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EXHIBIT 2.2
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among
CACHEFLOW, INC.,
DIAMOND MERGER CORP.,
ENTERA, INC.
and
JOHN SCHARBER, as
STOCKHOLDERS' REPRESENTATIVE
(solely for purposes of Section 9.04 of this Agreement)
Dated as of October 10, 2000
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TABLE OF CONTENTS
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ARTICLE I THE MERGER...................................................... 2
SECTION 1.01 The Merger.............................................. 2
SECTION 1.02 Effective Time; Closing................................. 2
SECTION 1.03 Effect of the Merger.................................... 3
SECTION 1.04 Certificate of Incorporation; Bylaws.................... 3
SECTION 1.05 Directors and Officers.................................. 3
ARTICLE II MERGER CONSIDERATION; EXCHANGE OF CERTIFICATES................. 3
SECTION 2.01 Merger Consideration.................................... 3
SECTION 2.02 Exchange of Certificates................................ 4
SECTION 2.03 Stock Transfer Books.................................... 7
SECTION 2.04 Company Stock Options................................... 7
SECTION 2.05 Dissenting Shares....................................... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 9
SECTION 3.01 Organization and Qualification.......................... 9
SECTION 3.02 Certificate of Incorporation and Bylaws................. 9
SECTION 3.03 Subsidiaries............................................ 10
SECTION 3.04 Capitalization.......................................... 10
SECTION 3.05 Authority Relative to This Agreement.................... 12
SECTION 3.06 No Conflict; Required Filings and Consents.............. 12
SECTION 3.07 Permits; Compliance..................................... 13
SECTION 3.08 Financial Statements.................................... 13
SECTION 3.09 Absence of Certain Changes or Events.................... 14
SECTION 3.10 Absence of Litigation................................... 14
SECTION 3.11 Employee Benefit Plans; Labor Matters................... 15
SECTION 3.12 Contracts............................................... 18
SECTION 3.13 Environmental Matters................................... 20
SECTION 3.14. Intellectual Property.................................. 20
SECTION 3.15 Taxes................................................... 22
SECTION 3.16 Vote Required........................................... 24
SECTION 3.17 Assets.................................................. 25
SECTION 3.18 Owned Real Property..................................... 25
SECTION 3.19 Certain Interests....................................... 25
SECTION 3.20 Insurance Policies...................................... 26
SECTION 3.21 Brokers................................................. 26
SECTION 3.22 State Takeover Statutes................................. 26
SECTION 3.23 Customers and Suppliers................................. 26
SECTION 3.24 Inventory............................................... 27
SECTION 3.25 Accounts Receivable; Bank Accounts...................... 27
SECTION 3.26 Powers of Attorney...................................... 27
SECTION 3.27 Offers.................................................. 27
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SECTION 3.28 Warranties.............................................. 27
SECTION 3.29 Books and Records....................................... 27
SECTION 3.30 Tax Matters.............................................. 28
SECTION 3.31 No Misstatements........................................ 28
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........ 28
SECTION 4.01 Organization and Qualification.......................... 28
SECTION 4.02 Authority Relative to This Agreement.................... 29
SECTION 4.03 Capital Structure....................................... 29
SECTION 4.04 No Conflict; Required Filings and Consents.............. 29
SECTION 4.05 SEC Filings; Financial Statements....................... 30
SECTION 4.06 Absence of Litigation................................... 31
SECTION 4.07 Interim Operations of Merger Sub........................ 31
SECTION 4.08 Valid Issuance of Parent Shares......................... 31
SECTION 4.09 Brokers................................................. 31
SECTION 4.10 Tax Matters.............................................. 31
SECTION 4.11 No Misstatements........................................ 32
ARTICLE V CONDUCT OF BUSINESSES PENDING THE MERGER........................ 32
SECTION 5.01 Conduct of Business by the Company Pending the Merger... 32
SECTION 5.02 Notification of Certain Matters......................... 35
ARTICLE VI ADDITIONAL AGREEMENTS.......................................... 35
SECTION 6.01 California Permit; Company Stockholder Approval......... 35
SECTION 6.02 Access to Information; Confidentiality.................. 37
SECTION 6.03 No Solicitation of Transactions......................... 37
SECTION 6.04 Employee Benefits Matters............................... 38
SECTION 6.05 Further Action; Consents; Filings....................... 39
SECTION 6.06 Plan of Reorganization.................................. 40
SECTION 6.07 No Public Announcement.................................. 40
SECTION 6.08 Expenses................................................ 40
SECTION 6.09 Affiliate Agreements.................................... 41
SECTION 6.10 Indemnification of Officers and Directors............... 41
SECTION 6.11 Nasdaq National Market Listing.......................... 41
SECTION 6.12 Conversion Schedule..................................... 41
ARTICLE VII CONDITIONS TO THE MERGER...................................... 42
SECTION 7.01 Conditions to the Obligations of Each Party............. 42
SECTION 7.02 Conditions to the Obligations of Parent and Merger Sub.. 42
SECTION 7.03 Conditions to the Obligations of the Company............ 45
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER............................ 46
SECTION 8.01 Termination............................................. 46
SECTION 8.02 Effect of Termination................................... 46
SECTION 8.03 Amendment............................................... 47
SECTION 8.04 Waiver.................................................. 47
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ARTICLE IX INDEMNIFICATION................................................ 47
SECTION 9.01 Survival of Representations and Warranties.............. 47
SECTION 9.02 Indemnification by the Company Stockholders............. 47
SECTION 9.03 Indemnification Procedures.............................. 49
SECTION 9.04 Stockholders' Representative............................ 50
ARTICLE X GENERAL PROVISIONS.............................................. 51
SECTION 10.01 Notices................................................ 51
SECTION 10.02 Certain Definitions.................................... 52
SECTION 10.03 Severability........................................... 53
SECTION 10.04 Assignment; Binding Effect; Benefit.................... 53
SECTION 10.05 Incorporation of Exhibits.............................. 53
SECTION 10.06 Specific Performance................................... 53
SECTION 10.07 Governing Law; Forum................................... 54
SECTION 10.08 Time of the Essence.................................... 54
SECTION 10.09 Waiver of Jury Trial................................... 54
SECTION 10.10 Construction........................................... 54
SECTION 10.11 Further Assurances..................................... 54
SECTION 10.12 Headings............................................... 54
SECTION 10.13 Counterparts........................................... 54
SECTION 10.14 Entire Agreement....................................... 55
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Exhibit A Form of Voting Agreement
Exhibit B Certificate of Incorporation of Surviving Corporation
Exhibit C Form of Escrow Agreement
Exhibit D Form of Company Affiliate Agreement
Exhibit E Form of Company Counsel Legal Opinion
Exhibit F Form of Parent Counsel Legal Opinion
Schedule 1.01 Schedule of Principal Stockholders
Schedule 6.12 Preliminary Conversion Schedule
Schedule 7.02(m) Schedule of Company Employees to be Employed at Closing
Schedule 7.02(p) Schedule of Company Agreements to be Terminated Prior to
Closing
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of October
10, 2000 (this "Agreement"), among CACHEFLOW, INC., a Delaware corporation
---------
("Parent"), DIAMOND MERGER CORP., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), ENTERA, INC., a Delaware corporation (the
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"Company"), and JOHN SCHARBER, as Stockholders' Representative (as defined in
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Section 9.04 and solely for the purposes of such Section 9.04).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the Delaware General Corporation Law (the
"DGCL"), Parent and the Company will enter into a business combination
transaction pursuant to which Merger Sub will merge with and into the Company
(the "Merger");
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WHEREAS, the Board of Directors of the Company has (i) determined that
the Merger is consistent with and in furtherance of the long-term business
strategy of the Company and fair to, and in the best interests of, the Company
and its stockholders, (ii) approved this Agreement, the Merger, and the other
transactions contemplated by this Agreement, and (iii) determined to unanimously
recommend that the stockholders of the Company adopt and approve the principal
terms of this Agreement and approve the Merger;
WHEREAS, the Boards of Directors of each of Parent and Merger Sub have
(i) determined that the Merger is consistent with and in furtherance of the
long-term business strategy of Parent and fair to, and in the best interests of,
Parent and its stockholders and (ii) approved this Agreement, the Merger, and
the other transactions contemplated by this Agreement;
WHEREAS, for federal income tax purposes, the Merger is intended to
qualify as a reorganization under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "Code");
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WHEREAS, certain stockholders of the Company own such number of shares
of Common Stock, $.001 par value per share, of the Company (the "Company Common
--------------
Stock"), such number of shares of Series A Preferred Stock, $.001 par value per
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share, of the Company (the "Company Series A Preferred Stock"), such number of
--------------------------------
shares of Series B Preferred Stock, $.001 par value per share, of the Company
(the "Company Series B Preferred Stock"), and such number of shares of Series C
--------------------------------
Preferred Stock, $.001 par value per share, of the Company (the "Company Series
--------------
C Preferred Stock") (the Company Series A Preferred Stock, the Company Series B
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Preferred Stock and Company Series C Preferred Stock are collectively referred
to herein as the "Company Preferred Stock," and the Company Preferred Stock and
-----------------------
the Company Common Stock are collectively referred to herein as the "Company
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Stock") as is set forth in Schedule 1.01 (such stockholders being referred to
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herein as the "Principal Stockholders");
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WHEREAS, pursuant to the Merger, each outstanding share of the Company
Stock and all outstanding options or other rights to acquire or receive shares
of Company Stock shall be converted into the right to receive shares of Parent's
authorized Common Stock, $.0001 par value per share ("Parent Common Stock"), at
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the rate determined in this Agreement;
WHEREAS, as a condition and inducement to Parent's and Merger Sub's
entering into this Agreement and incurring the obligations set forth herein,
concurrently with the execution and delivery of this Agreement, Parent is
entering into a voting agreement with each of the Principal Stockholders, dated
the date hereof (a "Voting Agreement"), and substantially in the form attache
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hereto as Exhibit A;
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WHEREAS, a portion of the Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions,
all as set forth in this Agreement and the Escrow Agreement (as defined in
Section 2.02(b))
WHEREAS, concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
John Scharber is entering into an Employment Agreement (as defined in Section
6.04(b)); and
WHEREAS, certain capitalized terms used in this Agreement are defined
in Section 10.02 of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
here by, Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
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SECTION 1.01 The Merger. Upon the terms of this Agreement and subject to
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the conditions set forth in Article VII, and in accordance with the DGCL, at the
Effective Time (as defined in Section 1.02), Merger Sub shall be merged with and
into the Company. As a result of the Merger, the separate corporate existence of
Merger Sub shall cease, and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").
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SECTION 1.02 Effective Time; Closing. As promptly as practicable following
-----------------------
the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII (or such other date as may be agreed by each of the parties hereto),
the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
---------------------
of the State of Delaware. The term "Effective Time" means the date and time of
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such filing (or such later time as may be agreed by each of the parties hereto
and specified in the Certificate of Merger). Immediately prior to the filing of
the Certificate of Merger, a closing (the "Closing") will be held at the offices
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of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP ("Gunderson
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Dettmer"), 155 Constitution Drive, Menlo Park, California 94025
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(or such other place as the parties may agree). The date on which the Closing
shall occur is referred to herein as the "Closing Date."
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SECTION 1.03 Effect of the Merger. At the Effective Time, the effect of
--------------------
the Merger shall be as provided in the applicable provisions of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
each of the Company and Merger Sub shall vest in the Surviving Corporation, and
all debts, liabilities, obligations, restrictions, disabilities and duties of
each of the Company and Merger Sub shall become the debts, liabilities,
obligations, restrictions, disabilities and duties of the Surviving Corporation.
SECTION 1.04 Certificate of Incorporation; Bylaws. (a) At the Effective
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Time, the Certificate of Incorporation of Merger Sub, attached hereto as Exhibit
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B, shall be the Certificate of Incorporation of the Surviving Corporation until
-
thereafter amended as provided by law and such Certificate of Incorporation;
provided, however, that Article I of the Certificate of Incorporation shall be
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amended to read as follows: "The name of the corporation is Entera, Inc."
(b) At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended as provided by law, the Certificate of
Incorporation of the Surviving Corporation and such Bylaws.
SECTION 1.05 Directors and Officers. The directors of Merger Sub
----------------------
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
ARTICLE II
MERGER CONSIDERATION; EXCHANGE OF CERTIFICATES
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SECTION 2.01 Merger Consideration.
--------------------
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Merger Sub, the Company or the holders of any of
the following securities:
(i) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Company Common
Stock to be canceled pursuant to Section 2.01(a)(ii) and any Dissenting Shares
(as defined in Section 2.05)) shall be converted into the right to receive the
Common Exchange Ratio (as defined in Section 2.01(b));
(ii) each share of Company Stock held in the treasury of the
Company and each share of Company Stock owned by Parent or any direct or
indirect wholly owned subsidiary of Parent or of the Company immediately prior
to the Effective Time shall be
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cancelled and extinguished without any conversion thereof and no payment or
distribution shall be made with respect thereto; and
(iii) each share of Common Stock, $.01 par value per share, of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, $.01 par value per share, of the Surviving
Corporation.
(b) As used in this Agreement, the following terms have the following
meanings:
(i) "Aggregate Merger Consideration" means 3,504,274 shares
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of Parent Common Stock (the "Parent Shares").
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(ii) "Escrow Shares" means 350,427 Parent Shares.
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(iii) "Common Exchange Ratio" means 0.107657 of a share of
---------------------
Parent Common Stock; provided, however, that to the extent that the Company's
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capitalization representation in Section 3.04 is incorrect or the Company
breaches the covenant contained in Section 5.01(b), with such breach of the
covenant resulting in additional securities of the Company being outstanding,
the Common Exchange Ratio shall be appropriately adjusted as of the Closing to
reflect such error or breach.
(c) If, during the period between the date hereof and the Effective
Time, any change in the capital stock of Parent shall occur by reason of
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period or any similar event, the Aggregate Merger Consideration, the Common
Exchange Ratio and the Escrow Shares shall be correspondingly adjusted to the
extent appropriate to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination, exchange or readjustment
of shares.
(d) If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested and/or are subject to a repurchase
option, risk of forfeiture or other condition under any applicable restricted
stock purchase agreement, stock option exercise agreement or other agreement
with the Company, then the Parent Shares issued in exchange for such shares of
Company Common Stock will also be unvested and/or subject to the same repurchase
option, risk of forfeiture or other condition, and the certificates representing
such Parent Shares may accordingly be marked with appropriate legends.
SECTION 2.02 Exchange of Certificates.
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(a) Exchange Procedures. From and after the Effective Time, a bank or
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trust company to be designated by Parent shall act as exchange agent (the
"Exchange Agent") in effecting the exchange of the applicable Parent Shares for
--------------
certificates that immediately prior to the Effective Time represented
outstanding shares of Company Stock ("Company Share Certificates") and that were
--------------------------
converted into the right to receive the applicable Parent Shares pursuant to
Section 2.01. As promptly as practicable after the Effective Time, Parent and
the Exchange Agent shall mail to each record holder of Company Share
Certificates a letter of
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transmittal (the "Letter of Transmittal") in a form approved by Parent and the
---------------------
Company and instructions for use in surrendering such Company Share Certificates
and receiving Parent Shares pursuant to Section 2.01. Promptly after the
Effective Time, but in no event later than 5 business days following the
Effective Time, Parent shall cause to be deposited in trust with the Exchange
Agent the Parent Shares (and cash in lieu of fractional shares pursuant to
Section 2.02(e)) less the Escrow Shares.
Upon the surrender of each Company Share Certificate for
cancellation to the Exchange Agent, together with a properly completed Letter of
Transmittal and such other documents as may reasonably be required by Parent:
(i) Parent shall cause to be issued to the holder of
such Company Share Certificate in exchange therefor a separate stock certificate
representing the Parent Shares to which such holder is entitled pursuant to
Section 2.01 (less the Escrow Shares attributable to the pro rata interest of
such holder in the Escrow Fund pursuant to Section 2.02(b)) and cash in lieu of
fractional shares pursuant to Section 2.02(e); and
(ii) the Company Share Certificates so surrendered
shall forthwith be cancelled.
In the event of a transfer of ownership of shares of Company
Stock that is not registered in the transfer records of the Company, the
applicable Parent Shares may be issued to a person other than the person in
whose name the Company Share Certificate so surrendered is registered if the
Company Share Certificate representing such shares of Company Stock is presented
to Parent, accompanied by all documents required to evidence and effect such
transfer and evidence that (i) the shares are transferable and (ii) any
applicable stock transfer taxes have been paid.
Until surrendered as contemplated by this Article II, each
Company Share Certificate shall, subject to appraisal rights under the DGCL, the
California Corporations Code ("California Law") and Section 2.05, be deemed at
--------------
any time after the Effective Time to represent only the right to receive upon
surrender the applicable Parent Shares with respect to the shares of Company
Stock formerly represented thereby to which such holder is entitled pursuant to
Section 2.01 and cash in lieu of any fractional shares pursuant to Section
2.02(e).
