Agreement and Plan of Reorganization - iBEAM Broadcasting Corp. and NextVenue Inc.
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
IBEAM BROADCASTING CORPORATION,
SARAH ACQUISITION CORP.
AND
NEXTVENUE INC.
AND WITH RESPECT TO ARTICLES VII AND IX ONLY
J. MARKHAM GREEN
AS SECURITYHOLDER AGENT
AND
U.S. BANK TRUST, NATIONAL ASSOCIATION
AS ESCROW AGENT
Dated as of July 25, 2000
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ARTICLE I THE MERGER.............................................................. 2
1.1 The Merger............................................................ 2
1.2 Effective Time........................................................ 2
1.3 Effect of the Merger.................................................. 2
1.4 Certificate of Incorporation; Bylaws.................................. 2
1.5 Directors and Officers................................................ 3
1.6 Merger Consideration.................................................. 3
1.7 Shares Subject to Vesting............................................. 6
1.8 Dissenting Shares for Holders of Company Capital Stock................ 7
1.9 Surrender of Certificates............................................. 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... 10
2.1 Organization of the Company........................................... 10
2.2 Company Capital Structure............................................. 10
2.3 Subsidiaries.......................................................... 11
2.4 Authority............................................................. 12
2.5 Company Financial Statements.......................................... 13
2.6 No Undisclosed Liabilities............................................ 13
2.7 No Changes............................................................ 13
2.8 Tax and Other Returns and Reports..................................... 15
2.9 Restrictions on Business Activities................................... 17
2.10 Title to Properties; Absence of Liens and Encumbrances................ 17
2.11 Intellectual Property................................................. 18
2.12 Agreements, Contracts and Commitments................................. 22
2.13 Interested Party Transactions......................................... 23
2.14 Compliance with Laws.................................................. 24
2.15 Litigation............................................................ 24
2.16 Insurance............................................................. 24
2.17 Minute Books.......................................................... 24
2.18 Environmental Matters................................................. 24
2.19 Brokers' and Finders' Fees; Third Party Expenses...................... 25
2.20 Employee Matters and Benefit Plans.................................... 25
2.21 Representations Complete.............................................. 29
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............... 30
3.1 Organization, Standing and Power...................................... 30
3.2 Authority............................................................. 30
3.3 Capital Structure..................................................... 31
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3.4 SEC Documents; Parent Financial Statements............................ 31
3.5 No Undisclosed Liabilities............................................ 31
3.6 No Material Adverse Change............................................ 32
3.7 Tax and Other Returns and Reports..................................... 32
3.8 Intellectual Property................................................. 33
3.9 Agreements, Contracts, Commitments.................................... 34
3.10 Interested Party Transactions......................................... 34
3.11 Litigation............................................................ 34
3.12 Brokers' and Finders' Fees; Third Party Expenses...................... 34
3.13 Compliance with Laws.................................................. 34
3.14 Minute Books.......................................................... 34
3.15 Employee Matters and Benefit Plans.................................... 34
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.................................... 36
4.1 Conduct of Business of the Company.................................... 36
4.2 No Solicitation....................................................... 39
ARTICLE V ADDITIONAL AGREEMENTS................................................... 40
5.1 Fairness Hearing; Stockholder Approval................................ 40
5.2 Restrictions on Transfer.............................................. 41
5.3 Access to Information................................................. 41
5.4 Confidentiality....................................................... 42
5.5 Expenses.............................................................. 42
5.6 Public Disclosure..................................................... 42
5.7 Consents.............................................................. 42
5.8 FIRPTA Compliance..................................................... 43
5.9 Reasonable Efforts.................................................... 43
5.10 Notification of Certain Matters....................................... 43
5.11 Affiliate Agreements.................................................. 43
5.12 Lock-up Agreements.................................................... 44
5.13 HSR Act............................................................... 44
5.14 Appointment of Member to the Board of Directors of Parent............. 44
5.15 Termination of 401(k)................................................. 44
5.16 S-8 Registration...................................................... 44
5.17 Indemnification....................................................... 45
5.18 Estimated Third Party Expenses........................................ 45
5.19 Nasdaq Listing........................................................ 45
5.20 Employment Offers..................................................... 45
5.21 Stockholder List...................................................... 45
5.22 Tax-free Reorganization............................................... 45
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ARTICLE VI CONDITIONS TO THE MERGER............................................... 46
6.1 Conditions to Obligations of Each Party to Effect the Merger.......... 46
6.2 Additional Conditions to Obligations of the Company................... 47
6.3 Additional Conditions to the Obligations of Parent and Merger Sub..... 49
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW.................... 51
7.1 Survival of Representations and Warranties............................ 51
7.2 Escrow Arrangements................................................... 52
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.................................... 60
8.1 Termination........................................................... 60
8.2 Effect of Termination................................................. 61
8.3 Amendment............................................................. 61
8.4 Extension; Waiver..................................................... 61
ARTICLE IX GENERAL PROVISIONS..................................................... 61
9.1 Notices............................................................... 61
9.2 Interpretation........................................................ 62
9.3 Counterparts.......................................................... 63
9.4 Entire Agreement; Assignment.......................................... 63
9.5 Severability.......................................................... 63
9.6 Other Remedies........................................................ 63
9.7 Governing Law......................................................... 63
9.8 Rules of Construction................................................. 63
9.9 WAIVER OF JURY TRIAL.................................................. 64
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of July 25, 2000 among iBeam Broadcasting Corporation, a
Delaware corporation ("Parent"), Sarah Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent ("Merger Sub"), and NextVenue Inc., a
Delaware corporation (the "Company"), and, with respect to Articles VII and IX
hereof only, J. Markham Green as the Securityholder Agent and U.S. Bank Trust,
National Association as Escrow Agent.
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("Company Capital Stock") shall be converted into
shares of voting Common Stock of Parent ("Parent Common Stock").
C. A portion of the shares of 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 Article VII hereof.
D. It is intended by the parties hereto that the Merger shall constitute
a reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and that the Merger shall be accounted for as
a purchase.
E. As a material inducement for Parent to consummate the Merger, certain
employee/stockholders of the Company will enter into non-competition agreements
substantially in the form attached hereto as Exhibit A (the "Non-Competition
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Agreements") with Parent, each of which shall become effective as of the
Effective Time (as defined herein).
F. Concurrent with the execution and delivery of this Agreement, as a
material inducement to Parent to enter into this Agreement, certain affiliate
stockholders of the Company are executing and delivering stockholder support
agreements (the "Support Agreements"), substantially in the form attached hereto
as Exhibit B, to Parent.
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G. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
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NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation. The surviving corporation after the Merger is sometimes
referred to hereinafter as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated
--------------
pursuant to Section 8.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than two (2) business days
following satisfaction or waiver of the conditions set forth in Article VI, at
the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California, unless another place or time is agreed to in writing by Parent and
the Company. The date upon which the Closing actually occurs is herein referred
to as the "Closing Date." On the Closing Date, the parties hereto shall cause
the Merger to be consummated by filing a Certificate of Merger (the "Certificate
of Merger") with the Secretary of State of the State of Delaware, in accordance
with the relevant provisions of applicable law (the time of acceptance by the
Secretary of State of Delaware of such filing, or such later effective time as
is set forth in the Certificate of Merger being referred to herein as the
"Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
--------------------
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
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(a) Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time, the Certificate of Incorporation of Merger Sub as in
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with the Delaware Law and as provided in such Certificate of
Incorporation; provided, however, that at the Effective Time, Article I of the
Certificate of Incorporation of the Surviving Corporation shall be amended and
restated in its entirety to read as follows: "The name of the corporation is
NextVenue Inc."
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(b) Unless otherwise determined by Parent prior to 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 at the Effective Time, until
thereafter amended in accordance with Delaware Law and as provided in the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.
1.5 Directors and Officers. Unless otherwise determined by Parent prior
----------------------
to the Effective Time, the directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation, each to hold
the office of a director of the Surviving Corporation in accordance with the
provisions of Delaware Law and the Certificate of Incorporation and Bylaws of
the Surviving Corporation until their successors are duly elected and qualified.
The officers of Merger Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, each to hold office in accordance with
the provisions of the Bylaws of the Surviving Corporation.
1.6 Merger Consideration.
--------------------
(a) Certain Definitions. For purposes of this Agreement, the
-------------------
following terms shall have the following meanings:
"Aggregate Share Number" shall mean that number of shares of Parent
Common Stock equal to (i) (A) $400,000,000 divided by (B) the average closing
price of a share of Parent Common Stock for the ten trading days ending two
trading days prior to the Closing Date, as reported on the NASDAQ National
Market (the "10-Day Average Price"); provided, however, that if the Aggregate
Share Number, as computed pursuant to the foregoing, would be greater than
21,621,621, then the Aggregate Share Number shall be deemed to be 21,621,621;
and provided further, that if the Aggregate Share Number, as computed pursuant
to the foregoing, would be less than 17,402,927, then the Aggregate Share Number
shall be deemed to be 17,402,927, less (ii) the Cash Adjustment Shares.
"Cash Adjustment Amount" shall mean the amount, if any, by which the
amount of cash and cash equivalents (the "Cash Amount") set forth on the
Estimated Closing Date Balance Sheet (as defined in Section 5.27 below) is less
than the Minimum Cash Balance (as defined in Section 5.27 below).
"Cash Adjustment Shares" shall mean that number of shares of Parent
Common Stock equal to the quotient of the Cash Adjustment Amount divided by the
10-Day Average Price.
"Company Capital Stock" shall mean shares of Company Common Stock,
Company Preferred Stock and any shares of other capital stock of the Company.
"Company Capital Stock Number" shall mean the aggregate number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time, plus the aggregate number of shares of Company Common Stock issuable upon
conversion of all Company Preferred Stock outstanding immediately prior to the
Effective Time.
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"Company Common Stock" shall mean shares of common stock of the
Company.
"Company Convertible Securities" shall mean the Company Options,
Warrants and other rights (other than Company Preferred Stock) to acquire or
receive shares of Company Capital Stock.
"Company Options" shall mean all issued and outstanding options as of
the Effective Time to purchase or otherwise acquire Company Capital Stock
(whether or not vested) held by employees or directors of or consultants to the
Company.
"Company Preferred Stock" shall mean shares of Company Series A
Preferred Stock and Company Series B Preferred Stock.
"Company Series A Preferred Stock" shall mean shares of Series A
Preferred Stock of the Company.
"Company Series B Preferred Stock" shall mean shares of Series B
Preferred Stock of the Company.
"Company Stockholders" shall mean holders of any shares of Company
Capital Stock immediately prior to the Effective Time.
"Escrow Amount" shall mean that number of shares of Parent Common
Stock equal to the product of (i) the Company Capital Stock Number multiplied by
(ii) the Exchange Ratio multiplied by (iii) 0.10, rounded up to the nearest
whole number of shares.
"Exchange Ratio" shall mean a number of shares of Parent Common Stock
equal to the quotient obtained by dividing (i) the Aggregate Share Number by
(ii) the Total Outstanding Shares (with the result rounded to four decimal
places).
"Knowledge" shall mean, with respect to the Company or Parent, what is
within the actual knowledge of any of the executive officers of the Company or
Parent, as the case may be.
"Total Outstanding Shares" shall mean the aggregate number of shares
of Company Common Stock outstanding immediately prior to the Effective Time,
plus the aggregate number of shares of Company Common Stock issuable, with or
without the passage of time or satisfaction of other conditions, upon exercise
of or conversion of all Company Convertible Securities (including Company Common
Stock issuable upon the exercise of Company Options), plus the aggregate number
of shares of Company Common Stock issuable upon conversion of all Company
Preferred Stock outstanding immediately prior to the Effective Time.
"Warrants" shall mean all the issued and outstanding warrants to
purchase Company Capital Stock.
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(b) Shares to be Issued; Effect on Capital Stock. The maximum number of
--------------------------------------------
shares of Parent Common Stock to be issued (including Parent Common Stock to be
reserved for issuance upon exercise of any of the Company Options and Warrants
to be assumed by Parent) in exchange for the acquisition by Parent of all
outstanding Company Capital Stock and all unexpired and unexercised Company
Convertible Securities shall be determined immediately prior to the Effective
Time and shall be equal to the Aggregate Share Number. Subject to the terms and
conditions of this Agreement, as of the Effective Time, by virtue of the Merger
and without any action on the part of Merger Sub, the Company or the holder of
any shares of the Company Capital Stock, the following shall occur:
(i) Effect on Company Capital Stock. At the Effective Time, by
-------------------------------
virtue of the Merger and without any action on the part of the Company or the
Company Stockholders, each share of Company Capital Stock issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares, as
defined in Section 1.8 hereof and any shares owned by Parent, Merger Sub or the
Company or any direct or indirect wholly-owned subsidiary thereof) shall be
converted automatically into the right to receive, upon the terms and subject to
conditions set forth below and throughout this Agreement, a number of shares of
Parent Common Stock equal to the Exchange Ratio (the "Merger Consideration").
The Exchange Ratio shall be appropriately adjusted to reflect fully the effect
of any stock split, reverse stock split, stock dividend, reorganization,
recapitalization or like change with respect to Parent Common Stock occurring
after the date hereof and prior to the Effective Time.
(ii) Assumption of Company Options. At the Effective Time, each
-----------------------------
outstanding Company Option issued pursuant to the Company's Amended and Restated
1999 Stock Option Plan (the "Option Plan") or otherwise, whether vested or
unvested, will be assumed by Parent in connection with the Merger. Each Company
Option so assumed by Parent under this Agreement shall continue to have, and be
subject to, the same terms and conditions set forth in the Option Plan and/or as
provided in the respective option agreements immediately prior to the Effective
Time (including, without limitation, any vesting schedule or repurchase rights),
except that (i) each Company Option will be exercisable for that number of whole
shares of Parent Common Stock equal to the product of the number of shares of
Company Common Stock that were issuable upon exercise of such Company Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock and
(ii) the per share exercise price for the shares of Parent Common Stock issuable
upon exercise of such assumed Company Option will be equal to the quotient
determined by dividing the exercise price per share of Company Capital Stock at
which such Company Option was exercisable immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the nearest whole cent.
(iii) Assumption of Warrants. At the Effective Time, the Warrants
----------------------
will be assumed by Parent. Each Warrant so assumed by Parent under this
Agreement will continue to have, and be subject to, the same terms and
conditions set forth in the applicable warrant agreement immediately prior to
the Effective Time (including, without limitation, any repurchase rights or
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vesting provisions), except that (i) each Warrant will be exercisable (or will
become exercisable in accordance with its terms) for that number of whole shares
of Parent Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Warrant immediately prior
to the Effective Time multiplied by the Exchange Ratio, rounded to the nearest
whole number of shares of Parent Common Stock and (ii) the per share exercise
price for the share of Parent Common Stock issuable upon exercise of such
assumed Warrant will be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Warrant was
exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded to the nearest whole cent.
(iv) Withholding Taxes. Any number of shares of Parent Common Stock
-----------------
issuable pursuant to Section 1.6(b)(i) shall be subject to, and reduced by, the
amount of any state, federal and foreign taxes required by law to be withheld
and paid to government entities (and not previously paid by or on behalf of the
Company) in connection with the acquisition of capital stock upon the exercise
of Company Options, the acceleration of vesting of any Company Common Stock or
Company Options, or the payment of a bonus, if any. For purposes of any such
reduction, a share of Parent Common Stock shall be valued at the 10-Day Average
Price.
(v) Fractional Shares. No fractional share of Parent Common Stock
-----------------
shall be issued in the Merger. In lieu thereof, each holder of shares of Company
Capital Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock
that otherwise would be received by such holder) shall, upon surrender of such
holder's Certificate(s) (as defined below) receive from Parent an amount of cash
(rounded to the nearest whole cent), without interest, equal to the product of
(i) such fraction, multiplied by (ii) the 10-Day Average Price.
(vi) Cancellation of Parent-Owned and Company-Owned Stock. At the
----------------------------------------------------
Effective Time, by virtue of the Merger and without any action on the part of
any of the parties hereto, each share of Company Capital Stock owned by Parent,
Merger Sub, the Company or any direct or indirect wholly-owned subsidiary
thereof immediately prior to the Effective Time, shall be cancelled and
extinguished without any conversion thereof.
