<PAGE>
Exhibit 2.1
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
dated as of September 20, 2000
among
METAWAVE COMMUNICATIONS CORPORATION,
MALIBU ACQUISITION CORPORATION
and
ADAPTIVE TELECOM, INC.
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TABLE OF CONTENTS
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ARTICLE I THE MERGER....................................................................... 2
Section 1.1 Effective Time of the Merger............................................ 2
Section 1.2 Closing................................................................. 2
Section 1.3 Effects of the Merger................................................... 2
Section 1.4 Directors and Officers.................................................. 2
ARTICLE II CONVERSION OF SECURITIES......................................................... 3
Section 2.1 Conversion of Capital Stock............................................. 3
Section 2.2 Escrow Agreement........................................................ 5
Section 2.3 Dissenting Shares....................................................... 5
Section 2.4 Exchange of Certificates................................................ 6
Section 2.5 Distributions with Respect to Unexchanged Shares........................ 7
Section 2.6 Tax and Accounting Consequences......................................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF TARGET........................................ 7
Section 3.1 Organization of Target.................................................. 8
Section 3.2 Target Capital Structure................................................ 8
Section 3.3 Authority; No Conflict; Required Filings and Consents................... 9
Section 3.4 Financial Statements; Absence of Undisclosed Liabilities................ 11
Section 3.5 Tax Matters............................................................. 11
Section 3.6 Absence of Certain Changes or Events.................................... 14
Section 3.7 Title and Related Matters............................................... 15
Section 3.8 Proprietary Rights...................................................... 15
Section 3.9 Employee Benefit Plans.................................................. 18
Section 3.10 Bank Accounts........................................................... 20
Section 3.11 Contracts............................................................... 20
Section 3.12 Compliance With Law..................................................... 21
Section 3.13 Labor Difficulties; No Discrimination................................... 21
Section 3.14 Insider Transactions.................................................... 22
Section 3.15 Employees, Independent Contractors and Consultants...................... 22
Section 3.16 Insurance............................................................... 23
Section 3.17 Accounts Receivable..................................................... 23
Section 3.18 Litigation.............................................................. 23
Section 3.19 Governmental Authorizations and Regulations............................. 23
Section 3.20 No Other Investments.................................................... 23
Section 3.21 Compliance with Environmental Requirements.............................. 24
Section 3.22 Corporate Documents..................................................... 24
Section 3.23 No Brokers.............................................................. 24
Section 3.24 Target Action........................................................... 24
Section 3.25 Offers.................................................................. 24
Section 3.26 Disclosure.............................................................. 25
Section 3.27 Information Statement and Consent....................................... 25
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB............................... 26
Section 4.1 Organization of Acquiror and Sub........................................ 26
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Section 4.2 Valid Issuance of Acquiror Common Stock................................. 26
Section 4.3 Authority; No Conflict; Required Filings and Consents................... 26
Section 4.4 SEC Filings; Financial Statements....................................... 27
Section 4.5 Interim Operations of Sub............................................... 28
Section 4.6 Stockholders Consent.................................................... 28
Section 4.7 Information Statement and Consent....................................... 28
Section 4.8 Litigation.............................................................. 28
ARTICLE V PRECLOSING COVENANTS OF TARGET.................................................... 29
Section 5.1 Information Statement and Consent....................................... 29
Section 5.2 Approval of Target Shareholders......................................... 29
Section 5.3 Advice of Changes....................................................... 29
Section 5.4 Operation of Business................................................... 30
Section 5.5 Satisfaction of Conditions Precedent.................................... 32
Section 5.6 Other Negotiations...................................................... 32
Section 5.7 Other Covenants......................................................... 33
ARTICLE VI PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB............................... 33
Section 6.1 Advice of Changes....................................................... 33
Section 6.2 Reservation of Acquiror Common Stock.................................... 33
Section 6.3 Satisfaction of Conditions Precedent.................................... 33
Section 6.4 Stock Options........................................................... 33
Section 6.5 Nasdaq National Market Listing.......................................... 34
Section 6.6 Certain Employee Benefit Matters........................................ 34
Section 6.7 Registration of Shares Issued in the Merger............................. 35
Section 6.8 Indemnification; Directors and Officers Insurance....................... 35
ARTICLE VII OTHER AGREEMENTS................................................................ 35
Section 7.1 Confidentiality......................................................... 35
Section 7.2 No Public Announcement.................................................. 35
Section 7.3 Regulatory Filings; Consents; Reasonable Efforts........................ 36
Section 7.4 Escrow Agreement........................................................ 36
Section 7.5 FIRPTA.................................................................. 36
Section 7.6 Blue Sky Laws........................................................... 37
Section 7.7 Qualification of Merger as a Reorganization............................. 37
Section 7.8 Access to Information................................................... 37
Section 7.9 Certain Technology Agreements........................................... 37
ARTICLE VIII CONDITIONS TO MERGER........................................................... 37
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger.............. 37
Section 8.2 Additional Conditions to Obligations of Acquiror and Sub................ 38
Section 8.3 Additional Conditions to Obligations of Target.......................... 40
ARTICLE IX TERMINATION AND AMENDMENT........................................................ 40
Section 9.1 Termination............................................................. 40
Section 9.2 Effect of Termination................................................... 41
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Section 9.3 Fees and Expenses....................................................... 41
ARTICLE X ESCROW AND INDEMNIFICATION........................................................ 42
Section 10.1 Indemnification......................................................... 42
Section 10.2 Escrow Fund............................................................. 42
Section 10.3 Damage Threshold........................................................ 43
Section 10.4 Escrow Periods.......................................................... 43
Section 10.5 Claims Upon Escrow Fund................................................. 43
Section 10.6 Valuation............................................................... 44
Section 10.7 Objections to Claims.................................................... 44
Section 10.8 Resolution of Conflicts................................................. 44
Section 10.9 Securityholder Agent.................................................... 45
Section 10.10 Actions of the Securityholder Agent..................................... 45
Section 10.11 Claims.................................................................. 46
ARTICLE XI MISCELLANEOUS.................................................................... 46
Section 11.1 Survival of Representations and Covenants............................... 46
Section 11.2 Notices................................................................. 46
Section 11.3 Interpretation.......................................................... 47
Section 11.4 Counterparts............................................................ 47
Section 11.5 Entire Agreement; No Third Party Beneficiaries.......................... 48
Section 11.6 Governing Law; Jurisdiction............................................. 48
Section 11.7 Assignment.............................................................. 48
Section 11.8 Amendment............................................................... 48
Section 11.9 Extension; Waiver....................................................... 48
Section 11.10 Specific Performance.................................................... 48
Section 11.11 Severability............................................................ 49
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EXHIBITS
--------
EXHIBIT A - VOTING AGREEMENT
EXHIBIT B - EMPLOYMENT AGREEMENT
EXHIBIT C - TARGET DISCLOSURE SCHEDULE
EXHIBIT D - ESCROW AGREEMENT
EXHIBIT E - INVESTOR REPRESENTATION STATEMENT
EXHIBIT F - REGISTRATION RIGHTS AGREEMENT
EXHIBIT G - FORM OF OPINION OF COUNSEL TO TARGET
EXHIBIT H - FORM OF OPINION OF COUNSEL TO ACQUIROR
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<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of
September 20, 2000 (this "Agreement"), is entered into by and among Metawave
Communications Corporation, a Delaware corporation ("Acquiror"), Malibu
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Acquiror ("Sub"), and Adaptive Telecom, Inc., a California corporation
("Target").
RECITALS
A. On September 5, 2000, Acquiror, Sub and Target entered into an
Agreement and Plan of Merger (the "Prior Merger Agreement") through a
----------------------
transaction in which Sub will merge with and into Target, Target will become a
wholly owned subsidiary of Acquiror and the shareholders of Target will become
stockholders of Acquiror (the "Merger");
B. Each of Acquiror, Sub and Target deem it advisable and in the best
interests of each corporation and their respective stockholders and shareholders
that the Prior Merger Agreement be amended and restated in its entirety as set
forth herein.
C. The Boards of Directors of Acquiror, Sub and Target deem it advisable
and in the best interests of each corporation and their respective stockholders
and shareholders that Acquiror and Target combine their respective businesses
upon the terms and conditions set forth herein;
D. The combination of Acquiror and Target shall be effected by the terms
of this Agreement through a transaction in which Sub will merge with and into
Target, Target will become a wholly owned subsidiary of Acquiror and the
shareholders of Target will become stockholders of Acquiror (the "Merger");
E. For Federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder;
F. For accounting purposes, it is intended that the Merger shall be
treated as a "purchase"; and
G. As a condition and inducement to Acquiror's willingness to enter into
this Agreement, certain Target shareholders holding no less than a majority of
the issued and outstanding Preferred Stock of Target and no less than a majority
of the issued and outstanding Common Stock of Target, have, concurrently with
the execution of this Agreement, executed and delivered Voting Agreements in the
form attached hereto as Exhibit A (the "Voting Agreements"), pursuant to which
---------
such shareholders have, among other things, agreed to vote their shares of
Target capital stock in favor of the Merger and to grant Acquiror irrevocable
proxies to vote such shares.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
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<PAGE>
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger.
----------------------------
(a) Subject to the provisions of this Agreement, an agreement of
merger (the "Agreement of Merger") in such mutually acceptable form as is
required by the relevant provisions of the California General Corporation Law
("California Law") shall be duly executed and delivered by the parties hereto
and thereafter delivered to the Secretary of State of the State of California
for filing on the Closing Date (as defined in Section 1.2).
(b) Subject to the provisions of this Agreement, a certificate
of merger (the "Certificate of Merger") in such mutually acceptable form as is
required by the relevant provisions of the Delaware General Corporation Law
("Delaware Law") shall be duly executed and delivered by the parties hereto and
thereafter delivered to the Secretary of State of the State of Delaware for
filing on the Closing Date (as defined in Section 1.2).
(c) The Merger shall become effective upon the due and valid
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware and the due and valid filing of the Agreement of Merger with the
Secretary of State of California or at such time thereafter as is provided in
the Certificate of Merger (the "Effective Time").
Section 1.2 Closing. The closing of the Merger (the "Closing") will
-------
take place at 10:00 a.m., Pacific Coast time, on a date (the "Closing Date") to
be specified by Acquiror and Target, which shall be no later than the second
business day after satisfaction or waiver of the latest to occur of the
conditions set forth in Article VIII, at the offices of Venture Law Group, A
Professional Corporation, 4750 Carillon Point, Kirkland, Washington 98033 unless
another date, time or place is mutually agreed to in writing by Acquiror and
Target.
Section 1.3 Effects of the Merger.
---------------------
(a) At the Effective Time (i) the separate existence of Sub
shall cease and Sub shall be merged with and into Target (Sub and Target are
sometimes referred to herein as the "Constituent Corporations" and Target
following consummation of the Merger is sometimes referred to herein as the
"Surviving Corporation"), (ii) the Certificate of Incorporation of Sub shall be
the Certificate of Incorporation of the Surviving Corporation and (iii) the
Bylaws of Sub as in effect immediately prior to the Effective Time shall become
the Bylaws of the Surviving Corporation.
(b) At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of California Law and Delaware Law.
Without limiting the generality of the foregoing, at and after the Effective
Time, the Surviving Corporation shall possess all the rights, privileges, powers
and franchises, and be subject to all the restrictions, disabilities and duties
of each of the Constituent Corporations.
Section 1.4 Directors and Officers. The directors of Sub immediately
----------------------
prior to the Effective Time shall become the directors of the Surviving
Corporation, each to hold office in
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accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation, and the officers of Sub immediately prior to the Effective Time
shall become the officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. At the Effective Time, by
---------------------------
virtue of the Merger and without any action on the part of the holder of any
shares of capital stock of Target or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share
--------------------
of the capital stock of Sub shall be converted into and become one fully paid
and nonassessable share of Common Stock, $0.001 par value, of the Surviving
Corporation.
(b) Cancellation of Acquiror-Owned and Target-Owned Stock. Any
-----------------------------------------------------
shares of Series A Preferred Stock, $0.001 par value, of Target (the "Target
Preferred Stock"), or shares of Common Stock, $0.001 par value, of Target
("Target Common Stock", and together with the Target Preferred Stock, the
"Target Stock"), that are owned by Acquiror, Sub, Target or any other direct or
indirect wholly-owned Subsidiary (as defined below) of Acquiror or Target shall
be canceled and retired and shall cease to exist and no stock of Acquiror or
other consideration shall be delivered in exchange. As used in this Agreement,
the word "Subsidiary" means, with respect to any other party, any corporation or
other organization, whether incorporated or unincorporated, of which (i) such
party or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization or a majority of the profit interests in such
other organization is directly or indirectly owned or controlled by such party
or by any one or more of its Subsidiaries, or by such party and one or more of
its Subsidiaries.
(c) Exchange Ratio.
--------------
(i) Subject to Sections 2.2 and 2.4, each issued and
outstanding share of Target Common Stock (other than shares to be canceled in
accordance with Section 2.1(b) and any Dissenting Shares as defined in and to
the extent provided in Section 2.3) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the right to
receive a fraction of a fully paid and nonassessable share of Acquiror Common
Stock (as defined in Section 4.2) equal to the "Exchange Ratio", as defined in
and determined in accordance with the provisions of this Section 2.1(c). All
such shares of Target Common Stock, when so converted, shall 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 the shares
of Acquiror Common Stock to be issued in consideration therefor upon the
surrender of such certificate in accordance
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with Section 2.4. The number of shares of Acquiror Common Stock to be issued to
each Target shareholder shall be determined by multiplying (1) the number of
shares of Target Common Stock held by such shareholder (or which will be held
immediately prior to the Effective Time by such shareholder upon the conversion
of its shares of Target Preferred Stock into Target Common Stock in accordance
with Section 2.1(f) and the Target Articles of Incorporation) by (2) the
Exchange Ratio, rounded up to the nearest whole share.
(ii) For purposes of this Agreement, the term "Total
Consideration Shares" shall be equal to 5,500,000 shares of Acquiror Common
Stock, minus the result obtained by dividing (x) the amount by which Transaction
--------
Expenses exceeds the Budgeted Amount (as defined in Section 9.3(b)) by (y) the
average of the last reported sales prices of Acquiror Common Stock on the Nasdaq
National Market for the ten (10) trading days immediately preceding the Closing
Date (the "Acquiror Average Stock Price"). The "Exchange Ratio" shall be equal
to the quotient determined by dividing (x) the Total Consideration Shares, by
--------
(y) the sum without duplication of (A) the number of shares of Target Common
Stock issued and outstanding as of the Effective Time, plus (B) the number of
----
shares of Target Common Stock subject to issuance upon the exercise in full of
all Target Options issued and outstanding immediately prior to the Effective
Time, whether vested or unvested, plus (C) the number of shares of Target Common
----
Stock issuable upon the conversion of all issued and outstanding shares of
Target Preferred Stock immediately prior to the Effective Time plus (D) the
----
aggregate number of shares of Target Common Stock (if any) issuable upon the
exercise of any other outstanding right to acquire Target Common Stock or Target
Preferred Stock or the conversion thereof in each case outstanding immediately
prior to the Effective Time. In no event will the total number of shares of
Acquiror Common Stock issuable by Acquiror pursuant to the Merger (including
shares of Acquiror Common Stock issuable upon exercise of Target Options assumed
by Acquiror in the Merger) exceed the Total Consideration Shares. A schedule
setting forth the allocation of the Total Consideration Shares among each holder
of Target Stock and Target Options (or any other rights to acquire Target Common
Stock or Target Preferred Stock) based upon the capitalization of Target as of
the Effective Time will be prepared by Target and delivered to Acquiror prior to
the Closing Date.
