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EXHIBIT 2.1
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Agreement and Plan of Merger
Dated as of July 24, 2000
among
Virata Corporation,
Agranat Systems, Inc.,
Agranat Acquisition, Inc.
and
Owen Robbins, as Securityholder Agent
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TABLE OF CONTENTS
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ARTICLE I THE MERGER 2
Section 1.1. The Merger...................................................... 2
Section 1.2. Effective Time.................................................. 2
Section 1.3. Closing of the Merger........................................... 2
Section 1.4. Effects of the Merger........................................... 2
Section 1.5. Articles of Organization and Bylaws............................. 3
Section 1.6. Directors 3
Section 1.7. Officers 3
Section 1.8. Conversion of Shares............................................ 3
Section 1.9. Dissent and Appraisal Rights.................................... 4
Section 1.10. Exchange of Certificates........................................ 5
Section 1.11. Stock Options 7
Section 1.12. Conversion of Warrants.......................................... 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY 8
Section 2.1. Organization and Qualification; Investments..................... 9
Section 2.2. Capitalization of the Company................................... 9
Section 2.3. Authority Relative to this Agreement; Recommendation............ 10
Section 2.4. Financial Statements............................................ 10
Section 2.5. Information Supplied............................................ 11
Section 2.6. Consents and Approvals; No Violations........................... 11
Section 2.7. No Default...................................................... 12
Section 2.8. No Undisclosed Liabilities; Absence of Changes.................. 12
Section 2.9. Indebtedness; Bank Accounts; Receivables; Customers............. 13
Section 2.10. Litigation 14
Section 2.11. Compliance with Applicable Law.................................. 14
Section 2.12. Title to Properties; Absence of Liens and Encumbrances.......... 14
Section 2.13. Employee Benefit Plans; Labor Matters........................... 15
Section 2.14. Agreements, Scheduled Contracts and Commitments................. 16
Section 2.15. Interested Party Transactions................................... 19
Section 2.16. Environmental Laws and Regulations.............................. 19
Section 2.17. Taxes 20
Section 2.18. Intellectual Property........................................... 21
Section 2.19. Insurance 26
Section 2.20. Certain Business Practices...................................... 26
Section 2.21. Restrictions on Business Activities............................. 26
Section 2.22. Product and Service Warranties.................................. 26
Section 2.23. Suppliers 27
Section 2.24. Vote Required 27
Section 2.25. Brokers 27
Section 2.26. Minute Books. 27
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION 27
Section 3.1. Organization.................................................... 27
Section 3.2. Capitalization of Parent and its Subsidiaries................... 28
Section 3.3. Authority Relative to this Agreement............................ 29
Section 3.4. SEC Reports; Financial Statements............................... 29
Section 3.5. Information Supplied............................................ 30
Section 3.6. Consents and Approvals; No Violations........................... 30
Section 3.7. Brokers 31
Section 3.8. No Prior Activities of Acquisition.............................. 31
ARTICLE IV COVENANTS 31
Section 4.1. Conduct of Business of the Company.............................. 31
Section 4.2. No Solicitation or Negotiation.................................. 34
Section 4.3. Approval of Stockholders........................................ 35
Section 4.4. Access to Information........................................... 35
Section 4.5. Certain Filings; Reasonable Efforts............................. 36
Section 4.6. Public Announcements............................................ 37
Section 4.7. Conduct of Business of Parent................................... 37
Section 4.8. Indemnification and Directors' and Officers' Insurance.......... 37
Section 4.9. Notification of Certain Matters................................. 38
Section 4.10. Tax-Free Reorganization......................................... 38
Section 4.11. Additions to and Modification of Company Disclosure Schedule.... 39
Section 4.12. Employee Matters 39
Section 4.13. Nasdaq Listing 40
Section 4.14. Termination of Certain Company Agreements....................... 40
ARTICLE V CONDITIONS TO CONSUMMATION OF THE MERGER 40
Section 5.1. Conditions to Each Party's Obligations to Effect the Merger..... 40
Section 5.2. Conditions to the Obligations of the Company.................... 41
Section 5.3. Conditions to the Obligations of Parent and Acquisition......... 42
ARTICLE VI TERMINATION; AMENDMENT; WAIVER 43
Section 6.1. Termination..................................................... 43
Section 6.2. Effect of Termination........................................... 44
Section 6.3. Fees and Expenses............................................... 45
Section 6.4. Amendment....................................................... 45
Section 6.5. Extension; Waiver............................................... 45
ARTICLE VII INDEMNIFICATION 45
Section 7.1. General Survival................................................ 45
Section 7.2. Indemnification Provisions in General........................... 45
Section 7.3. Excess Indemnity................................................ 46
Section 7.4. Manner of Indemnification....................................... 47
Section 7.5. Securityholder Agent............................................ 47
Section 7.6. Third-Party Claims; Lease Consent............................... 48
Section 7.7. Exclusive Remedy................................................ 49
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ARTICLE VIII MISCELLANEOUS 49
Section 8.1. Entire Agreement; Assignment.................................... 49
Section 8.2. Validity........................................................ 49
Section 8.3 Notices......................................................... 49
Section 8.4. Governing Law; Venue; Specific Performance; Waiver of Jury Trial 51
Section 8.5. Descriptive Headings and Section References..................... 52
Section 8.6. Parties in Interest............................................. 52
Section 8.7. Certain Definitions............................................. 52
Section 8.8. Personal Liability.............................................. 53
Section 8.9. Counterparts.................................................... 53
TABLE OF EXHIBITS
Exhibit A-1.................Form of Representations Relating to Tax Matters of the Company
Exhibit A-2.................Form of Representations Relating to Tax Matters of Parent and
Acquisition
Exhibit B...................Matters to be Covered by Opinion of Legal Counsel to Parent and
Acquisition
Exhibit C...................Matters to be Covered by Opinion of Special Legal Counsel to the
Company
Exhibit D...................Financial Statements
TABLE OF CONTENTS
TO
COMPANY DISCLOSURE SCHEDULE
Section 2.1(b)..............Organization and Qualification
Section 2.1(c)..............Equity Investments
Section 2.2.................Capitalization of the Company
Section 2.3.................Authority Relative to this Agreement; Recommendation
Section 2.4(a)..............Exceptions to Financial Statements
Section 2.6.................Consents and Approvals
Section 2.7.................No Defaults
Section 2.8.................No Undisclosed Liabilities; Absence of Changes
Section 2.9(a)..............Indebtedness
Section 2.9(b)..............Bank Accounts
Section 2.9(c)..............Receivables
Section 2.9(d)..............Revenues
Section 2.9(e)..............Set-offs
Section 2.10................Litigation
Section 2.11................Compliance with Applicable Law
Section 2.12(a).............Leases of Real Property
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Section 2.12(b).............Real Property Liens and Encumbrances
Section 2.13(a).............Employee Benefit Plans
Section 2.13(b).............Liability Under Employment Plans
Section 2.13(c).............Employment and Related Agreements
Section 2.13(d).............Employee Benefits Affected by this Transaction
Section 2.13(f).............Employee Matters
Section 2.14(a).............Contracts
Section 2.14(b).............Loss Contracts
Section 2.14(c).............No Government Contracts
Section 2.14(d).............No Contract Breaches
Section 2.14(e).............Intellectual Property under Consulting Agreements
Section 2.15................Interested Party Transactions
Section 2.17(b).............Tax Returns
Section 2.17(e).............Parachute Payments
Section 2.18(a).............Intellectual Property
Section 2.18(b).............Trademarks
Section 2.18(c).............Patents
Section 2.18(e)(i)..........Inbound License Agreements
Section 2.18(e)(ii).........Outbound License Agreements
Section 2.18(f).............Licenses
Section 2.18(g).............Protection of Intellectual Property
Section 2.18(h).............Pending or Threatened Infringement Claims
Section 2.18(i).............No Infringement by Third Parties
Section 2.18(j).............Assignment; Change of Control Provisions in License Agreements
Section 2.18(k).............Owned Software
Section 2.18(l).............Existing and Currently Manufactured Software
Section 2.18(o).............Employee Confidentiality Agreements
Section 2.18(q).............Intellectual Property Safeguards
Section 2.21................Restrictions of Business Activities
Section 2.22................Product Warranties
Section 4.1.................Conduct of Business
Section 4.1(f)..............Certain Agreements
Section 4.1(n)..............Capital Budget
Section 4.1(u)..............Licensing Agreements
Section 4.14................Agreements to be Terminated
Section 5.3(f)..............Consents
Section 8.7(e)..............Persons with Knowledge
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TABLE OF DEFINED TERMS
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Term in Agreement
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Acquisition.........................................................Preamble
affiliate......................................................Section 8.7(a)
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Agreement..............................................................Preamble
Bid.........................................................Section 2.14(c)(ii)
business day.....................................................Section 8.7(b)
capital stock....................................................Section 8.7(c)
Certificate of Merger...............................................Section 1.2
Certificates....................................................Section 1.10(b)
Closing.............................................................Section 1.3
Closing Date........................................................Section 1.3
Code...................................................................Recitals
Company................................................................Preamble
Company Balance Sheet Date.......................................Section 2.4(a)
Company Balance Sheet............................................Section 2.4(a)
Company Board....................................................Section 2.3(a)
Company Common Stock.............................................Section 1.8(a)
Company Disclosure Schedule..........................................Article II
Company Permits....................................................Section 2.11
Company Plans...................................................Section 1.11(a)
Company Securities...............................................Section 2.2(a)
Company Stock Option or Options.................................Section 1.11(a)
Company Warrant or Warrants........................................Section 1.12
Confidentiality Agreement........................................Section 4.4(c)
Contaminant.....................................................Section 2.18(q)
Contingent Obligation............................................Section 2.9(a)
Continuing Employees............................................Section 4.12(a)
Control.............................................................Exhibit A-1
Copyrights......................................................Section 2.18(a)
DGCL................................................................Section 1.1
Disabling Code..................................................Section 2.18(q)
Dissenting Shares...................................................Section 1.9
Dissenting Stockholder..............................................Section 1.9
Effective Time......................................................Section 1.2
Employee Non-Disclosure Agreement...............................Section 4.12(a)
Employee Plans..................................................Section 2.13(a)
Employment Agreements..................................................Recitals
Environmental Claim.............................................Section 2.16(a)
Environmental Laws..............................................Section 2.16(a)
ERISA Affiliate.................................................Section 2.13(a)
ERISA...........................................................Section 2.13(a)
Escrow Agent....................................................Section 1.10(i)
Escrow Agreement.......................................................Preamble
Escrow Agreement.......................................................Recitals
Escrow Amount...................................................Section 1.10(i)
Excess Escrow Amount.............................................Section 7.3(b)
Excess Indemnification Claims....................................Section 7.3(a)
Exchange Act.....................................................Section 3.4(a)
Exchange Agent..................................................Section 1.10(a)
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Exchange Fund....................................................Section 1.10(a)
Exchange Ratio....................................................Section 1.8(c)
Final Audited Financial Statements................................Section 2.4(b)
Final Date........................................................Section 6.1(b)
Financial Statements..............................................Section 2.4(a)
Floor.............................................................Section 7.2(c)
Government Contract.........................................Section 2.14(c)(iii)
Governmental Entity..................................................Section 2.6
Hazardous Substance...................................... .......Section 2.16(c)
Inbound License Agreements............................. .........Section 2.18(e)
incentive stock options................................... ......Section 1.11(a)
include or including..............................................Section 8.7(d)
Indebtedness......................................................Section 2.9(a)
Indemnified D&O Liabilities.......................................Section 4.8(a)
Indemnified D&O Persons...........................................Section 4.8(a)
Indemnitees.......................................................Section 7.2(a)
Information Statement................................................Section 2.5
Insurance Policies..................................................Section 2.19
Intellectual Property................................. ..........Section 2.18(a)
IRS..............................................................Section 2.13(a)
knowledge or known................................................Section 8.7(e)
Lien..............................................................Section 8.7(f)
Losses............................................................Section 7.2(a)
Material Adverse Effect on Parent.................................Section 3.1(b)
Material Adverse Effect on the Company............................Section 2.1(b)
Maximum Merger Consideration......................................Section 1.8(b)
MBCL.................................................................Section 1.1
Merger...............................................................Section 1.1
Other Interests...................................................Section 2.1(c)
Outbound License Agreements......................................Section 2.18(e)
Owned Software...................................................Section 2.18(k)
Parent..................................................................Preamble
Parent Common Stock...............................................Section 1.8(a)
Parent Plans.....................................................Section 4.12(c)
Parent SEC Reports................................................Section 3.4(a)
Parent Securities.................................................Section 3.2(a)
Patents..........................................................Section 2.18(a)
person............................................................Section 8.7(g)
Receivables.......................................................Section 2.9(c)
Registration Rights Agreements..........................................Recitals
Remediation......................................................Section 2.16(c)
SARSEP Plan......................................................Section 4.12(b)
Scheduled Contract...............................................Section 2.14(d)
SEC...............................................................Section 3.4(a)
Securities Act....................................................Section 3.4(a)
Securityholder Agent....................................................Preamble
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Series A Preferred Stock..........................................Section 1.8(a)
Series B Preferred Stock..........................................Section 1.8(a)
Share or Shares...................................................Section 1.8(a)
Software Products................................................Section 2.18(l)
Software.........................................................Section 2.18(k)
Stockholder Proceedings..............................................Section 4.3
subsidiary or subsidiaries........................................Section 8.7(h)
Survival Period......................................................Section 7.1
Survival Period Indemnification Claim.............................Section 7.2(b)
Surviving Corporation................................................Section 1.1
Systems..........................................................Section 2.18(q)
Tax or Taxes..................................................Section 2.17(a)(i)
Tax Return...................................................Section 2.17(a)(ii)
Trade Secrets....................................................Section 2.18(a)
Trademarks.......................................................Section 2.18(a)
Transaction Documents.............................................Section 8.7(i)
Voting Agreements.......................................................Recitals
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of July
24, 2000, is by and among Agranat Systems, Inc., a Massachusetts corporation
(the "Company"), Virata Corporation, a Delaware corporation ("Parent"),
Agranat Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary
of Parent ("Acquisition"), and Owen Robbins, as agent for the stockholders of
the Company ("Securityholder Agent"), who is a party to this Agreement only in
his capacity as the Securityholder Agent and then only with respect to the
Sections hereof which relate specifically to the rights and duties of the
Securityholder Agent.
WHEREAS, the Boards of Directors of the Company, Parent and Acquisition
have each (i) determined that the Merger is advisable and fair and in the best
interests of their respective stockholders and (ii) approved the Merger upon the
terms and subject to the conditions set forth in this Agreement;
WHEREAS, the combination of the Company and Parent shall be effected by the
terms of this Agreement through a transaction in which Acquisition will merge
with and into the Company, the Company will be the surviving corporation and
become a wholly owned subsidiary of Parent, and the stockholders of the Company
will become stockholders of Parent;
WHEREAS, for Federal income tax purposes it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, certain officers and employees of the Company have entered into
employment agreements (the "Employment Agreements"), effective upon
consummation of the Merger, as an inducement to Parent to enter into this
Agreement;
WHEREAS, certain stockholders of the Company have entered into irrevocable
proxy and voting agreements, pursuant to which such stockholders have agreed to
vote in favor of the Merger and the other transactions contemplated by this
Agreement (the "Voting Agreements"), as an inducement to Parent to enter into
this Agreement;
WHEREAS, each holder of Company Stock Options has entered into a stock
option lockup agreement;
WHEREAS, concurrently and in connection herewith, Parent, the Escrow Agent
(as defined below) and the Securityholder Agent have entered into an escrow
agreement (the "Escrow Agreement"); and
WHEREAS, concurrently and in connection herewith, Parent and the
Securityholder Agent have entered into, and the holders of Shares (as defined
below) and Company Warrants (as defined below) have entered into a registration
rights agreement (the "Registration Rights Agreement").
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent, Acquisition and the
Securityholder Agent hereby agree as follows:
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ARTICLE I
THE MERGER
Section 1.1. The Merger. At the Effective Time and upon the terms
----------
and subject to the conditions of this Agreement and in accordance with the
Massachusetts Business Corporation Law (the "MBCL") and the Delaware General
Corporation Law (the "DGCL"), Acquisition shall be merged with and into the
Company (the "Merger"). Following the Merger, the Company shall continue as
the surviving corporation (the "Surviving Corporation") and the separate
corporate existence of Acquisition shall cease. The purpose of the Surviving
Corporation shall be as set forth in Article II of the Articles of Organization
of the Surviving Corporation. The Merger is intended to qualify as a tax-free
reorganization under Section 368(a) of the Code. Parent, as the sole
stockholder of Acquisition, hereby approves the Merger and this Agreement.
Section 1.2. Effective Time. Subject to the terms and conditions set
--------------
forth in this Agreement, on the Closing Date, (a) a copy of this Agreement (or a
condensed merger agreement that gives effect to the Merger on the terms
contained in this Article I), together with the articles of merger required by
Section 78 of the MBCL, duly executed and acknowledged by Acquisition and the
Company, shall be delivered to the Secretary of the Commonwealth of the
Commonwealth of Massachusetts for filing on the Closing Date, or as soon
thereafter as possible pursuant to Section 78 of the MBCL, (b) the certificate
of merger required by Section 252 of the DGCL, duly executed and acknowledged by
Acquisition and the Company, shall be delivered to the Secretary of State of the
State of Delaware for filing on the Closing Date, or as soon thereafter as
possible pursuant to Section 252 of the DGCL (the documents filed pursuant to
clauses (a) and (b), together, the "Certificate of Merger") and (c) the
parties shall make such other filings with the Secretary of the Commonwealth of
the Commonwealth of Massachusetts, the Secretary of State of the State of
Delaware and/or any other authority as are necessary to effect the Merger. The
Merger shall become effective at such time as a properly executed copy of the
Certificate of Merger is duly filed with the Secretary of the Commonwealth of
the Commonwealth of Massachusetts in accordance with Section 78 of the MBCL, or
such later time as Parent and the Company may agree upon and as may be set forth
in the Certificate of Merger (the time the Merger becomes effective being
referred to herein as the "Effective Time").
Section 1.3. Closing of the Merger. The closing of the Merger (the
---------------------
"Closing") will take place at a time and on a date (the "Closing Date") to
be specified by the parties, which shall be no later than the second business
day after satisfaction of the latest to occur of the conditions set forth in
Article V, at the offices of Gibson, Dunn & Crutcher LLP, 1050 Connecticut
Avenue, N.W., Washington, D.C. 20036, unless another time, date or place is
agreed to in writing by the parties hereto.
Section 1.4. Effects of the Merger. The Merger shall have the
---------------------
effects as provided in this Agreement and in the applicable provisions of the
MBCL and the DGCL. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Acquisition shall vest in the Surviving
Corporation and all debts, liabilities and duties of the Company and Acquisition
shall become the debts, liabilities and duties of the Surviving Corporation.
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Section 1.5. Articles of Organization and Bylaws. The Articles of
-----------------------------------
Organization of the Company, in effect as of the Effective Time, shall be the
Articles of Organization of the Surviving Corporation until amended in
accordance with applicable law. As of the Effective Time, the authorized number
and par value of shares of each class of stock of the Surviving Corporation
shall be as set forth in Article III of the Articles of Organization of the
Company immediately prior to the Effective Time, and a description of each
class, with preferences, voting powers, qualifications, special or relative
rights or privileges as to each class and any series thereof of the Surviving
Corporation shall be as set forth in Article IV of the Articles of Organization
of the Company immediately prior to the Effective Time. The bylaws of the
Company, in effect as of the Effective Time, shall be the bylaws of the
Surviving Corporation until amended in accordance with applicable law.
Section 1.6. Directors. The directors of Acquisition at the
---------
Effective Time shall be the initial directors of the Surviving Corporation, each
to hold office in accordance with the Articles of Organization and bylaws of the
Surviving Corporation until such director's successor is duly elected or
appointed and qualified.
Section 1.7. Officers. The officers of the Company at the Effective
--------
Time shall be the initial officers of the Surviving Corporation, each to hold
office in accordance with the Articles of Organization and bylaws of the
Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
Section 1.8. Conversion of Shares.
--------------------
(a) At the Effective Time, each share of Common Stock, $.001 par
value per share, of the Company (the "Company Common Stock"), each share of
Series A Preferred Stock, $.01 par value per share, of the Company (the "Series
A Preferred Stock") and each share of Series B Preferred Stock, $.01 par
value per share, of the Company (the "Series B Preferred Stock" and together
with the Common Stock and the Series A Preferred Stock, individually a "Share"
and collectively the "Shares") issued and outstanding immediately prior to the
Effective Time (other than (i) Dissenting Shares and (ii) Shares held by Parent,
Acquisition or any other subsidiary of Parent) shall, by virtue of the Merger
and without any action on the part of Parent, Acquisition, the Company or the
holder thereof, be converted into and shall become a number of duly authorized,
validly issued, fully paid and nonassessable shares of common stock, par value
$0.001 per share, of Parent ("Parent Common Stock") equal to the Exchange
Ratio. Notwithstanding the foregoing, if, between the date of this Agreement
and the Effective Time, the outstanding shares of Parent Common Stock or the
outstanding Shares shall have been changed into a different number of shares or
a different class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares
then the Exchange Ratio shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
(b) The maximum aggregate consideration payable by Parent to the
stockholders of the Company, the holders of Company Stock Options and the
holders of Company Warrants in connection with the Merger (the "Maximum Merger
Consideration") shall be that number of shares of Parent Common Stock equal
to (i) the sum of (A) Twenty-Seven Million Dollars ($27,000,000), plus (B) the
aggregate of the exercise prices of all Company
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Stock Options outstanding as of the date hereof, plus (C) the aggregate of the
exercise prices of all Company Warrants outstanding as of the date hereof,
divided by (ii) $55.075.
