EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
VITESSE SEMICONDUCTOR CORPORATION,
SOUTHPAW ACQUISITION CORP.,
SITERA INCORPORATED
AND, WITH RESPECT TO ARTICLE 8 ONLY,
STEVEN P. FLANNERY
AS STOCKHOLDER REPRESENTATIVE,
AND
U.S. BANK TRUST NATIONAL ASSOCIATION
AS ESCROW AGENT
Dated as of April 19, 2000
TABLE OF CONTENTS
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ARTICLE 1
THE MERGER
SECTION 1.01. The Merger......................................................2
SECTION 1.02. Effective Time..................................................2
SECTION 1.03. Effect of the Merger............................................2
SECTION 1.04. Certificate of Incorporation; Bylaws............................2
SECTION 1.05. Directors and Officers..........................................3
SECTION 1.06. Maximum Shares to Be Issued; Effect on Capital Stock............3
SECTION 1.07. Dissenting Shares...............................................8
SECTION 1.08. Surrender of Certificates.......................................8
SECTION 1.09. No Further Ownership Rights in Company Preferred Stock or
Company Common Stock...............................................10
SECTION 1.10. Dissenting Shares After Payment of Fair Value..................11
SECTION 1.11. Tax and Accounting Consequences................................11
SECTION 1.12. Taking of Necessary Action; Further Action.....................11
ARTICLE 2
DEFINITIONS
SECTION 2.01. Definitions....................................................11
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization of the Company....................................15
SECTION 3.02. Subsidiaries...................................................16
SECTION 3.03. Company Capital Structure......................................16
SECTION 3.04. Authority......................................................17
SECTION 3.05. No Conflict....................................................18
SECTION 3.06. Consents.......................................................18
SECTION 3.07. Company Financial Statements...................................18
SECTION 3.08. No Undisclosed Liabilities.....................................19
SECTION 3.09. No Changes.....................................................19
SECTION 3.10. Taxes..........................................................21
SECTION 3.11. Employee Benefit Plans.........................................22
SECTION 3.12. Environmental Matters..........................................25
SECTION 3.13. Restrictions on Business Activities............................25
SECTION 3.14. Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment.............................................26
SECTION 3.15. Intellectual Property..........................................26
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SECTION 3.16. Agreements, Contracts and Commitments..........................30
SECTION 3.17. Interested Party Transactions..................................32
SECTION 3.18. Governmental Authorization.....................................32
SECTION 3.19. Litigation.....................................................32
SECTION 3.20. Accounts Receivable............................................33
SECTION 3.21. Brokers' and Finders' Fees; Third Party Expenses...............33
SECTION 3.22. No Agreements Affected by the Merger...........................33
SECTION 3.23. Employee Matters...............................................33
SECTION 3.24. Insurance......................................................34
SECTION 3.25. Board Approval.................................................34
SECTION 3.26. Representations Complete.......................................34
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
SECTION 4.01. Organization, Standing and Power...............................35
SECTION 4.02. Authority......................................................35
SECTION 4.03. Parent Common Stock............................................35
SECTION 4.04. SEC Documents; Parent Financial Statements.....................35
SECTION 4.05. No Conflict....................................................36
SECTION 4.06. Consents.......................................................36
SECTION 4.07. Broker's and Finder's Fees.....................................37
ARTICLE 5
CONDUCT PRIOR TO THE EFFECTIVE TIME
SECTION 5.01. Conduct of Business of the Company.............................37
SECTION 5.02. Stockholder Meeting; Proxy Material............................40
SECTION 5.03. No Solicitation................................................40
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.01. Access to Information..........................................42
SECTION 6.02. Confidentiality................................................42
SECTION 6.03. Expenses.......................................................42
SECTION 6.04. Public Disclosure..............................................43
SECTION 6.05. Consents.......................................................43
SECTION 6.06. Reasonable Efforts.............................................43
SECTION 6.07. Notification of Certain Matters................................43
SECTION 6.08. Affiliate Agreements...........................................44
SECTION 6.09. Additional Documents and Further Assurances....................44
SECTION 6.10. Tax-free Reorganization........................................44
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SECTION 6.11. Pooling Accounting.............................................44
SECTION 6.12. Nasdaq National Market Listing.................................45
SECTION 6.13. Offers of Employment; Employee Benefits........................45
SECTION 6.14. Stock Options..................................................45
SECTION 6.15. Form S-8.......................................................45
SECTION 6.16. Indemnification of Directors and Officers......................45
SECTION 6.17. California Permit; Registered Offering.........................46
SECTION 6.18. HSR Act........................................................46
SECTION 6.19. Parent Loans...................................................47
SECTION 6.20. Noncompetition and Non-Hire Agreements.........................47
ARTICLE 7
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to Obligations of Company............................47
SECTION 7.02. Conditions to the Obligations of Parent and Sub................49
ARTICLE 8
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
SECTION 8.01. Survival of Representations and Warranties.....................51
SECTION 8.02. Escrow Arrangements............................................51
SECTION 8.03. Stockholder Representative.....................................58
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. Termination....................................................59
SECTION 9.02. Effect of Termination..........................................61
SECTION 9.03. Amendment......................................................61
SECTION 9.04. Extension; Waiver..............................................61
ARTICLE 10
GENERAL PROVISIONS
SECTION 10.01. Notices.......................................................61
SECTION 10.02. Interpretation................................................63
SECTION 10.03. Counterparts..................................................63
SECTION 10.04. Expenses......................................................63
SECTION 10.05. Entire Agreement; Assignment..................................63
SECTION 10.06. No Implied Representations....................................64
SECTION 10.07. Severability..................................................64
SECTION 10.08. Other Remedies................................................64
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SECTION 10.09. Governing Law.................................................64
SECTION 10.10. Rules of Construction.........................................64
INDEX OF EXHIBITS
Exhibit A Form of Voting Agreement
Exhibit B Form of Affiliate Agreement
Exhibit C-1 Form of Opinion of Counsel to Parent and Subsidiary
Exhibit C-2 Form of Opinion of Counsel to the Company
Exhibit D Form of Noncompetition and No-Hire Agreement
Exhibit E Escrow Agent Fee Schedule
Exhibit F Form of Promissory Note
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into on April 19, 2000 among Vitesse Semiconductor Corporation, a
Delaware corporation ("Parent"), Southpaw Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent ("Sub"), SiTera
Incorporated, a Delaware corporation (the "Company"), and, with respect to
Article 8 only, Steven P. Flannery as Stockholder Representative and U.S. Bank
Trust National Association as Escrow Agent.
RECITALS
A. The Boards of Directors of each of the Company, Parent and Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of Sub
with and into the Company (the "Merger") and, in furtherance thereof, have
approved the Merger.
B. Pursuant to the Merger, among other things, all of the issued and
outstanding shares of capital stock and options or rights to acquire capital
stock of the Company shall be converted into the right to receive or acquire, as
the case may be, shares of common stock of Parent ("Parent Common Stock").
C. A portion of the shares of Parent Common Stock issuable by Parent
in connection with the Merger shall be placed in escrow by Parent for purposes
of satisfying damages, losses, expenses and other similar charges which result
from breaches of the representations, warranties and covenants of the Company
contained herein.
D. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's and Sub's willingness to enter into this
Agreement, each holder of at least 10% of each class or series of the Company's
outstanding voting stock and each officer and director of the Company shall
enter into a Voting Agreement in the form attached hereto as Exhibit A (the
"Voting Agreements").
E. The parties intend that (i) this Agreement shall constitute a plan
of reorganization within the meaning of Treasury Regulations Section 1.368-2(g),
(ii) the Merger shall constitute a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code") and (iii) the
Merger shall qualify for accounting treatment as a pooling of interests if the
Closing Date shall be May 31, 2000 or earlier.
F. The Company, on the one hand, and Parent and Sub, on the other
hand, desire to make certain representations, warranties, covenants and other
agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.01. The Merger. At the Effective Time (as defined in
Section 1.02) and subject to and upon the terms and conditions of this Agreement
and the applicable provisions of the Delaware General Corporation Law (the
"DGCL"), Sub shall be merged with and into the Company, the separate corporate
existence of Sub shall cease and the Company shall continue as the surviving
corporation and as a wholly-owned subsidiary of Parent. The Company after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
SECTION 1.02. Effective Time. Unless this Agreement is earlier
terminated pursuant to Section 9.01, the closing of the Merger (the "Closing")
will take place as promptly as practicable, but no later than two (2) business
days after the last to occur of the satisfaction or waiver of the conditions set
forth in Sections 7.01 and 7.02, at the offices of Davis Polk & Wardwell, 1600
El Camino Real, Menlo Park, California, unless another place or time is agreed
to in writing 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 a
certificate of merger (or like instrument)(the "Merger Certificate") with the
Secretary of State of the State of Delaware in accordance with the applicable
provisions of the DGCL (with the time of acceptance by the Secretary of State of
the State of Delaware being referred to herein as the "Effective Time").
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Certificate of Incorporation of Sub shall be
the
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Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation.
(b) The Bylaws of Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
SECTION 1.05. Directors and Officers. The directors of the Surviving
Corporation immediately after the Effective Time shall be the directors of Sub
immediately prior to the Effective Time, each to hold the office of director of
the Surviving Corporation in accordance with the provisions of the applicable
laws of the State of Delaware and the Certificate of Incorporation and Bylaws of
the Surviving Corporation until their successors are duly qualified and elected.
The officers of the Surviving Corporation immediately after the Effective Time
shall be the officers of Sub immediately prior to the Effective Time, each to
hold office in accordance with the provisions of the Bylaws of the Surviving
Corporation.
SECTION 1.06. Maximum Shares to Be Issued; Effect on Capital Stock.
(a) Shares to be Issued. The aggregate number of shares of Parent
Common Stock (i) to be issued in exchange for all outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock of
Company ("Company Series A Preferred Stock", "Company Series B Preferred Stock",
and "Company Series C Preferred Stock," respectively, and, collectively, the
"Company Preferred Stock") and common stock of the Company ("Company Common
Stock") and (ii) reserved for issuance pursuant to warrants to purchase Company
Series B Preferred Stock ("Series B Warrants"), warrants to purchase Company
Series C Preferred Stock ("Series C Warrants," and, with the Series B Warrants,
the "Preferred Stock Warrants") and options to acquire Common Stock ("Company
Stock Options") assumed in the Merger shall be determined at the Effective Time
as set forth in Section 1.06(h) and shall not exceed, in the aggregate, the
Aggregate Share Number (as defined, along with certain other capitalized terms
used herein, in paragraph 1.06(h) below).
(b) Conversion Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of the Company, Parent or Sub, the following
shall occur:
(i) each share of Company Series A Preferred Stock, Company
Series B Preferred Stock and Company Series C Preferred Stock, issued
and outstanding immediately prior to the Effective Time (other than
shares of Company Series A Preferred Stock, Company Series B Preferred
Stock and Company Series C Preferred Stock to be canceled pursuant to
Section 1.06(c) and any Dissenting Shares (as defined and to the
extent provided in Section 1.07)) will be canceled and extinguished
and be
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converted automatically into the right to receive, subject to the
provisions of Section 1.06(g) and Article 8, that number of shares of
Parent Common Stock equal to the Series A Preferred Exchange Ratio,
Series B Preferred Exchange Ratio and Series C Preferred Exchange
Ratio, respectively, upon surrender of the certificate representing
such share of Company Series A Preferred Stock, Company Series B
Preferred Stock or Company Series C Preferred Stock in the manner
provided in Section 1.08.
(ii) each share of 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 1.06(c) and
any Dissenting Shares (to the extent provided in Section 1.07)), will
be canceled and extinguished and be converted automatically into the
right to receive, subject to the provisions of Section 1.06(g) and
Article 8, that number of shares of Parent Common Stock equal to the
Common Exchange Ratio, upon surrender of the certificate representing
such share of Company Common Stock in the manner provided in Section
1.08.
(c) Cancellation of Parent-Owned and Company-Owned Stock. Each share
of Company Preferred Stock and Company Common Stock owned by 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.
(d) Company Stock Options and Preferred Stock Warrants.
(i) Company Stock Options. At the Effective Time, all Company
Stock Options then outstanding under the 1996 Amended and Restated
Equity Incentive Plan Stock Option Plan (the "Option Plan") shall be
assumed by Parent subject to the terms of such options in accordance
with Section 6.14 hereof and this Section 1.06(d). Each Company Stock
Option so assumed by Parent at the Effective Time will continue to
have, and be subject to, the same terms and conditions set forth in
the Option Plan immediately prior to the Effective Time (including,
without limitation, any repurchase rights), except that (i) each
Company Stock Option will be exercisable (or will become exercisable
in accordance with its terms) 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
Stock 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 (ii) the per share exercise price
for the shares of Parent Common Stock issuable upon exercise of such
assumed Company Stock Option will be equal to the quotient determined
by dividing the exercise price per share of Company Common Stock at
which such Company Stock Option was
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exercisable immediately prior to the Effective Time by the Common
Exchange Ratio, rounded up to the nearest tenth of a cent.
(ii) Series B Warrants. At the Effective Time, all Series B
Warrants then outstanding shall be assumed by Parent. Each Series B
Warrant so assumed by Parent at the Effective Time will continue to
have, and be subject to, the same terms and conditions as immediately
prior to the Effective Time, except that (i) each Series B Warrant
will be exercisable for that number of whole shares of Parent Common
Stock equal to the product of the number of shares of Company Series B
Preferred Stock that were issuable upon exercise of such Series B
Warrant immediately prior to the Effective Time multiplied by the
Series B Preferred Exchange Ratio, rounded down to the nearest whole
number of shares of Parent Common Stock, and (ii) the per share
exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Series B Warrant will be equal to the
quotient determined by dividing the exercise price per share of
Company Series B Preferred Stock at which such Series B Warrant was
exercisable immediately prior to the Effective Time by the Series B
Preferred Exchange Ratio, rounded up to the nearest tenth of a cent.
