EXHIBIT 2.1
MERGER AGREEMENT
AND
PLAN OF REORGANIZATION
This MERGER AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as
of January 9, 2002, is entered into by and among RAE Systems Inc., a California
corporation ("RAE Systems"), Nettaxi.com, a Nevada corporation ("Nettaxi") and
RAES Acquisition Corporation, a California corporation ("RSAC").
RECITALS
A. Nettaxi is in the business of providing Internet services, including
a search engine, Web hosting services and an Internet portal and RSAC is a
wholly-owned subsidiary of Nettaxi.
B. RAE Systems is in the business of developing gas detection monitors
and tubes.
C. Nettaxi desires to acquire ownership of RAE Systems by causing RAE
Systems to merge with RSAC under the terms and conditions set forth below.
D. For United States federal income tax purposes, the merger is
intended to qualify as a reorganization under the provisions of section 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT
NOW, THEREFORE, in consideration of the terms, conditions, agreements and
covenants contained herein, and in reliance upon the representations and
warranties contained in this Agreement, the parties hereto agree as follows:
1. MERGER OF RAE SYSTEMS WITH RSAC
1.1 DELAWARE REINCORPORATION AND REVERSE STOCK SPLIT: On or before the
Closing Date (as defined herein), Nettaxi shall be merged with and into a
Delaware corporation, with the Delaware corporation as the surviving
corporation, and which Delaware corporation shall have a certificate of
incorporation and bylaws in the forms attached hereto as Exhibit A and Exhibit
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B, respectively. Prior to the Effective Time (as defined herein), Nettaxi shall
undergo a reverse stock split such that each five and sixty-seven one hundredths
(5.67) shares of Common Stock of Nettaxi is reverse-split into one (1) share of
Common Stock of Nettaxi.
1.2 MERGER AND SURVIVAL OF RAE SYSTEMS: In the manner and subject to
the terms and conditions set forth herein, RAE Systems shall be merged with and
into RSAC (the "Merger") in accordance with the provisions of, and with the
effect provided in the Delaware General Corporation Law and California General
Corporation Law (the "CGCL"). RAE Systems shall be the surviving corporation
after the Merger with RSAC and shall continue to exist as a wholly-owned
subsidiary of Nettaxi, created and governed by the laws of the State of
California.
1.3 EFFECTIVE TIME: If all of the conditions precedent to the
obligations of each of the parties hereto as hereinafter set forth shall have
been satisfied or shall have been waived, the Merger shall become effective (the
time of such effectiveness is referred to herein as the "Effective Time") upon
the filing of an agreement of merger, in the form set forth as Exhibit C hereto
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(the "Agreement of Merger"), with the Secretary of State of California. This
shall take place on the Closing Date (as defined herein).
1.4 CONSIDERATION FOR THE MERGER.
(a) SHARES OF THE CONSTITUENT AND SURVIVING CORPORATIONS: At the
Effective Time, each share of RAE Systems Common Stock and each share of RAE
Systems Preferred Stock issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares (as hereinafter defined)) shall, by
virtue of the Merger and without any action on the part of Nettaxi, RAE Systems
or RSAC or any holder thereof, be converted into and be exchangeable for the
right to receive that number of fully paid and non-assessable shares of Nettaxi
Common Stock ("Nettaxi Merger Stock") equal to the Exchange Ratio.
For purposes of this Agreement, the "Exchange Ratio" shall be determined in
accordance with the following formula:
E = VPS (RAE)
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VPS (Nettaxi)
where E = the Exchange Ratio
VPS (RAE) = 1.48113
VPS (Nettaxi) = (NV+100,000+T)/7,605,747
NV = Nettaxi's net cash plus cash equivalents minus (i) an amount
equal to all payables and other fixed obligations (excluding
the four (4) liabilities described in Nettaxi Disclosure
Schedule 4.24) and (ii) an appropriate reserve for payables
and any other contingencies (including a reasonable reserve
to be mutually agreed upon for the two (2) litigation
matters described in Section 2.2(c)) (collectively, "Net
Cash"), each calculated as of the Effective Time; provided,
however, that if such amount is greater than $7,500,000, NV
shall nonetheless equal $7,500,000.
T = The dollar amount, if any, by which the tax reserve relating
to transactions involving RAE System's foreign subsidiaries
in the audited financial statements of RAE Systems exceeds
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$2,000,000 for taxes payable relative to foreign income for
the years 1998 through 2001.
For illustrative purposes only, if NV was $7,500,000 and T was 0 at the
Effective Time,
E = VPS (RAE)
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VPS (Nettaxi)
= 1.48113
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(7,500,000 + 100,000+0)/7,605,747
= 1.48225
and whereby there would be 43,091,835 shares of Nettaxi common stock
outstanding immediately after the Effective Time, with
7,605,747 shares of Nettaxi common stock, constituting 17.65% of the
outstanding shares of Nettaxi common stock at the Effective Time,
being held by the Nettaxi shareholders that were Nettaxi
shareholders immediately prior to the Effective Time;
34,526,088 shares of Nettaxi common stock, constituting 80.12% of the
outstanding shares of Nettaxi common stock at the Effective Time,
being held by shareholders of RAE Systems immediately prior to
the Effective Time ("RAE Systems Ownership"); and
960,000 shares of Nettaxi common stock, constituting 2.23% of the
outstanding shares of Nettaxi common stock at the Effective Time,
being held by BayTree Capital Associates ("Baytree") ("Baytree
Ownership").
Notwithstanding the foregoing, if RAE Systems or Nettaxi shall issue any shares
of its capital stock between the date hereof and the Effective Time (other than
shares of RAE Systems common stock issued with respect to the conversion of its
preferred stock), the Exchange Ratio shall be adjusted such that the Nettaxi
Ownership, the RAE Systems Ownership and the Baytree Ownership are 17.65%,
80.12% and 2.23%, as adjusted appropriately if NV is less than $7,500,000.
Subject to Section 1.6 hereof, all of such shares of RAE Systems Common Stock or
Preferred Stock, when so converted, shall otherwise no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive Nettaxi Merger Stock as
set forth above and any cash in lieu of fractional shares of RAE Common Stock or
Preferred Stock if required to be issued or paid in consideration therefor upon
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the surrender of such certificate in accordance with Section 1.4(e) hereof and
pursuant to Section 407 of the CGCL.
(b) OPTIONS OF THE CONSTITUENT AND SURVIVING CORPORATIONS: At the
Effective Time, each option to purchase RAE Systems Common Stock ("RAE Systems
Option"), whether vested or unvested, will be assumed by Nettaxi. Each such
option so assumed by Nettaxi under this Agreement shall continue to have, and be
subject to, the same terms and conditions set forth in the RAE Systems Inc. 1993
Stock Plan (the "RAE Systems Stock Plan") and any other document governing such
option immediately prior to the Effective Time, except that (a) such option will
be exercisable for that number of whole shares of Nettaxi Common Stock equal to
the product of the number of shares of RAE Systems Common Stock that were
issuable upon exercise of such option immediately prior to the Effective Time
multiplied by the Exchange Ratio and rounded down to the nearest whole number of
shares of Nettaxi Common Stock, (b) the per share exercise price for the shares
of Nettaxi Common Stock issuable upon exercise of such assumed option will be
equal to the quotient determined by dividing the exercise price per share of RAE
Systems Common Stock at which such option was exercisable immediately prior to
the Effective Time by the Exchange Ratio, rounded up to the nearest whole tenth
of a cent and (c) any restriction on the exercisability of such RAE System
Option shall continue in full force and effect, and the term, exercisability,
vesting schedule and other provisions of such RAE System Option shall remain
unchanged. Consistent with the terms of the RAE Systems Stock Plan and the
documents governing the outstanding options, the Merger will not terminate any
of the outstanding options under the RAE Systems Stock Plan or accelerate the
exercisability or vesting of such options or the shares of Nettaxi Common Stock
which will be subject to those options upon Nettaxi's assumption of the options
in the Merger. It is the intention of the parties that the options so assumed
by Nettaxi following the Effective Time will remain incentive stock options as
defined in Section 422 of the Code to the extent such options qualified as
incentive stock options prior to the Effective Time, and the parties hereto
shall use their commercially reasonable efforts to carry out such intention.
(c) NO FRACTIONAL SHARES OR OPTIONS: Unless otherwise required by
Section 407 of the CGCL, no fractional shares of Nettaxi Common Stock shall be
issued in connection with the Merger, and no certificate or scrip for any such
fractional shares shall be issued.
(d) NO LIABILITY: Notwithstanding anything to the contrary in this
Section 1.4, none of the parties hereto nor any exchange agent with respect to
the Nettaxi Merger Stock shall be liable to any person for any amount properly
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law.
(e) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES: No dividends
or other distributions with respect to Nettaxi Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
certificate with respect to the shares of RAE Common Stock represented thereby
until the holder of record of such certificate shall surrender such certificate.
Subject to applicable law, following surrender of any such certificate, there
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shall be paid to the record holder of the certificates representing whole shares
of Nettaxi Common Stock issued in exchange therefor, without interest at the
time of such surrender, the amount of any such dividends or other distributions
with a record date after the Effective Time theretofore payable (but for the
provisions of this Section 1.4(e)) with respect to such shares of Nettaxi Common
Stock.
1.5 EFFECT OF MERGER: As of the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Agreement of Merger and the
applicable provisions of the CGCL, and each of the following shall occur:
(a) The separate existence and corporate organization of RSAC
shall cease and RAE Systems as the corporation surviving the Merger with RSAC
(the "Surviving Corporation"), shall possess the rights, privileges, powers and
franchises, and be subject to all the restrictions, disabilities and duties of,
the constituent corporations in the manner specified in the CGCL.
(b) Except as otherwise agreed by the parties, the Certificate of
Incorporation of Nettaxi, as in effect immediately prior to the Effective Time,
shall continue in effect without change or amendment, except that Article I of
the Certificate of Incorporation of Nettaxi shall be amended to state that the
name of the corporation is RAE Systems Inc.
(c) The By-laws of Nettaxi and RAE Systems, as in effect
immediately prior to the Effective Time, shall continue in effect without change
or amendment.
(d) The directors and officers of the RAE Systems immediately
after the Closing Date shall be the respective individuals who are directors and
officers of RAE Systems immediately prior to the Effective Time. The current
officers and directors of Nettaxi shall resign and the officers and directors of
RAE Systems shall assume the officer and director positions in Nettaxi.
1.6 DISSENTING SHARES: Notwithstanding anything to the contrary
contained in this Agreement, any shares of capital stock of RAE Systems that, as
of the Effective Time, are or may become "dissenting shares" under the CGCL
("Dissenting Shares"), shall not be converted into or represent the right to
receive Nettaxi Merger Stock in accordance with this Agreement, and the holder
or holders of such shares shall be entitled only to such rights as may be
granted to such holder or holders under the CGCL law; provided, however, that if
the status of any such shares as "dissenting shares" shall not be perfected, or
if any such shares shall lose their status as "dissenting shares," then, as of
the later of the Effective Time or the time of the failure to perfect such
status or the loss of such status, such shares shall automatically be converted
into and shall represent only the right to receive (upon the surrender of the
certificate or certificates representing such shares) Nettaxi Common Stock in
accordance with this Agreement.
