Agreement and Plan of Merger and Reorganization - RealNetworks Inc. and Aegisoft Corp.
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
REALNETWORKS, INC.,
MCKINLEY ACQUISITION CORP.,
AEGISOFT CORP.,
CERTAIN STOCKHOLDERS OF AEGISOFT CORP.
AND WITH RESPECT TO ARTICLE VI AND
ARTICLE VIII ONLY
MELLON INVESTOR SERVICES LLC, AS ESCROW AGENT
AND
JI SHEN, AS
STOCKHOLDER REPRESENTATIVE
DATED AS OF DECEMBER 29, 2000
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Article I THE MERGER.....................................................................1
1.1 Definitions...............................................................1
1.2 The Merger................................................................8
1.3 Effective Time; Closing...................................................8
1.4 Effect of the Merger......................................................8
1.5 Certificate of Incorporation; Bylaws......................................8
1.6 Directors and Officers....................................................9
1.7 Effect on Capital Stock...................................................9
1.8 Dissenting Shares........................................................11
1.9 Surrender of Certificates................................................12
1.10 No Further Ownership Rights in Company Common Stock......................13
1.11 Lost, Stolen or Destroyed Certificates...................................14
1.12 Taking of Necessary Action; Further Action...............................14
1.13 Securities Act Compliance; Registration; Securities Act Exemption........14
Article II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
PRINCIPAL STOCKHOLDERS..........................................................15
2.1 Organization and Qualification; Subsidiaries.............................15
2.2 Certificate of Incorporation and Bylaws..................................16
2.3 Capitalization...........................................................16
2.4 Authority Relative to this Agreement.....................................17
2.5 No Conflict; Required Filings and Consents...............................17
2.6 Compliance; Permits......................................................18
2.7 Financial Statements.....................................................19
2.8 No Undisclosed Liabilities; Total Assets and Total Liabilities...........19
2.9 Absence of Certain Changes or Events.....................................19
2.10 Absence of Litigation....................................................22
2.11 Employee Benefit Plans...................................................22
2.12 Labor Matters............................................................23
2.13 Restrictions on Business Activities......................................23
2.14 Title to Property........................................................23
2.15 Taxes....................................................................23
2.16 Environmental Matters....................................................24
2.17 Brokers..................................................................24
2.18 Intellectual Property....................................................24
2.19 Agreements, Contracts and Commitments....................................28
2.20 Insurance................................................................30
2.21 Certain Business Relationships with the Company..........................30
2.22 Employees................................................................31
2.23 Notes and Accounts Receivable............................................31
2.24 Product Warranty.........................................................31
2.25 Board Approval...........................................................31
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2.26 Vote Required............................................................31
2.27 Complete Copies of Materials.............................................31
2.28 Hart-Scott-Rodino Representations........................................31
2.29 Termination of Certain Agreements........................................32
2.30 Representations Complete.................................................32
Article III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.....................32
3.1 Organization and Qualification; Subsidiaries.............................33
3.2 Authority Relative to this Agreement.....................................33
3.3 SEC Filings; Financial Statements........................................33
3.4 Brokers..................................................................34
Article IV ADDITIONAL AGREEMENTS........................................................34
4.1 Public Disclosure........................................................34
4.2 Stock Options and Warrants...............................................34
4.3 Registration Statement on Form S-3.......................................37
4.4 Registration Statement on Form S-8.......................................37
4.5 Post Closing Covenants; General..........................................37
4.6 Releases.................................................................37
4.7 Company Director and Officer Insurance Coverage..........................37