(vii) Capital Stock of Merger Sub. At the Effective Time, by
---------------------------
virtue of the Merger and without any action on the part of any of the parties
hereto, each share of capital stock 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 of
the Surviving Corporation. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
1.7 Shares Subject to Vesting. If any shares of Company Common Stock
-------------------------
issued and outstanding immediately prior to the Effective Time are unvested or
are subject to a repurchase option, risk of forfeiture or other condition under
any applicable stock restriction agreement or other agreement with the Company,
then the shares of Parent Common Stock issued in exchange for such
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shares of Company Common Stock shall also be unvested and subject to the same
repurchase option, risk of forfeiture or other condition (including any
requirement that any unvested shares be held in escrow), and the certificate
representing such shares of Parent Common Stock may accordingly be marked with
appropriate legends in the discretion of Parent.
1.8 Dissenting Shares for Holders of Company Capital Stock.
------------------------------------------------------
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Capital Stock held by a holder who has demanded and
perfected appraisal rights for such shares in accordance with Delaware Law
and/or who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares"), shall not be converted into or represent
a right to receive Parent Common Stock pursuant to Section 1.6, but the holder
thereof shall only be entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of Company Capital Stock who demands appraisal of such shares under
Delaware Law shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive Parent Common Stock as
provided in Section 1.6 (and subject to the provisions of Section 7.2 hereof),
without interest thereon, upon surrender of the certificate representing such
shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Capital Stock, withdrawals of
such demands, and any other instruments served pursuant to Delaware Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under
Delaware Law. The Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to any demands for appraisal
of capital stock of the Company or offer to settle or settle any such demands.
To the extent that Parent or the Company makes any payment or payments in
respect of any Dissenting Shares, Parent shall be entitled to recover under the
terms of Article VII hereof the aggregate amount by which such payment or
payments exceed the aggregate consideration that otherwise would have been
payable in respect of such shares.
1.9 Surrender of Certificates.
-------------------------
(a) Exchange Agent. The transfer agent of Parent (or another entity
--------------
reasonably acceptable to Parent and the Company) shall serve as exchange agent
(the "Exchange Agent") in the Merger.
(b) Parent to Provide Parent Common Stock. Prior to the Closing,
-------------------------------------
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I the shares of Parent Common Stock issuable to Company
Stockholders pursuant to Section 1.6 in exchange for outstanding shares of
Company Capital Stock, less the Escrow Amount which Parent shall deposit into
the Escrow Fund (as defined in Section 7.2(a) hereof) on behalf of the Company
Stockholders.
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The portion of the Escrow Amount contributed on behalf of each Company
Stockholder shall be in proportion to the aggregate number of shares of Parent
Common Stock which each such Company Stockholder would otherwise be entitled to
receive in the Merger as compared to the total number of shares of Parent Common
Stock to be issued to holders of outstanding Company Capital Stock pursuant to
Section 1.6(b)(i) above (excluding any shares of Parent Common Stock issuable
upon exercise of any assumed Company Options and Warrants) by virtue of
ownership of outstanding shares of Company Capital Stock immediately prior to
the Effective Time.
(c) Exchange Procedures. Promptly following the Closing, Parent shall
-------------------
cause to be mailed to each Company Stockholder (i) a letter of transmittal
(which shall be in such form and contain such provisions as Parent may
reasonably specify and shall specify that delivery shall be effected, and risk
of loss and title to the certificates (the "Certificates") which immediately
prior to the Effective Time represent outstanding shares of Company Capital
Stock whose shares are converted into the right to receive Merger Consideration
pursuant to Section 1.6, shall pass, only upon delivery of the Certificates to
the Exchange Agent), (ii) a stockholder lock-up letter in substantially the form
attached hereto as Exhibit C (a "Stockholder Lock-Up Letter"), and (iii)
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instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal
and Stockholder Lock-Up Letter, duly completed and validly executed in
accordance with the instructions thereto, the Company Stockholder shall be
entitled to receive, and the Exchange Agent shall promptly deliver in exchange
therefor, a certificate representing the number of whole shares of Parent Common
Stock (less the number of shares of Parent Common Stock to be deposited in the
Escrow Fund on such holder's behalf pursuant to Section 1.9(b) and Article VII
hereof), and the Certificate so surrendered shall forthwith be canceled.
Promptly after the Effective Time, and subject to and in accordance with the
provisions of Article VII hereof, Parent shall cause to be distributed to the
Escrow Agent (as defined in Article VII) a certificate or certificates
representing that number of shares of Parent Common Stock equal to the Escrow
Amount which shall be registered in the name of the Escrow Agent. Such shares
shall be available to compensate Parent as provided in Article VII. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Parent Common Stock
into which such shares of Company Capital Stock shall have been so converted.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate in respect of the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, plus the amount of dividends or other
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distributions (without interest) with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
----------------------
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered.
(f) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
Certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Common Stock as may be required
pursuant to Section 1.6 hereof; provided, however, that Parent may, in its
discretion and as a condition precedent to the issuance thereof, require the
Company Stockholder who is the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such amount as it may reasonably direct
against any claim that may be made against Parent or the Exchange Agent with
respect to the Certificates alleged to have been lost, stolen or destroyed.
(g) No Liability. Notwithstanding anything to the contrary in this
------------
Section 1.9, neither Parent nor any party hereto shall be liable to a holder of
shares of Parent Common Stock or Company Capital Stock for any amount properly
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law.
(h) No Further Ownership Rights in Company Capital Stock. The shares
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of Parent Common Stock issued in accordance with the terms hereof shall be
deemed to be full satisfaction of all rights pertaining to shares of Company
Capital Stock outstanding prior to the Effective Time, and there shall be no
further registration of transfers on the records of Parent of shares of Company
Capital Stock that were outstanding prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Parent for any reason, they shall
be canceled and exchanged as provided in this Article I.
(i) Taking of Necessary Action; Further Action. If, at any time after
------------------------------------------
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company, Parent and Merger Sub, the officers and directors of
Company, Parent and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
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<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As of the date hereof and as of the Closing Date, the Company represents
and warrants to Parent and Merger Sub, subject to such exceptions as are clearly
disclosed in the disclosure letter (referencing the appropriate Section and
paragraph numbers corresponding to the terms of this Agreement) supplied by the
Company to Parent (the "Company Schedules") and dated as of the date hereof, as
follows:
2.1 Organization of the Company. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own its properties and to carry
on its business as now being conducted. The Company is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would be material. The Company has made
available to Parent a true and correct copy of its Certificate of Incorporation
and Bylaws, each as amended to date. Company Schedule 2.1 lists the directors
--------------------
and officers of the Company as of the date of this Agreement.
2.2 Company Capital Structure.
-------------------------
(a) The authorized capital stock of the Company consists of
100,000,000 shares of authorized Common Stock, of which 8,288,388 shares are
issued and outstanding as of the date of this Agreement, and 7,500,000 shares of
authorized Preferred Stock, 3,500,000 of which are designated Series A Preferred
Stock, of which 3,436,648 shares are issued and outstanding as of the date of
this Agreement and 4,000,000 of which are designated Series B Preferred Stock,
of which 3,457,142 shares are issued and outstanding as of the date of this
Agreement. The Company Capital Stock outstanding as of the date of this
Agreement is held of record by the persons, with the addresses of record and in
the amounts set forth on Company Schedule 2.2(a). All outstanding shares of
-----------------------
Company Capital Stock are duly authorized, validly issued, fully paid and non-
assessable and not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of the Company or any agreement to which
the Company is a party or by which it is bound. All of the outstanding shares of
Company Capital Stock have been issued or repurchased (in the case of shares
that were outstanding and repurchased by the Company) in compliance with all
applicable federal and state securities laws. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of
the Company Preferred Stock are as set forth in the Company's Certificate of
Incorporation. There are not outstanding any adjustments made or required to be
made to the conversion rates applicable to Company Preferred Stock set forth in
the Company's Certificate of Incorporation. There are no declared or accrued but
unpaid dividends with respect to any shares of Company Common Stock. The Company
has no other capital stock authorized, issued or outstanding. The requisite vote
required to approve the Merger under applicable law, the Company's Certificate
of Incorporation, the Company's Bylaws, and any other agreement to which the
Company or any other stockholder of the Company is bound is as follows: the
affirmative vote
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<PAGE>
of a majority of the outstanding shares of Company Capital Stock. Each share of
Company Preferred Stock is convertible to Company Common Stock on a one-to-one
basis. In the Merger each share of Company Preferred Stock will be entitled only
to receive a number of shares of Parent Common Stock equal to the Exchange
Ratio. Holders of Company Common Stock and Company Preferred Stock sufficient to
approve the Merger, each of whom is an "affiliate" of the Company as defined in
Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), have each executed a Support Agreement.
(b) The Company has reserved 1,500,000 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plan, of which
1,358,052 shares are subject to options that are outstanding and unexercised as
of the date of this Agreement and 141,948 shares remain available for future
grant as of the date of this Agreement. The Company has reserved no shares of
Common Stock for issuance upon exercise of outstanding Company Options granted
outside the Option Plan and 222,278 shares of Common Stock for issuance upon
exercise of outstanding Warrants. The Company has warrants to purchase 222,278
shares of Company Common Stock issued and outstanding. Company Schedule 2.2(b)
-----------------------
sets forth for each outstanding Company Option or Warrant, the name of the
holder of such Company Option or Warrant, the domicile address of such holder,
the number of shares of Common Stock subject to such Company Option or Warrant,
the exercise price of such Company Option or Warrant and the vesting schedule
for such Company Option or Warrant, including the extent vested to date and
whether the exercisability of such Company Option or Warrant will be accelerated
and become exercisable by reason of the transactions contemplated by this
Agreement. Except for the Company Options and Warrants described in Company
-------
Schedule 2.2(b), there are no options, warrants, calls, rights, commitments or
---------------
agreements of any character, written or oral, to which the Company is a party or
by which it is bound obligating the Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. All of the
Company Options and Warrants were issued in compliance with federal and state
securities laws. The holders of Company Options, Warrants and Company Preferred
Stock have been or will be given, or shall have properly waived, any required
notice prior to the Merger.
2.3 Subsidiaries. Other than NextVenue Europe Limited ("Subsidiary"), the
------------
Company does not have and has never had any subsidiaries or affiliated companies
and does not otherwise own and has never otherwise owned any shares of capital
stock or any interest in, or control, directly or indirectly, any other
corporation, partnership, association, joint venture or other business entity.
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the United Kingdom. Subsidiary has the corporate
power to own its properties and to carry on its business as now being conducted.
Subsidiary is duly qualified or licensed to do business and in good standing as
a foreign corporation in each jurisdiction in which it conducts business. A true
and correct copy of Subsidiary's charter documents and bylaws, each as amended
to date, has been made available to Parent. Company Schedule 2.3 lists the
--------------------
directors and officers of Subsidiary as of the date of this Agreement. All of
the shares of capital stock of Subsidiary are owned of record and
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<PAGE>
beneficially by the Company. There are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which Subsidiary
is a party or by which it is bound obligating Subsidiary to issue, deliver,
sell, repurchase or redeem, or cause to be issued, sold, repurchased or
redeemed, any shares of the capital stock of Subsidiary or obligating Subsidiary
to grant, extend, accelerate the vesting of, change the price of, otherwise
amend or enter into any such option, warrant, call right, commitment or
agreement. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or other similar rights with respect to Subsidiary.
2.4 Authority. The Company has all requisite corporate power and
---------
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject only to
the approval of the Merger by the Company Stockholders. The Company's Board of
Directors has unanimously approved the Merger and this Agreement. This Agreement
has been duly executed and delivered by the Company and constitutes the valid
and binding obligation of the Company, enforceable in accordance with its terms,
except as enforcement may be limited by general principles of equity, whether
applied in a court of law or a court of equity, and by bankruptcy, insolvency
and similar laws affecting creditors' rights and remedies generally. Except as
set forth on Company Schedule 2.4, subject only to the approval of the Merger
--------------------
and this Agreement by the Company's stockholders, the execution and delivery of
this Agreement by the Company does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Certificate of Incorporation or Bylaws of
the Company or any charter document of Subsidiary or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or Subsidiary or their properties or
assets. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission (each a "Governmental Entity")
or any third party, including a party to any agreement with the Company or
Subsidiary (so as not to trigger any Conflict) is required by or with respect to
the Company or Subsidiary in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) receipt of the California Permit (as defined in Section 5.1 hereof) by
Parent or the effectiveness of the S-4 (as defined in Section 5.1 hereof), (ii)
such other consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable governmental laws
and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (iii) the filing of the Certificate of Merger with the Delaware
Secretary of State, and (iv) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and (iii) such other consents,
waivers, authorizations, filings, approvals and registrations which are set
forth on Company Schedule 2.4 or which, if not obtained or made, would not have
--------------------
a material impact on the Company.
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<PAGE>
2.5 Company Financial Statements. Company Schedule 2.5 sets forth the
---------------------------- --------------------
Company's audited consolidated balance sheet as of December 31, 1999 and the
related audited consolidated statements of operations and cash flows for the
twelve-month period then ended and the Company's unaudited consolidated balance
sheets as of March 31, 2000 and June 30, 2000 (the "Balance Sheet") and the
related unaudited consolidated statements of operations and cash flows for each
of the three-month and six-month periods then ended (collectively, the "Company
Financials"). The Company Financials prepared through the period ended March 31,
2000 (including the notes thereto) comply as to form in all material respects
with applicable accounting requirements and published rules and regulations of
the Securities and Exchange Commission (the "SEC") with respect thereto, have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied (except as may be indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC).
The Balance Sheet and the related unaudited consolidated statements of
operations and cash flows for the six-month period ended June 30, 2000 have been
prepared in accordance with GAAP and, with respect to all compensation matters
including deferred compensation, compensation expenses, compensation charges,
stock-based compensation and Company Employee Plans (as defined in Section
2.20(a)), comply as to form in all material respects with applicable accounting
requirements and published rules and regulations of the SEC. The Company
Financials present fairly the financial condition and operating results of the
Company and consolidated subsidiaries as of the dates and during the periods
indicated therein, subject, in the case of the unaudited financial statements,
to normal audit adjustments, which such adjustments will not be material in
amount or significance.
2.6 No Undisclosed Liabilities. Except as set forth in Company Schedule
-------------------------- ----------------
2.6, neither the Company nor Subsidiary has any liability, indebtedness,
---
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other (whether or
not required to be reflected in financial statements in accordance with GAAP),
which individually or in the aggregate, (i) has not been reflected in the
Balance Sheet, or (ii) has not arisen in the ordinary course of the Company's
business since the date of the Balance Sheet, consistent with past practices and
(iii) which is not material to the results of operations or financial condition
of the Company and Subsidiary taken as a whole.
2.7 No Changes. Except as set forth in Company Schedule 2.7, since the
---------- --------------------
date of the Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by the Company or Subsidiary except in the ordinary
course of business as conducted on the date of the Balance Sheet and consistent
with past practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company or the organizational documents of Subsidiary;
(c) capital expenditure or commitment by the Company or Subsidiary,
either individually or in the aggregate, exceeding $100,000;
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<PAGE>
(d) destruction of, damage to or loss of any material assets, business
or customer of the Company or Subsidiary (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) event or condition that has or would be reasonably expected to
have a Material Adverse Effect (as defined in Section 9.2 hereof) on the
Company;
(g) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company or Subsidiary;
(h) revaluation by the Company or Subsidiary of any of their assets;
(i) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(j) increase in the salary or other compensation payable or to become
payable to any of the Company's or Subsidiary's officers or directors, or the
declaration, payment or commitment or obligation of any kind for the payment of
a bonus or other additional salary or compensation to any such person;
(k) sale, lease, license or other disposition of any of material
assets or material properties of the Company or Subsidiary or the creation of
any security interest in such material assets or material properties;
(l) amendment or termination (other than pursuant to its terms) of any
material contract, agreement or license to which the Company or Subsidiary is a
party or by which they are bound;
(m) loan by the Company or Subsidiary to any person or entity,
incurring by the Company or Subsidiary of any indebtedness, guaranteeing by the
Company or Subsidiary of any indebtedness, issuance or sale of any debt
securities of the Company or guaranteeing of any debt securities of others,
except for advances to employees for travel and business expenses in the
ordinary course of business, consistent with past practices;
(n) payment, discharge or satisfaction, in any amount in excess of
$25,000 in any one case, or $100,000 in the aggregate, of any claim, liability
or obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than payment, discharge or satisfaction in the ordinary course
of business;
(o) waiver or release of any right or claim of the Company or
Subsidiary, including any write-off or other compromise of any account
receivable of the Company or Subsidiary;
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<PAGE>
(p) issuance or sale by the Company of any shares of Company Capital
Stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
(q) change in pricing or royalties set or charged by the Company or
Subsidiary to their customers or licensees or in pricing or royalties set or
charged by persons who have licensed Intellectual Property (as defined in
Section 2.11) to the Company or Subsidiary;
(r) any hiring or termination of employees of the Company, except in
the ordinary course of business consistent with past practices or pursuant to
existing employment agreements; or
(s) negotiation or agreement by the Company or Subsidiary or any
officer or employees thereof to do any of the things described in the preceding
clauses (a) through (r) (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports.