(c) The "Exchange Ratio" shall be equal to the quotient of (i) the
Maximum Merger Consideration, divided by (ii) the sum of (A) the aggregate
number of Shares outstanding as of the date hereof, plus (B) the aggregate
number of shares of Company Common Stock issuable upon the exercise of all
Company Stock Options outstanding as of the date hereof plus (C) the aggregate
number of shares of Company Common Stock issuable upon the exercise of all
Company Warrants outstanding as of the date hereof.
(d) At the Effective Time, each outstanding share of the common stock,
without par value, of Acquisition shall be converted into one fully paid and
nonassessable share of common stock, $.001 par value per share, of the Surviving
Corporation.
(e) At the Effective Time, each Share that is owned by the Company and
each Share held by Parent, Acquisition or any subsidiary of Parent or
Acquisition immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of Acquisition, the Company or the
holder thereof, be canceled, retired and cease to exist and no shares of Parent
Common Stock shall be delivered with respect thereto.
Section 1.9. Dissenters and Appraisal Rights. Shares that are owned by a
stockholder that has perfected his or her rights of appraisal within the meaning
of Section 85 of the MBCL ("Dissenting Shares"), will not be converted
into the right to receive the shares ) shall have failed to perfect of Parent
Common Stock or shall have effectively otherwise issuable with respect withdrawn
or lost such right of to such Shares unless and until appraisal, then, as of the
such stockholder shall have Effective Time or the failed to perfect or shall
have occurrence of such event of effectively withdrawn or lost withdrawal or
ineligibility, its right of payment under whichever last occurs, such applicable
law, but instead holder's Dissenting Shares will will be converted into the
cease to be Dissenting Shares right to receive such and will be converted into
the consideration as may be right to receive, and will be determined to be due
with exchangeable for, the shares of respect to such Dissenting Parent Common
Stock into which Shares pursuant to the laws of such Dissenting Shares would the
Commonwealth of have been converted pursuant to Massachusetts. If a holder of
Section 1.8. The Company will Dissenting Shares (a give Parent and Acquisition
"Dissenting Stockholder" prompt notice of any demand received by the Company
from a Dissenting Stockholder for appraisal of Dissenting Shares, and Parent
shall have the right to participate in all negotiations and proceedings with
respect to such demand. The Company agrees that, except with the prior written
consent of Parent, or as required under the MBCL, it will not voluntarily make
any payment with respect to, or settle or offer or agree to settle, any such
demand for appraisal. Each Dissenting Stockholder who, pursuant to the
provisions of Sections 87 through 98 of the MBCL, becomes entitled to payment of
the value of Dissenting Shares will receive payment therefor but only after the
value therefor has been agreed upon or finally determined pursuant to such
provisions. Any portion of the Maximum Merger Consideration that would otherwise
have been payable with respect to Dissenting Shares will be retained by Parent.
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Section 1.10. Exchange of Certificates.
------------------------
(a) Promptly after the Effective Time, Parent shall issue the number
of shares of Parent Common Stock that are issuable pursuant to Sections 1.8 and
1.12 and, as required by this Section 1.10, Parent shall deliver to its transfer
agent, or a depository or trust institution of recognized standing selected by
Parent and Acquisition (the "Exchange Agent") for the benefit of the holders of
Shares and Company Warrants for exchange in accordance with this Article I: (i)
certificates representing the appropriate number of shares of Parent Common
Stock issuable pursuant to Sections 1.8 and 1.12 (after the application of
Section 1.10(i)), and (ii) cash to be paid in lieu of fractional shares of
Parent Common Stock (such shares of Parent Common Stock and such cash are
hereinafter referred to as the "Exchange Fund"), in exchange for outstanding
Shares and Company Warrants.
(b) Parent shall cause the Exchange Agent, as soon as reasonably
practicable after the Effective Time but in any event within five (5) business
days thereafter, to mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding Shares or of a certificate or certificates that immediately prior to
the Effective Time represented outstanding Company Warrants (in either case, the
"Certificates") and whose Shares or Company Warrants were converted into the
right to receive shares of Parent Common Stock pursuant to Section 1.8 or
Section 1.12, as the case may be: (i) a letter of transmittal (which shall (A)
specify that delivery shall be effected and risk of loss and title to the
Certificates shall pass only upon delivery of the Certificates to the Exchange
Agent, (B) contain an irrevocable consent by the holder of such Certificates to
the appointment of the Securityholder Agent as its attorney-in-fact, to act on
its behalf with respect to all matters relating to this Agreement and the Escrow
Agreement, (C) contain an acknowledgment by such holder of such Certificate of
its indemnity obligations pursuant to Article VII of this Agreement and pursuant
to the Escrow Agreement, (D) serve as a counterpart signature page to the
Registration Rights Agreement and (E) otherwise be in such form and have such
other provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock and, if applicable,
cash to be paid for fractional shares of Parent Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such letter
of transmittal duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Parent Common Stock and, if applicable, a check representing the cash
consideration to which such holder may be entitled on account of a fractional
share of Parent Common Stock that such holder has the right to receive pursuant
to the provisions of this Article I, and the Certificate so surrendered shall
forthwith be canceled. Parent shall cause the Exchange Agent to deliver such
certificates and cash, if any, to such holder as soon as reasonably practicable
after receipt by the Exchange Agent of the holder's properly completed letter of
transmittal and Certificate evidencing his, her or its Shares or Company
Warrants. In the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, a certificate representing
the proper number of shares of Parent Common Stock and, if applicable, a check
representing the amount of consideration payable in lieu of fractional shares of
Parent Common Stock may be issued to a transferee if the Certificate
representing such Shares is presented to the Exchange Agent accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 1.10, each Certificate
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shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate representing shares of Parent
Common Stock and cash in lieu of any fractional shares of Parent Common Stock as
contemplated by this Section 1.10.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 1.10(f), until the holder of record of such Certificate shall
surrender such Certificate or an affidavit, and, if required, a bond or
indemnity, with respect thereto pursuant to Section 1.10(d). Subject to the
effect of applicable laws, following surrender of any such Certificate or such
affidavit and bond or indemnity, if any, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor without interest (i) the amount of any cash payable
in lieu of a fractional share of Parent Common Stock to which such holder is
entitled pursuant to Section 1.10(f) and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such number of whole shares of Parent 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 Parent
Common Stock.
(d) In the event that any Certificate for Shares or Company Warrants
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange therefor, upon the making of an affidavit of that fact by the holder
thereof in a form acceptable to Parent, such shares of Parent Common Stock and
cash in lieu of fractional shares, if any, as may be required pursuant to this
Agreement; provided, however, that Parent or the Exchange Agent may, in its
reasonable discretion, require the delivery of a suitable bond or indemnity.
(e) All shares of Parent Common Stock issued upon the surrender for
exchange of Shares or Company Warrants in accordance with the terms hereof
(including any cash paid pursuant to Section 1.10(c) or 1.10(f)) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such Shares
or Company Warrants; subject, however, to the Surviving Corporation's obligation
to pay any dividends or make any other distributions with a record date prior to
the date hereof that remain unpaid at the Effective Time, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the Shares that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
(f) No fractions of a share of Parent Common Stock shall be issued in
the Merger, but in lieu thereof, each holder of Shares or Company Warrants
otherwise entitled to a fraction of a share of Parent Common Stock shall upon
surrender of his or her Certificate or Certificates be entitled to receive from
Parent an amount of cash (without interest) determined by multiplying (i)
$55.075 by (ii) the fractional share interest to which such holder would
otherwise be entitled. The parties acknowledge that payment of the cash
consideration in lieu of issuing fractional shares was not separately bargained
for consideration, but merely represents a
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mechanical rounding off for purposes of simplifying the corporate and accounting
complexities that would otherwise be caused by the issuance of fractional
shares.
(g) Any portion of the Exchange Fund that remains undistributed to the
stockholders of the Company upon the expiration of twelve (12) months after the
Effective Time shall be delivered to Parent upon demand and any stockholders of
the Company who have not theretofore complied with this Article I shall
thereafter look only to Parent as general creditors for payment of their claim
for Parent Common Stock and cash in lieu of fractional shares, as the case may
be, and any applicable dividends or distributions with respect to Parent Common
Stock.
(h) Neither Parent, Acquisition nor the Company shall be liable to any
holder of Shares or Parent Common Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(i) Notwithstanding anything to the contrary contained in this
Agreement, promptly after the Effective Time, Parent shall deposit a number of
shares of Parent Common Stock equal to ten percent (10%) of the aggregate number
of shares of Parent Common Stock to be issued upon conversion of the Shares and
Company Warrants issued and outstanding immediately prior to the Effective Time
(other than (i) Dissenting Shares and (ii) Shares held by Parent, Acquisition or
any other subsidiary of Parent) (the "Escrow Amount") with Greater Bay Trust
Company or another third person mutually satisfactory to Parent and the
Securityholder Agent, as escrow agent (the "Escrow Agent") to be administered
and distributed pursuant to the provisions of the Escrow Agreement. Such shares
will be deposited by Parent with the same effect as if issued to the holders of
Shares and Company Warrants pursuant to Section 1.8 and deposited by them with
the Escrow Agent.
Section 1.11. Stock Options.
-------------
(a) At the Effective Time, each option to purchase Shares (a "Company
Stock Option" or collectively "Company Stock Options") issued pursuant to the
Company's 1996 Stock Option Plan or other agreement or arrangement, whether
vested or unvested, and outstanding as of the Effective Time shall be converted
as of the Effective Time into options to purchase shares of Parent Common Stock
in accordance with the terms of this Section 1.11. All plans or agreements
described above pursuant to which any Company Stock Option has been issued or
may be issued are referred to collectively as the "Company Plans." Each
Company Stock Option shall be converted into an option to acquire a number of
shares of Parent Common Stock equal to the number of shares of Parent Common
Stock that the holder of such Company Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such Company Stock
Option, whether or not vested, in full immediately prior to the Effective Time
(rounded to the nearest whole share) at a price per share (rounded to the
nearest whole cent) equal to (i) the per share exercise price for each Share
otherwise purchasable pursuant to such Company Stock Option divided by (ii) the
Exchange Ratio; provided, however, that in the case of any option to which
Section 421 of the Code applies by reason of its qualification under Section 422
of the Code ("incentive stock options") the option price, the number of shares
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<PAGE>
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be adjusted as necessary in order to comply with Section
424(a) of the Code.
(b) As soon as practicable after the date hereof, Parent shall deliver
to the holders of Company Stock Options appropriate notices setting forth such
holders' rights pursuant to the Company Plans and that the agreements evidencing
the grants of such options shall continue in effect on the same terms and
conditions (subject to the adjustments required by this Section 1.11 after
giving effect to the Merger). Parent shall comply with the terms of the Company
Plans and ensure, to the extent required by and subject to the provisions of
such Company Plans, that Company Stock Options that qualified as incentive stock
options prior to the Effective Time continue to qualify as incentive stock
options of Parent after the Effective Time.
(c) Parent shall cause a sufficient number of shares of Parent Common
Stock for delivery upon exercise of Company Stock Options assumed in accordance
with this Section 1.11 to be reserved for issuance for as long as such options
remain outstanding. Within thirty (30) days after the Effective Time, Parent
shall (i) if no registration statement is in effect covering such shares of
Parent Common Stock, file a registration statement on Form S-8 (or any successor
or other appropriate forms) with respect to the shares of Parent Common Stock
subject to any Company Stock Options held by persons who are directors, officers
or employees of the Company, which will include or be accompanied by a
registration statement on an appropriate form with respect to the resale of any
shares of Parent Common Stock acquired pursuant to the exercise, prior to the
effectiveness of the S-8, of Company Stock Options, and shall use commercially
reasonable 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
and (ii) cause such shares of Parent Common Stock to be approved for listing on
the Nasdaq National Market, subject to official notice of issuance.
Section 1.12 Conversion of Warrants. At the Effective Time, each
----------------------
outstanding warrant to purchase Shares (each, a "Company Warrant" or
collectively "Company Warrants") shall, without any action on the part of the
holder, be converted into and shall become a number of duly authorized, validly
issued, fully paid and nonassessable shares of Parent Common Stock equal to (i)
the number of shares of Company Common Stock that the holder of such Company
Warrant would be entitled to receive upon a cash exercise of the Company Warrant
multiplied by the Exchange Ratio, minus (ii) an amount equal to (A) the
aggregate exercise price provided for in such Company Warrant, divided by (B)
$55.075 (except that, in lieu of any fraction of a share resulting after such
subtraction will be the holder of such Company Warrant will be entitled to
receive cash in accordance with Section 1.10(f)).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition, subject to the exceptions set forth in the Disclosure Schedule (the
"Company Disclosure Schedule")
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delivered by the Company to Parent in accordance with Section 4.12. A fact or
matter disclosed in the Company Disclosure Schedule with respect to one Section
shall be deemed to be described with respect to each other Section of this
Article II where such disclosure is appropriate to the extent that the relevance
of the disclosure to such other Section is readily apparent:
Section 2.1. Organization and Qualification; Investments.
-------------------------------------------
(a) The Company is duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts and has all
requisite power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted. The Company has heretofore
delivered to Acquisition or Parent accurate and complete copies of the Articles
of Organization and bylaws, as currently in full force and effect, of the
Company. The Company has no subsidiaries.
(b) Except as set forth on Section 2.1(b) of the Company Disclosure
Schedule, the Company is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. The term
"Material Adverse Effect on the Company" means any circumstance, change in, or
effect on the Company (i) that is, or is reasonably likely in the future to be,
materially adverse to the operations, assets or liabilities (including
contingent liabilities), earnings or results of operations, the condition
(financial or otherwise) or prospects of the Company or (ii) that would
reasonably be expected to prevent or materially delay or impair the ability of
the Company to consummate the Merger; provided, however, that such term shall
not include any circumstance or change related to (A) general economic
conditions, (B) securities markets generally, (C) the entering into or
announcement of this Agreement or the consummation of the transactions
contemplated hereby or (D) any action or omission or event contemplated by this
Agreement or to which Parent consents.
(c) Section 2.1(c) of the Company Disclosure Schedule sets forth a
true and complete list of each equity investment in an amount of Fifty Thousand
Dollars ($50,000) or more or that represents a five percent (5%) or greater
ownership interest in the subject of such investment made by the Company in any
other person ("Other Interests"). The Other Interests are owned by the
Company, in each case free and clear of all Liens, except for Liens that may be
created by any partnership or joint venture agreements for Other Interests.
Section 2.2. Capitalization of the Company. The authorized capital
-----------------------------
stock of the Company consists of Four Million (4,000,000) shares of Company
Common Stock, of which One Million, Three Hundred Sixty-Six Thousand, Eight
Hundred Thirty-Four (1,366,834) were issued and outstanding as of the date
hereof, Seven Hundred Fifty-Nine Thousand, Nine Hundred Fifty-Three (759,953)
shares of Series A Preferred Stock, of which Six Hundred Fifty-Six Thousand
Three Hundred Twenty-Two (656,322) were issued and outstanding as of the date
hereof and, subject to the matter disclosed in Section 2.2 of the Company
Disclosure Schedule, Ninety Two Thousand One Hundred Sixteen (92,116) shares of
Series B Preferred Stock, all of which were issued and outstanding as of the
date hereof. All of the outstanding shares of
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Company Common Stock, Series A Preferred Stock and Series B Preferred Stock have
been validly issued and are fully paid, nonassessable and free of preemptive
rights. As of the date hereof, there were outstanding Company Stock Options for
the purchase of Three Hundred Forty-Two Thousand Five Hundred Ninety-Five
(342,595) Shares of Company Common Stock. As of the date hereof, Three Hundred
and One Thousand One Hundred and Four (301,104) Shares were reserved for
issuance and were issuable upon or otherwise deliverable in connection with the
exercise of outstanding Company Warrants. The outstanding Shares, Company Stock
Options and Company Warrants are owned of record by those persons, in the
amounts, at the exercise price and on the vesting schedule, all as set forth in
Section 2.2 of the Company Disclosure Schedule. Except as set forth above or in
Section 2.2 of the Company Disclosure Schedule, there are outstanding (i) no
shares of capital stock or other voting securities of the Company, (ii) no
securities of the Company convertible into or exchangeable or exercisable for
shares of capital stock or voting securities of the Company, (iii) no options or
other rights to acquire from the Company, and no obligations of the Company to
issue, any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of the
Company and (iv) no equity equivalent interests in the ownership or earnings of
the Company or other similar rights (collectively "Company Securities"). Except
as set forth in Section 2.2 of the Company Disclosure Schedule, as of the date
hereof, there are no outstanding rights or obligations of the Company to
repurchase, redeem or otherwise acquire any Company Securities and there are no
stockholder agreements, voting trusts or other agreements or understandings to
which the Company is a party or by which it is bound relating to the voting or
registration of any shares of capital stock of the Company.
Section 2.3. Authority Relative to this Agreement; Recommendation.
----------------------------------------------------
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations under this
Agreement and each of the other Transaction Documents to which it is a party,
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by the Company of this Agreement and each of the other
Transaction Documents to which the Company is a party, and the consummation by
the Company of the transactions contemplated hereby and thereby, have been duly
and validly authorized by the Board of Directors of the Company (the "Company
Board"), and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the other Transaction Documents
to which it is a party, or to consummate the transactions contemplated hereby
and thereby, except as set forth in Section 2.3 of the Company Disclosure
Schedule. This Agreement and each of the other Transaction Documents to which
the Company is a party, have been duly and validly executed and delivered by the
Company and constitute, assuming the due authorization, execution and delivery
hereof and thereof by the other parties hereto or thereto the valid, legal and
binding agreements of the Company, enforceable against the Company in accordance
with their respective terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally or to general principles of equity.
(b) The Company Board has unanimously voted to recommend that the
stockholders of the Company approve and adopt this Agreement.
Section 2.4. Financial Statements.
--------------------
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(a) The Company has delivered to Parent copies of financial statements
(hereinafter collectively called the "Financial Statements"), as set forth in
Exhibit D, which have been prepared in all material respects in accordance with
United States generally accepted accounting principles consistently applied and
maintained throughout the periods indicated and fairly present the financial
condition of the Company at their respective dates and the results of its
operations for the periods covered thereby as follows: (i) unaudited balance
sheets of the Company at December 31, 1999 and June 30, 2000 and (ii) the
related unaudited statement of earnings/operations for the fiscal year ended
December 31, 1999 and the six months ended June 30, 2000. The balance sheet of
the Company at June 30, 2000 is referred to herein as the "Company Balance
Sheet" and the date thereof is referred to herein as the "Company Balance Sheet
Date." Except as set forth in the Financial Statements or Section 2.4(a) of
the Company Disclosure Schedule, such statements of earnings/operations do not
contain any items of special or nonrecurring revenue or any other income not
earned in the ordinary course of business except as expressly specified therein,
and such unaudited Financial Statements include all adjustments, which consist
only of normal recurring accruals, necessary for a fair presentation.
(b) The Company will have delivered to Parent as promptly as
practicable (but in all events not later than five (5) days after the date
hereof) a final audited balance sheet of the Company at December 31, 1999, and
the related audited statements of earnings/operations for the year ended
December 31, 1999, accompanied by the audit opinion thereon of
PricewaterhouseCoopers LLP, the Company's independent accountants (the "Final
Audited Financial Statements"), and such Final Audited Financial Statements
will have been prepared in all material respects in accordance with United
States generally accepted accounting principles consistently applied and
maintained throughout the period indicated and fairly present the financial
condition of the Company at the date and the results of its operations for the
period covered thereby.
Section 2.5. Information Supplied. None of the information supplied
--------------------
or to be supplied by the Company for inclusion in the Information Statement used
or delivered to Company stockholders in connection with the approval of the
Merger and the adoption of this Agreement and the other Transaction Documents
(the "Information Statement") will, at the date mailed to stockholders of the
Company and at the time used in connection with obtaining the approval of the
Merger and the adoption of this Agreement and the other Transaction Documents,
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 are made not misleading.
The foregoing representation shall not apply to information furnished in writing
to the Company by or on behalf of Parent or Acquisition for inclusion in the
Information Statement. The Information Statement insofar as it relates to the
meeting of the Company's stockholders to vote on, or a solicitation of written
consents from Company Stockholders for approval of, the Merger will comply as to
form in all material respects with the provisions of the MBCL and the rules and
regulations thereunder.