Article V CLOSING DELIVERABLES..........................................................38
5.1 Items to Be Delivered to the Company and the
Shareholders' Representative...........................................38
5.2 Items to Be Delivered to Parent and Merger Sub...........................38
Article VI SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW...........................41
6.1 Survival of Representations, Warranties and Covenants....................41
6.2 Indemnification..........................................................41
6.3 Escrow Arrangements......................................................44
6.4 Stockholder Representative...............................................49
Article VII AMENDMENT AND WAIVER........................................................50
7.1 Amendment................................................................50
7.2 Extension; Waiver........................................................50
Article VIII GENERAL PROVISIONS.........................................................51
8.1 Notices..................................................................51
8.2 Interpretation; Definitions..............................................52
8.3 Counterparts.............................................................52
8.4 Entire Agreement; Third Party Beneficiaries..............................52
8.5 Severability.............................................................53
8.6 Other Remedies; Specific Performance.....................................53
8.7 Governing Law............................................................53
8.8 Rules of Construction....................................................53
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8.9 Assignment...............................................................53
INDEX OF EXHIBITS
EXHIBIT A Committed Employees
EXHIBIT B Schedule of Escrow Contributions
EXHIBIT C Form of Registration Rights Agreement
EXHIBIT D Form of Legal Opinion of Powell, Goldstein, Frazer & Murphy LLP
EXHIBIT E-1 Form of Offer Letter
EXHIBIT E-2 Form of Development, Confidentiality and Noncompetition Agreement
EXHIBIT F-1 Form of Stock Restriction Agreement
EXHIBIT F-2 Form of Preference Stock Restriction Agreement
EXHIBIT G Stockholder Certificate
EXHIBIT H Form of Amendment of Committed Employee Option
EXHIBIT I Committed Employee Preference Amounts
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION is made and entered
into as of December 29, 2000, among RealNetworks, Inc., a Washington corporation
("PARENT"), McKinley Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER Sub"), Aegisoft Corp., a Delaware
corporation (the "COMPANY"), Ji Shen and Zheng Kevin Jia (each of Messrs. Shen
and Jia are referred to separately herein as a "PRINCIPAL STOCKHOLDER" and
collectively as the "PRINCIPAL STOCKHOLDERS") and, with respect to ARTICLE VI
and ARTICLE VIII only, Mark Tang ("TANG"), Mellon Investor Services LLC, as
Escrow Agent (the "ESCROW AGENT"), and Ji Shen, as Stockholder Representative
(the "STOCKHOLDER REPRESENTATIVE"). Parent, the Company, Merger Sub and each
Principal Shareholder are sometimes referred to herein individually as a "PARTY"
and collectively as the "PARTIES".
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in SECTION 1.2 below) and in accordance with the Delaware General
Corporation Law ("DELAWARE LAW"), Parent and the Company intend to enter into a
business combination transaction.
B. The Board of Directors of the Company (i) has determined that the
Merger (as defined in SECTION 1.1) is consistent with and in furtherance of the
long-term business strategy of the Company and fair to, and in the best
interests of, the Company and its stockholders, (ii) has approved and declared
advisable this Agreement, and has approved the Merger (as defined in SECTION
1.1) and the other transactions contemplated by this Agreement and (iii) has
determined to recommend that the stockholders of the Company adopt and approve
this Agreement and approve the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 Definitions. As used in this Agreement, the following terms have the
following meanings (terms defined in the singular to have a correlative meaning
when used in the plural and vice versa). Certain other terms are defined in the
text of this Agreement.
"AGGREGATE COMMITTED EMPLOYEE PREFERENCE AMOUNT" means the sum of the
Committed Employee Preference Amounts of all of the Committed Employees.
"AGGREGATE COMMON SHARE NUMBER" means the aggregate number of shares of
Company Common Stock outstanding immediately prior to the Effective Time.
"AGGREGATE COMPANY SHARE NUMBER" means the sum of (a) the number of
shares of Company Capital Stock issued and outstanding immediately prior to the
Effective Time and (b) the number of shares of Company Capital Stock issuable
upon exercise of all options and warrants to
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purchase Company Capital Stock outstanding immediately prior to the Effective
Time, whether or not such options and warrants are Vested immediately prior to
the Effective Time.
"AGGREGATE DILUTED COMMON SHARE NUMBER" means the sum of (A) the
Aggregate Common Share Number, (B) the Aggregate Option Share Number and (C) the
Aggregate Warrant Share Number.
