(b), as the case may be, would not then be satisfied; provided,
--------
however, that if such breach is curable by the Company within 30 days through
-------
the exercise of its reasonable best efforts, then for so long as the Company
continues to exercise such reasonable best efforts Parent may not terminate this
Agreement under this Section 9.1(d) unless such breach is not cured within 30
days (but no cure period shall be required for a breach which by its nature
cannot be cured);
(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 as a result of such breach the conditions set forth in
Section 7.2(a) or 7.2(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by Parent or Merger Sub
-------- -------
within 30 days through the exercise of its reasonable best efforts, then for so
long as Parent or Merger Sub continues to exercise such reasonable best efforts
the Company may not terminate this Agreement under this Section 9.1(e) unless
such breach is not cured within 30 days (but no cure period shall be required
for a breach which by its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to Section 9.1,
it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
9.2 Effect of Termination. Except as set forth in Section 10.2, any
---------------------
termination of this Agreement under Section 9.1 above will be effective
immediately upon the delivery of written notice of the terminating party to the
other parties hereto. In the event of the termination of this Agreement as
provided in Section 9.1, this Agreement shall be of no further force or effect,
except (a) as set forth in this Section 9.2 and Article X (general provisions,
including expenses), each of which shall survive the termination of this
Agreement, and (b) nothing herein shall relieve any party from liability for any
breach of this Agreement. No termination of this Agreement shall affect the
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obligations of the parties contained in the Confidentiality Agreement, all of
which obligations shall survive termination of this Agreement.
9.3 Amendment. Except as is otherwise required by applicable law, prior
---------
to the Closing, this Agreement may be amended by the parties hereto at any time
by execution of an instrument in writing signed by Parent and the Company;
provided, however, that after the approval of the Articles of Merger by the
shareholders of the Company, no amendment may be made which reduces the Merger
Consideration or which effects any changes which would materially adversely
affect the shareholders of the Company without the further approval of the
shareholders of the Company. Except as is otherwise required by applicable law,
after the Closing, this Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed by Parent, the
Securityholder Agents and by Company shareholders who receive more than 50% of
the Parent Common Stock issued or to be issued pursuant to Section 1.6, or by
all of the Company shareholders in the case of an amendment to Articles VIII.
9.4 Extension; Waiver. At any time prior to the Effective Time, Parent
-----------------
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations of the other party hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given on (i) the date thereof if delivered
personally, (ii) the next business day if delivered by commercial delivery
service, (iii) three business days after being mailed by registered or certified
mail (return receipt requested) or (iv) the date thereof if sent via facsimile
(with acknowledgment of complete transmission and a confirming copy sent by
mail) to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Xxxxxxx X. Xxxxx
Seagate Technology, Inc.
000 Xxxx Xxxxx
Xxxxxx Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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with a copy to:
Xxxxxx X. Xxxxxxxx
Seagate Technology, Inc.
000 Xxxx Xxxxx
Xxxxxx Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
and
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esq. and Xxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(b) if to the Company, to:
Xxxxxx Xxxxx
Xxx Xxxxx
XIOtech Corporation
0000 Xxxxxx Xxxxx Xxxxx
Xxxx Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx
Xxxxxxxxx Center South
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(c) if to the Securityholder Agents:
Xxxxxxx X. Xxxxxxx
St. Xxxx Venture Capital
000 Xxxxx Xxxx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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Xxxx X. Xxxxxxxxx
000 Xxxxxxx Xxxxxx Xxxxx
Xxxx Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(d) if to the Escrow Agent:
The Bank of New York
000 Xxxxxxx Xxxxxx, Xxxxx 00 Xxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxx, Escrow Unit
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
10.2 Expenses.
--------
(a) In the event the Merger is not consummated, all fees and expenses
incurred in connection with the Merger including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties ("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.
(b) Subject to the provisions of Section 8.2, in the event the Merger
is consummated, the Surviving Corporation shall be responsible for the payment
of all Third Party Expenses, including Third Party Expenses incurred by the
Company.
10.3 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. 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.
10.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.5 Entire Agreement; Assignment. Except for the Confidentiality
----------------
Agreement, this Agreement, the schedules and Exhibits hereto, and the documents
and instruments and other agreements among the parties hereto referenced herein:
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof;
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(b) are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned by operation of law or otherwise except
as otherwise specifically provided, except that Parent and Merger Sub may assign
their respective rights and delegate their respective obligations hereunder to
their respective affiliates.
10.6 Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.7 Other Remedies. Except as otherwise provided herein (including as set
--------------
forth in Section 8.2(l)), any and all remedies herein expressly conferred upon a
party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
10.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof;
provided, however, that the Articles of Merger shall be governed by Minnesota
Law. Each of the parties hereto agrees that process may be served upon them in
any manner authorized by the laws of the State of Delaware for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
10.9 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
10.10 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. It is accordingly 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.
[Remainder of Page Left Blank Intentionally]
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Securityholder
Agents (as to Articles VI and VIII only) have caused this Agreement to be signed
by their duly authorized respective officers, all as of the date first written
above.
XIOTECH CORPORATION SEAGATE TECHNOLOGY, INC.
a Minnesota corporation a Delaware corporation
By: /s/ Xxxxxx Xxxxx By: /s/ Xxxxxx X. Xxxxxxxx
---------------------- ------------------------
Xxxxxx Xxxxx Xxxxxx X. Xxxxxxxx
Chief Executive Officer Senior Vice President
SECURITYHOLDER AGENTS: TROUT ACQUISITION CORP.
a Minnesota corporation
/s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxx X. Xxxxxxxx
------------------------- ------------------------
Xxxxxxx X. Xxxxxxx Xxxxxx X. Xxxxxxxx
Senior Vice President and Secretary
/s/ Xxxx X. Xxxxxxxxx
-------------------------
Xxxx X. Xxxxxxxxx
Schedule 6.17
Employees to Sign Non-Competition Agreements
--------------------------------------------
Xxxxxx Xxxxx
Xxxx Xxxxxxx
Xxxxx Xxxxxxx
Xxx Xxxxx
Xxxxxxx Xxxxxxxx
Xxxx Xxxxx