Section 2.6. Consents and Approvals; No Violations. Except for
-------------------------------------
filings, permits, authorizations, consents and approvals as (a) may be required
under applicable requirements of state securities or blue sky laws and (b) have
already been made or obtained, and except for the filing and recordation of the
Certificate of Merger as required by the MBCL and the DGCL, no filing with or
notice to and no permit, authorization, consent or approval of any United
States,
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state, local or foreign court or tribunal, or administrative, governmental or
regulatory body, agency or authority (a "Governmental Entity") is necessary for
the execution and delivery by the Company of this Agreement or any of the other
Transaction Documents to which it is a party or the consummation by the Company
of the transactions contemplated hereby and thereby. Neither the execution,
delivery and performance of this Agreement or any of the other Transaction
Documents to which it is a party by the Company nor the consummation by the
Company of the transactions contemplated hereby and thereby will (i) conflict
with or result in any breach of any provision of the respective Articles of
Organization or bylaws (or similar governing documents) of the Company, (ii)
except as set forth in Section 2.6 of the Company Disclosure Schedule, result in
a violation or breach of or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or Lien) under any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company is a party or by which it or any of its properties or assets may be
bound, in each case that is material to the Company, or (iii) violate any order,
writ, injunction, decree, law, statute, rule or regulation applicable to the
Company or any of its properties or assets.
Section 2.7. No Default. Except as set forth in Section 2.7 of the
----------
Company Disclosure Schedule, the Company is not in breach, default or violation
(and no event has occurred that with notice or the lapse of time or both would
constitute a breach, default or violation) of any term, condition or provision
of (i) its Articles of Organization or bylaws (or similar governing documents)or
(ii) any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company or any of its properties or assets.
Section 2.8. No Undisclosed Liabilities; Absence of Changes. Except
----------------------------------------------
as and to the extent set forth in Section 2.8 of the Company Disclosure Schedule
or as and to the extent expressly set forth or provided for or reserved against
in the Company Balance Sheet, the Company has no liabilities or obligations of
any nature, whether or not accrued, contingent or otherwise, that would be
required by generally accepted accounting principles to be reflected on a
balance sheet of the Company (including the notes thereto), other than
liabilities and obligations which, individually or in the aggregate, will not
have a Material Adverse Effect on the Company. Except as and to the extent set
forth in Section 2.8 of the Company Disclosure Schedule, between the Company
Balance Sheet Date and the date hereof, there have been no events, changes or
effects with respect to the Company that have had or would reasonably be
expected to have a Material Adverse Effect on the Company. Without limiting the
generality of the foregoing, except as and to the extent as set forth in Section
2.8 of the Company Disclosure Schedule, between the Company Balance Sheet Date
and the date hereof, the Company has conducted its business in all material
respects only in, and has not engaged in any material transaction other than
according to, the ordinary and usual course of such business consistent with
past practices, and there has not been any (i) material damage, destruction or
other casualty loss with respect to any material asset or property owned, leased
or otherwise used by the Company, not covered by insurance; (ii) declaration,
setting aside or payment of any dividend or other distribution in respect of the
capital stock of the Company or any repurchase, redemption or other acquisition
by the Company of any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company; (iii) amendment of any
material term of any outstanding security of the Company; (iv) incurrence,
assumption or guarantee by the Company of any indebtedness for borrowed money
other than in the ordinary course of business and in
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amounts and on terms consistent with past practices (but in all events not
exceeding Fifty Thousand Dollars ($50,000) in the aggregate); (v) creation or
assumption by the Company of any Lien on any material asset other than in the
ordinary course of business consistent with past practices (not to exceed Fifty
Thousand Dollars ($50,000) in the aggregate with respect to the Indebtedness
underlying such Liens); (vi) loan, advance or capital contributions made by the
Company to, or investment in, any person other than (x) loans or advances to
employees in connection with business-related travel and, (y) loans made to
employees consistent with past practices that are not in the aggregate in excess
of Fifty Thousand Dollars ($50,000), in each case made in the ordinary course of
business consistent with past practices; (vii) transaction or commitment made,
or any contract or agreement entered into, by the Company relating to its assets
or business (including the acquisition or disposition of any assets) or any
relinquishment by the Company of any contract, agreement or other right, in any
case, material to the Company, other than transactions and commitments in the
ordinary course of business consistent with past practices and those
contemplated by this Agreement; or (viii) change by the Company in its
accounting principles, practices or methods. Between the Company Balance Sheet
Date and the date hereof, except for increases in the ordinary course of
business consistent with past practices, there has not been any increase in the
compensation payable or that could become payable by the Company to (A) officers
of the Company or (B) any employee of the Company whose annual cash compensation
is Fifty Thousand Dollars ($50,000) or more.
Section 2.9. Indebtedness; Bank Accounts; Receivables; Customers.
---------------------------------------------------
(a) Section 2.9(a) of the Company Disclosure Schedule provides
accurate and complete information (including amount and name of payee) with
respect to each Indebtedness of the Company having an outstanding principal
balance as of June 30, 2000 of Fifty Thousand Dollars ($50,000) or more. For
purposes hereof, "IndebtednessA" of any person shall mean any item of
indebtedness of such person for borrowed money and purchase money indebtedness,
including, without limitation, any capitalized lease obligation which, in
accordance with generally accepted accounting principles, would be included in
determining liabilities as shown on the liability side of the balance sheet of
such person as of the date as of which indebtedness is to be determined, and
shall also include any Contingent Obligation. For purposes hereof, a
"Contingent ObligationA" shall mean, as applied to any person, any direct or
indirect liability, contingent or otherwise, of that person with respect to any
Indebtedness, capital lease (other than as lessor), dividend, letter of credit,
surety bond, or other obligation of another, including, without limitation, any
such obligation directly or indirectly guarantied, endorsed (other than for
collection or deposit in the ordinary course of business), co-made or discounted
or sold with recourse by that person, or in respect of which that person is
otherwise directly or indirectly liable. The amount of any Contingent
Obligation shall be equal to the amount of the obligation so guarantied or
otherwise supported.
(b) Section 2.9(b) of the Company Disclosure Schedule provides the
account numbers, type of account and names of all individuals authorized to draw
on or make withdrawals from each account with respect to each account maintained
by or for the benefit of the Company at any bank or other financial institution.
(c) Section 2.9(c) of the Company Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts receivable, notes
receivable and other
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receivables of the Company (collectively, "Receivables") as of the Company
Balance Sheet Date. Except as set forth in Section 2.9(c) of the Company
Disclosure Schedule, all existing Receivables (including those Receivables
reflected on the Financial Statements that have not yet been collected and those
Receivables that have arisen since the Company Balance Sheet Date and have not
yet been collected) (i) represent valid obligations of customers of the Company
arising from bona fide transactions entered into in the ordinary course of
business, and (ii) have been collected or are current and the Company has
received no written notice causing it to believe that it will not be collected
by the Company or the Surviving Corporation (without any counterclaim or set-
off) within ninety (90) days after the date due or, with respect to those
Receivables already more than ninety (90) days past due, forty-five (45) days
after the Closing Date, in each case net of an allowance for doubtful accounts
not to exceed amounts reserved for on the Balance Sheet.
(d) Section 2.9(d) of the Company Disclosure Schedule identifies and
provides an accurate and complete breakdown of the revenues received from each
customer or other person that accounted for more than Fifty Thousand Dollars
($50,000) of the revenues of the Company in the fiscal year ended on the Company
Balance Sheet Date, and identifies each customer that is obligated to make
payments to the Company in an aggregate amount exceeding Fifty Thousand Dollars
($50,000) per year. The Company has not received any notice or other
communication indicating that any customer or other person identified in Section
2.9(d) of the Company Disclosure Schedule intends or expects to cease dealing
with the Company.
(e) Except as disclosed in Section 2.9(e) of the Company Disclosure
Schedule, no customer of the Company has a right of refund or set off from the
Company.
Section 2.10. Litigation. Except as set forth in Section 2.10 of the
----------
Company Disclosure Schedule, there is no suit, claim or action, or, to the
knowledge of the Company, proceeding or investigation pending or, to the
knowledge of the Company, threatened against the Company or any of its
properties or assets before any Governmental Entity. The Company is not subject
to any outstanding order, writ, injunction or decree.
Section 2.11. Compliance with Applicable Law. The Company holds all
------------------------------
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of its business (the
"Company Permits"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals that would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. The Company is in
compliance with the terms of the Company Permits, except where the failure so to
comply would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity except
for violations, the existence of which would not have a Material Adverse Effect
on the Company. To the knowledge of the Company, no investigation or review by
any Governmental Entity with respect to the Company is pending or, to the
knowledge of the Company, threatened, nor, to the knowledge of the Company, has
any Governmental Entity indicated an intention to conduct the same, except as
set forth in Section 2.11 of the Company Disclosure Schedule.
Section 2.12. Title to Properties; Absence of Liens and Encumbrances.
------------------------------------------------------
14
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(a) The Company does not own any fee interest in any real property nor
has it ever owned any fee interest in any real property. Section 2.12(a) of the
Company Disclosure Schedule sets forth a list of all real property currently
leased by the Company, the name of the lessor and the date of the lease and each
amendment thereto. All such current real property leases are in full force and
effect, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing material default or event
of default (or event which with notice or lapse of time, or both, would
constitute a default) by or with respect to the Company, or to the Company's
knowledge, by or with respect to any third party. Complete and correct copies
of such leases in effect on the date hereof have been delivered to Parent.
(b) The Company has good and valid title to or, in the case of leased
properties and assets, valid leasehold interests in, all of its material
properties and material assets, whether tangible or intangible (including
Intellectual Property), real, personal and mixed, free and clear of any Liens
except as reflected in the Financial Statements or in Section 2.12(b) of the
Company Disclosure Schedule.
Section 2.13. Employee Benefit Plans; Labor Matters.
-------------------------------------
(a) Section 2.13(a) of the Company Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), and all bonus, stock
option, stock purchase, incentive, deferred compensation, supplemental
retirement, health, life, or disability insurance, dependent care and other
similar fringe or employee benefit plans, programs or arrangements written or
otherwise maintained or contributed to for the benefit of or relating to any
employee or former employee of the Company any trade or business (whether or not
incorporated) that is a member of a controlled group including the Company or
that is under common control with the Company within the meaning of Section 414
of the Code (an "ERISA Affiliate"), as well as each plan with respect to which
the Company or an ERISA Affiliate could incur liability under Section 4069 (if
such plan has been or were terminated) or Section 4212(c) of ERISA (together the
"Employee PlansA"). The Company has made available to Parent, where applicable,
a copy of (i) the three most recent annual reports on Form 5500 filed with the
Internal Revenue Service (the "IRS") for each disclosed Employee Plan; (ii) the
plan documents and instruments governing each such Employee Plan (other than
those referred to in Section 4(b)(4) of ERISA); (iii) all governmental rulings,
determinations, opinions, and correspondences (and pending request for
governmental rulings, determinations and opinions); and (iv) any non-
discrimination test reports for each disclosed Employee Plan.
(b) Each Employee Plan has been maintained, funded, operated and
administered in compliance in all material respects with all applicable laws and
regulations, including but not limited to, ERISA, the Code and the Health
Insurance Portability and Accountability Act of 1996. Each Employee Plan that
is intended to be qualified under Section 401(a) of the Code and each trust
forming a part thereof that is intended to be exempt from taxation under Section
501(a) of the Code has received a favorable determination letter from the IRS as
to its qualification and tax-exempt status and nothing has occurred since the
date of such determination letter that could adversely affect the qualification
of such Employee Plan or the tax-exempt status of such related trust. Except as
set forth in Section 2.13(b) of the
15
<PAGE>
Company Disclosure Schedule, no event has occurred and, to the knowledge of the
Company, there currently exists no condition or set of circumstances in
connection with which the Company could be subject to any liability relating to
any Employee Plans, or under ERISA, the Code or any other applicable law,
including any liability under Title IV of ERISA . Each Employee Plan can be
amended or terminated in accordance with its terms and any applicable law
without any material liability to the Company other than that required by
applicable law or for benefits accrued or incurred before such amendment or
termination.
(c) Section 2.13(c) of the Company Disclosure Schedule sets forth a
list as of the date hereof of (i) all employment agreements with directors,
officers or employees of the Company; (ii) all agreements with consultants who
are individuals obligating the Company to make annual cash payments in an amount
exceeding Fifty Thousand Dollars ($50,000); (iii) all severance agreements,
programs and policies of the Company with or relating to its employees except
such programs and policies required to be maintained by law; and (iv) all plans,
programs, agreements and other arrangements of the Company with or relating to
its employees that contain change in control provisions. The Company has made
available to Parent copies (or descriptions in detail reasonably satisfactory to
Parent) of all such agreements, plans, programs and other arrangements.
(d) Except as disclosed in Section 2.13(d) of the Company Disclosure
Schedule, there will be no payment, accrual of additional benefits, acceleration
of payments or vesting of any benefit under any Employee Plan or any agreement
or arrangement disclosed under this Section 2.13 solely by reason of entering
into or in connection with the transactions contemplated by this Agreement.
(e) No Employee Plan that is a welfare benefit plan within the meaning
of Section 3(1) of ERISA provides benefits to former employees of the Company or
its ERISA Affiliates other than pursuant to Section 4980B of the Code or similar
state laws.
(f) There are no controversies relating to any Employee Plan or other
labor matters pending or, to the knowledge of the Company, threatened between
the Company and any of its employees. The Company is not a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company except as disclosed in Section 2.13(f) of the
Company Disclosure Schedule, nor does the Company know of any activities or
proceedings of any labor union to organize any such employees. There are no
strikes, slowdowns, work stoppages, lockouts or, to the Company's knowledge,
threats thereof by or with respect to any employees of the Company. Except as
described in Section 2.13(f) of the Company Disclosure Schedule, the Company is
not bound by any agreement, nor has it taken or omitted to take any action, that
restricts its ability to terminate the employment of any of its employees at any
time without payment or other liability.
Section 2.14. Agreements, Scheduled Contracts and Commitments.
-----------------------------------------------
(a) Scheduled Contracts. Except as set forth in Sections 2.8, 2.13
-------------------
and 2.14(a) of the Company Disclosure Schedule, the Company has no, is not a
party to and is not bound by:
(i) any collective bargaining agreements;
16
<PAGE>
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, sales compensation
plan, pension, profit sharing or retirement plans, or any other employee benefit
plans or arrangements or agreements to change any such plans whether written or
oral;
(iv) any employment or consulting agreement with an
employee or individual consultant, or any consulting or sales agreement under
which a firm or other organization provides services to the Company in any case
involving aggregate payments in excess of Fifty Thousand Dollars ($50,000) in
one year;
(v) any agreement or plan, including any stock option
plan, stock appreciation rights plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value
individually in excess of Fifty Thousand Dollars ($50,000);
(viii) any agreement of indemnification or guaranty other
than for the endorsement of commercial paper in the ordinary course of business
or as expressly set forth in the Scheduled Contracts;
(ix) any agreement pursuant to which the Company has
granted, or may grant in the future, to any party a source-code license or
option or other right to use or acquire source-code;
(x) any agreement relating to capital expenditures and
involving future payments in excess of Fifty Thousand Dollars ($50,000);
(xi) any agreement relating to the disposition or
acquisition of assets, property or any interest in any business enterprise
outside the ordinary course of the Company's business;
(xii) any mortgage, indenture, loan or credit agreement,
security agreement or other agreement or instrument relating to the borrowing of
money or extension of credit, including any guaranty referred to in clause
(viii) of this Section 2.14(a);
(xiii) any purchase order or contract for the purchase of
raw materials or services involving Fifty Thousand Dollars ($50,000) or more;
(xiv) any construction contract;
(xv) any distribution, joint marketing or development
agreement;
17
<PAGE>
(xvi) any other agreement that involves Fifty Thousand
Dollars ($50,000) or more or is not cancelable without penalty upon notice of
thirty (30) days or less;
(xvii) any contract under which the Company provides
services to third parties for which it will receive payments in excess of Fifty
Thousand Dollars ($50,000) in a period of twelve (12) consecutive months;
(xviii) any contract that contains a liquidated damages
provision for failure to meet performance or quality milestones; or
(xix) any other material agreement or commitment, whether
written or oral.
(b) Loss Contracts. Section 2.14(b) of the Company Disclosure
--------------
Schedule identifies all contracts (whether fixed price or time and materials
with a price cap or other contract having similar effect) under which the
Company provides products or services to a third party and as to which the cost
of performance has exceeded or is likely to exceed the contract price and also
sets forth, with respect to each such contract, the amount by which such cost of
performance exceeds such contract price. Except as set forth in Section 2.14(b)
of the Company Disclosure Schedule, all contracts under which the Company
provides products or services to a third party are capable of being performed at
a cost equal to or less than the contract price.
(c) No Government Contracts.
-----------------------
(i) Except as set forth in Section 2.14(c) of the
Company Disclosure Schedule, the Company is not and never was a party to any
Government Contract or outstanding Bid.
(ii) For purposes hereof, "Bid" means any quotation, bid
or proposal by the Company or any of its affiliates which, if accepted or
awarded, would lead to a Government Contract for the design, manufacture or sale
of products or the provision of services by the Company.
(iii) For purposes hereof, "Government ContractA" means
any prime contract, subcontract, teaming agreement or arrangement, joint
venture, basic ordering agreement, letter contract, purchase order, delivery
order, Bid, change order, arrangement or other commitment of any kind relating
to the business of the Company between the Company and (A) the U.S. Government,
(B) any prime contractor to the U.S. Government or (C) any subcontractor with
respect to any contract described in clause (A) or (B) of this sentence.
(d) No Contract Breaches. Except for such alleged breaches,
--------------------
violations and defaults, and events that would constitute a breach, violation or
default with the lapse of time, giving of notice, or both, as are all noted in
Section 2.14(d) of the Company Disclosure Schedule, the Company has not
breached, violated or defaulted under, or received notice that it has materially
breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract or commitment required to be set forth in Sections 2.2, 2.8,
2.13(a), 2.13(c), 2.14(a), 2.14(b), 2.18(e) or 2.18(p) (any such agreement,
contract or commitment, regardless of whether it is set forth on such schedule,
a "Scheduled Contract") except where such breach,
18
<PAGE>
violation or default would not have a Material Adverse Effect on the Company.
Each Scheduled Contract is in full force and effect and, except as otherwise
disclosed in Section 2.14(d) of the Company Disclosure Schedule, is not subject
to any default thereunder of which the Company has knowledge by any party
obligated to the Company pursuant thereto.
(e) Consulting Agreements. With respect to the consulting agreements
---------------------
of the Company listed in Section 2.14(a) of the Company Disclosure Schedule, (i)
all of the agreements and understandings of the Company, on the one hand, and
each of the respective third parties, on the other hand, are set forth in the
copies of such agreements provided to Parent, (ii) there are no other
agreements, written or oral, changing the rights or obligations of the Company
thereunder and (iii) except as set forth on Section 2.14(e) of the Company
Disclosure Schedule, the Company has retained all rights to its Intellectual
Property related to such agreements and the third parties do not have any
ownership interest, jointly or otherwise, in such Intellectual Property.
Section 2.15. Interested Party Transactions. Except as set forth in
-----------------------------
Section 2.15 of the Company Disclosure Schedule, no member, manager, officer or
Affiliate of the Company (nor, to the knowledge of the Company, any ancestor,
sibling, descendant or spouse of any of such persons, or any trust, partnership
or corporation in which any of such persons has or has had an economic
interest), has or has had, directly or indirectly, (i) an economic interest in
any Person which has furnished or sold, or furnishes or sells, services or
products that the Company furnishes or sells, or proposes to furnish or sell,
(ii) an economic interest in any Person that purchases from or sells or
furnishes to, the Company, any goods or services, (iii) a beneficial interest in
any Scheduled Contract or (iv) any contractual or other arrangement with the
Company; provided, however, that ownership of no more than one percent (1%) of
the outstanding voting stock of a publicly traded corporation shall not be
deemed an "economic interest in any person" for purposes of this Section 2.15.
Section 2.16. Environmental Laws and Regulations.
----------------------------------
(a) The Company is in material compliance with all applicable federal,
state, local and foreign laws and regulations relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata) (collectively
"Environmental Laws"), which compliance includes, but is not limited to, the
possession by the Company of all material permits and other governmental
authorizations required under applicable Environmental Laws and compliance with
the terms and conditions thereof. The Company has not received written notice
of and to its knowledge is not the subject of any action, cause of action,
claim, investigation, demand, notice, order, decree or injunction by any person
alleging liability under or non-compliance with any Environmental Law (an
"Environmental Claim"). To the knowledge of the Company, there are no existing
facts that are reasonably likely to prevent or interfere with such material
compliance in the future. The Company is not subject to any Environmental Claim
or other arrangements with any Governmental Entity or, other than the Loan
Agreement with Silicon Valley Bank dated June 15, 1999, subject to any indemnity
or other agreement with any third party relating to liability under any
Environmental Law.