"AGGREGATE NET DILUTED SHARE NUMBER" means the number obtained by
subtracting (A) the Expired Option Share Number from (B) the Aggregate Diluted
Common Share Number.
"AGGREGATE OPTION SHARE NUMBER" means the aggregate number of shares of
Company Common Stock issuable upon exercise of Company Stock Options outstanding
immediately prior to the Effective Time, excluding, with respect to options that
terminate on or immediately prior to the Effective Time, any shares which have
not been exercised prior to such termination.
"AGGREGATE PREFERRED A SHARE NUMBER" means the aggregate number of
shares of Company Preferred A Stock outstanding immediately prior to the
Effective Time.
"AGGREGATE PREFERRED B SHARE NUMBER" means the aggregate number of
shares of Company Preferred B Stock outstanding immediately prior to the
Effective Time.
"AGGREGATE WARRANT SHARE NUMBER" means the aggregate number of shares of
Company Common Stock issuable upon exercise of Company Warrants outstanding
immediately prior to the Effective Time.
"APPRECIATION AMOUNT" means the number of whole dollars (rounded down to
the nearest whole dollar) by which the Six Month Price exceeds $29.00.
"BLUE SKY LAW" means any securities law of any state.
"BUSINESS DAY" means any day other than a Saturday or Sunday or a day on
which banks in Seattle, Washington are closed.
"CERTIFICATE" means a certificate which immediately prior to the
Effective Time represented outstanding shares of Company Capital Stock.
"COMMITTED EMPLOYEE COMMON STOCK" means, with respect to a Committed
Employee, the shares of Company Common Stock held by such Committed Employee
immediately prior to the Effective Time.
"COMMITTED EMPLOYEE CONTINGENT RATIO" means, with respect to a Committed
Employee, the product (rounded to five decimal places) obtained by multiplying
(A) the Committed Employee Exchange Ratio of such Committed Employee by (B) the
Contingent Share Ratio.
"COMMITTED EMPLOYEE EXCHANGE RATIO" means, with respect to a Committed
Employee, the quotient (rounded to five decimal places) determined by dividing
(A) the sum of (1) the Committed Employee Preference Amount of such Committed
Employee and (2) the Committed
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Employee Participation Amount of such Committed Employee by (B) the Committed
Employee Share Number of such Committed Employee.
"COMMITTED EMPLOYEE PARTICIPATION AMOUNT" means, with respect to a
Committed Employee, the product obtained by multiplying (A) the Remaining Merger
Shares by (B) the quotient determined by dividing (1) the Committed Employee
Share Number of such Committed Employee by (2) the sum of (a) the Aggregate
Diluted Common Share Number, (b) the Aggregate Preferred A Share Number and (c)
the Aggregate Preferred B Share Number.
"COMMITTED EMPLOYEE PREFERENCE AMOUNT" means, with respect to each
Committed Employee, the number of shares of Parent Common Stock set forth next
to his/her respective name in the table attached hereto as EXHIBIT I.
"COMMITTED EMPLOYEE SHARE NUMBER" means, with respect to a Committee
Employee, the sum of (A) the aggregate number of shares of Company Common Stock
held by such Committed Employee and outstanding immediately prior to the
Effective Time and (B) the aggregate number of shares of Company Common Stock
issuable upon exercise of Company Stock Options held by such Committed Employee
immediately prior to the Effective Time.
"COMMON CONTINGENT RATIO" means the product (rounded to five decimal
places) obtained by multiplying (A) the Common Exchange Ratio by (B) the
Contingent Share Ratio.
"COMMON EXCHANGE RATIO" means the quotient (rounded to five decimal
places) determined by dividing (A) the Common Participation Amount, by (B) the
Aggregate Diluted Common Share Number.
"COMMON PARTICIPATION AMOUNT" means the product obtained by multiplying
(A) the Remaining Merger Shares by (B) the quotient determined by dividing (1)
the Aggregate Diluted Common Share Number by (2) the sum of (a) the Aggregate
Diluted Common Share Number, (b) the Aggregate Preferred A Share Number and (c)
the Aggregate Preferred B Share Number.