(iii) Series C Warrants. At the Effective Time, all Series C
Warrants then outstanding shall be assumed by Parent. Each Series C
Warrant so assumed by Parent at the Effective Time will continue to
have, and be subject to, the same terms and conditions as immediately
prior to the Effective Time, except that (i) each Series C Warrant
will be exercisable for that number of whole shares of Parent Common
Stock equal to the product of the number of shares of Company Series C
Preferred Stock that were issuable upon exercise of such Series C
Warrant immediately prior to the Effective Time multiplied by the
Series C Preferred Exchange Ratio, rounded down to the nearest whole
number of shares of Parent Common Stock, and (ii) the per share
exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Series C Warrant will be equal to the
quotient determined by dividing the exercise price per share of
Company Series C Preferred Stock at which such Series C Warrant was
exercisable immediately prior to the Effective Time by the Series C
Preferred Exchange Ratio, rounded up to the nearest tenth of a cent.
(e) Capital Stock of Sub. At the Effective Time, each share of Common
Stock of 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 Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the Surviving Corporation.
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(f) Adjustments to Exchange Ratios. The Series A Preferred Exchange
Ratio, Series B Preferred Exchange Ratio, Series C Preferred Exchange Ratio and
Common Exchange Ratio shall be adjusted to reflect fully the effect of any stock
split, reverse split, stock dividend (including any dividend or distribution
without consideration of securities convertible into Parent or Company stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock, Company Preferred Stock or Company Common Stock, as appropriate,
occurring or with a record date after the date hereof and prior to the Effective
Time.
(g) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued in the Merger, but in lieu thereof each holder of Company Common
Stock who would otherwise be entitled to a fraction of a share of Parent Common
Stock shall be entitled to receive from Parent an amount of cash (rounded to the
nearest tenth of a cent) equal to the product of (i) such fraction, multiplied
by (ii) the Average Price.
(h) Definitions.
(i) The "Aggregate Common Number" shall mean the aggregate number
of shares of Company Common Stock outstanding or issuable upon
exercise of outstanding Company Stock Options, whether or not
exercisable, immediately prior to the Effective Time; provided
however, if William Lattin is not appointed to the Board of Directors
of Parent as of the Closing Date, the Aggregate Common Number shall be
reduced by 226,683 shares.
(ii) The "Aggregate Series A Number" shall mean the aggregate
number of shares of Company Series A Preferred Stock outstanding
immediately prior to the Effective Time.
(iii) The "Aggregate Series B Number" shall mean the aggregate
number of shares of Company Series B Preferred Stock outstanding or
issuable upon the exercise of Series B Warrants immediately prior to
the Effective Time.
(iv) the "Aggregate Series C Number" shall mean the aggregate
number of shares of Company Series C Preferred Stock outstanding or
issuable upon exercise of Series C Warrants, immediately prior to the
Effective Time.
(v) The "Aggregate Share Number" shall be a number of shares of
Parent Common Stock equal to $750,000,000 divided by the Average
Price, as appropriately adjusted to reflect the effect of any stock
split, stock
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dividend, reorganization, recapitalization or the like with respect to
the Parent Common Stock occurring after the date hereof and prior to
the Effective Time.
(vi) The "Average Price" shall mean the per share price of the
Parent Common Stock that equals the average of the closing prices for
the Parent Common Stock, as reported on the Nasdaq National Market for
the ten (10) trading days ending two (2) business days immediately
prior to the Closing Date.
(vii) The "Common Allocation Number" shall mean the difference
obtained by subtracting (A) the sum of the Series A Allocation Number,
the Series B Allocation Number and the Series C Allocation Number from
(B) the Aggregate Share Number.
(viii) The "Common Exchange Ratio" shall mean the quotient
obtained by dividing the Common Allocation Number by the Aggregate
Common Number.
(ix) The "Series A Preferred Exchange Ratio" shall mean the
quotient obtained by dividing the Series A Allocation Number by the
Aggregate Series A Number.
(x) The "Series B Preferred Exchange Ratio" shall mean the
quotient obtained by dividing the Series B Allocation Number by the
Aggregate Series B Number.
(xi) The "Series C Preferred Exchange Ratio" shall mean the
quotient obtained by dividing the Series C Allocation Number by the
Aggregate Series C Number.
(xii) The "Series A Allocation Number" shall mean the quotient
obtained by dividing (A) the product of the Aggregate Series A Number
and $0.9723 by (B) the Average Price.
(xiii) The "Series B Allocation Number" shall mean the quotient
obtained by dividing (A) the product of the Aggregate Series B Number
and $0.80 by (B) the Average Price.
(xiv) the "Series C Allocation Number" shall mean the quotient
obtained by dividing (A) the product of the Aggregate Series C Number
and $0.9345 by (B) the Average Price.
(i) Restricted Shares. Any shares of Parent Common Stock received in
the Merger as set forth above by holders of Company Common Stock acquired by
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such holders upon early exercise of Company Stock Options, which shares of
Company Common Stock are at the Effective Time subject to contractual forfeiture
provisions or repurchase rights, shall continue to be subject to such forfeiture
and repurchase provisions and the Parent or Surviving Company following the
Merger shall succeed to the rights of the Company in respect thereof.
SECTION 1.07. Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Preferred Stock or Company Common Stock issued and
outstanding immediately prior to the Effective Time that are held by a Company
stockholder (each, a "Stockholder;" collectively, the "Stockholders") who has
exercised and perfected appraisal rights for such shares in accordance with
Section 262 of the DGCL and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal rights ("Dissenting Shares"), shall not be
converted into or represent a right to receive Parent Common Stock pursuant to
Section 1.06, but the holder thereof shall only be entitled to such rights as
are granted by the DGCL.
(b) Notwithstanding the provisions of subsection (a), if any holder
of Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) his or her appraisal rights, then, as of the later of
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
shares of Parent Common Stock to which such Stockholder would otherwise be
entitled under Section 1.06 (less the number of shares allocable to such
Stockholder that have been deposited into the Escrow Fund on such holder's
behalf pursuant to Article 8), upon surrender of the certificate representing
such shares.
(c) The Company shall give Parent prompt notice of any written demand
for appraisal received by the Company pursuant to the applicable provisions of
the DGCL and the opportunity to participate in all negotiations and proceedings
with respect to such demands. The Company shall not, except with the prior
written consent of Parent, voluntarily make any payment with respect to any such
demands or offer to settle or settle any such demands. To the extent that Parent
or the Company makes any payment or payments in respect of any Dissenting
Shares, Parent shall be entitled to recover under the terms of Article 8 hereof
the aggregate amount by which such payment or payments exceed the aggregate
consideration that otherwise would have been payable in respect of such shares
pursuant to Section 1.06.
SECTION 1.08. Surrender of Certificates.
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(a) Exchange Agent. Boston Equiserve, Parent's transfer agent, shall
serve as exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article 1 the shares of Parent Common Stock issuable
pursuant to Section 1.06 (the "Merger Shares") in exchange for all the
outstanding shares of Company Preferred Stock or Company Common Stock; provided,
however, that, pursuant to Section 8.02 hereof, Parent shall deposit into an
escrow account and not issue to the Stockholders that number of Merger Shares
equal to ten percent (10%) of the shares which each Stockholder is entitled to
receive pursuant to Section 1.06, rounded to the nearest whole share, issued to
the Escrow Agent (as defined in Article 8) on behalf of the Stockholders
pursuant to Section 1.06(b) (the "Escrow Amount").
(c) Exchange Procedures. On the Closing Date, the Stockholders will
surrender the certificates representing their Company Preferred Stock or Company
Common Stock (the "Company Certificates") to the Company, Parent or the Exchange
Agent, as may be requested by Parent, for cancellation together with a letter of
transmittal in such form and having such provisions as Parent may reasonably
request. Upon surrender of a Company Certificate for cancellation to such 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, Parent will promptly cause the Exchange Agent to deliver
to the holder of such Company Certificate 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 Section 1.08(b) and Article 8) to which such
Stockholder is entitled pursuant to Section 1.06, and the Company Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each outstanding
Company Certificate that, prior to the Effective Time, represented shares of
Company Preferred Stock or Company Common Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence only the right to receive the number of full shares of
Parent Common Stock into which such shares of Company Preferred Stock or Company
Common Stock shall have been converted pursuant to this Article 1 and subject to
Article 8. As soon as practicable after the Effective Time, and subject to and
in accordance with the provisions of Article 8 hereof, Parent shall cause to be
distributed to the Escrow Agent a certificate or certificates representing that
number of shares of Parent Common Stock equal to the Escrow Amount, which shall
be registered in the name of the Escrow Agent. All shares held in the Escrow
Fund shall be beneficially owned by the holder on whose behalf such shares were
deposited in the Escrow Fund and shall be available to compensate Parent as
provided in Article 8.
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(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
any holder of any unsurrendered Company Certificate with respect to the shares
of Parent Common Stock represented thereby until the holder of record of such
Company Certificate shall surrender such Company Certificate. Subject to
applicable law, following surrender of any such Company 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 Company
Certificate surrendered in exchange therefor is registered, it will be a
condition to the issuance thereof that the Company 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 Company 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) Lost, Stolen or Destroyed Company Certificates. In the event any
Company Certificates shall have been lost, stolen or destroyed, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Company
Certificates, upon the making of an affidavit of that fact by the holder
thereof, the number of shares of Parent Common Stock, if any, as may be required
pursuant to Section 1.06; 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 Company 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.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.08, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Parent Common Stock, Company
Preferred Stock or Company Common Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
SECTION 1.09. No Further Ownership Rights in Company Preferred Stock
or Company Common Stock. At the Effective Time, all shares of Parent Common
10
Stock issued in accordance with the terms hereof shall be deemed to be full
satisfaction of all rights pertaining to such shares of Company Preferred Stock
or Company Common Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Preferred Stock
or Company Common Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Company Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article 1.
SECTION 1.10. Dissenting Shares After Payment of Fair Value. After
payments of fair value in respect of Dissenting Shares have been made to
dissenting stockholders pursuant to the DGCL, such Dissenting Shares shall be
canceled.
SECTION 1.11. Tax and Accounting Consequences. It is intended by the
parties hereto that (i) this Agreement shall constitute a plan of reorganization
within the meaning of Treasury Regulations Section 1.368-2(g), (ii) the Merger
shall constitute a reorganization within the meaning of Section 368 of the Code
and (iii) the Merger shall qualify for accounting treatment as a pooling of
interests if the Closing Date shall be May 31, 2000 or earlier. Each party has
consulted with, and is relying exclusively upon, its own tax advisors and
accountants with respect to the tax and accounting consequences, respectively,
of the Merger.
SECTION 1.12. Taking of Necessary Action; Further Action. If, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Company and Sub, the officers and
directors of the Company, Parent and Sub are fully authorized in the name of
their respective corporations or otherwise to take all such lawful and necessary
action.
ARTICLE 2
DEFINITIONS
SECTION 2.01. Definitions. (a) The following terms, as used herein,
have the following meanings:
"Acquisition Proposal" means, other than the transactions
contemplated by this Agreement, any offer or proposal for, any indication of
interest in, or any submission of inquiries from any Third Party relating to (A)
any acquisition or purchase, direct or indirect, of 20% or more of the assets of
the Company or 20% or more of any class of equity or voting securities of the
Company, (B) any tender offer (including a self-tender offer) or exchange offer
that, if consummated, would
11
result in such Third Party's beneficially owning 20% or more of any class of
equity or voting securities of the Company, (C) a merger, consolidation, share
exchange, business combination, sale of substantially all the assets,
reorganization, recapitalization, liquidation, dissolution or other similar
transaction involving the Company, or (D) any other transaction the consummation
of which could reasonably be expected to impede, interfere with, prevent or
materially delay the Merger or that could reasonably be expected to dilute
materially the benefits to Parent of the transactions contemplated hereby.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person.
"Benefit Arrangement" means any employment, severance or similar
contract or arrangement (whether or not written) providing for compensation,
bonus, profit-sharing, stock option, or other stock-related rights or other
forms of incentive or deferred compensation, vacation benefits, insurance
coverage (including any self-insured arrangements), health or medical benefits,
disability benefits, worker's compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits) that
(i) is not an Employee Plan, (ii) is entered into, maintained, administered or
contributed to, as the case may be, by the Company or any of its Affiliates and
(iii) covers any employee or former employee of the Company employed in the
United States.
"Business Day" means a day, other than Saturday, Sunday or other day
on which commercial banks in New York, New York are authorized or required by
law to close.
"California Permit" shall mean a permit from the California
Commission of Corporations obtained pursuant to Section 25121 of the California
Corporate Securities Law of 1968.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Material Adverse Change" means a material adverse change in
the condition (financial or otherwise), business, assets or results of
operations of the Company and its subsidiaries, taken as a whole; provided,
however, that in no event shall any of the following constitute a Company
Material Adverse Change: (i) any effects, changes, events, circumstances or
conditions generally affecting the industry in which the Company operates or
arising from changes in general business or economic conditions; (ii) any
effects, changes, events, circumstances or conditions resulting from the
announcement of, or pendency of a litigation arising out of, any of the
transactions contemplated by this Agreement (including, without limitation,
delays in customer orders, a reduction in sales or a
12
disruption in business relationships, but excluding a loss of any of the Key
Employees (other than because of death or permanent disability)); (iii) any
effects, changes, events, circumstances or conditions resulting from compliance
by the Company with the terms of, or the taking of any action contemplated or
permitted by, this Agreement; (iv) changes in product development schedules or
current or prospective customers; and (v) litigation or threats thereof to the
extent that there is not a substantial likelihood that (A) such litigation would
succeed on the merits; and (B) the prospective damages or losses would exceed in
the aggregate $20,000,000.
"Employee Plan" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Company or any of its
Affiliates and (iii) covers any employee or former employee of the Company.
"Environmental Laws" means any federal, state, local or foreign law
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or requirement or any agreement with any governmental authority or
other third party, relating to human health and safety, the environment or to
pollutants, contaminants, wastes or chemicals or any toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous substances, wastes or
materials.
"Environmental Permits" means all permits, licenses, franchises,
certificates, approvals and other similar authorizations of governmental
authorities relating to or required by Environmental Laws and affecting, or
relating in any way to, the business of the Company as currently conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" of any entity means any other entity that, together
with such entity, would be treated as a single employer under Section 414 of the
Code.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
"International Plan" means any employment, severance or similar
contract or arrangement (whether or not written) or any plan, policy, fund,
program or arrangement or contract providing for severance, insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, pension or
retirement benefits or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits that (i) is not an Employee
Plan or a Benefit Arrangement, (ii) is entered into, maintained, administered or
13
contributed to by the Company or any of its Affiliates and (iii) covers any
employee or former employee of the Company.
"Key Employees" means Steven Flannery, Steven Sheafor, Larry Woodson,
Wade Appelman, Lee Hanson and Cindy Lindsay.