19
<PAGE>
(b) There are no Environmental Claims that are pending or, to the
knowledge of the Company, threatened against the Company or, to the knowledge of
the Company, against any person whose liability for any Environmental Claim the
Company has or may have retained or assumed either contractually or by operation
of law.
(c) The properties currently operated by the Company (including soils,
groundwater, surface water, buildings or other structures) do not contain levels
of any Hazardous Substances in concentrations requiring investigation or
Remediation under any Environmental Law. The properties formerly operated by
the Company were not contaminated with any Hazardous Substances during the
period of operation of the Company. The Company is not subject to liability for
any Hazardous Substance disposal or contamination on any third party property.
For purposes hereof, "Hazardous Substance" means any substance that is: (i)
listed, classified or regulated pursuant to any Environmental Law; (ii) any
petroleum product or by-product, asbestos-containing material, lead-containing
paint or plumbing, polychlorinated biphenyls, radioactive materials or radon; or
(iii) any other substance which is the subject of regulatory action by any
Governmental Entity pursuant to any Environmental Law; and "Remediation" means
(a) any remedial action, response or removal as those terms are defined in 42
U.S.C. ?9601; or (b) any "corrective action" as that term has been construed by
Governmental Entities pursuant to 42 U.S.C. ?6924.
Section 2.17. Taxes.
-----
(a) Definitions. For purposes of this Agreement:
-----------
(i) the term "Tax" (including "Taxes") means (A) all
federal, state, local, foreign and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts with respect
thereto, (B) any liability for payment of amounts described in clause (A)
whether as a result of transferee liability, of being a member of an affiliated,
consolidated, combined or unitary group for any period, or otherwise through
operation of law, and (C) any liability for the payment of amounts described in
clauses (A) or (B) as a result of any tax sharing, tax indemnity or tax
allocation agreement or any other express or implied agreement to indemnify any
other person; and
(ii) the term "Tax ReturnA" means any return, declaration,
report, statement, information statement and other document required to be filed
with respect to Taxes.
(b) Except as otherwise disclosed in Section 2.17(b) of the Company
Disclosure Schedule, the Company has timely filed all material Tax Returns it is
required to have filed; and such Tax Returns are accurate and correct in all
material respects and do not contain a disclosure statement under Section 6662
of the Code (or any predecessor provision or comparable provision of state,
local or foreign law).
20
<PAGE>
(c) The Company has paid or adequately provided in the most recent
Financial Statements for all Taxes (whether or not shown on any Tax Return) it
is required to have paid or to pay through the date of such Financial
Statements. All Taxes that the Company has been required to collect and
withhold have been duly withheld or collected and, to the extent required, have
been paid to the proper taxing authority.
(d) No material claim for assessment or collection of Taxes is
presently being asserted against the Company and the Company is not a party to
any pending action, proceeding, or investigation by any governmental taxing
authority nor does the Company have knowledge of any such threatened action,
proceeding or investigation.
(e) Except as set forth in Section 2.17(e) of the Company Disclosure
Schedule, the Company is not a party to any agreement, contract, arrangement or
plan that has resulted or would result, individually or in the aggregate, in
connection with this Agreement or any resulting change of control of the
Company, in the payment of any "excess parachute payments" within the meaning of
Section 280G of the Code.
(f) The Company is not a party to any Tax allocation or sharing
agreement, other than any agreement entered into in the ordinary course of
business with customers, vendors, suppliers, and lessors with respect to Taxes
other than net income taxes.
(g) The Company has not been a member of an affiliated group filing a
consolidated federal income Tax return and it does not have any liability for
the Taxes of another person (i) under Section 1.1502-6 of the U.S. Treasury
Regulations promulgated under the Code (or any similar provision of state, local
or foreign law) or (ii) as a transferee or successor.
(h) The Company is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
(i) The Company made and continued to have in effect a valid and
timely election to be treated as an "S corporation" under Sections 1361 et seq.
of the Code (and any corresponding provisions of all applicable state and local
income tax laws) for each taxable year from 1991 through September 29, 1997, and
the Company was treated as an "S corporation" under the Code and all such state
and local tax laws, where applicable for all such taxable years or portions
thereof ending on and prior to September 29, 1997.
Section 2.18. Intellectual Property.
---------------------
(a) Section 2.18(a) of the Company Disclosure Schedule sets forth, for
the Intellectual Property owned, in whole or in part, including jointly with
others, by the Company, a complete and accurate list of all United States and
foreign (i) Patents and patent applications; (ii) Trademark registrations and
applications and material unregistered Trademarks; and (iii) Copyright
registrations and applications, indicating for each, the applicable
jurisdiction, registration number (or application number), and date issued (or
date filed). For purposes of this Agreement, "Intellectual Property" means:
trademarks and service marks (whether register or unregistered), trade names,
designs and general intangibles of like nature, together with all goodwill
related to the foregoing (collectively, "Trademarks"); patents (including any
continuations, continuations in part, reissue patents, reexamination
certificates and applications
21
<PAGE>
for any of the foregoing) (collectively "Patents"); copyrights (including any
registrations and applications therefor and whether registered or
unregistered)(collectively "Copyrights"); computer software; databases; works of
authorship; mask works; technology; trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models, user
interfaces, customer lists, inventions, discoveries, concepts, ideas,
techniques, methods, source codes, object codes, methodologies and, with respect
to all of the foregoing, related confidential data or information (collectively,
"Trade Secrets"). Intellectual Property, Patents, Trademarks, Copyrights or
Trade Secrets shall mean only such as are owned, in whole or in part, including
jointly with others, by the Company.
(b) Trademarks.
----------
(i) All Trademark registrations are currently in
compliance in all material respects with all legal requirements (including the
timely post-registration filing of affidavits of use and incontestability and
renewal applications) other than any requirement that, if not satisfied, would
not result in a cancellation of any such registration or otherwise materially
affect the priority and enforceability of the Trademark in question.
(ii) No registered Trademark has been within the last
three (3) years or is now involved in any opposition or cancellation proceeding
in the United States Patent and Trademark Office. No such action has been
threatened within the one (1)-year period prior to the date of this Agreement.
(iii) There has been no prior use of any material Trademark
by any third party which would confer upon said third party superior rights in
any such Trademark.
(iv) All material Trademarks registered in the United
States have been in continuous use by the Company since their registration.
(c) Patents.
-------
(i) All Patents are currently in compliance with legal
requirements (including payment of filing, examination, and maintenance fees and
proofs of working or use) other than any requirement that, if not satisfied,
would not result in a revocation or otherwise materially affect the
enforceability of the Patent in question.
(ii) Except as disclosed in Section 2.18(c) of the Company
Disclosure Schedule, no Patent has been or is now involved in any interference,
reissue, reexamination or opposing proceeding in the United States Patent and
Trademark Office. To the Company's knowledge, no such action has been threatened
within the one (1)-year period prior to the date of this Agreement.
(iii) There is no patent, printed publication or other
prior art of any person that conflicts in any material respect with any Patent.
22
<PAGE>
(d) Reserved.
--------
(e) License Agreements. Section 2.18(e)(i) of the Company Disclosure
------------------
Schedule sets forth a complete and accurate list of all license agreements
granting to the Company any material right to use or practice any rights under
any Intellectual Property other than office automation software used generally
in the Company's operations and other software that is not used in connection
with the design, development, use, maintenance and support, testing, assembly
and manufacture of the Company's products and is commercially available on
reasonable terms to any person for a license fee of no more than Fifty Thousand
Dollars ($50,000) (collectively, the "Inbound License Agreements"), indicating
for each the title and the parties thereto and the amount of any future royalty
or license fee payable thereunder. Section 2.18(e)(ii) of the Company
Disclosure Schedule sets forth a complete and accurate list of all license
agreements under which the Company licenses software or grants other rights in
to use or practice any rights under any Intellectual Property, excluding
licenses with customers that in the one (1)-year period prior to the date hereof
have purchased or licensed products for which the total payments to the Company
did not exceed Fifty Thousand Dollars ($50,000) (collectively, the "Outbound
License Agreements"), indicating for each the title and the parties thereto.
There is no material outstanding or, to the Company's knowledge, threatened
dispute or disagreement with respect to any Inbound License Agreement or any
Outbound License Agreement.
(f) Ownership; Sufficiency of IP Assets. Except as set forth in
-----------------------------------
Section 2.18(f) of the Company Disclosure Schedule, the Company owns or
possesses adequate licenses or other rights to use, free and clear of Liens,
orders and arbitration awards, all of its Intellectual Property used in and
necessary to the conduct of its business. The Intellectual Property identified
in Section 2.18(a) of the Company Disclosure Schedule, together with the
Company's unregistered copyrights, the Company's Trade Secrets and the Company's
rights under the licenses granted to the Company under the Inbound License
Agreements, constitute all the material Intellectual Property rights used in the
operation of the Company's business as it is currently conducted and are all the
Intellectual Property rights necessary to operate such businesses after the
Effective Time in substantially the same manner as such business has been
operated by the Company prior thereto.
(g) No Infringement by the Company. The products used, manufactured,
------------------------------
marketed, sold or licensed by the Company, and all Intellectual Property used in
the conduct of the Company's business as currently conducted, do not infringe
upon, violate or constitute the unauthorized use of any rights owned or
controlled by any third party, including any Intellectual Property of any third
party.
(h) No Pending or Threatened Infringement Claims. Except as disclosed
--------------------------------------------
in Section 2.18(h) of the Company Disclosure Schedule, no litigation is now or,
within the three (3) years prior to the date of this Agreement, was pending and,
to the Company's knowledge, no notice or other claim in writing has been
received by the Company within the one (1)-year period prior to the date of this
Agreement, (i) alleging that the Company has engaged in any activity or conduct
that infringes upon, violates, or constitutes the unauthorized use of the
Intellectual Property rights of any third party or (ii) challenging the
ownership, use, validity or enforceability of any Intellectual Property owned or
exclusively licensed by the Company. Except as specifically disclosed in one
or more Sections of the Company Disclosure Schedules pursuant to
23
<PAGE>
this Section 2.18, no Intellectual Property owned or licensed by the Company is
subject to any outstanding order, judgment, decree, stipulation or agreement
(other than Inbound License Agreements) restricting the use thereof by the
Company or, in the case of any Intellectual Property licensed to others,
restricting the sale, transfer, assignment or licensing thereof by the Company
to any person.
(i) No Infringement by Third Parties. Except as disclosed in Section
--------------------------------
2.18(i) of the Company Disclosure Schedule, to the Company's knowledge, no
person is misappropriating, infringing, diluting, or violating any Intellectual
Property owned or exclusively licensed by the Company and no such claims have
been brought against any person by the Company.
(j) Assignment; Change of Control. Except as disclosed in Section
-----------------------------
2.18(j) of the Company Disclosure Schedule, the execution, delivery and
performance by the Company of this Agreement, and the consummation by the
Company of the transactions contemplated hereby, will not result in the loss or
impairment of, or give rise to any right of any third party to terminate, any of
the Company's rights to own any of its Intellectual Property or their respective
rights under the License Agreements, nor require the consent of any Governmental
Entity or other third party in respect of any such Intellectual Property.
(k) Software. The Software owned or purported to be owned by the
--------
Company and used in its business ("Owned Software") set forth in Section
2.18(k) of the Company Disclosure Schedule, was either (i) developed by
employees of Company within the scope of their employment; (ii) developed by
independent contractors who have assigned their rights to the Company pursuant
to written agreements; or (iii) otherwise acquired by the Company from a third
party. The Owned Software does not contain any programming code, documentation
or other materials or development environments that embody Intellectual Property
rights of any person other than the Company, except for such materials or
development environments obtained by the Company from other persons who make
such materials or development environments generally available to all interested
purchasers or end-users on standard commercial terms or as negotiated between
the Company and such other person. For purposes hereof, "Software" means any
and all (i) computer programs, including any and all software implementations of
algorithms, models and methodologies, whether in source code or object code,
(ii) databases and compilations, including any and all data and collections of
data, whether machine readable or otherwise, (iii) descriptions, flow-charts and
other work product used to design, plan, organize and develop any of the
foregoing, and (iv) all documentation, including user manuals and training
materials, relating to any of the foregoing.
(l) Performance of Existing Software Products. Section 2.18(l) of the
-----------------------------------------
Company Disclosure Schedule contains a list of (i) the Software products that
are manufactured by the Company and (ii) any Software products marketed by the
Company as to which the Company warrants performance to the end user thereof
(collectively "Software Products"). All of such Software Products listed and
described in Section 2.18(l) of the Company Disclosure Schedule perform in all
material respects, free of significant bugs or programming errors, the functions
described in any protocol or standard applicable to the product, and any agreed
specifications or end user documentation or other information provided to
customers of the Company on which such customers relied when licensing or
otherwise acquiring such products,
24
<PAGE>
except as may be fixed or corrected in the ordinary course of business and
without material expenditure.
(m) Documentation. The Company have taken all actions it believes are
-------------
customary in the software industry to document the Software and its operation,
such that the materials comprising the Software, including the source code and
documentation, have been written in a clear and professional manner so that they
may be understood, modified and maintained in an efficient manner by reasonably
competent programmers.
(n) Reserved.
---------
(o) Employee Confidentiality Agreements. Except as set forth in
-----------------------------------
Section 2.18(o) of the Company Disclosure Schedule, all current and former
employees and consultants of the Company whose duties or responsibilities relate
to the Company's business have entered into confidentiality, invention
assignment and proprietary information agreements with the Company in the form
provided to Parent. To the Company's knowledge, no employee or consultant of
the Company whose duties or responsibilities relate to the Company's business is
obligated under any agreement (including licenses, covenants or commitments of
any nature) or subject to any judgment, decree or order of any Governmental
Entity, or any other restriction that would materially interfere with the use of
his or her best efforts to carry out his or her duties for the Company (other
than time commitments of independent contractors to their other clients) or that
would conflict with the Company's business. The carrying on of the Company's
business by such employees and contractors of the Company and the conduct of the
Company's business as presently proposed, will not, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees or consultants or the Company is now obligated. Except as
set forth in Section 2.18(o) of the Company Disclosure Schedule, it is not
necessary to utilize any inventions or any other Intellectual Property of any
employees of or consultants to the Company (or persons the Company currently
intends to hire) acquired prior to their employment by the Company in order to
carry on the business of the Company as presently conducted. To the Company's
knowledge, at no time during the conception of or reduction to practice of any
of Intellectual Property owned by the Company was any developer, inventor or
other contributor to such Intellectual Property operating under any grants from
any Governmental Entity or private source, performing research sponsored by any
Governmental Entity or private source or subject to any employment agreement or
invention assignment or nondisclosure agreement or other obligation with any
third party that could adversely affect the Company's rights in such
Intellectual Property.
(p) Export Restrictions. The Company has not exported or transmitted
-------------------
Software or other material in connection with the Company's business to any
country to which such export or transmission is restricted by any applicable
law, without first having obtained all necessary and appropriate United States
or foreign government licenses or permits.
(q) Disabling Code and Contaminants. The Owned Software is free of
-------------------------------
any disabling codes or instructions (a "Disabling Code") (other than those
intended for the benefit and protection of the Company), and any virus or other
intentionally created, undocumented contaminant (a "Contaminant"), that may, or
may be used to, access, modify, delete, damage or
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disable any Systems (as defined below) or that may result in damage thereto. The
Company has taken commercially reasonable steps and implemented commercially
reasonable procedures to ensure that its internal computer systems used in
connection with the Company's business (consisting of hardware, software,
databases or embedded control systems, "Systems") are free from Disabling Codes
and Contaminants. To the knowledge of the Company, the Software that is licensed
by the Company from any third party is free of any Disabling Codes or
Contaminants that may, or may be used to, access, modify, delete, damage or
disable any of the Systems or that might result in damage thereto. Except as may
be set forth in Section 2.18(q) of the Company Disclosure Schedule, the Company
has taken all commercially reasonable steps to safeguard its Systems and
restrict unauthorized access thereto.
Section 2.19. Insurance. The Company has provided Parent and Acquisition
---------
with copies of all insurance policies maintained by the Company as of the date
hereof (the "Insurance Policies") and access to information related to the
Company's claims history under each such Insurance Policy Each Insurance Policy
is in full force and effect and is valid, outstanding and enforceable, and all
premiums due thereon have been paid in full. None of the Insurance Policies
will terminate or lapse (or be affected in any other materially adverse manner)
by reason of the transactions contemplated by this Agreement. The Company has
complied in all material respects with the provisions of each Insurance Policy
under which it is the insured party. No insurer under any Insurance Policy has
canceled or generally disclaimed liability under any such policy or, to the
Company's knowledge, indicated any intent to do so or not to renew any such
policy. All material claims under the Insurance Policies have been filed in a
timely fashion.
Section 2.20. Certain Business Practices. Neither the Company nor, to the
--------------------------
knowledge of the Company, any person acting on behalf of the Company has (i)
used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful
payment.
Section 2.21. Restrictions on Business Activities. Except as set forth in
-----------------------------------
Section 2.21 of the Company Disclosure Schedule, there is no agreement
(noncompete or otherwise), judgment, injunction, order or decree to which the
Company is a party or, to the knowledge of the Company, otherwise binding upon
the Company that has or is reasonably likely to have the effect of prohibiting
or impairing any business practice of the Company, any acquisition of property
(tangible or intangible) by the Company or the conduct of business by the
Company. Without limiting the foregoing, except as set forth in Section 2.21 of
the Company Disclosure Schedule, the Company has not entered into any agreement
under which the Company is restricted from selling, licensing or otherwise
distributing any of its products or providing services to any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
Section 2.22. Product and Service Warranties. Section 2.22 of the Company
------------------------------
Disclosure Schedule sets forth a summary of the written warranties and
guaranties by the Company currently in effect with respect to any of its
products or services, complete and accurate copies of which have been delivered
to Parent. There have not been any deviations from such warranties and
guaranties except such deviations as would not have a Material Adverse Effect.
Except as
26
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set forth in Section 2.22 of the Company Disclosure Schedule, the Company has
not made any oral warranty or guaranty with respect to any of its products or
services.
Section 2.23. Suppliers. During the last twelve (12) months, the Company
---------
has received no notices of termination or written threats of termination from
any of the five (5) largest suppliers of the Company.
Section 2.24. Vote Required. The affirmative vote or consent of the
-------------
holders (a) of a majority of the outstanding Shares of Company Common Stock,
voting as a separate class, (b) of a majority of the outstanding Series A
Preferred Stock , voting as a separate class, (c) of two-thirds of the
outstanding Series B Preferred Stock, voting as a separate class and (d) of two-
thirds of the outstanding Company Warrants, is the only vote or consent of the
holders of any Company Securities necessary to approve and adopt this Agreement
and the Merger.
Section 2.25. Brokers. No broker, finder or investment banker is entitled
-------
to any brokerage finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
Section 2.26. Minute Books. The minute books of the Company made
------------
available to Parent are the only minute books of the Company and contain a
reasonably accurate summary of all actions taken at meetings of the Company
Board (or committees thereof) or actions by written consent since the time of
organization of the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
Section 3.1. Organization.
------------
(a) Each of Parent and Acquisition is duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has all
requisite power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted. Parent has heretofore made
available to the Company accurate and complete copies of the Certificate of
Incorporation, as the case may be, and bylaws as currently in full force and
effect, of Parent and Acquisition.
(b) Each of Parent and Acquisition is duly qualified or licensed and
in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing would
not have a Material Adverse Effect on Parent. The term "Material Adverse Effect
on Parent" means any circumstance, change in, or effect on Parent and its
subsidiaries, taken as a whole, (i) that is, or is reasonably likely in the
future to be, materially adverse to the operations, assets or liabilities
(including contingent liabilities), earnings or results of operations
27
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or condition (financial or otherwise) of Parent and its subsidiaries, taken as a
whole or (ii) that would reasonably be expected to prevent or materially delay
or impair the ability of Parent to consummate the Merger; provided, however,
that such term shall not include any circumstance or change related to (A)
general economic conditions, (B) securities markets generally, (C) fluctuations
in the price of Parent Common Stock unrelated to any event that would otherwise
constitute a Material Adverse Effect on Parent, (D) the entering into or
announcement of this Agreement or the consummation of the transactions
contemplated hereby or (E) any action or omission or event contemplated by this
Agreement or to which the Company consents.
Section 3.2. Capitalization of Parent and its Subsidiaries.
---------------------------------------------
(a) The authorized capital stock of Parent consists of Four Hundred
Fifty Million (450,000,000) shares of Parent Common Stock, of which Fifty-Six
Million, One Hundred Sixty-One Thousand Eight Hundred Thirty (56,161,830) shares
of Parent Common Stock were issued and outstanding as of July 14, 2000 (after
giving effect to the offering of Six Million, Eight Hundred Fifty-Five Thousand
(6,855,000) shares of Parent Common Stock in the public offering described in
clause (A) below), and Five Million (5,000,000) shares of preferred stock,
$0.001 par value per share, none of which are outstanding. All of the
outstanding shares of Parent Common Stock have been validly issued and are fully
paid, nonassessable and free of preemptive rights. As of June 9, 2000, Two
Million, Six Hundred Fifty-Five Thousand Sixty-Four (2,655,064) shares of Parent
Common Stock were reserved for issuance (excluding automatic future re-loads
under Parent's option or employee stock purchase plans, "Parent Reserved
Shares") and Nine Million, Two Hundred Eighty-Nine Thousand, Seven Hundred
Thirty (9,289,730) were issuable upon or otherwise deliverable in connection
with the exercise of outstanding options, warrants and convertible securities.