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1.7 FURTHER ACTION: If, at any time after the Effective Time, any
further action is determined by Nettaxi to be necessary or desirable to carry
out the purposes of this Agreement, the officers and directors of Nettaxi shall
be fully authorized (in the name of RAE Systems) to take such action.
2. CONDUCT OF BUSINESS PENDING CLOSING; SHAREHOLDER APPROVAL. RAE Systems,
Nettaxi and RSAC covenant that between the date hereof and the Closing Date (as
hereinafter defined):
2.1 ACCESS/DUE DILIGENCE: Each party shall afford the others and their
respective legal counsel, accountants and other representatives full access,
during normal business hours, throughout the period prior to the Closing Date,
(a) to all of the books, contracts and records of such party and shall furnish
the other party during such period with all information concerning such party
that the other parties may reasonably request and (b) to its business premises
and properties in order to conduct inspections at the requesting party's
expense.
2.2 CONDUCT OF BUSINESS: During the period from the date hereof to the
Closing Date, the business of RAE Systems shall be operated by RAE Systems in
the usual and ordinary course of such business and in material compliance with
the terms of this Agreement. Without limiting the generality of the foregoing:
(a) RAE Systems shall use its commercially reasonable efforts,
consistent with past practice and policy, to: (i) keep available the services of
the present employees and agents of RAE Systems; (ii) complete or maintain all
existing material arrangements including but not limited to filings, licenses,
affiliate arrangements, leases and other arrangements referred to in Sections
3.6(a) and 3.6(b) in full force and effect in accordance with their existing
terms; (iii) maintain the integrity of all confidential information of RAE
Systems; (iv) comply in all material respects with all applicable laws; and (v)
preserve the goodwill of RAE Systems' business and contractual relationships
with, suppliers, customers and others having business relations with RAE
Systems; and
(b) Neither Nettaxi nor RAE Systems shall: (i) sell or transfer
any of its assets or property; (ii) shall make any distribution, whether by
dividend or otherwise, to any of its shareholders or employees except for
compensation to employees and payments to associated companies for goods and
services, in the usual and ordinary course of business; (iii) declare any
dividend or other distribution; (iv) redeem or otherwise acquire any shares of
its capital stock or other securities; (v) incur any material debt or other
obligation; or (vi) agree to do any of the foregoing.
(c) Notwithstanding the provisions of Section 2.2(b) above,
immediately prior to the Closing, except for that certain shareholder litigation
Lahey v. Nettaxi et. al, case no. SACV 01-459 AHS, US Dist Ct, Central District,
(which Nettaxi's directors and officers insurance policy is covering) and that
certain litigation Envision Media, Inc. v. Nettaxi et. al, case no. CV 14 1408
Superior Court of California, Santa Cruz County, Nettaxi will be a clean public
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shell with no liabilities of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, other than the foregoing
litigation or liabilities reducing Net Cash, and prior to the Closing of the
Merger, all business, assets (other than cash and cash equivalents), and
material liabilities would be transferred out of Nettaxi or satisfied to the
commercially reasonable satisfaction of RAE Systems. Such transfer or
satisfaction of material liabilities includes, but is not limited to, the
termination of the agreements, plans, programs and arrangements listed on
Schedule 2.2(c).
2.3 EXCLUSIVITY: During the period from the date of this Agreement
until the earlier of termination of this Agreement or the Effective Time, each
party agrees that without the other's prior written consent, it shall not and it
shall not allow anyone acting on their behalf to, (A) directly or indirectly
merge or consolidate with another entity or engage in a sale of substantial
assets, sale of shares of capital stock (including without limitation by way of
a tender offer, but excluding sales pursuant to any exercise of outstanding
stock options) or similar transaction other than the transactions contemplated
or expressly permitted by this Agreement and (B) solicit, entertain or encourage
inquiries or proposals, or enter into, pursue, continue or carry on any
discussions or negotiations, with respect to any transaction of the types
referred to in clause (A) above with any person or entity. Each party signing
this Agreement will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore in
respect of any such transaction. Notwithstanding the foregoing, if an offer
unsolicited by a party hereto ("Recipient"), their investment bankers or their
representatives, agents or others is received prior to the Effective Time,
consistent with the fiduciary obligation that Recipient may then owe to its
shareholders, but only to the extent required by applicable law, such offer may
be communicated to the Board of Directors of Recipient and approved by the Board
consistent with their fiduciary duty, provided, however, that Recipient will
not, except as required by applicable law, provide information to such offeror;
and provided, however, that should the foregoing occur and the Merger is not
consummated, Recipient shall reimburse the other party (RAE Systems or Nettaxi,
as the case may be) in an amount equal to Two Hundred and Fifty Thousand Dollars
($250,000). Recipient will promptly (within 24 hours of receipt of any proposal
or request for non-public information in connection with a potential proposal)
advise such other party of the identity of such offeror, communicate to it the
terms of any proposal which it may receive and deliver to it a copy of any such
offer or request in writing.
2.4 FILING OF CURRENT REPORTS ON FORM 8-K: Promptly after execution of
this Agreement, Nettaxi shall file a Current Report on Form 8-K with the
Commission to report the proposed Merger and the terms thereof.
2.5 VOTING AGREEMENTS: The shareholders of Nettaxi identified in
Schedule 2.5 hereto shall execute agreements in the form of Exhibit D-1 hereto
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to vote their shares of Nettaxi stock at any meeting of the shareholders of
Nettaxi, at which this Agreement is placed before the shareholders for approval,
in favor of the Agreement and in favor of the consummation of the Merger.
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2.6 VOTING AGREEMENTS: The shareholders of RAE Systems identified in
Schedule 2.6 hereto shall execute agreements in the form of Exhibit D-2 hereto
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to vote their shares of RAE Systems stock at any meeting of the shareholders of
RAE Systems, at which this Agreement is placed before the shareholders for
approval, in favor of the Agreement and in favor of the consummation of the
Merger.
3. REPRESENTATIONS AND WARRANTIES OF RAE SYSTEMS. Except as set forth
in the RAE Systems Disclosure Schedule, RAE Systems represents and warrants, as
of the date hereof and as of the Closing, to Nettaxi and RSCA as follows, with
the knowledge and understanding that Nettaxi and RSCA are relying materially
upon such representations and warranties (The term "Knowledge" as used in this
Agreement with respect to a party's awareness of the presence or absence of a
fact, event or condition shall mean (a) actual knowledge, or (b) the knowledge
that would be obtained if such party conducted itself faithfully and exercised a
sound discretion in the management of his own affairs):
3.1 ORGANIZATION AND STANDING: RAE Systems is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. RAE Systems has all requisite corporate power to carry on its
business as it is now being conducted and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where such
qualification is necessary under applicable law except where the failure to
qualify (individually or in the aggregate) will not have any material adverse
effect on the business or prospects of RAE Systems. The copies of the Articles
of Incorporation, By-laws and minute books of RAE Systems, as amended to date
and delivered to Nettaxi, are true and complete copies of these documents as now
in effect. The minute books of RAE Systems are accurate in all material
respects.
3.2 CAPITALIZATION:
(a) RAE Systems is authorized to issue 40,000,000 shares of Common
Stock, par value $.01 per share, of which 16,492,960 are issued and outstanding,
700,000 shares of Series A Preferred Stock, all of which are issued and
outstanding, and 1,000,000 shares of Series B Preferred Stock, all of which are
issued and outstanding. The record holders thereof are as set forth in the RAE
Systems Disclosure Schedule. All of such shares of capital stock that are issued
and outstanding are duly authorized, validly issued and outstanding, fully paid
and nonassessable, and were not issued in violation of the preemptive rights of
any person. Other than as set forth in the RAE Systems Disclosure Schedule,
there are no subscriptions, warrants, rights or calls or other commitments or
agreements to which RAE Systems is a party or by which it is bound, calling for
any issuance, transfer, sale or other disposition of any class of securities of
RAE Systems. Other than as set forth in the RAE Systems Disclosure Schedule,
there are no outstanding securities convertible into or exchangeable for Common
Stock or any other securities of RAE Systems. The RAE Systems Disclosure
Schedule sets forth the following information with respect to each RAE Systems
Option outstanding as of the date of this Agreement: (i) the name of the
optionee; and (ii) the number of shares of RAE Systems Common Stock subject to
such RAE Systems Option. RAE Systems has delivered to Nettaxi accurate and
complete copies of all stock option plans pursuant to which the RAE Systems has
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ever granted stock options. There are no outstanding warrants to purchase RAE
Systems Common Stock and, except as set forth in this Section 3.2(a), there are
no other securities convertible or exchangeable into RAE Common Stock or other
securities.
(b) All outstanding shares of RAE Systems Common Stock and all
outstanding RAE Systems Options and other securities have been issued and
granted in compliance with (i) all applicable securities laws and other
applicable legal requirements, and (ii) all material requirements set forth in
applicable Contracts (as hereinafter defined).
3.3 SUBSIDIARIES: RAE Systems owns no subsidiaries nor does it own or
have an interest in any other corporation, partnership, joint venture or other
entity.
3.4 AUTHORITY: RAE Systems has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been, or will have
been by the Closing, duly authorized by all necessary corporate action on the
part of RAE Systems subject to the approval of the Merger by RAE Systems'
shareholders. The Board of Directors of RAE Systems has unanimously (i)
approved this Agreement and the Merger, (ii) determined that in its opinion the
Merger is in the best interests of the shareholders of RAE Systems, and is on
terms that are fair to such shareholders (iii) recommended that the shareholders
of RAE Systems approve this Agreement and the Merger. This Agreement
constitutes, and all other agreements contemplated hereby will constitute, when
executed and delivered by RAE Systems in accordance herewith, the valid and
binding obligations of RAE Systems, enforceable in accordance with their
respective terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and (ii) general principles of equity.
3.5 ASSETS: RAE Systems has good and marketable title to or licenses to
all of the assets and properties, which it purports to own as reflected on the
most recent balance sheet comprising a portion of the RAE Systems Financial
Statements (as hereinafter defined), or thereafter acquired, or are otherwise
useful in the business of RAE Systems. No material portion of the assets of RAE
Systems is subject to any governmental decree or order to be sold or is being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefore, nor, to its Knowledge, has any such
condemnation, expropriation or taking been proposed. None of the material assets
of RAE Systems is subject to any restriction that would prevent continuation of
the use currently made thereof or materially adversely affect the value thereof.
3.6 CONTRACTS AND OTHER COMMITMENTS:
(a) Schedule 3.6 of the RAE Systems Disclosure Schedule consists
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of a true and complete list of all material contracts, agreements, commitments
and other instruments (whether oral or written) ("Contracts") to which RAE
Systems is a party that involve a receipt or an expenditure by RAE Systems its
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subsidiaries or require the performance of services or delivery of goods to, by,
through, on behalf of or for the benefit of RAE Systems, which in each case,
relates to a contract, agreement, commitment or instrument that requires
payments or receipts in excess of $50,000 per year.