---------------------------------
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or,
-------------------
collectively, "Taxes", means (i) any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts; (ii) any liability for the payment of any amounts of the type
described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Company Schedule
----------------------
(i) The Company and Subsidiary as of the Effective Time will have
prepared and filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to any and
all Taxes concerning or attributable to the Company and Subsidiary or their
operations and such Returns are true and correct and have been completed in
accordance with applicable law. Notwithstanding the foregoing, no representation
or warranty is hereby made regarding the availability of any Tax attribute of
the Company or Subsidiary.
(ii) The Company and Subsidiary as of the Effective Time: (A) will
have paid or accrued all Taxes that they are required to pay or accrue and (B)
will have withheld with respect to their employees and all third parties all
federal and state income taxes, FICA, FUTA and
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<PAGE>
other Taxes required to be withheld, and have timely paid over to the proper
governmental authorities all amounts required to be withheld and paid over under
all applicable laws.
(iii) Neither the Company nor Subsidiary has been delinquent in
the payment of any Tax nor is there any Tax deficiency outstanding, proposed or
assessed against the Company or Subsidiary, nor has the Company or Subsidiary
executed any waiver of any statute of limitations on or extended the period for
the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company
or Subsidiary is currently in progress, nor has the Company or Subsidiary been
notified of any request for such an audit or other examination. No adjustment
relating to any Return filed by the Company or any of its subsidiaries (and no
claim by a tax authority in a jurisdiction in which the Company or any of its
subsidiaries does not file returns that the Company or any of its subsidiaries
may be subject to taxation by such jurisdiction) has been proposed formally or,
to the knowledge of the Company, informally by any tax authority to the Company
or any representative thereof.
(v) Neither the Company nor Subsidiary has any liabilities for
unpaid federal, state, local and foreign Taxes for periods through the date of
the Balance Sheet which have not been accrued or reserved against in accordance
with GAAP on the Balance Sheet, whether asserted or unasserted, contingent or
otherwise, and the Company has no knowledge of any basis for the assertion of
any such liability attributable to the Company or Subsidiary, their assets or
operations. Since March 31, 2000, neither the Company nor Subsidiary has
incurred any liability for Taxes other than in the ordinary course of business.
(vi) The Company has provided to Parent copies of all federal
and material state income and all state sales and use Tax Returns that have been
filed for all periods since the date of Company's incorporation.
(vii) There are (and as of immediately following the Effective
Date there will be) no liens, pledges, charges, claims, security interests or
other encumbrances of any sort ("Liens") on the assets of the Company or
Subsidiary relating to or attributable to Taxes other than Liens for Taxes not
yet due and payable.
(viii) The Company has no knowledge of any basis for the assertion
of any claim relating or attributable to Taxes which, if adversely determined,
would result in any Lien on the assets of the Company or Subsidiary.
(ix) None of the Company's or Subsidiary's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company or
Subsidiary that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G of the
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<PAGE>
Code. Notwithstanding the foregoing, no representation or warranty is hereby
made regarding the effect, if any, on the deductibility of any payment covering
any employee or former employee of the Company or Subsidiary, of the execution
or operation of the Stock Restriction Agreements pursuant to Section 6.3(r)
hereof.
(xi) Neither the Company nor Subsidiary has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company or Subsidiary.
(xii) Neither the Company nor any of its subsidiaries (i) has
ever been a member of an affiliated group filing a consolidated federal income
Tax Return (other than a consolidated group the common parent of which is the
Company), (ii) is a party to any Tax sharing or Tax allocation agreement,
arrangement or understanding, (iii) is liable for the Taxes of any other person
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract or otherwise,
and (iv) is a party to any joint venture, partnership or other arrangement that
could be treated as a partnership for income Tax purposes.
(xiii) The Company is not and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiv) The Company has no reason to believe that the Merger will
fail to qualify as a reorganization within the meaning of Section 368(a) of the
Code.
(xv) Neither the Company nor any of its subsidiaries has
constituted either a "distributing corporation" or a "controlled corporation" in
a distribution of stock qualifying for tax-free treatment under Section 355 of
the Code (i) in the two years prior to the date of this Agreement or (ii) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
2.9 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company or Subsidiary is a party or otherwise binding upon the Company
or Subsidiary which has or reasonably would be expected to have the effect of
prohibiting or impairing any business practice of the Company or Subsidiary, any
acquisition of property (tangible or intangible) by the Company or Subsidiary or
the conduct of business by the Company or Subsidiary or otherwise limiting the
freedom of the Company or Subsidiary to engage in any line of business or to
compete with any person. Without limiting the foregoing, each of the Company and
Subsidiary have not entered into any agreement under which the Company or
Subsidiary is restricted from selling, licensing or otherwise distributing any
of their products or technologies, or providing services to, any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
------------------------------------------------------
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<PAGE>
(a) Neither the Company nor Subsidiary own any real property, nor have
they ever owned any real property. Company Schedule 2.10(a) sets forth a list of
------------------------
all real property currently leased by the Company and/or Subsidiary, the name of
the lessor, the date of the lease and each amendment thereto and, with respect
to any current lease, the aggregate annual rental and/or other fees payable
under any such lease. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default).
(b) Each of the Company and Subsidiary has good and valid title to,
or, in the case of leased properties and assets, valid leasehold interests in,
all of its tangible properties and assets, real, personal and mixed, used or
held for use in its business, free and clear of any Liens, except as reflected
in the Company Financials or in Company Schedule 2.10(b) and except for Liens
------------------------
for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
(c) Company Schedule 2.10(c) contains a complete and accurate list of
------------------------
all material items of equipment (the "Equipment") owned or leased by the Company
or Subsidiary, and such Equipment (i) is adequate for the conduct of the
business of the Company and/or Subsidiary as currently conducted and as
currently contemplated to be conducted, and (ii) is in good operating condition,
regularly and properly maintained, subject to normal wear and tear.
2.11 Intellectual Property.
---------------------
(a) Definitions. For all purposes of this Agreement, the following
-----------
terms shall have the following respective meanings:
"Intellectual Property" shall mean any or all of the following (i) works of
authorship including, without limitation, computer programs, source code and
executable code, whether embodied in software, firmware or otherwise,
development tools, documentation, designs, files, records, data and all media on
which any of the foregoing is recorded, all Web addresses, sites and domain
names, and mask works, (ii) inventions (whether or not patentable), invention
disclosures, improvements, and technology, (iii) proprietary and confidential
information, trade secrets and know how, (iv) databases, data compilations and
collections, customers lists and technical data, (v) logos, trade names, trade
dress, trademarks and service marks, (vi) domain names, web addresses and sites,
(vii) tools, methods and processes, and (viii) all instantiations and
disclosures of the foregoing in any form and embodied in any media and all
documentation relating to the foregoing.
"Intellectual Property Rights" shall mean common law and statutory rights
associated with (i) any Intellectual Property, (ii) patents and patent
applications, (iii) copyrights, copyright registrations, copyright applications
and "moral" rights, (iv) the protection of trade and industrial secrets and
confidential information, (v) trademarks, trade names, service marks, logos,
trademark and servicemark registrations and applications and application
therefor and all goodwill associated
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<PAGE>
therewith throughout the world, (vi) divisions, continuations, continuations-in-
part, renewals, reissuances, provisionals and extensions of the foregoing (as
applicable), all mask works, mask work registrations and applications therefore
throughout the world.
"Company Intellectual Property" shall mean any Intellectual Property and
Intellectual Property Rights that are owned by or exclusively licensed to the
Company or Subsidiary.
"Registered Intellectual Property Rights" shall mean Intellectual Property
Rights currently applied for or that have been registered, filed, certified or
otherwise perfected by recordation with any state, government or other public
legal authority anywhere in the world.
(b) Company Schedule 2.11(b) lists all Registered Intellectual
------------------------
Property Rights owned in whole or in part by, or filed in the name of, the
Company or Subsidiary (the "Company Registered Intellectual Property Rights")
and lists any proceedings or actions in which any of the Company Registered
Intellectual Property Rights are being adjudicated before any court, tribunal
(including the United States Patent and Trademark Office (the "PTO") or
equivalent authority anywhere in the world).
(c) Each item of Company Intellectual Property, including all Company
Registered Intellectual, is free and clear of any Liens. The Company or
Subsidiary is the exclusive owner or exclusive licensee of all Company
Intellectual Property Rights.
(d) Other than (i) "shrink-wrap" and similar widely available binary
code and commercial end-user licenses and (ii) as set forth on Company Schedule
----------------
2.11(g), to the extent that any Company Intellectual Property has been developed
-------
or created independently or jointly by any person other than the Company or
Subsidiary for which the Company or Subsidiary has, directly paid or otherwise
obtained rights thereon, the Company or Subsidiary has a written agreement with
such person with respect thereto, and the Company thereby has obtained
ownership, and is the exclusive owner of, or is exclusive licensee of, all such
Intellectual Property and corresponding Intellectual Property Rights therein by
operation of law or by valid assignment.
(e) Neither the Company nor Subsidiary has transferred ownership of,
or granted any exclusive license of or exclusive right to use, or authorized the
retention of any exclusive rights to use or joint ownership of, any Intellectual
Property or Intellectual Property Rights that is or was Company Intellectual
Property, to any other person.
(f) Other than (i) "shrink-wrap" and similar widely available binary
code and commercial end-user licenses and (ii) as set forth in Company Schedule
----------------
2.11(g), the Company Intellectual Property constitutes all the Intellectual
-------
Property and Intellectual Property Rights used in and/or necessary to the
conduct of the business of the Company or Subsidiary as it currently is
conducted, including, without limitation, the design, development, manufacture,
use, import and sale of products, technology and services (including products,
technology or services currently under development). Consummation of the
transactions contemplated by this Agreement will not result in
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<PAGE>
the loss of, or otherwise adversely affect, any ownership rights of the Company
or Subsidiary in any Company Intellectual Property.
(g) Other than "shrink-wrap" and similar widely distributed binary
code and commercial end-user licenses, Company Schedule 2.11(g) lists all
------------------------
contracts, licenses and agreements to which the Company or Subsidiary is a party
with respect to any Intellectual Property and Intellectual Property Rights as of
the date of this Agreement. No person who has licensed Intellectual Property or
Intellectual Property Rights to the Company or Subsidiary has ownership rights
or license rights to improvements made by the Company or Subsidiary in such
Intellectual Property which has been licensed to the Company.
(h) Other than "shrink-wrap" and similar widely distributed binary
code and commercial end-user licenses, Company Schedule 2.11(h) lists all
------------------------
contracts, licenses and agreements between the Company and Subsidiary and any
other person wherein or whereby the Company or Subsidiary has agreed to, or
assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless,
guaranty or otherwise assume or incur any obligation or liability or provide a
right of rescission with respect to the infringement or misappropriation by the
Company or Subsidiary or such other person of the Intellectual Property Rights
of any person other than the Company or Subsidiary.
(i) The operation of the business of the Company and Subsidiary as it
currently is conducted, including but not limited to the design, development,
use, import, manufacture and sale of the products, technology or services
(including products, technology or services currently under development) of the
Company has not, does not and, to the Knowledge of the Company, will not
infringe or misappropriate the Intellectual Property Rights of any person, or
violate similar rights of any person (including rights to privacy or publicity),
or constitute unfair competition or trade practices in violation of the
applicable laws of any jurisdiction, and neither the Company nor Subsidiary has
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company or Subsidiary infringes or
misappropriates the Intellectual Property Rights of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction.
(j) Each item of Company Registered Intellectual Property is currently
valid and subsisting, and all necessary registration, maintenance and renewal
fees in connection with such Company Registered Intellectual Property have been
paid and all necessary documents and certificates in connection with such
Company Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property. Other than as set forth in Company Schedule
----------------
2.11(j), there are no actions that must be taken by the Company or Subsidiary
-------
within sixty (60) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting or
preserving or renewing any Company Intellectual Property Rights. In each case in
which the Company or Subsidiary has
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acquired any Intellectual Property rights from any person, either the Company or
Subsidiary has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Intellectual Property and the
corresponding Intellectual Property Rights therein to the Company or Subsidiary
and, to the maximum extent provided for by, and in accordance with, applicable
laws and regulations, either the Company or Subsidiary has recorded each such
assignment with the relevant governmental authorities, including the PTO, the
U.S. Copyright Office, or their respective equivalents in any relevant foreign
jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between the Company
or Subsidiary and any other person with respect to Company Intellectual Property
under which there is any dispute known to the Company regarding the scope of
such agreement, or performance under such agreement including with respect to
any payments to be made or received by the Company or Subsidiary thereunder.
(l) Neither this Agreement nor the transactions contemplated by this
Agreement, including the assignment to Parent by operation of law or otherwise
(to the extent that such transactions are deemed to effect such assignment) of
any contracts or agreements to which the Company is a party, will result in: (i)
Parent, Merger Sub, Subsidiary or the Company granting to any third party any
right to or with respect to any Intellectual Property or Intellectual Property
Rights owned by, or licensed to, any of them, (ii) Parent, Merger Sub,
Subsidiary or the Company being bound by, or subject to, any non-compete or
other material restriction on the operation or scope or their respective
businesses, or (iii) Parent, Merger Sub, Subsidiary or the Company being
obligated to pay any royalties or other material amounts to any third party in
excess of those payable by any of them, respectively, in the absence of this
Agreement or the transactions contemplated hereby.
(m) Other than as set forth in Company Schedule 2.11(m), to the
------------------------
Knowledge of the Company, no person is infringing or misappropriating any
Company Intellectual Property.
(n) The Company and Subsidiary have taken all reasonable steps that
are required to protect their rights in confidential information and trade
secrets of the Company or Subsidiary or provided by any other person to the
Company or Subsidiary. Without limiting the foregoing, the Company and
Subsidiary have, and enforce, a policy requiring each employee and consultant to
execute proprietary information, confidentiality and assignment agreements
substantially in the Company's standard form. All current and former employees
and consultants of the Company and Subsidiary have executed such an agreement in
substantially the Company's standard form except where the failure to do so is
not reasonably expected to be material to the Company and Subsidiary taken as a
whole.
(o) To the Knowledge of the Company, no Company Intellectual Property
or other Intellectual Property Rights of the Company is subject to any
proceeding or outstanding decree, order, judgment, settlement or agreement that
restricts in any manner the use, transfer or licensing thereof by the Company or
affects the validity, use or enforceability of such Company Intellectual
Property.
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<PAGE>
2.12 Agreements, Contracts and Commitments
-------------------------------------
(a) Except as set forth on Company Schedule 2.12(a), neither the
------------------------
Company nor Subsidiary has, is a party to or is bound by, as of the date of this
Agreement:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to the Company,
(v) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually
in excess of $25,000 individually or $100,000 in the aggregate,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000 individually or
$100,000 in the aggregate,
(x) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business,
(xi) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xii) any purchase order or contract for the purchase of raw
materials involving in excess of $25,000 individually or $100,000 in the
aggregate,
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<PAGE>
(xiii) any construction contracts,
(xiv) any distribution, joint marketing or development
agreement,
(xv) any agreement pursuant to which the Company or Subsidiary
has developed and/or delivered or has received funds from any Governmental
Entity to develop and/or deliver any Intellectual Property,
(xvi) any bandwidth or co-location agreement, or
(xvii) any other agreement, contract or commitment involving in
excess of $25,000 individually or $100,000 in the aggregate.