(iii) If, on or after the date of this Agreement and prior to
the Effective Time, the outstanding shares of Acquiror Common Stock or Target
capital stock shall have been changed into a different number of shares or a
different class by reason of any reclassification, split-up, stock dividend or
stock combination, then the Exchange Ratio shall be correspondingly adjusted.
(d) Target Stock Options. At the Effective Time, all then outstanding
--------------------
options, whether vested or unvested ("Target Options"), to purchase Target
Common Stock issued under Target's stock option plans identified in Section
3.2(a) that by their terms survive the Closing will be assumed by Acquiror in
accordance with Section 6.4.
(e) Restricted Shares. Any shares of Target Common Stock that are
-----------------
subject to repurchase by Target in the event the holder thereof ceases to be
employed or retained by Target ("Target Restricted Shares") shall be converted
into Acquiror Common Stock on the same basis as provided in subsection (c) above
and shall be registered in such holder's name, but shall be held by the
Surviving Corporation or Acquiror pursuant to the existing agreements in effect
-4-
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on the date of this Agreement. At the Effective Time, Target shall assign all of
its rights under such existing agreements to Acquiror. Holders of the Target
Restricted Shares, together with a summary of the vesting schedules for such
shares, are identified on Schedule 2.1(e) of the Target Disclosure Schedule.
(f) Target Preferred Stock. Target shall cause the Target
----------------------
Preferred Stock to convert into Target Common Stock in accordance with the
Target Articles of Incorporation immediately prior to the Effective Time.
Section 2.2 Escrow Agreement. At the Effective Time or such later time as
----------------
determined in accordance with Section 2.3(b), Acquiror will, on behalf of the
holders of Target Common Stock, deliver to Chase Manhattan Trust Company, N.A.
(the "Escrow Agent") that number of shares of Acquiror Common Stock representing
seven and one-half percent (7.5%) of the Total Consideration Shares issued at
the Closing. Such shares shall be held in escrow on behalf of the persons who
are the holders of Target Common Stock immediately prior to the Effective Time
(the "Former Target Shareholders"), in accordance with the portion of Total
Consideration Shares allocable to each such Former Target Shareholder based upon
the Exchange Ratio ("Pro Rata Portion"). Such shares (collectively, the "Escrow
Shares") shall be held and applied pursuant to the provisions of an escrow
agreement (the "Escrow Agreement") to be executed pursuant to Section 7.6. All
calculations to determine the number of Escrow Shares to be delivered by each
Former Target Shareholder into escrow as aforesaid shall be rounded down to the
nearest whole share. The Escrow Shares shall be deposited with the Escrow Agent
and disbursed in accordance with Article X.
Section 2.3 Dissenting Shares.
-----------------
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Target Stock held by a holder who has exercised such
holder's appraisal rights in accordance with Chapter 13 of California Law, and
who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares"), shall not be converted into or represent
a right to receive Acquiror Common Stock pursuant to Section 2.1, but the holder
of the Dissenting Shares shall only be entitled to such rights as are granted by
California Law.
(b) Notwithstanding the provisions of Section 2.3(a), if any
holder of shares of Target Stock who demands his appraisal rights with respect
to such shares under Section 2.1 shall effectively withdraw or lose (through
failure to perfect or otherwise) his rights to receive payment for the fair
market value of such shares under California Law then, as of the later of the
Effective Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Acquiror
Common Stock as provided in Section 2.1(c), without interest, upon surrender of
the certificate or certificates representing such shares; provided that if such
--------
holder effectively withdraws or loses his right to receive payment for the fair
market value of such shares after the Effective Time, then, at such time
Acquiror will deposit in the escrow created pursuant to the Escrow Agreement
additional certificates representing such holder's Pro Rata Portion of the
Escrow Shares.
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(c) Target shall give Acquiror (i) prompt notice of any written
demands for payment with respect to any shares of capital stock of Target
pursuant to Chapter 13 of California Law, withdrawals of such demands, and any
other instruments served pursuant to California Law, and received by the Target
and (ii) the opportunity to participate at its own expense in all negotiations
and proceedings with respect to demands for appraisal rights under California
Law. Target shall not, except with the prior written consent of Acquiror,
voluntarily make any payment with respect to any demands for appraisal rights
with respect to Target Stock or offer to settle or compromise any such demands.
Section 2.4 Exchange of Certificates.
------------------------
(a) As soon as practicable after the Effective Time, Acquiror
shall make available to each holder of Target Stock immediately prior to the
Effective Time a letter of transmittal in customary form (the "Letter of
Transmittal") and instructions for such holder's use in effecting the surrender
of the certificates or certificates evidencing Target Stock (the "Certificates")
and the exercise of the rights of such holder to obtain its Total Consideration
Shares.
(b) From and after the Effective Time, each holder of an
outstanding Certificate or Certificates shall have the right to surrender each
Certificate to Acquiror (or at Acquiror's option, an exchange agent to be
appointed by Acquiror), and receive promptly in exchange for all Certificates
held by such holder a certificate representing the number of whole shares of
Acquiror Common Stock (other than the Escrow Shares) into which the Target
Common Stock or Target Preferred Stock (if a certificate representing the number
of shares of Target Common Stock into which such Target Preferred Stock shall
have been converted pursuant to Section 2.1(f) shall not have been issued)
evidenced by the Certificates so surrendered shall have been converted pursuant
to the provisions of Article II of this Agreement. The surrender of Certificates
shall be accompanied by duly completed and executed Letters of Transmittal.
Until surrendered, each outstanding Certificate, which prior to the Effective
Time represented shares of Target Common Stock or Target Preferred Stock, shall
be deemed for all corporate purposes to evidence ownership of the number of
whole shares of Acquiror Common Stock into which the shares of Target Common
Stock have been converted but shall, subject to applicable appraisal rights
under California Law and Section 2.3, have no other rights. Subject to
applicable appraisal rights under California Law and Section 2.3, from and after
the Effective Time, the holders of shares of Target Stock shall cease to have
any rights in respect of such shares and their rights shall be solely in respect
of the Acquiror Common Stock into which such shares of Target Stock have been
converted. From and after the Effective Time, there shall be no further
registration of transfers on the records of Target of shares of Target Stock
outstanding immediately prior to the Effective Time.
(b) If any shares of Acquiror Common Stock are to be issued in
the name of a person other than the person in whose name the Certificate(s)
surrendered in exchange therefor is registered, it shall be a condition to the
issuance of such shares that (i) the Certificate(s) so surrendered shall be
transferable, and shall be properly assigned, endorsed or accompanied by
appropriate stock powers, (ii) such transfer shall otherwise be proper and (iii)
the person requesting such transfer shall pay Acquiror, or its exchange agent,
any transfer or other taxes payable by reason of the foregoing or establish to
the satisfaction of Acquiror that such taxes
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have been paid or are not required to be paid. Notwithstanding the foregoing,
neither Acquiror nor Target shall be liable to a holder of shares of Target
Stock for shares of Acquiror Common Stock issuable to such holder pursuant to
the provisions of Article II of this Agreement that are delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, Acquiror shall issue in
exchange for such lost, stolen or destroyed Certificate the shares of Acquiror
Common Stock issuable in exchange therefor pursuant to the provisions of Article
II of the Agreement. The Board of Directors of Acquiror may in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificate to provide to Acquiror an indemnity
agreement or bond against any claim that may be made against Acquiror with
respect to the Certificate alleged to have been lost, stolen or destroyed.
Section 2.5 Distributions with Respect to Unexchanged Shares. No dividends
------------------------------------------------
or other distributions declared or the holder of record of such Certificate
shall surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Acquiror Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any dividends or other distributions with a record date
after the Effective Time which, but for the non-surrender of such Certificate,
would have been paid with respect to such whole shares of Acquiror Common Stock,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with respect to such whole
shares of Acquiror Common Stock.
Section 2.6 Tax and Accounting Consequences.
-------------------------------
(a) It is intended by the parties hereto that the Merger shall
constitute a "reorganization" within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax
Regulations.
(b) It is intended by the parties hereto that the Merger shall
qualify for financial accounting treatment as a "purchase."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET
The Target represents and warrants to Acquiror and Sub that the statements
contained in this Article III are true and correct, except as expressly set
forth in the disclosure schedule delivered by Target to Acquiror on or before
the date of this Agreement (the "Target Disclosure Schedule") a copy of which is
attached hereto as Exhibit C. The Target Disclosure Schedule
---------
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shall be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article III.
Section 3.1 Organization of Target.
----------------------
(a) Target is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, has all requisite
corporate power to own, lease and operate its property and to carry on its
business as now being conducted, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature of its business or ownership or leasing of properties makes
such qualification or licensing necessary and where the failure to be so
qualified or licensed could reasonably be expected to result in a material
adverse effect on, taken as a whole, the business, assets (including intangible
assets), liabilities, condition (financial or otherwise), property or results of
operations (a "Material Adverse Effect") of Target. Schedule 3.1(a) of the
Target Disclosure Schedule contains a true and complete listing of the locations
of all sales offices, manufacturing facilities, and any other offices or
facilities of Target and a true and complete list of all states in which Target
maintains any employees. Schedule 3.1(a) of the Target Disclosure Schedule also
contains a true and complete list of all states in which Target is duly
qualified or licensed to transact business as a foreign corporation.
(b) Target has no Subsidiaries.
Section 3.2 Target Capital Structure.
------------------------
(a) The authorized capital stock of Target consists of 13,500,000
shares of Target Common Stock and 1,500,000 shares of Preferred Stock, of which
1,500,000 shares are designated as Series A Preferred Stock. As of the date of
this Agreement, there are (i) 7,367,624 shares of Target Common Stock issued and
outstanding, all of which are validly issued, fully paid and nonassessable and
1,759,061 of which are subject to repurchase rights, (ii) 1,500,000 shares of
Series A Preferred Stock issued and outstanding, all of which are validly
issued, fully paid and nonassessable, and each share of which is convertible
into one and a half shares of Target Common Stock, (iii) 2,250,000 shares of
Target Common Stock reserved for future issuance upon conversion of the Target
Preferred Stock; (iv) 1,500 shares of Target Common Stock yet to be issued
pursuant to an outstanding Target Common Stock purchase agreement; and (v)
250,500 shares of Target Common Stock reserved for future issuance pursuant to
Target Options granted and outstanding as of the date of this Agreement under
the Target 1997 Stock Option Plan and no shares available for grant thereunder.
The Target 1997 Stock Option Plan is referred to herein as the "Target Stock
Option Plan." The issued and outstanding shares of Target Common Stock and of
Target Preferred Stock are held of record by the shareholders of Target as set
forth and identified on Schedule 3.2(a) of the Target Disclosure Schedule. The
issued and outstanding Target Options are held of record by the option holders
identified on, in the amounts, with exercise prices and subject to the vesting
schedules set forth on, Schedule 3.2(a) of the Target Disclosure Schedule. All
shares of Target Stock subject to issuance as specified above, upon issuance on
the terms and conditions (including payment) specified in the instruments
pursuant to which they are issuable, shall be duly authorized, validly issued,
fully paid and nonassessable. All shares of Target Common Stock subject to
issuance upon the exercise of Target Options, upon issuance on the terms and
conditions (including payment)
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specified in the instrument pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable. All outstanding shares
of Target Common Stock, Target Preferred Stock and outstanding Target Options
(collectively "Target Securities") were issued in compliance with applicable
federal and state securities laws. There are no obligations, contingent or
otherwise, of Target to repurchase, redeem or otherwise acquire any shares of
Target Stock or make any investment (in the form of a loan, capital contribution
or otherwise) in any other entity. An updated Schedule 3.2(a) reflecting changes
permitted by this Agreement in the capitalization of Target between the date
hereof and the Effective Time shall be delivered by Target to Acquiror on the
Closing Date.
(b) Except as disclosed in Schedule 3.2, there are no equity
securities of any class or series of Target, or any security exchangeable into
or exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as disclosed in Schedule 3.2, there are no options,
warrants, equity securities, calls, rights, commitments, understandings or
agreements of any character to which Target is a party or by which it is bound
obligating Target to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of Target or obligating Target to
grant, extend, accelerate the vesting of or enter into any such option, warrant,
equity security, call, right, commitment or agreement. Except as set forth in
the Target Disclosure Schedule, Target is not in active discussion, formal or
informal, with any person or entity regarding the issuance of any form of
additional Target equity that has not been issued or committed to prior to the
date of this Agreement. Except as provided in this Agreement and the other
Transaction Documents (as defined in Section 3.3(a)) or any transaction
contemplated hereby or thereby, there are no voting trusts, proxies or other
agreements or understandings with respect to the voting of the shares of capital
stock of Target.
(c) All Target Options and Restricted Target Stock have been
issued in accordance with the terms of the Target Option Plan and pursuant to
the standard forms of option agreement or stock purchase agreement, as the case
may be, previously provided to Acquiror or its representatives. Except as
disclosed on Schedule 3.2(a) and for such adjustments as are contemplated by
Section 6.4, no Target Option or Restricted Target Stock will by its terms
require an adjustment in connection with the Merger. Neither the consummation of
transactions contemplated by this Agreement or the other Transaction Documents,
nor any action taken or to be taken by Target in connection with such
transactions will result in (i) any acceleration of vesting in favor of any
optionee under any Target Option or Restricted Target Stock; (ii) any additional
benefits for any optionee under any Target Option or Restricted Target Stock; or
(iii) the inability of Acquiror after the Effective Time to exercise any right
or benefit held by Target prior to the Effective Time with respect to any Target
Option or Restricted Target Stock assumed by Acquiror, including, without
limitation, the right to repurchase an optionee's unvested shares on termination
of such optionee's employment. The assumption by Acquiror of Target Options and
Restricted Target Stock in accordance with Section 6.5 hereunder will not (i)
give the optionees additional benefits which they did not have under their
options prior to such assumption (after taking into account the existing
provisions of the options, such as their respective exercise prices and vesting
schedules) and (ii) constitute a breach of the Target Option Plan or any
agreement entered into pursuant to such plan.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
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(a) Target has all requisite corporate power and authority to
enter into this Agreement and all Transaction Documents to which it is or will
become a party and to consummate the transactions contemplated by this Agreement
and such Transaction Documents. The execution and delivery of this Agreement and
such Transaction Documents and the consummation of the transactions contemplated
by this Agreement and such Transaction Documents have been duly authorized by
all necessary corporate action on the part of Target, subject only to the
approval of the Merger by Target's shareholders under the provisions of
California Law and Target's Articles of Incorporation. The affirmative vote of
(i) the holders of a majority of the shares of Target Common Stock that are
issued and outstanding on the record date for the Target Shareholders Meeting
contemplated by Section 5.2 or on the first date on which a signed written
consent of a Target shareholder approving the principal terms of this Agreement
and the Merger is received by the Secretary of Target, as the case may be, and
(ii) the holders of a majority of the shares of Target Preferred Stock that are
issued and outstanding on the record date for the Target Shareholders Meeting
contemplated by Section 5.2 or on the first date on which a signed written
consent of a Target shareholder approving the principal terms of this Agreement
and the Merger is received by the Secretary of Target, as the case may be, are
the only approvals of the shareholders of Target required in connection with the
Merger and the approval of the principal terms of this Agreement. This Agreement
has been and the Transaction Documents to which Target is or will become a party
have been or, to the extent not executed by Target as of the date hereof, will
be duly executed and delivered by Target. This Agreement and each of the
Transaction Documents to which Target is a party constitutes, and each of the
Transaction Documents to which Target will become a party, when executed and
delivered by Target, will constitute, assuming the due authorization, execution
and delivery by the other parties hereto and thereto, the valid and binding
obligation of Target, enforceable against Target in accordance with their
respective terms, except to the extent that enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding at law or in equity or limited by public policy. For purposes of
this Agreement, "Transaction Documents" means all documents or agreements
required to be delivered by any party under this Agreement including the
Agreement of Merger, the Certificate of Merger, the Escrow Agreement, the Voting
Agreements, the Employment Agreements and the Affiliate Agreements.