(b) All of the Contracts described in Schedule 3.6 of the RAE
------------
Systems Disclosure Schedule are valid and binding upon RAE Systems and, to its
Knowledge, the other parties thereto and are in full force and effect and
enforceable, in accordance with their respective terms, and neither RAE Systems,
nor to its Knowledge, any other party to any Contract has breached any provision
of, and no event has occurred which, with the lapse of time or action by a third
party, could result in a material default under, the terms thereof. To the
Knowledge of RAE Systems, no shareholder of RAE Systems has received any payment
from any contracting party in connection with or as an inducement for causing
RAE Systems to enter into any Contract described on Schedule 3.6.
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(c) RAE Systems has delivered or made available to Nettaxi and to
Silicon Valley Law Group an accurate and complete copy of each of the Contracts.
3.7 LITIGATION: There is no claim, action, proceeding, or investigation
pending or, to its Knowledge, threatened against or affecting RAE Systems before
or by any court, arbitrator or governmental agency or authority which, in its
reasonable judgment, could have a material adverse effect on the operations or
prospects of RAE Systems. There is no strike or unresolved labor dispute
relating to RAE Systems' employees who, in its judgment, could have a material
adverse effect on the business or prospects of RAE Systems. There are no
decrees, injunctions or orders of any court, governmental department, agency or
arbitration outstanding against RAE Systems or asserted against RAE Systems that
has not been paid.
3.8 TAXES: For purposes of this Agreement, (A) "Tax" (and, with
correlative meaning, Taxes") shall mean any federal, state, local or foreign
income, alternative or add- on minimum, business, employment, franchise,
occupancy, payroll, property, sales, transfer, use, value added, withholding or
other tax, levy, impost, fee, imposition, assessment or similar charge together
with any related addition to tax, interest, penalty or fine thereon; and (B)
"Returns" shall mean all returns (including, without limitation, information
returns and other material information), reports and forms relating to Taxes.
(a) RAE Systems has duly filed all Returns required to be filed by
it other than Returns (individually and in the aggregate) where the failure to
file would have no material adverse effect on the business or prospects of RAE
Systems. All such Returns were, when filed, and to the Knowledge of RAE Systems
are, accurate and complete in all material respects and were prepared in
conformity with applicable laws and regulations. RAE Systems has paid or will
pay in full or has adequately reserved against all Taxes otherwise assessed
against it through the Closing Date.
(b) RAE Systems is not a party to any pending action or proceeding
by any governmental authority for the assessment of any Tax, and, to the
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Knowledge of RAE Systems, no claim for assessment or collection of any Tax
related to RAE Systems has been asserted against RAE Systems that has not been
paid. There are no Tax liens upon the assets of RAE Systems (other than liens
for taxes not yet due and payable).
(c) Neither RAE Systems nor any of its subsidiaries has taken,
agreed to take or will take any action that would reasonably be expected to
prevent the Merger from constituting a reorganization within the meaning of
Section 368(a) of the Code.
3.9 COMPLIANCE WITH LAWS AND REGULATIONS: RAE Systems has complied and
is presently complying, in all material respects, with all laws, rules,
regulations, orders and requirements (federal, state local and foreign)
applicable to it in all jurisdictions where the business of RAE Systems is
conducted or to which RAE Systems is subject, including, without limitation, all
applicable federal and state securities laws, civil rights and equal opportunity
employment laws and regulations, and all federal, antitrust, antimonopoly and
fair trade practice laws, except where the failure to comply could not
reasonably be expected to have a material adverse effect on RAE Systems. There
has been no assertion by any party that RAE Systems is in violation in any
material respect of any such laws, rules, regulations, orders, restrictions or
requirements with respect to its operations and no notice in that regard has
been received by RAE Systems.
3.10 ENVIRONMENTAL MATTERS:
(a) Except as to the extent that it has not had, and could not
reasonably be expected to have, individually or in the aggregate, a material
adverse affect on RAE Systems or its subsidiaries, (i) neither RAE Systems nor
its subsidiaries are in violation of any Environmental Law applicable to either
of them; (ii) none of the properties currently or formerly owned, leased or
operated by RAE Systems or its subsidiaries (including, without limitation,
soils and surfaces and ground waters) are contaminated with any Hazardous
Substance; (iii) neither RAE Systems nor its subsidiaries are liable for any
off-site contamination by Hazardous Substances; (iv) neither RAE Systems nor its
subsidiaries are liable for any violation under any Environmental Law
(including, without limitation, pending or threatened liens); (v) RAE Systems
and its subsidiaries have all material permits, licenses and other
authorizations required under any Environmental Law ("Environmental Permits");
and (vi) neither the execution of this Agreement nor the consummation of the
transactions contemplated herein will require any investigation, remediation or
other action with respect to Hazardous Substances, or any notice to or consent
of governmental entities or third parties, pursuant to any applicable
Environmental Law or Environmental Permit.
(b) For purposes of this Agreement, "Environmental Law" means any
federal, state, local or foreign laws and any enforceable judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to: (A) releases or threatened
releases of Hazardous Substances or materials containing Hazardous Substances;
(B) the manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances; or (C)
otherwise relating to pollution or protection of the environment, health, safety
or natural resources.
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(c) For purposes of this Agreement, "Hazardous Substances" means:
(i) those substances defined in or regulated under the following federal
statutes and their state counterparts and all regulations thereunder: the
Hazardous Materials Transportation Act, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act; (ii)
petroleum and petroleum products, including crude oil and any fractions thereof;
(iii) natural gas, synthetic gas, and any mixtures thereof; (iv) polychlorinated
biphenyls, asbestos and radon; (v) any other contaminant; and (vi) any
substance, material or waste regulated by any federal, state, local or foreign
Governmental Entity pursuant to any Environmental Law.
3.11 NO CONFLICTS: The making and performance of this Agreement will
not (i) conflict with or violate the Articles of Incorporation or the By-laws of
RAE Systems, (ii) violate any laws, ordinances, rules, or regulations, or any
order, writ, injunction or decree to which RAE Systems is a party or by which
RAE Systems or any of its businesses, or operations may be bound or affected or
(iii) result in any breach or termination of, or constitute a default under, or
constitute an event which, with notice or lapse of time, or both, would become a
default under, or result in the creation of any encumbrance upon any material
asset of RAE Systems under, or create any rights of termination, cancellation or
acceleration in any person under, any Contract, except in the case of (ii) or
(iii) for any such conflicts, violations, defaults, terminations, cancellations
or accelerations which would not have a material adverse effect on RAE Systems.
3.12 EMPLOYEES: RAE Systems has no employees that are represented by
any labor union or collective bargaining unit.
3.13 FINANCIAL STATEMENTS: The RAE Systems Disclosure Schedule contains
an unaudited balance sheet of RAE Systems as of December 31, 2000 and related
unaudited income statement of RAE Systems for the year then ended and an
unaudited balance sheet dated as of September 30, 2001 and related unaudited
income statement of RAE Systems for the period ended at such date (collectively
the "Financial Statements"). The Financial Statements present fairly, in all
material respects, the financial position on the dates thereof and results of
operations of RAE Systems for the periods indicated, prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied. There
are no assets of RAE Systems, the value of which is materially overstated in
said balance sheets.
3.14 ABSENCE OF CERTAIN CHANGES OR EVENTS: Since September 30, 2001
(the "RAE Balance Sheet Date"), there has not been:
(a) any material adverse change in the financial condition,
properties, assets, liabilities or business of RAE Systems;
12
(b) any material damage, destruction or loss of any material
properties of RAE Systems, whether or not covered by insurance;
(c) any material adverse change in the manner in which the
business of RAE Systems has been conducted;
(d) any material adverse change in the treatment and protection of
trade secrets or other confidential information of RAE Systems; and
(e) any occurrence not included in paragraphs (a) through (d) of
this Section 3.14 which has resulted, or which RAE Systems has reason to
believe, might be expected to result in a material adverse change in the
business or prospects of RAE Systems.
3.15 GOVERNMENT LICENSES, PERMITS, AUTHORIZATIONS: RAE Systems has all
material governmental licenses, permits, authorizations and approvals necessary
for the conduct of its business as currently conducted ("Licenses and Permits").
3.16 EMPLOYEE BENEFIT PLANS:
(a) The RAE Systems Disclosure Schedule identifies each salary,
bonus, material deferred compensation, material incentive compensation, stock
purchase, stock option, severance pay, termination pay, hospitalization,
medical, insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program or material agreement.
(b) RAE Systems has not maintained, sponsored or contributed to,
any employee pension benefit plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) or any similar
pension benefit plan under the laws of any foreign jurisdiction.
(c) Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any bonus, golden parachute,
severance or other similar payment or obligation to any current or former
employee or director of RAE Systems, or result in any acceleration of the time
of payment, provision or vesting of any such benefits. Without limiting the
generality of the foregoing the consummation of the Merger will not result in
the acceleration of vesting of any unvested RAE Systems Options.
3.17 BUSINESS LOCATIONS: Other than as set forth in the RAE Systems
Disclosure Schedule, RAE Systems does not own or lease any material real or
personal property in any state or country.
3.18 INTELLECTUAL PROPERTY: Schedule 3.18 of the RAE Systems Disclosure
-------------
Schedule sets forth a complete and correct list and summary description of all
material intellectual property, including computer software, trademarks, trade
names, service marks, service names, brand names, copyrights and patents,
13
registrations thereof and applications therefore, applicable to or used in the
business of RAE Systems, together with a complete list of all material licenses
granted by or to RAE Systems with respect to any of the above. All such
trademarks, trade names, service marks, service names, brand names, copyrights
and patents are owned by RAE Systems, free and clear of all liens, claims,
security interests and encumbrances of any nature whatsoever. RAE Systems is not
currently in receipt of any notice of any violation or infringements of, and RAE
Systems is not knowingly violating or infringing, the rights of others in any
trademark, trade name, service mark, copyright, patent, trade secret, know-how
or other intangible asset. The proprietary assets listed on Schedule 3.18
-------------
constitute all the proprietary assets necessary to enable RAE Systems to conduct
their business in the manner in which such business has been and is being
conducted. RAE Systems has not (i) licensed any of the material proprietary
assets to any person or entity on an exclusive basis, or (ii) entered into any
covenant not to compete or agreement limiting its ability to exploit fully any
proprietary asset or to transact business in any market or geographical area or
with any person or entity.
3.19 EXISTING ARRANGEMENTS: RAE Systems has no Knowledge that, either
as a result of the actions contemplated hereby or for any other reason
(exclusive of expiration of a contract upon the passage of time), any entity
having an arrangement with RAE Systems identified in Schedule 3.19 will not
-------------
continue to conduct business with Nettaxi after the Closing Date in
substantially the same manner as it has conducted business with RAE Systems in
the past.
3.20 GOVERNMENTAL APPROVALS: Except as set forth in Section 1.2 as to
the filing of the Agreement of Merger, no authorization, license, permit,
franchise, approval, order or consent of, and no registration, declaration or
filing by RAE Systems with, any governmental authority, domestic or foreign,
federal, state or local, is required in connection with RAE Systems' execution,
delivery and performance of this Agreement.