(b) Escrow Fund. Prior to or simultaneously with the
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Closing, the Stockholders' Representative and Parent shall enter into an escrow
agreement (the "Escrow Agreement") with an escrow agent selected by Parent and
----------------
reasonably acceptable to the Stockholders' Representative (the "Escrow Agent"),
------------
substantially in the form of Exhibit C hereto. Pursuant to the terms of the
----------------
Escrow Agreement, at the Closing, Parent shall deposit one or more certificates
representing, in the aggregate, the Escrow Shares to be deposited by each holder
of Company Stock into an escrow account, which account is to be managed by the
Escrow Agent (the "Escrow Account"). Any Escrow Shares in the Escrow Account are
--------------
referred to herein as the "Escrow Fund." In connection with such deposit of the
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Escrow Shares with the Escrow Agent and as of the Effective Time, each holder of
Company Stock will be deemed to have received and deposited with the Escrow
Agent each stockholder's pro rata interest in the Escrow Fund as determined as
of Closing by reference to such stockholder's ownership of shares
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of Company Stock (plus any additional shares as may be issued upon any stock
split, stock dividend or recapitalization effected by Parent after the Effective
Time with respect to shares constituting the Escrow Fund), without any act of
any stockholder of the Company. Distributions of any Escrow Shares from the
Escrow Account shall be governed by the terms and conditions of the Escrow
Agreement. The adoption of this Agreement and the approval of the Merger by the
stockholders of the Company (the "Company Stockholders") shall constitute
------- ------------
approval of the Escrow Agreement and of all the arrangements relating thereto,
including, without limitation, the placement of the Escrow Shares in escrow and
the appointment of the Stockholders' Representative. No Escrow Shares shall be
contributed in respect of any Company Option or any other security exercisable
or convertible into Company Stock. The percentage of Parent Shares contributed
to the Escrow Fund with respect to each holder of Company Stock that are
unvested or subject to any right of repurchase, risk of forfeiture or other
condition in favor of the Surviving Corporation shall be proportional to the
percentage of such holder's Company Stock that are unvested or subject to any
right of repurchase, risk of forfeiture or other condition in favor of the
Company; provided, however, that any payments due to Parent from the Escrow Fund
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shall first be satisfied by delivering to Parent, to the extent available, with
respect to each holder of Company Stock, such Escrow Shares that are fully
vested or otherwise not subject to any right of repurchase, risk of forfeiture
or other restriction in favor of the Surviving Corporation.
(c) Distributions with Respect to Unexchanged Parent Shares. No
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dividends or other distributions declared or made after the Effective Time with
respect to Parent Shares comprising part of the Aggregate Merger Consideration
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Company Share Certificate with respect to the Parent Shares
represented thereby until the holder of such Company Share Certificate shall
surrender such Company Share Certificate in accordance with this Section 2.02.
(d) No Further Rights in Company Stock. All Parent Shares issued
----------------------------------
upon conversion of shares of Company Stock in accordance with the terms hereof
(and any cash paid in lieu of fractional shares pursuant to Section 2.02(e))
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Stock.
(e) No Fractional Shares. No certificates or scrip representing
--------------------
fractional Parent Shares shall be issued upon the surrender for exchange of
Company Share Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any other rights of a stockholder of Parent.
Each holder of a fractional share interest shall be paid an amount in cash
(without interest) equal to the product obtained by multiplying (i) such
fractional share interest to which such holder (after taking into account all
fractional share interests then held by such holder) would otherwise be entitled
by (ii) $117.
(f) No Liability. Neither Parent nor the Surviving Corporation
------------
shall be liable to any holder of shares of Company Stock for any such shares of
Company Stock (or dividends or distributions with respect thereto) or cash
properly and legally delivered to a public official pursuant to any abandoned
property, escheat or similar law.
(g) Withholding Rights. Each of the Surviving Corporation and
------------------
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this
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Agreement to any holder of shares of Company Stock such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Parent, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Company Stock in
respect of which such deduction and withholding was made by the Surviving
Corporation or Parent, as the case may be.
(h) Affiliates. Notwithstanding anything to the contrary
----------
contained in this Agreement, no Parent Shares (or certificates therefor) shall
be issued in exchange for any Company Stock Certificates to any person who,
prior to the Effective Time, may be an "affiliate" (as that term is used in Rule
145 under the Securities Act of 1933, as amended (the "Securities Act")) of the
Company until such person shall have delivered to Parent and the Company a duly
executed Affiliate Agreement as contemplated by Section 6.09.
(i) Lost Certificates. If any Company Share Certificate shall
-----------------
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Company Share Certificate to be lost, stolen or
destroyed, and, if required by the Surviving Corporation, the posting by such
person of a bond, in such reasonable amount as the Surviving Corporation may
direct, as indemnity against any claim that may be made against it with respect
to such Company Share Certificate, Parent shall issue in exchange for such lost,
stolen or destroyed Company Share Certificate, the applicable Parent Shares (and
dividends or other distributions pursuant to Section 2.02(c) and cash in lieu of
fractional shares pursuant to Section 2.02(e)) to which such person is entitled
pursuant to the provisions of this Article II.
(j) Return of Parent Shares. Promptly following the end of the
-----------------------
second full calendar month after the Effective Time, the Exchange Agent shall
return to the Surviving Corporation all of the remaining Parent Shares and the
Exchange Agent's duties shall terminate. Thereafter, upon the surrender of a
Company Share Certificate to the Surviving Corporation and such other documents
as may reasonably be required by the Surviving Corporation, and subject to
applicable abandoned property, escheat and similar laws, the holder of such
Company Share Certificate shall be entitled to receive in exchange therefor the
applicable Parent Shares (and dividends or other distributions pursuant to
Section 2.02(c) and cash in lieu of fractional shares pursuant to Section
2.02(e)) without any interest thereon.
SECTION 2.03 Stock Transfer Books. At the Effective Time, the stock
--------------------
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Stock thereafter on the records
of the Company. From and after the Effective Time, the holders of certificates
representing shares of Company Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of
Company Stock, except as otherwise provided in this Agreement or by Law (as
defined in Section 3.06).
SECTION 2.04 Company Stock Options. At the Effective Time, the Parent
---------------------
shall assume (i) all options to purchase Common Stock issued by the Company
pursuant to the Company Stock Plans (as defined in Section 3.04(b)) or
otherwise, whether vested or unvested (each a "Company Option"), and (ii) the
Company Stock Plans, with respect to outstanding
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Company Options. Immediately after the Effective Time, each Company Option
outstanding immediately prior to the Effective Time shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Company Option at the Effective Time, such number of
shares of Parent Common Stock as is equal to the number of shares of Company
Common Stock subject to the unexercised portion of such option multiplied by the
Common Exchange Ratio (rounded down to the nearest whole number). The exercise
price per share of each such assumed Company Option shall be equal to the
exercise price of such option immediately prior to the Effective Time divided by
the Common Exchange Ratio (rounded up to the nearest whole cent). The term,
vesting schedule, status as an "incentive stock option" under Section 422 of the
Code, if applicable, and all of the other terms of the Company Options shall
otherwise remain unchanged. It is the intention of the parties that the Company
Options so assumed by Parent qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Code to the extent such Company
Options qualified as incentive stock options prior to the Effective Time.
Continuous employment with the Company will be credited to the holder of a
Company Option for purposes of determining the number of shares of Parent Common
Stock subject to exercise after the Effective Time. Within 30 business days
after the Effective Time, Parent will issue to each person who, immediately
prior to the Effective Time, was a holder of a Company Option a document
evidencing the foregoing assumption of such option by Parent. Promptly after the
Effective Time, but in any event not later than 20 days after the Effective
Time, Parent shall file a registration statement on Form S-8 (or any successor
or other appropriate forms) that will register the shares of Parent Common Stock
subject to assumed Company Options to the extent permitted by Federal securities
laws and shall use its 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.
SECTION 2.05 Dissenting Shares.
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(a) Notwithstanding any provision of this Agreement to the
contrary, shares of Company Stock that are outstanding immediately prior to the
Effective Time and that are held by stockholders who have exercised and
perfected appraisal rights for such shares of Company Stock in accordance with
the DGCL (and, if the Company is subject to Section 2115 of the California Law,
such rights as may be granted to such persons in Chapter 13 of the California
Law) (collectively, the "Dissenting Shares") shall not be converted into or
-----------------
represent the right to receive the applicable Parent Shares (or cash in lieu of
fractional shares). Such stockholders shall be entitled to receive payment of
the appraised value of such shares of Company Stock held by them in accordance
with the DGCL (and, if Company is subject to Section 2115 of the California Law,
such rights as may be granted to such persons in Chapter 13 of the California
Law), unless and until such stockholders fail to perfect or withdraw or
otherwise lose their appraisal rights under the DGCL (or, if applicable, Chapter
13 of the California Law). All Dissenting Shares held by stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such shares of Company Stock under the DGCL (or, if
applicable, Chapter 13 of the California Law) shall thereupon be deemed to have
been converted into and to have become exchangeable for, as of the Effective
Time, the right to receive the applicable Parent Shares (or cash in lieu of
fractional shares), without any interest thereon, upon surrender, in the manner
provided in Section 2.02, including
8
<PAGE>
the provision of the Escrow Shares pursuant to Section 2.02(b), of their Company
Share Certificates.
(b) The Company shall give Parent (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands, and
any other related instruments served pursuant to the DGCL (or, if applicable,
Chapter 13 of the California Law) and received by the Company and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the DGCL (or, if applicable Chapter 13 of the California
Law). The Company shall not, except with the prior written consent of Parent,
make any payment with respect to any demands for appraisal or offer to settle or
settle any such demands.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
Except as set forth in the disclosure schedule delivered by the
Company to Parent and Merger Sub concurrently with the execution of this
Agreement (the "Company Disclosure Schedule"), which provides an exception to,
---------------------------
or otherwise qualifies in reasonable detail and with specific Section
references, the representations or warranties of the Company herein, the Company
hereby represents and warrants to Parent and Merger Sub that:
SECTION 3.01 Organization and Qualification. The Company is a
------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing or in good standing or to have such corporate power and authority have
not had, and could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect (as defined below). The Company is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except where the failure to be so qualified or licensed
and in good standing have not had, and could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. The term
"Company Material Adverse Effect" means any change in or effect on the business
-------------------------------
of the Company that is, or could reasonably be expected to be, materially
adverse to the business, operations, condition (financial or otherwise), assets
(tangible or intangible), liabilities or results of operations of the Company
taken as a whole, except for any such changes or effects principally resulting
from or principally arising in connection with (i) any occurrence or condition
affecting the market for Internet streaming technology generally that does not
disproportionately impact the Company, (ii) any changes in general economic
conditions or (iii) the effect of the public announcement or pendency of the
transactions contemplated by this Agreement on the customers, suppliers,
advertisers, employees or revenues of the Company.
SECTION 3.02 Certificate of Incorporation and Bylaws. The Company has
---------------------------------------
heretofore made available to Parent a complete and correct copy of (a) the
Certificate of Incorporation and the Bylaws of the Company, including all
amendments thereto, (b) the minute
9
<PAGE>
books containing all consents, actions and meetings of the stockholders of the
Company and the Company's Board of Directors and any committees thereof, and (c)
the stock transfer books of the Company setting forth all issuances or transfers
of any capital stock of the Company. Such Certificate of Incorporation and
Bylaws are in full force and effect. The Company is not in violation of any of
the provisions of its Certificate of Incorporation or Bylaws. The corporate
minute books, stock certificate books, stock registers and other corporate
records of the Company are complete and accurate, and the signatures appearing
on all documents contained therein are the true or facsimile signatures of the
persons purported to have signed the same.
SECTION 3.03 Subsidiaries. The Company does not control, directly or
------------
indirectly, or have any direct or indirect equity participation or similar
interest in any corporation, partnership, limited liability company, joint
venture, trust or other business association.
SECTION 3.04 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of
40,000,000 shares of Company Common Stock and 19,500,000 shares of Preferred
Stock, of which 8,200,000 shares are designated as Company Series A Preferred
Stock, 8,000,000 shares are designated as Company Series B Preferred Stock, and
3,300,000 shares are designated as Company Series C Preferred Stock. As of the
date hereof, (i) 11,842,634 shares of Company Common Stock are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable, (ii) no shares of Company Common Stock are held in the treasury
of the Company and (iii) 1,343,274 shares of Company Common Stock are reserved
for future issuance pursuant to outstanding Company Options. As of the date of
this Agreement, (A) 8,173,232 shares of Company Series A Preferred Stock are
issued and outstanding, (B) 7,920,409 shares of Company Series B Preferred Stock
are issued and outstanding, and (C) 3,270,727 shares of Company Series C
Preferred Stock are issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable. Each share of Company Preferred
Stock is convertible into one share of Company Common Stock. There are no other
shares of Company Preferred Stock outstanding. As of the date hereof, the
outstanding shares of Company Common Stock, Company Series A Preferred Stock,
Company Series B Preferred Stock and Company Series C Preferred Stock are owned
as set forth in Section 3.04(a) of the Company Disclosure Schedule. Section
3.04(a) of the Company Disclosure Schedule also provides an accurate and
complete description of the terms of each repurchase option that is held by the
Company and to which any of such shares is subject. Neither the consummation of
transactions contemplated by this Agreement, nor any action taken or to be taken
by Company in connection with such transactions, will result in (i) any
acceleration of vesting in favor of any stockholder of the Company; (ii) any
additional benefits for any stockholder of the Company (other than as
contemplated by this Agreement); or (iii) the inability of Parent after the
Effective Time to exercise any right or benefit held by Company prior to the
Effective Time with respect to any Company Stock, including, without limitation,
the right to repurchase a stockholder's unvested shares on termination of such
stockholder's employment.
(b) The Company has reserved 221,668 shares of Company Common
Stock for issuance under the Company's 1999 Equity Incentive Plan (the "1999
----
Equity Incentive Plan"), of which options to purchase 221,668 shares of Company
---------------------
Common Stock are outstanding
10
<PAGE>
as of the date of this Agreement. The Company has reserved 7,265,928 shares of
Company Common Stock for issuance under the Company's 2000 Equity Incentive Plan
(the "2000 Equity Incentive Plan", and together with the 1999 Equity Incentive
--------------------------
Plan, the "Company Stock Plans"), of which 2,088,594 shares of Company Common
-------------------
Stock have been issued and are included in the number of issued and outstanding
shares of Company Common Stock set forth in Section 3.04(a) above, and of which
options to purchase 1,121,606 shares of Company Common Stock are outstanding as
of the date of this Agreement. Section 3.04(b) of the Company Disclosure
Schedule accurately sets forth with respect to each Company Option that is
outstanding as of the date of this Agreement: (i) the name of the holder of such
Company Option; (ii) the Company Stock Plan under which such option was granted,
(iii) the total number of shares of Company Common Stock with respect to which
such Company Option is exercisable; (iv) the date on which such Company Option
was granted and the term of such Company Option; (v) the vesting schedule for
such Company Option; (vi) the exercise price per share of Company Common Stock
purchasable under such Company Option; and (vii) whether such Company Option has
been designated an "incentive stock option" as defined in Section 422 of the
Code. No Company Option will by its term require an adjustment in connection
with the Merger (other than as contemplated by this Agreement). Neither the
consummation of transactions contemplated by this Agreement, nor any action
taken or to be taken by Company in connection with such transactions, will
result in (i) any acceleration of vesting in favor of any optionee under any
Company Option; (ii) any additional benefits for any optionee under any Company
Option (other than as contemplated by this Agreement); or (iii) the inability of
Parent after the Effective Time to exercise any right or benefit held by Company
prior to the Effective Time with respect to any Company Option assumed by
Parent, including, without limitation, the right to repurchase an optionee's
unvested shares on termination of such optionee's employment. The assumption by
Parent of Company Options in accordance with Section 2.04 hereunder will not (i)
give the optionees additional benefits that they did not have under their
options prior to such assumption (after taking into account the existing
provisions of the options, such as their respective exercise prices and vesting
schedules) and (ii) constitute a breach of any of the Company Stock Plans or any
agreement entered into pursuant to such plans.
(c) Except as set forth in Section 3.04(b) of the Company
Disclosure Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or obligating the Company to issue or sell any
share of capital stock of, or other equity interest in, the Company. All shares
of Company Stock so subject to issuance, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. There are
no outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any share of capital stock of, or other equity interest in,
the Company. There are no contractual obligations of the Company to provide
funds to, or make any investment in (in the form of a loan, capital contribution
or otherwise), any other person. The holders of Company Options have been or
will be given, or shall have properly waived, any required notice of the Merger
prior thereto, and all such rights, if any, will terminate at or prior to the
Effective Time.
(d) All of the securities sold or issued by the Company have been
sold or issued in compliance with the requirements of the Federal securities
laws and any applicable state securities or "blue sky" laws.
11
<PAGE>
(e) Except as set forth in Section 3.04(e) of the Company
Disclosure Schedule, the Company has never repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities of the Company.
(f) An updated Section 3.04 of the Company Disclosure Schedule
reflecting changes permitted by this Agreement in the capitalization of Company
between the date hereof and the Effective Time shall be delivered by the Company
to Parent on the Closing Date.
SECTION 3.05 Authority Relative to This Agreement. (a) The Company has
------------------------------------
all necessary corporate power and authority to execute and deliver this
Agreement and, subject to obtaining the necessary approvals of the Company
Stockholders, to perform its obligations hereunder and to consummate the Merger
and the other transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the Merger and the other transactions contemplated by this Agreement have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the Merger and the other transactions contemplated by
this Agreement (other than, with respect to the Merger, the approval and
adoption of this Agreement by the Company Stockholders as described in Section
3.16 hereof and the filing and recordation of appropriate merger documents as
required by the DGCL). This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Parent and Merger Sub, constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar Laws affecting creditors' rights generally and
subject, as to enforceability, to the effect of general principles of equity.