(b) The execution and delivery by Target of this Agreement and the
Transaction Documents to which it is or will become a party does not, and the
consummation of the transactions contemplated by this Agreement and the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Articles of Incorporation or Bylaws of Target, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Target is a party or by which it or
any of its properties or assets may be bound, or (iii) conflict or violate any
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its properties or
assets, except in the case of (ii) and (iii) for any such conflicts, violations,
defaults, terminations, cancellations or accelerations which would not
reasonably be expected to have a Material Adverse Effect on Target.
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(c) None of the execution and delivery by Target of this Agreement
or of any other Transaction Documents to which Target is or will become a party
or the consummation of the transactions contemplated by this Agreement or such
Transaction Documents will require any consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality
("Governmental Entity"), except for (i) the filing of the Certificate of Merger
with the Delaware Secretary of State and the Agreement of Merger with the
California Secretary of State, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws, and (iii) such other consents,
authorizations, filings, approvals and registrations which are listed on the
Target Disclosure Schedule or which, if not obtained or made, could be expected
to have a Material Adverse Effect on Target.
Section 3.4 Financial Statements; Absence of Undisclosed Liabilities.
--------------------------------------------------------
(a) Target has delivered to Acquiror copies of Target's unaudited
consolidated balance sheet as of July 31, 2000 (the "Most Recent Balance Sheet")
and the related unaudited consolidated statements of operations, shareholders'
equity and cash flow for the seven month period then ended (together with the
Most Recent Balance Sheet, the "Target Interim Financials") and Target's
unaudited consolidated balance sheet as of December 31, 1999 and the related
unaudited consolidated statements of operations, shareholders' equity and cash
flows for the fiscal year ended December 31, 1999 (the "1999 Financials") and
Target's audited consolidated balance sheet as of December 31, 1998 and the
related audited consolidated statements of operations, shareholders' equity and
cash flows for the fiscal year ended December 31, 1998 (the "1998 Financials"
and together with the 1999 Financials and the Target Interim Financials,
collectively the "Target Financial Statements").
(b) The Target Financial Statements are in accordance with the
books and records of Target and present fairly in all material respects, subject
to adjustments approved by both Acquiror and Target, the financial condition,
results of operations and cash flows of Target as of their historical dates and
for the periods indicated. The Target Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods (except as may be indicated in the notes to such
financial statements or to the extent the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were not
or are not expected to be material in amount).
(c) Other than as set forth on Schedule 3.4 of the Target
Disclosure Schedule, Target has no material debt, liability, or obligation of
any nature, whether accrued, absolute, contingent, or otherwise, and whether due
or to become due, that is not reflected or reserved against in the Most Recent
Balance Sheet, except for those that may have been incurred after the date of
the Most Recent Balance Sheet or that would not reasonably be required, in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods, to be included in a balance sheet or the notes
thereto. All debts, liabilities, and obligations incurred after the date of the
Most Recent Balance Sheet were incurred in the ordinary course of business and
are not material both individually and in the aggregate to Target or its
business.
Section 3.5 Tax Matters.
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(a) For purposes of this Section 3.5 and other provisions of this
Agreement relating to Taxes, the following definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes (including but not limited to,
federal income taxes and state income taxes), payroll and employee withholding
taxes, unemployment insurance, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, ozone depleting chemicals taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which are required to be paid, withheld or collected,
(B) any liability for the payment of amounts referred to in (A) as a result of
being a member of any affiliated, consolidated, combined or unitary group, or
(C) any liability for amounts referred to in (A) or (B) as a result of any
obligations to indemnify another person.
(ii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns relating to,
or required to be filed in connection with, any Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
(b) All Returns required to be filed prior to the date hereof by or
on behalf of Target have been duly filed on a timely basis, and such Returns are
true, complete and correct in all material respects. All Taxes shown to be
payable on such Returns or on subsequent assessments with respect thereto, and
all payments of estimated Taxes required to be made prior to the date hereof by
or on behalf of Target under Section 6655 of the Code or comparable provisions
of state, local or foreign law, have been paid in full on a timely basis. No
Taxes are payable by Target with respect to items or periods covered by such
Returns (whether or not shown on or reportable on such Returns) in excess of the
reserves for Taxes on the Most Recent Balance Sheet, or reserves for Taxes that
have been established in the ordinary course of business for periods subsequent
to the date of the Most Recent Balance Sheet. Target has withheld and paid over
all Taxes required to have been withheld and paid over prior to the date hereof
, and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto, in
connection with amounts paid or owing to any employee, creditor, independent
contractor, or other third party. There are no liens on any of the assets of
Target with respect to Taxes, other than liens for Taxes not yet due and payable
or for Taxes that Target is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been established on the Most
Recent Balance Sheet. Target has not at any time been (i) a member of an
affiliated group of corporations filing consolidated, combined or unitary income
or franchise tax returns, or (ii) a member of any partnership or joint venture
for a period for which the statue of limitations for any Tax potentially
applicable as a result of such membership has not expired.
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(c) The amount of Target's liability for unpaid Taxes (whether
actual or contingent) for all periods through the date of the Most Recent
Balance Sheet does not, in the aggregate, exceed the amount of the accruals for
Taxes reflected on the Most Recent Balance Sheet, and the Most Recent Balance
Sheet reflects proper accrual in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods of all liabilities
for Taxes payable after the date of the Most Recent Balance Sheet attributable
to transactions and events occurring prior to such date. No liability for Taxes
has been incurred (or prior to Closing will be incurred) since such date other
than in the ordinary course of business.
(d) Acquiror has been furnished by Target with true and complete
copies of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of Target
relating to Taxes, and (ii) all federal and state income or franchise tax
Returns and state sales and use tax Returns for or including Target for all
periods since the inception of Target.
(e) The Returns of or including Target have never been audited by a
government or taxing authority, nor is any such audit in process, pending or, to
Target's knowledge, threatened. No deficiencies exist or have been asserted, and
Target has not received notice that it has not filed a Return or paid Taxes
required to be filed or paid. Target is neither a party to any action or
proceeding for assessment or collection of Taxes, nor has such event been
asserted or threatened against Target or any of its assets. No waiver or
extension of any statute of limitations is in effect with respect to Taxes or
Returns of Target. Target has disclosed on its federal and state income and
franchise tax Returns all positions taken therein that could give rise to a
substantial understatement penalty within the meaning of Code Section 6662 or
comparable provisions of applicable state, local, foreign or other tax laws.
(f) Except as may be required as a result of the Merger, Target
will not be required to include any material adjustment in Taxable income for
any Tax period (or portion thereof) after the Closing Date pursuant to Section
481 of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions, events or accounting methods employed prior to the
Closing.
(g) Target is not, nor has it ever been, a party to any tax sharing
agreement.
(h) Target is not, nor has it been, a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, and
Acquiror is not required to withhold tax by reason of Section 1445 of the Code.
Target is not a "consenting corporation" under Section 341(f) of the Code. Other
than as set forth on Schedule 3.5 of the Target Disclosure Schedule, Target has
not entered into any compensatory agreements with respect to the performance of
services which payment thereunder would result in a nondeductible expense to
Target pursuant to Section 280G of the Code or an excise tax to the recipient of
such payment pursuant to Section 4999 of the Code. Target is not, nor has it
been, a "reporting corporation" subject to the information reporting and record
maintenance requirements of Section 6038A and the regulations thereunder. Target
is in compliance with the terms and conditions of any applicable tax exemptions,
agreements or orders of any foreign government to which it may be
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subject or which it may have claimed, and the transactions contemplated by this
Agreement will not have any adverse effect on such compliance.
Section 3.6 Absence of Certain Changes or Events. Since July 31, 2000,
------------------------------------
other than as set forth on the Target Disclosure Schedule, Target has not:
(a) suffered any change that has resulted, or could be reasonably
expected to result, in a Material Adverse Effect on Target;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, that has resulted, or could be reasonably expected to result,
in a Material Adverse Effect on Target;
(c) granted or agreed to make any increase in the compensation
payable or to become payable by Target to its officers or employees;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Target or
declared any direct or indirect redemption, retirement, purchase or other
acquisition by Target of such shares (other than the repurchase of shares of
Target Common Stock from terminated employees pursuant to the terms of
outstanding stock restriction or similar agreements);
(e) issued any shares of capital stock of Target or any warrants,
rights, options or entered into any commitment relating to the shares of capital
stock of Target, except for the issuance of shares of Target capital stock
pursuant to the exercise of Target Options listed in the Target Disclosure
Schedule and the conversion of outstanding Target Preferred Stock;
(f) made any change in the accounting methods or practices it
follows whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real
property or any machinery, equipment or other operating property, except in the
ordinary course of business consistent with past practice, and in each case for
a consideration believed to be at least equal to the fair value of such asset or
property and in any event not in excess of $10,000 for any single item or
$30,000 in the aggregate;
(h) sold, assigned, transferred, licensed or otherwise disposed of
any patent, trademark, trade name, brand name, copyright (or pending application
for any patent, trademark or copyright) invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other intangible
asset;
(i) permitted or allowed any of its property or assets to be
subjected to any mortgage, deed of trust, pledge, lien, security interest or
other encumbrance of any kind (except those permitted under Section 3.7);
(j) made any capital expenditure or commitment, except in the
ordinary course of business consistent with past practice and in any event
individually in excess of
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$25,000 (with the aggregate of all such capital expenditures and commitments
during such period not exceeding $75,000);
(k) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets to, or entered into any agreement or
arrangement with, any of its Affiliates (as defined in Section 3.14), officers,
directors or shareholders or any affiliate of any of the foregoing;
(l) made any amendment to or terminated any agreement which, if
not so amended or terminated, would be required to be disclosed on the Target
Disclosure Schedule; or
(m) agreed to take any action described in this Section 3.6 or
outside of its ordinary course of business or which would constitute a breach of
any of the representations of Target contained in this Agreement.
Section 3.7 Title and Related Matters. Target has good and valid title
-------------------------
to all its properties, interests in properties and assets, real and personal,
free and clear of all mortgages, liens, pledges, charges or encumbrances of any
kind or character, except the lien of current taxes not yet due and payable and
minor imperfections of and encumbrances on title, if any, as do not materially
detract from the value of or interfere with the present use of the property
affected thereby. The equipment of Target used in the operation of its business
is, taken as a whole, (i) adequate for the business conducted by Target and (ii)
in good operating condition and repair, ordinary wear and tear excepted. All
personal property leases to which Target is a party are valid, binding,
enforceable against the parties thereto and in effect in accordance with their
respective terms, except to the extent that enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium, or other laws
affecting the enforcement of creditors' rights generally and by principles of
equity, regardless of whether such enforceability is considered in a proceeding
at law or in equity. To the knowledge of Target, there is not under any of such
leases any existing default or event of default or event which, with notice or
lapse of time or both, would constitute a default by Target. The Target
Disclosure Schedule contains a description of all items of personal property
with an individual net book value in excess of $10,000 and real property leased
or owned by Target, describing its interest in said property. True and correct
copies of Target's real property and personal property leases have been provided
to Acquiror or its representatives.
Section 3.8 Proprietary Rights.
------------------
(a) Target owns all right, title and interest in and to, or
otherwise possesses legally enforceable rights, or is licensed to use, all
patents, copyrights, technology, software, software tools, know-how, processes,
trade secrets, trademarks, service marks, trade names, Internet domain names and
other proprietary rights used in the conduct of Target's business as conducted
to the date of this Agreement, including, without limitation, the technology,
information, databases, data lists, data compilations, and all proprietary
rights used in connection with or contained in all versions and implementations
of Target's World Wide Web sites (including www.adaptele.com and the other
domain names listed in the Target Disclosure Schedule) or any product which has
been or is being distributed or sold by Target or currently is under development
by Target or has previously been under development by Target (collectively,
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including such Web sites, the "Target Products"), free and clear of all liens,
claims and encumbrances (including without limitation, licensing and
distribution rights) (all of which rights are referred to as "Target Proprietary
Rights"). The Target Disclosure Schedule contains an accurate and complete (i)
list of all patents (with separate listings of issued and pending patents),
trademarks (with separate listings of registered and unregistered trademarks),
trade names, Internet domain names and registered copyrights in or related to
the Target Products or otherwise included in the Target Proprietary Rights and
all applications and registration statements therefor, including the
jurisdictions in which each such Target Proprietary Right has been issued or
registered or in which any such application of such issuance and registration
has been filed, (ii) list of all licenses and other agreements with third
parties (the "Third Party Licenses") relating to any material patents,
copyrights, trade secrets, software, inventions, technology, know-how, processes
or other proprietary rights that Target is licensed or otherwise authorized by
such third parties to use, market, distribute or incorporate in Target Products
(such patents, copyrights, trade secrets, software, inventions, technology,
know-how, processes or other proprietary rights are collectively referred to as
the "Third Party Technology"), (iii) list of all licenses and other agreements
with third parties relating to any material information, compilations, data
lists or databases that Target is licensed or otherwise authorized by such third
parties to use, market, disseminate distribute or incorporate in Target Products
and (iv) list of all licenses and other agreements with third parties under
which such third party is licensed or authorized to make, use, sell, distribute
or incorporate any Target Proprietary Rights or any portion thereof. All of
Target's patents, copyrights, trademarks, trade names or Internet domain name
registrations related to or in the Target Products are valid and in full force
and effect, and consummation of the transactions contemplated by this Agreement
will not alter or impair any such rights. No claims have been asserted or
threatened against Target (and Target is not aware of any claims which are
likely to be asserted or threatened against Target or which have been asserted
or threatened against others relating to Target Proprietary Rights or Target
Products) by any person challenging Target's use, possession, manufacture, sale
or distribution of Target Products under any Target Proprietary Rights
(including, without limitation, the Third Party Technology) or challenging or
questioning the validity or effectiveness of any material license or agreement
relating thereto (including, without limitation, the Third Party Licenses) or
alleging a violation of any person's or entity's privacy, personal or
confidentiality rights. Target knows of no valid basis for any claim of the type
specified in the immediately preceding sentence which could in any material way
relate to or interfere with the continued enhancement and exploitation by Target
of any of the Target Products. No claims have been asserted or threatened
against Target (and Target is not aware of any claims which are likely to be
asserted or threatened against Target or which have been asserted or threatened
against others relating to Target Proprietary Rights or Target Products) by any
person challenging Target's use, possession, manufacture, sale or distribution
of Target Products or challenging or questioning the validity or effectiveness
of any material license or agreement relating thereto (including, without
limitation, the Third Party Licenses) or challenging or questioning the validity
or enforceability of any patent, trademark, copyright, or trade secret of the
Target Proprietary Rights or alleging a violation of any person's or entity's
privacy, personal or confidentiality rights.