3.21 TRANSACTIONS WITH AFFILIATES: RAE Systems is not indebted for
money borrowed, either directly or indirectly, from any of its officers,
directors, or any Affiliate (as defined below), in any amount whatsoever; nor
are any of its officers, directors, or Affiliates indebted for money borrowed
from RAE Systems; nor are there any transactions of a continuing nature between
RAE Systems and any of its officers, directors, or Affiliates not subject to
cancellation which will continue beyond the Effective Time, including, without
limitation, use of the assets of RAE Systems for personal benefit with or
without adequate compensation. For purposes of this Agreement, the term
"Affiliate" shall mean any person that, directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, the person specified. As used in the foregoing definition, the term (i)
"control" shall mean the power through the ownership of voting securities,
contract or otherwise to direct the affairs of another person and (ii) "person"
shall mean an individual, firm, trust, association, corporation, partnership,
government (whether federal, state, local or other political subdivision, or any
agency or bureau of any of them) or other entity.
14
3.22 NO DISTRIBUTIONS: RAE Systems has not made nor has any intention
of making any distribution or payment to any of its shareholders in respect of
RAE Systems stock.
3.23 LIABILITIES: RAE Systems has no material direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise
("Liabilities"), whether or not of a kind required by generally accepted
accounting principles to be set forth on a financial statement, other than (i)
Liabilities fully and adequately reflected or reserved against on the RAE
Systems Balance Sheet, (ii) Liabilities incurred since the RAE Balance Sheet
Date in the ordinary course of the business of RAE Systems, or (iii) Liabilities
otherwise disclosed in this Agreement, including the exhibits hereto and the RAE
Systems Disclosure Schedule.
3.24 ACCOUNTS RECEIVABLE: All accounts receivable of RAE Systems
reflected on the Balance Sheet are valid receivables subject to no material
setoffs or counterclaims and are current and, to the Knowledge of RAE Systems,
collectible (within 90 days after the date on which it first became due and
payable), net of the applicable reserve for bad debts reflected in the financial
statements provided to Nettaxi or in the RAE Systems Disclosure Schedule. To RAE
Systems' Knowledge, all accounts receivable reflected in the financial or
accounting records of RAE Systems are valid receivables and are collectible
subject to no material setoffs or counterclaims.
3.25 NO OMISSIONS OR UNTRUE STATEMENTS: To the best of its Knowledge,
no representation or warranty made by RAE Systems to Nettaxi or RSAC in this
Agreement, the RAE Systems Disclosure Schedule or in any certificate of a RAE
Systems officer required to be delivered to Nettaxi pursuant to the terms of
this Agreement contains any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading as of the date hereof.
3.26 INSURANCE: Schedule 3.26 of the RAE Systems Disclosure Schedule
-------------
sets forth summaries of all material insurance policies and all material self
insurance programs and arrangements relating to the business, assets and
operations of RAE Systems. Each of such insurance policies is in full force and
effect.
4. REPRESENTATIONS AND WARRANTIES OF NETTAXI AND RSAC. Except as set
forth in the Nettaxi Disclosure Schedule, Nettaxi, Nettaxi Online Communities,
Inc. ("Nettaxi Online") and RSAC represent and warrant to RAE Systems as
follows, as of the date hereof, and as of the Closing Date:
4.1 ORGANIZATION AND STANDING OF NETTAXI: Nettaxi is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada, and has the corporate power to carry on its business as now conducted
and to own its assets and is duly qualified to transact business as a foreign
corporation in each state where such qualification is necessary except where the
failure to qualify will not have a material adverse effect on the business or
15
prospects of Nettaxi. The copies of the Articles of Incorporation, By-laws and
minutes of Nettaxi, as amended to date, and delivered to RAE Systems, are true
and complete copies of those documents as now in effect. The minute books of
Nettaxi are accurate in all material respects
4.2 ORGANIZATION AND STANDING OF SUBSIDIARIES: Nettaxi Online and RSAC
are corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and California, respectively, and have the
corporate power to carry on their business as now conducted and to own their
assets and are duly qualified to transact business as a foreign corporation in
each state where such qualification is necessary except where the failure to
qualify will not have a material adverse effect on the business or prospects of
either Nettaxi Online or RSAC. The copies of the Certificate of Incorporation,
By-laws and minutes of Nettaxi Online and the Articles of Incorporation, By-laws
and minutes of RSAC, as amended to date, and delivered to RAE Systems, are true
and complete copies of those documents as now in effect. Since its
incorporation, RSAC has not conducted and currently is not conducting any
business. The minute books of Nettaxi Online and RSAC are accurate in all
material respects
4.3 SUBSIDIARIES: Other than RSAC and Nettaxi Online, Nettaxi owns no
subsidiaries nor does it own or have an interest in any other corporation,
partnership, joint venture or other entity.
4.4 CAPITALIZATION OF NETTAXI:
(a) The authorized capital stock of Nettaxi consists of
200,000,000 shares of Common Stock, par value $.001 and 1,000,000 shares of
Preferred Stock, par value $.001. As of the date hereof, 43,124,586 shares of
Common Stock and no shares of Preferred stock were issued and outstanding. Such
outstanding shares of Common Stock are duly authorized, validly issued, fully
paid, and non-assessable. The Nettaxi Merger Stock to be issued pursuant to this
Agreement, when issued in accordance with the terms of this Agreement, will be
duly authorized, validly issued, fully paid and non-assessable. Other than as
set forth in the Nettaxi Disclosure Schedule, there are no subscriptions,
warrants, rights or calls or other commitments or agreements to which Nettaxi is
a party or by which it is bound, calling for any issuance, transfer, sale or
other disposition of any class of securities of Nettaxi, and there are no
obligations with respect to the registration of outstanding securities or
otherwise. Other than as set forth in the Nettaxi Disclosure Schedule, there are
no outstanding securities convertible into or exchangeable for Common Stock or
any other securities of Nettaxi. The Nettaxi Disclosure Schedule sets forth the
following information with respect to each option to purchase Nettaxi common
stock ("Nettaxi Option") outstanding as of the date of this Agreement: (i) the
particular plan (if any) pursuant to which such Nettaxi Option was granted; (ii)
the name of the optionee; (iii) the number of shares of Nettaxi Common Stock
subject to such Nettaxi Option; (iv) the exercise price of such Nettaxi Option;
(v) the date on which such Nettaxi Option was granted; and (vi) the applicable
vesting schedules (which applicable vesting schedule may be provided by means of
a general description of the vesting schedules applicable to outstanding Nettaxi
16
Options). Nettaxi has delivered to RAE Systems accurate and complete copies of
all stock option plans pursuant to which the Nettaxi has ever granted stock
options. Nettaxi has delivered to RAE Systems accurate and complete copies of
the all outstanding warrants to purchase Nettaxi Common Stock or other
securities (the "Nettaxi Warrants"). The exercise price of each Nettaxi Warrant
is set forth in the Nettaxi Disclosure Schedule.
(b) All outstanding shares of Nettaxi Common Stock, Nettaxi
Options, Nettaxi Warrants or other shares of Nettaxi capital stock or securities
convertible or exchangeable therefore have been issued and granted in compliance
with (i) all applicable securities laws and other applicable legal requirements,
and (ii) all material requirements set forth in applicable Contracts.
4.5 CAPITALIZATION SUBSIDIARIES: The authorized capital stock of
Nettaxi Online consists of 6,000,000 shares of Common Stock, par value $.001,
and 1,000,000 shares of preferred stock, par value $.001. As of the date
hereof, 4,731,590 shares of Common Stock were issued and outstanding, all of
which are issued to Nettaxi, and no shares of preferred stock were issued or
outstanding. Such outstanding shares of Common Stock are duly authorized,
validly issued, fully paid, and non-assessable. As of the date hereof, there
were no outstanding options, warrants or rights of conversion or other rights,
agreements, arrangements or commitments relating to the capital stock of Nettaxi
Online or obligating Nettaxi Online to issue or sell an aggregate number of
shares of Common Stock. The authorized capital stock of RSAC consists of
1,000,000 shares of Common Stock, par value $.001. As of the date hereof, one
hundred (100) shares of Common Stock were issued and outstanding, all of which
are issued to Nettaxi. Such outstanding shares of Common Stock are duly
authorized, validly issued, fully paid, and non-assessable. As of the date
hereof, there were no outstanding options, warrants or rights of conversion or
other rights, agreements, arrangements or commitments relating to the capital
stock of RSAC or obligating RSAC to issue or sell an aggregate number of shares
of Common Stock.
4.6 AUTHORITY: Each of Nettaxi and RSAC has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been, or will
have been by the Closing, duly authorized by all necessary corporate action on
the part of Nettaxi and RSAC subject to the approval of the Merger by Nettaxi's
and RSAC's shareholders. The Board of Directors of Nettaxi and RSAC have
unanimously (i) approved this Agreement and the Merger, (ii) determined that in
its opinion the Merger, subject to the terms of this Agreement, is in the best
interests of the shareholders of Nettaxi and RSAC, respectively, and is on terms
that are fair to such shareholders (iii) recommended that the shareholders of
Nettaxi and RSAC approve this Agreement and the Merger. This Agreement
constitutes, and all other agreements contemplated hereby will constitute, when
executed and delivered by each of Nettaxi and RSAC in accordance herewith, the
valid and binding obligations of Nettaxi and RSAC, enforceable in accordance
with their respective terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and (ii) general principles of equity.
17
4.7 ASSETS: Nettaxi, Nettaxi Online and RSAC have good and marketable
title to all of the respective party's assets and properties which it purports
to own as reflected on the balance sheet included in the Nettaxi Financial
Statements (as hereinafter defined), or thereafter acquired. No material portion
of the assets of Nettaxi or Nettaxi Online is subject to any governmental decree
or order to be sold or is being condemned, expropriated or otherwise taken by
any public authority with or without payment of compensation therefore, nor, to
its Knowledge, has any such condemnation, expropriation or taking been proposed.
None of the material assets of Nettaxi or Nettaxi Online is subject to any
restriction that would prevent continuation of the use currently made thereof or
materially adversely affect the value thereof.
4.8 CONTRACTS AND OTHER COMMITMENTS:
(a) Schedule 4.8 of the Nettaxi Disclosure Schedule consists of a
------------
true and complete list of all contracts, agreements, commitments and other
instruments (whether oral or written) to which Nettaxi or Nettaxi Online is a
party ("Nettaxi Contracts") that (i) involve a receipt or an expenditure by
Nettaxi or its subsidiaries or require the performance of services or delivery
of goods to, by, through, on behalf of or for the benefit of Nettaxi or its
subsidiaries, or (ii) involves an obligation for the performance of services or
delivery of goods by Nettaxi or its subsidiaries.