(b) Without limiting the generality of the foregoing, the Board
of Directors of the Company, by unanimous written consent or at a meeting duly
called and held, has by the unanimous vote of all directors (i) determined that
the Merger and the other transactions contemplated hereby are fair and in the
best interest of the Company and its stockholders, (ii) approved and adopted the
Merger, this Agreement and the other transactions contemplated hereby in
accordance with the provisions of the DGCL, and (iii) directed that this
Agreement and the Merger be submitted to the Company Stockholders for their
approval and adoption and resolved to recommend that the Company Stockholders
vote in favor of the approval and adoption of this Agreement and the Merger.
SECTION 3.06 No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of the Company, (ii) assuming
that all consents, approvals, authorizations and other actions described in
Section 3.06(b) have been obtained and all filings and obligations described in
Section 3.06(b) have been made, conflict with or violate in any material respect
any foreign or domestic law, franchise, permit, concession, license, statute,
ordinance, rule, regulation, order, judgment or decree ("Law") applicable to the
---
Company or by which any property or asset of the Company is bound or affected,
or (iii) result in any material breach of or constitute a material
12
<PAGE>
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company pursuant to, any material
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation.
(b) The execution and delivery of this Agreement by the Company
do not, and the performance of this Agreement by the Company will not, require
any consent, approval, order, authorization, registration or permit of, or
filing with or notification to, any domestic or foreign governmental or
regulatory authority, court, administrative agency or commission or quasi-
governmental or private body exercising any regulatory, taxing, importing or
other governmental authority (a "Governmental Entity"), except (i) for the pre-
-------------------
merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations thereunder (the "HSR
---
Act"), (ii) for the filing and recordation of appropriate merger documents as
---
required by the DGCL, and (iii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications
could not reasonably be expected, individually or in the aggregate, to prevent
or materially delay the consummation of the transactions contemplated by this
Agreement.
SECTION 3.07 Permits; Compliance. (a) The Company is in possession of
-------------------
all material franchises, grants, authorizations, licenses, permits, easements,
variances, exceptions, consents, certificates, approvals and orders of any
Governmental Entity necessary for the Company to own, lease and operate its
properties or to carry on its business as it is now being conducted (the
"Company Permits"). All Company Permits are in full force and effect and will
---------------
remain so after the Closing and no suspension or cancellation of any Company
Permit is pending or, to the knowledge of the Company, threatened. The Company
has not received any notice or other communication from any Governmental Entity
regarding (i) any actual or possible violation of or failure to comply with any
term or requirement of any Company Permit, or (ii) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Company Permit.
(b) The Company is not in conflict with, or in default or
violation of, in each case, in any material respect, (i) any Law applicable to
the Company or by which any property or asset of the Company is bound or
affected, (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company is a party or by which the Company or any property or asset
of the Company is bound or affected, or (iii) any Company Permit.
SECTION 3.08 Financial Statements. (a) True and complete copies of (i)
--------------------
the audited balance sheet of the Company as of December 31, 1999, and the
related audited statements of operations, changes in stockholders' equity and
changes in cash flows for the years ended December 31, 1998 and 1999, together
with all related notes and schedules thereto (collectively referred to herein as
the "Audited Financial Statements"), and (ii) the unaudited balance sheet of the
----------------------------
Company as of August 31, 2000 (the "Reference Balance Sheet"), and the related
-----------------------
statement of operations for the eight months ended August 31, 2000 (collectively
referred to herein as the "Interim Financial Statements"), are attached as
----------------------------
Section 3.08(a) of the Company Disclosure Schedule. The Audited Financial
Statements and the Interim Financial Statements
13
<PAGE>
(including, in each case, any notes thereto) were prepared in accordance with
U.S. generally accepted accounting principles ("U.S. GAAP") applied on a
---------
consistent basis throughout the periods indicated (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by U.S.
GAAP) and each present fairly, in all material respects, the financial position
of the Company as at the respective dates thereof and the statements of
operations, changes in stockholders' equity and changes in cash flows of the
Company for the respective periods indicated therein, except as otherwise noted
therein (subject, in the case of unaudited statements, to normal and recurring
year-end adjustments that were not and are not expected, individually or in the
aggregate, to be material).
(b) Except as set forth in Section 3.08(b) of the Company
Disclosure Schedule, there are no debts, liabilities or obligations, whether
accrued or fixed, absolute or contingent, matured or unmatured or determined or
determinable ("Liabilities") of the Company, other than Liabilities (i)
-----------
reflected or reserved against on the Reference Balance Sheet, (ii) in an
aggregate amount not exceeding $50,000 incurred since the date of the Reference
Balance Sheet in the ordinary course of the business, consistent with the past
practice of the Company or (iii) not required to be reflected on the Reference
Balance Sheet in accordance with U.S. GAAP. Except as set forth in Section
3.08(b) of the Company Disclosure Schedule, reserves are reflected on the
Reference Balance Sheet and on the books of account and other financial records
of the Company against all Liabilities of the Company in amounts that have been
established on a basis consistent with the past practice of the Company and in
accordance with U.S. GAAP. Except as set forth in Section 3.08(b) of the Company
Disclosure Schedule, there are no outstanding warranty claims against the
Company.
SECTION 3.09 Absence of Certain Changes or Events. Since January 1,
------------------------------------
2000, except as contemplated by or as disclosed in this Agreement or in the
Company Disclosure Schedule, the Company has conducted its business only in the
ordinary course and in a manner consistent with past practice and, since such
date, there has not been any Company Material Adverse Effect. Since the date of
the Reference Balance Sheet, the Company has not taken or legally committed to
take any of the actions specified in Sections 5.01(a) through 5.01(cc).
SECTION 3.10 Absence of Litigation. There is no Legal Proceeding (as
---------------------
defined below) pending or, to the knowledge of the Company, threatened against
the Company, or any property or asset owned or used by the Company or any person
whose liability the Company has or may have assumed, either contractually or by
operation of Law, before any arbitrator or Governmental Entity which could
reasonably be expected, if resolved adversely to the Company, to (i) materially
impair the operations of the Company as currently conducted, including, without
limitation, any claim of infringement of any intellectual property right, (ii)
result in losses to the Company in excess of $50,000, (iii) impair the ability
of the Company to perform its obligations under this Agreement or (iv) prevent
delay or make illegal the consummation of the transactions contemplated by this
Agreement. To the Company's knowledge, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that could reasonably be
expected to give rise to or serve as a basis of the commencement of any Legal
Proceeding of the types described in (i) through (iv) of the preceding sentence.
None of the Company, its officers or directors thereof in their capacity as
such, or any property or assets of the Company is subject to any continuing
order of, consent decree, settlement agreement or other similar written
agreement with, or, to the knowledge of the Company, continuing investigation
by, any Governmental
14
<PAGE>
Entity, or any order, writ, judgment, injunction, decree, determination or award
of any court, arbitrator or Governmental Entity. "Legal Proceeding" means a
----------------
private or governmental action, suit, proceeding, claim, arbitration or
investigation pending before any agency, court, or tribunal, foreign or
domestic.
SECTION 3.11 Employee Benefit Plans; Labor Matters. (a) Schedule
-------------------------------------
3.11(a) of the Company Disclosure Schedule lists (i) 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,
-----
restricted stock, incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit plans, programs
or arrangements, and all employment, termination, severance or other contracts
or agreements, whether legally enforceable or not, to which the Company is a
party, with respect to which the Company has any obligation or which are
maintained, contributed to or sponsored by the Company for the benefit of any
current or former employee, officer or director of the Company, (ii) each
employee benefit plan for which the Company could incur liability under Section
4069 of ERISA in the event such plan has been or were to be terminated, (iii)
any plan in respect of which the Company could incur liability under Section
4212(c) of ERISA, and (iv) any contracts, arrangements or understandings between
the Company and any employee of the Company including, without limitation, any
contracts, arrangements or understandings relating to a sale of the Company
(each, a "Plan" and collectively, the "Plans").
---- -----
(b) Each Plan is in writing and the Company has furnished Parent
with a true and complete copy of each Plan (or a written summary where the Plan
is not in writing) and a true and complete copy of each material document, if
any, prepared in connection with each such Plan, including, without limitation,
(i) a copy of each trust or other funding arrangement, (ii) each summary plan
description and summary of material modifications, (iii) the three (3) most
recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Plan, (iv) the most recently received Internal Revenue
Service determination letter for each such Plan, (v) the most recently prepared
actuarial report and financial statement in connection with each such Plan, and
(vi) any correspondence with the Internal Revenue Service or the Department of
Labor with respect to each such Plan. Except as disclosed on Schedule 3.11(a) of
the Company Disclosure Schedule, there are no other employee benefit plans,
programs, arrangements or agreements, whether formal or informal, whether in
writing or not, to which the Company is a party, with respect to which the
Company has any obligation or which are maintained, contributed to or sponsored
by the Company for the benefit of any current or former employee, officer or
director of the Company. The Company has no express or implied commitment,
whether legally enforceable or not, (x) to create, incur liability with respect
to, or cause to exist, any other employee benefit plan, program or arrangement,
(y) to enter into any contract or agreement to provide compensation or benefits
to any individual, or (z) to modify, change or terminate any Plan, other than
with respect to a modification, change or termination required by ERISA or the
Code.
(c) None of the Plans is a multiemployer plan (within the meaning
of Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a single
------------------
employer pension plan (within the meaning of Section 4001(a)(15) of ERISA) for
which the Company could incur liability under Section 4063 or 4064 of ERISA (a
"Multiple Employer Plan"). None of the Plans
----------------------
15
<PAGE>
provides for or promises retiree medical, disability or life insurance benefits
to any current or former employee, officer or director of the Company. Each of
the Plans is subject only to the Laws of the United States or a political
subdivision thereof.
(d) None of the Plans provides for the payment of separation,
severance, termination or similar-type benefits to any person or obligates the
Company to pay separation, severance, termination or similar-type benefits
solely or partially as a result of any transaction contemplated by this
Agreement or as a result of a "change in control", within the meaning of such
term under Section 280G of the Code. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby, either
alone or together with another event, will (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute,
forgiveness of indebtedness or otherwise) becoming due under any Plan, (ii)
materially increase any benefits otherwise payable under any Plan or other
arrangement, (iii) result in the acceleration of the time of payment, vesting or
funding of any benefits including, but not limited to, the acceleration of the
vesting and exercisability of any Company Option, or (iv) affect in any material
respects any Plan's current treatment under any Laws including any tax or social
contribution Law. No Plan provides, or reflects or represents any liability to
provide retiree health to any person for any reason, except as may be required
by COBRA or other applicable statute, and the Company has never represented,
promised or contracted (whether in oral or written form) to any employee (either
individually or to employees as a group) or any other person that such
employee(s) or other person would be provided with retiree health, except to the
extent required by statute.
(e) Each Plan is now and always has been operated in all material
respects in accordance with its terms and the requirements of all applicable
Laws, regulations and rules promulgated thereunder including, without
limitation, ERISA and the Code. The Company has performed all obligations
required to be performed by it under, is not in any respect in default under or
in violation of, and has no knowledge of any default or violation by any party
to, any Plan. No action, claim or proceeding is pending or, to the knowledge of
the Company, threatened with respect to any Plan (other than claims for benefits
in the ordinary course) and no fact or event exists that could give rise to any
such action, claim or proceeding. Neither the Company nor any person that is a
member of the same controlled group as the Company or under common control with
the Company within the meaning of Section 414 of the Code (each, an "ERISA
-----
Affiliate") is subject to any penalty or Tax with respect to any Plan under
---------
Section 502(i) of ERISA or Sections 4975 through 4980 of the Code. Each Plan
(other than any stock option plan) can be amended, terminated or otherwise
discontinued after the Effective Time, without material liability to the Parent,
Company or any of its ERISA Affiliates (other than ordinary administration
expenses). Neither the Company nor any affiliate has, prior to the Effective
Time and in any material respect, violated any of the health care continuation
requirements of COBRA, the requirements of FMLA, the requirements of the Health
Insurance Portability and Accountability Act of 1996, the requirements of the
Women's Health and Cancer Rights Act of 1998, the requirements of the Newborns'
and Mothers' Health Protection Act of 1996, or any amendment to each such act,
or any similar provisions of state Law applicable to its employees.
(f) Each Plan intended to qualify under Section 401(a) or Section
401(k) of the Code and each trust intended to qualify under Section 501(a) of
the Code
16
<PAGE>
has either received a favorable determination, opinion, notification or advisory
letter from the IRS with respect to each such Plan as to its qualified status
under the Code, including all amendments to the Code effected by the Tax Reform
Act of 1986 and subsequent legislation, and no fact or event has occurred since
the date of such determination letter or letters from the IRS to adversely
affect the qualified status of any such Plan or the exempt status of any such
trust, or has remaining a period of time under applicable Treasury regulations
or IRS pronouncements in which to apply for such a letter and make any
amendments necessary to obtain a favorable determination as to the qualified
status of each such Plan.
(g) The Company has not incurred any liability under, arising out
of or by operation of Title IV of ERISA (other than liability for premiums to
the Pension Benefit Guaranty Corporation arising in the ordinary course),
including, without limitation, any liability in connection with (i) the
termination or reorganization of any employee benefit plan subject to Title IV
of ERISA or (ii) the withdrawal from any Multiemployer Plan or Multiple Employer
Plan, and no fact or event exists which could give rise to any such liability.
(h) All contributions, premiums or payments required to be made
or accrued with respect to any Plan have been made on or before their due dates.
All such contributions have been fully deducted for income tax purposes and no
such deduction has been challenged or disallowed by any Governmental Entity and
no fact or event exists which could give rise to any such challenge or
disallowance.
(i) Except as set forth in Section 3.11(i) of the Company
Disclosure Schedule, (i) the Company is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or in the Company's business, and currently there are no organizational
campaigns, petitions or other unionization activities seeking recognition of a
collective bargaining unit which could affect the Company; (ii) there are no
controversies, strikes, slowdowns or work stoppages pending or, to the best
knowledge of the Company after due inquiry, threatened between the Company and
any of its employees, and the Company has not experienced any such controversy,
strike, slowdown or work stoppage within the past three years; (iii) the Company
has not breached or otherwise failed to comply with the provisions of any
collective bargaining or union contract and there are no grievances outstanding
against the Company under any such agreement or contract; (iv) there are no
unfair labor practice complaints pending against the Company before the National
Labor Relations Board or any other Governmental Entity or any current union
representation questions involving employees of the Company; (v) the Company is
currently in compliance with all applicable Laws relating to the employment of
labor, including those related to wages, hours, worker classification,
collective bargaining and the payment and withholding of Taxes and other sums as
required by the appropriate Governmental Entity and has withheld and paid to the
appropriate Governmental Entity or is holding for payment not yet due to such
Governmental Entity all amounts required to be withheld from employees of the
Company and is not liable for any arrears of wages, Taxes, penalties or other
sums for failure to comply with any of the foregoing; (vi) the Company has paid
in full to all employees or adequately accrued for in accordance with U.S. GAAP
consistently applied all wages, salaries, commissions, bonuses, benefits and
other compensation due to or on behalf of such employees; (vii) there is no
claim with respect to payment of wages, salary or overtime pay that has been
asserted or is now pending or threatened before any Governmental Entity with
respect to any persons currently or formerly employed by
17
<PAGE>
the Company; (viii) the Company is not a party to, or otherwise bound by, any
consent decree with, or citation by, any Governmental Entity relating to
employees or employment practices; (ix) there is no charge or proceeding with
respect to a violation of any occupational safety or health standards that has
been asserted or is now pending or threatened with respect to the Company; and
(x) there is no charge of discrimination in employment or employment practices
for any reason, including, without limitation, age, gender, race, religion or
other legally protected category, which has been asserted or is now pending or
threatened before the United States Equal Employment Opportunity Commission or
any other Governmental Entity with respect to the Company.
SECTION 3.12 Contracts. (a) Section 3.12(a) of the Company Disclosure
---------
Schedule lists each of the following written or oral contracts and agreements of
the Company (such contracts and agreements being "Material Contracts"):
------------------
(i) each contract and agreement for the purchase or lease of
personal property with any supplier or for the furnishing of services to the
Company with an aggregate value greater than $15,000;
(ii) all broker, exclusive dealing or exclusivity, distributor,
dealer, manufacturer's representative, franchise, agency, sales promotion,
market research, marketing, consulting and advertising contracts and agreements
to which the Company is a party or any other contract that compensates any
person based on any sales by the Company;
(iii) all leases and subleases of real property;
(iv) all leases for personal property with lease payments
greater than $5,000 per year;
(v) all contracts and agreements relating to indebtedness
other than trade indebtedness of the Company, including any contracts and
agreements in which the Company is a guarantor of indebtedness;
(vi) all contracts and agreements with any Governmental Entity
to which the Company is a party;
(vii) all contracts and agreements that limit or purport to
limit the ability of the Company to compete in any line of business or with any
person or in any geographic area or during any period of time;
(viii) all contracts containing confidentiality requirements
(including all nondisclosure agreements);
(ix) all contracts and agreements between or among the Company
and any stockholder of the Company or any affiliate of such person;
(x) all contracts and agreements relating to the voting and
any rights or obligations of a stockholder of the Company;
18
<PAGE>
(xi) all contracts to manufacture for, supply to or distribute
to any third party any products or components;
(xii) all contracts regarding the acquisition, issuance or
transfer of any securities and each contract affecting or dealing with any
securities of the Company, including, without limitation, any restricted stock
agreements or escrow agreements;
(xiii) all contracts providing for indemnification of any
officer, director, employee or agent;
(xiv) all contracts related to or regarding the performance of
consulting, advisory or other services or work of any type of any third party;
(xv) all other contracts that have a term of more than 60 days
and that may not be terminated by the Company, without penalty, within 30 days
after the delivery of a termination notice by the Company;
(xvi) any other material agreement of the Company that is
terminable upon or prohibits a change of ownership or control of the Company;
and
(xvii) all other contracts and agreements, whether or not made in
the ordinary course of business, that contemplate an exchange of consideration
with an aggregate value greater than $25,000.