Approximately Six Million, Three Hundred Two Thousand, Three Hundred Seventeen
(6,302,317) shares of Parent Common Stock are issuable in connection with
Parent's acquisition of Excess Bandwidth Corporation. Between June 9, 2000 and
the date hereof, no shares of Parent's capital stock have been issued, other
than (A) pursuant to the secondary offering of Parent Common Stock made pursuant
to a Registration Statement on Form S-1 that was filed by Parent with the SEC
and was declared effect on June 29, 2000, a copy of which has previously been
provided to the Company and (B) pursuant to the exercise of stock options,
warrants and convertible securities that entitled the holders thereof to
purchase Parent Reserved Shares and except for grants of stock options to
employees, officers and directors made in the ordinary course of business and
consistent with past practice that would entitle the holders thereof to purchase
Parent Reserved Shares. Except as set forth above, as of the date hereof, there
are outstanding (i) no shares of capital stock or other voting securities of
Parent (ii) no securities of Parent or its subsidiaries convertible into or
exchangeable for shares of capital stock, or voting securities of Parent (iii)
no options or other rights to acquire from Parent or its subsidiaries and no
obligations of Parent or its subsidiaries to issue any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of Parent, and (iv) no equity equivalent interests in the
ownership or earnings of Parent or its subsidiaries or other similar rights
(collectively, "Parent Securities"). As of the date hereof, there are no
outstanding obligations of Parent or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Parent Securities. There are no stockholder
agreements, voting trusts or other agreements or understandings to which Parent
is a party or by which it is bound relating to the voting of any shares of
capital stock of Parent. The Certificate of Incorporation and bylaws
28
<PAGE>
of Parent filed with the SEC as exhibits to Parent's annual report on Form 10-K
for the fiscal year ended April 2, 2000 have not been amended as of the date
hereof.
(b) The Parent Common Stock constitutes the only class of equity
securities of Parent or any of its subsidiaries registered or required to be
registered under the Exchange Act.
(c) At the Effective Time, the shares of Parent Common Stock issuable
to the stockholders of the Company pursuant to Article I shall be duly
authorized, validly issued, fully paid, nonassessable and shall not have been
issued in violation of any preemptive, first refusal or other subscription
rights of any stockholder of Parent.
Section 3.3. Authority Relative to this Agreement. Each of Parent and
------------------------------------
Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement and each of the other Transaction Documents to which it
is a party, to perform its obligations under this Agreement and each of the
other Transaction Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and each of the other Transaction Documents to which Parent or
Acquisition is a party, and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by the executive
committee of the board of directors of Parent and by the board of directors of
Acquisition and by Parent as the sole stockholder of Acquisition, and no other
corporate proceedings on the part of Parent or Acquisition are necessary to
authorize this Agreement or any of the other Transaction Documents to which it
is a party or to consummate the transactions contemplated hereby and thereby.
This Agreement and each of the other Transaction Documents to which Parent or
Acquisition is a party have been duly and validly executed and delivered by each
of Parent and Acquisition and constitute, assuming the due authorization,
execution and delivery hereof by the other parties hereto and thereto, the
valid, legal and binding agreements of each of Parent and Acquisition
enforceable against each of Parent and Acquisition in accordance with their
respective terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally or to general principles of equity.
Section 3.4. SEC Reports; Financial Statements.
---------------------------------
(a) Parent has filed with the Securities and Exchange Commission (the
"SEC") all required forms, reports and documents since November 16, 1999 (the
"Parent SEC Reports") each of which complied at the time of filing in all
material respects with all applicable requirements of the Securities Act of
1933, as amended (including the rules and regulations promulgated thereunder,
the "Securities Act"), and the Securities Exchange Act of 1934, as amended
(including the rules and regulations promulgated thereunder, the "Exchange
Act"), each law as in effect on the dates such forms reports and documents were
filed. None of such Parent SEC Reports, including any financial statements or
schedules included or incorporated by reference therein, contained when filed
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein in light of the circumstances under which they
were made not misleading, except to the extent superseded by a Parent SEC Report
filed subsequently and prior to the date hereof. The audited and any unaudited
consolidated financial statements of Parent
29
<PAGE>
included in the Parent SEC Reports fairly present in conformity in all material
respects with generally accepted accounting principles applied on a consistent
basis (except as may be indicated in the notes thereto and except for the
absence of footnotes in the unaudited financial statements), the consolidated
financial position of Parent and its consolidated subsidiaries as of the dates
thereof and their consolidated results of operations and changes in financial
position for the periods then ended (subject, in the case of any interim
financial statements, to normal year-end adjustments).
(b) No change in the business, assets, liabilities, condition
(financial or other), or results of operations of Parent has occurred between
the date of filing of the SEC Reports filed with the SEC prior to the date
hereof and the date hereof that would cause such SEC Reports, including the
financial and schedules included or incorporated by reference therein, to
contain, as of the date hereof, any untrue statement of a material fact or to
omit to state a material fact that would be required to be stated or
incorporated by reference therein or that would be necessary in order to make
the statements contained therein, as of the date hereof, not misleading.
Section 3.5. Information Supplied. None of the information supplied or to
--------------------
be supplied in writing by Parent or Acquisition for inclusion in the Information
Statement will, at the date mailed or furnished to stockholders of the Company
in connection with obtaining approval of the Merger, this Agreement and the
other Transaction Agreement 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 are made not misleading.
Section 3.6. Consents and Approvals; No Violations. Except for filings,
-------------------------------------
permits, authorizations, consents, and approvals as (a) may be required under
applicable requirements of state securities or blue sky laws and (b) have
already been made or obtained, and except for the filing and recordation of the
Certificate of Merger as required by the MBCL and the DGCL, no filing with or
notice to, and no permit authorization consent or approval of any Governmental
Entity is necessary for the execution and delivery by Parent or Acquisition of
this Agreement or any of the other Transaction Documents to which it is a party
or the consummation by Parent or Acquisition of the transactions contemplated
hereby and thereby. Neither the execution, delivery and performance of this
Agreement or any of the other Transaction Documents to which it is a party by
Parent or Acquisition nor the consummation by Parent or Acquisition of the
transactions contemplated hereby and thereby will (i) conflict with or result in
any breach of any provision of the respective Certificate of Incorporation or
bylaws (or similar governing documents) of Parent or Acquisition or any of
Parent's other subsidiaries, (ii) result in a violation or breach of or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which Parent or Acquisition or any of Parent's other subsidiaries
is a party or by which any of them or any of their respective properties or
assets may be bound or (iii) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to Parent or Acquisition or any of
Parent's other subsidiaries or any of their respective properties or assets.
30
<PAGE>
Section 3.7. Brokers. No broker, finder or investment banker is entitled
-------
to any brokerage finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Acquisition.
Section 3.8. No Prior Activities of Acquisition. Except for obligations
----------------------------------
incurred in connection with its incorporation or organization or the negotiation
and consummation of this Agreement and each of the other Transaction Documents
to which it is a party, and the transactions contemplated hereby and thereby,
Acquisition has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person.
ARTICLE IV
COVENANTS
Section 4.1. Conduct of Business of the Company. Except as contemplated
----------------------------------
by this Agreement or as described in Section 4.1 of the Company Disclosure
Schedule, during the period from the date hereof to the Effective Time, the
Company shall conduct its operations in the ordinary course of business
consistent with past practice and, to the extent consistent therewith, with no
less diligence and effort than would be applied in the absence of this
Agreement, use its commercially reasonable efforts to preserve intact its
current business organizations, keep available the service of its current
officers and employees and preserve its relationships with customers, suppliers,
distributors, lessors, creditors, employees, contractors and others having
business dealings with it, with the intention that its goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, except as otherwise expressly provided in this
Agreement and except as described in Section 4.1 of the Company Disclosure
Schedule, prior to the Effective Time, the Company shall not, without the prior
written consent of Parent:
(a) amend its Articles of Organization or bylaws (or other similar
governing instruments);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other debt or equity securities or equity equivalents
(including any stock options or stock appreciation rights) except for the
issuance and sale of Shares upon the exercise of vested Company Stock Options
granted under the Company Plans prior to the date hereof;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
make any other actual, constructive or deemed distribution in respect of its
capital stock or otherwise make any payments to stockholders in their capacity
as such, or redeem or otherwise acquire any of its securities;
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<PAGE>
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company (other than the Merger);
(e) (i) incur or assume any long-term or short-term Indebtedness or
issue any debt securities, in each case, except for borrowings under existing
lines of credit in the ordinary course of business and consistent with past
practices, or modify or agree to any amendment of the terms of any of the
foregoing; (ii) assume, guarantee, endorse (other than for collection or deposit
in the ordinary course of business) or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person; (iii) make any loans, advances or capital contributions to or
investments in any other person (other than customary loans or advances to
employees in each case in the ordinary course of business consistent with past
practice not to exceed Fifty Thousand Dollars ($50,000) in the aggregate); (iv)
pledge or otherwise encumber shares of capital stock of the Company; or (v)
mortgage or pledge any of its material assets, tangible or intangible, or create
or suffer to exist any material Lien thereupon;
(f) except as may be required by applicable law or as expressly
contemplated by this Agreement, enter into, adopt or amend or terminate any
bonus, profit sharing, special remuneration, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, health, life, or disability
insurance, dependent care, severance or other employee benefit plan agreement,
trust, fund or other arrangement for the benefit or welfare of any director,
officer, employee or consultant in any manner or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay any
benefit not required by any plan and arrangement as in effect as of the date
hereof (including the granting of stock appreciation rights or performance
units);
(g) grant any severance or termination pay to any director, officer,
employee or consultant, except payments made pursuant to agreements in effect on
the date hereof, the terms of which are in all material respects completely and
correctly disclosed in Section 2.13(c) of the Company Disclosure Schedule or as
required by applicable federal, state or local applicable law or regulations;
(h) except as expressly contemplated by this Agreement, enter into or
amend any employment agreements, oral or written, increase the compensation
payable or to become payable by it to any of its officers, stockholders,
directors, employees or consultants, or adopt or amend any employee benefit plan
or arrangement, oral or written (including any amendment to the Company Plans or
the agreements thereunder), or increase the salaries or wage rates of its
officers, stockholders, directors, employees or consultants;
(i) terminate the employment of any manager or officer or grant any
severance or termination pay to any officer or any other employee, except
payments made pursuant to written agreements or other legally binding
commitments disclosed to Parent in writing and in effect on the date hereof;
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(j) exercise its discretion to or otherwise voluntarily accelerate the
vesting of any Company Stock Option as a result of the Merger, any other change
of control of the Company (as defined in the Company Plans) or otherwise;
(k) other than in the ordinary course of business and consistent with
past practices, (i) acquire, sell, lease, license, transfer or otherwise dispose
of any assets in any single transaction or series of related transactions having
a fair market value in excess of Fifty Thousand Dollars ($50,000) in the
aggregate or (ii) acquire, sell, lease, license, transfer or otherwise dispose
of any Intellectual Property;
(l) except as may be required as a result of a change in applicable
law or in generally accepted accounting principles, change any of the accounting
principles, practices or methods used by it;
(m) revalue in any material respect any of its assets, including
writing down the value of inventory or writing-off notes or accounts receivable,
other than in the ordinary course of business and consistent with past
practices;
(n) (i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or entity or
division thereof or any equity interest therein; (ii) enter into any contract or
agreement other than in the ordinary course of business consistent with past
practice that would be material to the Company; (iii) amend, modify or waive
any right under any Scheduled Contract or any other material contract of the
Company; (iv) breach or otherwise violate the terms of any Scheduled Contracts;
(v) modify its standard warranty terms for its products or amend or modify any
product warranties in effect as of the date hereof in any material manner that
is adverse to the Company; or (v) authorize any new or additional capital
expenditure or expenditures if any such expenditure or expenditures are not
listed in the capital budget attached as Section 4.1(n) of the Company
Disclosure Schedule; or (vi) authorize any new or additional manufacturing
capacity expenditure or expenditures for any manufacturing capacity contracts or
arrangements;
(o) make or revoke any tax election or settle or compromise any income
tax liability or permit any insurance policy naming it as a beneficiary or loss-
payable to expire, or to be canceled or terminated, unless a comparable
insurance policy reasonably acceptable to Parent is obtained and in effect;
(p) allow any insurance policy relating to the Company's assets,
properties or business to be amended or terminated without replacing such policy
with a policy providing at least equal coverage, insuring comparable risks and
issued by an insurance company financially comparable to the prior insurance
company;
(q) fail to file any material Tax Returns when due (or, alternatively,
fail to file for available extensions) or fail to cause such Tax Returns when
filed to be complete and accurate in all material respects;
(r) fail to pay any Taxes or other material debts when due;
33
<PAGE>
(s) commence any litigation or any binding dispute resolution process
(other than in respect of any breach of or claim arising under this Agreement),
or settle or compromise any pending or threatened suit, action, claim or other
dispute that (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which would involve more than Fifty Thousand Dollars
($50,000) or that would otherwise be material to the Company or relates to any
Intellectual Property matters;
(t) take or fail to take any action which action or failure could
reasonably be expected to (i) limit the utilization of any of the net operating
losses, built-in losses, tax credits or other similar items of the Company under
Section 382, 383, 384 or 1502 of the Code and the Treasury Regulations
thereunder, or (ii) cause any transaction in which the Company was a party that
was intended to be treated as a reorganization under Section 368(a) of the Code
to fail to qualify as a reorganization under Section 368(a) of the Code;
(u) except as set forth in Section 4.1(u) of the Company Disclosure
Schedule, enter into any distribution, sponsorship, advertising or other similar
contracts, agreements, or obligations which may not be canceled without penalty
by the Company upon notice of 30 days or less or which provide for payments by
or to the Company in an amount in excess of Fifty Thousand Dollars ($50,000)
over the term of the agreement;
(v) engage in any willful action with the intent to directly or
indirectly adversely impact any of the transactions contemplated by this
Agreement; or
(w) take or agree in writing or otherwise to take any of the actions
described in Sections 4.1(a) through 4.1(v) that it is prohibited from taking
(and it shall use all reasonable efforts not to take any action that would make
any of the representations or warranties of the Company contained in this
Agreement (including the Exhibits hereto) untrue or incorrect).
Section 4.2. No Solicitation or Negotiation. Between the date hereof and
------------------------------
the earlier of the termination of this Agreement and the Effective Time, the
Company shall not (nor shall the Company permit any of its officers, directors,
employees, agents, representatives, stockholders or affiliates or cause any
person on behalf of the Company to) directly or indirectly, take any of the
following actions with any person other than Parent and Acquisition:
(a) solicit, initiate, entertain or encourage any proposals or offers
from, or conduct discussions with or engage in negotiations with any person
relating to any possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise), any material
portion of its or their capital stock or any other equity interest in the
Company or any material part of its assets;
(b) provide information with respect to it to any person, other than
Parent and Acquisition, relating to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any such person with regard to, any possible
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any portion of its or their capital stock or
any other equity interest in the Company or any material part of their
respective assets; or
34
<PAGE>
(c) enter into any agreement with any person providing for the
possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any portion of its or their
capital stock or any other equity interest in the Company or any material part
of its assets.
The Company Board shall not withdraw its recommendation of the transactions
contemplated hereby or approve or recommend an alternative transaction. The
Company shall promptly notify the Parent in the event it receives any proposal
or inquiry from a third party concerning a proposed acquisition of the Company,
including the terms and conditions thereof and the identity of the party
submitting such proposal, and shall advise Parent from time to time of the
status and any material developments concerning the same.
Section 4.3. Approval of Stockholders. The Company shall take all actions
------------------------
necessary in accordance with the MBCL and its Articles of Organization and
bylaws to duly call, give notice of, convene and hold a meeting of or solicit
written consents from its stockholders (including, if necessary, a separate
meeting of or written consent from holders of each of the Series A Preferred
Stock and the Series B Preferred Stock) as promptly as practicable to obtain
their vote or written consent for the adoption and approval of this Agreement
and the transactions contemplated hereby (the "Stockholder Proceedings"). The
stockholder vote or the written consents required for the adoption and approval
of the transactions contemplated by this Agreement shall be the vote required by
the MBCL and the Company's Articles of Organization and bylaws. The Company
will, through the Company Board, recommend to its stockholders approval of such
matters. The Company and Parent shall promptly prepare the Information
Statement for the solicitation of a vote or the written consents of the holders
of Shares approving the Merger, which shall include the recommendation of the
Company Board that stockholders of the Company vote in favor of the approval and
adoption of this Agreement. Whenever any event occurs which is required to be
set forth in an amendment or supplement to the Information Statement, the
Company or Parent, as the case may be, will promptly inform the other of such
occurrence and cooperate in preparing and mailing to stockholders of the
Company, such amendment or supplement. Notwithstanding anything to the contrary
contained in this Agreement, the Company may adjourn or postpone (i) the
Stockholder Proceedings to the extent necessary to ensure that any necessary
supplement or amendment to the Information Statement is provided to the
Company's stockholders in advance of a vote or the acceptance of written
consents on the Merger and this Agreement or (ii) the time for which the
Stockholder Proceedings is originally scheduled (as set forth in the Information
Statement), if there are insufficient Shares represented, either in person or by
proxy, to constitute a quorum necessary to conduct the business of the
Stockholder Proceedings. Parent shall use all reasonable efforts to obtain all
necessary state securities law or "blue sky" permits and approvals required in
connection with the Merger and the consummation of the other transactions
contemplated by this Agreement and will pay all expenses incident thereto,
provided that the Company shall cooperate with Parent in obtaining such permits
and approvals as reasonably requested, at the expense of Parent.
Section 4.4. Access to Information.
---------------------
(a) Between the date hereof and the Effective Time, the Company will
give Parent and its authorized representatives reasonable access to all
employees, plants, offices,
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warehouses and other facilities and to all books and records and personnel files
of current employees of the Company as Parent may reasonably require, and will
cause its officers to furnish Parent or its authorized representatives with such
financial and operating data and other information with respect to the business
and properties of the Company as Parent may from time to time reasonably
request.
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent (i) within two (2) business days following preparation thereof
(and in any event within twenty (20) business days after the end of each
calendar month, commencing with June 2000), an unaudited balance sheet as of the
end of such month and the related statements of earnings, stockholders' equity
(deficit) and cash flows, (ii) within two (2) business days following
preparation thereof (and in any event within twenty (20) business days after the
end of each fiscal quarter) an unaudited balance sheet as of the end of such
quarter and the related statements of earnings, stockholders' equity (deficit)
and cash flows for the quarter then ended, and (iii) within two (2) business
days following preparation thereof (and in any event within ninety (90) calendar
days after the end of each fiscal year, an audited balance sheet as of the end
of such year and the related statements of earnings, stockholders' equity
(deficit) and cash flows, all of such financial statements referred to in
clauses (i), (ii) and (iii) to be prepared in accordance with generally accepted
accounting principles in conformity with the practices consistently applied by
the Company with respect to such financial statements. All the foregoing shall
be in accordance with the books and records of the Company and shall fairly
present its results of operations and financial position (taking into account
the differences between the monthly, quarterly and annual financial statements
prepared by the Company in conformity with its past practices) for such period
or as of the last day of the period then ended, as applicable.
(c) Each of the parties hereto will hold, and will cause its
consultants and advisors to hold, in confidence all documents and information
furnished to it by or on behalf of another party to this Agreement in connection
with the transactions contemplated by this Agreement pursuant to the terms of
that certain Confidentiality Agreement entered into between the Company and
Parent dated May 25, 2000 (the "Confidentiality Agreement").
Section 4.5. Certain Filings; Reasonable Efforts. Subject to the terms
-----------------------------------
and conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take or cause to be taken all action and to do or cause to
be done all things reasonably necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using commercially reasonable efforts
to do the following, (i) cooperate in the preparation of the Information
Statement and any amendments thereto; (ii) obtain consents of all third parties
and Governmental Entities necessary for the consummation of the transactions
contemplated by this Agreement; (iii) contest any legal proceeding relating to
the Merger; and (iv) execute any additional instruments necessary to consummate
the transactions contemplated hereby. Subject to the terms and conditions of
this Agreement, Parent and Acquisition agree to use all reasonable efforts to
cause the Effective Time to occur as soon as practicable after the Stockholder
Proceedings. The Company agrees to use all reasonable efforts to encourage its
employees to accept any offers of continued employment extended by Parent. If
at any time after the Effective Time any further action is necessary to carry
out the purposes of this Agreement the proper officers and directors of each
party hereto shall take all such necessary action.
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Section 4.6. Public Announcements. Neither the Company or any of its
--------------------
affiliates nor Parent or any of its affiliates shall issue any press release or
otherwise make any public statements with respect to the transactions
contemplated by this Agreement, including the Merger, or any proposed Third
Party Acquisition, without the prior consent of the other party.