(b) All of the Nettaxi Contracts described in Schedule 4.8 of the
------------
Nettaxi Disclosure Schedule are valid and binding upon Nettaxi or Nettaxi
Online, as applicable, and, to its Knowledge, the other parties thereto and are
in full force and effect and enforceable, in accordance with their respective
terms, and neither Nettaxi or Nettaxi Online, nor to their Knowledge, any other
party to any Nettaxi Contract has breached any provision of, and no event has
occurred which, with the lapse of time or action by a third party, could result
in a material default under, the terms thereof.
(c) Nettaxi has delivered or made available to RAE Systems and to
Gray Cary Ware & Freidenrich LLP an accurate and complete copy of each Nettaxi
Contract.
4.9 LITIGATION: There is no material claim, action, proceeding, or
investigation pending or, to their Knowledge, threatened against or affecting
Nettaxi, Nettaxi Online or RSAC before or by any court, arbitrator or
governmental agency or authority. There are no material decrees, injunctions or
orders of any court, governmental department, agency or arbitration outstanding
against Nettaxi, Nettaxi Online or RSAC.
4.10 TAXES: Nettaxi and Nettaxi Online have duly filed all Returns
required to be filed by them other than Returns which the failure to file would
have no material adverse effect on the business of Nettaxi or Nettaxi Online.
All such Returns were, when filed, and to Nettaxi's Knowledge are, accurate and
complete in all material respects and were prepared in conformity with
applicable laws and regulations. Nettaxi has paid or will pay in full prior to
the Effective Time, or has adequately reserved against all Taxes otherwise
assessed against it through the Closing Date. Neither Nettaxi nor Nettaxi
18
Online is a party to any pending action or proceeding by any governmental
authority for the assessment of any Tax, and, to the Knowledge of Nettaxi, no
claim for assessment or collection of any Tax has been asserted against Nettaxi
that have not been paid. There are no Tax liens upon the assets of Nettaxi or
Nettaxi Online. Neither Netaxxi nor any of its subsidiaries has taken, agreed
to take or will take any action that would reasonably be expected to prevent the
Merger from constituting a reorganization within the meaning of Section 368(a)
of the Code.
4.11 COMPLIANCE WITH LAWS AND REGULATIONS: Nettaxi, Nettaxi Online and
RSAC have complied and are presently complying, in all material respects, with
all laws, rules, regulations, orders and requirements (federal, state local and
foreign) applicable to them in all jurisdictions in which their operations are
conducted or to which they are subject, including, without limitation, all
applicable federal and state securities laws, civil rights and equal opportunity
employment laws and regulations, and all federal, antitrust, antimonopoly and
fair trade practice laws. There has been no assertion by any party that Nettaxi,
Nettaxi Online or RSAC is in violation in any material respect of any such laws,
rules, regulations, orders, restrictions or requirements with respect to its
operations and no notice in that regard has been received by Nettaxi, Nettaxi
Online or RSAC.
4.12 ENVIRONMENTAL MATTERS: (i) Neither Nettaxi nor its subsidiaries
are in violation of any Environmental Law applicable to either of them; (ii)
none of the properties formerly owned, leased or operated by Nettaxi or its
subsidiaries (including, without limitation, soils and surfaces and ground
waters) are contaminated with any Hazardous Substance; (iii) neither Nettaxi nor
its subsidiaries are liable for any off-site contamination by Hazardous
Substances; (iv) neither Nettaxi nor its subsidiaries are liable for any
violation under any Environmental Law (including, without limitation, pending or
threatened liens); (v) Nettaxi and its subsidiaries have all material
Environmental Permits; and (vi) neither the execution of this Agreement nor the
consummation of the transactions contemplated herein will require any
investigation, remediation or other action with respect to Hazardous Substances,
or any notice to or consent of Governmental Entities or third parties, pursuant
to any applicable Environmental Law or Environmental Permit.
4.13 NO CONFLICT: The making and performance of this Agreement will not
(i) conflict with the Articles of Incorporation, Certificate of Incorporation or
the By-laws of Nettaxi, Nettaxi Online or RSAC, (ii) violate any laws,
ordinances, rules, or regulations, or any order, writ, injunction or decree to
which Nettaxi, Nettaxi Online or RSAC is a party or by which Nettaxi or Nettaxi
Online or any of their material assets, business, or operations may be bound or
affected or (iii) result in any breach or termination of, or constitute a
default under, or constitute an event which, with notice or lapse of time, or
both, would become a default under, or result in the creation of any encumbrance
upon any material asset of Nettaxi, Nettaxi Online or RSAC, or create any rights
of termination, cancellation, or acceleration in any person under, any material
agreement, arrangement, or commitment, or violate any provisions of any laws,
ordinances, rules or regulations or any order, writ, injunction, or decree to
which Nettaxi, Nettaxi Online or RSAC is a party or by which Nettaxi, Nettaxi
Online or RSAC, or any of their material assets may be bound, except in the case
of (ii) or (iii) for any such conflicts, violations, defaults, terminations,
19
cancellations or accelerations which would not have a material adverse effect on
Nettaxi, Nettaxi Online or RSAC.
4.14 EMPLOYEES: Neither Nettaxi nor its subsidiaries have any employees
that are represented by any labor union or collective bargaining unit.
4.15 BUSINESS LOCATIONS: Neither Nettaxi nor its subsidiaries owns or
leases any real or personal property in any state or country.
4.16 INTELLECTUAL PROPERTY: Neither Nettaxi nor its subsidiaries is
currently in receipt of any notice of any violation or infringements of, and
neither Nettaxi nor its subsidiaries is knowingly violating or infringing, the
rights of others in any trademark, trade name, service mark, copyright, patent,
trade secret, know-how or other intangible asset.
4.17 GOVERNMENTAL APPROVALS: Except as set forth in Section 1.2 as to
the filing of the Agreement of Merger, no authorization, license, permit,
franchise, approval, order or consent of, and no registration, declaration or
filing by Nettaxi or its subsidiaries with, any governmental authority, domestic
or foreign, federal, state or local, is required in connection with Nettaxi's
and RSAC's execution, delivery and performance of this Agreement.
4.18 TRANSACTIONS WITH AFFILIATES: Neither Nettaxi nor its subsidiaries
is indebted for money borrowed, either directly or indirectly, from any
Affiliate, in any amount whatsoever; nor are any of its officers, directors, or
Affiliates indebted for money borrowed from Nettaxi or its subsidiaries; nor are
there any transactions of a continuing nature between Nettaxi or its
subsidiaries and any of its officers, directors, or Affiliates not subject to
cancellation which will continue beyond the Effective Time, including, without
limitation, use of the assets of Nettaxi or its subsidiaries for personal
benefit with or without adequate compensation.
4.19 EXISTING ARRANGEMENTS: Nettaxi and its subsidiaries have no
Knowledge that, either as a result of the actions contemplated hereby or for any
other reason (exclusive of expiration of a contract upon the passage of time),
any entity having an arrangement with Nettaxi or its subsidiaries identified in
Schedule 4.8 will not continue to conduct business with Nettaxi or its
- ------------
subsidiaries after the Closing Date in substantially the same manner as it has
conducted business with Nettaxi or its subsidiaries in the past.
4.20 NO DISTRIBUTIONS: Neither Nettaxi nor its subsidiaries has made
nor has any intention of making any distribution or payment to any of its
shareholders in respect of Nettaxi stock.
4.21 ACCOUNTS RECEIVABLE: All accounts receivable of Nettaxi and its
subsidiaries reflected on the Nettaxi Balance Sheet are valid receivables
subject to no material setoffs or counterclaims and are current and, to
Nettaxi's Knowledge, collectible (within 90 days after the date on which it
first became due and payable), net of the applicable reserve for bad debts
reflected in the financial statements provided to RAE Systems or in the Nettaxi
20
Disclosure Schedule. To the Knowledge of Nettaxi and its subsidiaries, all
accounts receivable reflected in the financial or accounting records of Nettaxi
and its subsidiaries are valid receivables and are collectible subject to no
material setoffs or counterclaims.
4.22 SEC DISCLOSURES:
(a) Nettaxi has delivered or made available to RAE Systems
(including through the SEC EDGAR system) accurate and complete copies (excluding
copies of exhibits) of each report, registration statement and definitive proxy
statement filed by Nettaxi with the SEC between August 13, 1999 and the date of
this Agreement (the "Nettaxi SEC Documents"). Since August 13, 1999, all
statements, reports, schedules, forms and other documents required to have been
filed by Nettaxi with the SEC have been so filed. As of the time it was filed
with the SEC (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the Nettaxi SEC
Documents complied in all material respects with the applicable requirements of
the Securities Act of 1933 (the "Securities Act") or the Securities and Exchange
Act of 1934 (the "Exchange Act") (as the case may be); and (ii) none of the
Nettaxi SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) The consolidated financial statements (including any related
notes) contained in the Nettaxi SEC Documents: (i) complied as to form in all
material respects with the published rules and regulations of the SEC applicable
thereto; (ii) were prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered (except
as may be indicated in the notes to such financial statements and, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC, and except that
unaudited financial statements may not contain footnotes and are
subject to year-end audit adjustments); and (iii) fairly present the
consolidated financial position of Nettaxi and its subsidiaries as of the
respective dates thereof and the consolidated results of operations of Nettaxi
and its subsidiaries for the periods covered thereby.
4.23 ABSENCE OF CERTAIN CHANGES OR EVENTS: Since September 30, 2001
(the "Nettaxi Balance Sheet Date"), other than in connection with the
termination of Nettaxi's operations, there has not been:
(a) any material adverse change in the financial condition,
properties, assets, liabilities or business of Nettaxi or its subsidiaries;
(b) any material damage, destruction or loss of any material
properties of Nettaxi or its subsidiaries, whether or not covered by insurance;
(c) any material adverse change in the manner in which the
business of Nettaxi or its subsidiaries has been conducted;
21
(d) any material adverse change in the treatment and protection of
trade secrets or other confidential information of Nettaxi or its subsidiaries;
and
(e) any occurrence not included in paragraphs (a) through (d) of
this Section 4.19 which has resulted, or which Nettaxi or its subsidiaries has
reason to believe, might be expected to result in a material adverse change in
the business or prospects of Nettaxi or its subsidiaries.
4.24 LIABILITIES: Neither Nettaxi, Nettaxi Online nor RSAC have any
material direct or indirect Liabilities, as that term is defined in Section 3.23
("Nettaxi Liabilities"), whether or not of a kind required by generally accepted
accounting principles to be set forth on a financial statement, other than (i)
Nettaxi Liabilities fully and adequately reflected or reserved against on the
Nettaxi Balance Sheet and (ii) Nettaxi Liabilities otherwise disclosed in this
Agreement, including the exhibits hereto and the Nettaxi Disclosure Schedule.
4.25 GOVERNMENTAL LICENSES, PERMITS AND AUTHORIZATIONS: Nettaxi,
Nettaxi Online and RSAC have all governmental licenses, permits, authorizations
and approvals necessary for the conduct of its business as currently conducted.
All such licenses, permits, authorizations and approvals are in full force and
effect, and no proceedings for the suspension or cancellation of any thereof is
pending or threatened.
4.26 EMPLOYEE BENEFIT PLANS:
(a) The Nettaxi Disclosure Schedule identifies each salary, bonus,
material deferred compensation, material incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, medical,
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or material agreement.