(b) Each Material Contract (i) is valid and binding on the Company
and, to the knowledge of the Company, on the other parties thereto (subject in
each case to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar Laws affecting creditors' rights generally and
subject in each case, as to enforceability, to the effect of general principles
of equity), and is in full force and effect, and (ii) upon consummation of the
transactions contemplated by this Agreement, shall continue in full force and
effect without penalty or other adverse consequence. The Company is not in
material breach of, or material default under, any Material Contract and, to the
knowledge of the Company, no other party to any Material Contract is in material
breach thereof or material default thereunder.
(c) The Company has delivered or made available to Parent accurate
and complete copies of all Material Contracts identified in Section 3.12(a) of
the Company Disclosure Schedule, including all amendments thereto. Section
3.12(a) of the Company Disclosure Schedule provides an accurate description of
the terms of each Material Contract that is not in written form.
(d) Except as set forth in Section 3.12(a) of the Company Disclosure
Schedule, to the Company's knowledge, no event has occurred, and no circumstance
or condition exists, that (with or without notice or lapse of time) will, or
could reasonably be expected to, (i) result in a material violation or breach of
a Material Contract, (ii) give any entity the right to declare a default or
exercise any material remedy under any Material Contract, (iii) give any entity
the right to accelerate the maturity or performance of any Material Contract or
(iv) give any entity to the right to cancel, terminate or modify any Material
Contract.
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<PAGE>
SECTION 3.13 Environmental Matters. To the knowledge of the Company,
---------------------
it (a) is in compliance in all material respects with all applicable
Environmental Laws (as defined below), (b) holds all Environmental Permits (as
defined below) material to the conduct of the Company's business and (c) is in
compliance in all material respects with their respective Environmental Permits.
The Company has not received any written request for information, or been
notified that it is a potentially responsible party, under CERCLA (as defined
below) or any similar Law of any state, locality or any other jurisdiction. The
Company has not entered into or agreed to any consent decree or order or is
subject to any judgment, decree or judicial order relating to compliance with
Environmental Laws, Environmental Permits or the investigation, sampling,
monitoring, treatment, remediation, removal or cleanup of Hazardous Materials
(as defined below) and, to the knowledge of the Company, no investigation,
litigation or other proceeding is pending or threatened in writing with respect
thereto.
For purposes of this Agreement:
"CERCLA" means the U.S. Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended as of the date hereof.
"Environmental Laws" means any Federal, state or local statute, law,
------------------
ordinance, regulation, rule, code or order of the United States, or any other
jurisdiction and any enforceable judicial or administrative interpretation
thereof, including any judicial or administrative order, consent decree or
judgment, relating to pollution or protection of the environment or natural
resources, including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials, as in effect as of the date of this Agreement.
"Environmental Permits" means any permit, approval, identification
---------------------
number, license and other authorization required under any applicable
Environmental Law.
"Hazardous Materials" means (i) any petroleum, petroleum products, by-
-------------------
products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (ii) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
SECTION 3.14 Intellectual Property.
---------------------
(a) The Company owns, is licensed for, or possesses sufficient
rights with respect to all Intellectual Property (as defined below) that is
used, exercised, or exploited ("Used") in, or that is necessary for, its
----
business (including all development activities) as currently conducted ("Company
-------
Intellectual Property," which term will also include all other Intellectual
---------------------
Property owned by or licensed to the Company now or in the past) without any
conflict with or infringement or misappropriation of any rights or property of
others ("Infringement"). The Company Intellectual Property that is owned by the
------------
Company is owned exclusively by the Company. No Company Intellectual Property
was conceived or developed directly or indirectly with or pursuant to government
funding or a government contract. "Intellectual Property" means (i) inventions
---------------------
(whether or not patentable); trade names, trade marks, service marks, logos and
other designations ("Marks"); works of authorship; mask works;
-----
20
<PAGE>
data; technology, know-how, trade secrets, ideas and information; designs;
formulas; algorithms; processes; schematics; computer software (in source code
and/or object code form); and all other intellectual and industrial property of
any sort ("Inventions") and (ii) patent rights; Mark rights; copyrights; mask
----------
work rights; sui generis database rights; trade secret rights; moral rights; and
all other intellectual and industrial property rights of any sort throughout the
world, and all applications, registrations, issuances and the like with respect
thereto ("IP Rights"). The Company is not Using any copyrightable subject matter
---------
within Company Intellectual Property created by an employee prior to the
commencement of employment of such employee with the Company, or otherwise
created outside of the scope of his or her employment. No individual consultant
of the Company owns any copyrightable subject matter within Company Intellectual
Property. The Company has not received any communication alleging or suggesting
that or questioning whether the Company has been or may be engaged in, liable
for or contributing to any Infringement, nor does the Company have any reason to
expect that any such communication will be forthcoming.
(b) To the extent included in Company Intellectual Property (but
excluding Intellectual Property licensed to the Company by third parties),
Section 3.14(b) of the Company Disclosure Schedule lists (by name, number,
jurisdiction, owner and, where applicable, the name and address of each
inventor) all patents and patent applications; all registered and unregistered
Marks; all registered and, if material, unregistered copyrights and mask works;
and all other issuances, registrations, applications and the like with respect
to those or any other IP Rights. No cancellation, termination, expiration or
abandonment of any of the foregoing (except natural expiration or termination at
the end of the full possible term, including extensions and renewals) is
anticipated by the Company. The Company is not aware of any material questions
or challenges (or any specific basis therefor) with respect to the validity of
any of the foregoing issued or registered IP Rights (or any part or claim
thereof).
(c) There is, to the knowledge of the Company, no unauthorized
Use, disclosure, infringement or misappropriation of any Company Intellectual
Property by any third party, including, without limitation, any employee or
former employee of the Company.
(d) The Company has taken all reasonable and appropriate steps to
protect and preserve the confidentiality of all Company Intellectual Property
with respect to which the Company has exclusivity and that is not otherwise
disclosed in published patents or patent applications or registered copyrights
("Company Confidential Information"). All use by and disclosure to employees or
--------------------------------
others of Company Confidential Information has been pursuant to the terms of
valid and binding written confidentiality and nonuse/restricted-use agreements.
Except as set forth in Section 3.14(d) of the Company Disclosure Schedule, the
Company has not disclosed or delivered to any third party, or permitted the
disclosure or delivery to any escrow holder or other person, any part of any
source code.
(e) Each current and former employee and individual consultant of
the Company who is or was involved in, or who has contributed to, the creation
or development of any Company Intellectual Property has executed and delivered
(and to the knowledge of the Company is in compliance with) an enforceable
agreement in substantially the form of the Company's standard Proprietary
Information and Inventions Agreement (in the case of an
21
<PAGE>
employee) or the Company's standard Consulting Agreement (in the case of an
individual consultant).
(f) To the Company's knowledge, the Company is not Using, and it
will not be necessary to Use, (i) any Inventions of any of its past or present
employees or contractors (or people currently intended to be hired) made prior
to or outside the scope of their employment by the Company or (ii) any
confidential information or trade secrets of any former employer of any such
person.
(g) Section 3.14(g) of the Company Disclosure Schedule lists: (i)
all licenses, sublicenses and other agreements to which the Company is a party
(or by which it or any Company Intellectual Property is bound or subject) and
pursuant to which any person has been or may be assigned, authorized to Use, or
given access to any Company Intellectual Property other than (A) distribution of
standard object code product pursuant to the Company's standard end-user, object
code, internal-use software license and support/maintenance agreements entered
into in the ordinary course of the business, consistent with the past practice
or (B) access provided under a standard nondisclosure/nonuse agreement; and (ii)
all licenses, sublicenses and other agreements pursuant to which the Company has
been or may be assigned or authorized to Use, or has or may have incurred any
obligation in connection with, (A) any third party Intellectual Property that
are incorporated in, are, or form a part of any current or proposed product,
service or Intellectual Property offering of the Company or (B) any Company
Intellectual Property.
(h) Except for the agreements listed in Section 3.14(h) of the
Company Disclosure Schedule and except for the indemnification provisions
contained in standard user licenses arising in the ordinary course of business,
the Company has not entered into any agreement to indemnify, hold harmless or
defend any other person with respect to any assertion of Infringement or
warranting the lack thereof.
SECTION 3.15 Taxes. (a) All Tax returns, statements, reports,
-----
declarations and other forms and documents (including without limitation
estimated Tax returns and reports and material information returns and reports)
required to be filed with any Tax Authority (as defined below) with respect to
any Taxable (as defined below) period ending on or before the Closing, by or on
behalf of Company (collectively, "Tax Returns" and individually, a "Tax
----------- ---
Return"), have been or will be completed and filed when due (including any
------
extensions of such due date) and all amounts shown due on such Tax Returns on or
before the Effective Time have been or will be paid on or before such date. The
Interim Financial Statements (i) fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through August 31, 2000 and
the Company has not and will not incur any Tax liability in excess of the amount
reflected (excluding any amount thereof that reflects timing differences between
the recognition of income for purposes of U.S. GAAP and for Tax purposes) on the
Reference Balance Sheet included in the Interim Financial Statements with
respect to such periods, other than Taxes incurred in the ordinary course of
business following August 31, 2000, and (ii) properly accrues in accordance with
U.S. GAAP all material liabilities for Taxes payable after August 31, 2000, with
respect to all transactions and events occurring on or prior to such date. All
information set forth in the notes to the Interim Financial Statements relating
to Tax matters is true, complete and accurate in all material respects. No
material Tax liability since August 31, 2000 has been incurred by the
22
<PAGE>
Company other than in the ordinary course of business and adequate provision has
been made by the Company for all Taxes since that date in accordance with U.S.
GAAP on at least a quarterly basis.
(b) The Company has withheld and paid to the applicable financial
institution or Tax Authority all amounts required to be withheld. To the best
knowledge of the Company, no Tax Returns filed with respect to Taxable years
through the Taxable year ended December 31, 1999, in the case of the United
States, have been examined and closed. The Company (or any member of any
affiliated or combined group of which the Company has been a member) has not
granted any extension or waiver of the limitation period applicable to any Tax
Returns that is still in effect and there is no material claim, audit, action,
suit, proceeding, or (to the knowledge of the Company) investigation now pending
or threatened against or with respect to the Company in respect of any Tax or
assessment. No notice of deficiency or similar document of any Tax Authority has
been received by the Company, and there are no liabilities for Taxes (including
liabilities for interest, additions to Tax and penalties thereon and related
expenses) with respect to the issues that have been raised (and are currently
pending) by any Tax Authority that could, if determined adversely to the
Company, materially and adversely affect the liability of the Company for Taxes.
There are no liens for Taxes (other than for current Taxes not yet due and
payable) upon the assets of the Company. The Company has never been a member of
an affiliated group of corporations, within the meaning of Section 1504 of the
Code. The Company is in full compliance with all the terms and conditions of any
Tax exemption or other Tax-sharing agreement or order of a foreign government
and the consummation of the Merger will not have any adverse effect on the
continued validity and effectiveness of any such Tax exemption or other Tax-
sharing agreement or order. Neither the Company nor any person on behalf of the
Company has entered into or will enter into any agreement or consent pursuant to
the collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income tax law) apply to any disposition of any asset owned by
the Company. None of the assets of the Company is property that the Company is
required to treat as being owned by any other person pursuant to the so-called
"safe harbor lease" provisions of former Section 168(f)(8) of the Code. None of
the assets of the Company directly or indirectly secures any debt the interest
on which is tax exempt under Section 103(a) of the Code. None of the assets of
the Company is "tax-exempt use property" within the meaning of Section 168(h) of
the Code. The Company has not made and will not make a deemed dividend election
under Treas. Reg. (S).1.1502-32(f)(2) or a consent dividend election under
Section 565 of the Code. The Company has never been a party (either as a
distributing corporation, a distributed corporation or otherwise) to any
transaction intended to qualify under Section 355 of the Code or any
corresponding provision of state Law. The Company has not participated in (and
will not participate in) an international boycott within the meaning of Section
999 of the Code. No Company Stockholder is other than a United States person
within the meaning of the Code. The Company does not have and has not had a
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States of America and such foreign
country and the Company has not engaged in a trade or business within any
foreign country. Company has never elected to be treated as an S-corporation
under Section 1362 of the Code or any corresponding provision of Federal or
state Law. All material elections with respect to the Company's Taxes made
during the fiscal years ending, December 31, 1998 and 1999 are reflected on the
Company's Tax
23
<PAGE>
Returns for such periods, copies of which have been provided or made available
to Parent. After the date of this Agreement, no material election with respect
to Taxes will be made without the prior written consent of Parent, which consent
will not be unreasonably withheld or delayed. The Company is not party to any
joint venture, partnership, or other arrangement or contract which could be
treated as a partnership for Federal income tax purposes. The Company is not
currently and never has been subject to the reporting requirements of Section
6038A of the Code. There is no agreement, contract or arrangement to which the
Company is a party that could, individually or collectively, result in the
payment of any amount that would not be deductible by reason of Sections 280G
(as determined without regard to Section 280G(b)(4)), 162 (other than 162(a)) or
404 of the Code. Company is not a party to or bound by any Tax indemnity, Tax
sharing or Tax allocation agreement (whether written or unwritten or arising
under operation of Federal Law as a result of being a member of a group filing
consolidated Tax Returns, under operation of certain state Laws as a result of
being a member of a unitary group, or under comparable Laws of other states or
foreign jurisdictions) which includes a party other than the Company nor does
the Company owe any amount under any such agreement. The Company has previously
provided or made available to Parent true and correct copies of all income,
franchise, and sales Tax Returns, and, as reasonably requested by Parent, prior
to or following the date hereof, presently existing information statements and
reports. The Company is not, and has not been, a United States real property
holding corporation (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Other than
by reason of the Merger, the Company has not been and will not be required to
include any material adjustment in Taxable income for any Tax period (or portion
thereof) pursuant to Section 481 or 263A of the Code or any comparable provision
under state or foreign Tax Laws as a result of transactions, events or
accounting methods employed prior to the Merger.
(c) For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
--- ----- -------
means any and all taxes including, without limitation, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, value added, net worth, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity responsible for the imposition of any such
tax (domestic or foreign) (a "Tax Authority"), (ii) any liability for the
-------------
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any taxable
period or as the result of being a transferee or successor thereof and (iii) any
liability for the payment of any amounts of the type described in (i) or (ii) as
a result of any express or implied obligation to indemnify any other person. As
used in this Section 3.15, the term "Company" means the Company and any entity
included in, or required under U.S. GAAP to be included in, any of the Audited
Financial Statements or the Interim Financial Statements.
SECTION 3.16 Vote Required. The only votes of the holders of any
-------------
classes or series of capital stock of the Company necessary to approve and adopt
this Agreement, the Merger and the other transactions contemplated by this
Agreement are the affirmative vote of the holders of at least a majority of the
outstanding shares of the Company Common Stock and the Company Preferred Stock,
voting as separate classes, in favor of the approval and adoption of
24
<PAGE>
this Agreement and the Merger. The shares of Company Stock subject to the Voting
Agreements are sufficient to (a) secure the affirmative vote of the holders of
at least a majority of the outstanding shares of the Company Common Stock and
the Company Preferred Stock, voting as separate classes, in favor of the
approval and adoption of this Agreement and the Merger, and (b) effect the
conversion of all shares of Company Preferred Stock into shares of Company
Common Stock on a one-for-one basis immediately prior to the Closing in
accordance with the Company's Certificate of Incorporation.
SECTION 3.17 Assets. Except as set forth in Section 3.17 of the
------
Company Disclosure Schedule, the Company owns, leases or has the legal right to
use all of the material properties and assets, including, without limitation,
real property and personal property (other than contract rights which are
covered by Section 3.12 hereof and Company Intellectual Property, which is
covered by Section 3.14 hereof), used or intended to be used in the conduct of
the business of the Company or otherwise owned, leased or used by the Company
(all such properties and assets being the "Assets"). Except as set forth in
------
Section 3.17 of the Company Disclosure Schedule, the Company has good and
marketable title to, or, in the case of leased or subleased Assets, valid and
subsisting leasehold interests in, all the Assets, free and clear of all liens,
pledges or encumbrances except for (x) any lien for current Taxes not yet due
and payable, and (y) liens that have arisen in the ordinary course of business
and that do not (in any case or in the aggregate) materially detract from the
value of the Assets subject thereto or materially impair the operations of the
Company. The equipment of the Company used in the operations of its business is,
taken as a whole, in good operating condition and repair, ordinary wear and tear
excepted.
SECTION 3.18 Owned Real Property The Company does not own any real
-------------------
property.