"knowledge" of any Person that is not an individual means the
knowledge of such Person's officers after reasonable inquiry."
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset that it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the condition (financial or otherwise), business,
assets or results of operations of such Person and its subsidiaries, taken as a
whole.
"Multiemployer Plan" means each Employee Plan that is a multiemployer
plan, as defined in Section 3(37) of ERISA.
"1933 Act" means the Securities Act of 1933.
"1934 Act" means the Securities Exchange Act of 1934.
"Parent Material Adverse Change" means a material adverse change in
the condition (financial or otherwise), business, assets or results of
operations of Parent and its subsidiaries, taken as a whole; provided, however,
that in no event shall any of the following constitute a Parent Material Adverse
Change: (i) any effects, changes, events, circumstances or conditions generally
affecting the industry in which Parent operates or arising from changes in
general business or economic conditions; (ii) any effects, changes, events,
circumstances or conditions resulting from the announcement of or pendency of
litigation arising out of, any of the transactions contemplated by this
Agreement (including, without limitation, delays in customer orders, a reduction
in sales or a disruption in business relationships); (iii) any effects, changes,
events, circumstances or conditions resulting from compliance by Parent with the
terms of, or the taking of any action contemplated or permitted by, this
Agreement; (iv) any change in the trading price of Parent Common Stock; (iv)
changes in product development schedules or current or prospective customers;
and (v) litigation or threats thereof to the extent that there is not a
substantial likelihood that (A) such litigation would
14
succeed on the merits; and (B) the prospective damages or losses would exceed in
the aggregate $20,000,000.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"SEC" means the Securities and Exchange Commission.
"Third Party" means any Person as defined in Section 13(d) of the
1934 Act, other than Parent or any of its Affiliates.
"Title IV Plan" means an Employee Plan subject to Title IV of ERISA
other than any Multiemployer Plan.
Any reference in this Agreement to a statute shall be to such
statute, as amended from time to time, and to the rules and regulations
promulgated thereunder.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Sub as set
forth below as of the date hereof, subject to such exceptions as are disclosed
in the disclosure schedule supplied by the Company to Parent (the "Company
Disclosure Schedule"), which shall modify the representations and warranties of
the Company contained in this Agreement.
SECTION 3.01. Organization of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has the corporate power to own its
properties and to carry on its business as now being conducted. The Company is
duly qualified to do business and in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect upon the Company. The Company has delivered a true and correct
copy of its Certificate of Incorporation and Bylaws, each as amended as of the
date hereof, to Parent. Section 3.01 of the Company Disclosure Schedule lists
all of the directors and officers of the Company. The operations now being
conducted by the Company have not been conducted under any other name by the
Company.
15
SECTION 3.02. Subsidiaries. As of the date hereof, the Company does
not have any subsidiaries and does not otherwise own any shares in the capital
of or any interest in, or control, directly or indirectly, any corporation,
partnership, association, joint venture or other business entity.
SECTION 3.03. Company Capital Structure.
(a) The authorized capital stock of the Company consists of (i)
78,260,000 shares of authorized Common Stock, $0.001 par value, of which
18,245,199 shares are issued and outstanding as of the date of this Agreement
and (ii) 50,660,000 shares of authorized Preferred Stock, $0.001 par value, of
which 1,800,000 shares are designated Series A Preferred Stock; 25,512,500
shares are designated Series B Preferred Stock and 23,260,000 shares are
designated Series C Preferred Stock. Of the Company Preferred Stock, there are
outstanding, as of the date of this Agreement, 1,800,000 shares of Company
Series A Preferred Stock (which is convertible into 1,839,286 shares of Company
Common Stock), 25,212,500 shares of Company Series B Preferred Stock and
22,151,898 shares of Company Series C Preferred Stock, and there are outstanding
warrants to purchase 300,000 shares of Company Series B Preferred Stock and
952,381 shares of Company Series C Preferred Stock. As of the date hereof, each
share of Company Series B Preferred Stock and Company Series C Preferred Stock
is convertible into one share of Company Common Stock. The Company Preferred
Stock, Preferred Stock Warrants and Company Common Stock are, as of the date of
this Agreement, held by the persons, with the domicile addresses and in the
amounts set forth in Section 3.03(a) of the Company Disclosure Schedule. All
outstanding shares of the Company are duly authorized, validly issued, fully
paid and non- assessable and not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of the Company or any
agreement to which the Company is a party or by which it is bound and have been
issued in compliance with federal and state securities laws. The Preferred Stock
Warrants were duly and validly issued and were issued in compliance with federal
and state securities laws, and the Company Preferred Stock issuable upon
exercise of the Preferred Stock Warrants has been duly reserved and, upon
exercise, would be validly issued, fully paid and non-assessable. There are no
declared or accrued unpaid dividends with respect to any shares of the Company
Common Stock or Company Preferred Stock. The Company has no other capital stock
authorized, issued or outstanding.
(b) Except for the Option Plan, the Company has never adopted or
maintained any stock option plan or other plan providing for equity compensation
of any person. The Company has reserved 12,436,875 shares of Company Common
Stock for issuance to employees and consultants pursuant to the Option Plan, of
which 6,045,199 shares are outstanding pursuant to option exercises through the
date hereof, 6,349,777 shares are subject to outstanding unexercised options as
of the date hereof and 41,899 shares remain available for future grant as
16
of the date hereof. Section 3.03(b) of the Company Disclosure Schedule sets
forth for each Company Stock Option outstanding, the name of the holder of such
option, the domicile address of such holder, the grant date and number of shares
of Company Common Stock subject to such option, the exercise price of such
option and the vesting schedule for such option, including the extent vested to
date and whether the exercisability of such option will be accelerated and
become exercisable by the transactions contemplated by this Agreement. Except
for the Company Stock Options and the Preferred Stock Warrants outstanding as of
the date hereof, there are no options, warrants, calls, rights, 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, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
securities of the Company or obligating the Company to grant, extend, accelerate
the vesting of, change the price of, otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. Except as set forth on
Section 3.03(b) of the Company Disclosure Schedule, no outstanding Company
capital stock is subject to vesting. Section 3.03(b) of the Company Disclosure
Schedule sets forth as of the date hereof the name of the holder of any Company
Common Stock subject to vesting, the number of shares of Company Common Stock
subject to vesting and the vesting schedule for such Company Common Stock,
including the extent vested to date and whether the vesting of such shares of
Company Common Stock will be accelerated by the transactions contemplated by
this Agreement. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or other similar rights with respect to the
Company or any of its securities. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting stock of the Company or
any other matters involving any securities of the Company, other than the Voting
Agreements.
SECTION 3.04. Authority. Subject only to the approval of the Merger
and this Agreement by the Stockholders, the Company has all requisite power and
authority to enter into this Agreement and any Related Agreements (as
hereinafter defined) to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and any Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company, and no further action is
required on the part of the Company to authorize the Agreement, any Related
Agreements to which it is a party and the transactions contemplated hereby and
thereby, subject to the approval of this Agreement and the Merger by the
Stockholders. This Agreement, the Related Agreements and the Merger have been
unanimously approved by the Board of Directors of the Company. This Agreement
and any Related Agreements to which the Company is a party have been duly
executed and delivered by the Company, and, assuming the due authorization,
execution and delivery by the other parties hereto and thereto,
17
constitute the valid and binding obligation of the Company, enforceable against
the Company in accordance with their respective terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies. The "Related Agreements" shall mean all such ancillary
agreements required in this Agreement to be executed and delivered in connection
with the transactions contemplated hereby, including without limitation, the
Noncompetition and No-Hire Agreements, the Affiliate Agreements and the Voting
Agreements.
SECTION 3.05. No Conflict. Subject to the approval of this Agreement
and the Merger by the Stockholders, the execution and delivery of this Agreement
and any Related Agreements to which the Company is a party by the Company, and
the performance by the Company of its obligations under this Agreement and such
Related Agreements will not as of the date hereof, conflict with, or result in
any violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Certificate of Incorporation or Bylaws of
the Company, (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise or license to which the Company or any
of its properties or assets are subject, or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or its
properties or assets, except where such Conflict will not have a material
adverse effect on the business, assets (including intangible assets), financial
conditions or results of operations of the Company.
SECTION 3.06. 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
other foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party, including a party to any agreement
with the Company (so as not to trigger any Conflict), is required at or prior to
the Effective Time by or with respect to the Company in connection with the
Company's execution and delivery of this Agreement and any Related Agreements to
which the Company is a party or the consummation of the transactions
contemplated hereby and thereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable securities laws, (ii) the filing of the Merger
Certificate with the Secretary of State of the State of Delaware, (iii) such
filings as may be required under the HSR Act, (iv) the filing requirements under
applicable state securities laws and (v) obtaining the California Permit.
18
SECTION 3.07. Company Financial Statements. The Company has delivered
to Parent its audited balance sheet as of October 31, 1999 and the related
audited statements of income and cash flow for the twelve-month period then
ended (the "Audited Financials") and the Company's unaudited balance sheet as of
March 31, 2000, and the related unaudited statements of income and cash flow for
the five months then ended (the "Unaudited Financials"). The Audited Financials
and the Unaudited Financials have been prepared in accordance with GAAP, applied
on a basis consistent throughout the periods indicated and consistent with each
other (except that the Unaudited Financials do not contain all the notes that
may be required by GAAP). The Audited Financials and Unaudited Financials
present fairly the financial condition and operating results of the Company as
of the dates and during the periods indicated therein, subject in the case of
the Unaudited Financials, to the footnotes thereto and normal year-end
adjustments, which when taken together, will not reflect any Material Adverse
Effect on the Company. The Company's unaudited Balance Sheet as of March 31,
2000 shall be hereinafter referred to as the "Current Balance Sheet."
SECTION 3.08. No Undisclosed Liabilities. The Company has no
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 (i)
has not been reflected in the Current Balance Sheet or the notes thereto, or
(ii) has not arisen in the ordinary course of business consistent with past
practices since March 31, 2000 and been disclosed to Parent in Section 3.08 of
the Company Disclosure Schedule other than liabilities, indebtedness,
obligations, expenses, claims, deficiencies, guarantees or endorsements which
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company.
SECTION 3.09. No Changes. Between March 31, 2000 and the date
hereof, there has not been, occurred or arisen any:
(a) transaction by the Company involving more than $50,000 in the
aggregate not in the ordinary course of business;
(b) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $50,000;
(c) loss of or any material destruction of or damage to any material
assets, business or customer of the Company (whether or not covered by
insurance);
(d) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
19
(e) revaluation by the Company of any of its assets;
(f) declaration, setting aside or payment of a dividend or other
distribution with respect to any shares of Company Common Stock or Company
Preferred Stock, or any direct or indirect redemption, purchase or other
acquisition by the Company of any of the Company Common Stock or Company
Preferred Stock;
(g) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors or employees, or the
declaration, payment or commitment or obligation of any kind for the payment by
the Company of a bonus or other additional salary or compensation to any such
person;
(h) termination, extension, amendment or modification to the terms of
any material agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it or any of its assets
is bound;
(i) sale, lease, license or other disposition of any of the material
assets or properties of the Company, or any creation of any security interest in
such assets or properties;
(j) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business and not exceeding $50,000
in the aggregate, consistent with past practices;
(k) waiver or release of any right or claim of the Company including
any write-off or other compromise of any account receivable of the Company
exceeding $50,000 in the aggregate;
(l) material change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or charged
by licensors to the Company;
(m) event or condition of any character that has or would reasonably
be expected to have a Material Adverse Effect on the Company; or
(n) agreement by the Company or any officer or employee thereof in
their capacities as such to do any of the things described in the preceding
clauses
20
(a) through (m) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
SECTION 3.10. Taxes. (a) The Company and each affiliated group
(within the meaning of Section 1504 of the Code) of which the Company is or has
been a member, has timely filed (or has had timely filed on its behalf) or will
file or cause to be timely filed all Tax Returns required by applicable law to
be filed by it prior to or as of the date hereof, and all such Tax Returns are,
or will be at the time of filing, true and complete in all material respects.
(b) As of the date hereof, the Company has paid (or has had paid on
its behalf), or, where payment is not yet due, has established (or has had
established on its behalf and for its sole benefit and recourse) in accordance
with GAAP, an adequate accrual for the payment of all taxes due with respect to
any period ending prior to or as of the Effective Time.
(c) Neither the Company nor any member of any affiliated,
consolidated, combined or unitary group of which the Company is or has been a
member has granted any extension or waiver of the statute of limitations period
applicable to any Return, which period (after giving effect to such extension or
waiver) has not yet expired.
(d) There are no Liens or encumbrances for Taxes on any of the
assets of Company other than Liens or encumbrances for Taxes not yet due and
payable.
(e) The Company has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes.
(f) To the Company's knowledge, as of the date hereof, no federal,
state, local or foreign audits or administrative proceedings are pending with
regard to any Taxes or Tax Return of Company, nor has the Company received a
written notice of any proposed audit or proceeding regarding any pending audit
or proceeding.
(g) "Taxes" shall mean any and all taxes, charges, fees, levies or
other assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, goods and services, service use, license, value added, capital,
net worth, payroll, profits, withholding, franchise, transfer and recording
taxes, fees and charges, and any other taxes, assessment or similar charges
imposed by the IRS or any taxing authority (whether domestic or foreign
including any state, county, local or foreign government or any subdivision or
taxing agency thereof (including a United States possession)) (a "Taxing
Authority"), whether computed on a separate, consolidated, unitary, combined or
any other basis; and such term shall
21
include any interest whether paid or received, fines, penalties or additional
amounts attributable to, or imposed upon, or with respect to, any such taxes,
charges, fees, levies or other assessments. "Tax Return" shall mean any report,
return, document, declaration or other information or filing required to be
supplied to any taxing authority or jurisdiction (foreign or domestic) with
respect to Taxes, including information returns, any documents with respect to
or accompanying payments of estimated Taxes, or with respect to or accompanying
requests for the extension of time in which to file any such report, return,
document, declaration or other information.