(b) The Company has delivered or made available to Parent a correct
and complete copy of each written agreement (as amended to date) listed in
Company Schedule 2.4, Company Schedule 2.10(a), Company Schedule 2.11(g),
-------------------- ------------------------ ------------------------
Company Schedule 2.11(h), Company Schedule 2.12 and Company Schedule 2.20(b) and
------------------------ --------------------- ------------------------
a written summary setting forth the terms and conditions of each oral agreement
referred to in such Company Schedules (collectively, all such agreements are
referred to as the "Contracts". With respect to each such Contract: (A) the
agreement, with respect to the Company and Subsidiary and, to the Company's
Knowledge, all other parties thereto, is legal, valid, binding, enforceable, and
in full force and effect in all respects; (B) neither the Company or Subsidiary
nor, to the Company's Knowledge, any other party is in breach or default, and no
event has occurred, which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; (C) no party has repudiated any provision of the agreement; and (D)
the Company does not have any reason to believe that the service called for
thereunder cannot be supplied in accordance with its terms and without resulting
in a loss to the Company or Subsidiary. Following the Effective Time, the
Company will be permitted to exercise all of the Company's rights under such
agreements to the same extent the Company would have been able to had the Merger
not occurred and without the payment of any additional amounts or consideration
other than ongoing fees, royalties or payments which the Company would otherwise
be required to pay.
(c) Warranties; Indemnities. Except for the warranties and
-----------------------
indemnities contained in those contracts and agreements set forth in Company
-------
Schedule 2.12(a)(viii) and warranties implied by law, neither the Company nor
----------------------
Subsidiary has given any warranties or indemnities relating to products or
technology sold or services rendered by the Company or Subsidiary.
2.13 Interested Party Transactions. No officer, director or, to the
-----------------------------
Company's Knowledge, stockholder of the Company or Subsidiary is a party to any
transaction which would be required to be disclosed under Item 404 of Regulation
S-K of the rules and regulations under the Securities Act if the companies were
reporting companies.
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<PAGE>
2.14 Compliance with Laws. The Company and Subsidiary have complied in all
--------------------
material respects with, and are not in violation of, and have not received any
notices of violation with respect to, any foreign, federal, state or local
statute, law or regulation.
2.15 Litigation. There is no action, suit or proceeding of any nature
----------
pending or to the Company's Knowledge threatened against the Company or
Subsidiary, their properties or any of their officers or directors, in their
respective capacities as such. To the Company's knowledge, there is no
investigation pending or threatened against the Company or Subsidiary, their
properties or any of their officers or directors by or before any governmental
entity. Company Schedule 2.15 sets forth, with respect to any such pending or
---------------------
threatened action, suit, proceeding or investigation, the forum, the parties
thereto, the subject matter thereof and the amount of damages claimed or other
remedy requested. To the Company's knowledge, no Governmental Entity has at any
time challenged or questioned the legal right of the Company or Subsidiary to
conduct its business or offer or sell any of its products or services.
2.16 Insurance. With respect to the insurance policies and fidelity bonds
---------
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company or Subsidiary, there is no claim by the
Company or Subsidiary pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and the Company and Subsidiary are otherwise in material
compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). The Company has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.17 Minute Books. The minute books of the Company made available to
------------
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all actions taken at such meetings or actions by
written consent since the time of incorporation of the Company.
2.18 Environmental Matters.
---------------------
(a) Hazardous Material. Neither the Company nor Subsidiary has
------------------
operated any underground storage tanks, and neither has Knowledge of the
existence, at any time, of any underground storage tank (or related piping or
pumps), at any property that the Company or Subsidiary has at any time owned,
operated, occupied or leased. Neither the Company nor Subsidiary has released
any amount of any substance that has been designated by any Governmental Entity
or by applicable federal, state or local law to be radioactive, toxic, hazardous
or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, oil and petroleum products, urea-formaldehyde and
all substances listed as a "hazardous substance," "hazardous waste," "hazardous
material" or "toxic substance" or words of similar import, under any law,
including but not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended; the Resource Conservation
and Recovery Act of 1976, as amended; the Federal Water Pollution Control Act,
as amended; the Clean Air Act, as amended, and
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<PAGE>
the regulations promulgated pursuant to said laws (a "Hazardous Material"). No
Hazardous Materials are present as a result of the actions or omissions of the
Company or Subsidiary, or, to the Company's Knowledge, as a result of any
actions of any third party or otherwise, in, on or under any property, including
the land and the improvements, ground water and surface water thereof, that the
Company or Subsidiary has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Neither the Company nor
------------------------------
Subsidiary has transported, stored, used, manufactured, disposed of, released or
exposed its employees or others to Hazardous Materials in violation of any law
in effect on or before the Effective Time, nor has the Company or Subsidiary
disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (any or all of the foregoing being collectively referred to
as "Hazardous Materials Activities") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Permits. Each of the Company and Subsidiary currently holds all
-------
environmental approvals, permits, licenses, clearances and consents (the
"Environmental Permits") necessary for the conduct of the Company's Hazardous
Material Activities and other businesses of the Company or Subsidiary as such
activities and businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's Knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company or Subsidiary. The
Company is not aware of any fact or circumstance which could involve the Company
or Subsidiary in any environmental litigation or impose upon the Company or
Subsidiary any environmental liability.
2.19 [Intentionally omitted.]
2.20 Employee Matters and Benefit Plans.
----------------------------------
(a) Definitions. With the exception of the definition of "Affiliate"
-----------
set forth in Section 2.20(a)(i) below (which definition shall apply only to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with the Company or Subsidiary within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iii) "Company Employee Plan" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance,
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<PAGE>
termination pay, deferred compensation, performance awards, stock or stock-
related awards, fringe benefits or other employee benefits or remuneration of
any kind, whether written or unwritten or otherwise, funded or unfunded, and
whether or not legally binding, including without limitation, each "employee
benefit plan," within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by the Company,
Subsidiary or any Affiliate for the benefit of any Employee, or with respect to
which the Company, Subsidiary or any Affiliate has or may have any liability or
obligation contingent or otherwise;
(iv) "DOL" shall mean the Department of Labor;
(v) "Employee" shall mean any current, former, or retired employee,
officer, or director of the Company, Subsidiary or any Affiliate;
(vi) "Employment Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or similar agreement or contract between the Company,
Subsidiary or any Affiliate and any Employee or consultant;
(vii) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(ix) "International Employee Plan" shall mean each Company Employee
Plan that has been adopted or maintained by the Company or any Affiliate,
whether informally or formally, or with respect to which the Company or any
Affiliate will or may have any liability, for the benefit of Employees who
perform services outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan", as defined in Section 3(37) of ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation;
and
(xiii) "Pension Plan" shall refer to each Company Employee Plan which
is an "employee pension benefit plan", within the meaning of Section 3(2) of
ERISA.
(b) Schedule. Company Schedule 2.20(b) contains an accurate and complete
-------- ------------------------
list of each Company Employee Plan, International Employee Plan, and each
Employment Agreement. The Company does not have any plan or commitment to
establish any new Company Employee Plan, International Employee Plan, or
Employment Agreement, to modify any Company Employee Plan or Employment
Agreement (except to the extent required by law or to conform any such
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<PAGE>
Company Employee Plan or Employment Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to adopt or enter into any Company Employee
Plan, International Employee Plan, or Employment Agreement. Company Schedule
----------------
2.20(b) also contains a table setting forth the name and salary of each employee
-------
of the Company and Subsidiary as of the date of this Agreement.
(c) Documents. The Company has provided or made available to Parent
---------
correct and complete copies, if applicable, of: (i) all documents embodying each
Company Employee Plan, International Employee Plan, and each Employment
Agreement including (without limitation) all amendments thereto and all related
trust documents, administrative service agreements, group annuity contracts,
group insurance contracts, and policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Plan; (ii) the most recent annual
actuarial valuations, if any, prepared for each Company Employee Plan; (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 Company Employee Plan; (iv) if the Company Employee Plan
is funded, the most recent annual and periodic accounting of Company Employee
Plan assets; (v) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Company Employee Plan; and (vi) all IRS determination,
opinion, notification and advisory letters, and all applications and
correspondence to or from the IRS or the DOL with respect to any such
application or letter intended to qualify under Section 401 of the Code.
(d) Employee Plan Compliance. (i) Each of the Company and Subsidiary
------------------------
has performed in all material respects all obligations required to be performed
by it under, is not in default or violation of, and has no Knowledge of any
default or violation by any other party to each Company Employee Plan, and each
Company Employee Plan has been established and maintained in all material
respects in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) each Company Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code has either received a favorable determination, opinion,
notification or advisory letter from the IRS with respect to each such Company
Employee 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, 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 Company Employee Plan; (iii) no "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA,
and not otherwise exempt under Section 4975 of the Code or Section 408 of ERISA
(or any administrative class exemption issued thereunder), has occurred with
respect to any Company Employee Plan; (iv) there are no actions, suits or claims
pending, or, to the Knowledge of the Company, threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; (v) each
Company Employee Plan (other than any stock option plan) can be amended,
terminated or otherwise discontinued after the Effective Time in accordance with
the
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<PAGE>
terms thereof, without material liability to the Parent, Company, Subsidiary or
any of their Affiliates (other than ordinary administration expenses); (vi)
there are no audits, inquiries or proceedings pending or, to the Knowledge of
the Company or any Affiliates, threatened by the IRS or DOL with respect to any
Company Employee Plan; and (vii) neither the Company nor any Affiliate is
subject to any penalty or tax with respect to any Company Employee Plan under
Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.
(e) Pension Plans. Neither the Company nor any Subsidiary has ever
-------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Collectively Bargained, Multiemployer and Multiple Employer Plans. At
-----------------------------------------------------------------
no time has the Company or any Affiliate contributed to or been obligated to
contribute to any Multiemployer Plan. Neither the Company, nor any Affiliate
has at any time ever maintained, established, sponsored, participated in, or
contributed to any multiple employer plan, or to any plan described in Section
413 of the Code.
(g) No Post-Employment Obligations. No Company Employee Plan provides, or
------------------------------
has any liability to provide, life insurance, medical or other employee benefits
to any Employee upon his or her retirement or termination of employment for any
reason, except as may be required by statute, and neither the Company nor any
Subsidiary has ever represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
that such Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of employment,
except to the extent required by statute.
(h) Health Care Compliance. To the Knowledge of the Company, neither the
----------------------
Company, Subsidiary nor any of their Affiliates has, prior to the Effective
Time, 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.
(i) Effect of Transaction. The execution of this Agreement and the
---------------------
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employment Agreement, trust or loan that will
or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(j) Employment Matters. The Company (i) is in compliance with all
------------------
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
and reported all amounts required by law or by agreement to be
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<PAGE>
withheld and reported with respect to wages, salaries and other payments to
Employees by virtue of employment, the Merger or otherwise; (iii) is not liable
for any arrears of wages or any taxes or any penalty for failure to comply with
any of the foregoing; and (iv) is not liable for any payment to any trust or
other fund governed by or maintained by or on behalf of any governmental
authority, with respect to unemployment compensation benefits, social security
or other benefits or obligations for Employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
There are no pending, threatened or reasonably anticipated claims or actions
against the Company under any worker's compensation policy or long-term
disability policy.
(k) Labor. No work stoppage or labor strike against the Company or
-----
Subsidiary is pending, or, to the Knowledge of the Company, threatened. The
Company does not know of any activities or proceedings of any labor union to
organize any Employees. Except as set forth in Company Schedule 2.20(k), there
------------------------
are no actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of the Company, threatened or reasonably anticipated relating to any
labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in liability to the Company or Subsidiary. Neither the
Company nor Subsidiary has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act. Neither the Company nor Subsidiary
is presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees and
no collective bargaining agreement is being negotiated by the Company or
Subsidiary.
(l) International Employee Plan. Each International Employee Plan has
---------------------------
been established, maintained and administered in compliance with its terms and
conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities, that as of
the Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent the Company or Parent
from terminating or amending any International Employee Plan in accordance with
the terms thereof at any time for any reason without liability to the Company or
its Affiliates (other than ordinary administration expenses or routine claims
for benefits).
2.21 Representations Complete. None of the representations or warranties
------------------------
made by the Company (as modified by the Company Schedules) in this Agreement,
nor any statements made in any exhibit, schedule or certificate furnished by the
Company pursuant to this Agreement contains or will contain at the Effective
Time any untrue statement of a material fact or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading. The information furnished on or in any
documents mailed, delivered or otherwise furnished to Company Stockholders in
connection with the solicitation of their consent to this Agreement and the
Merger, will not contain, at or prior to the Effective Time any untrue statement
of a material fact and will not
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<PAGE>
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As of the date hereof and as of the Closing Date, Parent and Merger Sub
represent and warrant to the Company, subject to such exceptions as are clearly
disclosed in the disclosure letter (referencing the appropriate Section and
paragraph numbers corresponding to the terms of this Agreement) supplied by the
Parent to the Company (the "Parent Schedules") and dated as of the date hereof,
as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a Material Adverse Effect on Parent.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
---------
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligation of Parent and Merger Sub,
enforceable against each of them in accordance with its terms, except as
enforcement may be limited by general principles of equity, whether applied in a
court of law or a court of equity, and by bankruptcy, insolvency and similar
laws affecting creditors' rights and remedies generally. The execution and
delivery of this Agreement by Parent and Merger Sub does not and, as of the
Effective Time, the consummation of the transactions contemplated hereby will
not Conflict with (i) any provision of the Certificate of Incorporation or
Bylaws of the Company or Merger Sub; or (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or its properties its assets. No consent, waiver, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity or any third party, (so as not to trigger any Conflict) is
required by or with respect to the Parent or Merger Sub in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) receipt of the California Permit by Parent
or the effectiveness of the S-4, (ii) such other consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under the HSR Act, (iii) the filing of the Certificate of Merger with
the Delaware Secretary of State, (iv) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and (v) such other consents,
waivers, authorizations,
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filings, approvals and registrations which are set forth on Parent Schedule 3.2,
-------------------
or which, if not obtained or made, would not have a Material Adverse Effect on
Parent.
3.3 Capital Structure.
-----------------
(a) As of the date hereof, (i) the authorized stock of Parent
consists of 413,100,000 shares of Common Stock, of which 108,298,220 shares are
issued and outstanding and 10,000,000 shares of Preferred Stock, none of which
is issued or outstanding, and (ii) there are outstanding options and warrants to
purchase fewer than 17,153,918 shares of Parent Common Stock. The authorized
capital stock of Merger Sub consists of 50,000,000 shares of Common Stock, 1,000
shares of which, as of the date hereof, are issued and outstanding and are held
by Parent. All such shares have been duly authorized, and all such issued and
outstanding shares have been validly issued, are fully paid and nonassessable.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger, when issued, will be duly authorized, validly issued, fully paid, non-
assessable and issued in compliance with applicable federal and state securities
laws.
3.4 SEC Documents; Parent Financial Statements. Parent has furnished or
------------------------------------------
made available to the Company true and complete copies of all reports or
registration statements filed by it with the SEC since February 1, 2000, all in
the form so filed (all of the foregoing being collectively referred to as the
"Parent SEC Documents"). As of their respective filing dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Securities Exchange Act of 1934 (the "Exchange Act") as
the case may be, and none of the Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a document subsequently filed with the SEC prior to the date
hereof. The financial statements of Parent, including the notes thereto,
included in the Parent SEC Documents (the "Parent Financial Statements")
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP consistently applied
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and present fairly the
consolidated financial position of Parent and consolidated subsidiaries at the
dates thereof and the consolidated results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
audit adjustments). The unaudited balance sheet of Parent as of March 31, 2000
set forth in the Parent SEC Documents is hereinafter referred to as the "Parent
Balance Sheet."
3.5 No Undisclosed Liabilities. Parent has no liability, indebtedness,
--------------------------
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other (whether or
not required to be reflected in financial statements in accordance with GAAP),
which individually or in the aggregate, (i) has not been reflected in the Parent
Balance Sheet, (ii) has not arisen in the ordinary course of the Parent's
business since the date
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of the Parent Balance Sheet, consistent with past practices, or (iii) would have
a Material Adverse Effect on Parent.
3.6 No Material Adverse Change. Since the date of the Parent Balance
--------------------------
Sheet, there has not occurred any event or condition of any character that has
had a Material Adverse Effect on Parent.
3.7 Tax and Other Returns and Reports.
---------------------------------
(a) Tax Returns and Audits.
----------------------
(i) As of the Effective Time, Parent will have
prepared and timely filed all material required federal, state, local and
foreign Returns, relating to any and all Taxes concerning or attributable to
Parent or its operations (including those of its direct and indirect
subsidiaries) and such Returns shall be true and correct and have been completed
in accordance with applicable law. Notwithstanding the foregoing, no
representation or warranty is hereby made regarding the amount or availability
of any Tax attribute of Parent.