SECTION 3.19 Certain Interests. (a) Except as set forth in Section
-----------------
3.19 of the Company Disclosure Schedule, no holder of greater than 1% of the
outstanding voting power of the Company or its affiliates or any officer or
director of the Company and, to the knowledge of the Company, no immediate
relative or spouse (or immediate relative of such spouse) who resides with, or
is a dependent of, any such officer or director:
(i) has any direct or indirect financial interest in any
creditor, competitor, supplier manufacturer, agent, representative, distributor
or customer of the Company; provided, however, that the ownership of securities
-------- -------
representing no more than 1% of the outstanding voting power of any creditor,
competitor, supplier manufacturer, agent, representative, distributor or
customer, and which are listed on any national securities exchange or traded
actively in the national over-the-counter market, shall not be deemed to be a
"financial interest" as long as the person owning such securities has no other
connection or relationship with such competitor, supplier, agent, distributor or
customer;
(ii) owns, directly or indirectly, in whole or in part, or has
any other interest, in any tangible or intangible property that the Company uses
in the conduct of its business (except for any such ownership or interest
resulting from the ownership of securities in a public company);
25
<PAGE>
(iii) has any claim or cause of action against the Company
; or
(iv) has outstanding any indebtedness to the Company.
(b) Except as set forth in Section 3.19 of the Company
Disclosure Schedule, except for the payment of employee compensation in the
ordinary course of business, the Company has no liability or any other
obligation of any nature whatsoever to any stockholder of the Company or any
affiliate thereof or to any officer or director of the Company or, to the
knowledge of the Company, to any immediate relative or spouse (or immediate
relative of such spouse) of any such officer or director.
SECTION 3.20 Insurance Policies. Section 3.20 of the Company Disclosure
------------------
Schedule sets forth a true and complete list of all insurance policies held by
the Company and any claims thereunder. True and complete copies of all such
policies have been provided or made available by the Company to Parent. All
premiums due to the date hereof on such policies have been paid. The Company has
not failed to give any notice or present any claim under any such policy in a
timely fashion. Such insurance to the date hereof has (i) been maintained in
full force and effect and (ii) not been canceled or changed, except to extend
the maturity dates thereof. Since December 31, 1999, the Company has not
received any notice or other communication regarding any actual or possible (a)
cancellation or termination of any insurance policy, (b) refusal of any coverage
or rejection of any claim under any insurance policy or (c) material adjustment
in the amount of the premiums payable with respect to any insurance policy.
SECTION 3.21 Brokers. Except for Credit Suisse First Boston Corporation
-------
("Advisor"), no broker, finder or investment banker is entitled to any
-------
brokerage, finder's or other fee or commission in connection with the
origination, negotiation or execution of this Agreement, the Merger or the other
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The Company has heretofore furnished to Parent a
complete and correct copy of all agreements between the Company and Advisor
pursuant to which such advisor would be entitled to any payment in relation to
the Merger or the transactions contemplated by this Agreement. The Company
Stockholders are responsible for any such fees paid or payable by the Company in
excess of the Aggregate Fees (as defined in Section 6.08).
SECTION 3.22 State Takeover Statutes. The Board of Directors of the
-----------------------
Company has taken all action necessary to ensure that any restrictions on
business combinations contained in the DGCL will not apply to the Merger and the
other transactions contemplated by this Agreement. To the knowledge of the
Company, no other state takeover statute is applicable to the Merger or the
other transactions contemplated by this Agreement.
SECTION 3.23 Customers and Suppliers. Section 3.23 of the Company
-----------------------
Disclosure Schedule contains a complete list of all customers that individually
accounted for more than 2% of the Company's gross revenues during the fiscal
year ended December 31, 1999 and the two most recent fiscal quarters ended June
30, 2000 preceding the date hereof, and no material supplier of the Company has
cancelled or otherwise terminated any contract with the Company prior to the
expiration of the contract term, or, to the Company's knowledge, made any
26
<PAGE>
written threat to the Company to cancel, reduce the supply or otherwise
terminate its relationship with the Company . The Company has not (i) breached
(so as to provide a benefit to the Company that was not intended by the parties)
any agreement with or (ii) engaged in any fraudulent conduct with respect to,
any customer or supplier of the Company.
SECTION 3.24 Inventory. All inventory of the Company, whether or not
---------
reflected on the Reference Balance Sheet, consists of a quality and quantity
usable and saleable in the ordinary course of business, except for obsolete
items and items of below-standard quality, all of which have been written-off or
written-down to net realizable value on the Reference Balance Sheet. All
inventories not written-off have been priced at the lower of cost or market
using the weighted average method. The quantities of each type of inventory,
whether raw materials, work-in-process or finished goods, are not excessive in
the present circumstances of the Company.
SECTION 3.25 Accounts Receivable; Bank Accounts. All accounts receivable of
----------------------------------
the Company reflected on the Reference Balance Sheet are valid receivables
subject to no setoffs or counterclaims and are current and collectible (within
90 days after the date on which it first became due and payable), net of the
applicable reserve for bad debts on the Reference Balance Sheet. All accounts
receivable reflected in the financial or accounting records of the Company that
have arisen since the date of Reference Balance Sheet are valid receivables
subject to no setoffs or counterclaims and are collectible (within 90 days after
the date on which it first became due and payable), net of a reserve for bad
debts in an amount proportionate to the reserve shown on the Reference Balance
Sheet. Section 3.25 of the Company Disclosure Schedule describes each account
maintained by or for the benefit of the Company at any bank or other financial
institution.
SECTION 3.26 Powers of Attorney. There are no outstanding powers of
------------------
attorney executed on behalf of the Company.
SECTION 3.27 Offers. The Company has suspended or terminated, and has the
------
legal right to terminate or suspend, all negotiations and discussions of any
acquisition, merger, consolidation or sale of all substantially all of the
assets of Company with parties other than Parent.
SECTION 3.28 Warranties. No product or service manufactured, sold,
----------
leased, licensed or delivered by the Company is subject to any guaranty,
warranty, right of return, right of credit or other indemnity other than (i) the
applicable standard terms and conditions of sale or lease of the Company, which
are set forth in Section 3.28 of the Company Disclosure Schedule and (ii)
manufacturers' warranties for which the Company has no liability. Section 3.28
of the Company Disclosure Schedule sets forth the aggregate expenses incurred by
the Company in fulfilling its obligations under its guaranty, warranty, right of
return and indemnity provisions during each of the fiscal years and the interim
period covered by the Audited Financial Statements and the Interim Financial
Statements and the Company does not know of any reason why such expenses should
significantly increase as a percentage of sales in the future.
SECTION 3.29 Books and Records. The minute books and other similar
-----------------
records of the Company each contain complete and accurate records of all actions
taken at any meetings
27
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of the Company's stockholders, Board of Directors or any committee thereof, and
of all written consents executed in lieu of the holder of any such meeting. The
books and records of the Company accurately reflect in all material respects the
assets, liabilities, business, financial condition and results of operations of
the Company and have been maintained in accordance with good business and
bookkeeping practices.
SECTION 3.30 Tax Matters. Neither the Company nor any of its affiliates
-----------
has taken or agreed to take any action that would prevent the Merger from
constituting a reorganization qualifying under Section 368(a) of the Code. The
Company is not aware of any agreement, plan or other circumstance that would
prevent the Merger from qualifying as a reorganization under Section 368(a) of
the Code.
SECTION 3.31 No Misstatements. No representation or warranty made by the
----------------
Company in this Agreement, the Company Disclosure Schedule or any certificate
delivered or deliverable pursuant to the terms hereof contains or will contain
any untrue statement of a material fact, or omits, or will omit, when taken as a
whole, to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading. The
Company has disclosed to Parent all material information relating to the
business of the Company or the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
-------------------------------------------------------
Except as set forth in (i) the disclosure schedule delivered by Parent and
Merger Sub to the Company concurrently with the execution of this Agreement (the
"Parent Disclosure Schedule"), which provides an exception to or otherwise
--------------------------
qualifies in reasonable detail with specific Section references, the
representations or warranties of Parent and Merger Sub specifically referred to
therein, or (ii) in the Parent SEC Documents (as defined in Section 4.05),
Parent and Merger Sub hereby jointly and severally represent and warrant to the
Company that:
SECTION 4.01 Organization and Qualification. (a) Parent is a corporation
------------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such corporate power and authority have not had,
individually or in the aggregate, a Parent Material Adverse Effect (as defined
below). Parent is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except where the failure to be
so qualified or licensed and in good standing have not had, individually or in
the aggregate, a Parent Material Adverse Effect.
(b) Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
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(c) Neither Parent nor Merger Sub is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws.
SECTION 4.02 Authority Relative to This Agreement. Each of Parent and
------------------------------------
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement, and to perform its obligations hereunder and to
consummate the Merger and the other transactions contemplated by this Agreement.
The execution and delivery of this Agreement by each of Parent and Merger Sub
and the consummation by each of Parent and Merger Sub of the Merger and the
other transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of Parent or Merger Sub are necessary to authorize this Agreement or
to consummate the Merger and the other transactions contemplated by this
Agreement (other than with respect to the Merger, the filing and recordation of
appropriate merger documents as required by the DGCL). This Agreement has been
duly and validly executed and delivered by each of Parent and Merger Sub and,
assuming the due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in accordance with its
terms, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar Laws affecting creditors' rights generally and
subject, as to enforceability, to the effect of general principles of equity.
SECTION 4.03 Capital Structure. As of the date hereof, the authorized
-----------------
capital stock of Parent consists of (i) 100,000,000 shares of Parent Common
Stock and (ii) 5,000,000 shares of preferred stock, $.0001 par value per share
(the "Parent Preferred Stock"). As of September 30, 2000, (i) 40,002,058 shares
----------------------
of Parent Common Stock were issued and outstanding, all of which are duly
authorized, validly issued, fully paid and non-assessable, and (ii) 11,996,863
shares of Parent Common Stock were reserved for future issuance pursuant to
outstanding options to purchase Parent Common Stock. As of the date hereof, no
shares of Parent Preferred Stock were issued and outstanding. As of September
30, 2000, except for outstanding options referred to in clause (ii) of the
second sentence of this Section 4.03, there are no outstanding options or
warrants, or agreements relating to the issuance of capital stock of Parent or
obligating Parent to issue or sell any shares of its capital stock. The shares
of Parent Common Stock to be issued pursuant to the Merger will be duly
authorized, validly issued, fully paid, and non-assessable, will not be subject
to any preemptive or other statutory right of stockholders and, will be free of
any lien or encumbrance other than any lien or encumbrance created by or imposed
upon the holders thereof.
SECTION 4.04 No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by each of Parent and Merger Sub do
not, and the performance of this Agreement by each of Parent and Merger Sub will
not, (i) conflict with or violate their respective charter documents or bylaws,
(ii) assuming that all consents, approvals, authorizations and other actions
described in Section 4.04(b) have been obtained and all filings and obligations
described in Section 4.04(b) have been made, conflict with or violate in any
material respect any Law applicable to Parent or Merger Sub or by which any
property or asset of Parent or Merger Sub is bound or affected, or (iii) result
in any breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or
29
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other encumbrance on any property or asset of Parent or Merger Sub pursuant to,
any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with
respect to clause (iii), for any such conflicts, violations, breaches, defaults,
or other occurrences that could not reasonably be expected, individually or in
the aggregate, to prevent or materially delay the consummation of the
transactions contemplated by this Agreement or to have a Parent Material Adverse
Effect.
(b) The execution and delivery of this Agreement by each of
Parent and Merger Sub do not, and the performance of this Agreement by each of
Parent and Merger Sub will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity, except
(i) for pre-merger notification requirements of the HSR Act, (ii) for the filing
and recordation of appropriate merger documents as required by the DGCL, (iii)
any filings as may be required under applicable Federal and state securities
laws, including, without limitation, qualification pursuant to Section 25121 of
the California General Corporation Law, (iv) the filing of a Notification of
Listing of Additional Shares with The Nasdaq National Market, and (v) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, could not reasonably be expected,
individually or in the aggregate, to prevent or materially delay the
consummation of the transactions contemplated by this Agreement.
SECTION 4.05 SEC Filings; Financial Statements. (a) All forms, reports,
---------------------------------
registration statements, proxy statements, prospectuses and other documents
filed by Parent with the Securities and Exchange Commission (the "SEC") since
---
November 18, 1999 through the date of this Agreement (collectively, the "Parent
------
SEC Documents") were prepared, and all forms, reports, registration statements,
-------------
proxy statements, prospectuses and other documents filed with the SEC after the
date of this Agreement and prior to the Effective Time will be prepared, in all
material respects in accordance with the requirements of the Securities Act or
the Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), as the case may be.
------------
None of the Parent SEC Documents contained, nor will any forms, reports,
registration statements, proxy statements, prospectuses or other documents filed
after the date of this Agreement and prior to the Effective Time contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading.
Parent has made all filings required to be made with the SEC and has filed all
documents required to be filed as exhibits to the Parent SEC Documents.
(b) Each of the consolidated financial statements (including,
in each case, any notes thereto) contained in the Parent SEC Documents and in
any form, report, registration statement, proxy statement, prospectus or
document filed after the date of this Agreement and prior to the Effective Time
was, or will be, as the case may be, prepared in accordance with U.S. GAAP
accounting standards applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 6-K of the SEC) and each presented or
will present fairly, in all material respects, the consolidated financial
position of Parent and its consolidated subsidiaries as at the respective dates
thereof and the consolidated results of operations and cash flows of Parent and
its consolidated subsidiaries for the respective periods indicated therein,
except as
30
<PAGE>
otherwise noted therein (subject, in the case of unaudited statements, to normal
and recurring year-end adjustments that were not and are not expected,
individually or in the aggregate, to have a Parent Material Adverse Effect).
Since July 31, 2000, there has not been any Parent Material Adverse Effect. The
term "Parent Material Adverse Effect" means any change in or effect on the
------------------------------
business of Parent and its subsidiaries that is, or could reasonably be expected
to be, materially adverse to the business, operations, condition (financial or
otherwise), assets (tangible or intangible), liabilities, prospects or results
of operations of Parent and its subsidiaries taken as a whole, except for any
such changes or effects principally resulting from or principally arising in
connection with (i) any occurrence or condition affecting the market for
Internet caching appliances generally that does not disproportionately impact
Parent, (ii) any changes in general economic conditions, (iii) in and of itself,
any change in the trading price of the Parent Common Stock, or (iv) in and of
itself, a failure by Parent to meet the expectations or predictions of equity
analysts for any period ending on or after the date of this Agreement and prior
to the Closing Date.
SECTION 4.06 Absence of Litigation. There is no Legal Proceeding pending
---------------------
or, to the knowledge of Parent, threatened against Parent or Merger Sub, or any
property or asset owned or used by Parent or Merger Sub or any person whose
liability Parent or Merger Sub has or may have assumed, either contractually or
by operation of Law, before any arbitrator or Governmental Entity which could
reasonably be expected, if resolved adversely to Parent or Merger Sub, to (i)
have a Parent Material Adverse Effect, (ii) impair the ability of Parent or
Merger Sub to perform its obligations under this Agreement or (iii) prevent,
delay or make illegal the consummation of the transactions contemplated by this
Agreement. To Parent's knowledge, no event has occurred, and no claim, dispute
or other condition or circumstance exists, that could reasonably be expected to
give rise to or serve as a basis of the commencement of any Legal Proceeding of
the types described in (i) through (iii).
SECTION 4.07 Interim Operations of Merger Sub. Merger Sub was formed by
--------------------------------
Parent solely for the purpose of engaging in the transactions contemplated by
this Agreement, has engaged in no other business activities and has conducted
its operations only as contemplated by this Agreement. Merger Sub has no
liabilities and, except for a subscription agreement pursuant to which all of
its authorized capital stock was issued to Parent, is not a party to any
agreement other than this Agreement and agreements with respect to the
appointment of registered agents and similar matters.
SECTION 4.08 Valid Issuance of Parent Shares. The shares of Parent Common
-------------------------------
Stock to be issued pursuant to this Agreement will, when issued, be duly
authorized, validly issued, fully paid and non-assessable, and issued in
compliance with all applicable United States Federal and state securities laws.
SECTION 4.09 Brokers. No broker, finder or investment banker is entitled to
-------
any brokerage, finder's or other fee or commission in connection with the Merger
or the other transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent or Merger Sub.
SECTION 4.10 Tax Matters. Neither Parent nor Merger Sub nor any of their
-----------
affiliates has taken or agreed to take any action that would prevent the Merger
from constituting
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<PAGE>
a reorganization qualifying under Section 368(a) of the Code. Parent is not
aware of any agreement, plan or other circumstance that would prevent the Merger
from qualifying as a reorganization under Section 368(a) of the Code.
SECTION 4.11 No Misstatements. No representation or warranty made by Parent
----------------
or Merger Sub in this Agreement, the Parent Disclosure Schedule or certificates
delivered or deliverable pursuant to the terms hereof contains or will contain
any untrue statement of a material fact, or omits, or will omit, when taken as a
whole, to state a material fact, necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading. Parent
and Merger Sub have disclosed to Company all material information relating to
the business of Parent or Merger Sub or the transactions contemplated by this
Agreement that would be required to be included in a registration statement of
Parent filed on Form S-1 if such registration statement was required to be
declared effective as of the date of this Agreement.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
----------------------------------------
SECTION 5.01 Conduct of Business by the Company Pending the Merger. During
-----------------------------------------------------
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, the Company agrees
(except to the extent that Parent shall otherwise consent in writing) to carry
on its business in the usual, regular and ordinary course and in substantially
the same manner as previously conducted, to pay its debts and Taxes when due
(subject to good faith disputes over such debts or Taxes), to pay or perform
other obligations when due and, to the extent consistent with such business, use
all reasonable efforts consistent with past practices and policies to preserve
intact its present business organization, keep available the services of its
present officers and key employees and consultants and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, to the end that its goodwill and
ongoing businesses would be unimpaired at the Effective Time. The Company shall
promptly notify Parent of any event or occurrence not in the ordinary course of
business of Company.