SECTION 3.11. Employee Benefit Plans. (a) The Company has provided
Parent with a list and copies of the Employee Plans (and, if applicable, related
trust agreements) and all amendments thereto and written interpretations thereof
together with the three most recent annual reports (Form 5500 including, if
applicable, Schedule B thereto) and the most recent actuarial valuation report
prepared in connection with any Employee Plan. Such list identifies each
Employee Plan that is (i) a Multiemployer Plan, (ii) a Title IV Plan or (iii)
maintained in connection with any trust described in Section 501(c)(9) of the
Code. The Company has provided Parent with complete age, salary, service and
related data as of March 31, 2000 for all employees and former employees covered
under any Title IV Plan.
(b) As of March 31, 2000, the fair market value of the assets of
each Title IV Plan (excluding for these purposes any accrued but unpaid
contributions) exceeded the present value of all benefits accrued under such
Title IV Plan determined on a termination basis using the assumptions
established by the PBGC as in effect on such date. As of March 31, 2000, the
aggregate unfunded liability of the Company in respect of all Employee Plans or
Benefit Arrangements described under Sections 4(b)(5) or 401(a)(1) of ERISA,
computed using reasonable actuarial assumptions and determined as if all
benefits under such plans were vested and payable as of such date, did not
exceed $50,000.
(c) To the Company's knowledge, no transaction prohibited by Section
406 of ERISA or Section 4975 of the Code has occurred with respect to any
employee benefit plan or arrangement that is covered by Title I of ERISA, which
transaction has or will cause the Company to incur any liability under ERISA,
the Code or otherwise, excluding transactions effected pursuant to and in
compliance with a statutory or administrative exemption. No "accumulated funding
deficiency," as defined in Section 412 of the Code, has been incurred with
respect to any Employee Plan subject to such Section 412, whether or not waived.
No "reportable event," within the meaning of Section 4043 of ERISA, other than a
"reportable event" that will not have a Material Adverse Effect on the Company,
and no event described in Section 4062 or 4063 of ERISA, has occurred in
connection with any Employee Plan. Neither the Company nor any ERISA Affiliate
of the Company has (i) engaged in, or is a successor or parent
22
corporation to an entity that has engaged in, a transaction described in
Sections 4069 or 4212(c) of ERISA or (ii) incurred, or reasonably expects to
incur prior to the Effective Time, (A) any liability under Title IV of ERISA
arising in connection with the termination of, or a complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA or
(B) any liability under Section 4971 of the Code that in either case could
become a liability of the Company, Parent or any of their ERISA Affiliates after
the Effective Time. No condition exists that (i) could constitute grounds for
termination by the PBGC of any employee benefit plan that is subject to Title IV
of ERISA and that is maintained by the Company or any of its ERISA Affiliates or
(ii) presents a material risk of complete or partial withdrawal from any
multiemployer plan, as defined in Section 3(37) of ERISA, which could result in
the Company, Parent or any ERISA Affiliate of any of them incurring a withdrawal
liability within the meaning of Section 4201 of ERISA. The assets of the Company
are not now, nor will they after the passage of time be, subject to any lien
imposed under Code Section 412(n) by reason of a failure of any of the Company
to make timely installments or other payments required under Code Section 412.
If a "complete withdrawal" by the Company and all of its ERISA Affiliates were
to occur as of the Effective Time with respect to all Multiemployer Plans, none
of the Company or any of its ERISA Affiliates would incur any material
withdrawal liability under Title IV of ERISA.
(d) Each Employee Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period since its adoption; each trust created under any such Plan is exempt from
tax under Section 501(a) of the Code and has been so exempt since its creation.
The Company has provided Parent with the most recent determination letter of the
Internal Revenue Service relating to each such Employee Plan. Each Employee Plan
has been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and
regulations, including but not limited to ERISA and the Code.
(e) The Company has provided Parent with a list and copies or
descriptions of each Benefit Arrangement (and, if applicable, related trust
agreements) and all amendments thereto and written interpretations thereof. Each
Benefit Arrangement has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all applicable statutes, orders,
rules and regulations and has been maintained in good standing with applicable
regulatory authorities.
(f) The Company has no current or projected liability in respect of
post-employment or post-retirement health or medical or life insurance benefits
for retired, former or current employees of the Company, except as required to
avoid excise tax under Section 4980B of the Code. No condition exists that would
prevent the Company from amending or terminating any Employee Plan or
23
Benefit Arrangement providing health or medical benefits in respect of any
active employee of the Company other than limitations imposed under the terms of
a collective bargaining agreement.
(g) All contributions and payments accrued under each Employee Plan
and Benefit Arrangement, determined in accordance with prior funding and accrual
practices, will be discharged and paid or accrued on or prior to the Effective
Time. There has been no amendment to, written interpretation of or announcement
(whether or not written) by the Company relating to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement that
would increase materially the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect thereof
for the most recent fiscal year ended prior to the date hereof.
(h) The Company is not a party to any contract, plan or arrangement
(written or otherwise) 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 the terms of Section 280G of the Code.
(i) There has been no failure of a group health plan (as defined in
Section 5000(b)(1) of the Code) to meet the requirements of Code Section
4980B(f) with respect to a qualified beneficiary (as defined in Section
4980B(g)). The Company has not contributed to a nonconforming group health plan
(as defined in Section 5000(c)) and no ERISA Affiliate of the Company has
incurred a tax under Section 5000(a) that is or could become a liability of the
Company.
(j) The Company has provided Parent with a list and copies of each
International Plan. Each International Plan has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations (including any special
provisions relating to qualified plans where such Plan was intended so to
qualify) and has been maintained in good standing with applicable regulatory
authorities. There has been no amendment to, written interpretation of or
announcement (whether or not written) by the Company relating to, or change in
employee participation or coverage under, any International Plan that would
increase materially the expense of maintaining such International Plan above the
level of expense incurred in respect thereof for the most recent fiscal year
ended prior to the date hereof. According to the actuarial assumptions and
valuations most recently used for the purpose of funding each International Plan
(or, if the same has no such assumptions and valuations or is unfunded,
according to actuarial assumptions and valuations in use by the PBGC on the date
hereof), as of March 31, 2000 the total amount or value of the funds available
under such Plan to pay benefits accrued thereunder or segregated in respect of
such accrued benefits, together with any reserve or accrual with respect
thereto, exceeded the present value of all benefits (actual or contingent)
accrued as of such date of all participants and past
24
participants therein in respect of which the Company has or would have after the
Effective Time any obligation. From and after the Effective Time, Parent and its
Affiliates will get the full benefit of any such funds, accruals or reserves.
(k) No employee or former employee of the Company will become
entitled to any bonus, retirement, severance, job security or similar benefit or
enhanced such benefit (including acceleration of vesting or exercise of an
incentive award) as a result of the transactions contemplated hereby.
SECTION 3.12. Environmental Matters. (a) Except as could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company:
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been
filed, no penalty has been assessed, and no investigation, action,
claim, suit, proceeding or review (or any basis therefor) is pending
or, to the knowledge of the Company, is threatened by any governmental
entity or other Person relating to or arising out of any Environmental
Law;
(ii) the Company is and has been in compliance with all
Environmental Laws and all Environmental Permits; and
(iii) there are no liabilities of or relating to the Company of
any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise arising under or relating to any
Environmental Law and there are no facts, conditions, situations or
set of circumstances that could reasonably be expected to result in or
be the basis for any such liability.
(b) There has been no environmental investigation, study, audit,
test, review or other analysis conducted of which the Company has knowledge in
relation to the current or prior business of the Company or any property or
facility now or previously owned or leased by the Company that has not been
delivered to Parent at least five days prior to the date hereof.
(c) The Company does not own, lease or operate nor has it owned,
leased or operated any real property. The Company does not conduct nor has it
ever conducted any operations, in New Jersey or Connecticut.
(d) For purposes of this Section 4.19, the term "Company" shall
include any entity that is, in whole or in part, a predecessor of the Company.
SECTION 3.13. Restrictions on Business Activities. There is no
judgment, injunction, order or decree to which the Company is a party or
otherwise binding
25
upon the Company that has had or reasonably could 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 is not
subject to any agreement under which the Company is restricted from selling,
licensing or otherwise distributing any of its technology or products to or
providing services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
SECTION 3.14. Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment.
(a) The Company does not own any real property, and has never owned
any real property. Section 3.14(a) of the Company Disclosure Schedule sets forth
a list of all real property currently leased by the Company, the name of the
lessor, the date of the lease and each amendment thereto and, with respect to
any current lease, the aggregate annual rental and/or other fees payable under
any such lease and the term and renewal provisions of such lease. All such
leases are in full force and effect and enforceable by the Company, and there is
not, under any of such leases, any existing default by the Company or, to the
knowledge of the Company, by the other party thereto or event of default (or
event which with notice or lapse of time, or both, would constitute such a
default).
(b) The Company has good and valid 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, except as reflected in the Current
Balance Sheet and except for Liens for Taxes not yet due and payable, municipal
and zoning ordinances, easements for public utilities 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 interfere with
the present use, of the property subject thereto or affected thereby.
(c) Section 3.14(c) of the Company Disclosure Schedule lists all
material items of equipment (the "Equipment") owned or leased by the Company and
such Equipment is, in the aggregate, (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.
26
SECTION 3.15. Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
(i) "Intellectual Property" 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 applications therefor
and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof ("Patents"); (B) all
inventions (whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know how,
technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (C) all copyrights, copyright
registrations and applications therefor and all other rights
corresponding thereto throughout the world ("Copyrights"); (D) all
rights to all mask works and reticles, mask work registrations and
applications therefor ("Maskworks"); (E) all industrial designs and
any registrations and applications therefor throughout the world; (F)
all trade names, logos, common law trademarks, service marks and
domain names; trademark, service mark and domain names registrations
and applications therefor and all goodwill associated therewith
throughout the world ("Trademarks"); (G) all databases and data
collections and all rights therein throughout the world; (H) all
computer software including all source code, object code, firmware,
development tools, files, records and data, all media on which any of
the foregoing is recorded, all Web addresses, sites and domain names;
(I) any similar, corresponding or equivalent rights to any of the
foregoing; and (J) all documentation related to any of the foregoing.
(ii) "Company Intellectual Property" shall mean any Intellectual
Property that is owned by or licensed to the Company. Without in any
way limiting the generality of the foregoing, Company Intellectual
Property includes all Intellectual Property related to the Company's
products, including without limitation all rights in any design code,
documentation, and tooling for packaging of semiconductors in
connection with all current products and products in design and
development.
(iii) "Registered Intellectual Property" shall mean all United
States, international and foreign: (A) patents, patent applications
(including provisional applications); (B) registered trademarks,
applications to register trademarks, intent-to-use applications, or
other registrations or applications related to trademarks; (C)
registered copyrights and applications for copyright registration; (D)
any mask work registrations and applications to register mask works;
and (E) any other
27
Company Intellectual Property that is the subject of an application,
certificate, filing, registration or other document issued by, filed
with, or recorded by, any state, government or other public legal
authority.
(b) Section 3.15(b) of the Company Disclosure Schedule lists all
Registered Intellectual Property owned by, or filed in the name of, the Company
(the "Company Registered Intellectual Property") 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.
(c) Each item of Company Intellectual Property, including all Company
Registered Intellectual Property listed in Section 3.15(b) of the Company
Disclosure Schedule and all Intellectual Property licensed to the Company, is
free and clear of any Liens, other than (i) Liens for Taxes not yet due and
payable, (ii) Liens which do not materially detract from the value, or
materially interfere with the present use, of the Company Intellectual Property,
and (iii) non-exclusive license rights of third parties who have been granted
such rights pursuant to agreements with the Company as listed on Company
Disclosure Schedule 3.15(c). The Company (i) is the exclusive owner of all
trademarks and trade names used in connection with the operation or conduct of
the business of the Company, including the sale of any products or technology or
the provision of any services by the Company except as listed on Company
Disclosures Schedule 3.15(c) and (ii) owns exclusively and has good title to,
all copyrighted works that are Company products and that were developed by or
specifically on behalf of the Company.
(d) To the extent that any Intellectual Property has been developed
or created by any person other than the Company for which the Company has,
directly or indirectly, paid, the Company has a written agreement with such
person with respect thereto and the Company thereby has obtained ownership of,
and is the exclusive owner of, all such Intellectual Property by operation of
law or by valid assignment.
(e) The Company has not transferred ownership of or granted any
license of or right to use or authorized the retention of any rights to use any
Intellectual Property that is or was Company Intellectual Property, to any other
person.
(f) The Company Intellectual Property constitutes all the
Intellectual Property used in and/or necessary to the conduct of its business as
it currently is conducted or is reasonably contemplated to be conducted
including, without limitation, the design, development, manufacture, use, import
and sale of the products, technology and services of the Company (including
products, technology or services currently under development).
28
(g) Other than "shrink-wrap" and similar widely available commercial
end-user licenses, the contracts, licenses and agreements listed in Section
3.15(g) of the Company Disclosure Schedule include all contracts, licenses and
agreements to which the Company is a party with respect to any Intellectual
Property. No person who has licensed Intellectual Property to the Company has
ownership rights or license rights to improvements made by the Company in such
Intellectual Property which has been licensed to the Company.
(h) The operation of the business of the Company as it currently is
conducted or is reasonably contemplated to be conducted, including but not
limited to the Company's design, development, use, import, manufacture and sale
of the products, technology or services (including products, technology or
services currently under development) of the Company does not infringe or
misappropriate the Intellectual Property of any person, violate the rights of
any person (including rights to privacy or publicity), or constitute unfair
competition or trade practices under 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 the Intellectual Property of any person or constitutes unfair
competition or trade practices under the laws of any jurisdiction (nor does the
Company have any knowledge of any basis therefor).
(i) Each item of Company Registered Intellectual Property is valid
and subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property owned by the Company have
been paid and all necessary documents and certificates in connection with such
Company Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property. In each case in which the Company has acquired
any exclusive Intellectual Property rights from any person, the Company has
obtained a valid and enforceable assignment sufficient to transfer all rights in
such Intellectual Property (including the right to seek past and future damages
with respect to such Intellectual Property) to the Company and, to the maximum
extent provided for by, and in accordance with, applicable laws and regulations,
the Company has recorded each such assignment with the relevant governmental
authorities, including the PTO, the U.S. Copyright Office, or their respective
equivalents in any relevant foreign jurisdiction, as the case may be.
(j) To the knowledge of the Company, no person is infringing or
misappropriating any Company Intellectual Property owned by the Company.