"COMPANY CAPITAL STOCK" means Company Common Stock and/or Company
Preferred Stock.
"COMPANY COMMON STOCK" means common stock of the Company, $.003 par
value per share.
"COMPANY PREFERRED A STOCK" means Series A Convertible Preferred Stock
of the Company, $.003 par value per share.
"COMPANY PREFERRED B STOCK" means the Series B Preferred Stock of the
Company, $.003 par value per share.
"COMPANY PREFERRED STOCK" means preferred stock of the Company, $.003
par value per share.
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"COMPANY STOCK OPTION" means any stock option to purchase Company
Capital Stock that is outstanding immediately prior to the Effective Time.
"COMPANY STOCK RIGHT" means any subscription, option, warrant, equity
securities, partnership interests or similar ownership interest, call, right
(including preemptive rights), commitment or agreement of any character to which
the Company is a party or by which it is bound obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold any shares of capital
stock, partnership interests or similar ownership interests of the Company or
obligating the Company to grant or enter into any of the foregoing arrangements
or agreements.
"COMPANY STOCKHOLDER" means a stockholder of record of the Company
immediately prior to the Effective Time, as determined in accordance with the
stock transfer records of the Company.
"COMPANY WARRANT" means any warrant to purchase the Company Capital
Stock that is outstanding immediately prior to the Effective Time.
"CONTINGENCY DATE" means the 180th day following the Closing Date.
"CONTINGENT SHARE RATIO" means the quotient determined by dividing (A)
the Contingent Shares Amount by (B) the number of Merger Shares.
"CONTINGENT SHARES AMOUNT" means the number of shares of Parent Common
Stock determined by subtracting from 300,000 the number determined by
multiplying (A) 40,000 by (B) the Appreciation Amount; provided, that the
Contingent Shares Amount shall not be less than zero.
"CONTRACT" means any written, oral or other agreement, contract,
subcontract, lease, binding understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan, commitment
or undertaking of any nature, as of the date hereof or as may hereafter be in
effect.
"CURRENT SERVICE PROVIDER" means an employee of or consultant to the
Surviving Corporation as of immediately following the Effective Time.
"DELAWARE LAW" has the meaning set forth in the Recitals.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"EXPIRED OPTION SHARE NUMBER" means the number of shares of Parent
Common Stock which (A) are issuable upon exercise of Replacement Options which
expire after the Effective Time and before the Contingency Date and (B) have not
been acquired by exercise of such Replacement Options between the Effective Time
and the termination of such Replacement Option.
"FOUNDERS" means each of the Principal Stockholders and Tang.
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"GOVERNMENTAL BODY" means any:
(a) nation, province, state, county, city, town, village,
district, or other jurisdiction of any nature;
(b) federal, provincial, state, local, municipal, foreign, or
other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"KNOWLEDGE" -- an individual will be deemed to have "KNOWLEDGE" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or other matter; or (b) a prudent individual could reasonably be
expected to discover or otherwise become aware of such fact or other matter in
the course of conducting his or her duties for the Company. Parent will be
deemed to have "KNOWLEDGE" of a particular fact or other matter if an officer or
director of Parent has knowledge (as defined above) of such fact or other
matter. The Company will be deemed to have "KNOWLEDGE" of a particular fact or
other matter if an officer or director of the Company or any of the following
employees has knowledge (as defined above) of such fact or other matter: Ji
Shen, Zheng Kevin Jia, Nou Chounlamountry, Sheldon Fu, Qiang Luo, Chao Liu, Eric
Kritzler, Vladimir Ratimov, Brent Newman or Paul Moline.
"LEGAL REQUIREMENT" means any law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, order, judgment, decree,
injunction, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Body.