By way of amplification and not limitation, except as contemplated by this
Agreement or in Section 5.01 of the Company Disclosure Schedule, the Company
shall not, between the date of this Agreement and the Effective Time, directly
or indirectly, do, or propose to do, any of the following without the prior
written consent of Parent:
(a) amend or otherwise change its Certificate of Incorporation or
Bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, authorize or
propose the issuance, sale, pledge, disposition, grant or encumbrance of any
shares of its capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital
stock or any other ownership interest (including, without limitation, any
phantom interest), of the Company, except pursuant to the terms of options,
warrants or preferred stock outstanding on the date of this Agreement;
32
<PAGE>
(c) sell, lease, license, pledge, grant, encumber or otherwise
dispose of any of its properties or assets that are material, individually or in
the aggregate, to its business except for the license, sale or encumbrance of
the Company's products in the ordinary course of business, consistent with past
practice;
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock;
(e) split, combine, subdivide, redeem or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
purchase or otherwise acquire, directly or indirectly, any shares of its capital
stock except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service by such party;
(f) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets) any interest or any assets in any
corporation, partnership, other business organization or any division thereof;
(g) institute or settle any Legal Proceeding;
(h) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any person, or make any loans or
advances, other than (i) advances for travel and expenses which are incurred in
the ordinary course of business consistent with past practice, not material in
amount and documented by receipts for the claimed amounts or (ii) any loans
pursuant to the 401(k) Plan;
(i) authorize any capital expenditure in excess of $10,000
individually or $25,000 in the aggregate;
(j) enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business,
consistent with past practice;
(k) waive or release any material right or claim;
(l) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past practice in
salaries or wages of its employees who are not its officers, or grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any of its directors, officers or other employees (other than
the Company Severance Plan (as defined in Section 10.02)), or establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer or
employee;
33
<PAGE>
(m) accelerate, amend or change the period of exercisability or the
vesting schedule of restricted stock or Company Options granted under any option
plan, employee stock plan or other agreement or authorize cash payments in
exchange for any Company Options granted under any of such plans, except as
specifically required by the terms of such plans or any related agreement or any
such agreement in effect as of the date of this Agreement and disclosed in the
Company Disclosure Schedule or pursuant to the Company Severance Plan;
(n) take any action to cause, the accelerated vesting and
exercisability of the Company Options;
(o) extend any offers of employment to potential employees,
consultants or independent contractors;
(p) amend or terminate any Material Contract, except in the ordinary
course of business, consistent with past practice;
(q) enter into, amend or terminate any contract, agreement,
commitment or arrangement that, if fully performed, would not be permitted under
this Section 5.01;
(r) other than in the ordinary course of business consistent with
past practice, enter into any licensing, distribution, OEM agreements,
sponsorship, advertising, merchant program or other similar contracts,
agreements or obligations;
(s) enter into any contract or agreement material to the business,
results of operations or financial condition of the Company;
(t) take any action, other than reasonable and usual action in the
ordinary course of business and consistent with past practice, with respect to
accounting policies, principles or procedures;
(u) make or change any material Tax or accounting election, change
any annual accounting period, adopt or change any accounting method, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim or
assessment relating to Company, surrender any right to claim refund of Taxes,
consent to any extension or waiver of the limitation period applicable to any
Tax claim or assessment relating to Company, or take any other action or omit to
take any action that would have the effect of increasing the Tax liability of
the Company or Parent;
(v) (i) sell, assign, lease, terminate, abandon, transfer, permit to
be encumbered or otherwise dispose of or grant any security interest in and to
any item of the Company Intellectual Property, in whole or in part, (ii) grant
any license with respect to any Company Intellectual Property, other than a
license of Company software to customers of the Company to whom the Company
licenses such software in the ordinary course of business, (iii) develop, create
or invent any Intellectual Property jointly with any third party other than
pursuant to agreements existing at the date of this Agreement, or (iv) disclose,
or allow to be disclosed, any confidential Company Intellectual
34
<PAGE>
Property, unless such Company Intellectual Property is subject to a
confidentiality or non-disclosure covenant protecting against disclosure
thereof;
(w) make (or become obligated to make) any bonus payments to any of
its officers or employees, other than the bonus payments identified on Section
5.01(w) of the Company Disclosure Schedule which the Company is obligated to
make pursuant to agreements existing at the date of this Agreement;
(x) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable;
(y) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained up to the date
of this Agreement, subject only to ordinary wear and tear;
(z) take any action or fail to take any action where such action or
failure to take action would reasonably be expected at the time of such action
to cause there to be a Company Material Adverse Effect;
(aa) permit any insurance policy naming it as a beneficiary or a loss
payable payee to be cancelled or terminated without notice to Parent;
(bb) write off as uncollectible, or establish any extraordinary
reserve with respect to, any account receivable or other indebtedness in excess
of $10,000 with respect to a single matter, or in excess of $30,000 in the
aggregate; or
(cc) take, or agree in writing or otherwise to take, any of the
actions described in Sections (a) through (bb) above, or any action that would
reasonably be expected to make any of Company's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on the
date made (to the extent so limited) or as of the Effective Time.
SECTION 5.02 Notification of Certain Matters. Parent shall give prompt
-------------------------------
notice to the Company, and the Company shall give prompt notice to Parent, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or non-
occurrence, of which would be likely to cause (x) any representation or warranty
contained in this Agreement to be untrue or inaccurate or (y) any covenant,
condition or agreement contained in this Agreement not to be complied with or
satisfied and (ii) any failure or inability of Parent or the Company, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
-------- -------
delivery of any notice pursuant to this Section 5.02 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
ARTICLE VI
ADDITIONAL AGREEMENTS
---------------------
SECTION 6.01 California Permit; Company Stockholder Approval.
-----------------------------------------------
35
<PAGE>
(a) As promptly as practicable (and in any event within 20 days)
after the execution of this Agreement, Parent shall prepare the necessary
documents and Parent shall apply for a permit (a "California Permit") from the
-----------------
California Department of Corporations (after a hearing before such Department)
pursuant to Section 25121 of the California Corporate Securities Law of 1968, as
amended (the "Fairness Hearing Law") such that the issuance of the Parent Common
--------------------
Stock in the Merger shall be exempt from registration under the Securities Act,
by virtue of the exemption from the registration contained in Section 3(a)(10)
thereof, and the Company shall prepare a related information statement or other
disclosure document (the "Information Statement") to be distributed to the
---------------------
Company Stockholders. The Company shall cooperate with, and provide information
to, Parent in connection with Parent's application for the California Permit.
The Company and Parent will respond to any comments from the California
Commissioner of Corporations and use their reasonable best efforts to cause the
California Permit to be granted as soon as reasonably practicable after such
filing; provided, however, that Parent shall not be required to modify any of
-------- -------
the terms of the Merger in order to cause the California Secretary of State to
approve the fairness of such terms and conditions. The Company shall provide to
Parent for inclusion in the Information Statement such information relating to
the Company as may be required pursuant to the Fairness Hearing Law or by the
California Department of Corporations. The Information Statement shall include
the unanimous recommendation of the Board of Directors of the Company to the
Company Stockholders to vote in favor of the Merger and the adoption of this
Agreement. None of the information supplied by the Company to Parent in
connection with the California Permit application or any other document prepared
to comply with Federal or state securities laws shall contain any untrue
statement of material fact or omit to state any material fact necessary in order
to make the statements contained therein not misleading. None of the information
supplied by Parent in connection with the California Permit application or any
other document prepared to comply with Federal or state securities laws shall
contain any untrue statement of material fact or omit to state any material fact
necessary in order to make the statements contained therein not misleading.
(b) In the event that the California Permit cannot be issued for
any reason, then the parties hereto shall take commercially reasonable steps to
permit the delivery of Parent Common Stock pursuant to the Merger to be
accomplished by means of a registered offering under the Securities Act;
provided however, that the parties hereto shall not be required to take such
-------- -------
steps, or to continue to take such steps if, at any time after it is determined
that the California Permit cannot be issued, it is then reasonably unlikely that
the Merger could be consummated by March 31, 2001.
(c) The Company shall promptly, after the date of this Agreement
and in accordance with applicable Law, the Company's Certificate of
Incorporation and Bylaws and the Fairness Hearing Law, convene a meeting of its
stockholders or solicit written consents to obtain their approval and adoption
of this Agreement, the Merger, and the transactions contemplated by this
Agreement. The Company shall ensure that the stockholders' meeting is called,
noticed, convened, held and conducted, and that all proxies solicited by the
Company in connection with the stockholders' meeting are solicited or, in the
alternative, that written consents are solicited, in compliance with applicable
Law, the Company's Certificate of Incorporation and Bylaws, and all other
applicable legal requirements. The Company agrees to
36
<PAGE>
use it best efforts to take all action necessary or advisable to secure the
necessary votes required by applicable Law, the Company's Certificate of
Incorporation and Bylaws to effect the Merger.
SECTION 6.02 Access to Information; Confidentiality.
--------------------------------------
(a) From the date of this Agreement to the Effective Time, the
Company shall: (i) provide to Parent (and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other representatives,
collectively, "Representatives") access at reasonable times upon prior notice to
---------------
the directors, officers, employees, agents, properties, offices and other
facilities of the Company and to its the books and records and (ii) furnish
promptly such information concerning the business, properties, contracts,
assets, liabilities, personnel and other aspects of the Company as Parent or its
Representatives may reasonably request.
(b) The parties shall comply with, and shall cause their
respective Representatives to comply with, all of their respective obligations
under the Non-Disclosure Agreement dated August 14, 2000, (the "Non-Disclosure
--------------
Agreement") between the Company and Parent.
---------
SECTION 6.03 No Solicitation of Transactions.
-------------------------------
(a) The Company will not, directly or indirectly, and will
instruct its officers, directors, employees, agents, advisors or other
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it), not to, directly or indirectly, solicit, initiate
or encourage (including by way of furnishing nonpublic information), or take any
other action to facilitate, any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders) that
constitutes, or may reasonably be expected to lead to, any Competing Transaction
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize or permit any of the officers, directors or employees of the Company,
or any investment banker, financial advisor, attorney, accountant or other
representative retained by the Company, to take any such action. The Company
will notify Parent immediately after receipt by the Company (or any of its
officers, directors, employees, agents, advisors or other representatives) of
any proposal for, or inquiry respecting, any Competing Transaction, or any
request for nonpublic information in connection with such proposal or inquiry or
for access to the properties, books or records of the Company by any person that
informs or has informed the Company that it is considering making or has made
such a proposal or inquiry. Such notice to Parent shall indicate in reasonable
detail the identity of the person making such proposal or inquiry and the terms
and conditions of such proposal or inquiry. The Company immediately shall cease
and cause to be terminated all existing discussions or negotiations with any
parties conducted heretofore with respect to a Competing Transaction. The
Company agrees not to release any third party from, or waive any provision of,
any confidentiality or standstill agreement to which it is a party.
(b) A "Competing Transaction" means any of the following
---------------------
involving the Company (other than the Merger and the other transactions
contemplated by this
37
<PAGE>
Agreement): (i) a merger, consolidation, share exchange, business combination or
other similar transaction; (ii) any sale, lease, exchange, transfer or other
disposition of a material portion of the assets of the Company; (iii) a tender
offer or exchange offer for 15% or more of the outstanding voting securities of
the Company; or (iv) any solicitation in opposition to approval by the
stockholders of the Company of this Agreement and the Merger.
SECTION 6.04 Employee Benefits Matters.
-------------------------
(a) All Company employees shall continue on their existing
benefit plans until such time as, in Parent's sole discretion, an orderly
transition can be accomplished to employee benefit plans and programs maintained
by Parent for its and its affiliates' employees in the United States. Parent
shall provide the Company's employees with health, welfare and other employee
benefits (it being understood that equity incentive plans are not considered
employee benefits) that in the aggregate are substantially equivalent to those
provided to Parent's employees in similar functions and positions. Pending such
action, Parent shall maintain the effectiveness of the Company's benefit plans.
(b) Simultaneously with the execution of this Agreement, Parent
has entered into an employment agreement (the "Employment Agreement") with John
--------------------
Scharber.
(c) Prior to the Effective Time, the Company shall in good faith
attempt to obtain the requisite stockholder approval under Section 280G(b)(5) of
the Code of any payments or benefits that could be considered "excess parachute
payments" within the meaning of Section 280G of the Code and shall require all
"disqualified individuals" within the meaning of Section 280G of the Code to
subject their existing benefits and payments to the stockholder approval
requirements of Section 280G(b)(5) of the Code, as contemplated in the Proposed
Treasury Regulations promulgated thereunder.
(d) The Company agrees to adopt resolutions to terminate its
401(k) plan (the "401(k) Plan") immediately prior to the Closing Date,
-----------
unless the Parent, in its sole and absolute discretion, agrees to sponsor and
maintain such plan by providing the Company with written notice of such election
before the Effective Time. Unless the Parent provides such notice to the
Company, the Parent shall receive from the Company evidence that the Company's
Board of Directors has adopted resolutions to terminate the 401(k) Plan (the
form and substance of which resolutions shall be subject to review and approval
of the Parent), effective as of the day immediately preceding the Closing Date.
(e) The Company and, as applicable, its ERISA Affiliates each
agree to terminate any and all group severance, separation or salary
continuation plans, programs or arrangements immediately prior to Closing.
Parent shall receive from the Company evidence that the plans, programs or
arrangements of the Company and, as applicable, each ERISA Affiliate have been
terminated pursuant to resolution of each such entity's Board of Directors (the
form and substance of which resolutions shall be subject to review and approval
of the Parent), effective as of the day immediately preceding the Closing Date
but contingent on the Closing.
38
<PAGE>
(f) With respect to all stock purchase, stock option and stock
award agreements (including any restricted stock, stock purchase, stock option
or stock award agreements under the Company Stock Plans) between the Company and
any current or former employee, director, consultant or founder effective as of
the Effective Time, the Company shall assign to Parent (or to such other entity
as Parent shall designate) any and all rights of repurchase under each such
agreement, such assignment to be effective as of the Effective Time.
SECTION 6.05 Further Action; Consents; Filings.
---------------------------------
(a) Upon the terms and subject to the conditions hereof, each of
the parties hereto shall use its reasonable best efforts to (i) take, or cause
to be taken, all appropriate action and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the Merger and the other transactions contemplated by this
Agreement, (ii) obtain from any Governmental Entity all consents, licenses,
permits, waivers, approvals, authorizations or orders required to be obtained or
made by Parent or the Company or any of their subsidiaries in connection with
the authorization, execution and delivery of this Agreement and the consummation
of the Merger and the other transactions contemplated by this Agreement, (iii)
obtain all consents, waivers, approvals, authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Merger, including those required under the HSR Act and
(iv) make all necessary filings, and thereafter make any other required
submission, with respect to this Agreement, the Merger and the other
transactions contemplated by this Agreement required under applicable Law. The
parties hereto shall cooperate with each other in connection with the making of
all such filings, including by providing copies of all such documents to the
nonfiling party and its advisors prior to filing and, if requested, by accepting
all reasonable additions, deletions or changes suggested in connection
therewith.
(b) Each of Parent and Company shall use all reasonable efforts
to resolve such objections, if any, as may be asserted by any Governmental
Entity with respect to the transactions contemplated by this Agreement under the
HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal
Trade Commission Act, as amended, and any other Federal, state or foreign
statutes, rules, regulations, orders or decrees that are designed to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade.
(c) Notwithstanding anything to the contrary in Section 6.05(a)
or (b), (i) neither Parent nor any of its subsidiaries shall be required to
divest any of their respective businesses, product lines or assets, or to take
or agree to take any other action or agree to any limitation that could
reasonably be expected to have a Parent Material Adverse Effect, and (ii) the
Company shall not be required to divest any of its respective businesses,
product lines or assets, or to take or agree to take any other action or agree
to any limitation that could reasonably be expected to have a Company Material
Adverse Effect.
(d) From the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, each party shall promptly
notify the other party in writing of any pending or, to the knowledge of such
party, threatened action, proceeding or investigation by any Governmental Entity
or any other person (i) challenging or seeking material
39
<PAGE>
damages in connection with this Agreement or the transaction contemplated
hereunder or (ii) seeking to restrain or prohibit the consummation of the Merger
or the transactions contemplated hereunder or otherwise limit the right of
Parent or its subsidiaries to own or operate all or any portion of the
businesses or assets of Company.
SECTION 6.06 Plan of Reorganization.
----------------------
(a) This Agreement is intended to constitute a "plan of
reorganization" within the meaning of section 1.368-2(g) of the income tax
regulations promulgated under the Code. From and after the date of this
Agreement and until the Effective Time, each party hereto shall use its
reasonable best efforts to cause the Merger to qualify, and will not knowingly
take any action, cause any action to be taken, fail to take any action or cause
any action to fail to be taken which action or failure to act could prevent the
Merger from qualifying as a reorganization under the provisions of Section
368(a) of the Code. Following the Effective Time, neither the Surviving
Corporation, Parent nor any of their affiliates shall knowingly take any action,
cause any action to be taken, fail to take any action or cause any action to
fail to be taken, which action or failure to act could cause the Merger to fail
to qualify as a reorganization under Section 368(a) of the Code.