(b) Neither Nettaxi, Nettaxi Online nor RSAC has maintained,
sponsored or contributed to, any employee pension benefit plan (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or any similar pension benefit plan under the laws of any foreign
jurisdiction.
(c) Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any bonus, golden parachute,
severance or other similar payment or obligation to any current or former
employee or director of Nettaxi, Nettaxi Online or RSAC, or result in any
acceleration of the time of payment, provision or vesting of any such benefits.
Without limiting the generality of the foregoing the consummation of the Merger
will not result in the acceleration of vesting of any unvested Nettaxi Options.
4.27 INSURANCE: Schedule 4.25 of the Nettaxi Disclosure Schedule sets
-------------
forth summaries of all material insurance policies and all material self
22
insurance programs and arrangements relating to the business, assets and
operations of Nettaxi or its subsidiaries. Each of such insurance policies is in
full force and effect.
4.28 NO OMISSION OR UNTRUE STATEMENT: To the best of their Knowledge no
representation or warranty made by Nettaxi, Nettaxi Online or RSAC to RAE
Systems in this Agreement, in the Nettaxi Disclosure Schedule or in any
certificate of a Nettaxi officer required to be delivered to RAE Systems
pursuant to the terms of this Agreement contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements contained herein or therein not misleading as of the date hereof.
5. CLOSING
5.1 DATE AND TIME: Subject to this Agreement and the Merger receiving
all requisite shareholder approvals and subject to the other provisions of this
Agreement, the parties shall hold a closing (the "Closing") on the next business
day (or such later date as the parties hereto may agree) following the later of
(a) the date of the meeting of shareholders of Nettaxi to consider and vote upon
this Agreement and the Merger, or receipt by RAE Systems of consent approving
the Merger, or (b) the business day on which the last of the conditions set
forth in Sections 6 and 7 hereof is fulfilled or waived (such later date, the
"Closing Date"), at the offices of Silicon Valley Law Group, 152 N. Third
Street, Suite 900, San Jose, California 95112 or such other time and place as
the parties may agree upon.
5.2 RAE SYSTEMS' CLOSING DELIVERIES: At the Closing, in addition to
documents referred to elsewhere, RAE Systems shall deliver, or cause to be
delivered, to Nettaxi:
(a) a certificate, dated as of the Closing Date, executed by the
Chief Executive Officer of RAE Systems, to the effect that the representations
and warranties contained in this Agreement are true and correct in all material
respects at and as of the Closing Date and that RAE Systems has complied with or
performed in all material respects all terms, covenants and conditions to be
complied with or performed by RAE Systems on or prior to the Closing Date;
(b) Certified Resolutions of the Board of Directors and a majority
of the Shareholders of RAE Systems approving the transactions set forth herein;
(c) The RAE Systems Disclosure Schedule;
(d) an opinion of RAE Systems' counsel, dated as of the Closing
Date, substantially in form attached hereto as Exhibit E;
---------
(e) such other documents as Nettaxi or its counsel may reasonably
require.
5.3 NETTAXI CLOSING: At the Closing, in addition to documents referred
to elsewhere, Nettaxi shall deliver to RAE Systems:
23
(a) a certificate of Nettaxi, dated as of the Closing Date,
executed by the President or Chief Executive Officer of Nettaxi to the effect
that the representations and warranties of Nettaxi and its subsidiaries
contained in this Agreement are true and correct in all material respects and
that Nettaxi has complied with or performed in all material respects all terms,
covenants, and conditions to be complied with or performed by Nettaxi or prior
to the Closing Date;
(b) The Nettaxi Disclosure Schedule; and
(c) an opinion of Nettaxi's counsel, dated as of the Closing Date,
substantially in form attached hereto as Exhibit F;
---------
6. CONDITIONS TO OBLIGATIONS OF RAE SYSTEMS. The obligation of RAE Systems
to consummate the Closing is subject to the following conditions, any of which
may be waived by it in its sole discretion:
6.1 COMPLIANCE BY NETTAXI: On or before the Closing, Nettaxi shall have
performed and complied in all material respects with the following:
(a) All present directors of Nettaxi shall tender their
resignations effective upon the Closing; and
(b) Nettaxi shall have preformed and complied in all material
respects with all other agreements and conditions required by this Agreement to
be performed or complied with by Nettaxi prior to or on the Closing Date.
6.2 ACCURACY OF NETTAXI'S REPRESENTATIONS: Nettaxi's representations
and warranties contained in this Agreement (including the Nettaxi Disclosure
Schedule and the Nettaxi SEC Documents) or any schedule, certificate, or other
instrument delivered pursuant to the provisions hereof or in connection with the
transactions contemplated hereby shall be true and correct in all material
respects at and as of the Closing Date (except for such changes permitted by
this Agreement).
6.3 MATERIAL ADVERSE CHANGE: No material adverse change shall have
occurred subsequent to September 30, 2001 in the financial position, results of
operations, assets, liabilities, or prospects of Nettaxi or its subsidiaries,
nor shall any event or circumstance have occurred which would result in a
material adverse change in the financial position, results of operations,
assets, liabilities, or prospects of Nettaxi or its subsidiaries; provided,
however, that the following events or occurrences shall not be deemed to be
events or occurrences having a material adverse effect for purposes of this
Section 6.3: (i) reductions or increases in the trading price of Nettaxi Common
Stock between the date hereof and the Closing Date; (ii) events or occurrences
related directly to the Merger or the other transactions contemplated by this
Agreement; or (iii) the cessation of operations as contemplated by Section
2.2(c).
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6.4 DOCUMENTS: All documents and instruments required hereunder to be
delivered by Nettaxi to RAE Systems at the Closing shall be delivered in form
and substance reasonably satisfactory to RAE Systems and its counsel.
6.5 LITIGATION: No litigation, temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint seeking to enjoin the
transactions contemplated by this Agreement or to obtain damages on account
hereof shall be pending or to RAE System's Knowledge be threatened.
6.6 APPROVAL OF SHAREHOLDERS: RAE Systems shall have received the
approval of a majority of its shareholders of this Agreement and the
transactions contemplated.
6.7 NETTAXI NET CASH: Nettaxi's Net Cash shall be at least seven
million five hundred thousand dollars ($7,500,000); provided however, that if
the Closing has takes place between March 15, 2002 and April 1, 2002 Nettaxi's
Net Cash shall be at least seven million four hundred seventy five thousand
dollars ($7,475,000).
6.8 NETTAXI LOCK-UP AGREEMENTS: RAE Systems shall have received an
executed Lock-Up Agreement, substantially in the form of Exhibit G hereto, from
---------
each of the persons listed on Schedule 6.8 hereto.
------------
6.9 NETTAXI REINCORPORATION: Nettaxi shall have effectuated a
reincorporation of its jurisdiction of incorporation to the State of Delaware as
contemplated by Section 1.1.
6.10 CONSENTS: All other authorizations, consents, orders or approvals
of, or declarations or filings with, or expirations of waiting periods imposed
by, any governmental entity the failure to obtain or comply with which would be
reasonably likely to have a material adverse effect on RAE Systems or a material
adverse effect on the consummation of the transactions contemplated hereby shall
have been filed, occurred or been obtained.
7. CONDITIONS TO NETTAXI'S OBLIGATIONS. Nettaxi and RSAC's obligation to
consummate the Closing is subject to the following conditions, any of which may
be waived by either party in its sole discretion:
7.1 COMPLIANCE BY RAE SYSTEMS: RAE Systems shall have performed and
complied in all material respects with all agreements and conditions required by
this Agreement to be performed or complied with by RAE Systems prior to or on
the Closing Date.
7.2 ACCURACY OF REPRESENTATIONS OF RAE SYSTEMS: The representations and
warranties of RAE Systems contained in this Agreement (including the exhibits
hereto and the RAE Systems Disclosure Schedule) or any schedule, certificate, or
other instrument delivered pursuant to the provisions hereof or in connection
25
with the transactions contemplated hereby shall be true and correct in all
material respects at and as of the Closing Date (except for changes permitted by
this Agreement).
7.3 MATERIAL ADVERSE CHANGE: No material adverse change shall have
occurred subsequent to September 30, 2001 in the financial position, results of
operations, assets, liabilities, or prospects of RAE Systems, nor shall any
event or circumstance have occurred which would result in a material adverse
change in the financial position, results of operations, assets, liabilities, or
prospects of RAE Systems (including but not limited to a material deviation in
the audited financial statements of RAE Systems from the unaudited financial
statements provided by RAE Systems to Nettaxi; provided, however, that the
following shall not be deemed to be material deviations: (a) material deviations
which do not materially affect RAE Systems' revenues, net income, costs of goods
sold, inventory or accounts receivable; and (b) deviations in the tax provisions
of such financials relating to transactions involving its foreign subsidiaries
and the appropriate reserve with respect to any tax liabilities relating
thereto; provided, however, that deviations materially affecting net income in
part (a) of the foregoing shall not include those as a result of such tax
provisions of such financials relating to transactions involving its foreign
subsidiaries and the tax liabilities relating thereto). Notwithstanding
anything to the contrary set forth herein, the following events or occurrences
shall not be deemed to be events or occurrences having a material adverse effect
for purposes of this Section 7.3: (i) events or occurrences affecting the
environmental, health and safety industry that do not have a disproportionate
impact on RAE Systems, taken as a whole; or (ii) events or occurrences related
directly to the Merger or the other transactions contemplated by this Agreement.
7.4 LITIGATION: No litigation, temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint seeking to enjoin the
transactions contemplated by this Agreement or to obtain damages on account
hereof shall be pending or to Nettaxi's Knowledge be threatened.
7.5 DOCUMENTS: All documents and instruments required hereunder to be
delivered by RAE Systems to Nettaxi at the Closing shall be delivered in form
and substance reasonably satisfactory to Nettaxi and its counsel.
7.6 SHAREHOLDER APPROVAL: This Agreement shall have been duly adopted
and approved, and the Merger shall have been duly approved, by the shareholders
of RAE Systems. The holders of not more than 10% of the shares of RAE Systems'
Common Stock shall have exercised dissenters' rights pursuant to CGCL.
7.7 APPROVAL OF SHAREHOLDERS OF NETTAXI: Nettaxi shall have received
the approval of a majority of its shareholders of this Agreement and the
transactions contemplated hereby.
7.8 FINANCIAL STATEMENTS: RAE Systems shall have provided Nettaxi with
financial statements and other information satisfactory in all respects to allow
26
Nettaxi to comply with any and all applicable requirements under the Securities
Act and the Exchange Act.
7.9 INSURANCE. With respect to that certain pending litigation known
as Lanell Owens, Individually and as the representative of the estate of Virgil
Johnson, deceased, Wilma Johnson, Bobby Johnson, Steven Johnson, Roger Johnson
and Virgil Johnson, Jr. v. RAE Systems, Inc. Total Safety, Inc. Global
Intermodal Systems pending in the District Court of Harris County Texas
(2001-54565), RAE Systems shall have received a letter from its insurance
carrier either (i) accepting the obligation to insure RAE Systems against the
claim; or (ii) reserving its rights with respect to the claim, subject to the
reasonable satisfaction of Nettaxi; provided, however, that such letter
reserving rights with respect to such claim shall automatically be deemed
reasonably satisfactory to Nettaxi if substantially similar in coverage
certainty to that certain letter dated July 25, 2001 from Hanson & Peters to
Silicon Valley Law Group with respect to Thomas Lahey, et al. v. Nettaxi, Inc.,
et. al.