Section 4.7. Conduct of Business of Parent. Except as contemplated by
-----------------------------
this Agreement, from the date hereof to the Effective Time, neither Parent nor
any of its subsidiaries shall, without the prior written consent of the Company:
(a) amend its Certificate of Incorporation (or other similar governing
instruments) in any manner that would reasonably be expected to materially and
adversely affect the holders of Shares, Company Stock Options or Company
Warrants after the Effective Time; provided that nothing contained in this
Section 4.7(a) shall prohibit Parent from adopting a rights plan or similar
"poison pill" plan as long as the shares of Parent Common Stock to be issued in
connection with this Agreement also include any rights created by such "poison
pill" plan;
(b) adopt a plan of complete or partial liquidation or dissolution of
Parent; provided that nothing contained in this Section 4.7 shall prohibit
Parent from merging with or into or being acquired or purchased by any person;
(c) take or agree in writing or otherwise to take any of the actions
described in Sections 4.7(a) and (b) that it is prohibited from taking (and it
shall use all reasonable efforts not to take any action that would make any of
the representations or warranties of Parent contained in this Agreement
(including the Exhibits hereto) untrue or incorrect); or
(d) engage in any willful action with the intent to directly or
indirectly adversely impact any of the transactions contemplated by this
Agreement.
Section 4.8. Indemnification and Directors' and Officers' Insurance.
------------------------------------------------------
(a) From and after the Effective Time, Parent shall cause the
Surviving Corporation to indemnify and hold harmless (and shall also cause the
Surviving Corporation to advance expenses as incurred to the fullest extent
permitted under applicable law to), each person who is now or has been prior to
the date hereof or who becomes prior to the Effective Time an officer or
director of the Company (the "Indemnified D&O Persons") against (i) all
losses, claims, damages, costs, expenses (including counsel fees and expenses),
settlement, payments or liabilities arising out of or in connection with any
claim, demand, action, suit, proceeding or investigation based in whole or in
part on or arising in whole or in part out of the fact that such person is or
was an officer or director of the Company, whether or not pertaining to any
matter existing or occurring at or prior to the Effective Time and whether or
not asserted or claimed prior to or at or after the Effective Time ("Indemnified
D&O Liabilities"); (ii) all Indemnified D&O Liabilities based in whole or in
part on or arising in whole or in part out of or pertaining to this Agreement or
the transactions contemplated hereby, in each case to the fullest extent
required or permitted under applicable law and in excess of the limits of
Section 67 of the MBCL and (iii) all costs and expenses, including attorneys
fees and legal expenses incurred by any Indemnified D&O Person in enforcing his
or her rights under this Section 4.8. Nothing contained herein shall make
Parent, Acquisition, the Company or the Surviving Corporation, an
37
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insurer, a co-insurer or an excess insurer in respect of any insurance policies
which may provide coverage for Indemnified D&O Liabilities, nor shall this
Section 4.8 relieve the obligations of any insurer in respect thereto. The
parties hereto intend, to the extent not prohibited by applicable law, that the
indemnification provided for in this Section 4.8 shall apply without limitation
to negligent acts or omissions by an Indemnified D&O Person. Each Indemnified
D&O Person is intended to be a third party beneficiary of this Section 4.8 and
may specifically enforce its terms. This Section 4.8 shall not limit or
otherwise adversely affect any rights any Indemnified D&O Person may have under
any agreement with the Company or under the Company's Articles of Organization
or bylaws as presently in effect or under any provision of applicable law.
(b) Neither Parent nor any of its affiliates shall be obligated to
guarantee the payment or performance of the Surviving Corporation's obligations
under subsection (a) of this Section 4.8 so long as the Surviving Corporation
honors such obligations to the extent of its net worth at the Effective Time,
and neither Parent nor any such affiliate shall have any liability or obligation
to any Indemnified D&O Person arising from the Surviving Corporation's breach
of, or inability to perform its obligations under, such clauses in excess of the
difference between the net worth of the Company at the Effective Time (but such
net worth shall in no way limit the Surviving Corporation's indemnification
obligations under this Section 4.8) and the aggregate of all amounts paid by the
Surviving Corporation in satisfaction of such obligations.
(c) Parent shall use commercially reasonable efforts to add the
officers and directors of the Company as additional insureds under Parent's
directors and officers insurance policies on the same terms as the directors and
officers of Parent's other operating subsidiaries are included in such policies.
Section 4.9. Notification of Certain Matters. The Company shall give
-------------------------------
prompt notice to Parent and Acquisition, and Parent and Acquisition shall give
prompt notice to the Company, of (i) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which has caused or would be likely to
cause any representation or warranty made by it contained in this Agreement to
be untrue or inaccurate in any material respect at or prior to the Effective
Time and (ii) any material failure of the Company, Parent or Acquisition, as the
case may be, to comply with or satisfy in any material respect any covenant
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 4.9
shall not cure such breach or non-compliance or limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 4.10. Tax-Free Reorganization.
-----------------------
(a) The Company, on the one hand, and Parent and Acquisition, on the
other hand, shall execute and deliver to legal counsel to the Company and Parent
certificates substantially in the form attached hereto as Exhibits A-1 and A-2,
------------ ---
respectively, at such time or times as reasonably requested by such legal
counsel in connection with its delivery of an opinion with respect to the
transactions contemplated hereby and the Company and Parent shall each provide a
copy thereof to the other parties hereto. Prior to the Effective Time, none of
the Company, Parent and Acquisition shall take or cause to be taken any action
that would cause to
38
<PAGE>
be untrue (or fail to take or cause not to be taken any action that would cause
to be untrue) any of the representations and warranties in Exhibit A-1 or A-2.
----------- ---
(b) Parent, Acquisition and the Company shall each use its best
efforts to cause the Merger to qualify, and shall not take any actions which
could prevent the Merger from qualifying, as a reorganization qualifying under
the provisions of Section 368(a) of the Code. Parent and the Company shall not,
and Parent shall cause its subsidiaries not to, take or fail to take any action
which action or failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
Notwithstanding any other provision of this Agreement, the obligations set forth
in this Section 4.10(b) shall survive the Effective Time without limitation as
to time or in any other respect.
(c) Parent, Acquisition and the Company shall report the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code in all federal
and, to the extent permitted, state and local Tax Returns filed after the
Effective Time. Notwithstanding any other provision of this Agreement, the
obligations set forth in this Section 4.10(c) shall survive the Effective Time
without limitation as to time or in any other respect.
Section 4.11. Additions to and Modification of Company Disclosure
---------------------------------------------------
Schedule. Concurrently with the execution and delivery of this Agreement, the
--------
Company has delivered to Parent a Company Disclosure Schedule that includes all
of the information required by the relevant provisions of this Agreement. In
addition, the Company shall deliver to Parent such additions to or modifications
of any Sections of the Company Disclosure Schedule necessary to make the
information set forth therein true, accurate and complete in all material
respects as soon as practicable after such information is available to the
Company after the date of execution and delivery of this Agreement; provided,
however, that such disclosure shall not be deemed to constitute an exception to
its representations and warranties under Article II, nor limit the rights and
remedies of Parent and Acquisition under this Agreement for any breach by the
Company of such representation and warranties.
Section 4.12. Employee Matters.
----------------
(a) Employees. All employees of the Company at the Effective Time
---------
are hereinafter referred to as "Continuing Employees." Continuing Employees
will be subject to employment at the will of the Surviving Corporation unless
there exists an employment agreement covering such Continuing Employee. As a
condition of their continuing employment with the Surviving Corporation, all
Continuing Employees will be required to sign Parent's standard form of non-
disclosure, assignment of inventions and confidentiality agreement (the
"Employee Non-Disclosure Agreement").
(b) Agranat SARSEP Plan. The Company shall cause the Agranat Salary
-------------------
Reduction SEP Plan (the "SARSEP Plan") to terminate on or immediately prior
to the Effective Time, without any continuing obligation to the Company or the
Surviving Corporation, other than administrative matters in connection with such
termination. The Company agrees that any employee, consultant or any other
person who, as of the date hereof, is not a participant in or does not have
rights under the SARSEP Plan, shall not become a participant in, or be granted
any rights under, the SARSEP Plan. At Parent's request, the Company shall take
all necessary
39
<PAGE>
actions to terminate or freeze immediately prior to or at the Effective Time
such other Employee Plans as selected by Parent.
(c) Participation in Parent Plans. Parent has furnished to the
-----------------------------
Company descriptions of each of the material employee benefit plans made
available by it generally to its employees (the "Parent Plans"). Parent
covenants that the Continuing Employees shall either (i) continue to be eligible
to participate in substantially all of the Employee Plans existing immediately
prior to the Closing Date subject to their terms and conditions, or (ii) as
soon as practicable after the Closing Date, be eligible to participate in the
Parent Plans on substantially the same terms and conditions as similarly
situated employees of Parent and that for purposes of participation in any
Parent Plan, except for any "defined benefit plan" (as defined in ERISA), the
Continuing Employees shall receive full credit for purposes of eligibility,
vesting and benefit accrual under the Parent Plan for the time of service with
the Company to the same extent as if such Continuing Employees had been
continuously employed for such periods of time with Parent, and they shall not
be subject to any pre-existing condition exclusions under any health care plan
maintained by Parent for the employees of the Parent or its subsidiaries (except
for those existing under any health care plan maintained by the Company).
Nothing in this section shall limit Parent's ability to modify or terminate any
employee benefit plan or arrangement including any Employee Plan or Parent Plan
in accordance with the terms of such plan and any applicable law.
Section 4.13. Nasdaq Listing. In accordance with the rules and
--------------
regulations of the Nasdaq National Market, Parent shall cause the shares of
Parent Common Stock to be issued in exchange for the Shares to be approved for
listing on the Nasdaq National Market, subject to official notice of issuance.
Section 4.14. Termination of Certain Company Agreements. The Company
-----------------------------------------
shall take all actions necessary to cause the agreements set forth in Section
4.14 of the Company Disclosure Schedule to be terminated as of or prior to the
Effective Time and without any continuing obligation to the Company or the
Surviving Corporation, other than administrative matters in connection with such
termination.
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 5.1. Conditions to Each Party's Obligations to Effect the Merger.
-----------------------------------------------------------
The respective obligations of each party hereto to effect the Merger are subject
to the satisfaction or waiver at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the stockholders of the Company;
(b) no statue, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
Governmental Entity that prohibits, restrains, enjoins or restricts the
consummation of the Merger;
40
<PAGE>
(c) any other governmental or regulatory notices, approvals or other
requirements necessary to consummate the transactions contemplated hereby and to
operate the Company's business after the Effective Time in all material respects
as it was operated prior thereto shall have been given, obtained or complied
with, as applicable; and
(d) Parent shall have received all state securities laws or "blue sky"
permits and authorizations necessary to issue the shares of Parent Common Stock
as contemplated herein in exchange for Shares and Company Warrants in the
Merger.
Section 5.2. Conditions to the Obligations of the Company. The obligation
--------------------------------------------
of the Company to effect the Merger is subject to the satisfaction or waiver at
or prior to the Effective Time of the following conditions:
(a) the representations and warranties of Parent and Acquisition
contained in this Agreement shall be true and correct, except to the extent that
the aggregate of all breaches thereof would not have a Material Adverse Effect
on Parent, as of the date hereof and at and as of the Effective Time with the
same effect as if made at and as of the Effective Time (except to the extent
such representations specifically relate to an earlier date, in which case such
representations shall be true and correct as of such earlier date and, in any
event, subject to the foregoing Material Adverse Effect qualification) and, at
the Closing, Parent and Acquisition shall have delivered to the Company a
certificate to that effect, executed by two (2) executive officers of Parent and
Acquisition;
(b) each of the material covenants and obligations of Parent and
Acquisition to be performed at or before the Effective Time pursuant to the
terms of this Agreement shall have been duly performed in all material respects
at or before the Effective Time and, at the Closing, Parent and Acquisition
shall have delivered to the Company a certificate to that effect, executed by
two (2) executive officers of Parent and Acquisition; provided, however, that in
connection with the compliance by Parent or Acquisition with any applicable law
(including the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended)
or obtaining the consent or approval of any Governmental Entity whose consent or
approval may be required to consummate the transactions contemplated by this
Agreement, Parent shall not be (i) required, or be construed to be required, to
sell or divest any material assets or business or to restrict in any material
respect any business operations in order to obtain the consent or successful
termination of any review of any such Governmental Entity regarding the
transactions contemplated hereby or (ii) prohibited from owning, and no material
limitation shall be imposed on Parent's ownership of, any material portion of
the Company's business or assets;
(c) the Company and the stockholders of the Company shall have
received the opinion of tax counsel to Parent reasonably acceptable to the
Company to the effect that (i) the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and (ii) each of Parent, Acquisition and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code, which opinion
may rely on representations substantially in the forms set forth in Exhibits A-1
------------
and A-2 and such other representations as such counsel reasonably deems
---
appropriate and such opinion shall not have been withdrawn or modified in any
material respect;
41
<PAGE>
(d) the Company shall have received the opinion of legal counsel to
Parent and Acquisition as to the matters set forth in Exhibit B; and
---------
(e) there shall have occurred no Material Adverse Effect on Parent.
Section 5.3. Conditions to the Obligations of Parent and Acquisition. The
-------------------------------------------------------
respective obligations of Parent and Acquisition to effect the Merger are
subject to the satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a) the representations and warranties of the Company contained in
this Agreement, except for those contained in Section 2.2, shall be true and
correct, except to the extent that the aggregate of all breaches thereof would
not have a Material Adverse Effect on the Company, and the representations and
warranties of the Company contained in Section 2.2 shall be true and correct in
all respects, in each case as of the date hereof and at and as of the Effective
Time with the same effect as if made at and as of the Effective Time (except to
the extent such representations specifically relate to an earlier date, in which
case such representations shall be true and correct as of such earlier date and,
in any event, subject to the foregoing Material Adverse Effect qualification)
and, at the Closing, the Company shall have delivered to Parent and Acquisition
a certificate to that effect, executed by two (2) executive officers of the
Company;
(b) each of the material covenants and obligations of the Company to
be performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time and, at the Closing, the Company shall have delivered to
Parent and Acquisition a certificate to that effect, executed by two (2)
executive officers of the Company;
(c) there shall not have occurred a Material Adverse Effect on the
Company;
(d) Parent shall have received the opinion of tax counsel to Parent
reasonably acceptable to Parent to the effect that (i) the Merger will be
treated for Federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code and (ii) each of Parent, Acquisition and the
Company will be a party to the reorganization within the meaning of Section
368(b) of the Code, which opinion may rely on representations substantially in
the forms set forth in Exhibits A-1 and A-2 and such other representations as
------------ ---
such counsel reasonably deems appropriate, and such opinion shall not have been
withdrawn or modified in any material respect;
(e) Parent shall have received the opinion of legal counsel to the
Company as to the matters set forth in Exhibit C;
---------
(f) the Company shall have obtained the consent or approval of each
person listed in Section 5.3(f) of the Company Disclosure Schedule whose consent
or approval shall be required in order to permit the succession by the Surviving
Corporation pursuant to the Merger to any agreement, instrument, obligation,
right, permit or interest of the Company;
42
<PAGE>
(g) no more that three percent (3%) of the outstanding Shares shall be
Dissenting Shares or other Shares with respect to which dissenter's rights have
not been terminated;
(h) All actions necessary for the termination of the SARSEP Plan and
the termination or freezing of any other Employee Plan requested by Parent
pursuant to Section 4.12 effective as of the Effective Date shall have occurred,
without any continuing obligation on the part of the Company, Parent or the
Surviving Corporation, other than administrative matters in connection with such
termination or freezing;
(i) All actions necessary for the termination of the agreements of the
Company set forth in Section 4.14 shall have occurred; and
(j) The Company shall have delivered to Parent the Final Audited
Financial Statements, and such Final Audited Financial Statements shall not
disclose any material adverse change from the corresponding balance sheet and
statement of earnings/operations included in the Financial Statements.
ARTICLE VI
TERMINATION; AMENDMENT; WAIVER
Section 6.1. Termination. This Agreement may be terminated and the Merger
-----------
may be abandoned at any time prior to the Effective Time, whether before or
after approval and adoption of this Agreement by the Company's stockholders:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if (i) any court of
competent jurisdiction in the United States or other Governmental Entity shall
have issued a final order, decree or ruling, or taken any other final action,
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action is or shall have become nonappealable or (ii) the
Merger has not been consummated by November 21, 2000 (the "Final Date.");
provided that no party may terminate this Agreement pursuant to this clause (ii)
if such party's failure to fulfill any of its obligations under this Agreement
shall have been a principal reason that the Effective Time shall not have
occurred on or before said date;
(c) by the Company (i) if any representations or warranties of Parent
or Acquisition shall have become untrue such that the conditions set forth in
Section 5.2(a) would be incapable of being satisfied by the Final Date,
provided, that the Company has not breached any of its obligations,
representations or warranties hereunder to an extent that would entitle Parent
or Acquisition to terminate this Agreement pursuant to Section 6.1(d); (ii) if
there shall have been a breach by Parent or Acquisition of any of their
respective covenants or agreements hereunder and Parent has not cured such
breach within fifteen (15) business days after notice by the Company thereof,
such that the conditions set forth in Section 5.2(b) would be incapable of being
satisfied within such fifteen (15)-day period or, if within fifteen (15) days of
the Final Date, by the Final Date, provided that the Company has not breached
any of its obligations,
43
<PAGE>
representations or warranties hereunder to an extent that would entitle Parent
or Acquisition to terminate this Agreement pursuant to Section 6.1(d); or
(d) by Parent and Acquisition (i) if any representations or warranties
of the Company shall have become untrue such that the conditions set forth in
Section 5.3(a) would be incapable of being satisfied by the Final Date,
provided, that neither Parent nor Acquisition has breached any of their
respective obligations hereunder to an extent that would entitle the Company to
terminate this Agreement pursuant to Section 6.1(c); (ii) if there shall have
been a breach by the Company of any of its covenants or agreements hereunder
such that the conditions set forth in Section 5.3(b) would be incapable of being
satisfied within such fifteen (15)-day period or, if within fifteen (15) days of
the Final Date, by the Final Date, provided that neither Parent nor Acquisition
has breached any of its obligations, representations or warranties hereunder to
an extent that would entitle the Company to terminate this Agreement pursuant to
Section 6.1(c); (iii) if the Company Board shall have withdrawn or adversely
modified its approval or recommendation of this Agreement or the Merger; (iv) if
the Company shall have ceased its efforts to call, give notice of, or convene or
hold a stockholders' meeting to vote on or to solicit stockholder written
consent of the Merger as required by Section 4.3 as promptly as practicable
after the date hereof or shall have adopted a resolution not to effect any of
the foregoing; (v) if the Company shall have convened a meeting of its
stockholders to vote upon or attempted to obtain the written consent of its
stockholders to approve the Merger and shall have failed to obtain the requisite
vote or consent of its stockholders; or (vi) if more that three percent (3%) of
the Shares shall be Dissenting Shares or other Shares with respect to which
dissenter's rights have not been terminated.
Section 6.2. Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement by the Company or Parent and Acquisition pursuant
to Section 6.1, this Agreement shall forthwith become void and have no effect
without any liability on the part of any party hereto or its affiliates,
directors, officers or stockholders other than the provisions of this Section
6.2 and Section 6.3 and the provisions of Article VIII (other than Section 8.7,
in which case, the only clauses that shall survive shall be the clauses in such
section that contain defined terms that are referenced in the foregoing
surviving sections); provided, however, that the Confidentiality Agreement shall
survive the termination of this Agreement. Nothing contained in this Section
6.2 shall relieve any party from liability for any breach of this Agreement
prior to such termination for fraud or intentional misrepresentation.
Notwithstanding the foregoing, if this Agreement is terminated for any reason
whatsoever, then for a one (1)-year period thereafter, neither Parent or
Acquisition nor the Company shall directly or indirectly (including, without
limitation, through any existing or future affiliate of such party), solicit any
existing and future employee of the other party (or any existing or future
affiliate of such party) to leave his or her employment with such other party or
knowingly induce or knowingly attempt to induce any such employee to terminate
or breach his or her employment agreement, if any, with such other party or any
existing or future affiliate of the Party.
44
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Section 6.3. Fees and Expenses. Except as otherwise provided in Article
-----------------
VII, each party shall bear its own expenses in connection with this Agreement,
the Merger and the transactions contemplated hereby.
Section 6.4. Amendment. This Agreement may be amended by action taken by
---------
mutual agreement of the Company, Parent and Acquisition at any time before or
after approval of the Merger by the stockholders of the Company, but after any
such stockholder approval is obtained, no amendment shall be made that requires
the approval of such stockholders under applicable law without such approval.
This Agreement (including, subject to Section 4.9, the Company Disclosure
Schedule) may be amended only by an instrument in writing signed on behalf of
the parties hereto.