(b) As of the date hereof, the Company does not know of any
reason why it would not be able to deliver to Fenwick & West LLP (counsel to the
Company) or Gunderson Dettmer (counsel to Parent), at the date of the legal
opinions referred to below, certificates substantially in compliance with
Internal Revenue Service published advance ruling guidelines, with customary
exceptions and modifications thereto, to enable such firms to deliver the legal
opinions contemplated by Sections 7.02(d) and 7.03(c), and the Company hereby
agrees to deliver such certificates effective as of the date of such opinions.
As of the date hereof, Parent and Merger Sub does not know of any reason why it
would not be able to deliver Fenwick & West LLP or Gunderson Dettmer, at the
date of the legal opinions referred to below, certificates substantially in
compliance with Internal Revenue Service published advance ruling guidelines,
with customary exceptions and modifications thereto, to enable such firms to
deliver the legal opinions contemplated by Sections 7.02(d) and 7.03(c), and
Parent hereby agrees to deliver such certificates effective as of the date of
such opinions.
SECTION 6.07 No Public Announcement. The initial press release
----------------------
relating to this Agreement shall be a joint press release the text of which has
been agreed to by each of Parent and the Company. Thereafter, unless otherwise
required by applicable Law, the Company shall not issue any press release or
otherwise make any public statements with respect to this Agreement, the Merger
or any of the other transactions contemplated by this Agreement without the
prior written consent of Parent.
SECTION 6.08 Expenses. All costs, fees and expenses incurred in
--------
connection with this Agreement, the Merger and other transactions contemplated
by this Agreement (including, without limitation, the fees and expenses of
financial advisors, accountants and legal counsel) shall be paid by the party
incurring such expenses; provided, however, that if the Merger is consummated,
-------- -------
all such costs, fees and expenses of the Company, which shall not exceed in the
aggregate $6.2 million (the "Aggregate Fees"), shall be paid by Parent; provided
-------------- --------
further, that Parent agrees to a reasonable increase in the Aggregate Fees in
-------
the event that the
40
<PAGE>
Parent Shares are to be registered on a Form S-4. Any costs, fees and expenses
incurred by the Company in excess of the Aggregate Fees will be paid by the
Company Stockholders.
SECTION 6.09 Affiliate Agreements. The Company shall cause each person
--------------------
that could reasonably be deemed to be an "affiliate" of the Company for purposes
of the Securities Act to execute and deliver to Parent, as promptly as
practicable after the execution of this Agreement, an Affiliate Agreement in the
form attached hereto as Exhibit D.
---------
SECTION 6.10 Indemnification of Officers and Directors. (a) For six
-----------------------------------------
years from and after the Closing Date, Parent agrees to indemnify (including
advancement of expenses) and hold harmless all past and present officers and
directors of the Company (the "Indemnified Parties") to the same extent such
-------------------
persons are indemnified as of the date of this Agreement by the Company pursuant
to the Company's Certificate of Incorporation or Bylaws, employment agreements
or indemnification agreements identified on the Company Disclosure Schedule or
under applicable Law for acts or omissions which occurred at or prior to the
Effective Time. This indemnification shall not apply to any claim by an
Indemnified Party pursuant to the terms of this Agreement or any other agreement
contemplated by this Agreement.
(b) If Parent, the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and
assigns of Parent or the Surviving Corporation, as the case may be, shall assume
the obligations set forth in this Section 6.10.
SECTION 6.11 Nasdaq National Market Listing. If required, Parent shall
------------------------------
promptly prepare and submit to The Nasdaq National Market a listing application
covering the Parent Shares to be issued in the Merger and pursuant to the
Company Options, and shall use its reasonable efforts to obtain, prior to the
Effective Time, approval for the listing of such Parent Shares, subject to
official notice to The Nasdaq National Market of issuance, and the Company shall
cooperate with Parent with respect to such listing.
SECTION 6.12 Conversion Schedule. Attached as Schedule 6.12 is a
-------------------
schedule prepared by the Company (the "Preliminary Conversion Schedule") showing
-------------------------------
the number of shares of Parent Common Stock to be issued to each holder of
Company Stock and each holder of rights to acquire capital stock of the Company,
including the number of Parent Shares to be deposited in the Escrow Fund, as of
the execution of this Agreement as if the Effective Time and the exchange of
shares pursuant to the Merger had occurred as of the date of the execution of
this Agreement. The Company shall prepare a final schedule as of the Effective
Time (the "Final Conversion Schedule"), and an officer of the Company shall
-------------------------
execute the Final Conversion Schedule and deliver such schedule to Parent at
Closing.
41
<PAGE>
ARTICLE VII
CONDITIONS TO THE MERGER
------------------------
SECTION 7.01 Conditions to the Obligations of Each Party. The
-------------------------------------------
obligations of the Company, Parent and Merger Sub to consummate the Merger are
subject to the satisfaction or waiver (where permissible) of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been
--------------------
approved and adopted by the requisite affirmative vote of the stockholders of
the Company in accordance with the DGCL and the Company's Certificate of
Incorporation and Bylaws;
(b) No Order. No Governmental Entity or court of competent
--------
jurisdiction located or having jurisdiction in the United States shall have
enacted, issued, promulgated, enforced or entered any decree, judgment,
injunction or other order, whether temporary, preliminary or permanent (each an
"Order") that is then in effect and has the effect of making the Merger illegal
or otherwise prohibiting consummation of the Merger;
(c) HSR Act. Any waiting period (and any extension thereof)
-------
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated;
(d) Government Consents. Each party shall have received all
-------------------
required authorizations, consents, Orders and approvals of all Governmental
Entities and officials, if any;
(e) No Restraints. There shall not be pending or threatened any
-------------
suit, action, investigation or proceeding to which a Governmental Entity is a
party (i) seeking to restrain or prohibit the consummation of the Merger or any
of the other transactions contemplated by this Agreement or seeking to obtain
from Parent or the Company any damages that are material or (ii) seeking to
prohibit or limit the ownership or operation by Parent or the Company of any
portion of their respective businesses or assets; and
(f) Compliance With Section 3(a)(10) of the Securities Act.
------------------------------------------------------
Either (i) the California Department of Corporations shall have issued an
approval under the Fairness Hearing Law (following a hearing upon the fairness
of the terms and conditions of the Merger, conducted pursuant to the Fairness
Hearing Law) for the issuance of the Parent Shares to be issued in the Merger,
and all applicable requirements of Section 3(a)(10) of the Securities Act shall
have been satisfied or (ii) an appropriate registration statement relating to
the issuance of Parent Shares hereunder shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceeding
seeking a stop order.
SECTION 7.02 Conditions to the Obligations of Parent and Merger Sub.
------------------------------------------------------
The obligations of Parent and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and Warranties. Each of the representations
------------------------------
and warranties of the Company contained in this Agreement that are qualified as
to materiality or Company Material Adverse Effect, or any similar standard or
qualification, shall be true and
42
<PAGE>
correct in all respects, and each of the representations and warranties of the
Company contained in this Agreement that are not qualified as to materiality or
Company Material Adverse Effect, or any similar standard or qualification, shall
be true and correct in all material respects, in each case as of the Effective
Time as though made on and as of the Effective Time, except that those
representations and warranties that address matters only as of a particular date
shall remain true and correct as of such date, and Parent shall have received a
certificate of the Chief Executive Officer of the Company to such effect;
(b) Covenants. The Company shall have performed or complied in all
---------
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective Time and
Parent shall have received a certificate of the Chief Executive Officer of the
Company to that effect;
(c) Approvals. Parent shall have received, each in form and
---------
substance reasonably satisfactory to Parent, the third party consents set forth
on Section 7.02(c) of the Company Disclosure Schedule;
(d) Opinion of Parent's Counsel. Parent shall have received the
---------------------------
opinion of Gunderson Dettmer, counsel to Parent, based upon representations of
Parent, Merger Sub and the Company and normal assumptions, to the effect that
the Merger should be treated for federal income tax purposes as a reorganization
qualifying under the provisions of Section 368(a) of the Code, which opinion
shall not have been withdrawn or modified in any material respect. The issuance
of such opinion shall be conditioned on receipt by Gunderson Dettmer of
representation letters from each of Parent, Merger Sub and the Company as
contemplated in Section 6.06 of this Agreement. Each such representation letter
shall be dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect as of the Effective Time.
Notwithstanding the foregoing, if Parent's counsel does not render such opinion,
this condition shall nevertheless be deemed satisfied with respect to Parent if
Fenwick & West LLP, counsel to the Company, renders such opinion on behalf of
Parent;
(e) Dissenting Stockholders. Dissenting Shares shall comprise not
-----------------------
more than 2% of the Company Stock outstanding immediately prior to the Effective
Time;
(f) Employment Agreement. Mr. John Scharber shall be employed by the
--------------------
Company and the Employment Agreement entered into by him shall remain in full
force and effect at the Effective Time;
(g) Affiliate Agreements. Each of the affiliates of the Company shall
---------------------
have executed and delivered to Parent an Affiliate Agreement and such agreement
shall remain in full force and effect;
(h) Escrow Agreement. The Parent and the Stockholders' Representative
----------------
shall have entered into the Escrow Agreement and the Escrow Agreement shall be
in full force and effect at the Effective Time;
43
<PAGE>
(i) Termination of Employee Plans. The Company shall have provided
-----------------------------
Parent with evidence, reasonably satisfactory to Parent, as to the termination
of the Plans other than the Company Stock Plans and the Company Severance Plan;
(j) Opinion of Company's Counsel. Parent shall have received the
----------------------------
opinion of Fenwick & West LLP, counsel to the Company, or another counsel
reasonably satisfactory to Parent, substantially in the form attached hereto as
Exhibit E;
---------
(k) Secretary's Certificate. Parent shall have received a certificate
-----------------------
executed by the Secretary of the Company attaching and certifying as to the
Company's current Certificate of Incorporation and Bylaws and the resolutions of
the Company's Board of Directors and stockholders approving and adopting this
Agreement and the transactions relating hereto;
(l) FIRPTA Compliance. The Company shall, prior to the Closing Date,
-----------------
provide Parent with a properly executed Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA") Notification Letter, in form and substance satisfactory
------
to Parent, which states that shares of capital stock of the Company do not
constitute "United States real property interests" under Section 897(c) of the
Code, for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3). In addition, simultaneously with delivery of such
Notification Letter, the Company shall have provided to Parent, as agent for the
Company, a form of notice to the Internal Revenue Service in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2) along with written
authorization for Parent to deliver such notice form to the Internal Revenue
Service on behalf of the Company upon the consummation of the Merger;
(m) Employees. 80% of the individuals set forth on Schedule 7.02(m)
---------
shall be employed in good standing by the Company;
(n) Board and Officer Resignations. The Company shall have received
------------------------------
written letters of resignation from each of the current members of the Board of
Directors and officers of the Company, in each case effective at the Effective
Time;
(o) Conversion of Company Preferred Stock. Each issued and
-------------------------------------
outstanding share of Company Preferred Stock shall have been converted on a one-
for-one basis into shares of Company Common Stock in accordance with the
Company's Certificate of Incorporation, and each holder thereof shall have
waived prior notice of the consummation of the Merger;
(p) Termination of the Company's Agreements. Parent shall have been
---------------------------------------
furnished evidence reasonably satisfactory to it that (i) all co-sale, voting,
registration, first refusal, preemptive, board observation or information rights
granted by the Company to its stockholders and in effect prior to the Closing
shall have terminated as of the Closing and (ii) all of the agreements listed on
Schedule 7.02(p) shall have been terminated prior to the Closing; and
(q) Termination of 401(k) Plan. The Company shall have terminated the
--------------------------
401(k) Plan effective at least one day prior to the Closing Date and no further
contributions shall have been made to the 401(k) Plan. The Company shall have
provided to Parent (i) executed resolutions of the Board of Directors of the
Company authorizing the termination
44
<PAGE>
and (ii) an executed amendment to the 401(k) Plan sufficient to assure
compliance with all applicable requirements of the Code and regulations
thereunder so that the tax-qualified status of the 401(k) Plan will be
maintained at the time of termination.
SECTION 7.03 Conditions to the Obligations of the Company. The
--------------------------------------------
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and Warranties. Each of the representations
------------------------------
and warranties of Parent and Merger Sub contained in this Agreement that are
qualified as to materiality or Parent Material Adverse Effect, or any similar
standard or qualification, shall be true and correct, and each of the
representations and warranties of Parent and Merger Sub contained in this
Agreement that are not qualified as to materiality or Parent Material Adverse
Effect, or any similar standard or qualification, shall be true and correct in
all material respects, in each case as of the Effective Time, as though made on
and as of the Effective Time, except that those representations and warranties
that address matters only as of a particular date shall remain true and correct
as of such date, and the Company shall have received a certificate of a duly
authorized officer of Parent to such effect;
(b) Performance of Covenants. Each of Parent and Merger Sub
------------------------
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by it
on or prior to the Effective Time, and the Company shall have received a
certificate of a duly authorized officer of Parent to that effect;
(c) Opinion of Company's Counsel. The Company shall have
----------------------------
received the opinion of Fenwick & West LLP, counsel to the Company, based upon
representations of Parent, Merger Sub and the Company and normal assumptions, to
the effect that the Merger should be treated for Federal income tax purposes as
a reorganization qualifying under the provisions of Section 368(a) of the Code,
which opinion shall not have been withdrawn or modified in any material respect.
The issuance of such opinion shall be conditioned on receipt by Fenwick & West
LLP of representation letters from each of Parent, Merger Sub and the Company as
contemplated in Section 6.06 of this Agreement. Each such representation letter
shall be dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect as of the Effective Time.
Notwithstanding the foregoing, if the Company's counsel does not render such
opinion, this condition shall nevertheless be deemed satisfied with respect to
Company if Gunderson Dettmer, counsel to the Parent, renders such opinion on
behalf of the Company;
(d) Opinion of Parent's Counsel. The Company shall have received
---------------------------
the opinion of Gunderson Dettmer, counsel to Parent, or another counsel
reasonably satisfactory to the Company, substantially in the form attached
hereto as Exhibit F; and
---------
(e) Listing. If required, the Parent Shares to be issued in the
-------
Merger shall have been approved for listing (subject to notice of issuance) on
The Nasdaq National Market.
45
<PAGE>
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 8.01 Termination. This Agreement may be terminated and the
-----------
Merger and the other transactions contemplated by this Agreement may be
abandoned at any time prior to the Effective Time, notwithstanding any requisite
approval and adoption of this Agreement and the transactions contemplated by
this Agreement, as follows:
(a) by mutual written consent duly authorized by the Boards of
Directors of each of Parent and the Company;
(b) by either Parent or the Company if the Effective Time shall
not have occurred on or before March 31, 2001; provided, however, that the right
-------- -------
to terminate this Agreement under this Section 8.01(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Effective Time to occur on or
before March 31, 2001;
(c) by either Parent or the Company, upon the issuance of any
Order that is final and nonappealable which would (i) prevent the consummation
of the Merger or (ii) (A) prohibit Parent's or the Company's ownership or
operation of any portion of the business of the Company or (B) compel Parent or
the Company to dispose of or hold separate, as a result of the Merger, any
portion of the business or assets of the Company or Parent;
(d) by Parent upon a breach of any material representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in Sections 7.02(a)
and 7.02(b) would not be satisfied ("Terminating Company Breach"); provided,
-------------------------- --------
however, that, if such Terminating Company Breach is curable by the Company
-------
through the exercise of its best efforts and for so long as the Company
continues to exercise such best efforts, Parent may not terminate this Agreement
under this Section 8.01(d) unless such breach is not cured within 30 days after
notice thereof is provided by Parent to the Company (but no cure period is
required for a breach which, by its nature, cannot be cured); or
(e) by the Company upon a breach of any material representation,
warranty, covenant or agreement on the part of Parent and Merger Sub set forth
in this Agreement, or if any representation or warranty of Parent and Merger Sub
shall have become untrue, in either case such that the conditions set forth in
Sections 7.03(a) and 7.03(b) would not be satisfied ("Terminating Parent
------------------
Breach"); provided, however, that, if such Terminating Parent Breach is curable
------ -------- -------
by Parent and Merger Sub through the exercise of their respective best efforts
and for so long as Parent and Merger Sub continue to exercise such best efforts,
the Company may not terminate this Agreement under this Section 8.01(e) unless
such breach is not cured within 30 days after notice thereof is provided by the
Company to Parent (but no cure period is required for a breach which, by its
nature, cannot be cured).
SECTION 8.02 Effect of Termination. In the event of termination of
---------------------
this Agreement pursuant to Section 8.01, this Agreement shall forthwith become
void, there shall be
46
<PAGE>
no liability under this Agreement on the part of Parent, Merger Sub or the
Company or any of their respective officers or directors, and all rights and
obligations of each party hereto shall cease; provided, however, that (i)
-------- -------
Sections 6.02(b) and 6.08 and Articles VIII and IX shall remain in full force
and effect and survive any termination of this Agreement and (ii) nothing herein
shall relieve any party from liability for the breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 8.03 Amendment. This Agreement may be amended by the parties
---------
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 8.04 Waiver. At any time prior to the Effective Time, any
------
party hereto may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by the party or parties to be bound thereby.
ARTICLE IX
INDEMNIFICATION
---------------
SECTION 9.01 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties of the Company contained in this Agreement and of
the Company Stockholders in the Voting Agreements shall survive the Effective
Time for a period of 12 months (the "Escrow Period"), whereupon such
-------------
representations and warranties will expire. The representations and warranties
of Parent contained in this Agreement shall survive the Effective Time for a
period of 12 months, whereupon such representations and warranties will expire.