7.10 CONSENTS: All other authorizations, consents, orders or approvals
of, or declarations or filings with, or expirations of waiting periods imposed
by, any governmental entity the failure to obtain or comply with which would be
reasonably likely to have a material adverse effect on Nettaxi or a material
adverse effect on the consummation of the transactions contemplated hereby shall
have been filed, occurred or been obtained.
8. TERMINATION
8.1 TERMINATION PRIOR TO CLOSING:
(a) If the Closing has not occurred by April 1, 2002 (as may be
extended as set forth below, the "Termination Date") any party may terminate
this Agreement at any time thereafter by giving written notice of termination to
the other, provided, however, that no party may terminate this Agreement if such
party has willfully or materially breached any of the terms and conditions
hereof. Notwithstanding the above, the parties may extend the deadline provided
herein by mutual written consent. If the Closing has not occurred by April 1,
2002 and Nettaxi's Proxy Statement as referenced in Section 11 hereof is then
under review from the SEC (as defined) or the Closing was unable to occur by
April 1, 2002 due to a delay caused by such review, such Termination Date shall
be automatically extended until the date thirty (30) business days following the
date on which the SEC advises Nettaxi that it has no further comments with
respect to such Proxy Statement.
(b) Prior to the Termination Date, any party may terminate this
Agreement following the insolvency or bankruptcy of the other party hereto, or
if any one or more of the conditions to Closing set forth in Section 6 or 7
shall become incapable of fulfillment or there shall have occurred a breach of
this Agreement which breach would reasonably be expected to have a material
adverse effect on the other party hereto and either such condition or breach
shall not have been waived by the party for whose benefit the condition,
representation or warranty was established, then either RAE Systems (in the case
27
of a condition in Section 6) or Nettaxi (in the case of a condition specified in
Section 7) may terminate this Agreement.
8.2 BREAK-UP FEE: If the votes in favor of the Nettaxi Proposals (as
defined in Section 11.3(a)) do not constitute the minimum number of votes
required for approval and adoption of such proposals, and in such case, this
Agreement is terminated pursuant to Section 8 hereof, Nettaxi shall pay to RAE
Systems within five days of the date of termination an amount equal to Two
Hundred and Fifty Thousand Dollars ($250,000).
8.3 CONSEQUENCES OF TERMINATION: Upon termination of this Agreement in
accordance with this Section 8 or any other express right of termination
provided elsewhere in this Agreement, the parties shall be relieved of any
further obligation to the others except as specified in Section 8.2 or 13.4;
provided, however, that no termination of this Agreement, in accordance with
this Section 8 hereof or under any other express right of termination provided
elsewhere in this Agreement shall operate to release any party from any
liability to any other party incurred before the date of such termination or
from any liability resulting from any willful misrepresentation made in
connection with this Agreement or willful breach hereof.
9. ADDITIONAL COVENANTS
9.1 MUTUAL COOPERATION: The parties hereto will cooperate with each
other, and will use all reasonable efforts to cause the fulfillment of the
conditions to the parties' obligations hereunder and to obtain as promptly as
possible all consents, authorizations, orders or approvals from each and every
third party, whether private or governmental, required in connection with the
transactions contemplated by this Agreement.
9.2 CHANGES IN REPRESENTATIONS AND WARRANTIES OF A PARTY: A party shall
promptly give written notice to the other party upon becoming aware of (A) any
fact which, if known on the date hereof, would have been required to be set
forth or disclosed pursuant to this Agreement and (B) any impending or
threatened breach in any material respect of any of the representations and
warranties contained in this Agreement and with respect to the latter shall use
all reasonable efforts to remedy same.
9.3 REGISTRATION STATEMENTS: Following the Effective Time, Nettaxi
shall use commercially reasonable efforts to continue to maintain the
effectiveness of its registration statements filed with the Securities and
Exchange Commission and identified on Schedule 9.3(a), attached hereto, until
such date as is the earlier of (i) the date on which the securities registered
under the registration statements have been sold; or (ii) the date on which the
securities registered under the registration statements may be sold to the
public without registration or restriction (including, without limitation,
restrictions as to volume). Notwithstanding the above, the registration
statements may be converted to registration statements on Form S-3, Form S-2 (or
any successor form), if permitted by law. In addition, Nettaxi shall within a
reasonable time period after the Effective Time file a registration statement on
Form S-1 or on such other form as is then available under the Securities Act
28
covering the securities identified on Schedule 9.3(b), attached hereto so as to
facilitate the resale thereof, to be kept effective until such date as is the
earlier of (i) the date on which the securities registered under such
registration statement have been sold; or (ii) the date on which the securities
registered under such registration statement may be sold to the public without
registration or restriction (including without limitation, restrictions as to
volume). Notwithstanding the above, such registration statement may be
converted to a registration statement on Form S-3, Form S-2 (or any successor
form), if permitted by law.
9.4 STOCK OPTION PLANS AND WARRANTS: Following the Effective Time,
Nettaxi shall continue to maintain its 1998 and 1999 Stock Option Plans for a
period of at least four (4) years. After the Effective Time, Nettaxi will
continue to honor the terms of the options and warrants of Nettaxi referenced on
Schedule 3.2 of the Nettaxi Disclosure Schedule in accordance with the
respective terms of such options and warrants.
10. BROKERS
10.1 BROKERS: Other than Baytree and Harter Financial, Inc. there is no
investment banker, broker, finder or other intermediary entitled to a fee or
other compensation for bringing the parties together to effect the Merger. At
the Effective Time, Baytree's fee shall be equal to 960,000 shares of the Common
Stock of Nettaxi plus three-year warrants to purchase 1,750,000 shares of the
Nettaxi's Common Stock (pursuant to a form of warrant agreement agreed to
between Nettaxi and Baytree) after giving effect to the stock split contemplated
in Section 1.1 having an exercise price of $1.19 per share. The surviving
corporation shall have the option to redeem the warrants if the surviving
corporation's Common Stock trades at a price equal to or greater than $6.00 per
share for 20 consecutive trading days. The redemption price shall be $0.05 per
share. At the Effective Time, Harter's fee shall be as described on Schedule
3.6 of RAE Systems Disclosure Schedule.
11. SECURITIES; SHAREHOLDER APPROVAL
11.1 RAE SYSTEMS: RAE Systems, acting through its board of directors,
in accordance with applicable law, its Articles of Incorporation, as amended,
and Bylaws, as amended, will:
(a) duly call, give notice of, convene and hold a special meeting
of its shareholders, to be held as soon as practicable after the date of this
Agreement, for the purpose of submitting this Agreement, the Merger and the
other transactions contemplated hereby, as a single proposal (the "RAE
Proposal") for adoption and approval by the required vote of the holders of RAE
Common Stock;
(b) cooperate with Nettaxi in preparing and filing with the
Securities and Exchange Commission (the "SEC") as promptly as practicable after
the date of this Agreement the Proxy Statement with respect to such shareholders
meeting satisfying the requirements of the Securities Act and the Exchange Act,
respond promptly to any comments raised by the SEC with respect to the
29
preliminary version of the Proxy Statement, use all its reasonable efforts to
cause the definitive version of the Proxy Statement to be mailed to its
shareholders as soon as it is legally permitted to do so;
(c) provide Nettaxi with the information concerning RAE Systems
required to be included in the Proxy Statement;
(d) and include in the Proxy Statement the recommendation of the
board of directors of RAE Systems that the shareholders of RAE Systems vote in
favor of adoption and approval of the RAE Proposal.
11.2 INFORMATION OF RAE SYSTEMS IN PROXY STATEMENT: The information
supplied by RAE Systems for inclusion in the Proxy Statement shall not, at (i)
the time the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to the shareholders of Nettaxi, (ii) the time of each of the
shareholders' meetings and (iii) the Effective Time, contain any untrue
statement of a material fact or fail to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. If, at any time
prior to the Effective Time, any event or circumstance relating to RAE Systems
or any subsidiary of RAE Systems, or their respective officers or directors,
that should be set forth in an amendment or a supplement to the Proxy Statement
is discovered by RAE Systems, RAE Systems shall promptly inform Nettaxi.
11.3 NETTAXI: Nettaxi, acting through its board of directors, in
accordance with applicable law, its Articles of Incorporation and Bylaws, will:
(a) duly call, give notice of, convene and hold an annual meeting
of its shareholders, to be held as soon as practicable after the date of this
Agreement, for the purpose of submitting, each as a single proposal, the
proposals adopted by the board of directors of Nettaxi to (i) effectuate the
Merger and issue the Nettaxi Merger Stock pursuant to the Merger (the "Share
Issuance"), (ii) change the jurisdiction of Nettaxi's incorporation to the State
of Delaware and (iii) amend the name of Nettaxi to "RAE Systems Inc."
(collectively, the "Nettaxi Proposals") for adoption and approval by the
required vote of the holders of Nettaxi Common Stock;
(b) file with the SEC as promptly as practicable after the date of
this Agreement the Proxy Statement complying in all material respects with the
Securities Act and the Exchange Act, respond promptly to any comments raised by
the SEC with respect to the preliminary version of the Proxy Statement, use all
its reasonable efforts to cause the definitive version of the Proxy Statement to
be mailed to its shareholders as soon as it is legally permitted to do so;
(c) provide RAE Systems with the information concerning Nettaxi
and RSAC required to be included in the Proxy Statement; and
(d) include in the Proxy Statement the recommendation of the board
of directors of Nettaxi that the shareholders of Nettaxi vote in favor of
adoption and approval of the Nettaxi Proposals.
30
11.4 INFORMATION OF NETTAXI IN PROXY STATEMENT: The information on
Nettaxi in the Proxy Statement shall not, at (i) the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to the
shareholders of RAE Systems, (ii) the time of each of the shareholders' meetings
and (iii) the Effective Time, contain any untrue statement of a material fact or
fail to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. If, at any time prior to the Effective Time, any
event or circumstance relating to Nettaxi or any subsidiary of Nettaxi, or their
respective officers or directors, that should be set forth in an amendment or a
supplement to the Proxy Statement is discovered by Nettaxi, Nettaxi shall
promptly inform RAE Systems.
11.5 COOPERATION: Each party will promptly advise the other of its
receipt of, and will promptly furnish the other party with copies of, all
comments received from the SEC with respect to the Proxy Statement and will
consult with the other party in responding to such comments.
11.6 RESTRICTION ON TRANSFER: RAE Systems acknowledges that the shares
of Nettaxi Common Stock are restricted securities and may only be sold pursuant
to an effective registration statement under the Securities Act or an exemption
therefrom. The Restricted Securities and any shares of capital stock received in
respect thereof, whether by reason of a stock split or share reclassification
thereof, a stock dividend thereon or otherwise, shall not be transferable except
upon the conditions specified herein.