"LIEN" means any mortgage, pledge, lien, encumbrance, hypothecation,
charge, claim, infringement or other security interest, other than (a) liens for
taxes not yet due and payable, (b) municipal and zoning ordinances and (c)
easements of public utilities.
"MATERIAL ADVERSE EFFECT" means, when used in connection with a Person,
any change, event, violation, inaccuracy, circumstance or effect that is
materially adverse to the business, assets, liabilities, financial condition, or
results of operations of such entity taken as a whole (other than as a result of
(i) general economic or industry conditions or conditions in such Person's
business, or (ii) performance by such Person of its obligations under, or the
taking of any actions contemplated or permitted by, this Agreement, (iii)
changes in law or generally accepted accounting principles, (iv) the
announcement or pendency of any of the transactions contemplated this Agreement,
or (v) a decrease in such Person's stock price or the failure to meet or exceed
Wall Street research analysts' expectations).
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"MERGER CONSIDERATION" means Merger Shares, the Contingent Shares Amount
and cash in lieu of fractional shares in accordance with SECTION 1.7(g) issuable
pursuant to the terms of SECTION 1.7.
"MERGER SHARES" means the shares of Parent Common Stock. (i) issued
pursuant to SECTIONS 1.7(a)(i)(A), 1.7(a)(ii)(A), 1.7(a)(iii)(A) and
1.7(a)(iv)(A) and (ii) issued or issuable pursuant to Replacement Options under
SECTION 4.2(a)(i) and Assumed Warrants under SECTION 4.2(b)(i).
"ORDINARY COURSE OF BUSINESS" means an action taken by a Person only if:
(A) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(B) such action is not required to be authorized by the board of directors of
such Person (or by any Person or group of Persons exercising similar authority)
and is not required to be specifically authorized by the parent company (if any)
of such Person; and (C) such action is similar in nature and magnitude to
actions customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that are in
the same line of business as such Person.
"PARENT COMMON STOCK" means common stock of Parent, $0.001 par value per
share.
"PARENT RIGHT" means a non-transferable right to receive, as soon as
practicable following the 180th day following the Closing Date, a number of
additional shares of Parent Common Stock, if and only if the Purchase Price
Contingency is satisfied.
"PARENT STOCK PRICE" shall mean $36.85 (as appropriately adjusted for
any stock split, stock dividend or similar event).
"PERSON" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PURCHASE PRICE CONTINGENCY" is satisfied only if none of the Committed
Employees (as defined in Section 5.2(i)) has voluntarily terminated his or her
employment with the Parent or the Surviving Corporation (except for a
termination of employment pursuant to a transfer of employment between Parent
and the Surviving Corporation) prior to the Contingency Date.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
attached hereto as EXHIBIT C.
"REMAINING MERGER SHARES" means the number of Merger Shares remaining
after subtracting the Series B Preference Amount, the Series A Preference Amount
and the Aggregate Committed Employee Preference Amount.
"RESTRICTED MERGER SHARES" means the Merger Shares which are,
immediately following the Effective Time, subject to forfeiture, divestment or a
repurchase right in favor of Parent pursuant to a Stock Restriction Agreement or
other agreement.
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"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SERIES A CONTINGENT RATIO" means the product obtained by multiplying
(A) the Series A Exchange Ratio by (B) the Contingent Share Ratio.
"SERIES A EXCHANGE RATIO" means the quotient (rounded to five decimal
places) determined by dividing (A) the Series A Merger Shares Amount, by (B) the
Aggregate Preferred A Share Number.
"SERIES A MERGER SHARES AMOUNT" means the sum of (A) the Series A
Preference Amount and (B) the Series A Participation Amount.
"SERIES A PARTICIPATION AMOUNT" means the product obtained by
multiplying (A) the Remaining Merger Shares by (B) the quotient determined by
dividing (1) the Aggregate Preferred A Share Number by (2) the sum of (a) the
Aggregate Diluted Common Share Number, (b) the Aggregate Preferred A Share
Number and (c) the Aggregate Preferred B Share Number.