(b) Except as listed on Schedule 3.8(b) of the Target Disclosure
Schedule, Target has not granted any third party any right to reproduce,
distribute, market or exploit any of the Target Products or any adaptations,
translations, or derivative works based on the Target
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Products or any portion thereof. Except with respect to the rights of third
parties to the Third Party Technology, no third party has any express right to
reproduce, distribute, market or exploit any works or materials of which any of
the Target Products are a "derivative work" as that term is defined in the
United States Copyright Act, Title 17, U.S.C. Section 101.
(c) All material designs, drawings, specifications, source code,
object code, scripts, documentation, flow charts, diagrams, data lists,
databases, compilations and information incorporating, embodying or reflecting
any of the Target Products at any stage of their development (the "Target
Components") were written, developed and created solely and exclusively by
employees of Target without the assistance of any third party or entity or were
created by third parties who assigned ownership of their rights to Target by
means of valid and enforceable confidentiality and invention assignment
agreements, copies of which have been delivered to Acquiror. Target has at all
times used commercially reasonable efforts customary in its industry to treat
the Target Proprietary Rights related to Target Products and Target Components
as containing trade secrets and has not disclosed or otherwise dealt with such
items in a manner intended or reasonably likely to cause the loss of such trade
secrets by release into the public domain.
(d) No employee, contractor or consultant of Target is in violation
in any material respect of any term of any written employment contract, patent
disclosure agreement or any other written contract or agreement relating to the
relationship of any such employee, consultant or contractor with Target or any
other party because of the nature of the business conducted by Target or
proposed to be conducted by Target. Schedule 3.8(d) of the Target Disclosure
Schedule lists all employees, contractors and consultants who have participated
in any way in the development of any material portion of the Target Products or
the Target Proprietary Rights.
(e) Except as set forth on Schedule 3.8(e) of the Target Disclosure
Schedule, each person presently or previously employed by Target (including
independent contractors, if any) has executed a confidentiality, non-disclosure
and proprietary inventions assignment agreement pursuant to the form of
agreement previously provided to Acquiror or its representatives.
(f) No product liability or warranty claims have been communicated
in writing to or threatened against Target.
(g) Target is not aware of any material unauthorized use,
disclosure, infringement or misappropriation of any Target Proprietary Rights,
or any Third Party Technology to the extent licensed by or through Target, by
any third party, including any employee, former employee or independent
contractor of Target. Target has not entered into any agreement to indemnify any
other person against any charge of infringement of any Target Proprietary Rights
or any other rights.
(h) Target has taken all steps customary and reasonable in its
industry to protect and preserve the confidentiality and proprietary nature of
all Intellectual Property and other confidential information not otherwise
protected by patents, patent applications or copyright.
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Section 3.9 Employee Benefit Plans.
----------------------
(a) The Target Disclosure Schedule lists, with respect to Target
and any trade or business (whether or not incorporated) which is treated as a
single employer with Target (an "ERISA Affiliate") within the meaning of Section
414(b), (c), (m) or (o) of the Code, (i) all employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), (ii) each loan to a non-officer employee, loans to officers
and directors and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, medical,
dental, vision care, disability, employee relocation, cafeteria benefit (Code
Section 125) or dependent care (Code Section 129), life insurance or accident
insurance plans, programs or arrangements, (iii) all bonus, pension, profit
sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (iv) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of Target and that do not generally
apply to all employees, and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise, for the benefit of,
or relating to, any present or former employee, consultant or director of Target
as to which (with respect to any of items (i) through (v) above) any potential
liability is borne by Target (together, the "Target Employee Plans").
(b) Target has made available to Acquiror or its representatives a
copy of each of the Target Employee Plans and related plan documents (including
trust documents, insurance policies or contracts, employee booklets, summary
plan descriptions and other authorizing documents, and, to the extent still in
its possession, any material employee communications relating thereto) and has,
with respect to each Target Employee Plan which is subject to ERISA reporting
requirements, provided copies of any Form 5500 reports filed for the last plan
year. Any Target Employee Plan intended to be qualified under Section 401(a) of
the Code has either obtained from the Internal Revenue Service a favorable
determination letter as to its qualified status under the Code, including all
amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or may timely make application to the Internal Revenue Service for
such a determination letter prior to the expiration of the requisite period
under applicable Treasury Regulations or Internal Revenue Service pronouncements
in which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination. Target has also furnished
Acquiror with the most recent Internal Revenue Service determination letter
issued with respect to each such Target Employee Plan, and nothing has occurred
since the issuance of each such letter which could reasonably be expected to
cause the loss of the tax-qualified status of any Target Employee Plan subject
to Code Section 401(a).
(c) Except as set forth in the Target Disclosure Schedule, (i)
none of the Target Employee Plans promises or provides retiree medical or other
retiree welfare benefits to any person, except as may be required by law; (ii)
there has been no "prohibited transaction," as such term is defined in Section
406 of ERISA and Section 4975 of the Code, with respect to any Target Employee
Plan that will result in a material effect on the financial statements of
Acquiror; (iii) each Target Employee Plan has been administered in accordance
with its terms and in material compliance with the requirements prescribed by
any and all statutes, rules and regulations (including ERISA and the Code), and
Target and each subsidiary or ERISA Affiliate have performed all material
obligations required to be performed by them under, are not in any material
respect in default, under or violation of, and have no knowledge of any material
default
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<PAGE>
or violation by any other party to, any of the Target Employee Plans; (iv)
neither Target nor any subsidiary or ERISA Affiliate is subject to any liability
or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Target Employee Plans; (v) all contributions required to
be made by Target or any subsidiary or ERISA Affiliate to any Target Employee
Plan have been made on or before their due dates and a reasonable amount has
been accrued for contributions to each Target Employee Plan for the current plan
years; (vi) with respect to each Target Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred; and (vii) no Target Employee Plan is covered by, and neither
Target nor any subsidiary or ERISA Affiliate has incurred or expects to incur
any material liability under Title IV of ERISA or Section 412 of the Code. With
respect to each Target Employee Plan subject to ERISA as either an employee
pension plan within the meaning of Section 3(2) of ERISA or an employee welfare
benefit plan within the meaning of Section 3(1) of ERISA, Target has prepared in
good faith and timely filed all requisite governmental reports (which were true
and correct as of the date filed) and has properly and timely filed and
distributed or posted all notices and reports to employees required to be filed,
distributed or posted with respect to each such Target Employee Plan, except as
would not have a material effect on the financial statements of Acquiror. No
suit, administrative proceeding, action or other litigation has been brought, or
to the knowledge of Target is threatened, against or with respect to any such
Target Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. Neither Target nor any ERISA Affiliate is a party to, or
has made any contribution to or otherwise incurred any obligation under, any
"multi-employer plan" as defined in Section 3(37) of ERISA.
(d) With respect to each Target Employee Plan, Target has complied
with (i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder, (ii) the applicable requirements of the Family
Leave Act of 1993 and the regulations thereunder, and (iii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996
("HIPAA") and the temporary regulations thereunder, except as would not have a
material effect on the financial statements of Acquiror.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Target or any other ERISA Affiliate to severance benefits or any
other payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting of any such benefits, or (iii)
increase or accelerate any benefits or the amount of compensation due any such
employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target or other ERISA Affiliate
relating to, or change in participation or coverage under, any Target Employee
Plan which would materially increase the expense of maintaining such Plan above
the level of expense incurred with respect to that Plan for the most recent
fiscal year included in the Target Financial Statements.
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Section 3.10 Bank Accounts. The Target Disclosure Schedule sets forth
-------------
the names and locations of all banks, trust companies, savings and loan
associations, and other financial institutions at which Target maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
Section 3.11 Contracts.
---------
(a) A list of the Company's Material Contracts ("Material
Contracts") is attached as Schedule 3.11(a) to the Target Disclosure Schedule.
Except as identified on Schedule 3.11(a) of the Target Disclosure Schedules:
(i) Target has no agreements, contracts or commitments that
provide for the sale, use, disclosure, licensing or distribution by Target or
any third party of any Target Products or Target Proprietary Rights. Without
limiting the foregoing, except as set forth on the Target Disclosure Schedule,
Target has not granted to any third party (including, without limitation,
original equipment manufacturers ("OEMs") and site-license customers) any rights
to reproduce, manufacture or distribute any of the Target Products, nor has
Target granted to any third party any exclusive rights of any kind, nor has
Target granted any third party any right to market any of the Target Products
under any private label or "OEM" arrangements, nor has Target granted any
license of any Target trademarks or service marks.
(ii) Target has no Third Party Licenses.
(iii) Target has no agreements, contracts or commitments that
call for fixed and/or contingent payments or expenditures by or to Target.
(iv) Target has no outstanding agreements, contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers, other than the indemnification
provision for the Company's officers in the Company's bylaws.
(v) Target has no employment agreements. Target also has no
independent contractor or similar agreement, contract or commitment that is not
terminable on thirty (30) days' notice or less without penalty, liability or
premium of any type, including, without limitation, severance or termination
pay.
(vi) Target has no currently effective collective bargaining
or union agreements, contracts or commitments.
(vii) Target is not restricted by agreement from competing
with any person or from carrying on its business anywhere in the world.
(viii) Target has not guaranteed any obligations of other
persons or made any agreements to acquire or guarantee any obligations of other
persons.
(ix) Target has no outstanding loan or advance to any
person; nor is it party to any line of credit, standby financing, revolving
credit or other similar financing arrangement of any sort which would permit the
borrowing by Target of any sum.
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<PAGE>
(x) Target has no agreements pursuant to which Target has
agreed to manufacture for, supply to or distribute to any third party any Target
Products or Target Components.
True and correct copies of each document or instrument listed on the Target
Disclosure Schedule pursuant to this Section 3.11(a) have been provided to
Acquiror or its representatives.
(b) All of the Material Contracts listed on the Target Disclosure
Schedule are valid, binding, in full force and effect, and enforceable by Target
in accordance with their respective terms, except to the extent that
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding at law or in equity. No Material
Contract contains any liquidated damages, penalty or similar provision. To the
knowledge of Target, no party to any such Material Contract intends to cancel,
withdraw, modify or amend such contract, agreement or arrangement.
(c) Target is not in default under or in breach or violation of,
nor, to Target's knowledge, is there any valid basis for any claim of default by
Target under, or breach or violation by Target of, any material provision of any
Material Contract. To the knowledge of Target, no other party is in default
under or in breach or violation of, nor is there any valid basis for any claim
of default by any other party under or any breach or violation by any other
party of, any Material Contract.
(d) Except as specifically indicated on the Target Disclosure
Schedule, none of the Material Contracts provides for indemnification by Target
of any third party. No claims have been made or threatened that could require
indemnification by Target, and Target has not paid any amounts to indemnify any
third party as a result of indemnification requirements of any kind.
Section 3.12 Compliance With Law . Target and the operation of its
-------------------
business are in compliance in all material respects with all applicable laws and
regulations material to the operation of its business. Neither Target nor, to
Target's knowledge, any of its employees has directly or indirectly paid or
delivered any fee, commission or other sum of money or item of property, however
characterized, to any finder, agent, government official or other party in the
United States or any other country, that was or is in violation of any federal,
state, or local statute or law or of any statute or law of any other country
having jurisdiction. Target has not participated directly or indirectly in any
boycotts or other similar practices affecting any of its customers. Target has
complied in all material respects at all times with any and all applicable
federal, state and foreign laws, rules, regulations, proclamations and orders
relating to the importation or exportation of its products and data, except for
such noncompliances as would not in the aggregate reasonably be expected to have
a Material Adverse Effect on Target.
Section 3.13 Labor Difficulties; No Discrimination.
-------------------------------------
(a) Target is not engaged in any unfair labor practice and is not
in material violation of any applicable laws respecting employment and
employment practices, terms and
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conditions of employment, and wages and hours. There is no unfair labor practice
complaint against Target actually pending or, to the knowledge of Target,
threatened before the National Labor Relations Board. There is no strike, labor
dispute, slowdown, or stoppage actually pending or, to the knowledge of Target,
threatened against Target. To the knowledge of Target, no union organizing
activities are taking place with respect to the business of Target. No
grievance, nor any arbitration proceeding arising out of or under any collective
bargaining agreement is pending and, to the knowledge of Target, no claims
therefor exist. No collective bargaining agreement that is binding on Target
restricts it from relocating or closing any of its operations. Target has not
experienced any material work stoppage or other material labor difficulty.
(b) There is and has not been any claim against Target or its
officers or employees, or to Target's knowledge, threatened against Target or
its officers or employees, based on actual or alleged race, age, sex, disability
or other harassment or discrimination, or similar tortious conduct, or based on
actual or alleged breach of contract with respect to any person's employment by
Target, nor, to the knowledge of Target, is there any basis for any such claim.
(c) There are no pending claims against Target under any workers
compensation plan or policy or for long term disability. Target has no material
obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder. There are no proceedings pending or, to the knowledge
of Target, threatened, between Target and any of its employees, which
proceedings have or could reasonably be expected to have a Material Adverse
Effect on Target.
Section 3.14 Insider Transactions. No affiliate ("Affiliate") as defined
--------------------
in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") of Target has any interest in any equipment or other property,
real or personal, tangible or intangible of Target, including, without
limitation, any Target Proprietary Rights or, to the knowledge of Target, any
creditor, supplier, customer, manufacturer, agent, representative, or
distributor of Target Products; provided, however, that no such Affiliate or
-------- -------
other person shall be deemed to have such an interest solely by virtue of the
ownership of less than two percent (2%) of the outstanding stock or debt
securities of any publicly-held company, the stock or debt securities of which
are traded on a recognized stock exchange or quoted on the Nasdaq Stock Market.