11.7 RESTRICTIVE LEGENDS: Each certificate for the Nettaxi Common Stock
issued in the Merger and any shares of capital stock received in respect
thereof, whether by reason of a stock split or share reclassification thereof, a
stock dividend thereon or otherwise, and each certificate for any such
securities issued to subsequent transferees of any such certificate shall
contain a legend to the effect that:
"The Restricted Securities covered by this certificate have not
been registered under the Securities Act of 1933, as amended, and
may not be sold, offered for sale, assigned, transferred or
otherwise disposed of, unless registered pursuant to the
provisions of that Act or an opinion of counsel to Nettaxi is
obtained stating that such disposition is in compliance with an
available exemption from such registration."
12. INDEMNIFICATION
12.1 DIRECTORS' AND OFFICERS' INDEMNIFICATION INSURANCE.
(a) The Articles of Incorporation of Nettaxi shall contain the
respective provisions that are set forth, as of the date of this Agreement, in
Article VII "Indemnification", which provisions shall not be amended, repealed
or otherwise modified for a period of three (3) years from the Effective Time in
any manner that would affect adversely the rights thereunder of individuals who
at or at any time prior to the Effective Time were directors, officers,
31
employees, fiduciaries or agents of Nettaxi. The Indemnity Agreements between
Nettaxi and its officers and directors shall remain in full force and effect
after the Effective Time.
(b) After the Effective Time, Nettaxi and RAE Systems shall, to
the extent set forth under their respective Articles of Incorporation and
Bylaws, or any Indemnity Agreements, indemnify and hold harmless, each current
and former director or officer of Nettaxi and its subsidiaries and each person
who served at the request of Nettaxi or any subsidiary of the Nettaxi as a
director, officer, trustee, partner, fiduciary, employee or agent of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or enterprise (collectively, the "Indemnified Parties") against all
costs and expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages, liabilities, and settlement amounts paid in connection
with any claim, action, suit proceeding or investigation (whether arising before
or after the Effective Time), whether civil, administrative, criminal or
investigative, arising out of or pertaining to any action or omission in their
capacities as officers or directors, in each case occurring before the Effective
Time (including transactions contemplated by this Agreement). Without limiting
the foregoing, in the event that any such claim, action, suit, proceeding or
investigation, (i) Nettaxi and RAE Systems, as the case may be, shall pay the
reasonable fees and expenses of one (1) counsel selected by any Indemnified
Party, which counsel shall be reasonably satisfactory to Nettaxi and RAE
Systems, as the case may be, promptly after statements therefore are received
(unless RAE Systems shall elect to defend such action) and (ii) Nettaxi and RAE
Systems shall reasonably cooperate in the defense of any such matter, provided,
however, that none of Nettaxi or RAE Systems shall be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld or delayed). In the event that any claim or claims for indemnification
are asserted or made, all rights to indemnification in respect of any such claim
or claims shall continue until the disposition of any and all such claims.
(c) For a period of three (3) years after the Effective Time,
Nettaxi shall cause to be maintained in effect the current directors and
officers liability insurance policies maintained by Nettaxi (provided that
coverage limits in the aggregate for the entire three (3) year period are not
less than the current annual limits, and provided further that Nettaxi may
substitute policies reasonably satisfactory to the Indemnified Parties of at
least the same coverage with other terms and conditions that are no less
advantageous to the Indemnified Parties) with respect to claims arising from
facts or events that occurred prior to the Effective Time; provided, however,
that in no event shall Nettaxi be required to expand, pursuant to this Section
12.1(c), more than an amount per year equal to 110% of current annual premiums
paid by Nettaxi for such insurance; provided further, however, that if the
premiums for such coverage exceed such amount, Nettaxi shall purchase a policy
with the greatest coverage available for such 110% of the current annual
premiums spent by Nettaxi for its fiscal year ending December 31, 2001. Prior
to the Effective Time, Nettaxi shall submit a quote from its insurance broker
for the coverage required by this Section 12.1(c). The quote will describe the
cost of coverage before and after the Effective Time. Notwithstanding anything
to the contrary contained in this Agreement, Nettaxi shall purchase the
insurance policy. Nettaxi's Net Cash (as it applies to NV defined in Section
1.4(a)) shall be increased by the cost of the coverage under such insurance
32
policy attributable to after the Effective Time, which offset shall not exceed
110% of the current annual premiums paid by Nettaxi for such insurance for its
fiscal year ending December 31, 2001.
(d) In the event Nettaxi or RAE Systems or any of their respective
successors or assigns (i) consolidates with or merges into another person and
shall not be continuing or surviving corporation or entity in such consolidation
or merger or (ii) transfers all or substantially all of its properties and
assets to any person, then, and in each case, proper provision shall be made so
that the successor and assigns of Nettaxi, or RAE Systems, as the case may be,
honor the indemnification obligations set forth in this Section 12.1.
13. MISCELLANEOUS
13.1 EXPENSES: RAE Systems, Nettaxi and RSAC shall each pay its own
expenses incident to the negotiation, preparation, and carrying out of this
Agreement, including legal and accounting and audit fees.
13.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS: All
statements contained in this Agreement or in any certificate delivered by or on
behalf of RAE Systems or Nettaxi pursuant hereto, or in connection with the
actions contemplated hereby shall be deemed representations, warranties and
covenants by Nettaxi or RAE Systems, as the case may be, hereunder. All
representations, warranties, and covenants made by RAE Systems or Nettaxi in
this Agreement, or pursuant hereto, shall terminate at the Closing.
13.3 PUBLICITY: Nettaxi and RAE Systems shall not issue any press
release or make any other public statement, in each case, relating to, in
connection with or arising out of this Agreement or the transactions
contemplated hereby, without obtaining the prior approval of the other, which
shall not be unreasonably withheld or delayed, except that prior approval shall
not be required if, in the reasonable judgment of Nettaxi, prior approval by RAE
Systems would prevent the timely dissemination of such release or statement in
violation of applicable Federal securities laws, rules or regulations or
policies of the NASD OTC Bulletin Board.
13.4 NON DISCLOSURE: RAE Systems and Nettaxi shall be governed by the
confidentiality and nondisclosure provisions set forth in that certain Mutual
Nondisclosure Agreement dated November 29, 2001 by and between RAE Systems and
Nettaxi.
13.5 SUCCESSION AND ASSIGNMENTS AND THIRD PARTY BENEFICIARIES: This
Agreement may not be assigned (either voluntarily or involuntarily) by any party
hereto without the express written consent of the other party. Any attempted
assignment in violation of this Section shall be void and ineffective for all
purposes. In the event of an assignment permitted by this Section, this
Agreement shall be binding upon the heirs, successors and assigns of the parties
hereto. There shall be no third party beneficiaries of this Agreement.
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13.6 NOTICES: All notices, requests, demands, or other communications
with respect to this Agreement shall be in writing and shall be (i) sent by
facsimile transmission, (ii) sent by the United States Postal Service,
registered or certified mail, return receipt requested, or (iii) personally
delivered by a nationally recognized express overnight courier service, charges
prepaid, to the following addresses (or such other addresses as the parties may
specify from time to time in accordance with this Section)
(a) TO NETTAXI/RSAC: Nettaxi.com
1875 South Bascom Ave., No. 116
Campbell, California 95008
Phone No: (408) 879-9880
Fax No: (408) 879-9907
Attn: Robert A. Rositano, Jr., CEO
with copy to: Silicon Valley Law Group
Attn: James C. Chapman
152 N. Third Street, Suite 900
San Jose, California 95112
Phone No: (408) 286-6100
Fax No: (408) 286-1400
(b) TO RAE SYSTEMS: RAE Systems Inc.
1339 Moffett Park Drive
Sunnyvale, California 94089
Phone No: (408) 585-3500
Fax No: (408) 585-3505
Attn: Robert I. Chen, Chairman and CEO
with copy to: Gray Cary Ware & Freidenrich LLP
Attn: Peter M. Astiz
400 Hamilton Avenue
Palo Alto, California 94301-1833
(650) 833-2000
(650) 833-2001
Any such notice shall, when sent in accordance with the preceding sentence, be
deemed to have been given and received on the earliest of (i) the day delivered
to such address or sent by facsimile transmission, (ii) the fifth (5th) business
day following the date deposited with the United States Postal Service, or (iii)
24 hours after shipment by a such courier service.
13.7 CONSTRUCTION: This Agreement shall be construed and enforced in
accordance with the internal laws of the State of California without giving
effect to the principles of conflicts of law thereof.
13.8 COUNTERPARTS: This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
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13.9 NO IMPLIED WAIVER; REMEDIES: No failure or delay on the part of
the parties hereto to exercise any right, power, or privilege hereunder or under
any instrument executed pursuant hereto shall operate as a waiver nor shall any
single or partial exercise of any right, power, or privilege preclude any other
or further exercise thereof or the exercise of any other right, power, or
privilege. All rights, powers, and privileges granted herein shall be in
addition to other rights and remedies to which the parties may be entitled at
law or in equity.
13.10 ENTIRE AGREEMENT: This Agreement, including the Exhibits and
Disclosure Schedules attached hereto, sets forth the entire understandings of
the parties with respect to the subject matter hereof, and it incorporates and
merges any and all previous communications, understandings, oral or written as
to the subject matter hereof, and cannot be amended or changed except in
writing, signed by the parties.
13.11 HEADINGS: The headings of the Sections of this Agreement, where
employed, are for the convenience of reference only and do not form a part
hereof and in no way modify, interpret or construe the meanings of the parties.
13.12 SEVERABILITY: To the extent that any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted hereof and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
13.13 ATTORNEYS FEES: In the event any legal action is brought to
interpret or enforce this Agreement, the party prevailing in such action shall
be entitled to recover its
attorneys' fees and costs in addition to any other relief that it is entitled.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
RSAC: RAES ACQUISITION CORPORATION
By: /s/ Robert A. Rositano
----------------------------------------
Robert A. Rositano, Jr., Chief Executive
Officer
NETTAXI: NETTAXI.COM
By: /s/ Robert A. Rositano
----------------------------------------
Robert A. Rositano, Jr.
Chief Executive Officer
RAE SYSTEMS: RAE SYSTEMS INC.
By: /s/ Robert I. Chen
----------------------------------------
Robert I. Chen
Chairman and Chief Executive Officer
TABLE OF EXHIBITS
EXHIBIT A: FORM OF DELAWARE CERTIFICATE OF INCORPORATION
EXHIBIT B: FORM OF DELAWARE BYLAWS
EXHIBIT C: AGREEMENT OF MERGER
EXHIBIT D: VOTING AGREEMENT
EXHIBIT E: FORM OF LEGAL OPINION OF COUNSEL TO NETTAXI AND RSAC
EXHIBIT F: FORM OF LEGAL OPINION OF COUNSEL TO RAE SYSTEMS
EXHIBIT G: FORM OF LOCK-UP AGREEMENT
[SIGNATURE PAGE TO MERGER AGREEMENT]
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