Section 6.5. Extension; Waiver. At any time prior to the Effective Time,
-----------------
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument, in writing, signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE VII
INDEMNIFICATION
Section 7.1. General Survival. The parties agree that, regardless of
----------------
any investigation made by the Parent and Acquisition, the representations,
warranties, covenants and agreements (in the case of covenants and agreements,
to the extent of performance or non-performance prior to the Effective Time) of
the Company contained in this Agreement shall survive the execution and delivery
of this Agreement for a period beginning on the date hereof and ending at 5:00
p.m., California time, on the first (1st) anniversary of the date on which the
Effective Time occurs (the "Survival Period"). The parties agree that,
regardless of any investigation made by the Company, the representations and
warranties of Parent contained in this Agreement shall survive the execution and
delivery of this agreement for a period beginning on the date hereof and ending
on the last day of the statute of limitations period applicable to claims
related thereto.
Section 7.2. Indemnification Provisions in General.
-------------------------------------
(a) Subject to Section 7.1, from and after the Effective Time,
Parent, Acquisition and the Surviving Corporation and their respective
affiliates, officers, directors, stockholders, representatives and agents
(collectively the "Indemnitees") shall be indemnified and held harmless by
each former holder of Shares or Company Warrants, but only from and to the
extent of such holder's pro rata portion of the Escrow Amount, from and against
and in respect of any and all Losses incurred by, resulting from, arising out
of, relating to, imposed upon or incurred by Parent, Acquisition, the Surviving
Corporation or any other Indemnitee (i) by reason of any inaccuracy in or breach
of any of the Company's representations, warranties,
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<PAGE>
covenants or agreements (to the extent of performance or non-performance prior
to the Closing Date) contained in this Agreement or any certificate of the
Company delivered in connection with the Closing or (ii) in connection with the
Company obtaining the consent to the Merger of the landlord under the lease
described in Section 2.12(a) of the Company Disclosure Schedule or arising as a
result of any failure of the Company to obtain such consent.
For purposes of this Agreement, the term "Losses" means any and all
deficiencies, judgments, settlements, demands, claims, suits, actions or causes
of action, assessments, liabilities, losses, damages (whether direct, indirect,
incidental or consequential), interest, fines, penalties, costs, expenses
(including reasonable legal, accounting and other costs and expenses of
professionals) incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims, actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor, and interest on any of the foregoing from the date incurred until paid
at the prime rate published from time to time by Chase Manhattan Bank.
(b) Any claims for indemnification hereunder must be set forth in
writing, contain a reasonably detailed description of the nature of and the
events or circumstances underlying the claim for indemnification hereunder and
be received by each of the Securityholder Agent and the Escrow Agent not later
than the expiration of the Survival Period (a "Survival Period Indemnification
Claim").
(c) No Indemnitee shall be entitled to indemnification hereunder for
any Losses until the aggregate subject to indemnification hereunder in full,
amount of all Losses under all Survival Period including the amount of the
Floor; provided, Indemnification Claims shall exceed Three Hundred however, that
the provisions of this Subsection and Fifty Thousand Dollars ($350,000) (the
"Floor"), at which time all Losses incurred shall be (c) shall not apply with
respect to Losses in respect of a Survival Period Indemnification Claim arising
out of any breach of the representations and warranties of the Company contained
in Sections 2.2 and 2.17(i), and Parent and the Surviving Corporation shall be
entitled to indemnification in the event of a breach of such Sections without
applicability of the Floor.
(d) An Indemnitee shall be entitled to indemnification hereunder only
for Losses for which notice of the related Survival Period Indemnification Claim
from which such Losses arose is received by the Securityholder Agent prior to
the expiration of the Survival Period.
Section 7.3 Excess Indemnity.
----------------
(a) In addition to those rights of indemnity set forth in Section 7.2,
above, Indemnitees shall be indemnified and held harmless by Indemnitors, to the
extent of each Indemnitor's pro rata portion of the Excess Escrow Amount (as
defined below), with respect to the matters described and to the extent provided
in Section 3 of the Escrow Agreement ("Excess Indemnification Claims"). For
purposes of this Section, Losses shall include, in addition to those items set
forth in Section 7.2(a), above, costs of whatever nature arising from any
contractual or statutory duty of indemnity that Indemnitees may owe to the
Company's or Parent's customers.
(b) For purposes of this Section 7.3, the "Excess Escrow Amount: shall
be equal to (i) through the last day of the Survival Period, the Escrow Amount
(less any amount by
46
<PAGE>
which the Escrow Amount has been reduced as a result of the satisfaction of any
Survival Period Indemnification Claim or Excess Indemnification Claim and (ii)
from immediately after the end of the Survival Period through 5:00 p.m.,
California time, on the second (2nd) anniversary of the date on which the
Effective Time occurs, the number of shares of Parent Common Stock having a fair
market value at the end of the Survival Period equal to One Million Dollars
($1,000,000).
(c) Subject to the terms of the Escrow Agreement, the rights of
indemnity set forth in Section 7.3 shall remain in full force and effect for a
period of up to two (2) years from the Effective Date.
(d) Any claims for indemnification under this Section 7.3 must be set
forth in writing, contain a reasonably detailed description of the nature of and
the events or circumstances underlying the claim for indemnification hereunder
and be received by the Securityholder Agent not later than 5:00 pm, California
time, on the second (2nd) anniversary of the Effective Time.
Section 7.4. Manner of Indemnification.
-------------------------
(a) To provide a fund against which an Indemnitee may assert Survival
Period Indemnification Claim under this Article VII, the Escrow Amount shall be
deposited into escrow pursuant to the Escrow Agreement in accordance with
Section 1.10(i). The Escrow Amount so deposited, and interest and other
earnings payable thereon, shall be held and distributed in accordance with the
Escrow Agreement.
(b) Each Survival Period Indemnification Claim or Excess
Indemnification Claim shall be made only in accordance with this Article VII and
the Escrow Agreement.
(c) Any indemnification payments made from the Escrow Account pursuant
to Section 7.2 or Section 7.3 shall constitute an adjustment to the dollar value
of the aggregate consideration payable by Parent to the holders of the
securities of the Company.
Section 7.5. Securityholder Agent. For purposes of this Agreement,
--------------------
immediately and automatically upon the approval of this Agreement by the
requisite vote or written consent of the Company's stockholders, and as further
confirmed by each holder of Shares and Company Warrants upon execution and
delivery in accordance with the instructions set forth therein of the letter of
transmittal contemplated by Section 1.10(b), and, without any further action on
the part of any such holder, each holder of Shares or Company Warrants shall be
deemed to have consented to the appointment of Owen Robbins, as his, her or its
representative and the attorney-in-fact for and on behalf of each such holder of
Shares or Company Warrants, and the taking by the Securityholder Agent of any
and all actions and the making of any decisions required or permitted to be
taken by him under this Agreement, the Escrow Agreement and the Registration
Rights Agreement, including the exercise of the power to (i) execute the Escrow
Agreement and the Registration Rights Agreement, (ii) authorize delivery to
Parent and Acquisition of the Escrow Amount, or any portion thereof, in
satisfaction of Survival Period Indemnification Claims or Excess Indemnification
Claims, (iii) agree to, negotiate, enter into settlements and compromises of and
comply with orders of courts and awards of arbitrators with respect to such
Survival Period Indemnification Claims or Excess Indemnification Claims, (iv)
resolve any Survival Period Indemnification Claims and (v) take all actions
necessary in the judgment of the
47
<PAGE>
Securityholder Agent for the accomplishment of the foregoing and all of the
other terms, conditions and limitations of this Agreement, the Escrow Agreement
and the Registration Rights Agreement. Accordingly, the Securityholder Agent has
unlimited authority and power to act on behalf of each holder of Shares or
Company Warrants with respect to this Agreement and the Escrow Agreement and the
disposition, settlement or other handling of all Survival Period Indemnification
Claims and Excess Indemnification Claims, rights or obligations arising from and
taken pursuant to each such agreement. The holders of Shares or Company Warrants
will be bound by all actions taken by the Securityholder Agent in connection
with this Agreement or the Escrow Agreement or, to the extent provided therein,
the Registration Rights Agreement, and Parent and Acquisition shall be entitled
to rely on any action or decision of the Securityholder Agent. The
Securityholder Agent will incur no liability with respect to any action taken or
suffered by him or her in reliance upon any notice, direction, instruction,
consent, statement or other document believed by him or her to be genuine and to
have been signed by the proper person (and shall have no responsibility to
determine the authenticity thereof), nor for any other action or inaction,
except his or her own willful misconduct or gross negligence. In all questions
arising under this Agreement, the Registration Rights Agreement or the Escrow
Agreement, the Securityholder Agent may rely on the advice of counsel, and the
Securityholder Agent will not be liable to anyone for anything done, omitted or
suffered in good faith by the Securityholder Agent based on such advice. The
Securityholder Agent will not be required to take any action involving any
expense unless the payment of such expense is made or provided for in a manner
satisfactory to him or her. At any time, holders of a majority in interest of
the Escrow Amount, determined at the Effective Time, may appoint a new
Securityholder Agent by written consent by sending notice and a copy of the
written consent appointing such new Securityholder Agent signed by holders of a
majority in interest of the Escrow Amount to Parent and the Escrow Agent. Such
appointment will be effective upon the later of the date indicated in the
consent or the date such consent is received by Parent, Acquisition (or, if
after the Effective Time, the Surviving Corporation) and the Escrow Agent.
Section 7.6. Third-Party Claims; Lease Consent.
---------------------------------
(a) If Parent becomes aware of a third-party claim that Parent
believes, in good faith, may result in the assertion by it of a Survival Period
Indemnification Claim or Excess Indemnification Claim against the Escrow Amount,
Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent, as representative for the holders of Shares and Company
Warrants, shall be entitled to participate in any defense of such third-party
claim. The reasonable costs of the defense of any third-party action or claim
incurred by the Securityholder Agent shall be paid by the holders of Shares and
Company Warrants out of the Escrow Amount. Notwithstanding the immediately
preceding sentence, Parent shall conduct such defense, but shall not settle any
such claim without the consent of the Securityholder Agent, such consent not to
be unreasonably withheld; provided, however, that, if the consent of the
Securityholder Agent is so obtained, such settlement of that portion of any such
claim shall alone be determinative of the amount (but not the right of Parent to
receive payment from the Escrow Amount) of the Survival Period Indemnification
Claim or Excess Indemnification Claim and neither the Securityholder Agent nor
any person who has a beneficial interest in the Escrow Amount shall have any
power or authority to object under any provision of this Article VII to the
amount of (but shall not be precluded from contesting the right of Parent to
make) any demand by Parent against the Escrow Amount with respect to such
settlement.
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<PAGE>
(b) Notwithstanding the foregoing, the Company and the Securityholder
Agent shall conduct all negotiations with the landlord regarding the consent
described in Section 7.2(a)(ii), but shall not agree to pay any amount to the
landlord in connection with obtaining such consent in excess of the amounts
contemplated in the lease described in Section 7.2(a)(ii) (the "Lease") without
the consent of Parent, such consent not to be unreasonably withheld; provided
that Parent's granting such consent shall have no effect on the amount of Losses
for which any Indemnitee may claim indemnification pursuant to Section
7.2(a)(ii). Further, the Company and the Securityholder Agent shall control all
litigation and any other legal action in any way relating to the Lease or to
obtaining the consent thereto described in section 7.2(a)(ii), and the
reasonable costs of such litigation or legal action incurred by the Company or
the Securityholder Agent shall be paid out of the Escrow Amount.
Section 7.7. Exclusive Remedy. Notwithstanding any other provision of
----------------
this Agreement to the contrary, the Escrow Amount shall be the sole and
exclusive remedy of the Indemnitees for, and no stockholder of the Company shall
have any personal liability whatsoever in respect of, any Survival Period
Indemnification Claims or Excess Indemnification Claims or any Losses by any of
the Indemnitees arising under this Agreement, including claims of breach of any
representation, warranty, covenant or agreement in this Agreement. Neither the
Escrow Agent nor the Securityholder Agent shall transfer any other property
other than the Escrow Amount or the Excess Amount in satisfaction of any
Survival Period Indemnification Claim or Excess Indemnification Claim.
Notwithstanding the first two sentences of this Section 7.7, nothing in this
Agreement shall be deemed a waiver by any party of any right to specific
performance or injunctive relief, or any right or remedy arising by reason of
any claim of fraud or intentional misrepresentation with the respect to this
Agreement or any of the other Transaction Documents or any right set forth in
Section 6.3.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Entire Agreement; Assignment. This Agreement (including the
----------------------------
Exhibits and the Company Disclosure Schedule and any other Schedule hereto or
thereto) (a) constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings both written and oral between the parties with respect to the
subject matter hereof and (b) shall not be assigned by operation of law or
otherwise.
Section 8.2. Validity. If any provision of this Agreement or the
--------
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby and to
such end the provisions of this Agreement are agreed to be severable.
Section 8.3. Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or sent by nationally recognized overnight courier to each other
party as
49
<PAGE>
set forth below or to such other address as the party to whom notice is
to be given may have furnished to the other parties hereto in writing in
accordance herewith. Any such notice or communication shall be deemed to have
been delivered and received (a) in the case of personal delivery, on the date of
such delivery, (b) in the case of facsimile, on the date sent if confirmation of
receipt is received and such notice is also promptly mailed by registered or
certified mail (return receipt requested), (c) in the case of a nationally
recognized overnight courier in circumstances under which such courier
guarantees next business day delivery, on the next business day after the date
when sent and (d) in the case of mailing, on the fourth business day following
that on which the piece of mail containing such communication is posted:
if to Parent or Acquisition: Virata Corporation
2933 Bunker Hill Lane, Suite 201
Santa Clara, California 95054
Telecopier: (408) 980-8271
Attention: Andrew M. Vought
with a copy to: Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Telecopier: (202) 467-0539
Attention: Stephen I. Glover
if to the Company to: Agranat Systems, Inc.
5 Clock Tower Place, Suite 400
Maynard, Massachusetts 01754
Telecopier: (978) 461-2080
Attention: Ian Agranat
with a copy to: Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, Massachusetts 02110
Telecopier: (617) 248-7100
Attention: Mark H. Burnett
if to the Securityholder Agent: Owen Robbins
c/o Agranat Systems, Inc.
5 Clock Tower Place, Suite 400
Maynard, Massachusetts 01754
Telecopier: (978) 461-2080
with a copy to: Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, Massachusetts 02110
Telecopier: (617) 248-7100
Attention: Mark H. Burnett
50
<PAGE>
Section 8.4. Governing Law; Venue; Specific Performance; Waiver of Jury
----------------------------------------------------------
Trial.
-----
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS
SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW
OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. The parties hereby irrevocably submit to the jurisdiction
of the courts of the Commonwealth of Massachusetts and the Federal courts of the
United States of America located within the Middlesex County in the Commonwealth
of Massachusetts solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated hereby, and hereby waive, and
agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a Commonwealth
of Massachusetts or Federal court. The parties hereby consent to and grant any
such court jurisdiction over the person of such parties and over the subject
matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
8.3 or in such other manner as may be permitted by applicable law, shall be
valid and sufficient service thereof.
(b) The parties agree that irreparable damage would occur and that the
parties would not have any adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any Federal court or Commonwealth of Massachusetts court located
within the Middlesex County in the Commonwealth of Massachusetts, this being in
addition to any other remedy to which they are entitled at law or in equity.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND
CERTIFICATIONS IN THIS SECTION 8.4(c).
51
<PAGE>
Section 8.5. Descriptive Headings and Section References. The
-------------------------------------------
descriptive headings herein are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement. All Article, Section, subsection, paragraph and clause
references in this Agreement are to Articles, Sections, subsections, paragraphs
and clauses, respectively, of this Agreement unless otherwise specified.
Section 8.6. Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided in this Agreement to the
contrary, nothing in this Agreement is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement nor shall any such person be entitled to assert any
claim hereunder; provided, however, that the Indemnified D&O Persons (and their
executors and heirs) are intended beneficiaries of Section 4.8.
Section 8.7. Certain Definitions. For purposes of this Agreement the term:
-------------------
(a) "affiliate" means a person that, directly or indirectly,
through one or more intermediaries controls, is controlled by or is under common
control with the first-mentioned person;
(b) "business day" means any day other than a day on which the Nasdaq
National Market is closed;
(c) "capital stock" means common stock, preferred stock,
partnership interests, limited liability company interests or other ownership
interests entitling the holder thereof to vote with respect to matters involving
the issuer thereof;
(d) "include" or "including" means "include, without limitation" or
"including, without limitation," as the case may be, and the language following
"include" or "including" shall not be deemed to set forth an exhaustive list.
(e) "knowledge" or "known" means, with respect to any fact,
circumstance, event or other matter in question, the actual knowledge of such
fact, circumstance, event or other matter, in the case of the Company, of those
persons listed in Section 8.7(e) of the Company Disclosure Schedule and, in the
case of Parent, of its executive officers. Any such individual will be deemed to
have knowledge of a particular fact, circumstance, event or other matter if (i)
such individual has actual knowledge of such fact, circumstance, event or other
matter, (ii) such fact, circumstance, event or other matter is reflected in one
or more documents (whether written or electronic, including e-mails sent to or
by such individual) in, or that have been in, such individual's possession,
including personal files of such person, or (iii) such fact, circumstance, event
or other matter is reflected in one or more documents (whether written or
electronic) contained in books and records of the Company (in the case of
knowledge of the Company) or Parent (in the case of knowledge of Parent) that
would reasonably be expected to be reviewed by a person who has the duties and
responsibilities of such individual in the customary performance of such duties
and responsibilities.
(f) "Lien" means, with respect to any asset (including any
security), any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such
52
<PAGE>
asset; provided, however, that the term "Lien" shall not include (i) statutory
liens for Taxes that are not yet due and payable or are being contested in good
faith by appropriate proceedings or that are otherwise not material and are
fully reserved against in the Financial Statements, (ii) statutory or common law
liens to secure obligations to landlords, lessors or renters under leases or
rental agreements confined to the premises rented, (iii) deposits or pledges
made in connection with, or to secure payment of, workers' compensation,
unemployment insurance, old age pension or other social security programs
mandated under applicable laws, (iv) statutory or common law liens in favor of
carriers, warehousemen, mechanics and materialmen, to secure claims for labor,
materials or supplies and other like liens, and (v) restrictions on transfer of
securities imposed by applicable state and federal securities laws.
(g) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity including any Governmental Entity; and
(h) "subsidiary" or "subsidiaries" of the Company, Parent, the
Surviving Corporation or any other person means any corporation, partnership,
limited liability company, association, trust, unincorporated association or
other legal entity of which the Company, Parent, the Surviving Corporation or
any such other person, as the case may be (either alone or through or together
with any other subsidiary), owns, directly or indirectly, 50% or more of the
capital stock the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
(i) "Transaction Documents" means, collectively, this Agreement
(including the Company Disclosure Schedule and Exhibits hereto), the Voting
Agreements, the Escrow Agreement, the Employment Agreements, the Registration
Rights Agreement, the Non-competition Agreements, the Confidentiality Agreement
and any other agreements or certificate delivered in connection with the
Closing.
Section 8.8. Personal Liability. Except as and to the extent expressly
------------------
provided elsewhere in this Agreement, this Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect holder of Shares, Company Stock Options or Company
Warrants or any direct or indirect stockholder of Parent or Acquisition or any
officer, director, employee, agent, representative or investor of any party
hereto.
Section 8.9. Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
53
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement and Plan
of Merger to be duly executed on its behalf as of the day and year first above
written.
VIRATA CORPORATION
By: /S/ Andrew M. Vought
--------------------------------
Name: Andrew M. Vought
Title: Senior Vice President and
Chief Financial Officer
AGRANAT SYSTEMS, INC.
By: /S/ Ian Agranat
--------------------------------
Name: Ian Agranat
Title: President and Treasurer
AGRANAT ACQUISITION, INC.