(ii) As of the Effective Time, Parent or its
Subsidiaries, (A) will have paid or accrued all Taxes that Parent and any of its
Subsidiaries is required to pay or accrue and (B) will have withheld with
respect to employees of the Parent and any of its Subsidiaries all federal and
state income taxes, FICA, FUTA, and other Taxes required to be reported and
withheld, and have timely paid over to the proper governmental authorities all
amounts required to be withheld and paid over under all applicable laws.
(iii) Parent and its Subsidiaries have not been
delinquent in the payment of any Tax nor is there any Tax deficiency
outstanding, proposed or assessed against Parent or any of its Subsidiaries, nor
has Parent or any of its Subsidiaries executed any waiver of any statute of
limitations on or extended the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of
Parent or any of its Subsidiaries is currently in progress, nor has Parent or
any of its Subsidiaries been notified of any request for such an audit or other
examination. No adjustment relating to any Return filed by Parent or any of its
subsidiaries (and no claim by a tax authority in a jurisdiction in which Parent
or any of its subsidiaries does not file returns that Parent or any of its
subsidiaries may be subject to taxation by such jurisdiction) has been proposed
formally or, to the knowledge of Parent, informally by any tax authority to
Parent or any representative thereof.
(v) There are (and as of immediately following the
Effective Date there will be) no Liens on the assets of Parent or any of its
Subsidiaries relating to or attributable to Taxes other than Liens for taxes not
yet due and payable.
(vi) Parent has no reason to believe that the Merger
will fail to qualify as a reorganization within the meaning of Section 368(a) of
the Code.
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(vii) Merger Sub has been formed in connection with,
and solely for the purpose of effectuating, the Merger. It does not, and will
not at any time prior to the Effective Time, have any operations or assets,
other than Parent Common Stock and cash (in lieu of fractional shares) that will
be issued to the Company's stockholders in connection with the Merger.
3.8 Intellectual Property. For the purposes of this Agreement, the
---------------------
following terms have the following definitions:
"Parent Intellectual Property" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, Parent.
"Parent Registered Intellectual Property" means all of the
Registered Intellectual Property owned by, or filed in the name
of, the Parent.
(a) The operation of the business of Parent as it currently is
conducted, including but not limited to the design, development, use, import,
manufacture and sale of the products, technology or services (including
products, technology or services currently under development) of Parent has not,
does not and, to the Knowledge of Parent, will not infringe or misappropriate
the Intellectual Property Rights of any person, or violate similar rights of any
person (including rights to privacy or publicity), or constitute unfair
competition or trade practices in violation of the applicable laws of any
jurisdiction, and Parent has received no notice from any person claiming that
such operation or any act, product, technology or service (including products,
technology or services currently under development) of Parent infringes or
misappropriates the Intellectual Property Rights of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction.
(b) Each item of material Parent Registered Intellectual Property
is currently valid and subsisting, and all necessary registration, maintenance
and renewal fees in connection with such material Parent Registered Intellectual
Property have been paid and all necessary documents and certificates in
connection with such Parent Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Registered Intellectual Property. In each case in which Parent
has acquired any material Intellectual Property rights from any person, Parent
has obtained a valid and enforceable assignment sufficient to irrevocably
transfer all rights in such Intellectual Property and the corresponding
Intellectual Property Rights therein to Parent and, to the maximum extent
provided for by, and in accordance with, applicable laws and regulations, Parent
has recorded each such assignment with the relevant governmental authorities,
including the PTO, the U.S. Copyright Office, or their respective equivalents in
any relevant foreign jurisdiction, as the case may be.
(c) To the Knowledge of Parent, no material Parent Intellectual
Property or material Intellectual Property Rights of Parent is subject to any
proceeding or outstanding decree, order, judgment, settlement or agreement that
restricts in any manner the use, transfer or licensing thereof by Parent or
affects the validity, use or enforceability of such Parent Intellectual
Property.
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3.9 Agreements, Contracts, Commitments. Parent is in compliance in all
----------------------------------
material respects with and has not, in any material respects, breached, violated
or defaulted under or received notice that it has breached, violated or
defaulted under, any of the terms or conditions of any agreement, contract or
commitment that is included in any Parent SEC Documents filing a "Material
Contract" pursuant to Item 601(b)(10) of Regulation S-K of the Rules and
Regulations promulgated under the Securities Act ( a "Parent Contract"). Each
Parent Contract is in full force and effect and is not subject to any default
thereunder by Parent and to the Knowledge of Parent no other party to a Parent
Contract is in default thereunder of which Parent has Knowledge by any party
obligated to Parent or its subsidiaries pursuant thereto.
3.10 Interested Party Transactions. To Parent's Knowledge, no executive
-----------------------------
officer or director of Parent is a party to any transaction required to be
disclosed under Item 404 of Regulation S-K of the Rules and Regulations
promulgated under the Securities Act that has not been disclosed in the Parent
SEC Documents.
3.11 Litigation. There is no action, suit or proceeding of any nature
----------
pending or, to the Knowledge of Parent, threatened against Parent, its
properties or any of its officers or directors, in their respective capacities
as such. To the Knowledge of Parent, there is no investigation pending or
threatened against Parent, its properties or any of its officers or directors by
or before any governmental entity. To the Knowledge of Parent, no Governmental
Entity has at any time challenged or questioned the legal right of Parent to
conduct its business or offer or sell any of its products or services.
3.12 Brokers' and Finders' Fees; Third Party Expenses. Parent has not
------------------------------------------------
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
3.13 Compliance with Laws. Parent has complied in all material respects
--------------------
with, and is not in material violation of, and has not received any notice of
violation with respect to, any foreign, federal, state or local statute, law or
regulation.
3.14 Minute Books. The minute books of Parent made available to counsel
------------
for the Company are the only minute books of Parent and contain a reasonably
accurate summary of all meetings of directors (or committees thereof) and
stockholders or actions by written consent since the time of incorporation of
Parent.
3.15 Employee Matters and Benefit Plans.
----------------------------------
(a) Definitions. The following terms shall have the meanings set
-----------
forth below:
(i) "Parent Affiliate" shall mean any other person or entity
under common control with Parent within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder;
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(ii) "Parent Employee" shall mean any current, former, or retired
employee, officer, or director of Parent or any Parent Affiliate; and
(iii) "Parent Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written or unwritten or otherwise, funded or unfunded, and
whether or not legally binding, including without limitation, each "employee
benefit plan," within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by Parent or any
Parent Affiliate for the benefit of any Parent Employee, or with respect to
which Parent or any Parent Affiliate has or may have any liability or obligation
contingent or otherwise.
(b) Employee Plan Compliance. (i) Parent has performed in all material
------------------------
respects all obligations required to be performed by it under, is not in default
or violation of, and has no Knowledge of any default or violation by any other
party to each Parent Employee Plan, and each Parent Employee Plan has been
established and maintained in all material respects in accordance with its terms
and in compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code; (ii) each Parent
Employee Plan intended to qualify under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code has either received a
favorable determination, opinion, notification or advisory letter from the IRS
with respect to each such Parent Employee 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, 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 Parent Employee Plan; (iii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of
the Code or Section 408 of ERISA (or any administrative class exemption issued
thereunder), has occurred with respect to any Parent Employee Plan; (iv) there
are no actions, suits or claims pending, or, to the Knowledge of Parent,
threatened or reasonably anticipated (other than routine claims for benefits)
against any Parent Employee Plan or against the assets of any Parent Employee
Plan; (v) there are no audits, inquiries or proceedings pending or, to the
knowledge of Parent or any Parent Affiliates, threatened by the IRS or DOL with
respect to any Parent Employee Plan; and (vi) neither Parent nor any Parent
Affiliate is subject to any penalty or tax with respect to any Parent Employee
Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.
(c) Employment Matters. Parent (i) is in compliance in all material
------------------
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Parent Employees;
(ii) has withheld and reported all amounts required by law or by agreement to be
withheld and reported with respect to wages, salaries and other payments to
Parent Employees by virtue of employment or otherwise; (iii) is not liable for
any arrears of wages or any
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taxes or any penalty for failure to comply with any of the foregoing; and (iv)
is not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any governmental authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Parent Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(d) Labor. No work stoppage or labor strike against Parent is
-----
pending, or, to the Knowledge of Parent, threatened.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing) to carry on its and Subsidiary's
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay its and Subsidiary's debts and Taxes when
due, to pay or perform other obligations when due, and, to the extent consistent
with such business, to use all reasonable efforts consistent with past practice
and policies to preserve intact its and Subsidiary's present business
organization, keep available the services of its and Subsidiary's present
officers and key employees and preserve their relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it and Subsidiary, all with the goal of preserving unimpaired its
and Subsidiary's goodwill and ongoing businesses at the Effective Time. The
Company shall promptly notify Parent of any material event involving or
adversely affecting the Company, Subsidiary or their business. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement and the Effective Time, except as expressly
contemplated by this Agreement or as set forth on Section 4.1 of the Company
Disclosure Schedule, the Company shall not, nor shall it permit Subsidiary to,
without the prior written consent of Parent:
(a) Enter into any commitment, activity or transaction (including
making any capital expenditure or entering in to a commitment to make any
capital expenditure) (i) not in the ordinary course of business, (ii) which
involves more than $250,000 individually or $1,000,000 in the aggregate or (iii)
which has a term longer than one year;
(b) (i) Except for the granting of non-exclusive licenses of object
code relating to the sale of the Company's products shipping on the date hereof
entered into in the ordinary course of business, sell, license or transfer to
any person or entity any rights to any Company Intellectual Property or enter
into any agreement with respect to any Company Intellectual Property with any
person or entity or with respect to any Intellectual Property of any person or
entity, (ii) buy or license any Intellectual Property or enter into any
agreement with respect to the Intellectual Property of any person or entity,
(iii) enter into any agreement with respect to the development of any
Intellectual Property with a third party, (iv) or change pricing or royalties
charged by the Company
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<PAGE>
to its customers or licensees, or the pricing or royalties set or charged by
persons who have licensed Intellectual Property to the Company;
(c) Terminate any employees other than for cause or encourage any employees
to resign from the Company or hire any employee other than pursuant to (i) the
hiring of replacement employees pursuant to Section 6.3(o) hereof or (ii) the
plan set forth on Schedule 4.1(c);
---------------
(d) Enter into any bandwidth or co-location agreement with a term of longer
than six months;
(e) Amend or otherwise modify (or agree to do so), or violate the terms of,
any of the agreements set forth or described in the Company Schedules;
(f) Commence or settle any litigation;
(g) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor) except for (i)
repurchases of Company Capital Stock upon the termination of service of any
service providers of Company in accordance with the standard terms set forth in
the agreements governing such repurchases, all of which agreements have been
provided or made available to Parent, (ii) conversion of Company Preferred Stock
and (iii) exercises or conversion of Company Convertible Securities;
(h) Issue, sell, grant, contract to issue, grant or sell, or authorize the
issuance, delivery, sale or purchase of any shares of Company Capital Stock or
securities convertible into, or exercisable or exchangeable for, shares of
Company Capital Stock, or any securities, warrants, options or rights to
purchase any of the foregoing, except for (i) issuances of Company Capital Stock
upon exercise or conversion of Company Convertible Securities or Company
Preferred Stock outstanding as of the date of this Agreement, (ii) issuances of
Company Options in the ordinary course of business consistent with past
practice; provided, however, that in no event shall the Company issue Company
Options (A) to purchase more than 50,000 shares (in any one case) or 250,000
shares (in the aggregate), (B) with an exercise price of less than 90% of (x)
the average closing price of Parent Common Stock on the NASDAQ stock market for
the ten days prior to the grant divided by the (y) Exchange Ratio calculated as
of such date or (C) which do not vest on the Company's standard four-year
vesting schedule, with no vesting occurring prior to the first anniversary of
the date of grant, and (iii) issuances of up to 250,000 shares of Company Common
Stock as contemplated by Section 5.6 below;
(i) Cause or permit any amendments to its Certificate of Incorporation or
Bylaws or other organizational documents or change the composition of the Board
of Directors of the Company or Subsidiary;
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(j) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(k) Sell, lease, license or otherwise dispose of any of the assets or
properties of Company which are not Company Intellectual Property other than in
the ordinary course of business and consistent with past practices, or create
any security interest on any property or assets;
(l) Grant any loan to any person or entity, incur any indebtedness or
guarantee any indebtedness, issue or sell any debt securities, guarantee any
debt securities of others, purchase any debt securities of others or amend the
terms of any outstanding agreements related to borrowed money, except for
advances to employees for travel and business expenses in the ordinary course of
business consistent with past practices;
(m) Grant any severance or termination pay (i) to any director or officer
or (ii) to any employee or consultant, except in each case for payments made
pursuant to written agreements in effect as of the date hereof and disclosed on
Schedule 4.1(m), or increase in the salary or other compensation payable or to
---------------
become payable by Company to any of its officers, directors, or employees or
declare, pay or make any commitment or obligation of any kind for the payment by
Company of a bonus or other additional salary or compensation to any such
person, or adopt or amend any employee benefit plan or enter into any employment
contract;
(n) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business and consistent with past practice;
(o) Take any action to accelerate the vesting schedule of any of the
outstanding Company Options or Company Capital Stock or amend, modify or waive
any term or provision of any stock restriction or repurchase agreement to which
the Company is party;
(p) Pay, discharge or satisfy, in an amount in excess of $25,000
individually or $100,000 in the aggregate any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company Financial Statements;
(q) Make or change any election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, enter into any closing agreement, settle
any claim or assessment in respect of Taxes, or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in respect
of Taxes;
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<PAGE>
(r) Enter into any strategic alliance, joint development or joint
marketing arrangement or agreement;
(s) Fail to pay or otherwise satisfy its monetary obligations as they
become due, except such as are being contested in good faith;
(t) Waive or commit to waive any rights with a value in excess of
$25,000 individually or $100,000 in the aggregate;
(u) Cancel, materially amend or renew any insurance policy other than
in the ordinary course of business;
(v) Alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business entity in which
the Company directly or indirectly holds any interest on the date hereof; or
(w) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (v) above, or any other action that would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time and the date
---------------
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, stockholders, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, initiate, entertain, or encourage
any proposals or offers from, or conduct discussions with or engage in
negotiations with, any person relating to any possible acquisition of the
Company or Subsidiary (whether by way of merger, purchase of capital stock,
purchase of assets, license or otherwise), any material portion of its capital
stock or assets or any equity interest in the Company or Subsidiary, (b) provide
information with respect to it to any person, other than Parent, relating to, or
otherwise cooperate with, facilitate or encourage any effort or attempt by any
such person with regard to, any possible acquisition of the Company (whether by
way of merger, purchase of capital stock, purchase of assets, license or
otherwise), any material portion of its capital stock or assets or any equity
interest in the Company or Subsidiary, (c) enter into an agreement with any
person, other than Parent, providing for the acquisition of the Company (whether
by way of merger, purchase of capital stock, purchase of assets, license or
otherwise), any material portion of its capital stock or assets or any equity
interest in the Company or Subsidiary, or (d) make or authorize any statement,
recommendation or solicitation in support of any possible acquisition of the
Company or Subsidiary (whether by way of merger, purchase of capital stock,
purchase of assets, license or otherwise), any material portion of its capital
stock or assets or any equity interest in the Company or Subsidiary by any
person, other than by Parent. The Company shall immediately cease and cause to
be terminated any such contacts or negotiations with third parties relating to
any such transaction or proposed transaction. In addition to the foregoing, if
the Company receives prior to the Effective Time or the termination of this
Agreement any offer or proposal relating to any of the above, the Company shall
immediately notify Parent thereof,
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including information as to the identity of the offeror or the party making any
such offer or proposal and the specific terms of such offer or proposal, as the
case may be, and such other information related thereto as Parent may reasonably
request. In addition, until the End Date, the Company agrees that it will not
file an amendment to its registration statement with the SEC to register any of
its equity securities.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Fairness Hearing; Stockholder Approval.
--------------------------------------
(a) As soon as reasonably practicable following the execution of
this Agreement, but in no event later than August 14, 2000, Parent and Company
shall prepare the necessary documents and Parent shall apply to obtain a permit
(a "California Permit") from the Commissioner of Corporations of the State of
California (after a hearing before such Commissioner) pursuant to Section 25121
of the California Corporate Securities Law of 1968, so that the issuance of
Parent Common Stock in the Merger shall be exempt from registration under
Section 3(a)(10) of the Securities Act; provided, however, that Parent shall not
be responsible for any delay resultant from a failure of the Company to provide
information reasonably required in connection with the California Permit
application process. Company and Parent will respond to any comments from the
California Department of Corporations and use their commercially reasonable
efforts to have the California Permit granted as soon as practicable after such
filing. As promptly as practical after the date of this Agreement, Parent and
Company shall prepare and make such filings as are required under applicable
Blue Sky laws relating to the transactions contemplated by this Agreement. The
Company shall use reasonable and good faith efforts to assist Parent as may be
necessary to cause the Permit Application and any solicitation material sent to
stockholders of the Company to comply with the securities and blue sky laws.