"SERIES A PREFERENCE AMOUNT" means the number of shares of Parent Common
Stock (rounded to the nearest whole share) determined by dividing (A) the
product determined by multiplying (1) the Aggregate Preferred A Share Number and
(2) $0.50 by (B) the Parent Stock Price.
"SERIES B CONTINGENT RATIO" means the product obtained by multiplying
(A) the Series B Exchange Ratio by (B) the Contingent Share Ratio".
"SERIES B EXCHANGE RATIO" means the quotient (rounded to five decimal
places) determined by dividing (A) the Series B Merger Shares Amount, by (B) the
Aggregate Preferred B Share Number.
"SERIES B MERGER SHARES AMOUNT" means the sum of (A) the Series B
Preference Amount and (B) the Series B Participation Amount.
"SERIES B PARTICIPATION AMOUNT" means the product obtained by
multiplying (A) the Remaining Merger Shares by (B) the quotient determined by
dividing (1) the Aggregate Preferred B Share Number by (2) the sum of (a) the
Aggregate Diluted Common Share Number, (b) the Aggregate Preferred A Share
Number and (c) the Aggregate Preferred B Share Number.
"SERIES B PREFERENCE AMOUNT" means the number of shares of Parent Common
Stock (rounded to the nearest whole share) determined by dividing (A) the
product determined by multiplying (1) the Aggregate Preferred B Share Number and
(2) $0.75 by (B) the Parent Stock Price.
"SIX MONTH PRICE" means the average of the daily last sale prices of the
Parent Common Stock on the Nasdaq Stock Market for the fifteen (15) Trading Days
immediately preceding (but not including) the 180th day following the Closing
Date.
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"STOCKHOLDER CERTIFICATE" means the Stockholder Certificate attached
hereto as EXHIBIT G.
"TRADING DAY" means a day on which trades occur on the Nasdaq Stock
Market and for which a last sale price is reported for the Parent Common Stock.
"UNRESTRICTED MERGER SHARES" means Merger Shares which are not
Restricted Merger Shares.
"VEST" or "VESTING" means (a) with respect to options, becoming
exercisable, and (b) with respect to Restricted Merger Shares, means becoming
released from the applicable risk of forfeiture or divestment or repurchase
right.
1.2 The Merger. At the Effective Time (as defined in SECTION 1.3) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
the Company (the "MERGER"), the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation. The Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "SURVIVING CORPORATION."
1.3 Effective Time; Closing. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
a Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "CERTIFICATE OF
MERGER") (the time of such filing (or such later time as may be agreed in
writing by the Company and Parent and specified in the Certificate of Merger)
being the "EFFECTIVE Time") as soon as practicable on or after the Closing Date
(as herein defined). Unless the context otherwise requires, the term "AGREEMENT"
as used herein refers collectively to this Agreement and Plan of Merger and
Reorganization and the Certificate of Merger. The closing of the Merger (the
"CLOSING") shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 5300 Carillon Point, Kirkland, Washington on the date
hereof, or at such other time, date and location as the parties hereto agree in
writing (the "CLOSING DATE").
1.4 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and 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.
1.5 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the certificate of incorporation of
the Surviving Corporation shall be amended in its entirety so that it is
identical to the certificate of incorporation of Merger Sub in effect
immediately prior to the Effective Time, until thereafter amended as provided by
law and such certificate of incorporation of the Surviving Corporation;
provided, however, that at the Effective Time the certificate of incorporation
of the Surviving Corporation shall be amended so that the name of the Surviving
Corporation shall be "MCKINLEY, INC."
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(b) At the Effective Time, the bylaws of the Surviving
Corporation shall be amended in their entirety so that they are identical to the
bylaws of Merger Sub in effect immediately prior to the Effective Time, until
thereafter amended.
1.6 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly appointed.