Section 3.15 Employees, Independent Contractors and Consultants. The
--------------------------------------------------
Target Disclosure Schedule lists all currently effective consulting, independent
contractor and/or employment agreements and other material agreements concluded
with individual employees, independent contractors or consultants to which
Target is a party. True and correct copies of all such written agreements have
been provided to Acquiror or its representatives. All independent contractors
have been properly classified as independent contractors for the purposes of
federal and applicable state tax laws, laws applicable to employee benefits and
other applicable law. All salaries and wages paid by Target are in compliance
in all material respects with applicable federal, state and local laws. Also
shown on the Target Disclosure Schedule are the names, positions and salaries or
rates of pay, including bonuses, of all persons presently employed by, or
performing contract services for, Target, none of whom have ceased to be
employed by Target or expressed an intention to terminate his or her employment
with Target or decline to accept
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<PAGE>
employment with Acquiror. No bonus or other payment will become due to Target
employees or contractors as a result of the Merger.
Section 3.16 Insurance. The Target Disclosure Schedule contains a list
---------
of the principal policies of fire, liability and other forms of insurance
currently or previously held by Target, and all claims made by Target under such
policies. To the knowledge of Target, Target has not done anything, either by
way of action or inaction, that might invalidate such policies in whole or in
part. There is no claim pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Target is otherwise in compliance with the terms of
such policies and bonds in all material respects. Target has no knowledge of
any threatened termination of, or material premium increase with respect to, any
of such policies.
Section 3.17 Accounts Receivable. Subject to any reserves set forth in
-------------------
the Most Recent Balance Sheet, the accounts receivable shown on the Most Recent
Balance Sheet represent and will represent bona fide claims against debtors for
sales and other charges, and are not subject to discount except for normal cash
and immaterial trade discounts. The amount carried for doubtful accounts and
allowances disclosed in the Most Recent Balance Sheet is sufficient to provide
for any losses which may be sustained on realization of the receivables.
Section 3.18 Litigation. There is no private or governmental action,
----------
suit, proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Target,
threatened against Target or any of its properties or any of its officers or
directors (in their capacities as such). There is no judgment, decree or order
against Target, or, to the knowledge of Target, any of its directors or officers
(in their capacities as such). Other than as set forth on Schedule 3.18 of the
Target Disclosure Schedule, to Target's knowledge, no circumstances exist that
could reasonably be expected to result in a claim against Target as a result of
the conduct of Target's business (including, without limitation, any claim of
infringement of any intellectual property right).
Section 3.19 Governmental Authorizations and Regulations. Target has
-------------------------------------------
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Target currently operates or holds any interest in any of its
properties or (ii) that is required for the operation of Target's business or
the holding of any such interest, and all of such authorizations are in full
force and effect, except for those consents, licenses, permits, grants or other
authorizations which would not have a Material Adverse Effect if not obtained.
Section 3.20 No Other Investments. Target does not own or control
--------------------
(directly or indirectly) any capital stock, bonds or other securities of, and
does not have any proprietary interest in, any other corporation, limited
liability company, general or limited partnership, firm, association or business
organization, entity or enterprise, and Target does not control (directly or
indirectly) the management or policies of any other corporation, limited
liability company, partnership, firm, association or business organization,
entity or enterprise.
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<PAGE>
Section 3.21 Compliance with Environmental Requirements. Target has
------------------------------------------
obtained all permits, licenses and other authorizations which are required under
federal, state and local laws applicable to Target and relating to pollution or
protection of the environment, including laws or provisions relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials, substances, or wastes into air,
surface water, groundwater, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials,
substances, or wastes or which are intended to assure the safety of employees,
workers or other persons, except where the failure to obtain such authorizations
could not be reasonably expected to have a Material Adverse Effect. Target is in
compliance in all material respects with all terms and conditions of all such
permits, licenses and authorizations. There are no conditions, circumstances,
activities, practices, incidents, or actions known to Target which could
reasonably be expected to form the basis of any claim, action, suit, proceeding,
hearing, or investigation of, by, against or relating to Target, based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic substance, material or waste, or relating to the safety of
employees, workers or other persons.
Section 3.22 Corporate Documents. Target has furnished to Acquiror or
-------------------
its representatives copies of: (a) its Articles of Incorporation and Bylaws, as
amended to date; (b) its minute book containing consents, actions, and meetings
of the shareholders, the board of directors and any committees thereof; (c) all
material permits, orders, and consents issued by any regulatory agency with
respect to Target, or any securities of Target, and all applications for such
permits, orders, and consents; and (d) the stock transfer books of Target
setting forth all transfers of any capital stock. The corporate minute books,
stock certificate books, stock registers and other corporate records of Target
are complete and accurate in all material respects, and the signatures appearing
on all documents contained therein are the true or facsimile signatures of the
persons purporting to have signed the same.
Section 3.23 No Brokers. Except as set forth on Schedule 3.23, neither
----------
Target nor, to Target's knowledge, any Target shareholder is obligated for the
payment of fees or expenses of any broker or finder in connection with the
origin, negotiation or execution of this Agreement or the other Transaction
Documents or in connection with any transaction contemplated hereby or thereby.
Section 3.24 Target Action. As of the date hereof, the Board of
-------------
Directors of Target, has (i) determined that the Merger is fair and advisable to
and in the best interests of Target and its shareholders, (ii) approved the
Merger and this Agreement in accordance with the provisions of California Law,
and (iii) directed that this Agreement and the Merger be submitted to Target
shareholders for their approval and resolved to recommend that Target
shareholders vote in favor of the approval of this Agreement and the Merger.
Section 3.25 Offers. Target has suspended or terminated, and has the
------
legal right to terminate or suspend, all negotiations and discussions of
Acquisition Transactions (as defined in Section 5.6) with parties other than
Acquiror.
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<PAGE>
Section 3.26 Disclosure. No statements by Target contained in this
----------
Agreement, its exhibits and schedules nor in any of the certificates required to
be delivered by Target to Acquiror or Sub under this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. Target has disclosed to
Acquiror all material information relating specifically to the operations and
business of Target as of the date of this Agreement or the transactions
contemplated by this Agreement.
Section 3.27 Information Statement and Consent. The information
---------------------------------
provided by Target included in the information statement to be mailed to
shareholders of Target in connection with the transactions contemplated hereby
(the "Information Statement") shall not at the time the Information Statement is
mailed to shareholders of Target and at all times subsequent thereto (through
and including the Effective Date), contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The information provided related to
Target included in any written consent (the "Consent") shall not, on the date
the Consent is first mailed to Target's shareholders, or at the meeting of
Target's shareholders to consider the Merger (the "Target Shareholders Meeting")
and at the Effective Time, contain any statement which, at such time, is false
or misleading with respect to any material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the Target Shareholders Meeting which has become
false or misleading. If, at any time prior to the Effective Time, any event or
information should be discovered by Target which should be set forth in an
amendment to (x) the Information Statement or (y) the Consent, Target shall
promptly inform Acquiror. Notwithstanding the foregoing, Target makes no
representation, warranty or covenant with respect to any information furnished
by Acquiror which is contained in any of the foregoing documents.
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<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB
Acquiror and Sub jointly and severally represent and warrant to Target that
the statements contained in this Article IV are true and correct.
Section 4.1 Organization of Acquiror and Sub. Each of Acquiror and its
--------------------------------
Subsidiaries, including Sub, is a corporation duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite corporate power to own, lease and operate
its property and to carry on its business as now being conducted and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Material Adverse Effect on Acquiror or Sub. The authorized capital stock of Sub
consists of 1,000 shares of Common Stock, all of which are issued and
outstanding, duly paid and nonassessable and are owned by Acquiror free and
clear of all liens, charges and encumbrances.
Section 4.2 Valid Issuance of Acquiror Common Stock. The shares of
---------------------------------------
Acquiror's Common Stock to be issued pursuant to the Merger will be duly
authorized, validly issued, fully paid, and nonassessable and based upon the
representations of the Former Target Shareholders in the Investor Representation
Statements (as defined herein) shall be issued in compliance with all applicable
federal or state securities laws.
Section 4.3 Authority; No Conflict; Required Filings and Consents.
-----------------------------------------------------
(a) Each of Acquiror and Sub has all requisite corporate power and
authority to enter into this Agreement and the other Transaction Documents to
which it is or will become a party and to consummate the transactions
contemplated by this Agreement and such Transaction Documents. The execution and
delivery of this Agreement and such Transaction Documents and the consummation
of the transactions contemplated by this Agreement and such Transaction
Documents have been duly authorized by all necessary corporate action on the
part of Acquiror and Sub. This Agreement has been and such Transaction Documents
have been or, to the extent not executed as of the date hereof, will be duly
executed and delivered by Acquiror and Sub. This Agreement and each of the
Transaction Documents to which Acquiror or Sub is a party constitutes, and each
of the Transaction Documents to which Acquiror or Sub will become a party when
executed and delivered by Acquiror or Sub will constitute, a valid and binding
obligation of Acquiror or Sub, enforceable against Acquiror or Sub, as the case
may be, in accordance with its terms, except to the extent that enforceability
may be limited by applicable bankruptcy, reorganization, insolvency, moratorium
or other laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity.
(b) The execution and delivery by Acquiror or Sub of this
Agreement and the Transaction Documents to which it is or will become a party
does not, and consummation of the transactions contemplated by this Agreement or
the Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Acquiror or Sub, (ii) result in any
violation or
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<PAGE>
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, contract
or other agreement, instrument or obligation to which Acquiror or Sub is a party
or by which either of them or any of their properties or assets may be bound, or
(iii) conflict or violate any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or Sub or any of their properties or assets, except in the case of (ii)
and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not have a Material Adverse Effect on
Acquiror and its Subsidiaries, taken as a whole.
(c) Neither the execution and delivery of this Agreement by Acquiror
or Sub of the Transaction Documents to which Acquiror or Sub is or will become a
party or the consummation of the transactions contemplated hereby or thereby
will require any consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, except for (i) the filing
of the Certificate of Merger with the Delaware Secretary of State and the filing
of the Agreement of Merger with the California Secretary of State, and (ii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws
and the laws of any foreign country.
Section 4.4 SEC Filings; Financial Statements.
---------------------------------
(a) Acquiror has timely filed with the Securities and Exchange
Commission (the "SEC") and made available to Target or its representatives all
forms, reports and documents required to be filed by Acquiror with the SEC since
April 26, 2000 (collectively, the "Acquiror SEC Reports"). The Acquiror SEC
Reports (i) at the time filed, complied in all material respects with the
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the Exchange Act, as the case may be, and (ii) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in such Acquiror SEC Reports or necessary in order to make the statements
in such Acquiror SEC Reports, in the light of the circumstances under which they
were made, not misleading. All other documents subsequently filed by Acquiror
pursuant to Sections 12(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Agreement and before the termination of this Agreement, shall be
incorporated by reference into the term "Acquiror SEC Reports."
(b) Each of the financial statements (including, in each case, any
related notes) contained in the Acquiror SEC Reports, including any Acquiror SEC
Reports filed after the date of this Agreement until the Closing, complied or
will comply as to form in all material respects with the applicable published
rules and regulations of the SEC with respect thereto, was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and fairly presented the consolidated
financial position of Acquiror and its Subsidiaries as at the respective dates
and the consolidated results of its operations and cash flows for the periods
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indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount.
Section 4.5 Interim Operations of Sub. Sub was formed by Acquiror
-------------------------
solely for the purpose of engaging in the transactions contemplated by this
Agreement, has engaged in no other business activities and has conducted its
operations only as contemplated by this Agreement. Sub has no liabilities and,
except for a subscription agreement pursuant to which all of its authorized
capital stock was issued to Acquiror, is not a party to any agreement other than
this Agreement and agreements with respect to the appointment of registered
agents and similar matters.
Section 4.6 Stockholders Consent. No consent or approval of the
--------------------
stockholders of Acquiror is required or necessary for Acquiror to enter into
this Agreement or the Transaction Documents or to consummate the transactions
contemplated hereby and thereby.
Section 4.7 Information Statement and Consent. The information provided
---------------------------------
by Acquiror included in the Information Statement shall not, at the time the
Information Statement is mailed to shareholders of Target and at all times
subsequent thereto (through and including the Effective Date), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
information provided by Acquiror included in the Consent shall not, on the date
the Consent is first mailed to Target's shareholders, or at the time of the
Target Shareholders Meeting and at the Effective Time, contain any statement
which, at such time, is false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which it is made, not false or
misleading or omit to state any material fact necessary to correct any statement
in any earlier communication with respect to the Target Shareholders Meeting
which has become false or misleading. If at any time prior to the Effective
Time any event or information should be discovered by Acquiror which should be
set forth in any amendment or supplement to the Consent, Acquiror will promptly
inform Target. Notwithstanding the foregoing, the Information Statement or
Acquiror makes no representation, warranty or covenant with respect to any
information relating to Target which is contained in any of the forgoing
documents.
Section 4.8 Litigation. There is no private or governmental action,
----------
suit, proceeding, claim or arbitration pending before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of Acquiror or Sub,
threatened against Acquiror or Sub or any of its properties or any of their
officers or directors (in their capacities as such). There is no judgment,
decree or order against Acquiror or Sub, or, to the knowledge of Acquiror or
Sub, any of their directors or officers (in their capacities as such).
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ARTICLE V
PRECLOSING COVENANTS OF TARGET
Section 5.1 Information Statement and Consent. As promptly as
---------------------------------
practicable after the execution of this Agreement, Target and Acquiror shall use
their best efforts to prepare the Information Statement, and Target shall mail
the Information Statement and Consent to all securityholders of Target entitled
to receive such materials under California Law. Whenever any event occurs that
is required to be set forth in an amendment or supplement to the Information
Statement or any other filing, each party shall promptly inform the other of
such occurrence and cooperate in mailing to securityholders of Target, such
amendment or supplement. The Information Statement and Consent shall include
the recommendation of the Board of Directors of Target in favor of the Agreement
and Merger and the conclusion of the Board of Directors of Target that the terms
and conditions of the Merger are fair and reasonable to the shareholders of
Target unless such recommendation would be in violation of the fiduciary duties
the members of the Board of Directors of Target owe to Target's shareholders.
Anything to the contrary contained herein notwithstanding, Target shall not
include in the Information Statement any information with respect to Acquiror or
its affiliates or associates, the form and content of which information shall
not have been approved by Acquiror prior to such inclusion.
Section 5.2 Approval of Target Shareholders. Target shall promptly after
-------------------------------
the date hereof take all action necessary in accordance with California Law and
its Articles of Incorporation and Bylaws to convene the Target Shareholders
Meeting or to secure the written consent of its shareholders after the
Information Statement has been delivered to the shareholders of Target. Target
shall consult with Acquiror regarding the date of the Target Shareholders
Meeting and shall not postpone or adjourn (other than for the absence of a
quorum) the Target Shareholders Meeting without the consent of Acquiror. Target
shall use its best efforts to solicit from shareholders of Target proxies in
favor of the Merger and shall take all other action necessary or advisable to
secure the vote or consent of shareholders required to effect the Merger. Target
and Acquiror will use their best efforts to ensure that the Information
Statement shall be in such form and contain such information so as to permit
compliance by Acquiror with the requirements of Regulation D under the
Securities Act in connection with the issuance of shares of Acquiror Common
Stock in the Merger and will comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder. The
Information Statement shall include as an attachment an Investor Representation
Statement, in substantially the form attached hereto as Exhibit E (an "Investor
Representation Statement"), to be completed by each shareholder of Target and
delivered to Acquiror for purposes of confirming the availability of an
exemption from registration under the Securities Act for the issuance by
Acquiror of shares of Acquiror Common Stock in the Merger. In addition, any
agreements or arrangements that may result in the payment of any amount that
would not be deductible by reason of Section 280G of the Code or would give rise
to an excise tax under Section 4999 of the Code shall have been approved by such
number of shareholders of Target and in the manner as is required by the Code.