(b) In the event 90 days shall have elapsed since the filing of
the application for the California Permit and Parent shall have not received the
California Permit, as promptly as practicable thereafter, Parent shall prepare
and file, with the full cooperation of the Company, with the SEC a Registration
Statement on Form S-4 (the "S-4"), which will contain a proxy statement to be
---
sent to the stockholders of the Company (the "Proxy Statement") to register the
---------------
shares of Parent Common Stock to be issued pursuant to the Merger. The Company
shall provide to Parent and its counsel for inclusion in the Proxy Statement, in
form reasonably satisfactory to Parent and its counsel, such information
concerning the Company that Parent or its counsel may reasonably request for
purposes of preparing the S-4. Each of the Company and Parent will respond to
any comments of the SEC and will use its respective commercially reasonable
efforts to have the S-4 declared effective by the SEC under the Securities Act
as promptly as practicable after such filing and the Company will cause the
Proxy Statement to be mailed to the Company Stockholders at the earliest
practicable time after the S-4 is declared effective by the SEC. Each party
will notify the other parties hereto promptly of the receipt of any comments
from the SEC or its staff for amendments or
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supplements to the S-4 and will supply the other parties with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the S-4 or
the Proxy Statement. Whenever any event occurs which is required to be set forth
in an amendment or supplement to the S-4 and/or the Proxy Statement, Parent or
the Company, as the case may be, will promptly inform the other of such
occurrence and cooperate in filing such amendment or supplement with the SEC.
(c) As promptly as practicable after the receipt of a California
Permit or the effectiveness of the Registration Statement, as the case may be,
the Company shall submit this Agreement and the transactions contemplated hereby
to its stockholders for approval and adoption as provided by Delaware Law and
its Certificate of Incorporation and Bylaws. Such submission shall also include
a solicitation of approval of (i) the escrow obligations of the Company
Stockholders set forth in Article VII hereof and the deposit of Parent Common
Stock equal to the Escrow Amount into the Escrow Fund and (ii) in favor of the
appointment of J. Markham Green as Securityholder Agent, under and as defined in
the Agreement. The Company shall use its best efforts to solicit and obtain the
consent of its stockholders sufficient to approve the Merger and this Agreement
and to enable the Closing to occur as promptly as practicable and in any event
no later than 30 days following the receipt of the California Permit or
effectiveness of the S-4 as the case may be. The materials submitted to the
Company's stockholders shall be subject to review and approval by Parent and
include information regarding the Company, the terms of the Merger and this
Agreement and the unanimous recommendation of the Board of Directors of the
Company in favor of the Merger and this Agreement, and the transactions
contemplated hereby. The Company shall (i) give Company Stockholders sufficient
notice such that Company Stockholders will not be able to exercise appraisal
rights if they have not perfected such appraisal rights prior to Closing,
pursuant to Section 262 of Delaware Law or (ii) obtain the affirmative approval
of the holders of at least 98% of the Company Capital Stock entitled to vote
thereon.
5.3 Restrictions on Transfer. All certificates representing Parent Common
------------------------
Stock deliverable to any stockholder of the Company pursuant to this Agreement
and in connection with the Merger and any certificates subsequently issued with
respect thereto or in substitution therefor (including any shares issued or
issuable in respect of any such shares upon any stock split stock dividend,
recapitalization, or similar event) also shall bear any legend required by the
Commissioner of Corporations of the State of California or such as are required
pursuant to any federal, state, local or foreign law governing such securities.
5.4 Access to Information. Each party shall afford the others and its
---------------------
accountants, counsel and other representatives, reasonable access during normal
business hours and upon reasonable notice during the period prior to the
Effective Time to (a) all of its properties, books, contracts, commitments and
records, and (b) all other information concerning the business, properties and
personnel (subject to restrictions imposed by applicable law) of it as the
others may reasonably request, subject, in the case of Parent, to reasonable
limits on access to its technical and other nonpublic information. No
information or knowledge obtained in any investigation pursuant to this
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Section 5.3 shall affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.5 Confidentiality. Each of the parties hereto hereby agrees to keep the
---------------
terms of this Agreement (except to the extent contemplated hereby) and such
information or knowledge obtained in any investigation pursuant to Section 5.3,
or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby confidential in accordance
with the terms of the Confidentiality Agreement, dated as of July 13, 2000
between Parent and the Company.
5.6 Expenses. Whether or not the Merger is consummated, all fees and
--------
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses. Prior to the Effective
Time, the Company shall satisfy all of its Third Party Expenses and all costs,
obligations and expenses related to its registration statement filed in May 2000
(collectively, the "Third Party Obligations") as follows: (i) to the Company's
financial advisors in connection with the Merger by payment of up to $1,000,000
in cash and issuance of shares of Company Common Stock and (ii) to any
attorneys, accountants, investment bankers, financial printers or other
consultants or professionals (other than to financial advisors described in
clause (i) above) in connection with the Merger and the Company's registration
statement filed in May 2000 by payment of up to $1,300,000 in cash and issuance
of shares of Company Common Stock; provided, however, that the Company shall not
issue more than 250,000 shares of Company Common Stock in the aggregate pursuant
to the foregoing Third Party Obligations described in clauses (i) and (ii), and
all such shares of Company Common Stock shall have been duly issued prior to the
Effective Time and shall be reflected in the list provided to Parent pursuant to
Section 5.23 hereof. The issuance of shares in accordance with this Section 5.6
shall be made to no more than five (5) persons or entities all of whom must be
"accredited investors" as defined in Section 501 of Regulation D under the
Securities Act.
5.7 Public Disclosure. Unless otherwise required by law (including,
-----------------
without limitation, federal and state securities laws) or, as to Parent, by the
rules and regulations of the National Association of Securities Dealers, Inc.,
prior to the Effective Time, no disclosure (whether or not in response to an
inquiry) of the subject matter of this Agreement shall be made by any party
hereto unless approved by Parent and the Company prior to release, provided that
such approval shall not be unreasonably withheld.
5.8 Consents. The Company shall use commercially reasonable efforts to
--------
obtain the consents, waivers and approvals under any of the Contracts as may be
required in connection with the Merger (all of such consents, waivers and
approvals are set forth in the Company Schedules) so as to preserve all rights
of and benefits to the Company thereunder following the consummation of the
Merger.
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5.9 FIRPTA Compliance. On or prior to the Closing Date, the Company shall
-----------------
deliver to Parent a properly executed statement in a form reasonably acceptable
to Parent for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3) (a "FIRPTA Compliance Certificate").
5.10 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals, to effect all
necessary registrations and filings, and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by
Parent, the Company or Subsidiary or any of Parent's subsidiaries or affiliates
of shares of capital stock or of any business, assets or property of Parent or
its subsidiaries or affiliates or the Company, Subsidiary or their affiliates,
or the imposition of any material limitation on the ability of any of them to
conduct their businesses or, to own or exercise control of such assets,
properties and stock.
5.11 Notification of Certain Matters. The Company shall give prompt notice
-------------------------------
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent, respectively, contained in this Agreement to be untrue or inaccurate at
or prior to the Effective Time and (ii) any failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; in either case, such that the
conditions set forth in Section 6.2(a) or Section 6.3(a), as the case may be,
would not be satisfied; provided, however, that the delivery of any notice
pursuant to this Section 5.11 shall not limit or otherwise affect any remedies
available to the party receiving such notice.
5.12 Affiliate Agreements. Schedule 5.12 sets forth a list of those
--------------------
persons who, in the Company's reasonable judgment, are or may be "affiliates" of
the Company within the meaning of Rule 145 (each such person a "Company
Affiliate") promulgated under the Securities Act. The Company shall provide
Parent such information and documents as Parent shall reasonably request for
purposes of reviewing such list. The Company shall deliver or cause to be
delivered to Parent prior to the Closing, from each of the Company Affiliates,
an executed Affiliate Agreement in the form attached hereto as Exhibit D
---------
("Affiliate Agreement"). Parent shall be entitled to place appropriate legends
on the certificates evidencing any Parent Common Stock to be received by such
Company Affiliates pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Parent Common
Stock, consistent with the terms of such Affiliate Agreements.
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<PAGE>
5.13 Stockholder Lock-up Letters. The Company shall use its commercially
---------------------------
reasonable efforts to cause each Company Stockholder and each holder of Company
Options to enter into a Stockholder Lock-Up Letter.
5.14 HSR Act. As soon as may be reasonably practicable, but in no event
-------
later than August 14, 2000, to the extent applicable, the Company and Parent
(and/or any applicable Company Stockholder) each shall file, and the Company
shall use commercially reasonable efforts to cause any applicable stockholder of
the Company to file with the United States Federal Trade Commission (the "FTC")
and the Antitrust Division of the United States Department of Justice ("DOJ")
Notification and Report Forms relating to the transactions contemplated herein
as required by the HSR Act as well as comparable pre-merger notification forms
required by the merger notification or control laws and regulations of any
applicable jurisdiction, as agreed to by the parties. Company and Parent (and/or
any applicable stockholder) each shall, the Company shall use commercially
reasonable efforts to cause any applicable stockholder of the Company to
promptly (a) supply the others with any information which may be required in
order to effectuate such filings and (b) supply any additional information which
reasonably may be required by the FTC, the DOJ or the competition or merger
control authorities of any other jurisdiction and which the parties may
reasonably deem appropriate; provided, however, that Parent shall not be
required to agree to any divestiture by Parent, the Company or Subsidiary or any
of Parent's subsidiaries or affiliates of shares of capital stock or of any
business, assets or property of Parent or its subsidiaries or affiliates or of
the Company Subsidiary or their affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock.
5.15 Appointment of Member to the Board of Directors of Parent. The Company
---------------------------------------------------------
shall appoint Nicholas Balletta to the Board of Directors of Parent ("Company
Board Representative") effective as of the Closing Date. The term of such
director's appointment to the Board of Directors of Parent shall expire at the
Parent's annual meeting which is at least two years from the Closing Date.
5.16 Termination of 401(k). The Company agrees to terminate its 401(k)
---------------------
plan immediately prior to Closing, unless Parent, in its sole and absolute
discretion, agrees to sponsor and maintain such plan by providing the Company
with notice of such election at least ten (10) days before the Effective Time.
The Company shall follow such termination procedures as Parent shall reasonably
specify.
5.17 Conversion of Preferred Stock. The Company shall use its commercially
-----------------------------
reasonable efforts to cause each outstanding share of Company Preferred Stock to
be converted to Company Common Stock as of prior to the Effective Time.
5.18 S-8 Registration. Not later than the later of (i) November 14, 2000
----------------
or (ii) fifteen (15) days after the Closing Date, Parent shall file with the SEC
a registration statement on Form S-8 registering a number of shares of Parent
Common Stock equal to the number of shares of Parent Common Stock issuable upon
the exercise of all Company Options held by persons for whom
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<PAGE>
registration on Form S-8 is available that were assumed by Parent pursuant to
Section 1.6(b)(ii) hereof.
5.19 Indemnification. From and after the Effective Time, Parent will cause
---------------
the Surviving Corporation to fulfill and honor in all respects the obligations
of the Company pursuant to any indemnification provisions between the Company
and its directors and officers in effect immediately prior to the Effective Time
(the "Indemnified Parties") under the Company's Certificate of Incorporation or
Bylaws as in effect on the date hereof. The Certificate of Incorporation and
Bylaws of the Surviving Corporation will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the
Indemnified Parties as those contained in the Certificate of Incorporation and
Bylaws of the Company as in effect on the date hereof, which provisions will not
be amended, repealed or otherwise modified for a period of four years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who, immediately prior to the Effective Time, were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
5.20 Estimated Third Party Expenses. Not less than three (3) business days
------------------------------
prior to the Closing Date, the Company shall provide Parent with a statement
setting forth an estimate of Third Party Expenses (the "Estimated Third Party
Expenses") incurred by the Company.
5.21 Nasdaq Listing. Parent shall use commercially reasonable efforts to
--------------
ensure that at the Effective Time, the shares of Parent Common Stock to be
delivered to the Company Stockholders pursuant to this Agreement shall have been
accepted for quotation on the Nasdaq National Market, subject to notice of
issuance.
5.22 Employment Offers. Within thirty (30) days after the date hereof,
-----------------
Parent shall offer "at will" employment (the "Parent Offer") to all of the
employees of the Company (effective upon the consummation of the Merger), on
terms which are not less favorable, taken as a whole, with respect to salary,
title and position as such employee had on the date hereof; provided, however,
that the officers of the Company may not be offered positions as officers of the
Surviving Corporation or Parent upon consummation of the Merger. The Company
shall use its commercially reasonable efforts to cause each of its employees to
accept the offer of employment made by Parent pursuant to the preceding
sentence, including without limitation executing and delivering Parent's
standard confidentiality and assignment of inventions agreement.
5.23 Stockholder List. At least two business days prior to the Closing
----------------
Date, the Company shall provide Parent with an updated list of outstanding
Company Capital Stock, Company Options, Warrants and any other Company
Convertible Securities that will be outstanding as of the Closing Date.
5.24 Tax-free Reorganization. Neither the Company nor Parent shall take or
-----------------------
cause to be taken any action that would reasonably be expected to disqualify the
Merger as a tax-free "reorganization," within the meaning of Section 368(a) of
the Code, and the Company and Parent
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<PAGE>
shall not take or cause to be taken any position on any Return or in any
financial statement or otherwise that is inconsistent with the treatment of the
Merger as a reorganization.
5.25 Company Registration Statement. The Company shall use commercially
------------------------------
reasonable efforts to withdraw its registration statement on Form S-1 pursuant
to Rule 477 of the Securities Act. The Company will not file any amendment or
supplement to its previously filed registration statement.
5.26 Warrant Waivers. The Company shall use its commercially reasonable
---------------
efforts to have each holder of Company Preferred Stock waive (the "Waivers") any
Co-Investment Rights (as set forth in the Certificate of Designations for the
Company Preferred Stock) with respect to the issuance of the Warrants. To the
extent the Company does not receive a Waiver from a particular holder, a number
of shares of Company Capital Stock that such holder would be entitled to
subscribe to under the Certificate of Incorporation in respect of the Warrants
will be deemed outstanding immediately prior to the Effective Time for purposes
of computing the Exchange Ratio.
5.27 Closing Cash Balance. The Company will ensure that the Cash Amount
--------------------
that will be reflected on the Company's Closing Date Balance Sheet (as defined
below) is no less than an amount (the "Minimum Cash Balance") equal to (i) $20.5
million if the Closing Date occurs on August 31, 2000, (ii) $19.0 million if the
Closing Date occurs on September 30, 2000, (iii) $17.0 million if the Closing
Date occurs on October 31, 2000, (iv) $15.5 million if the Closing Date occurs
on November 30, 2000, (v) $14.0 million if the Closing Date occurs on December
31, 2000, or (vi) in the event that the Closing occurs other than on one of the
foregoing dates (the "Month-End Dates"), an amount equal to the Minimum Cash
Balance for the next subsequent Month-End Date after the actual Closing Date
plus the product of (A) the number of days elapsed in the then-current calendar
month divided by the total number of days in the then-current calendar month and
(B) the difference between the Minimum Cash Balance for the immediately
preceding Month-End Date and the Minimum Cash Balance for the next subsequent
Month-End Date. Two business days prior to the Closing, the Company shall
deliver to Parent a certificate executed by its Chief Financial Officer stating
a good faith estimate, based on reasonable assumptions, of the Company's Cash
Amount that will be reflected on the Company's balance sheet (the "Estimated
Closing Date Balance Sheet") as of the Closing Date prepared in accordance with
GAAP applied on a basis consistent with the Balance Sheet. The Company's actual
Cash Amount reflected on the Company's balance sheet as of the Closing Date
prepared in accordance with GAAP applied on a consistent basis with the Balance
Sheet is referred as the "Closing Date Balance Sheet."