1.7 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, the Company or the holders of any of the following
securities, the following shall occur:
(a) Conversion of Company Capital Stock. 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(a)) and any shares
of Company Capital Stock to be canceled pursuant to SECTION 1.7(c), will be
canceled and extinguished and automatically converted (subject to SECTIONS
1.7(f) and (g)) into the right to receive, upon surrender of the certificate
representing such share of Company Capital Stock in the manner provided in
SECTION 1.9 (or in the case of a lost, stolen or destroyed certificate, upon
delivery of an affidavit (and bond, if required) in the manner provided in
SECTION 1.11) shares of Parent Common Stock and Parent Rights, as follows:
(i) Company Preferred B Stock. Each share of Company
Preferred B Stock shall convert into: (A) a number of shares of Parent Common
Stock equal to the Series B Exchange Ratio and (B) a non-transferable right to
receive, as soon as practicable following the Contingency Date, a number of
additional shares of Parent Common Stock equal to the Series B Contingent Ratio,
if and only if the Purchase Price Contingency is satisfied.
(ii) Company Preferred A Stock. Each share of Company
Preferred A Stock shall convert into: (A) a number of shares of Parent Common
Stock equal to the Series A Exchange Ratio and (B) a non-transferable right to
receive, as soon as practicable following the Contingency Date, a number of
additional shares of Parent Common Stock equal to the Series A Contingent Ratio,
if and only if the Purchase Price Contingency is satisfied.
(iii) Committed Employees' Common Stock. Each share of
Committed Employee Common Stock held by a Committed Employee shall convert into:
(A) a number of shares of Parent Common Stock equal to the Committed Employee
Exchange Ratio of such Committed Employee and (B) a non-transferable right to
receive, as soon as practicable following the Contingency Date, a number of
additional shares of Parent Common Stock equal to the Committed Employee
Contingent Ratio of such Committed Employee, if and only if the Purchase Price
Contingency is satisfied.
(iv) Company Common Stock (other than Committed Employee
Common Stock). Each share of Company Common Stock that is not Committed Employee
Common Stock shall convert into: (A) a number of shares of Parent Common Stock
equal to the Common Exchange
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<PAGE> 14
Ratio and (B) a non-transferable right to receive, as soon as practicable
following the Contingency Date, a number of additional shares of Parent Common
Stock equal to the Common Contingent Ratio, if and only if the Purchase Price
Contingency is satisfied.
If any shares of Company Capital Stock 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 restricted stock purchase
agreement or other agreement with the Company, then the shares of Parent Common
Stock issued in exchange for such shares of Company Capital Stock will also be
unvested and subject to the same repurchase option, risk of forfeiture or other
condition, and the certificates representing such shares of Parent Common Stock
may accordingly be marked with appropriate legends. The Company shall take all
action that may be necessary to ensure that, from and after the Effective Time,
Parent is entitled to exercise any such repurchase option or other right set
forth in any such restricted stock purchase agreement or other agreement.
(b) Escrow. A total of 183,196 shares of Parent Common
Stock (the "ESCROW SHARES") to be issued pursuant to SECTION 1.7(a) hereof in
respect of shares of Company Capital Stock issued and outstanding immediately
prior to the Effective Time, will, without any act of any Company Stockholder,
be deposited with the Escrow Agent, such deposit to constitute an Escrow Fund
(as defined in SECTION 6.3 to be governed by the terms of SECTION 6.3. The
portion of the Escrow Shares contributed by each Company Stockholder is set
forth opposite such Company Stockholder's name in EXHIBIT B. With respect to
each Company Stockholder who will receive Merger Shares pursuant to SECTION
1.7(a) that are also Restricted Merger Shares, (i) such Company Stockholder's
contribution to the Escrow Shares shall be comprised of Restricted Merger Shares
and Unrestricted Merger Shares in the same proportions as the total number of
Merger Shares such Company Stockholder is entitled to receive is comprised of
Restricted Merger Shares and Unrestricted Merger Shares and (ii) the Restricted
Merger Shares of such Company Stockholder included in the Escrow Shares shall be
allocated among the different tranches of Restricted Merger Shares that Vest at
different times in the same proportions as all of such Company Stockholder's
Restricted Merger Shares are allocated among such different tranches; provided,