(k) The Company has taken reasonable and customary steps to protect
the Company's rights in confidential information and trade secrets of the
29
Company or provided by any other person to the Company. Without limiting the
foregoing, the Company has, and enforces, a policy requiring each employee,
consultant and contractor who contribute to the development of the Company's
Intellectual Property to execute proprietary information, confidentiality and
assignment agreements substantially in the Company's standard forms (all of
which have been provided to counsel to Parent) ("Employee Agreements").
(l) No Company Intellectual Property is subject to any proceeding or
outstanding decree, order, judgment 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.
(m) No (i) product, technology, service or publication of the Company
(ii) material published or distributed by the Company or (iii) conduct or
statement of Company constitutes obscene material, a defamatory statement or
material, false advertising or otherwise violates any law or regulation.
(n) All of the Company's products (including products currently under
development) will record, store, process, calculate and present calendar dates
falling on and after (and if applicable, spans of time including) September 9,
1999 and 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 September 8, 1999 and December 31, 1999, or
calculate any information dependent on or relating to such dates (collectively,
"Year 2000 Compliant"). The Company's internal computer and technology products
and systems are Year 2000 Compliant.
SECTION 3.16. Agreements, Contracts and Commitments.
(a) As of the date of this Agreement, the Company is not a party to
nor is it bound by:
(i) other than Employee Agreements, any employment or consulting
agreement, contract or commitment with an employee or individual
consultant or salesperson or consulting or sales agreement, contract
or commitment with a firm or other organization, which involves
payment by the Company of more than $50,000 per annum;
(ii) 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, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any of
the benefits of
30
which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of personal property with fixed annual rental
payments in excess of $50,000;
(v) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $50,000 either
individually or in the aggregate;
(vi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Company's business;
(vii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit;
(viii) any purchase order or contract for the purchase of
materials involving payments by the Company in excess of $50,000
either individually or in the aggregate;
(ix) any construction contracts;
(x) any dealer, distribution, joint marketing or development
agreement which cannot be cancelled without penalty within thirty (30)
days;
(xi) any sales representative, original equipment manufacturer,
value added reseller, remarketer or other agreement for distribution
of the Company's products or services; or
(xii) any other agreement, contract or commitment that involves
$50,000 or more or is not cancelable without penalty within thirty
(30) days.
(b) The Company is not in breach, violation or default under, and has
not, between October 31, 1999 and the date hereof, received any notice that it
has breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract, covenant, instrument, lease, license or commitment listed
in Section 3.16 of the Company Disclosure Schedule (collectively, a "Contract")
(except for notices relating to breaches, violations or defaults that have been
cured or corrected in all material respects), nor does the Company have any
knowledge
31
of any event that would constitute such a breach, violation or default with the
lapse of time, giving of notice or both. Each Contract is in full force and
effect and is not subject to any default thereunder by the Company or, to the
Company's knowledge, any party obligated to the Company pursuant thereto.
Pursuant to the terms of the Contracts, following the Effective Time, the Parent
or the Surviving Corporation will be permitted to exercise all of the Company's
rights under the Contracts without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which the Company
would otherwise be required to pay had the transactions contemplated by this
Agreement not occurred.
SECTION 3.17. Interested Party Transactions. To the Company's
knowledge:
(i) no employee, officer, or director of the Company, nor any
member of such person's immediate family, is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them;
(ii) none of such persons has any direct or indirect ownership
interest in any firm or corporation with which the Company has a
business relationship, or, with respect to officers and directors of
the Company, any firm or corporation that competes with the Company,
except that employees, officers, or directors of the Company and
members of their immediate families may own less than 1% of the
outstanding stock in a publicly traded company that has a business
relationship with the Company or, with respect to officers and
directors of the Company and members of their immediate families, that
may compete with the Company;
(iii) no employee, officer or director of the Company or any
member of such person's immediately family is a party to or directly
or indirectly interested in any Contract with the Company; and
(iv) no employee, officer or director of the Company, nor any
member of such person's immediate family, owns or leases any real or
personal property that is leased or subleased to the Company.
SECTION 3.18. Governmental Authorization. Section 3.18 of the Company
Disclosure Schedule lists each consent, license, permit, grant or other
authorization issued to the Company by a Governmental Entity (i) pursuant to
which the Company currently operates or holds any interest in any of their
properties or (ii) 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
32
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets.
SECTION 3.19. 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 or directors (in their capacities
as such), nor, to the actual knowledge of any employees of the Company, is there
any reasonable basis therefor. There is no investigation pending or, to the
Company's knowledge, threatened against the Company, its properties or any of
its officers or directors (in their capacities as such) by or before any
Governmental Entity. To the Company's knowledge, no Governmental Entity has at
any time challenged or questioned the legal right of the Company to conduct its
operations as presently or previously conducted.
SECTION 3.20. Accounts Receivable.
(a) The Company has made available to Parent a list of all accounts
receivable of the Company as of March 31, 2000 along with a statement of days
elapsed since invoice.
(b) All of the Company's accounts receivable arose in the ordinary
course of business, are carried at values determined in accordance with GAAP
consistently applied and, to the Company's knowledge, are collectible except to
the extent of reserves therefor set forth in the Current Balance Sheet. No
person has any Lien on any of the Company's accounts receivable and, to the
Company's knowledge, no request or agreement for deduction or discount has been
made with respect to any of the Company's accounts receivable.
SECTION 3.21. Brokers' and Finders' Fees; Third Party Expenses. 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 the Agreement or any transaction contemplated hereby.
SECTION 3.22. No Agreements Affected by the Merger. The execution and
delivery of this Agreement and the consummation of the transaction contemplated
hereby will not (i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or employee of the Company, (ii) materially
increase any benefits otherwise payable by the Company, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
SECTION 3.23. Employee Matters. The Company is in compliance in all
material respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and,
33
to the Company's knowledge, is not engaged in any unfair labor practice. To the
Company's knowledge, there are no pending or threatened claims against the
Company under any workers' compensation plan or policy or for long-term
disability. The Company has no obligations under COBRA with respect to any
former employees or qualifying beneficiaries thereunder. There are no
controversies pending or, to the Company's knowledge, threatened between the
Company and any of its employees. The Company is not a party to any collective
bargaining agreement or other labor union contract and there are no activities
or proceedings of any labor union to organize any such employees. Each current
and former employee or consultant of the Company is identified in Section 3.23
of the Company Disclosure Schedule and has executed and delivered to the Company
an Employee Agreement. Any modifications, alterations, exhibits or attachments
to such form has also been provided to legal counsel for Parent. Other than the
Employee Agreements, there are no employment agreements or other contracts
between the Company and any of its employees, officers or directors. To the
Company's knowledge, none of the employees or consultants of the Company is
obligated under any contract or other agreement, or subject to any judgment,
decree or order of any governmental authority that would interfere with the
business of the Company as currently conducted or as reasonable contemplated to
be conducted. No current or former employee or consultant of the Company has
violated any term of any employment or consulting contract or other agreement
relating to such person's employment or consulting relationship with any other
person as such may relate to such person's employment or consulting
relationships with the Company.
SECTION 3.24. Insurance. Section 3.24 of the Company Disclosure
Schedule lists all insurance policies and fidelity bonds covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company as of the date hereof. There is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid, and the
Company is otherwise in 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 premium
increase with respect to, any of such policies.
SECTION 3.25. Board Approval. The Board of Directors of the Company
has, prior to the date hereof, unanimously (i) approved this Agreement and the
transactions contemplated hereby and (ii) determined that the Merger is in the
best interests of the Stockholders and is on terms that are fair to the
Stockholders.
SECTION 3.26. Representations Complete. To the knowledge of the
Company, none of the representations or warranties made by the Company in this
Agreement, nor any statement made in any Schedule or certificate furnished by
34
the Company pursuant to this Agreement or furnished in or in connection with
documents mailed or delivered to the Stockholders for use in soliciting their
consent to this Agreement and the Merger 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 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub hereby represents and warrants to the Company as set
forth below as of the date hereof, subject to such exceptions as are disclosed
in the disclosure schedule supplied by Parent to the Company (the "Parent
Disclosure Schedule"), which shall modify the representations and warranties of
Parent contained in this Agreement.
SECTION 4.01. Organization, Standing and Power. Each of Parent and
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. Each of Parent and 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 the business, assets or condition (financial or otherwise) of
Parent and its subsidiaries, taken as a whole.
SECTION 4.02. Authority. Each of Parent and Sub has all requisite
power and authority to enter into this Agreement and any Related Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related Agreements
to which it is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Parent and Sub, and no further action is required on the part of
Parent or Sub to authorize this Agreement, any Related Agreements to which it is
a party and the transactions contemplated hereby and thereby. This Agreement has
been, and any Related Agreements to which Parent or Sub is a party have been or
will have been prior to the Effective Time, duly executed and delivered by
Parent and Sub and, assuming the due authorization, execution and delivery by
the other parties hereto and thereto, constitute the valid and binding
obligations of Parent and Sub, enforceable in accordance with their respective
terms, except as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
35
SECTION 4.03. Parent Common Stock. The shares of Parent Common Stock
to be issued pursuant to the Merger will be duly authorized, validly issued,
fully paid and non-assessable and will be of the same class as are currently
registered under the Securities Exchange Act of 1934 and as traded on the Nasdaq
National Market.
SECTION 4.04. SEC Documents; Parent Financial Statements. (a) Parent
has furnished the Company with a true and complete copy of all of its filings
with the SEC since September 30, 1999 (the "SEC Documents"). As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the 1933 Act and 1934 Act, as applicable, and none of
the SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed document
with the SEC. The SEC Documents contain an audited consolidated balance sheet of
Parent as of September 30, 1999 (the "Parent Balance Sheet") and the related
audited consolidated statements of income and cash flow for the year then ended
(the "Parent Financials"). The Parent Financials have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated and consistent with each other. The Parent Financials present fairly
the consolidated financial condition and operating results and cash flows of
Parent and its subsidiaries as of the dates and during the periods indicated
therein. Since the date of the Parent Balance Sheet and until the date of this
Agreement, there has not occurred any material adverse change in the business,
assets or condition (financial or otherwise) of Parent and its subsidiaries,
taken as a whole.
(b) Since September 30, 1999, there has not been, occurred or arisen
any event or condition that has had or is reasonably likely to have a Material
Adverse Effect on Parent.
SECTION 4.05. No Conflict. The execution and delivery of this
Agreement and any Related Agreement to which Parent or Sub is a party by Parent
or Sub, as the case may be, do not, and the consummation of the transactions
contemplated hereby and thereby will not, Conflict with (i) any provision of the
Certificate of Incorporation and Bylaws of Parent or Sub, (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise or license to which Parent or Sub or any of their respective
properties or assets are subject and that has been filed as an exhibit to any of
the SEC Documents, or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent or Sub or their respective
properties or assets, except where such Conflict will not have a material
adverse effect on the business, assets (including intangible assets), financial
conditions or results of operations of Parent and Sub, taken as a whole.
36
SECTION 4.06. Consents. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Entity or any third party is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement and any Related
Agreements to which the Company or Sub is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable securities laws, (ii) the filing of
the Merger Certificate with the Secretary of State of the State of Delaware, and
(iii) such filings as maybe required under the HSR Act,(iv) the filing
requirements under applicable state securities laws, (v) obtaining the
California Permit and (vi) the filing of a notification of listing of additional
shares with the Nasdaq National Market.
SECTION 4.07. Broker's and Finder's Fees. Parent has not incurred and
will not incur any broker or finder or agent or similar fees in connection with
the transaction the effect of which would reduce the consideration delivered to
the Stockholders.
ARTICLE 5
CONDUCT PRIOR TO THE EFFECTIVE TIME
SECTION 5.01. 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 or the Effective Time, the Company agrees (except
to the extent that Parent shall otherwise consent in writing, such consent not
to be unreasonably withheld), to carry on the Company's business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, to pay the debts and Taxes of the Company when due, to pay or perform
other obligations when due, and, to the extent consistent with such business,
use its reasonable best efforts consistent with past practice and policies to
preserve intact the Company's present business organization, keep available the
services of the Company's present officers and key employees and preserve the
Company's relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, all with the goal of
preserving unimpaired the Company's goodwill and ongoing business at the
Effective Time. The Company shall promptly notify Parent of any event or
occurrence or emergency not in the ordinary course of business of the Company
and any material event involving the Company. Except as expressly contemplated
by this Agreement or as set forth in Section 5.1 of the Company Disclosure
Schedule, the Company shall not, without the prior written consent of Parent
(which consent shall not be unreasonably withheld or delayed):
37
(a) waive any stock repurchase rights, accelerate, except as a
result of the transactions contemplated by this Agreement pursuant to
agreements in place prior to and as of the date hereof, amend or
change the period of exercisability of options or restricted stock,
reprice options previously granted or authorize cash payments in
exchange for any options previously granted;
(b) grant any severance or termination pay to any officer,
employee or consultant, except payments in amounts consistent with
policies and past practices or pursuant to written agreements
outstanding, or policies existing, on the date hereof and as
previously disclosed in writing to Parent, or adopt any new severance
plan;
(c) transfer or license to any person or entity or otherwise
extend, amend or modify in any material respect any rights to the
Company Intellectual Property or enter into grants to future patent
rights;
(d) declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any
capital stock or split, combine or reclassify any capital stock or
issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for any capital stock (other than the
issuance of Company Preferred Stock pursuant to the exercise of
Preferred Stock Warrants or Company Common Stock pursuant to the
conversion of Company Preferred Stock, in each case, outstanding as of
the date hereof);
(e) repurchase or otherwise acquire, directly or indirectly, any
shares of capital stock, except pursuant to rights of repurchase of
any such shares under any agreements with any employee, consultant or
director existing on the date hereof and disclosed to Parent (other
than repurchases of Company Common Stock on termination of employees
pursuant to the Company's employee stock purchase agreements);
(f) issue, deliver, sell, authorize or propose the issuance,
delivery or sale of, any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions, rights,
warrants or options to acquire any shares of capital stock or any
securities convertible into shares of capital stock, or enter into
other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than (i) shares
of Company Preferred Stock pursuant to the exercise of Preferred Stock
Warrants therefor outstanding as of the date of this Agreement, (ii)
shares of Company Common Stock pursuant to the exercise of stock
options or rights therefor outstanding as of the date of this
Agreement, (iii) shares of Company Common Stock pursuant to conversion
of Company Preferred Stock outstanding as of the date of this
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Agreement, or (iv) with the consent of Parent, options to acquire
capital stock of the Company to new employees (provided that issuance
of such options does not adversely affect the parties' ability to
account for the Merger as a pooling of interests);
(g) cause, permit or propose any amendments to its Certificate of
Incorporation or Bylaws;
(h) acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or a material portion of the
assets of, or by any other manner, any business or any corporation,
partnership interest, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets
involving payments by the Company in excess of $50,000 individually or
in the aggregate;
(i) sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the
aggregate, to the business of the Company, except in the ordinary
course of business consistent with past practice;
(j) incur any indebtedness for borrowed money (other than
ordinary course trade payables or pursuant to existing credit
facilities in the ordinary course of business) or guarantee any such
indebtedness or issue or sell any debt securities or warrants or
rights to acquire debt securities of the Company, or guarantee any
debt securities of others;
(k) adopt or amend any employee benefit or employee stock purchase
or employee option plan, or enter into any employment contract, pay
any special bonus or special remuneration to any director, officer or
employee, or increase the salaries or wage rates of its officers or
employees, in each case other than in the ordinary course of
business, consistent with past practice and as disclosed to Parent;
(l) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary
course of business;
(m) make any grant of exclusive rights to any third party;
(n) enter into any agreement, contract or commitment containing
any covenant limiting its freedom to engage in any line of business
that the Company currently engages in or compete with any person in
any line of business the Company currently engages in;
39
(o) commence or settle any litigation;
(p) 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;
(q) 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;
(r) enter into any partnership arrangements, joint ventures,
joint development agreements, strategic partnership or alliances, or
other material contracts other than in the ordinary course of business
consistent with past practice and as disclosed to Parent, or violate,
amend or otherwise modify or waive any material contract;
(s) take any action that would be reasonably likely to interfere
with Parent's ability to account for the Merger as a pooling of
interests unless (i) Parent and the Company agree that the Merger will
not be accounted for as a pooling of interests or (ii) the Closing
shall occur after May 31, 2000; or
(t) intentionally take or agree in writing or otherwise to take
any of the actions described in Section 5.01(a) through (s) above, or
any action which would cause the Company not to comply with the
closing conditions set forth in Section 7.02.