By: /S/ Andrew M. Vought
--------------------------------
Name: Andrew M. Vought
Title: Vice President and Treasurer
SECURITYHOLDER AGENT
/S/ Owen Robbins
-------------------------------------
Owen Robbins
54
<PAGE>
EXHIBIT A-1
Form of Representations Relating to Tax Matters of the Company
--------------------------------------------------------------
1. As of the Effective Time, the Company will hold at least ninety percent
(90%) of the fair market value of the net assets and at least seventy percent
(70%) of the fair market value of the gross assets held by it immediately prior
to the Merger. For purposes of this paragraph, the following assets will be
treated as assets of the Company immediately prior to, but not as of the
Effective Time, of the Merger: (i) assets used by the Company (other than
assets transferred from Parent to Acquisition for such purpose) to pay
stockholders perfecting their dissenters' rights or to pay other expenses or
liabilities incurred in connection with the Merger and (ii) assets used by the
Company to make distributions, redemptions or other payments in respect of stock
of the Company (except for regular, normal distributions) or in respect of
rights to acquire such stock (including payments treated as such for tax
purposes) that are made in contemplation of the Merger or that are related
thereto;
2. Other than in the ordinary course of business or pursuant to its
obligations under the Agreement, the Company has not disposed of any of its
assets (including any distribution of assets with respect to, or in redemption
of, stock) since January 1, 1999;
3. The Company's principal reasons for participating in the Merger are
bona fide business purposes unrelated to taxes;
4. In the Merger, Shares representing "Control" of the Company will be
exchanged solely for Parent Common Stock, which constitutes voting stock. For
purposes of this paragraph, Shares exchanged in the Merger for cash and other
property (including, without limitation, cash paid to stockholders of the
Company perfecting dissenters' rights or in lieu of fractional shares of Parent
Common Stock) will be treated as outstanding Shares on the date of the Merger
but not exchanged for shares of Parent Common Stock. As used herein, "Control"
shall consist of direct ownership of shares of stock possessing at least eighty
percent (80%) of the total combined voting power of shares of all classes of
stock entitled to vote and at least eighty percent (80%) of the total number of
shares of all other classes of stock of the corporation. For purposes of
determining Control, a person shall not be considered to own shares of voting
stock if rights to vote such shares (or to restrict or otherwise control the
voting of such shares) are held by a third party (including a voting trust)
other than an agent of such person;
5. Except as specified in the Agreement, the Company has no outstanding
warrants, options, convertible securities or any other type of right to acquire
capital stock of the Company (or any other equity interest in the Company) or to
vote (or restrict or otherwise control the vote of) shares of the Company's
capital stock that, if exercised, would affect Parent's acquisition and
retention of Control of the Company;
6. The payment of cash in lieu of fractional shares of Parent Common Stock
is solely for the purpose of avoiding the expense and inconvenience to Parent of
issuing fractional shares and does not represent separately bargained for
consideration. The total cash consideration that will be paid in the Merger to
the Company stockholders in lieu of fractional shares of Parent
1
<PAGE>
Common Stock will not exceed one percent (1%) of the total consideration that
will be issued in the Merger to the Company stockholders in exchange for their
Shares;
7. The Company has no plan or intention to issue additional shares of
capital stock after the Merger, or take any other action, that would result in
Parent losing Control of the Company;
8. The Company has no plan or intention to sell or otherwise dispose of
any of its assets or of any of the assets acquired from Acquisition in the
Merger except for dispositions made in the ordinary course of business and
except for transfers of its assets or assets of Acquisition to a corporation
controlled by the Company;
9. The fair market value of the Company's assets will, at the Effective
Time of the Merger, exceed the aggregate liabilities of the Company plus the
amount of liabilities, if any, to which such assets are subject;
10. The fair market value of the shares of Parent Common Stock received by
each stockholder of the Company will be approximately equal to the fair market
value of the Shares surrendered in exchange therefor and the aggregate
consideration received by the stockholders of the Company in exchange for their
Shares will be approximately equal to the fair market value of all of the
outstanding Shares immediately prior to the Merger;
11. The Company is not an "investment company" within the meaning of
Section 368(a)(2)(F)(iii) and (iv) of the Code;
12. The Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code;
13. There is no plan or intention by the stockholders of the Company who
own five percent (5%) or more of the Company stock, and to the best knowledge of
the management of the Company, there is no plan or intention on the part of the
remaining stockholders of the Company to sell, exchange, or otherwise dispose of
a number of shares of Parent Common Stock received in the Merger that would
reduce the Company stockholders' ownership of Parent Common Stock to a number of
shares having a value, as of the date of the Merger, of less than fifty percent
(50%) of the value of all of the formerly outstanding stock of the Company as of
the same date. For purposes of the preceding sentence, the only transactions
that shall be taken into account are (i) future sales, exchanges or dispositions
of Company stock to or with the Parent or a "related person" as to the Parent or
(ii) future sales, exchanges or dispositions of Company stock for any
consideration that in substance is furnished by the Parent. For purposes of
this representation, any shares of the Company stock exchanged in the Merger for
cash or other property, surrendered by dissenters, or exchanged for cash in lieu
of fractional shares of the Parent Common Stock will be treated as outstanding
stock of the Company on the date of the Merger. For purposes of the foregoing,
two corporations are "related persons" if either (i) the corporations are
members of the same affiliated group as defined in Section 1504 of the Code
without regard to Section 1504(b) of the Code, or (ii) one corporation owns,
directly or indirectly, stock possessing at least fifty percent (50%) of the
total combined voting power of all classes of stock entitled to vote, or at
least fifty percent (50%) of the total value of shares of all
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classes of stock (determined by taking into account the constructive ownership
of stock rules under Section 318(a) of the Code as modified by Section 304(c) of
the Code) of the other corporation. In addition, (i) two corporations will be
related if either of the foregoing relationships exist immediately before the
Merger, immediately after the Merger, or is created in connection with the
Merger, and (ii) a partner of a partnership is treated as owning or acquiring
any stock owned or acquired by the partnership in accordance with that partner's
interest in the partnership;
14. Neither the Company nor a corporation "related" (as defined above) to
the Company has within the last two years redeemed or acquired any shares of
Company stock or entered into any agreement, arrangement, or understanding to
redeem or acquire any shares of Company stock; nor will it redeem or acquire, or
enter into any such agreement, arrangement or understanding to redeem or
acquire, any such shares at any time during the period commencing on the
execution hereof and through the Effective Time;
15. Dividends, if any, that the Company has paid or will pay to its
stockholders prior to the Effective Time have been and will be regular and
normal distributions made in accordance with the Company's past practices, and
the Company has not made any extraordinary distributions (as determined under
Treasury Regulation Section 1.368-1T(e)(1)(ii)(A)) in connection with the
Merger;
16. There is no intercorporate indebtedness existing between Parent and
the Company or between Acquisition and the Company that was issued, acquired, or
will be settled at a discount as a result of the Merger;
17. None of the compensation received by any stockholder-employee of the
Company will be separate consideration for, or allocable to, any of Shares owned
by them; none of the shares of Parent Common Stock received by any stockholder-
employee of the Company will be separate consideration for, or allocable to, any
employment agreement or any covenants not to compete; and the compensation paid
to any stockholder-employee of the Company will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services;
18. Parent, Acquisition, the Company, and the Company's stockholders will
pay their respective expenses, if any, incurred in connection with the Merger;
19. The Company is not currently, and during the five (5) years preceding
the Effective Time will not have been, a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code;
20. The business currently carried on by the Company is its "historic
business" within the meaning of Treasury Regulation Section 1.368-1(d), and no
assets of the Company have been acquired, or sold, transferred or otherwise
disposed of, which would prevent Parent from continuing the "historic business"
of the Company or from using a "significant portion" of the Company's "historic
business" assets in a business following the Merger, as such terms are used in
Treasury Regulation Section 1.368-1(d);
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21. With respect to shares of Parent Common Stock that will be deposited
with the Escrow Agent after the Effective Time, (1) there is a valid business
reason for this escrow arrangement, (2) all dividends paid on such stock will be
distributed currently to the company stockholders, (3) all voting rights of such
stock will be exercisable by or on behalf of the Company stockholders or their
authorized agents, (4) no shares of such stock will be subject to restrictions
requiring their return to Parent because of death, failure to continue
employment, or similar restrictions, (5) all such stock will be released from
the arrangement within five (5) years from the date of the underlying
transaction, (6) at least fifty percent (50%) of the number of shares of issued
initially to the Company stockholders (exclusive of shares which may be received
later under a contingent stock rights arrangement) will not be subject to the
escrow arrangement; (7) the return of stock cannot be triggered by an event
which is within the control of Company stockholders; and (8) the mechanism for
calculation of the number of shares of stock to be returned is objective and
readily ascertainable; and
22. The Shares of Series A Preferred Stock and the Shares of Series B
Preferred Stock were issued by the Company in exchange for cash and thus do not
constitute Section 306 stock.
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EXHIBIT A-2
Form of Representations Relating to Tax Matters of Parent and Acquisition
-------------------------------------------------------------------------
1. The assets transferred to the Company pursuant to the Merger will
represent at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the gross
assets held by Acquisition immediately prior to the Merger. In addition, at
least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held by
the Company immediately prior to the Merger will continue to be held by the
Company after the Merger. For purposes of this paragraph, the following assets
will be treated as assets held by Acquisition or the Company, as the case may
be, immediately prior to, but not as of the Effective Time of, the Merger: (i)
assets used by the Company or Acquisition (other than assets transferred from
Parent to Acquisition for such purpose) to pay stockholders perfecting
dissenters' rights or to pay other expenses or liabilities incurred in
connection with the Merger and (ii) assets used to make distributions,
redemptions or other payments in respect of stock of the Company (except for
regular, normal distributions) or in respect of rights to acquire such stock
(including payments treated as such for tax purposes) that are made in
contemplation of the Merger or that are related thereto;
2. Acquisition was formed solely for the purpose of consummating the
transactions contemplated by the Agreement and at no time will Acquisition
conduct any business activities or other operations, or dispose of any of its
assets, other than pursuant to its obligations under the Agreement;
3. Parent's principal reasons for participating in the Merger are bona
fide business purposes not related to taxes;
4. No shares of Acquisition (or, following the Effective Time, the
Company) have been or will be used as consideration or issued to stockholders of
the Company pursuant to the Merger;
5. Prior to and at the Effective Time, Parent will be in "Control" of
Acquisition. As used herein, "Control" shall consist of direct ownership of
shares of stock possessing at least eighty percent (80%) of the total combined
voting power of all classes of stock entitled to vote and at least eighty
percent (80%) of the total number of shares of all other classes of stock of the
corporation. For purposes of determining Control, a person shall not be
considered to own shares of voting stock if rights to vote such shares (or to
restrict or otherwise control the voting of such shares) are held by a third
party (including a voting trust) other than an agent of such person;
6. In the Merger, Shares representing Control of the Company will be
exchanged solely for Parent Common Stock which constitutes voting stock. For
purposes of this paragraph, Shares exchanged in the Merger for cash and other
property (including, without limitation, cash paid to stockholders of the
Company perfecting dissenters' rights or in lieu of fractional shares of Parent
Common Stock) will be treated as Shares outstanding on the date of the Merger
but not exchanged for Parent Common Stock. Parent has no plan or intention to
cause the Company to
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issue additional Shares after the Merger, or take any other action, that would
result in Parent losing Control of the Company;
7. The payment of cash in lieu of fractional shares of Parent Common Stock
is solely for the purpose of avoiding the expense and inconvenience to Parent of
issuing fractional shares and does not represent separately bargained for
consideration. The total cash consideration that will be paid in the Merger to
the Company stockholders in lieu of fractional shares of Parent Common Stock
will not exceed one percent (1%) of the total consideration that will be issued
in the Merger to the Company stockholders in exchange for their Shares;
8. Parent has no plan or intention to reacquire any of its stock issued in
the Merger. Neither Parent nor any "related person" will, in connection with
the Merger, directly or indirectly reacquire any of Parent's stock issued in the
Merger. For purposes of the foregoing, two corporations are "related persons"
if either (i) the corporations are members of the same affiliated group as
defined in Section 1504 of the Code without regard to section 1504(b) of the
Code, or (ii) one corporation owns, directly or indirectly, stock possessing at
least fifty percent (50%) of the total combined voting power of all classes of
stock entitled to vote, or at least fifty percent (50%) of the total value of
shares of all classes of stock (determined by taking into account the
constructive ownership of stock rules under Section 318(a) of the Code as
modified by Section 304(c) of the Code) of the other corporation. In addition,
(i) two corporations will be related if either of the foregoing relationships
exist immediately before the Merger, immediately after the Merger, or is created
in connection with the Merger, and (ii) a partner of a partnership is treated as
owning or acquiring any stock owned or acquired by the partnership in accordance
with that partner's interest in the partnership;
9. Parent has no plan or intention (i) to liquidate the Company; (ii) to
merge the Company with or into another corporation; (iii) to sell, distribute or
otherwise dispose of the stock of the Company, including by means of a spin-off;
(iv) to spin-off any other subsidiary of Parent; or (v) to cause the Company to
sell or otherwise dispose of any of its assets, including by means of a spin-
off, or any assets acquired from Acquisition, except for dispositions made in
the ordinary course of business or payment of expenses, including payments to
stockholders of the Company perfecting dissenters' rights, incurred by the
Company pursuant to the Merger and except for transfers of stock of the Company
to a corporation controlled by Parent or of assets of the Company or Acquisition
to a corporation controlled by the Company;
10. Following the Merger, Parent will either continue the historic
business of the Company or use a significant portion of the historic business
assets of the Company in a business. For purposes of this representation,
Parent will be treated (i) as holding all of the businesses and assets of all of
the members of the "qualified group" and (ii) as conducting the business of a
partnership if members of the "qualified group" own (in the aggregate) more than
a thirty three and one-third percentage (33-1/3%) interest in the capital and
profits of the partnership or own more than a twenty percent (20%) interest in
the capital and profits of the partnership and have active and substantial
management functions as a partner with respect to the business of the
partnership. The "qualified group" is one or more chains of corporations
connected through stock ownership with the Parent, but only if the Parent owns
directly an amount of stock meeting the control requirements of Section 368(c)
in at least one of the corporations, and stock meeting the control requirements
of Section 368(c) in each of the corporations (except the Parent) is owned
directly by one of the other corporations;
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11. In the Merger, Acquisition will have no liabilities assumed by the
Company and will not transfer to the Company any assets subject to liabilities,
except to the extent incurred in connection with the transactions contemplated
by the Agreement;
12. During the past five (5) years, none of the outstanding shares of
Company capital stock, including the right to acquire or vote any such shares,
have directly or indirectly been owned by Parent;
13. Neither Parent nor Acquisition is an "investment company" within the
meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code;
14. Neither Parent nor Acquisition is under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code;
15. The fair market value of the Parent Common Stock received by each
stockholder of the Company will be approximately equal to the fair market value
of the Shares surrendered in exchange therefor, and the aggregate consideration
received by the stockholders of the Company in exchange for their Shares will be
approximately equal to the fair market value of all of the outstanding Shares
immediately prior to the Merger;
16. Acquisition, Parent, the Company and the stockholders of the Company
will each pay separately its or their own expenses relating to the Merger;
17. There is no intercorporate indebtedness existing between Parent and
the Company or between Acquisition and the Company that was issued, acquired or
will be settled at a discount as a result of the Merger;
18. Any amounts paid with respect to dissenting Shares of the Company will
be paid by the Company solely from the Company's pre-Merger assets and without
reimbursement therefor by Parent or Acquisition;
19. Other than as specifically provided in this Agreement, Parent will not
reimburse any stockholder of the Company for the Company's capital stock such
stockholder may have purchased or for other obligations such stockholder may
have incurred; and
20. With respect to shares of Parent Common Stock that will be deposited
with the Escrow Agent after the Effective Time, (1) there is a valid business
reason for this escrow arrangement, (2) the stock subject to the arrangement
will appear as issued and outstanding on Parent's balance sheet and will be
legally outstanding under the applicable state law, (3) all dividends paid on
such stock will be distributed currently to the company stockholders, (4) all
voting rights of such stock will be exercisable by or on behalf of the Company
stockholders or their authorized agents, (5) no shares of such stock will be
subject to restrictions requiring their return to Parent because of death,
failure to continue employment, or similar restrictions, (6) all such stock will
be released from the arrangement within 5 years from the date of the underlying
transaction, (7) at least 50 percent (50%) of the number of shares of issued
initially to the Company stockholders (exclusive of shares which may be received
later under a contingent stock rights arrangement) will not be subject to the
escrow arrangement; (8) the return of stock cannot be triggered by an event
which is within the control of Company stockholders; and (9) the
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mechanism for calculation of the number of shares of stock to be returned is
objective and readily ascertainable.
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EXHIBIT B
Matters to be Covered by Opinion of Legal Counsel to Parent and Acquisition*
----------------------------------------------------------------------------
(i) Each of Parent and Acquisition is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
Parent is qualified as foreign corporation in every jurisdiction where the
conduct of its business or leasing of properties requires, except where such
failure to qualify as would not, individually or in the aggregate, have a
Material Adverse Effect on Parent.
(ii) Each of Parent and Acquisition has all requisite corporate power and
authority to execute and deliver the Agreement and each of the other Transaction
Documents to which it is a party and to consummate the transactions contemplated
thereby.
(iii) The execution and delivery by each of Parent and Acquisition of the
Agreement and each of the other Transaction Documents to which it is a party by
each of Parent and Acquisition and the consummation of the transactions
contemplated thereby have been duly and validly authorized by the executive
committee of the board of directors of Parent and the board of directors of
Acquisition and by Parent as the sole stockholder of Acquisition, and no other
corporate proceedings on the part of Parent or Acquisition are necessary to
authorize the Agreement or any of the other Transaction Documents to which they
are parties or to consummate the transactions contemplated thereby.
(iv) The Agreement and each of the other Transaction Documents to which it
is a party have been duly and validly executed and delivered by each of Parent
and Acquisition. The Agreement constitutes the valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms.
(v) Neither the execution, delivery and performance of the Agreement and
each of the other Transaction Documents to which it is a party by Parent and
Acquisition nor the consummation by Parent and Acquisition of the transactions
contemplated thereby will (a) conflict with or result in any breach of any
provision of its Certificate of Incorporation or bylaws (or similar governing
documents) or (b) violate any United States federal law, statute, rule or
regulation or any provision of the Delaware General Corporation Law, or any
order, writ, injunction or decree known to us, applicable to Parent or
Acquisition or any of their respective properties or assets.
(vi) No filing with or notice to, and no permit, authorization, consent or
approval of, any Governmental Entity is necessary for the execution and delivery
by Parent and Acquisition of Agreement or the consummation by Parent and
Acquisition of the transactions contemplated hereby, except (a) for such
filings, notifications, permits, authorizations, consent or approvals as have
already been made, given or obtained and (b) for filing of the Certificate of
Merger in accordance with the MBCL and the DGCL.
(vii) To our knowledge, having made inquiry of Parent and Acquisition but
without having performed any search of public or other records or documents,
there are no actions, proceedings or investigations pending or overtly
threatened against Parent before any court or
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other Governmental Entity that question the validity of the Agreement or any of
the other Transaction Documents.
(viii) The shares of Parent Common Stock issuable to the stockholders of
the Company pursuant to Article I of the Agreement, when issued in accordance
with the Agreement, will be duly authorized, validly issued, fully paid,
nonassessable and will not have been issued in violation of any preemptive,
first refusal or other subscription rights of any stockholder of Parent.
(ix) Assuming due authorization of the Agreement, the Certificate of
Merger and the Merger by all necessary corporate action on the part of the
Company and its stockholders and that such parties have taken all action
required to be taken by them prior to the filing of the Certificate of Merger
with the Secretary of the Commonwealth of the Commonwealth of Massachusetts and
the Secretary of State of the State of Delaware, upon such filing in accordance
with the MBCL and the DGCL, the Merger will be validly consummated in accordance
with the Certificate of Merger, the MBCL and the DBCL.
* Subject to customary qualifications, limitations and exceptions.
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EXHIBIT C
Matters to be Covered by Opinion of Special Legal Counsel to the Company*
-------------------------------------------------------------------------
(i) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts.
(ii) The Company has all requisite corporate power and authority to
execute and deliver the Agreement and to consummate the transactions
contemplated thereby.
(iii) The execution and delivery by the Company of the Agreement and the
consummation by the Company of the transactions contemplated thereby have been
duly and validly authorized by the Company Board and the stockholders of the
Company, and no other corporate proceedings on the part of the Company are
necessary to authorize the Agreement or to consummate the transactions
contemplated thereby.
(iv) The Agreement has been duly and validly executed and delivered by
the Company.
(v) Neither the execution, delivery and performance of the Agreement by
the Company nor the consummation by the Company of the transactions contemplated
thereby will (a) conflict with or result in any breach of any provision of the
Articles of Organization or bylaws of the Company or (b) violate any United
States federal or Commonwealth of Massachusetts, statute, rule or regulation, or
any order, writ, injunction or decree known to us, applicable to the Company or
any of its properties or assets.
(vi) No filing with or notice to, and no permit, authorization, consent
or approval of, any Governmental Entity is necessary for the execution and
delivery by the Company of the Agreement or the consummation by the Company of
the transactions contemplated thereby, except (a) for such filings,
notifications, permits, authorizations, consent or approvals as have already
been made, given or obtained and (b) for filing of the Certificate of Merger in
accordance with the MBCL and the DGCL.
(vii) To our knowledge, having made inquiry of the Company but without
having performed any search of public or other records or documents, there are
no actions, proceedings or investigations pending or overtly threatened against
the Company before any court or administrative agency that question the validity
of the Agreement.
(viii) Assuming due authorization of the Agreement, the Certificate of
Merger and the Merger by all necessary corporate action on the part of the
Parent and Acquisition and that such parties have taken all action required to
be taken by them prior to the filing of the Certificate of Merger with the
Secretary of the Commonwealth of the Commonwealth of Massachusetts and the
Secretary of State of the State of Delaware, upon such filing in accordance with
the MBCL and the DGCL, the Merger will be validly consummated in accordance with
the Certificate of Merger, the MBCL and the DBCL.
* Subject to customary qualifications, limitations and exceptions.
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EXHIBIT D
Financial Statements
--------------------
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