Section 5.3 Advice of Changes. Target will promptly advise Acquiror in
-----------------
writing of any event known to Target occurring subsequent to the date of this
Agreement which would, or would be reasonably likely to, render any
representation or warranty of Target contained in this Agreement, if made on or
as of the date of such event or the Closing Date, untrue or inaccurate in any
material respect.
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Section 5.4 Operation of Business. During the period from the date of
---------------------
this Agreement and continuing until the earlier of the termination of the
Agreement or the Effective Time, Target agrees (except to the extent that
Acquiror shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due, subject to good faith
disputes over such debts or taxes, to pay or perform other obligations when due,
and, to the extent consistent with such business, use all reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, keep available the services of its present officers and
employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
to the end that its goodwill and ongoing businesses would be unimpaired at the
Effective Time. Target shall promptly notify Acquiror of any event or
occurrence related to Target not in the ordinary course of business of Target.
Except as expressly contemplated by this Agreement, Target shall not, without
the prior written consent of Acquiror (which consent shall not be unreasonably
withheld, delayed or conditioned):
(a) accelerate, amend or change the period of exercisability or the
vesting schedule of restricted stock or options granted under any employee stock
or option plan or agreements or authorize cash payments in exchange for any
thereof granted under any of such plans except as specifically required by the
terms of such plans or any related agreements and disclosed in Schedule 5.4(a)
of the Target Disclosure Schedule;
(b) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of such party;
(c) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than (i) the issuance of (A) shares of Target
Common Stock issuable upon exercise of Target Options, which are outstanding on
the date of this Agreement or (B) shares of Target Common Stock issuable upon
conversion of shares of Target Preferred Stock or (ii) the repurchase of shares
of Target Common Stock from terminated employees pursuant to the terms of
outstanding stock restriction or similar agreements;
(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership
or other business organization or division, or otherwise acquire or agree to
acquire any assets outside the ordinary course of business or in an amount in
excess of $25,000;
(e) sell, lease, license or otherwise dispose of any of its
properties or assets which are material, individually or in the aggregate, to
the business of Target, except in the ordinary course of business;
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(f) except as disclosed on Schedule 5.4(f), (i) increase or agree to
increase the compensation payable or to become payable to its officers or other
employees, (ii) except as set forth on the Target Disclosure Schedule, grant any
additional severance or termination pay to, or enter into any employment or
severance agreements with, officers, (iii) grant any severance or termination
pay to, or enter into any employment or severance agreement, with any non-
officer employee, (iv) enter into any collective bargaining agreement, or (v)
establish, adopt, enter into or amend in any material respect any bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;
(g) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable;
(h) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others;
(i) amend its Articles of Incorporation or Bylaws;
(j) incur or commit to incur any capital expenditures in excess of
$75,000 in the aggregate or in excess of $25,000 as to any individual matter;
(k) lease, license, sell, transfer or encumber or permit to be
encumbered any material asset, Target Proprietary Right or other property
associated with the business of Target (including sales or transfers to
Affiliates of Target);
(l) enter into any lease or contract for the purchase or sale of any
property, real or personal except in the ordinary course of business;
(m) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained up to the date
of this Agreement, subject only to ordinary wear and tear;
(n) change accounting methods;
(o) amend or terminate any material contract, agreement or license to
which it is a party except in the ordinary course of business;
(p) loan any amount to any person or entity, or guaranty or act as a
surety for any obligation;
(q) waive or release any material right or claim, except in the
ordinary course of business;
(r) make or change any Tax or accounting election, change any annual
accounting period, adopt or change any accounting method, file any amended
Return, enter into any closing agreement, settle any Tax claim or assessment
relating to Target, surrender any right
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to claim refund of Taxes, consent to any extension or waiver of the limitation
period applicable to any Tax claim or assessment relating to Target, or take any
other action or omit to take any action that would have the effect of increasing
the Tax liability of Target or Acquiror;
(s) take any action or fail to take any action that would have a
Material Adverse Effect on Target;
(t) enter into any agreement outside of the ordinary course of
business in which the obligation of Target exceeds $25,000 or shall not
terminate or be subject to termination for convenience within 30 days following
execution;
(u) extend any offers of employment to potential employees,
consultants or independent contractors or involuntarily terminate the employment
of any existing employees, consultants or independent contractors (other than
for cause); or
(v) take, or agree in writing or otherwise to take, any of the
actions described in Sections (a) through (t) above, or any action which is
reasonably likely to make any of Target's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on the
date made (to the extent so limited) or as of the Effective Time.
(u) enter into any agreement (including without limitation any
material license, any OEM agreements, any exclusive agreements of any kind, or
any agreements providing for obligations that would extend beyond sixty (60)
days of the date of this Agreement) not in the ordinary course of business.
Section 5.5 Satisfaction of Conditions Precedent. Target will use its
------------------------------------
reasonable best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Sections 8.1 and 8.2, and Target will use its
reasonable best efforts to cause the transactions contemplated by this Agreement
to be consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all filings
with, and give all notices to, third parties which may be necessary or
reasonably required on its part in order to effect the transactions contemplated
by this Agreement. Target shall use its best efforts to obtain any and all
consents necessary with respect to those Material Contracts listed on Schedule
5.5 of the Target Disclosure Schedule required to consummate the Merger (the
"Material Consents").
Section 5.6 Other Negotiations. Following the date hereof and until
------------------
termination of this Agreement pursuant to Section 9.1, Target will not (and it
will not permit any of its officers, directors, employees, representatives
(including, without limitation, accountants, attorneys, investment bankers or
investors) agents and Affiliates on its behalf directly or indirectly through
another person to) take any action to solicit, initiate, seek, encourage or
support or take any other action designed to facilitate any inquiry, proposal or
offer from, furnish any information to, or participate in any negotiations with,
any corporation, partnership, person or other entity or group (other than
Acquiror) regarding any acquisition of Target, any merger or consolidation with
or involving Target, or any acquisition of any material portion of the stock or
assets of Target (any of the foregoing being referred to in this Agreement as an
"Acquisition Transaction") or enter into an agreement concerning any Acquisition
Transaction with any party other than Acquiror. If
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between the date of this Agreement and the termination of this Agreement
pursuant to Section 9.1, Target receives from a third party any offer or
indication of interest regarding any Acquisition Transaction, or any request for
information regarding any Acquisition Transaction, Target shall (i) notify
Acquiror immediately (orally and in writing) of such offer, indication of
interest or request, including the identity of such party and the full terms of
any proposal therein, and (ii) notify such third party of Target's obligations
under this Agreement.
Section 5.7 Other Covenants. Target will use its reasonable best efforts
---------------
to obtain written letters of resignation from the Target Board of Directors from
each of the current members of such Board, in each case effective at the
Effective Time and Target shall deliver to Acquiror an itemized schedule setting
forth the aggregate amount of Transaction Expenses (as defined in Section 9.3(b)
hereof) incurred, or to be incurred, by Target through the Closing Date (such
amount being, the "Aggregate Transaction Expenses").
ARTICLE VI
PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB
Section 6.1 Advice of Changes. Acquiror and Sub will promptly advise
-----------------
Target in writing of any event occurring subsequent to the date of this
Agreement which would render any representation or warranty of Acquiror or Sub
contained in this Agreement, if made on or as of the date of such event or the
Closing Date, untrue or inaccurate in any material respect.
Section 6.2 Reservation of Acquiror Common Stock. Acquiror shall prior
------------------------------------
to the Effective Time reserve for issuance, out of its authorized but unissued
capital stock, the maximum number of shares of Acquiror Common Stock as may be
issuable upon consummation of the Merger.
Section 6.3 Satisfaction of Conditions Precedent. Acquiror and Sub will
------------------------------------
use their reasonable best efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Sections 8.1 and 8.3, and Acquiror
and Sub will use their reasonable best efforts to cause the transactions
contemplated by this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to, third parties
which may be necessary or reasonably required on its part in order to effect the
transactions contemplated hereby. Acquiror and Sub will use their best
commercial efforts to prepare and file the Resale S-1 Registration Statement (as
defined in the Registration Rights Agreement) with the SEC as promptly as
practicable after the Effective Time and to cause the Resale S-1 Registration
Statement to be declared effective prior to October 24, 2000.
Section 6.4 Stock Options.
-------------
(a) At the Effective Time, each outstanding Target Option under
the Target Option Plan, whether vested or unvested, shall be assumed by Acquiror
and deemed to constitute an option (an "Acquiror Option") to acquire, on the
same terms and conditions as were applicable under the Target Option, the same
number of shares of Acquiror Common Stock as
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the holder of such Target Option would have been entitled to receive pursuant to
the Merger had such holder exercised such option in full immediately prior to
the Effective Time (rounded down to the nearest whole number), at a price per
share (rounded down to the nearest whole cent) equal to (i) the aggregate
exercise price for the shares of Target Common Stock otherwise purchasable
pursuant to such Target Option divided by (ii) the number of full shares of
Acquiror Common Stock deemed purchasable pursuant to such Acquiror Option in
accordance with the foregoing; provided, however, that, in the case of any
-------- -------
Target Option to which Section 422 of the Code applies ("incentive stock
options"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 424(a) of the Code. In connection
with the assumption by Acquiror of the Target Options pursuant to this Section
6.4(a), Target shall be deemed to have assigned to Acquiror, effective at the
Effective Time, Target's right to repurchase unvested shares of Target Common
Stock issuable upon the exercise of the Target Options or previously issued upon
the exercise of options granted under the Target Option Plan, in accordance with
the terms of the Target Option Plan and the related stock option agreements and
stock purchase agreements entered into under the Target Option Plan.
(b) As soon as practicable after the Effective Time, Acquiror
shall deliver to the participants in the Target Option Plan appropriate notice
setting forth such participants' rights pursuant thereto and the grants pursuant
to the Target Option Plan shall continue in effect on the same terms and
conditions (subject to the adjustments required by this Section 6.4 after giving
effect to the Merger). Acquiror shall comply with the terms of the Target Option
Plan and the parties intend that, to the extent required by, and subject to the
provisions of, such Target Option Plan and Sections 422 and 424(a) of the Code,
that Target Options which qualified as incentive stock options prior the
Effective Time continue to qualify as incentive stock options after the
Effective Time, and this provision shall be interpreted consistent with that
intent.
(c) Acquiror shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Acquiror Common Stock for delivery
upon exercise of Target Options assumed in accordance with this Section 6.4. As
soon as practicable after the later of: (i) October 24, 2000, or (ii) 20 days
after the Closing Date, Acquiror shall file a registration statement on Form S-8
(or any successor or other appropriate forms) under the Securities Act or
another appropriate form with respect to the shares of Acquiror Common Stock
subject to such options and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding.
Section 6.5 Nasdaq National Market Listing Acquiror will cause the
------------------------------
shares of Acquiror Common Stock issuable to the shareholders of Target in the
Merger and to the holders of Target Options to be assumed by Acquiror in the
Merger to be authorized for listing on the Nasdaq National Market.
Section 6.6 Certain Employee Benefit Matters. From and after the
--------------------------------
Effective Time, employees of Target at the Effective Time will be provided with
employee benefits by the Surviving Corporation or Acquiror which in the
aggregate are no less favorable to such employees than those provided from time
to time by Acquiror to its similarly situated employees. If any employee of
Target becomes a participant in any employee benefit plan, program, policy
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or arrangement of Acquiror, such employee shall be given credit for all service
prior to the Effective Time with Target to the extent permissible under such
plan, program, policy or arrangement.
Section 6.7 Registration of Shares Issued in the Merger. Acquiror hereby
-------------------------------------------
grants, effective as of the Effective Time the registration rights set forth in
the Registration Rights Agreement attached as Exhibit F hereto to all Former
---------
Target Shareholders issued as a result of the Merger; provided that in the event
that there is then in effect a registration statement on Form S-8 pursuant to
Section 6.4(c) above, the shares of Acquiror Common Stock covered by such
registration statement on Form S-8 shall not be entitled to the registration
rights granted under this paragraph.
Section 6.8 Indemnification; Directors and Officers Insurance. Acquiror
--------------------------------------------------
agrees that all rights to indemnification (including advancement of expenses)
existing on the date hereof in favor of the present or former officers,
directors and employees of Target (collectively, the "Target Indemnified
Parties") with respect to actions taken in their capacities as officers,
directors prior to the Effective Time as provided in Target's Articles of
Incorporation or Bylaws, and indemnification agreements shall survive the Merger
and continue in full force and effect for a period of six (6) years following
the Effective Time and shall be guaranteed by Acquiror. Acquiror shall cause
the Surviving Corporation to maintain a policy of officers' and directors'
liability insurance for acts and omissions occurring prior to the Effective
Time, with coverage in amount and scope at least as favorable as the Target's
existing directors' and officers' liability insurance coverage which provides
$4,000,000 of coverage (but not at a total premium cost for the life of the
policy in excess of $30,000) for a period of six (6) years after the Effective
Time. This Section 6.8 shall survive the consummation of the Merger at the
Effective Time, and is intended to be for the benefit of, and shall be
enforceable by, the Target Indemnified Parties, their heirs and personal
representatives and shall be binding on the Surviving Corporation and its
respective successors and assigns.
ARTICLE VII
OTHER AGREEMENTS
Section 7.1 Confidentiality. Each party acknowledges that Acquiror and
---------------
Target have previously executed a Mutual Non-Disclosure Agreement dated as of
July 22, 2000 (the "Confidentiality Agreement"), which agreement shall continue
in full force and effect in accordance with its terms.
Section 7.2 No Public Announcement. The parties shall make no public
----------------------
announcement concerning this Agreement, their discussions or any other
memoranda, letters or agreements between the parties relating to the Merger;
provided, however, that either of the parties, but only after reasonable
-------- -------
consultation with the other, may make disclosure if required under applicable
law (including, without limitation, securities laws); and provided further,
-------- -------
however, that following execution of this Agreement or consummation of the
-------
Merger, Acquiror may make a public announcement regarding the Merger and the
integration of Target's business into that of Acquiror.
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Section 7.3 Regulatory Filings; Consents; Reasonable Efforts. (a) Subject
------------------------------------------------
to the terms and conditions of this Agreement, Target and Acquiror shall use
their respective reasonable good faith efforts to (i) make all necessary filings
with respect to the Merger and this Agreement under the Exchange Act, the
Securities Act and applicable blue sky or similar securities laws and obtain
required approvals and clearances with respect thereto and supply all additional
information requested in connection therewith; (ii) make merger notification or
other appropriate filings with federal, state or local governmental bodies or
applicable foreign governmental agencies and obtain required approvals and
clearances with respect thereto and supply all additional information requested
in connection therewith; (iii) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the Merger; and
(iv) take, or cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement as promptly as practicable.