SECTION 5.02. Stockholder Meeting; Proxy Material. Subject to Section
5.03(b), the Company shall cause a meeting of its Stockholders (the "Company
Stockholder Meeting") to be duly called and held as soon as reasonably
practicable for the purpose of voting on the approval and adoption of this
Agreement and the Merger. Subject to Section 5.03(b), the Board of Directors of
the Company shall recommend approval and adoption of this Agreement and the
Merger by the Stockholders.
SECTION 5.03. No Solicitation. (a) The Company shall not, nor shall
the Company permit any of its officers or directors or authorize any of its
investment bankers, attorneys, accountants, consultants or other agents or
advisors to, directly or indirectly, (i) solicit or initiate any Acquisition
Proposal, (ii) enter into or participate in any discussions or negotiations
with, furnish any non-public information relating to the Company or afford
access to the business, properties, assets, books or records of the Company to,
otherwise knowingly cooperate in any way with, or knowingly assist, participate
in, facilitate or encourage any effort by
40
any Third Party that is seeking to make, or has made, an Acquisition Proposal or
(iii) grant any waiver or release under any standstill or similar agreement with
respect to any class of equity securities of the Company.
(b) Notwithstanding the foregoing, the Board of Directors of the
Company, directly or indirectly through advisors, agents or other
intermediaries, may (i) engage in negotiations or discussions with any Third
Party that, subject to the Company's compliance with Section 5.03(a), has made a
Superior Proposal (as defined in Section 5.03(c)), (ii) furnish to such Third
Party nonpublic information relating to the Company pursuant to an appropriate
confidentiality agreement (a copy of which shall be provided for informational
purposes only to Parent), (iii) following receipt of such Superior Proposal,
take and disclose to its stockholders a position contemplated by Rule 14e-2(a)
under the 1934 Act or otherwise make disclosure to them, (iv) following receipt
of such Superior Proposal, fail to make, withdraw, or modify in a manner adverse
to Parent its recommendation to its stockholders referred to in Section 5.02
hereof or fail to call the Company Stockholder Meeting in accordance with
Section 5.02 hereof and/or (v) take any non-appealable, final action ordered to
be taken by the Company by any court of competent jurisdiction, but in each case
referred to in the foregoing clauses (i) through (iv) only if the Board of
Directors of the Company determines in good faith by a majority vote, on the
basis of advice from Cooley Godward LLP, outside legal counsel to the Company,
or any other nationally-recognized law firm reasonably acceptable to Parent,
that it must take such action to comply with its fiduciary duties under
applicable law.
(c) The Board of Directors of the Company shall not take any of the
actions referred to in clauses (i) through (iv) of the preceding subsection
unless the Company shall have delivered to Parent a prior written notice
advising Parent that it intends to take such action, and the Company shall
continue to advise Parent after taking such action. In addition, the Company
shall notify Parent promptly (but in no event later than 24 hours) after receipt
by the Company (or any of its advisors) of any Acquisition Proposal, any
indication of interest from a Third Party that the Company reasonably believes
could lead to an Acquisition Proposal or of any request for information relating
to the Company or for access to the business, properties, assets, books or
records of the Company by any Third Party that may be considering making, or has
made, an Acquisition Proposal. The Company shall provide such notice orally and
in writing and shall identify the Third Party making, and the terms and
conditions of, any such Acquisition Proposal, indication or request. The Company
shall keep Parent fully informed, on a current basis, of the status and details
of any such Acquisition Proposal, indication or request. The Company shall, and
shall use its best efforts to cause its advisors, employees and other agents of
the Company to, cease immediately and cause to be terminated any and all
existing activities, discussions or negotiations, if any, with any Third Party
conducted prior to the date hereof with respect to any Acquisition Proposal and
shall use its best efforts to cause any such
41
Party (or its agents or advisors) in possession of confidential information
about the Company that was furnished by or on behalf of the Company to return or
destroy all such information.
"Superior Proposal" means any bona fide, unsolicited written
Acquisition Proposal for at least a majority of the outstanding voting
securities of the Company or substantially all of assets of the Company on terms
that the Board of Directors of the Company determines in good faith by a
majority vote, on the basis of the advice of a financial advisor of nationally
recognized reputation and taking into account all the terms and conditions of
the Acquisition Proposal, including any break-up fees, expense reimbursement
provisions and conditions to consummation, are more favorable and provide
greater value to the Company's stockholders than as provided hereunder and for
which financing, to the extent required, is then fully committed or reasonably
determined to be available by the Board of Directors of the Company.
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.01. Access to Information. Subject to any applicable
confidentiality obligations (which the Company shall use reasonable efforts to
cause to be observed), the Company shall afford Parent and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (a) all of the Company's
properties, books, contracts, commitments and records, (b) all other information
concerning the business, properties and personnel (subject to restrictions
imposed by applicable law) of the Company as Parent may reasonably request and
(c) all key employees of the Company as identified by Parent. The Company agrees
to provide to Parent and its accountants, counsel and other representatives
copies of internal financial statements (including returns and supporting
documentation) promptly upon request. Parent shall provide the Company with
copies of such publicly available information about Parent as the Company may
request. No information or knowledge obtained in any investigation pursuant to
this Section 6.01 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.
SECTION 6.02. Confidentiality. Each of the parties hereto hereby
agrees that the information obtained in any investigation pursuant to Section
6.01, or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transaction contemplated hereby shall be governed by the
terms of any confidentiality agreement between the Company and Parent existing
on the date hereof.
42
SECTION 6.03. Expenses. Whether or not the Merger is 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; provided,
that if the Merger is consummated, Parent agrees to pay at the Closing up to
$500,000 of the legal fees of Cooley Godward LLP and all reasonable accounting
fees of Arthur Anderson LLP, in each case, incurred by the Company in connection
with the Merger. The Company agrees that Parent shall have full recourse to the
Escrow Fund (as defined in Section 8.02) for payment of all legal fees of the
Company to the extent they exceed $500,000.
SECTION 6.04. Public Disclosure. Unless otherwise required by law,
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 unless approved by Parent prior to release, provided that such approval
shall not be unreasonably withheld, subject, in the case of Parent, to Parent's
obligation to comply with applicable securities laws and the rules and
regulations of the National Association of Securities Dealers.
SECTION 6.05. Consents. The Company shall use its best efforts to
obtain the consents, waivers, assignments and approvals under any of the
Contracts listed on Schedule 6.05.
SECTION 6.06. Reasonable Efforts. Subject to the terms and conditions
provided in this Agreement, each of the parties hereto shall use commercially
reasonable efforts to take promptly, or cause to be taken, all actions, and to
do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that Parent shall not be legally 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, 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.
SECTION 6.07. Notification of Certain Matters. Any party shall give
prompt notice to the other parties hereto of (i) the occurrence or
non-occurrence of
43
any event, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate at or prior to the Effective Time and (ii) any failure of
such party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 6.07 shall not limit or otherwise affect
any remedies available to the party receiving such notice. No disclosure by the
Company pursuant to this Section 6.07, however, shall be deemed to amend or
supplement the Company Disclosure Schedule or prevent or cure any
misrepresentations, breach of warranty or breach of covenant.
SECTION 6.08. Affiliate Agreements. Section 6.08 of the Company
Disclosure Schedule sets forth those persons who, in the Company's reasonable
judgment, are or may be Affiliates of the Company. The Company shall provide
Parent with such information and documents as Parent reasonably requests for
purposes or reviewing such list. The Company shall use its best efforts to
deliver or cause to be delivered to Parent, concurrently with the execution of
this Agreement (and in any case prior to the Closing Date) from each of the
Affiliates of the Company, an executed Affiliate Agreement in the form attached
hereto as Exhibit B (provided that the covenants in such Affiliate Agreement
relating to pooling of interests will not be required if (i) Parent and the
Company agree that the Merger will not be accounted for as a pooling of
interests or (ii) the Closing Date shall be after May 31, 2000). Parent shall be
entitled to place appropriate legends on the certificates evidencing any Parent
Common Stock to be received by such Affiliates pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for Parent Common Stock, consistent with the terms of such Affiliate
Agreements.
SECTION 6.09. Additional Documents and Further Assurances. Each party
hereto, at the request of another party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
SECTION 6.10. Tax-free Reorganization. The parties intend to adopt
this Agreement and the Merger as a plan of reorganization under Section 368 of
the Code. The parties shall not take a position on any tax return inconsistent
with this Section 6.10. From and after the Effective Time, neither Parent, Sub
nor the Company shall take any action that could reasonably be expected to cause
the Merger not to be treated as a reorganization within the meaning of Section
368 of the Code.
SECTION 6.11. Pooling Accounting. Parent and the Company shall each
use their best efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests. Each of Parent and the
44
Company shall use their best efforts to cause its Affiliates not to take any
action that would adversely affect the ability of Parent to account for the
business combination to be effected by the Merger as a pooling of interests;
unless either (i) Parent and the Company agree that the Merger will not be
accounted for as a pooling of interests, or (ii) the Closing Date shall be after
May 31, 2000.
SECTION 6.12. Nasdaq National Market Listing. Parent agrees to file
with the Nasdaq National Market prior to the Effective Time a Notification of
Listing of Additional Shares with respect to the shares of Parent Common Stock
issuable or reserved for issuance, in connection with the Merger.
SECTION 6.13. Offers of Employment; Employee Benefits. Following the
Closing Date, Parent shall continue to employ the employees of the Company
identified in Section 3.24 of the Company Disclosure Schedule with the salaries,
bonus plans and employee benefits as mutually agreed between Parent and Company.
SECTION 6.14. Stock Options. Pursuant to Section 1.06(d) hereof, at
the Effective Time, each outstanding Company Stock Option under the Option Plan,
whether or not exercisable, will be assumed by Parent and substituted with an
option to acquire Parent Common Stock. After the Effective Time, Parent will
issue to each holder of an outstanding Company Stock Option a notice describing
the assumption and substitution of such Company Stock Option by Parent. It is
intended that Company Stock Options assumed by Parent shall qualify following
the Effective Time as incentive stock options as defined in Section 422 of the
Code to the extent such Company Stock Options qualified as incentive stock
options immediately prior to the Effective Time and the provisions of this
Section 6.14 shall be applied consistent with such intent. Parent will reserve
sufficient shares of Parent Common Stock for issuance under Section 1.06(d)
hereof.
SECTION 6.15. Form S-8. Parent agrees to file a registration
statement on Form S-8 for the shares of Parent Common Stock issuable with
respect to assumed Company Stock Options no later than thirty (30) business days
after the Closing Date and shall not withdraw such Registration Statement.
SECTION 6.16. Indemnification of Directors and Officers.
(a) For a period of six years from the Closing Date, Parent shall,
and shall cause the Surviving Corporation to, fulfill and honor in all respects
all rights to indemnification existing in favor of the current directors and
officers of the Company, as provided in the Company's Articles of Incorporation
and Bylaws and as otherwise existing on the date of this Agreement in favor of
such directors and officers.
45
(b) Parent agrees to pay all expenses, including attorneys' fees,
which may be incurred by any director or officer of the Company in enforcing the
indemnity and other obligations provided for in this Section 6.16.
(c) This Section 6.16 shall survive the consummation of the
transactions contemplated hereby, is intended to benefit and may be enforced by
the directors and officers of the Company, and shall be binding on all
successors and assigns of Parent and the Company.
SECTION 6.17. California Permit; Registered Offering. (a) As promptly
as practicable after the execution of this Agreement, Parent shall prepare the
necessary documents and apply to obtain a California Permit so that the issuance
of the Parent Common Stock in the Merger shall be exempt from registration under
the Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act"), by virtue of the exemption from
registration contained in Section 3(a)(10) thereof. The Company shall cooperate
with, and provide information to, Parent in connection with Parent's application
for the California Permit. The Company and Parent will respond to any comments
from the California Commissioner of Corporations and use their commercially
reasonable efforts to have the California Permit granted as soon as practicable
after such filing. None of the information supplied by the Company to Parent in
connection with the California Permit application or any other document prepared
to comply with federal or state securities laws shall contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
(b) In the event that a California Permit cannot be issued for any
reason, then the parties hereto shall take all action necessary to permit the
delivery of Parent Common Stock pursuant to the Merger to be accomplished by
means of registration of such Parent Common Stock on a Registration Statement on
Form S-4 (or another appropriate form) (the "Registration Statement") under the
Securities Act. Promptly after being notified by the California Commissioner of
Corporations that a California Permit cannot be issued, Parent shall promptly
prepare and file with the SEC the Registration Statement and shall use its best
efforts to cause the Registration Statement to be declared effective by the SEC
as promptly as practicable thereafter. The Company shall cooperate with, and
provide information to, Parent in connection with the preparation and seeking of
effectiveness of the Registration Statement.