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger . The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
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(a) Stockholder Approval. This Agreement and the Merger shall have
--------------------
been approved and adopted by the stockholders of the Company by the requisite
vote under applicable law and the Company's Certificate of Incorporation.
(b) California Permit; Registration Statement. The Commissioner of
-----------------------------------------
Corporations for the State of California shall have approved the terms and
conditions of the transactions contemplated by this Agreement, and the fairness
of such terms and conditions following a hearing for such purpose, and shall
have issued a California Permit or, in the event that Parent shall have filed an
S-4, such S-4 shall have been declared effective pursuant to the Securities Act
and no stop order suspending the effectiveness of the S-4 or any part thereof
shall have been issued by the SEC and no proceeding for that purpose, and no
similar proceeding in respect of the Proxy Statement shall have been initiated
or threatened in writing by the SEC.
(c) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(d) No Order; HSR Act. No Governmental Entity shall have enacted,
-----------------
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger. All
waiting periods, if any, under the HSR Act relating to the transactions
contemplated hereby will have expired or terminated early and all material
foreign antitrust approvals required to be obtained prior to the Merger in
connection with the transactions contemplated hereby shall have been obtained.
(e) Nasdaq Listing. The shares of Parent Common Stock to be issued in
--------------
the Merger shall have been approved for listing on the Nasdaq National Market,
subject to official notice of issuance.
6.2 Additional Conditions to Obligations of the Company. The obligations
---------------------------------------------------
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of the Parent and Merger Sub set forth in this
Agreement shall be true and correct in each case as of the date of this
Agreement and (except for any such representations and warranties that speak as
of a specific date which shall be true and correct as of such date) as of the
Closing Date as though made on and as of the Closing Date, except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the aggregate
have a Material Adverse Effect on Parent, and the representations and warranties
set forth in Section 3.3
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<PAGE>
(under the heading "Capital Structure") hereof shall be true and correct in all
respects and (ii) the Parent and Merger Sub shall have performed and complied in
all material respects with all covenants and obligations under this Agreement
required to be performed and complied with by such parties as of the Closing.
(b) Certificate of Parent. The Company shall have received a certificate
---------------------
executed on behalf of Parent by a duly authorized executive officer of Parent to
the effect that, as of the Closing:
(i) The representations and warranties of Parent and Merger Sub
set forth in this Agreement were true and correct in each case as of the date of
this Agreement and (except to the extent such representations and warranties
speak as of a specific date which shall be true and correct as of such date) as
of the Closing Date as though made on and as of the Closing Date, except where
the failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the aggregate
have a Material Adverse Effect on Parent and the representations and warranties
set forth in Section 3.3 (under the heading "Capital Structure") hereof shall be
true and correct in all respects;
(ii) all covenants and obligations under this Agreement to be
performed by Parent or Merger Sub on or before the Closing have been so
performed in all material respects; and
(iii) the conditions to the obligations of the Company set forth in
this Section 6.2 have been satisfied (unless otherwise waived in accordance with
the terms hereof).
(c) No Material Adverse Change. There shall not have occurred any event or
--------------------------
condition of any character that has had or is reasonably likely to have a
Material Adverse Effect on Parent.
(d) Tax Opinion. The Company shall have received an opinion of Skadden,
-----------
Arps, Slate, Meagher & Flom LLP (the "Company's Counsel"), in form and substance
reasonably satisfactory to the Company, dated as of the Effective Time,
substantially to the effect that on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts existing at the Effective Time, the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code; provided,
however, that if the Company's Counsel does not render such opinion within seven
(7) days after delivery by Parent of its representation letter to the Company's
counsel, Parent shall be permitted to select counsel (the "Other Counsel") other
than Wilson Sonsini Goodrich & Rosati to render such opinion to the Company and
the condition in Section 6.2(d) shall nonetheless be deemed satisfied if the
Other Counsel renders the tax opinion. In rendering such opinion, Company's
Counsel or Other Counsel, as the case may be, may require and rely upon
representations and covenants, including those contained in certificates of
officers of Parent, Merger Sub, the Company and others. In the event that Other
Counsel shall render such opinion, all expenses ("Legal Expenses") of the Other
Counsel shall be Losses (as defined in Section 7.2 below) for which Parent is
entitled to recovery pursuant to Section 7.2 hereof, without regard to the
Threshold Amount (as defined in Section 7.2 below).
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(e) Certificate of Secretary of Parent. The Company shall have
----------------------------------
received a certificate, validly executed by the Secretary of the Parent,
certifying as to (i) the terms and effectiveness the certificate of
incorporation and the bylaws of Parent, and (ii) the valid adoption of
resolutions of the Board of Directors of Parent approving this Agreement and the
consummation of the transactions contemplated hereby.
(f) Certificate of Good Standing. The Company shall have received
----------------------------
certificates of good standing of Parent from each of the Secretary of State of
the States of Delaware and California.
(g) Legal Opinion. The Company shall have received a legal opinion
-------------
from Parent's counsel in substantially the form attached hereto as Exhibit E.
---------
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
-----------------------------------------------------------------
obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of the Company set forth in this Agreement shall
be true and correct in each case as of the date of this Agreement and (except
for any such representations and warranties that speak as of a specific date
which shall be true and correct as of such date) as of the Closing Date as
though made on and as of the Closing Date, except where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or "Material Adverse Effect" set forth
therein) would not individually or in the aggregate have a Material Adverse
Effect on the Company and the representations and warranties set forth in
Section 2.2 hereof (under the heading "Company Capital Structure") shall be true
-------------------------
and correct in all respects, and (ii) the Company shall have performed and
complied in all material respects with all covenants and obligations under this
Agreement required to be performed and complied with by such parties as of the
Closing.
(b) Termination of Agreements. The Company shall have terminated each
-------------------------
of those agreements listed on Schedule 6.3(b) to this Agreement and each such
---------------
agreement shall be of no further force or effect.
(c) Third Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it that the Company has obtained the consents,
approvals, waivers and assignments set forth in Schedule 6.3(d).
---------------
(d) Legal Opinion. Parent shall have received a legal opinion from
-------------
Company's Counsel in substantially the form attached hereto as Exhibit F.
---------
(e) Affiliate Agreements. Each of the parties listed in Schedule 5.11
-------------------- -------------
shall have delivered to Parent an executed Affiliate Agreement which shall be in
full force and effect.
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(f) Non-Competition Agreements. Each of the persons listed on Schedule
-------------------------- --------
6.3(f) shall have executed and delivered to Parent a Non-Competition Agreement
------
in substantially the form of Exhibit A, and all of the Non-Competition
---------
Agreements shall be in full force and effect.
(g) Stockholder Approval; No Dissenters. Holders of at least 80% of the
-----------------------------------
Company Capital Stock shall have approved this Agreement, the Merger and the
transactions contemplated hereby and thereby in accordance with Delaware Law,
and holders of not more than 2% of Company Capital Stock shall continue to have
a right to exercise appraisal, dissenters' or similar rights under Delaware law
with respect to their Company Capital Stock by virtue of the Merger.
(h) Stockholder Lock-Up Letters. Company Stockholders and holders of
---------------------------
Company Options representing 90% of the sum of the Company Capital Stock Number
and the number of Company Options vested as of the Closing Date, and holders of
Warrants shall have executed and delivered to Parent a Stockholder Lock-Up
Letter.
(i) No Material Adverse Changes. There shall not have occurred any event
---------------------------
or condition that has had or is reasonably likely to have a Material Adverse
Effect on the Company.
(j) Resignation of Directors. Parent shall have received a written
------------------------
resignation from each of the directors of the Company and Subsidiary effective
as of the Effective Time.
(k) Certificate of the Company. Parent shall have received a certificate,
--------------------------
validly executed by the Chief Executive Officer of the Company for and on its
behalf, to the effect that, as of the Closing:
(i) The representations and warranties of the Company set forth in
this Agreement are true and correct in each case as of the date of this
Agreement and (except to the extent such representations and warranties speak as
of a specific date which shall be true and correct as of such date) as of the
Closing Date as though made on and as of the Closing Date, except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the aggregate
have a Material Adverse Effect on the Company, and the representations and
warranties set forth in Section 2.2 hereof (under the heading "Company Capital
Structure") are true and correct in all respects;
(ii) all covenants and obligations under this Agreement to be
performed by the Company on or before the Closing have been so performed in all
material respects; and
(iii) the conditions to the obligations of Parent set forth in this
Section 6.3 have been satisfied (unless otherwise waived in accordance with the
terms hereof).
(l) Certificate of Secretary of Company. Parent shall have received a
-----------------------------------
certificate, validly executed by the Secretary of the Company, certifying as to
(i) the terms and effectiveness the certificate of incorporation and the bylaws
of the Company, and (ii) the valid adoption of resolutions
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of the Board of Directors of the Company and the Company Stockholders approving
this Agreement and the consummation of the transactions contemplated hereby.
(m) Certificate of Good Standing. Parent shall have received certificates
----------------------------
of good standing of the Company from each of the Secretary of State of the
States of New York and Delaware, each dated within a reasonable period prior to
the Closing.
(n) FIRPTA Certificate. Parent shall have received a copy of the FIRPTA
------------------
Compliance Certificate, validly executed by a duly authorized officer of the
Company.
(o) Continued Employment. Seventy-five percent (75%) of the employees of
--------------------
the Company as of the date hereof and six out of the seven of the employees of
the Company listed on Part 1 of Schedule 6.3(o) to this Agreement and both
---------------
employees of the Company listed on Part 2 of Schedule 6.3(o) shall have accepted
---------------
the Parent Offer and executed and delivered Parent's standard employment
documentation, including without limitation a confidentiality and assignment of
inventions agreement, and such employees shall be employees of the Company as of
the Effective Time; provided, however, that with respect to the calculation of
the seventy-five percent (75%) of the employees of the Company as of the date
hereof, employees who have been terminated shall not be deemed terminated if
replaced by the Company other than with a temporary employee and such
replacement employee is represented by management of the Company to be competent
to perform the duties of such terminated employee.
(p) Termination of 401(k). Parent shall have received from the Company
---------------------
evidence that the Company's 401(k) plan has been terminated pursuant to
resolution of the Company's Board of Directors (the form and substance of which
shall have been subject to review and approval of Parent), effective as of two
days preceding the Closing Date.
(q) Conversion of Preferred Stock. As of immediately prior to the
-----------------------------
Effective Time of the Merger, all shares of Company Preferred Stock shall have
been converted into an equal number of shares of Company Common Stock.
(r) Stock Restriction Agreements. Each of Messrs. Balletta and Feig shall
----------------------------
have executed and delivered to Parent stock restriction agreements (the "Stock
Restriction Agreements") in the form of Exhibit G, and all of the Stock
---------
Restriction Agreements shall be in full force and effect.
(s) Satisfaction of Third Party Obligations. All Third Party Obligations
---------------------------------------
shall have been satisfied in compliance with Section 5.6 hereof.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the Company contained in this Agreement, or in any certificate or
other instrument delivered pursuant to
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this Agreement, shall terminate on the first anniversary of the Closing Date
(the "Expiration Date"). The representations and warranties of Parent and Merger
Sub contained in this Agreement, or in any certificate or other instrument
delivered pursuant to this Agreement, shall terminate at the Closing.
7.2 Escrow Arrangements.
-------------------
(a) Escrow Fund. At the Effective Time, the Company Stockholders
-----------
will be deemed to have received and deposited with the Escrow Agent (as defined
below) the Escrow Amount (plus any additional shares as may be issued upon any
stock split, stock dividend or recapitalization effected by Parent after the
Effective Time) without any act of any Company Stockholder. As soon as
practicable after the Effective Time, the Escrow Amount, without any act of any
Company Stockholder, will be deposited with U.S. Bank Trust, National
Association (or other institution acceptable to Parent and the Securityholder
Agent (as defined in Section 7.2(g) below)), as Escrow Agent (the "Escrow
Agent"), such deposit to constitute an escrow fund (the "Escrow Fund") to be
governed by the terms set forth herein and at Parent's cost and expense. The
Escrow Fund shall be available to compensate Parent and its affiliates for any
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses, and expenses of investigation
and defense (hereinafter individually a "Loss" and collectively "Losses")
incurred, sustained or paid by Parent, its officers, directors, or affiliates
(including the Surviving Corporation) directly or indirectly as a result of (i)
any inaccuracy or breach of a representation or warranty of the Company (as
modified by the Company Schedules) contained in this Agreement or any
certificate, instrument or other document delivered pursuant to the terms of
this Agreement, or any failure by the Company to perform or comply with any
covenant contained herein, (ii) the payment by Parent or the Surviving
Corporation of any amount on the account of Dissenting Shares which such payment
or payments exceed the aggregate consideration that otherwise would have been
payable in respect of such shares, (iii) the amount of any Third Party
Obligations that the Company fails to satisfy pursuant to Section 5.6 above
prior to the Effective Time and/or the amount of any cash in excess of the
amounts set forth in Section 5.6 expended for such purpose, (iv) the payment of
any Legal Expenses, or (v) the amount that the Final Cash Balance (as defined in
Section 7.3 below) is less than the lesser of (A) the applicable Minimum Cash
Balance required in Section 5.27 and (B) the Cash Amount reflected on the
Estimated Closing Date Balance Sheet. Nothing herein shall limit the liability
of the Company for any breach of any representation, warranty or covenant if the
Merger does not close. Parent may not receive any shares from the Escrow Fund
unless and until Officer's Certificates (as defined in paragraph (d) below)
identifying Losses in the aggregate amount in excess of $2,000,000 (the
"Threshold Amount") have been delivered to the Securityholder Agent (as defined
in paragraph (g) below), in which event Parent shall be entitled to recover only
amounts in excess of the Threshold Amount; provided that notwithstanding the
foregoing, Parent shall be entitled to indemnification on a first dollar basis,
without regard to whether the Threshold Amount has been exceeded, with respect
to (i) the payment by Parent or the Surviving Corporation of any amount on
account of Dissenting Shares, (ii) the amount of any Third Party Obligations
that the Company fails to satisfy pursuant to Section 5.6 above and/or the
amount of any cash in excess of the amounts set forth in Section 5.6 expended
for such purpose, (iii) the payment of any Legal Expenses, and (iv) the amount
that the Final Cash Balance (as defined in Section 7.3 below) is less
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than the lesser of (A) the applicable Minimum Cash Balance required in Section
5.27 and (B) the Cash Amount reflected on the Estimated Closing Date Balance
Sheet. The Company Stockholders shall not have any right of contribution from
the Company or Parent with respect to any Loss pursuant to this Article VII. For
purposes of this Article VII, references to the terms "material," "materially,"
"in all material respects" and "Material Adverse Effect" shall be disregarded
for purposes of determining whether there was a breach or inaccuracy in any
representation or warranty of the Company in Article II, as modified by the
Company Schedules attached hereto, or any certificate, instrument or other
document delivered pursuant to the terms of this Agreement.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
--------------------------------------------------------------
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
California time, on the Expiration Date (the "Escrow Period"); provided that
neither the Escrow Period nor the Escrow Fund shall terminate with respect to
such amount (or some portion thereof), that together with the aggregate amount
remaining in the Escrow Fund is necessary in the reasonable judgment of Parent,
subject to the objection of the Securityholder Agent and the subsequent
arbitration of the matter in the manner provided in Section 7.2(f) hereof, to
satisfy any unsatisfied claims concerning facts and circumstances existing prior
to the termination of such Escrow Period specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as all such claims have been resolved, the Escrow Agent shall deliver to
the Company Stockholders the remaining portion of the Escrow Fund not required
to satisfy such claims. Deliveries of Escrow Amounts to the Company
Stockholders pursuant to this Section 7.2(b) shall be made in proportion to
their respective original contributions to the Escrow Fund as determined
pursuant to Section 1.9(b).
(c) Protection of Escrow Fund.
-------------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during
the Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of this Agreement and not as the property of Parent and shall hold and
dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity securities
issued or distributed by Parent (including shares issued upon a stock split)
("New Shares") in respect of Parent Common Stock in the Escrow Fund which have
not been released from the Escrow Fund shall be added to the Escrow Fund and
become a part thereof. New Shares issued in respect of shares of Parent Common
Stock which have been released from the Escrow Fund shall not be added to the
Escrow Fund but shall be distributed to the recordholders thereof. Cash
dividends on Parent Common Stock shall not be added to the Escrow Fund but shall
be distributed to the recordholders thereof.
(iii) Each Company Stockholder shall have voting rights with respect
to the shares of Parent Common Stock contributed to the Escrow Fund by such
Company Stockholder (and on any voting securities added to the Escrow Fund in
respect of such shares of Parent Common Stock).