(b) Further Assurances. Prior to and following the Closing, each party
------------------
agrees to cooperate fully with the other parties and to execute such further
instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement.
(c) Other Filings. As promptly as practicable after the date of this
-------------
Agreement, Target and Acquiror will prepare and file any other filings required
under the Exchange Act, the Securities Act or any other Federal, foreign or
state securities or blue sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "Other Filings"). The Other Filings will
comply in all material respects with all applicable requirements of law and the
rules and regulations promulgated thereunder. Whenever any event occurs which
is required to be set forth in an amendment or supplement to the Other Filings,
Target or Acquiror, as the case may be, will promptly inform the other of such
occurrence and cooperate in making any appropriate amendment or supplement,
and/or mailing to shareholders of Target, such amendment or supplement.
Section 7.4 Escrow Agreement. On or before the Effective Time, Acquiror
----------------
shall, and the parties hereto shall exercise their reasonable good faith efforts
to cause the Escrow Agent (as defined in Section 10.2) and the Securityholder
Agent (as defined in Section 10.9), to enter into an Escrow Agreement in
substantially the form attached hereto as Exhibit D.
---------
Section 7.5 FIRPTA. Target shall, prior to the Closing Date, provide
------
Acquiror with a properly executed Foreign Investment and Real Property Tax Act
of 1980 ("FIRPTA") FIRPTA Notification Letter which states that shares of
capital stock of Target do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
Acquiror's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such FIRPTA Notification Letter,
Target shall provide to Acquiror, as agent for Target, a form of notice to the
Internal Revenue Service in accordance with the requirements of Treasury
Regulation Section 1.897-2(h)(2), along with written authorization for Acquiror
to deliver such notice form to the Internal Revenue Service on behalf of Target
upon the Closing of the Merger.
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Section 7.6 Blue Sky Laws. Acquiror shall take such steps as may be
-------------
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Target shall use its reasonable good faith efforts to assist
Acquiror as may be necessary to comply with the securities and blue sky laws of
all jurisdictions which are applicable in connection with the issuance of
Acquiror Common Stock in connection with the Merger.
Section 7.7 Qualification of Merger as a Reorganization. It is the intent
-------------------------------------------
of the parties to this Agreement that the Merger qualify as a reorganization
under Section 368(a) of the Code, and each of Acquiror, Sub, the Target and the
Surviving Corporation covenants and agrees not to take any position on any
Return or report relating to Taxes inconsistent with such intent. Each of
Acquiror, Sub, the Target and the Surviving Corporation agrees not to take any
action either before or after the Effective Time that could reasonably be
expected to cause the Merger not to be treated as a "reorganization" under
Section 368(a) of the Code.
Section 7.8 Access to Information. Until the Closing, each of Target
---------------------
and Acquiror shall allow the other and the other's agents and representatives
reasonable free access during normal business hours upon reasonable notice to
its files, books, records, representatives, employees, agents and offices,
including, without limitation, any and all information relating to taxes,
commitments, contracts, leases, licenses, and personal property and financial
condition. Until the Closing, Target shall cause its accountants to cooperate
with Acquiror and its agents in making available all financial information
requested, including without limitation the right to examine all working papers
pertaining to all financial statements prepared or audited by such accountants.
No information or knowledge obtained in any investigation pursuant to this
Section shall affect or be deemed to modify any representation or warranty
contained in this Agreement or its exhibits and schedules. All such access shall
be subject to the terms of the Confidentiality Agreement (as defined in Section
7.1) and shall be at requestor's sole expense.
Section 7.9 Certain Technology Agreements. From and after the date hereof
-----------------------------
to the first to occur of (i) the Effective Time and (ii) the date this Agreement
is terminated pursuant to Section 9.1 hereof, the Target shall include
representatives of the Acquiror in all discussions and meetings regarding the
negotiation and execution of a Development and Technology License Agreement with
Samsung, and in connection therewith, Acquiror shall have the opportunity to
review and consent to the terms and conditions of such agreement before
execution, which consent shall not be unreasonably withheld.
ARTICLE VIII
CONDITIONS TO MERGER
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. The shareholders of Target entitled to
--------------------
vote on or consent to this Agreement and the Merger in accordance with
California Law and Target's Articles of Incorporation and Bylaws shall have
approved this Agreement and the Merger.
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(b) Approvals. Other than the filings provided for by Sections
---------
1.1(a) and (b), all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by, any
Governmental Entity shall have been filed, occurred or been obtained.
(c) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or restricting
the conduct or operation of the business of Target by Acquiror after the Merger
shall have been issued, nor shall any proceeding brought by a domestic
administrative agency or commission or other domestic Governmental Entity,
seeking any of the foregoing be pending; nor shall there be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal.
Acquiror shall have received all state securities or "Blue Sky" permits and
other authorizations necessary to issue shares of Acquiror Common Stock pursuant
to the Merger.
(d) Registration Rights Agreement. The Acquiror and the holders of
-----------------------------
Acquiror Common Stock as a result of the Merger shall have entered into the
Registration Rights Agreement pursuant to Section 6.8. Acquiror shall have
obtained the waivers necessary to enter into the Registration Rights Agreement
pursuant to its existing Fifth Amended and Restated Investors Rights Agreement
dated as of April 28, 1999.
(e) Tax Opinion. Acquiror and Target shall each have received the
-----------
written opinion dated the Closing Date from its respective tax counsel (Venture
Law Group, a Professional Corporation, and Fenwick & West LLP, respectively) in
the form and substance reasonably satisfactory to it, to the effect that the
Merger will be treated for Federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code; provided,
however, that if counsel to either Acquiror or Target does not render such
opinion, this condition shall nonetheless be deemed to be satisfied with respect
to such party if counsel to the other party renders such opinion to such party,
provided such opinion is reasonably satisfactory to such party. In rendering
such opinion, counsel shall be entitled to rely upon, among other things,
reasonable assumptions as well as representations of Acquiror, Sub and Target.
Target and Acquiror and Sub shall execute and deliver to Fenwick & West LLP and
Venture Law Group, a Professional Corporation, customary certificates as
mutually agreed upon by Fenwick & West LLP and Venture Law Group, a Professional
Corporation, respectively, at such time or times as reasonably requested by
Fenwick & West LLP and Venture Law Group, A Professional Corporation, in
connection with the delivery of the opinion contemplated herein.
Section 8.2 Additional Conditions to Obligations of Acquiror and Sub. The
--------------------------------------------------------
obligations of Acquiror and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Acquiror and Sub:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Target set forth in this Agreement shall be true and correct
except to the extent that the aggregate of all of the breaches thereof would not
have a Material Adverse Effect on the Target (except to the extent such
representations and warranties speak as of specified date which need be true and
correct only as of the specified date), as of the Closing Date as though made on
and as of the
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Closing Date, except for changes contemplated by this Agreement; and Acquiror
shall have received a certificate signed on behalf of Target by the chief
executive officer and the chief financial officer of Target to such effect.
(b) Performance of Obligations of Target. Target shall have performed
------------------------------------
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date; and Acquiror shall have received
a certificate signed on behalf of Target by the chief executive officer of
Target to such effect.
(c) Dissenting Stockholders. Holders of not more than five percent
-----------------------
(5%) of Target's issued and outstanding capital stock as of the Closing shall
have elected to exercise appraisal rights under California Law as to such
shares.
(d) Escrow Agreement. The Escrow Agent and Securityholder Agent
----------------
shall have executed and delivered to Acquiror the Escrow Agreement and such
agreement shall remain in full force and effect.
(e) Employment Agreements. Employment Agreements with each of Albert
---------------------
Jordan and Shimon Scherzer and the Acquiror shall be executed and entered into
containing mutually agreeable terms.
(f) Opinion of Target's Counsel. Acquiror shall have received an
---------------------------
opinion dated the Closing Date of Fenwick & West LLP, counsel to Target, as to
the matters substantially in the form attached hereto as Exhibit G.
---------
(g) Approvals. All authorizations, consents (including the Material
---------
Consents), or approvals of, or notifications to any third party, required by
Target's contracts, agreements or other obligations in connection with the
consummation of the Merger shall have occurred or been obtained.
(h) Conversion of Target Preferred Stock. Each issued and
------------------------------------
outstanding share of Target Preferred Stock shall have been converted into
shares of Target Common Stock in accordance with Target's Articles of
Incorporation, and each holder of Target Preferred Stock shall have waived prior
notice of the consummation of the Merger.
(i) Termination of Target Agreements. Target's Investors' Rights
--------------------------------
Agreement dated December 29, 1997 and the Target's Voting Agreement dated
December 29, 1997 each shall have been terminated.
(j) Termination of 401(k) Plan. Target shall have terminated
--------------------------
Target's 401(k) Plan effective at least one day prior to the Closing Date and no
further contributions shall have been made to the 401(k) Plan. Target shall have
provided to Acquiror (i) executed resolutions of the board of directors of
Target authorizing the termination and (ii) an executed amendment to the 401(k)
Plan sufficient to assure compliance with applicable requirements of the Code
and regulations thereunder so that the tax-qualified status of the 401(k) Plan
will be maintained at the time of termination.
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Section 8.3 Additional Conditions to Obligations of Target. The
----------------------------------------------
obligation of Target to effect the Merger is subject to the satisfaction of each
of the following conditions, any of which may be waived, in writing, exclusively
by Target:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Acquiror and Sub set forth in this Agreement shall be true and
correct except to the extent that the aggregate of all of the breaches thereof
would not have a Material Adverse Effect on the Acquiror, as of the date of this
Agreement and (except to the extent such representations speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date, and
Target shall have received a certificate signed on behalf of Acquiror by the
chief financial officer of Acquiror to such effect.
(b) Performance of Obligations of Acquiror and Sub. Acquiror and
----------------------------------------------
Sub shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date; and
Target shall have received a certificate signed on behalf of Acquiror by the
chief financial officer of Acquiror to such effect.
(c) Opinion of Acquiror's Counsel. Target's shareholders shall
-----------------------------
have received an opinion dated the Closing Date of Venture Law Group, A
Professional Corporation, counsel to Acquiror and Sub, as to the matters
substantially in the form attached hereto as Exhibit H.
---------
(d) Nasdaq National Market. The shares of Acquiror's Common Stock
to be issued in the Merger and pursuant to exercise of assumed Target Options
shall have been approved for quotation on the Nasdaq National Market.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Effective Time:
(a) by mutual written consent of Acquiror and Target;
(b) by either Acquiror or Target, by giving written notice to the
other party, if a court of competent jurisdiction or other Governmental Entity
shall have issued a nonappealable final order, decree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, except, if such party relying on
such order, decree or ruling or other action shall not have complied with its
respective obligations under Section 6.3 of this Agreement;
(c) by either Acquiror or Target, by giving written notice to the
other party, if the other party is in material breach of any representation,
warranty, or covenant of such other party contained in this Agreement, which
breach shall not have been cured, if subject to cure, within 10 business days
following receipt by the breaching party of written notice of such breach by the
other party;
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(d) by Acquiror, by giving written notice to Target, if the
Closing shall not have occurred on or before September 25, 2000 by reason of the
failure of any condition precedent under Section 8.1 or 8.2 (unless the failure
results primarily from a breach by Acquiror of any representation, warranty, or
covenant of Acquiror contained in this Agreement or Acquiror's failure to
fulfill a condition precedent to closing or other default);
(e) by Target, by giving written notice to Acquiror, if the
Closing shall not have occurred on or before September 25, 2000 by reason of the
failure of any condition precedent under Section 8.1 or 8.3 (unless the failure
results primarily from a breach by Target of any representation, warranty, or
covenant of Target contained in this Agreement or Target's failure to fulfill a
condition precedent to closing or other default);
(f) by Acquiror, by giving written notice to Target, if the
required approvals of the shareholders of Target contemplated by this Agreement
shall not have been obtained by reason of the failure to obtain the required
consents or votes upon a vote taken by written consent or at a meeting of
shareholders, duly convened therefor or at any adjournment thereof; and
(g) by Target, if on the Closing Date: (i) the Total Consideration
Shares have a value of less than $100,000,000 calculated by multiplying (x) the
-----------
Total Consideration Shares by (y) the Acquiror Average Stock Price; and (ii) the
relative decline in value of Acquiror Common Stock, calculated by comparing the
last reported sales price of Acquiror Common Stock on the Nasdaq National Market
on the close of trading on August 11, 2000 to the Acquiror Average Stock Price,
is more than 33% higher than the relative decline in the Market Index Average,
calculated by comparing the Market Index Average to the Ten Day Market Index
Average. For purposes of this Section 9.1:
(A) Market Index Average means the quotient calculated by
dividing (x) the sum of the last reported sales prices of the common stock of
--------
the following companies: Airnet Communications Corporation, Interwave
Communications International, Netro Corporation, Powerwave Corporation, Telaxis
Communications Corporation, UTStarcom, Inc., LM Ericsson Telephone Company, Pcom
Corporation, and Nokia Corporation on the principal stock exchange on which the
common stock of such companies is then listed or admitted to trading by (y) nine
(9) on the date of such calculation.
(B) Ten Day Market Index Average means the quotient
calculated by dividing (i) the sum of the Market Index Average for the ten
--------
trading days preceding the Closing Date by (ii) ten (10).
Section 9.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 9.1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Acquiror,
Target, Sub or their respective officers, directors, stockholders or Affiliates,
except as set forth in Section 9.3 and except to the extent that such
termination results from the willful breach by any such party of any of its
representations, warranties or covenants set forth in this Agreement.
Section 9.3 Fees and Expenses.
-----------------
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(a) Except as set forth in this Section 9.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated. Target has submitted a budget to Acquiror for completion
of the Merger. Target shall use its best efforts to consummate the Merger within
such budget and shall not enter into any agreement inconsistent with such
budget.
(b) If the Merger is consummated, all legal, accounting,
investment banking, broker's and finder's fees and expenses incurred by Target
or its shareholders in excess of $1,800,000 (the "Budgeted Amount") in
connection with the Merger (the "Transaction Expenses") shall be deemed expenses
of the shareholders of Target and shall be treated as a reduction in the Total
Consideration Shares and borne by the shareholders of Target as provided in
Section 2.1(c)(ii) and this Section 9.3(b) if provided to Acquiror prior to
September 30, 2000. Any Transaction Expenses Target is obligated to pay that are
submitted to Acquiror after September 30, 2000 in excess of the amount of
Aggregate Transaction Expenses set forth on the itemized schedule delivered by
Target to Acquiror pursuant to Section 5.7 hereof shall be recoverable from the
Escrow Fund (as defined in Section 10.2) as Damages (as defined in Section
10.1).