SECTION 6.18. HSR Act. Parent and the Company shall file as soon as
practicable after the date of this Agreement notifications under the HSR Act (if
necessary) or any other filing required by antitrust authorities and shall
respond as promptly as practicable to all inquiries or requests received from
the Federal Trade Commission or the Antitrust Division of the Department of
Justice for
46
additional information or documentation and shall respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection with antitrust manners. The
parties shall cooperate with each other in connection with the making of all
such filings or responses, including providing copies of all such documents to
the other party and its advisors prior to filing or responding and notifying the
other party of any communications or discussions with any government agency and
affording the other party the opportunity to participate in such communications
or discussions.
SECTION 6.19. Parent Loans. (a) If this Agreement has not been
terminated and the Merger has not been consummated by May 31, 2000, Parent
shall, if requested in writing by the Company, provide a loan to the Company in
a principal amount not to exceed $5,000,000.
(b) If this Agreement has not been terminated and the Merger has not
been consummated by August 15, 2000, Parent shall, if requested in writing by
the Company, provide an additional loan to the Company in a principal amount not
to exceed $5,000,000.
(c) If Parent terminates this Agreement in violation of Section 9 at
any time prior to August 15, 2000, Parent shall, if requested in writing by the
Company, provide a loan the Company in a principal amount not to exceed
$5,000,000.
(d) Each of the loans referred to in clauses (a), (b) and (c) of this
Section 6.19 shall be evidenced by a promissory note substantially in the form
of Exhibit F hereto and shall be provided on such other terms and conditions to
be agreed between Parent and the Company.
SECTION 6.20. Noncompetition and Non-Hire Agreements. The Company
shall use reasonable efforts to ensure that David Wahl, Chris Koerner and Peter
Pappas shall each have executed and delivered to Parent a Noncompetition and
Non-hire Agreement on the terms included in the form attached hereto as Exhibit
D and on such other terms to be agreed with Parent.
ARTICLE 7
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to Obligations of Company. The obligations
of the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
47
(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 as of the date of this Agreement and each of Parent and
Sub shall have performed and complied in all material respects with all
covenants and obligations in this Agreement required to be performed and
complied with by it as of the Effective Time, except, for the purposes of this
paragraph (a), where the Losses incurred by the Company as a result of any
inaccuracy or breach of any representation or warranty, or failure to perform or
comply with any covenant or obligation, would not exceed in the aggregate
$20,000,000.
(b) No Parent Material Adverse Change. There shall not have occurred
any Parent Material Adverse Change since the date of this Agreement.
(c) No Injunction or Restraints; Illegality; HSR Act. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administration, agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. All waiting periods,
if any, under the HSR Act relating to the transactions contemplated hereby will
have expired or been terminated.
(d) Legal Opinion. Company shall have received a legal opinion of
Davis Polk & Wardwell, counsel to Parent, dated as of the Closing Date,
substantially in the form of Exhibit C-1 hereto.
(e) Tax Opinion. The Company and Parent shall each have received
opinions from their respective counsel, Cooley Godward LLP and Davis Polk &
Wardwell, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Company and Parent respectively, on the basis of the facts,
representations and assumptions set forth or referred to in such opinion, that
the Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code and that each of Parent and the Company will be a party to the
reorganization within the meaning of Section 368(a) of the Code; provided
however, that if counsel to either the Company or Parent does not render such
opinion, this condition shall nonetheless be deemed to be satisfied with respect
to such party if counsel to the other party renders such opinion to such party.
The parties to this Agreement agree to make such reasonable representations as
requested by such counsel for the purpose of rendering such opinions.
(f) Certificate of Parent. The Company shall have been provided with
a certificate executed on behalf of Parent by Parent's Chief Financial Officer
to the
48
effect that, as of the Closing Date, each of the conditions set forth in Section
7.01 has been satisfied.
(g) Board Approval. This Agreement, the Merger and the transactions
contemplated hereby shall have been approved by the Board of Directors of Parent
and Sub.
(h) Nasdaq listing. The shares of Parent Common Stock to be issued in
the Merger shall have been approved for listing on the Nasdaq National Market.
(i) Issuance of Shares. The issuance of the shares of Parent Common
Stock in the Merger shall either be registered under the Securities Act or
exempt from such registration by virtue of the exemption contained in Section
3(a)(10) of the Securities Act.
SECTION 7.02. Conditions to the Obligations of Parent and Sub. The
obligations of Parent and Sub to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Company in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and the Company shall have
performed and complied in all material respects with all covenants and
obligations of this Agreement required to be performed and complied with by it
as of the Effective Time, except, for the purposes of this paragraph (b), where
the Losses incurred by Parent as a result of any inaccuracy or breach of any
representation or warranty, or failure to perform or comply with any covenant or
obligation, would not exceed in the aggregate $20,000,000 (provided that this
will not in any way affect the indemnity provided in Article 8 hereof).
(b) Third Party Consents. Any consent or approval required under the
License and Service Agreement dated June 11, 1998 between the Company and Packet
Engines (WA) Incorporated shall have been obtained.
(c) No Injunction or Restraints; Illegality; HSR Act. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administration, agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. All waiting periods,
if any, under the
49
HSR Act relating to the transactions contemplated hereby will have expired or
been terminated.
(d) Legal Opinion. Parent shall have received a legal opinion from
Cooley Godward LLP, legal counsel to the Company, substantially in the form of
Exhibit C-2 hereto.
(e) Noncompetition and Non-Hire Agreements. Each of the Key Employees
shall have executed and delivered to Parent a Noncompetition and No- Hire
Agreement in the form attached hereto as Exhibit D.
(f) No Company Material Adverse Change. There shall not have occurred
any Company Material Adverse Change since the date of this Agreement.
(g) Requisite Stockholder Vote. This Agreement and the Merger shall
have been approved by the Stockholders in accordance with the Company's
Certificate of Incorporation and the DGCL.
(h) Dissenting Shares. The holders of not more than 10% of the
Company's voting securities outstanding immediately prior to the Effective Time
shall be entitled to have such securities treated as Dissenting Shares.
(i) Affiliate Agreements. Each of the persons listed in Section 6.08
of the Company Disclosure Schedule shall have executed an Affiliate Agreement in
substantially the form attached as Exhibit B unless (i) Parent and the Company
agree that the Merger will not be accounted for as a pooling of interests or
(ii) the Closing Date occurs after May 31, 2000.
(j) Certificate of the Company. Parent shall have been provided with
a certificate executed on behalf of the Company by its Chief Executive Officer
to the effect that, as of the Closing Date, each of the conditions set forth in
Section 7.02 has been satisfied.
(k) FIRPTA Certificate. The Company shall have executed and delivered
to Parent a statement in a form acceptable to Parent complying with the
requirements of Treasury Regulation Section 1.897-2(h) and signed by the Chief
Executive Officer of the Company to the effect that the Company is not a U.S.
Real Property Holding Company as defined in Section 897 of the Code.
(l) Lockups. If the Closing Date shall be before June 5, 2000, Parent
shall have received lock-up agreements with respect to at least 80% of the
Parent Common Stock to be issued in the Merger, pursuant to which the
Stockholders who are to receive such Parent Common Stock each agree not to offer
to sell,
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grant any option for the sale of, or otherwise dispose of any such Parent Common
Stock prior to June 5, 2000.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
SECTION 8.01. Survival of Representations and Warranties. All of the
Company's representations and warranties in this Agreement, as modified by the
Company Disclosure Schedule delivered on the date of this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger and
continue until the earlier of the date which is ten days following delivery to
Parent of the auditor's report for the first audit of Parent's financial
statements after the Closing Date or the date which is one year following the
Closing Date (the "Expiration Date"). All of Parent's and Sub's representations
and warranties contained herein or in any instrument delivered pursuant to this
Agreement shall terminate at the Closing.
SECTION 8.02. Escrow Arrangements.
(a) Escrow Fund. As security for the indemnity provided for in this
Section 8.02 and by virtue of this Agreement, the Stockholders 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 with
respect to the Escrow Amount) without any act of any Stockholder. As soon as
practicable after the Effective Time, the Escrow Amount, without any act of any
Stockholder, will be deposited with U.S. Bank Trust, National Association (or
other institution acceptable to Parent and the Stockholder Representative (as
defined in Section 8.03)) 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. The Escrow Agent may execute this Agreement following the date
hereof and prior to the Effective Time, and such later execution, if so executed
after the date hereof, shall not affect the binding nature of this Agreement as
of the date hereof between the other signatories hereto. The portion of the
Escrow Amount contributed on behalf of each Stockholder shall be in proportion
to the aggregate Parent Common Stock to which such holder would otherwise be
entitled under Section 1.06. The Stockholders shall indemnify and hold Parent
and its officers, directors and affiliates (the "Indemnified Parties") harmless
against all claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses of investigation
(hereinafter individually a "Loss" and collectively "Losses") incurred by
Parent, its officers, directors, or affiliates (including the Surviving
Corporation) directly or indirectly
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as a result of (i) any inaccuracy or breach of a representation or warranty of
the Company contained in this Agreement, (ii) any failure by the Company to
perform or comply with any covenant contained in this Agreement, or (iii) any
action, suit or proceeding which is pending or threatened against the Company as
of the Effective Time. No Stockholder shall have any right to contribution from
the Company for any claim made by Parent after the Effective Time.
(b) Limitation on Liability. Notwithstanding the foregoing, the
Stockholders shall not be obligated to indemnify Parent, or any of its officers,
directors and affiliates, pursuant to this Section 8.02 unless and until the
amount of all Losses incurred by Parent, and its officers, directors and
affiliates taken as a group, exceeds $1,000,000 in the aggregate, in which event
the Stockholders shall indemnify, pursuant to this Section 8.02 and subject to
the limitation set forth in the following sentence, Parent, and its officers,
directors and affiliates, for all Losses incurred by them in the aggregate to
the extent they exceed $1,000,000. Parent and the Company hereby agree that
Parent's sole and exclusive recourse against the Company and the Stockholders
for any Loss or claim of Losses arising out of or relating to this Agreement
shall be expressly limited to the Escrow Fund and in accordance with the
indemnification provisions of this Article 8.
(c) Escrow Period; Distribution upon Termination of Escrow Period.
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
P.S.T. on the Expiration Date (the "Escrow Period"); provided, however, that the
Escrow Period shall not terminate with respect to any amount which, in
reasonable judgement of Parent, subject to the objection of the Stockholder
Representative and the subsequent arbitration of the matter in the manner
provided in Section 8.02(g) hereof, is necessary to satisfy any unsatisfied
claims specified in any Officer's Certificate (as defined in paragraph (d)
below) delivered to the Escrow Agent prior to termination of such Escrow Period
with respect to facts and circumstances existing prior to the termination of
such Escrow Period. As soon as all such claims have been resolved, the Escrow
Agent shall deliver to the Stockholders the remaining portion of the Escrow Fund
not required to satisfy such claims. Deliveries of Escrow Amounts to the
Stockholders pursuant to this Section 8.02(c) shall be made in proportion to
their respective original contributions to the Escrow Fund.
(d) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms 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.
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(ii) Any shares of Parent Common Stock or other equity securities
issued or distributed by Parent (including shares issued upon a stock
split) ("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 record holders thereof. Cash dividends on Parent
Common Stock shall not be added to the Escrow Fund but shall be
distributed to the record holders thereof.
(iii) Each Stockholder shall have voting rights with respect to
the shares of Parent Common Stock contributed to the Escrow Fund by
such Stockholder (and on any voting securities added to the Escrow
Fund in respect of such shares of Parent Common Stock). As the record
holder of such shares, the Escrow Agent shall vote such shares in
accordance with the instructions of the Stockholders having the
beneficial interest therein and shall promptly deliver copies of all
proxy solicitation materials to such Stockholders.
(e) Claims Upon Escrow Fund.
(i) Subject to subsection (e) below, thirty (30) days after the
Escrow Agent has received, provided such receipt is on or before the
Expiration Date, 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 8.02(f) hereof, deliver to Parent
out of the Escrow Fund, as promptly as practicable, shares of Parent
Common Stock held in the Escrow Fund with a value 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
as indemnity pursuant to Section 8.02(e)(i) hereof, the shares of
Parent Common Stock shall be valued at the Average Price, which the
parties shall certify to the Escrow Agent in writing.
(f) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Stockholder Representative, and for a period of thirty (30)
days
53
after such delivery, the Escrow Agent shall make no delivery to Parent of any
Escrow Amounts pursuant to Section 8.02(e) hereof unless the Escrow Agent shall
have received written authorization from the Stockholder Representative 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 8.02(e) hereof; provided, however, that no such
payment or delivery may be made if the Stockholder Representative 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, with a copy of such objection to be
simultaneously transmitted to Parent.
(g) Resolution of Conflicts; Arbitration.
(i) In case the Stockholder Representative shall object in
writing to any claim or claims made in any Officer's Certificate, such
Stockholder Representative and Parent shall attempt in good faith to
agree upon the rights of the respective parties with respect to each
of such claims. If such Stockholder Representative and Parent should
so agree, a memorandum setting forth such agreement shall be prepared
and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and
distribute shares of Parent Common Stock from the Escrow Fund in
accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Stockholder Representative 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 one
arbitrator mutually agreeable to Parent and such Stockholder
Representative. In the event that within forty-five (45) days after
submission of any dispute to arbitration, Parent and such Stockholder
Representative cannot mutually agree on one arbitrator, Parent and
such Stockholder Representative shall each select one arbitrator, and
the two arbitrators so selected shall select a third arbitrator. The
arbitrator or arbitrators, as the case may be, shall set a limited
time period and establish procedures designed to reduce the cost and
time for discovery while allowing the parties an opportunity, adequate
in the sole judgement of the arbitrator or majority of the
arbitrators, as the case may be, to discover relevant information from
the opposing parties about the subject matter of the dispute. The
arbitrator or a majority of the arbitrators, as the case may be, shall
rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including
54
attorneys' fees and costs, to the same extent as a competent court of
law or equity, should the arbitrators or a majority of the
arbitrators, as the case may be, determine that discovery was sought
without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of the
arbitrator or a majority of the arbitrators, as the case may be, 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.