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(d) Claims Upon Escrow Fund.
-----------------------
(i) Upon receipt by the Escrow Agent at any time on or before the
last day of the Escrow Period of a certificate signed by any officer of Parent
(an "Officer's Certificate"): (A) stating that Parent has paid, sustained or
properly accrued or reasonably anticipates that it will have to pay, sustain or
accrue Losses, and (B) specifying in reasonable detail the individual items of
Losses included in the amount so stated, the date each such item was paid,
sustained or properly accrued, or the basis for such anticipated liability, and
the nature of the misrepresentation, breach of warranty or covenant to which
such item is related, the Escrow Agent shall, subject to the provisions of
Section 7.2(e) hereof, deliver to Parent out of the Escrow Fund, as promptly as
practicable, shares of Parent Common Stock held in the Escrow Fund in an amount
equal to such Losses.
(ii) For the purposes of determining the number of shares of Parent
Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 7.2(d)(i) hereof, each share of Parent Common Stock shall be deemed to
have a value equal to the average closing price of a share of Parent Common
Stock for the ten trading days ending on the date of the Officer's Certificate
in question.
(e) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent (as defined in Section 7.2(g)) and for a
period of thirty (30) days after such delivery, the Escrow Agent shall make no
delivery to Parent of any Escrow Amounts pursuant to Section 7.2(d) hereof
unless the Escrow Agent shall have received written authorization from the
Securityholder Agent to make such delivery. After the expiration of such thirty
(30)-day period, the Escrow Agent shall make delivery of shares of Parent Common
Stock from the Escrow Fund in accordance with Section 7.2(d) hereof, provided
that no such payment or delivery may be made if the Securityholder Agent shall
object in a written statement to the claim made in the Officer's Certificate,
and such statement shall have been delivered to the Escrow Agent prior to the
expiration of such thirty (30)-day period.
(f) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Securityholder Agent shall so object in writing to
any claim or claims made in any Officer's Certificate within 30 days after
delivery of such Officer's Certificate, the Securityholder Agent and Parent
shall attempt in good faith to agree upon the rights of the respective parties
with respect to each of such claims. If the Securityholder Agent and Parent
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties and shall be furnished to the Escrow Agent. The Escrow
Agent shall be entitled to rely on any such memorandum and distribute shares of
Parent Common Stock from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Securityholder Agent may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either
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such event the matter shall be settled by arbitration conducted by one
arbitrator mutually agreeable to Parent and Securityholder Agent. In the event
that within forty-five (45) days after submission of any dispute to arbitration,
Parent and the Securityholder Agent cannot mutually agree on one arbitrator,
within fifteen (15) days after the end of such forty-five (45) day period Parent
and the Securityholder Agent shall each select one arbitrator. The two
arbitrators so selected shall select a third arbitrator. If the Securityholder
Agent does not select an arbitrator during this fifteen (15) day period, then
the parties agree that there shall be one arbitrator selected by Parent. If
Parent does not select an arbitrator during this fifteen (15) day period, then
the parties agree that there shall be one arbitrator selected by the
Securityholder Agent. The arbitrator or arbitrators shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgement of the arbitrator or a majority of the three arbitrators, as the case
may be, to discover relevant information from the opposing parties about the
subject matter of the dispute. The arbitrator or a majority of the three
arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys'
fees and costs, to the same extent as a court of competent law or equity, should
the arbitrator or a majority of the three arbitrators, as the case may be,
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of the arbitrator or a majority of the three arbitrators, as the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrator(s). The arbitrator(s)
shall have the authority to award Parent more than that requested in the
Officer's Certificate.
(iii) Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara, California under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of the arbitrator(s) and the
administrative fee of the American Arbitration Association.
(g) Securityholder Agent of the Stockholders; Power of Attorney. In the
-----------------------------------------------------------
event that the Merger is approved, effective upon such vote, and without further
act of any Company Stockholder, J. Markham Green shall be appointed as agent and
attorney-in-fact (the "Securityholder Agent") for each Company Stockholder
(except such stockholders, if any, as shall have perfected their appraisal or
dissenters' rights under Delaware Law), for and on behalf of the Company
Stockholders, to give and receive notices and communications, to authorize
delivery to Parent of shares of Parent Common Stock from the Escrow Fund in
satisfaction of claims by Parent, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of
Securityholder Agent for the accomplishment of the foregoing. Such agency may
be changed by the Company Stockholders from time to time upon not less than
thirty (30) days prior written notice to Parent; provided that the
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Securityholder Agent may not be removed unless holders of a two-thirds interest
of the Escrow Fund agree to such removal and to the identity of the substituted
agent. Any vacancy in the position of Securityholder Agent may be filled by
approval of the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Securityholder Agent, and the Securityholder Agent
shall not receive compensation for his or her services. Notices or
communications to or from the Securityholder Agent shall constitute notice to or
from each of the Company Stockholders.
(h) Actions of the Securityholder Agent. A decision, act, consent or
-----------------------------------
instruction of the Securityholder Agent shall constitute a decision of all the
Company Stockholders for whom a portion of the Escrow Amount otherwise issuable
to them are deposited in the Escrow Fund and shall be final, binding and
conclusive upon each of such Company Stockholder, and the Escrow Agent and
Parent may rely upon any such decision, act, consent or instruction of the
Securityholder Agent as being the decision, act, consent or instruction of each
such Company Stockholder. The Escrow Agent and Parent are hereby relieved from
any liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Securityholder Agent.
(i) Third-Party Claims. In the event Parent becomes aware of a third-party
------------------
claim which Parent believes may result in a demand against the Escrow Fund,
Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent, as representative for the stockholders of the Company,
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that except with the consent of the Securityholder
Agent, no settlement of any such claim with third-party claimants shall alone be
determinative of the amount of any claim against the Escrow Fund. In the event
that the Securityholder Agent has consented to any such settlement, the
Securityholder Agent shall have no power or authority to object under any
provision of this Article VII to the amount of any claim by Parent against the
Escrow Fund with respect to such settlement.
(j) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Parent and the
Securityholder Agent, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow Agent
while acting in good faith and in the exercise of reasonable judgment, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to comply with
and obey orders, judgments or decrees of any court of law, notwithstanding any
notices, warnings or other communications from any party or any other person to
the contrary. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court, the Escrow Agent shall not be liable to any of
the parties hereto or to any other person by reason of such compliance,
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notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow Agent
shall not be liable to any party for damages, losses, or expenses, except for
gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or permitted by him/her in good faith in accordance
with the advice of counsel. The Escrow Agent is not responsible for determining
and verifying the authority of any person acting or purporting to act on behalf
of any party to this Agreement.
(vi) If any controversy arises between the parties to this Agreement,
or with any other party, concerning the subject matter of this Agreement, its
terms or conditions, the Escrow Agent will not be required to determine the
controversy or to take any action regarding it. The Escrow Agent may hold all
documents and shares of Parent Common Stock and may wait for settlement of any
such controversy by final appropriate legal proceedings or other means as, in
the Escrow Agent's discretion, the Escrow Agent may be required, despite what
may be set forth elsewhere in this Agreement. In such event, the Escrow Agent
will not be liable for damage. Furthermore, the Escrow Agent may at its option,
file an action of interpleader requiring the parties to answer and litigate any
claims and rights among themselves. The Escrow Agent is authorized to deposit
with the clerk of the court all documents and shares of Parent Common Stock held
in escrow, except all cost, expenses, charges and reasonable attorney fees
incurred by the Escrow Agent due to the interpleader action and which the
parties jointly and severally agree to pay. Upon initiating such action, the
Escrow Agent shall be fully released and discharged of and from all obligations
and liability imposed by the terms of this Agreement.
(vii) Parent and the Company agree to indemnify and hold Escrow Agent
harmless against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, and disbursements
that may be imposed on Escrow Agent or incurred by Escrow Agent in connection
with the performance of his/her duties under this
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Agreement, including but not limited to any litigation arising from this
Agreement or involving its subject matter.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; provided, however, that no
such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use their
best efforts to mutually agree on a successor escrow agent within thirty (30)
days after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the State of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. The Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(k) Fees. All fees of the Escrow Agent for performance of its duties
----
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
(l) Exclusive Remedy. Notwithstanding any other provision of this
----------------
Agreement to the contrary, if the Merger is consummated and a Closing occurs,
other than for Losses arising out of claims based on fraud, the payment of
Losses from the Escrow Fund shall be Parent's and Merger Sub's exclusive remedy
under this Agreement.
7.3 Adjustment to Consideration.
---------------------------
(a) Within ninety (90) days following the Closing Date, Parent may, at
its election, cause to be prepared and delivered to the Securityholder Agent a
statement reflecting the Cash Amount of the Surviving Corporation on the Closing
Date Balance Sheet (the "Final Cash Balance"). In the event that, pursuant to
the terms of this Section 7.3, it is determined that the Final Cash Balance is
less than the lesser of the applicable Minimum Cash Balance for such Closing
Date as determined pursuant to Section 5.27 and the Cash Amount reflected on the
Estimated Closing Date Balance Sheet, then an amount equal to such difference
shall be paid to Parent out of the Escrow Fund upon the delivery to the Escrow
Agent of an Officer's Certificate. Following delivery by Parent to the
Securityholder Agent of the Final Cash Balance, Parent shall give, and shall
cause the Surviving Corporation to give, to the Securityholder Agent reasonable
access during Parent's business hours to those books and records of the
Surviving Corporation in the possession of Parent
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or the Surviving Corporation and any personnel which relate to the preparation
of the Final Cash Balance for purposes of resolving any disputes concerning the
Final Cash Balance.
(b) The Securityholder Agent shall have thirty (30) days following
delivery of the Final Cash Balance during which to notify Parent in writing (the
"Notice of Objection") of any good faith objections to the calculation of Final
-------------------
Cash Balance, setting forth a reasonably specific and detailed description of
its objections and the dollar amount of each objection. If the Securityholder
Agent objects to Parent's calculation of Final Cash Balance, Parent and the
Securityholder Agent shall attempt to resolve any such objections within fifteen
(15) days of the receipt by Parent of the Notice of Objection.
(c) If Parent and the Securityholder Agent are unable to resolve any
such dispute within the thirty (30) day period referred to in Section 7.3(b)
above, Parent and the Securityholder Agent shall submit the dispute to Deloitte
& Touche LLP (the "Independent Accounting Firm"). Each of the parties to this
Agreement shall, and shall cause their respective affiliates and representatives
to, provide full cooperation to the Independent Accounting Firm. The
Independent Accounting Firm shall (x) act in its capacity as an expert and not
as an arbitrator, (y) consider only those matters as to which there is a dispute
between the parties and (z) be instructed to reach its conclusions regarding any
such dispute within thirty (30) days after its appointment and provide a written
explanation of its decision. In the event that Parent and the Securityholder
Agent submit any dispute to an Independent Accounting Firm, each such party may
submit a "position paper" to the Independent Accounting Firm setting forth the
position of such party with respect to such dispute, to be considered by such
Independent Accounting Firm as it deems fit. Fifty percent (50%) of any
expenses relating to the engagement of the Independent Accounting Firm shall be
paid by Parent and fifty percent (50%) of such expenses shall be paid from the
Escrow Fund.
If the Securityholder Agent does not deliver the Notice of Objection in
accordance with Section 7.3(c) above (i.e., within a thirty day period), the
Final Cash Balance, shall be deemed to have been accepted by all of the parties
to this Agreement. In the event that the Securityholder Agent delivers a Notice
of Objection in accordance with the provisions above and Parent and the
Securityholder Agent are able to resolve such dispute by mutual agreement,
Parent's calculation of the Final Cash Balance, to the extent modified by mutual
agreement of such parties, shall be deemed to have been accepted by all of the
parties to this Agreement. In the event that the Securityholder Agent delivers
a Notice of Objection in accordance with the provisions set forth above and
Parent and the Securityholder Agent are unable to resolve such dispute by mutual
agreement, the determination of the Independent Accounting Firm shall be final
and binding on the parties and Parent's calculation of the Cash Amount on the
Closing Date Balance Sheet, to the extent modified by the Independent Accounting
Firm, shall be deemed to have been accepted by all of the parties to this
Agreement. Subject to the foregoing provisions, the calculations of the Final
Cash Balance shall be conclusive and binding on all of the parties to this
Agreement, no further adjustments shall be made thereto and neither Parent nor
the Securityholder Agent shall have any further right to challenge such
calculation of the Final Cash Balance.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
-----------
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Closing Date has not
occurred before 5:00 p.m. (Pacific time) on December 31, 2000 (the "End Date")
(provided that the right to terminate this Agreement under this Section
8.1(b)(i) shall not be available to any party whose action or failure to act has
been the principal cause of, or resulted in, the failure of the Merger to occur
on or before such date and such action or failure to act constitutes a breach of
this Agreement); (ii) there shall be a final nonappealable order of a federal or
state court in effect preventing consummation of the Merger; or (iii) there
shall be any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Merger by any governmental entity that would make
consummation of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of all or any material portion of the
business of the Company or (ii) compel Parent or the Company to dispose of or
hold separate all or a portion of the business or assets of the Company or
Parent as a result of the Merger;
(d) by Parent if Parent is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement of the Company contained in this Agreement such
that the conditions set forth in Section 6.3(a) would not be satisfied and such
breach has not been cured within ten (10) business days after written notice
thereof to the Company; provided, however, that no cure period shall be required
for a breach which by its nature cannot be cured; or
(e) by the Company if the Company is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement such
that the conditions set forth in Section 6.2(a) would not be satisfied and such
breach has not been cured within ten (10) business days after written notice
thereof to Parent; provided, however, that no cure period shall be required for
a breach which by its nature cannot be cured.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
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8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub or the
Company, or their respective officers, directors or stockholders, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further that, the provisions of Sections 5.4 and 5.5
and Article VIII of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after
---------
the stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent
-----------------
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
covenants, agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice), provided, however, that notices sent by
mail will not be deemed given until received:
(a) if to Parent or Merger Sub, to:
iBeam Broadcasting Corporation
645 Almanor Avenue, Suite 100
Sunnyvale, California 94086
Attention: Daniel Sroka, General Counsel
Telephone No.: (408) 830-3543
Facsimile No.: (408) 524-0567
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with a copy to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Barry E. Taylor, Esq.
Daniel R. Mitz, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Company, to:
NextVenue Inc.
100 William Street, 8/th/ Floor
New York, New York 10038
Attention: Nicholas Balletta
Telephone No.: (212) 909-2900
Facsimile No.: (212) 909-2951
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036-6522
Attention: Fred B. White, III, Esq.
Telephone No.: (212) 735-3000
Facsimile No.: (212) 735-2000
(c) if to the Securityholder Agent:
J. Markham Green
Telephone No.: (212) 909-2961
Facsimile No.: (212) 909-2951
(d) if to the Escrow Agent:
U.S. Bank Trust, National Association
One California Street, Suite 2550
San Francisco, California 94111
Attention: Ann Gadsby
Telephone No.: (415) 273-4532
Facsimile No.: (415) 273-4593
9.2 Interpretation. The words "include," "includes" and "including" when
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used herein shall be deemed in each case to be followed by the words "without
limitation." As used herein, the term
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"Material Adverse Effect" shall mean a material adverse effect on the business,
assets (including intangible assets), financial condition, capitalization, or
results of operations of a party and its subsidiaries, taken as a whole. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
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counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the Schedules and
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Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
9.5 Severability. In the event that any provision of this Agreement or
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the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
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remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
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accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Santa Clara County, State of California, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process.
9.8 Rules of Construction. The parties hereto agree that they have been
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represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application
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of any law, regulation, holding or rule of construction providing that
ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
9.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
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WAIVES ALL RIGHT TO TRIAL BY JURY FOR ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company and, with respect to
Articles VII and IX only, the Escrow Agent and the Securityholder Agent, have
caused this Agreement to be signed by their duly authorized respective officers,
all as of the date first written above.
NEXTVENUE INC. IBEAM BROADCASTING CORPORATION
By:________________________________ By:__________________________________
Name:______________________________ Name:________________________________
Title:_____________________________ Title:_______________________________
SECURITYHOLDER AGENT: SARAH ACQUISITION CORP.
By:________________________________ By:__________________________________
Name:______________________________ Name:________________________________
Title:_______________________________
ESCROW AGENT:
By:________________________________
Name:______________________________
Title:_____________________________