Neither the period of survival nor the liability of a party hereto with respect
to such party's representations and warranties shall be reduced by any
investigation made at any time (whether before or after the Effective Time) by
or on behalf of another party hereto or by any actual, implied or constructive
knowledge or notice of any facts or circumstances that any party may have as a
result of any such investigation or otherwise. If written notice of a claim has
been given prior to the expiration of the applicable representations and
warranties by a party hereto to another party hereto, then the relevant
representations and warranties shall survive as to such claim until such claim
has been finally resolved.
SECTION 9.02 Indemnification by the Company Stockholders. (a) After
-------------------------------------------
the Effective Time, Parent and its affiliates (including, after the Effective
Time, the Surviving Corporation), officers, directors, employees, agents,
successors and assigns (collectively, the "Parent Indemnified Parties") shall be
--------------------------
indemnified and held harmless by the Company Stockholders, jointly and
severally, for any and all liabilities, losses, damages of any kind, diminution
in value, claims, costs, expenses, fines, fees, deficiencies, interest, awards,
judgments, amounts paid in settlement and penalties (including, without
limitation, reasonable attorneys', consultants' and experts' fees and expenses
and other costs of defending, investigating or settling claims) suffered or
incurred by them (including, without limitation, in
47
<PAGE>
connection with any action brought or otherwise initiated by any of them),
reduced by any recovery by Parent actually received under insurance policies
(such reduction to be net of any out-of-pocket expenses, increases in premiums
or any deductible incurred in obtaining such reduction) (hereinafter, a "Loss"),
----
arising out of or resulting from:
(i) the breach of any representation or warranty (in each case,
solely for purposes of determining the amount of the Loss resulting from such
breach, and not for determining the existence of a breach, without giving any
effect as to materiality qualifications contained therein) made by the Company
in this Agreement or any Company Stockholder in the Voting Agreements;
(ii) the breach of any covenant or agreement made by the Company
in this Agreement or any Company Stockholder in the Voting Agreements; or
(iii) all costs, fees or expenses incurred by the Company in
connection with this Agreement and the transactions contemplated hereby in
excess of the Aggregate Fees.
(b) Notwithstanding anything to the contrary contained in this
Agreement, except with respect to claims based on fraud or willful misconduct:
(i) in seeking indemnification for Losses under this Article
IX, the Parent Indemnified Parties shall exercise their remedies solely and
exclusively with respect to the Escrow Shares in the Escrow Fund; provided,
--------
however, that no such claim for Losses will be asserted after the expiration of
-------
the Escrow Period;
(ii) (A) no Company Stockholder shall have any liability to a
Parent Indemnified Party under this Agreement or the Voting Agreements except to
the extent of the Escrow Shares attributable to such Company Stockholder and (B)
the remedies set forth in this Article IX shall be the exclusive remedies of
Parent and the other Parent Indemnified Parties hereunder against any Company
Stockholder; and
(iii) no indemnification payment by the Company Stockholders with
respect to any indemnifiable Loss otherwise payable under Section 9.02(a) and
arising out of or resulting from the causes enumerated in Section 9.02(a)(i)
shall be payable until such time as all such indemnifiable Losses shall
aggregate to more than $400,000, after which time the Company Stockholders shall
be liable in full for all indemnifiable Losses (including the first $400,000);
provided, however, that the limitations set forth above in this clause (iii)
-------- -------
shall not be operative with respect to Losses arising from breaches of any of
the representations and warranties set forth in Sections 3.01, 3.02, 3.03, 3.04,
3.05, 3.06, 3.13, 3.15, 3.16 and 3.20.
(c) The parties agree that any payment required to be made by Parent
to compensate the Company Stockholders for any Loss incurred by such Company
Stockholder as a result of a breach by Parent or Merger Sub of any of its
representations and warranties in this Agreement shall be paid in cash;
provided, however, that in no event shall cash be paid to the extent that such
-------- -------
payment or portion of such payment, when aggregated with any other payments made
for Losses pursuant to this Article IX and other non-stock consideration paid to
the Company Stockholders (including, without limitation, cash paid for
fractional shares and
48
<PAGE>
Dissenting Shares, if any) would equal or exceed an amount such that the Parent
Common Stock would constitute less than eighty percent (80%) of total Merger
consideration (including payments for Losses pursuant to this Article IX). Any
such excess shall be paid in shares of Parent Common Stock, which shall be
valued by dividing the dollar amount of the Loss by the average closing price
per share of Parent Common Stock on The Nasdaq National Market for the thirty
consecutive trading days immediately preceding the date of the determination by
a court or arbitrator having competent jurisdiction over the matters relating to
the claim (or the date of the written instructions or deemed acknowledgment of
the claim by Parent, as the case may be, if no such determination is obtained)
as to the amount of any claim for indemnification.
SECTION 9.03 Indemnification Procedures. (a) For purposes of this
--------------------------
Section 9.03, a party against which indemnification may be sought is referred to
as the "Indemnifying Party" and the party which may be entitled to
------------------
indemnification is referred to as the "Indemnified Party."
-----------------
(b) The obligations and liabilities of Indemnifying Parties
under this Article IX with respect to Losses arising from claims of any third
party that are subject to the indemnification provided for in this Article IX
("Third Party Claims") shall be governed by and contingent upon the following
------------------
additional terms and conditions: if an Indemnified Party shall receive notice of
any Third Party Claim, the Indemnified Party shall give all Indemnifying Parties
notice of such Third Party Claim within 30 days of the receipt by the
Indemnified Party of such notice; provided, however, that the failure to provide
-------- -------
such notice shall not release an Indemnifying Party from any of its obligations
under this Article IX except to the extent that such Indemnifying Party is
materially prejudiced by such failure. The notice of claim shall describe in
reasonable detail the facts known to the Indemnified Party giving rise to such
indemnification claim, and the amount or good faith estimate of the amount
arising therefrom.
(c) If the Indemnifying Party acknowledges in writing its
obligation to indemnify the Indemnified Party hereunder against any Losses that
may result from such Third Party Claim, and (i) Parent has reasonably determined
that Losses that may be incurred as a result of the Third Party Claim do not
exceed individually, or when aggregated with all other Losses subject to
indemnification under Section 9.02, the maximum aggregate amount of
indemnifiable Losses set forth in such sections, (ii) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
remedy, and (iii) settlement of, or an adverse judgment with respect to, the
Third Party Claim is not, in the good faith judgment of Parent, likely to
establish a precedential custom or practice adverse to the continuing business
interests of Parent or to increase the Tax liability of Parent or the Company,
then the Indemnifying Party shall be entitled to assume and control the defense
of such Third Party Claim at its expense and through counsel of its choice (such
counsel to be reasonably acceptable to Parent) if it gives notice of its
intention to do so to the Indemnified Party within 10 days of the receipt of
such notice from the Indemnified Party; provided, however, that, if there exists
-------- -------
or is reasonably likely to exist a conflict of interest that would make it
inappropriate in the judgment of the Indemnified Party, in its reasonable
discretion, for the same counsel to represent both the Indemnified Party and the
Indemnifying Party, then the Indemnified Party shall be entitled to retain its
own counsel, in each jurisdiction for which the Indemnified Party determines
counsel is required, at the expense of the Indemnifying Party. In the event that
the Indemnifying Party exercises the right to undertake any such defense against
any such Third Party Claim as provided
49
<PAGE>
above, the Indemnifying Party shall conduct the defense of the Third Party Claim
actively and diligently and the Indemnified Party shall cooperate with the
Indemnifying Party in such defense and make available to the Indemnifying Party,
at the Indemnifying Party's expense, all witnesses, pertinent records, materials
and information in the Indemnified Party's possession or under the Indemnified
Party's control relating thereto as is reasonably requested by the Indemnifying
Party. Similarly, in the event the Indemnified Party is, directly or indirectly,
conducting the defense against any such Third Party Claim, the Indemnifying
Party shall cooperate with the Indemnified Party in such defense and make
available to the Indemnified Party, at the Indemnifying Party's expense, all
such witnesses, records, materials and information in the Indemnifying Party's
possession or under the Indemnifying Party's control relating thereto as is
reasonably requested by the Indemnified Party. No such Third Party Claim may be
settled by any party conducting the defense against such claim without the prior
written consent of the other party unless the other party and its affiliates are
released in full in connection with such settlement and no admission of
liability is involved; provided, however, if the Company Stockholders are not
entitled to assume the defense against such Third Party Claim pursuant to this
paragraph, the Parent Indemnified Party shall have the right to consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim in any manner it may deem appropriate (and the Parent need not
consult with, or obtain any consent from, the Company Stockholders or the
Stockholders' Representative in connection therewith).
SECTION 9.04 Stockholders' Representative. John Scharber (such person
----------------------------
and any successor or successors being the "Stockholders' Representative") shall
----------------------------
act as the representative of the Company Stockholders, and shall be authorized
to act on behalf of the Company Stockholders and to take any and all actions
required or permitted to be taken by the Stockholders' Representative under this
Agreement or the Escrow Agreement, with respect to any claims (including the
settlement thereof) for indemnification from the Escrow Fund made by Parent
pursuant to this Article IX and with respect to any actions to be taken by the
Stockholders' Representative pursuant to the terms of the Escrow Agreement
(including, without limitation, the exercise of the power to: authorize delivery
to Parent of Escrow Shares in satisfaction of claims by Parent; agree to,
negotiate, enter into settlements and compromises, demand arbitration, and
comply with orders of courts and awards of arbitrators with respect to such
claims; and take all actions necessary in the judgment of the Stockholders'
Representative for the accomplishment of the foregoing). The Company
Stockholders shall be bound by all actions taken by the Stockholders'
Representative in its capacity thereof, except for any action that conflicts
with the limitations set forth in Section 9.02(b)(ii) or (iii) or the final
sentence of this Section 9.04. The Stockholders' Representative shall promptly,
and in any event within five business days, provide written notice to the
Company Stockholders of any action taken on behalf of them by the Stockholders'
Representative pursuant to the authority delegated to the Stockholders'
Representative under this Section 9.04. The Stockholders' Representative shall
at all times act in his or her capacity as Stockholders' Representative in a
manner that the Stockholders' Representative believes to be in the best interest
of the Company Stockholders. Neither the Stockholders' Representative nor any of
its directors, officers, agents or employees shall be liable to any person for
any error of judgment, or any action taken, suffered or omitted to be taken,
under this Agreement or the Escrow Agreement, except in the case of its gross
negligence, bad faith or willful misconduct. The Stockholders' Representative
may consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the
50
<PAGE>
advice of such counsel, accountants or experts. The Stockholders' Representative
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement or the
Escrow Agreement. As to any matters not expressly provided for in this Agreement
or the Escrow Agreement, the Stockholders' Representative shall not exercise any
discretion or take any action. Each Company Stockholder severally shall
indemnify and hold harmless and reimburse the Stockholders' Representative from
and against such Company Stockholder's ratable share of any and all liabilities,
losses, damages, claims, costs or expenses suffered or incurred by the
Stockholders' Representative arising out of or resulting from any action taken
or omitted to be taken by the Stockholders' Representative under this Agreement
or the Escrow Agreement, other than such liabilities, losses, damages, claims,
costs or expenses arising out of or resulting from the Stockholders'
Representative's gross negligence, bad faith or willful misconduct. In all
matters relating to claims for indemnification from the Escrow Fund under this
Article IX, the Stockholders' Representative shall be the only party entitled to
assert the rights of the Company Stockholders, and the Stockholders'
Representative shall perform all of the obligations of the Company Stockholders
hereunder. Parent shall be entitled to rely on all statements, representations
and decisions of the Stockholders' Representative with respect to such claims.
ARTICLE X
GENERAL PROVISIONS
------------------
SECTION 10.01 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 cable,
telecopy, facsimile, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 10.01):
(a) if to Parent or Merger Sub:
CacheFlow, Inc.
650 Almanor Ave.
Sunnyvale, CA 94086
Facsimile No.: (408) 220-2250
Attention: Susan Hovatter Thornton, General Counsel
with a copy to:
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP
155 Constitution Drive
Menlo Park, California 94025
Facsimile No.: (650) 321-2800
Attention: Christopher D. Dillon and Daniel E. O'Connor
(b) if to the Company:
51
<PAGE>
Entera, Inc.
40971 Encyclopedia Circle
Fremont, CA 94358
Facsimile No.: (510) 249-9180
Attention: Douglas M. Robertson
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Facsimile No.: (650) 494-1417
Attention: Richard L. Dickson
SECTION 10.02 Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the following meanings:
(i) "affiliate" of a specified person means a person who
---------
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such specified person.
(ii) "beneficial owner" with respect to any shares means a
----------------
person who shall be deemed to be the beneficial owner of such shares (i) which
such person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates or person with whom such person or
any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares.
(iii) "business day" means any day on which banks are not
------------
required or authorized to close in Menlo Park, California.
(iv) "Company Severance Plan" means the Severance Plan
----------------------
adopted by the Board of Directors of the Company at a meeting held on October 9,
2000, the terms of which are set forth in the minutes of such meeting.
(v) "control" (including the terms "controlled by" and
-------
"under common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise.
52
<PAGE>
(vi) "knowledge of the Company" or "the Company's
------------------------ -------------
knowledge" means the knowledge of the directors and officers of the Company and
---------
such knowledge that would be imputed to such persons upon due investigation.
(vii) "person" means an individual, corporation,
------
partnership, limited partnership, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association or entity or government, political subdivision, agency or
instrumentality of a government.
(viii) "subsidiary" or "subsidiaries" of any person means
---------- ------------
any corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary) owns,
directly or indirectly, more than 50% of the stock or other equity interests,
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.
SECTION 10.03 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
be consummated as originally contemplated to the fullest extent possible.
SECTION 10.04 Assignment; Binding Effect; Benefit. Neither this
-----------------------------------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of Law or otherwise)
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
SECTION 10.05 Incorporation of Exhibits. The Company Disclosure
-------------------------
Schedule, the Parent Disclosure Schedule, the Schedules and all Exhibits
attached hereto and referred to herein are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
SECTION 10.06 Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
53
<PAGE>
SECTION 10.07 Governing Law; Forum. This Agreement shall be governed
--------------------
by, and construed in accordance with, the laws of the State of Delaware
applicable to contracts executed in and to be performed in that state without
regard to any applicable conflicts of law. In any action between the parties
hereto arising out of or relating to this Agreement or any of the transactions
contemplated by this Agreement: (a) each of the parties irrevocably and
unconditionally consents and submits to the exclusive jurisdiction and venue of
either the state courts located in Santa Clara County, California, or the United
States District Court for the Northern District of California and (b) each of
the parties irrevocably consents to service of process by first class certified
mail, return receipt requested, postage prepaid.
SECTION 10.08 Time of the Essence. For purposes of this Agreement and
-------------------
the transactions contemplated by this Agreement, time is of the essence.
SECTION 10.09 Waiver of Jury Trial. Each of the parties hereto hereby
--------------------
irrevocably waives any and all right to trial by jury in any Legal Proceeding
arising out of or related to this Agreement of the transactions contemplated
hereby.
SECTION 10.10 Construction. (a) For purposes of this Agreement,
------------
whenever the context requires: the singular number shall include the plural, and
vice versa; the masculine gender shall include the feminine and neuter genders;
the feminine gender shall include the masculine and neuter genders; and the
neuter gender shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections," "Schedules" and "Exhibits" are intended to refer to
Sections of this Agreement and Schedules and Exhibits to this Agreement.
SECTION 10.11 Further Assurances. Each party hereto shall execute and
------------------
cause to be delivered to each other party hereto such instruments and other
documents, and shall take such other actions, as such other party may reasonably
request (prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
SECTION 10.12 Headings. The descriptive headings contained in this
--------
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 10.13 Counterparts. This Agreement may be executed and
------------
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties
54
<PAGE>
hereto in separate counterparts, each of which when executed and delivered shall
be deemed to be an original but all of which taken together shall constitute one
and the same agreement.
SECTION 10.14 Entire Agreement. This Agreement (including the
----------------
Exhibits, the Schedules, the Company Disclosure Schedule and the Parent
Disclosure Schedule) and the Non-Disclosure Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto. No addition to or modification of any provision of this Agreement shall
be binding upon any party hereto unless made in writing and signed by all
parties hereto.
[Signature page follows]
55
<PAGE>
IN WITNESS WHEREOF, each of Parent, Merger Sub, the Company and the
Stockholders' Representative (solely for purposes of Section 9.04) has executed
or has caused this Agreement to be executed by its respective officers thereunto
duly authorized as of the date first written above.
CACHEFLOW, INC.
By:
_______________________________________
Brian M. NeSmith
President, Chief Executive Officer and
Director
DIAMOND MERGER CORP.
By: _______________________________________
Michael J. Johnson
Chief Financial Officer, Treasurer and
Secretary
ENTERA, INC.
By: _______________________________________
Steven M. West
President and Chief Executive Officer
STOCKHOLDERS' REPRESENTATIVE
(solely for purposes of Section 9.04)
By: _______________________________________
John Scharber
<PAGE>
EXHIBIT A
Form of Voting Agreement
<PAGE>
EXHIBIT B
Form of Certificate of Incorporation of Surviving Corporation
<PAGE>
EXHIBIT C
Form of Escrow Agreement
<PAGE>
EXHIBIT D
Form of Company Affiliate Agreement
<PAGE>
EXHIBIT E
Form of Company Counsel Legal Opinion
<PAGE>
EXHIBIT F
Form of Parent Counsel Legal Opinion