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 arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s) may
be entered in any court having jurisdiction. Any such arbitration
shall be held in the County of Santa Clara, California, in accordance
with the Commercial Arbitration Rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all
expenses relating to the arbitration shall be paid, including without
limitation, the respective expenses of each party, the fees of each
arbitrator and the administrative fee of the American Arbitration
Association.
(h) Third-Party Claims. In the event Parent becomes aware of a third-
party claim which Parent believes may result in a demand against the Escrow
Fund, Parent shall notify the Stockholder Representative of such claim, and the
Stockholders shall be entitled, at their expense, to participate in any defense
of such claim. Parent shall have the right in its sole discretion to settle any
such claim; provided, however, that except with the consent of the Stockholder
Representative, no settlement of any such claim with third-party claimants shall
be determinative of the amount of any claim against the Escrow Fund. In the
event that the Stockholder Representative has consented to any such settlement,
the Stockholders shall have no power or authority to object under any provision
of this Article 8 to the amount of any claim by Parent against the Escrow Fund
with respect to such settlement.
(i) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the performance
of such duties as are specifically set forth herein, and as set forth
in any additional written escrow instructions which the Escrow Agent
may receive after the date of this Agreement which are signed by an
officer of Parent and the Stockholder Representative, 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
55
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,
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 negligence or willful misconduct on the part of
the Escrow Agent. The Escrow Agent shall not incur any such liability
for (A) any act or failure to act made or omitted in good faith, or
(B) any action taken or omitted in reliance upon any instrument,
including any written statement of affidavit provided for in this
Agreement that the Escrow Agent shall in good faith believe to be
genuine, nor will the Escrow Agent be liable or responsible for
forgeries, fraud, impersonations, or determining the scope of any
representative authority. In addition, the Escrow Agent may consult
with legal counsel in connection with Escrow Agent's duties under this
Agreement and shall be fully protected in any act taken, suffered, or
permitted by him/her in good faith in accordance with the advice of
counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on
behalf of any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of
this Agreement, its terms or conditions, the Escrow Agent will not be
required to determine the controversy or to take any action regarding
it. The Escrow Agent may hold all documents and shares of Parent
Common
56
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, required, despite what may be set forth elsewhere in this
Agreement. In such event, the Escrow Agent will not be liable for
damages. Furthermore, the Escrow Agent may at its option, file an
action of interpleader requiring the parties to answer and litigate
any claims and rights among themselves. The Escrow Agent is authorized
to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in escrow, except all 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) The parties and their respective successors and assigns
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,
including allocated costs of in-house counsel and disbursements that
may be imposed on Escrow Agent or incurred by Escrow Agent in
connection with the performance of the Escrow Agent's duties under
this Agreement, including but not limited to any Litigation arising
from this Agreement or involving its subject matter other than arising
out of its negligence or willful misconduct.
(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
California. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and the terms of this Article 8
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. Upon appointment of a
successor escrow agent, the Escrow Agent shall be discharged from any
further duties and liability under this Agreement.
(j) Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent in accordance with the standard fee schedule
of the Escrow Agent attached hereto as Exhibit E. 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
57
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 the Escrow Fund or its subject matter, the Escrow
Agent shall be reasonably compensated for such extraordinary services and
reimbursed for all costs, attorney's fees, including allocated costs of in-house
counsel, and expenses occasioned by such default, delay, controversy or
litigation.
(k) Consequential Damages. In no event shall the Escrow Agent be
liable for special, indirect or consequential loss or damages of any kind
whatsoever (including but not limited to lost profits), even if the Escrow Agent
has been advised of the likelihood of such loss or damages and regardless of the
form of action.
(l) Successor Escrow Agents. Any corporation into which the Escrow
Agent in its individual capacity may be merged or converted or with which it may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
SECTION 8.03. Stockholder Representative.
(a) In the event that the Merger is approved, effective upon such
vote, and without further act of any stockholder, Steven P. Flannery shall be
appointed as agent and attorney-in-fact (the "Stockholder Representative"") for
each Stockholder, for and on behalf of the Stockholders, 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 the Stockholder Representative for
the accomplishment of the foregoing. Such agency may be changed by the
Stockholders from time to time upon not less than thirty (30) days prior written
notice to Parent; provided, however, that the Stockholder Representative may not
be removed unless holders of a majority in interest in the Escrow Fund agree to
such removal and to the identity of the substituted agent. Any vacancy in the
position of Stockholder Representative may be filled by approval of the holders
of a majority in interest in the Escrow Fund. No bond shall be required of the
Stockholder Representative, and the Stockholder Representative shall not receive
compensation for his or her services. Notices or communications to or from the
Stockholder Representative shall constitute notice to or from each of the
Stockholders.
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(b) The Stockholder Representative shall not be liable for any act
done or omitted hereunder as Stockholder Representative while acting in good
faith and in the exercise of reasonable judgment. The Stockholders on whose
behalf the Escrow Amount was contributed to the Escrow Fund shall severally
indemnify the Stockholder Representative and hold the Stockholder Representative
harmless against any loss, liability or expense incurred without negligence or
bad faith on the part of the Stockholder Representative and arising out of or in
connection with the acceptance or administration of the Stockholder
Representative's duties hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Stockholders.
A decision, act, consent or instruction of the Stockholder
Representative shall constitute a decision, act, consent or instruction of all
Stockholders for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of such Stockholders, and the Escrow Agent and Parent may rely upon any
such decision, act, consent or instruction of the Stockholder Representative as
being the decision, act, consent or instruction of each and every such
Stockholder. The Escrow Agent and Parent are hereby relieved from any liability
to any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Stockholder Representative.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the stockholders of the Company):
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent, if:
(i) the Merger has not been consummated on or before September
30, 2000 (the "End Date"), provided that the right to terminate this
Agreement pursuant to this Section 9.01(b)(i) shall not be available
to any party whose breach of any provision of this Agreement results
in the failure of the Merger to be consummated by such time;
(ii) there shall be any law or regulation that makes consummation
of the Merger illegal or otherwise prohibited or any judgment,
injunction,
59
order or decree of any court or governmental body having competent
jurisdiction enjoining Company or Parent from consummating the Merger
is entered and such judgment, injunction, judgment or order shall have
become final and nonappealable; or
(iii) as permitted by Section 5.03(b)(iv), the Board of Directors
of the Company shall have failed to make or withdrawn, or modified in
a manner adverse to Parent, its approval or recommendation of this
Agreement or the Merger, or shall have failed to call the Company
Stockholder Meeting in accordance with Section 5.02, provided that the
Company shall have paid any amounts due pursuant to Sections 10.04(b)
and (c) in accordance with the terms, and at the times, specified
therein, and provided, further, that, in the case of any termination
by the Company, (i) the Company notifies Parent, in writing and at
least 72 hours prior to such termination, promptly of its intention to
terminate this Agreement and to enter into a binding written agreement
concerning an Acquisition Proposal that constitutes a Superior
Proposal of the nature described in Section 5.03(c), attaching the
most current version of such agreement (or a description of all
material terms and conditions thereof), and (ii) Parent does not make,
within 72 hours of receipt of such written notification, an offer that
is at least as favorable to the shareholders of the Company as such
Superior Proposal, it being understood that the Company shall not
enter into any such binding agreement during such 72-hour period.
(c) by Parent, if (i) a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement shall have occurred that would cause the condition set
forth in Section 7.01(e), 7.02(a) not to be satisfied, and such condition is
incapable of being satisfied by the End Date, (ii) the Company shall have failed
to call the Stockholder Meeting in accordance with Section 5.02, or (iii) an
event having a Company Material Adverse Change shall have occurred after the
date of this Agreement and the effect of such event is not reversed within 10
days of such occurrence such that it no longer has a Company Material Adverse
Change; or
(d) by the Company, if (i) a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the Parent or Sub
set forth in this Agreement shall have occurred that would cause the condition
set forth in Section 7.01(a) not to be satisfied, and such condition is
incapable of being satisfied by the End Date, or (ii) an event having a Parent
Material Adverse Change shall have occurred after the date of this Agreement and
the effect of such event is not reversed within 10 days of such occurrence such
that it no longer has a Parent Material Adverse Change.
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The party desiring to terminate this Agreement pursuant to this Section 9.01
(other than pursuant to Section 9.01(a)) shall give notice of such termination
to the other party.
SECTION 9.02. Effect of Termination. In the event of termination of
this Agreement as provided in Section 9.01, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of Parent,
Sub or the Company, or their respective officers, directors or Stockholders,
provided that each party shall remain liable for any willful breaches of this
Agreement prior to its termination; provided further that, the provisions of
Sections 6.02, 6.03, Article 10 and this Section 9.02 shall remain in full force
and effect and survive any termination of this Agreement.
SECTION 9.03. Amendment. This Agreement may be amended by the parties
hereto at any time by execution of an instrument in writing signed on behalf of
each of the parties hereto.
SECTION 9.04. Extension; Waiver. At any time prior to the Effective
Time, Parent and Sub, on the one hand, and the Company, on the other hand, may,
to the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements 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 10
GENERAL PROVISIONS
SECTION 10.01. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given (a) on the date of
delivery if delivered personally or (b) one business day after sent if sent by
commercial messenger or courier service, or mailed by registered or certified
mail (return receipt requested) or sent via facsimile (with acknowledgment of
complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice), provided,
however, that notices sent by mail will not be deemed given until received:
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(a) if to Parent or Sub, to:
Vitesse Semiconductor Corporation
741 Calle Plano
Camarillo, CA 93012
Attention: Yatin Mody
Telephone No.:(805) 388-7559
Facsimile No:(805) 388-7565
with a copy to:
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, CA 94025
Attention: Francis S. Currie
Telephone No.: 650-752-2000
Facsimile No.: 650-752-2111
(b) if to the Company, to
Sitera Incorporated
1820 Lefthand Circle
Longmont, CO
Attn: Steven Flannery
Telephone No: (303) 651-1000
Facsimile No: (303) 651-1199
with a copy to:
Cooley Godward LLP
2595 Canyon Blvd., Suite 260
Boulder, CO 80302
Attention: Michael L. Platt, Esq.
Telephone No.: (303) 546-4000
Facsimile No.: (303) 546-4099
(c) if to the Stockholder Representative, to:
Sitera Incorporated
1820 Lefthand Circle
Longmont, CO
Attn: Steven Flannery
Telephone No.: (303) 651-1000
Facsimile No.: (303) 651-1199
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(d) if to the Escrow Agent, to:
U.S. Bank Trust, National Association
Global Escrow Depositary Services
One California Street, 4th Floor
San Francisco, CA 94111
Attn: Ann Gadsby
Telephone No.:(415) 273-4500
Facsimile No.:(415) 273-4593
SECTION 10.02. 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 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.
SECTION 10.03. 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.
SECTION 10.04. Expenses. (a) Except as otherwise provided in this
Section or Section 6.03, all costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
(b) If a Payment Event (as hereinafter defined) occurs, the Company
shall pay Parent (by wire transfer of immediately available funds), if, pursuant
to (x) below, simultaneously with the occurrence of such Payment Event or, if
pursuant to (y) below, within two Business Days following such Payment Event, a
fee of $22.5 million.
"Payment Event" means (x) the termination of this Agreement by the
Company pursuant to Section 9.01(b)(iii), (y) termination of this Agreement by
the Company in violation of Section 9 or (z) the occurrence of any of the
following events within 9 months of the termination of this Agreement pursuant
to Sections 9.01(c): (i) the Company merges with or into, or is acquired,
directly or indirectly, by merger or otherwise by, a Third Party; (ii) a Third
Party, directly or indirectly, acquires more than 50% of the total assets of the
Company; (iii) a Third Party, directly or indirectly, acquires more than 50% of
the outstanding shares of Company Stock; or (iv) the Company adopts or
implements a plan of liquidation, recapitalization or share repurchase relating
to more than 50% of the outstanding shares of Company Stock or an extraordinary
dividend relating to more than 50% of such outstanding shares or 50% of the
assets of the Company.
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SECTION 10.05. Entire Agreement; Assignment. This Agreement, the
Exhibits hereto, the Company Disclosure Schedule, the Parent Disclosure
Schedule, the Related Agreements 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 (other than any letter
agreements between the Company and Parent executed on the date hereof); (b) are
not intended to confer upon any other person any rights or remedies hereunder;
and (c) shall not be assigned (other than by operation of law).
SECTION 10.06. No Implied Representations. Parent and Company
acknowledge that, except as expressly provided in Articles 3 and 4, and except
as expressly provided in any document delivered by a party hereto to any other
party hereto in connection with the transactions contemplated hereby none of the
parties (and no other person) has made or is making any representations or
warranties whatsoever, implied or otherwise.
SECTION 10.07. 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.
SECTION 10.08. Other Remedies. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
SECTION 10.09. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of any court within Santa Clara County, State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction, venue and such process.
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SECTION 10.10. Rules of Construction. The parties hereto agree that
they have been represented by counsel during the negotiation and execution of
this Agreement and, therefor, 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.
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IN WITNESS WHEREOF, Parent, Sub, the Company, the Stockholder
Representative and the Escrow Agent have caused this Agreement to be signed, all
as of the date first written above.
VITESSE SEMICONDUCTOR SITERA INCORPORATED
CORPORATION
By: /s/ Louis R. Tomasetta By: /s/ Steven P. Flannery
------------------------------------- --------------------------------
Name: Louis R. Tomasetta Name: Steven P. Flannery
Title: President and CEO Title: President
SOUTHPAW ACQUISITION
CORP.
By: /s/ Louis R. Tomasetta
-------------------------------------
Name: Louis R. Tomasetta
Title: President and Assistant Secretary
STOCKHOLDER REPRESENTATIVE
(As to the provisions of Article 8 only)
By: /s/ Steven P. Flannery
-------------------------------------
Name: Steven P. Flannery
Title:
ESCROW AGENT
(As to the provisions of Article 8 only)
By: /s/ Ann Gadsby
-------------------------------------
Name: Ann Gadsby
Title: Vice President, U.S. Bank Trust National Association
[SIGNATURE PAGE TO REORGANIZATION AGREEMENT]
66