ARTICLE X
ESCROW AND INDEMNIFICATION
Section 10.1 Indemnification. From and after the Effective Time and
---------------
subject to the limitations contained in Section 10.2, the Former Target
Shareholders will, severally but not jointly and pro rata up to but not
exceeding their Pro Rata Portion, indemnify Acquiror, Acquiror's current and
future affiliates (including the Surviving Corporation), the respective
officers, directors, employees, agents, attorneys, accountants, advisors and
representatives of such entities and the respective successors and assigns of
such entities (collectively, the "Indemnified Parties") and hold the Indemnified
Parties harmless against any loss, expense, liability or other damage, including
attorneys' fees, to the extent of the amount of such loss, expense, liability or
other damage (collectively "Damages") that the Indemnified Parties have incurred
by reason of the breach by Target of any representation, warranty, covenant or
agreement thereof contained in this Agreement or in the certificates to be
delivered by or on behalf of Target pursuant to Sections 8.2(a) and 8.2(b). In
addition, the Former Target Shareholders will, severally but not jointly and pro
rata up to but not exceeding their Pro Rata Portion, indemnify and hold the
Indemnified Parties harmless against any amount payable out of the Escrow Fund
pursuant to Section 9.3(b) in connection with Aggregate Transaction Expenses not
reported in accordance with Section 5.7. Acquiror, Target and Sub acknowledge
and agree, and the Former Target Shareholders, by their adoption of this
Agreement, agree that notwithstanding anything to the contrary contained in this
Agreement or any other Transaction Document, such indemnification under this
Article X shall be the sole and exclusive remedy for any such claim of breach by
Target except in those cases involving fraud or intentional breach on the part
of Target.
Section 10.2 Escrow Fund. As security and the sole and exclusive recourse
-----------
for the indemnities in Section 10.1 and the reimbursement obligations
contemplated by Section 9.3(b),
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as soon as practicable after the Effective Time, the Escrow Shares, without any
act of any Target shareholder will be deposited by Acquiror with Chase Manhattan
Trust Company, N.A. (or such other institution selected by Acquiror with the
reasonable consent of Target) as escrow agent (the "Escrow Agent"), such deposit
to constitute the Escrow Fund (the "Escrow Fund") and to be governed by the
terms set forth in this Article X and in the Escrow Agreement and at Acquiror's
sole expense.
Section 10.3 Damage Threshold. Notwithstanding the foregoing, the Former
----------------
Target Shareholders shall have no liability under Section 10.1 and Acquiror may
not receive any shares from the Escrow Fund unless and until an Officer's
Certificate or Certificates (as defined in Section 10.5 below) for an aggregate
amount of Acquiror's Damages in excess of $425,000 has been delivered to the
Securityholder Agents and to the Escrow Agent; provided, however, that after an
-------- -------
Officer's Certificate or Certificates for an aggregate of $425,000 in Damages
has been delivered, Acquiror shall be entitled to receive Escrow Shares equal in
value to the full amount of Damages identified in such Officer's Certificate or
Certificates; and provided further, however, that $425,000 threshold amount
-------- ------- -------
contemplated by this Section 10.3 shall not be applicable to claims made against
the Escrow Fund (i) pursuant to a breach or alleged breach of any of the
representations contained in Section 3.1, 3.2 and 3.3, (ii) in connection with
Aggregate Transaction Expenses not reported in accordance with Section 5.7 or
(iii) pursuant to claims related to Target Options or Target Restricted Shares,
which claims in each case shall be subject to indemnification and reimbursement
on a first dollar basis.
Section 10.4 Escrow Periods. Subject to the following requirements, the
--------------
Escrow Fund shall terminate at 5:00 p.m. Pacific Time, on the the first
anniversary date of the Closing Date (the period from the Closing Date to the
first anniversary of the Closing Date referred to as the "Escrow Period"),
provided, however, that the number of Escrow Shares, which, in the reasonable
-------- -------
judgment of Acquiror, subject to the objection of the Securityholder Agent and
the subsequent resolution of the matter in the manner provided in Section 10.8,
are necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate theretofore delivered to the Escrow Agent and the Securityholder
Agent prior to termination of the Escrow Period with respect to Damages claimed
or litigation threatened or pending prior to expiration of the Escrow Period,
shall remain in the Escrow Fund until such issues have been finally resolved.
Section 10.5 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on
-----------------------
or before the last day of the Escrow Period of a certificate signed by any
appropriately authorized officer of Acquiror (an "Officer's Certificate"):
(i) Stating the aggregate amount of Acquiror's Damages or an
estimate thereof, in each case to the extent known or determinable at such time;
and
(ii) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid or
properly accrued or arose, and the nature of the misrepresentation, breach or
claim to which such item is related, the Escrow Agent shall, subject to the
provisions of Sections 10.3 and 10.8 hereof and of the Escrow Agreement, deliver
to Acquiror out of the Escrow Fund, as promptly as practicable, Escrow Shares
having a value equal to such Damages all in accordance with the Escrow Agreement
and Section 10.6 below. Amounts paid or distributed from the Escrow Fund shall
be paid or
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distributed pro rata among the Holders (as defined in the Escrow Agreement)
based upon their respective percentage interests therein at the time.
Section 10.6 Valuation. For the purpose of compensating Acquiror for its
---------
Damages pursuant to this Agreement, the value per share of the Escrow Shares
which shall be released to Acquiror in respect of a claim for Damages shall be
the Acquiror Average Stock Price.
Section 10.7 Objections to Claims. At the time of delivery of any
--------------------
Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's
Certificate shall be delivered to the Securityholder Agent (as defined in
Section 10.9 below) and for a period of thirty (30) days after such delivery,
the Escrow Agent shall make no delivery of Escrow Shares pursuant to Section
10.4 unless the Escrow Agent shall have received written authorization from the
Securityholder Agent to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the Escrow Shares in
the Escrow Fund in accordance with Section 10.4, provided that no such delivery
--------
may be made if the Securityholder Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Acquiror prior to the expiration of such
thirty (30) day period.
Section 10.8 Resolution of Conflicts.
-----------------------
(a) In case the Securityholder Agent shall so object in writing
to any claim or claims by Acquiror made in any Officer's Certificate, Acquiror
shall have thirty (30) days to respond in a written statement to the objection
of the Securityholder Agent. If after such thirty (30) day period there remains
a dispute as to any claims, the Securityholder Agent and Acquiror shall attempt
in good faith for thirty (30) days to agree upon the rights of the respective
parties with respect to each of such claims. If the Securityholder Agent and
Acquiror should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Escrow Shares from the Escrow Fund in accordance with the terms
of the memorandum.
(b) If no such agreement can be reached after good faith
negotiation, either Acquiror or the Securityholder Agent may, by written notice
to the other, demand arbitration of the matter unless the amount of the damage
or loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15) days
after such written notice is sent, Acquiror (on the one hand) and the
Securityholder Agent (on the other hand) shall each select one arbitrator, and
the two arbitrators so selected shall select a third arbitrator. The decision of
the arbitrators as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this Agreement,
and notwithstanding anything in Section 10.4, the Escrow Agent shall be entitled
to act in accordance with such decision and make or withhold payments out of the
Escrow Fund in accordance with such decision.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Seattle, Washington under
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the commercial rules then in effect of the American Arbitration Association. The
non-prevailing party to an arbitration shall pay its own expenses, the fees of
each arbitrator, the administrative fee of the American Arbitration Association,
and the expenses, including, without limitation, the reasonable attorneys' fees
and costs, incurred by the prevailing party to the arbitration.
Section 10.9 Securityholder Agent.
--------------------
(a) In the event that the Merger is approved by Target's
shareholders, effective upon such vote, and without any further act of any
Target shareholder, Albert Jordan shall be constituted and appointed as agent
and attorney-in-fact (the "Securityholder Agent") for and on behalf of the
Former Target Shareholders to give and receive notices and communications, to
authorize delivery to Acquiror of the Escrow Shares or other property from the
Escrow Fund in satisfaction of claims by Acquiror, to object to such deliveries,
to agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such claims, and to take all actions necessary or appropriate in the
judgment of the Securityholder Agent for the accomplishment of the foregoing.
All actions of the Securityholder Agent shall be taken jointly, not
individually. Such agency may be changed by the holders of a majority in
interest of the Escrow Shares from time to time upon not less than twenty (20)
days' prior written notice to Acquiror. No bond shall be required of the
Securityholder Agent, and the Securityholder Agent shall receive no compensation
for services. Notices or communications to or from the Securityholder Agent
shall constitute notice to or from each of the Former Target Shareholders.
(b) The Securityholder Agent shall not be liable for any act done
or omitted hereunder as Securityholder Agent while acting in good faith, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith. The Former Target Shareholders shall severally and
pro rata, in accordance with their Pro Rata Portion, indemnify the
Securityholder Agent and hold harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Securityholder
Agent and arising out of or in connection with the acceptance or administration
of duties under this Agreement or the Escrow Agreement.
(c) The Securityholder Agent shall have reasonable access to
information about Target and Acquiror and the reasonable assistance of Target's
and Acquiror's officers and employees for purposes of performing its duties and
exercising its rights under this Article X, provided that the Securityholder
--------
Agent shall treat confidentially and not disclose any nonpublic information from
or about Target or Acquiror to anyone (except on a need to know basis to
individuals who agree to treat such information confidentially).
Section 10.10 Actions of the Securityholder Agent. A decision, act, consent
-----------------------------------
or instruction of the Securityholder Agent shall constitute a decision of all of
the Former Target Shareholders for whom shares of Acquiror Common Stock
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Former Target Shareholder, and the Escrow
Agent and Acquiror may rely upon any decision, act, consent or instruction of
the Securityholder Agent as being the decision, act, consent or instruction of
each and every such Former Target Shareholder. The Escrow Agent and Acquiror
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are hereby relieved from any liability to any person for any acts done by them
in accordance with such decision, act, consent or instruction of the
Securityholder Agent.
Section 10.11 Claims. In the event Acquiror becomes aware of a third-party
------
claim which Acquiror believes may result in a demand against the Escrow Fund,
Acquiror shall promptly notify the Securityholder Agent of such claim, and the
Securityholder Agent and the Former Target Shareholders for whom shares of
Acquiror Common Stock otherwise issuable to them are deposited in the Escrow
Fund, shall be entitled, at their expense, to participate in any defense of such
claim; provided, however, Acquiror shall have the right in its sole discretion
to settle any such claim.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Survival of Representations and Covenants. All
-----------------------------------------
representations, warranties, covenants and agreements of Target contained in
this Agreement shall survive the Closing and any investigation at any time made
by or on behalf of Acquiror until the end of the Escrow Period. If Escrow Shares
or other assets are retained in the Escrow Fund beyond expiration of the period
specified in the Escrow Agreement, then (notwithstanding the expiration of such
time period) the representation, warranty, covenant or agreement applicable to
such claim shall survive until, but only for purposes of, the resolution of the
claim to which such retained Escrow Shares or other assets relate. All
representations, warranties, covenants and agreements of Acquiror contained in
this Agreement shall terminate as of the Effective Time, provided that the
--------
covenants and agreements contained in Sections 6.5, 6.6 and 9.3 shall survive
the Closing and shall continue in full force and effect.
Section 11.2 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or two business days after being mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Acquiror or Sub:
Metawave Communications Corporation
10735 Willows Road NE
Redmond, WA 98052
Fax No: (425) 702-5900
Telephone No: (425) 702-5600
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with a copy to:
Venture Law Group
A Professional Corporation
4750 Carillon Point
Kirkland, Washington 98033
Attention: Mark J. Handfelt
Fax No: (425) 739-8750
Telephone No: (425) 739-8700
(b) if to Target, to:
Adaptive Telecom, Inc.
1684 Dell Avenue
Campbell, CA 95008
Attention: Chief Executive Officer
Fax No: (408) 871-8305
Telephone No: (408) 379-5800
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Dennis DeBroeck
Fax No: (650) 494-1417
Telephone No: (650) 494-0600
Section 11.3 Interpretation. When a reference is made in this Agreement
--------------
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." Whenever the words "to the knowledge
of Target" or "known to Target" or similar phrases are used in this Agreement,
they mean when used in reference to (i) an individual, to the actual knowledge,
after reasonable inquiry, of such individual or (ii) a party that is not an
individual, to the actual knowledge, after reasonable inquiry, of the directors,
officers and employees of such party. All references to "Target" in Articles
III, V and VII shall be deemed to be references to Target and its Subsidiaries
taken together and all covenants of Target in this Agreement shall, to the
extent appropriate, be interpreted to include the commitment on the part of
Target to cause its Subsidiaries to perform or refrain from performing the
specified action.
Section 11.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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Section 11.5 Entire Agreement; No Third Party Beneficiaries. This
----------------------------------------------
Agreement (including the documents and the instruments referred to herein), the
Confidentiality Agreement, and the Transaction Documents (a) constitute the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) are not intended to confer upon any person other than the parties hereto
(including without limitation any Target employees) any rights or remedies
hereunder.
Section 11.6 Governing Law; Jurisdiction. This Agreement shall be governed
---------------------------
and construed in accordance with the laws of the State of Delaware without
regard to any applicable conflicts of law, except to the extent that the laws of
the State of California are mandatorily applicable to the Merger. In any action
between the parties arising out of or relating to this Agreement or any of the
transactions contemplated by this Agreement: (a) each of the parties irrevocably
and unconditionally consents and submits to the exclusive jurisdiction and venue
of the state and federal courts located in the State of Washington; (b) if any
such action is commenced in a state court, then, subject to applicable law, no
party shall object to the removal of such action to any federal court located in
the Western District of Washington; (c) each of the parties irrevocably waives
the right to trial by jury; and (d) each of the parties irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 11.2.
Section 11.7 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 11.8 Amendment. This Agreement may be amended by the parties
---------
hereto, at any time before or after approval of matters presented in connection
with the Merger by the shareholders of Target, but after any such shareholder
approval, no amendment shall be made which by law requires the further approval
of shareholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 11.9 Extension; Waiver. At any time prior to the Effective Time,
-----------------
the parties hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or the other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations or warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
Section 11.10 Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to injunctive relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state
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<PAGE>
having jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
Section 11.11 Severability. If any provision of this Agreement is held to
------------
be illegal, invalid or unenforceable under any present or future law or
regulation, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable, (b) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal, invalid
or unenforceable provision or by its severance from this Agreement and (d) in
lieu of such illegal, invalid or unenforceable provision, there will be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, Acquiror, Sub and Target have executed this
Agreement and Plan of Merger as of the date first written above.
METAWAVE COMMUNICATIONS CORPORATION
By: /s/ Robert H. Hunsberger
-----------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
MALIBU ACQUISITION CORPORATION
By: /s/ Stuart W. Fuhlendorf
-----------------------------------------
Title: Senior Vice President and
--------------------------------------
Chief Financial Officer
--------------------------------------
ADAPTIVE TELECOM, INC.
By: /s/ Albert Jordan
-----------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
<PAGE>
EXHIBIT A
VOTING AGREEMENT
<PAGE>
EXHIBIT B
EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT C
TARGET DISCLOSURE SCHEDULE
<PAGE>
EXHIBIT D
ESCROW AGREEMENT
<PAGE>
EXHIBIT E
INVESTOR REPRESENTATION STATEMENT
<PAGE>
EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT G
FORM OF OPINION OF COUNSEL TO TARGET
<PAGE>
EXHIBIT H
FORM OF OPINION OF COUNSEL TO ACQUIROR