however, that the Escrow Fund shall not include any Merger Shares that are also
Restricted Merger Shares pursuant to the Preference Stock Restriction Agreements
(as defined in SECTION 5.2(l)). Any fractional share that would otherwise result
from the issuance of a certificate representing the shares of Parent Common
Stock to be deposited into escrow pursuant to this SECTION 1.7(b) shall be
rounded up to the nearest whole share, and any fraction of a share that would
otherwise result from the issuance of a certificate representing the remaining
shares of Parent Common Stock which each such Company Stockholder would
otherwise be entitled to receive under SECTION 1.7(a) by virtue of ownership of
outstanding shares of Company Capital Stock shall be rounded down to the nearest
whole share. No Merger Shares shall be deposited in the Escrow Fund with respect
to the Company Options. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of SECTION 6.3 hereof, Parent
shall cause to be distributed to the Escrow Agent a certificate or certificates
representing the aggregate number of Merger Shares included in the Escrow
Shares, which shall be registered in the name of the Escrow Agent. Such shares
deposited in the Escrow Fund shall be beneficially owned by the holders on whose
behalf such shares were deposited in the Escrow Fund. The Merger Shares
deposited in the Escrow Fund shall be available to compensate Parent as provided
in ARTICLE VI. Until surrendered in accordance with SECTION 1.9, each
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<PAGE> 15
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.
(c) Cancellation of Parent-Owned Stock. Each share of Company
Common Stock held by the Company or owned by Merger Sub, Parent or any direct or
indirect wholly-owned subsidiary of the Company or of Parent immediately prior
to the Effective Time shall be canceled and extinguished without any conversion
thereof.
(d) Stock Options and Warrants. At the Effective Time, all
outstanding Company Stock Options and Company Warrants shall be replaced or
assumed by Parent in accordance with SECTION 4.2 hereof.
(e) Capital Stock of Merger Sub. Each share of Common Stock,
$0.001 par value per share, of Merger Sub (the "MERGER SUB COMMON STOCK") issued
and outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock, $0.001
par value per share, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock shall evidence ownership of such
shares of capital stock of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock), reorganization,
recapitalization, reclassification or other like change with respect to Parent
Common Stock occurring on or after the date hereof and prior to the Effective
Time.
(g) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued by virtue of the Merger, but 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 Certificates(s) (as defined in SECTION 1.9(c))
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 Parent Stock Price.
1.8 Dissenting Shares.
(a) Notwithstanding any other provisions of this Agreement to
the contrary, any shares of Company Capital Stock held by a holder who has
exercised dissenters' rights for such shares in accordance with Delaware Law and
who, as of the Effective Time, has not effectively withdrawn or lost such
dissenters' rights ("DISSENTING SHARES"), shall not be converted into or
represent a right to receive Merger Consideration, but the holder thereof shall
only be entitled to such rights as are provided by Delaware Law.
(b) Notwithstanding the provisions of SECTION 1.8(a) hereof, if
any holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) such
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<PAGE> 16
holder's dissenters' rights under Delaware Law, 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 the
consideration for Company Capital Stock set forth in SECTION 1.7 hereof, without
interest thereon, upon surrender of the Certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any
written demand for appraisal received by the Company pursuant to the applicable
provisions of Delaware Law; and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to any such demands or offer to settle or settle any such demands.
1.9 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust company
reasonably acceptable to the Company to act as the exchange agent (the "EXCHANGE
AGENT") in the Merger.
(b) Parent to Provide Common Stock. At Closing, Parent shall
make available to the Exchange Agent for exchange in accordance with this
ARTICLE I, the shares of Parent Common Stock issuable pursuant to SECTION 1.7 in
exchange for outstanding shares of Company Common Stock and cash in an amount
sufficient for payment in lieu of fractional shares pursuant to SECTION 1.7(g)
and any dividends or distributions to which holders of shares of Company Common
Stock may be entitled pursuant to SECTION 1.9(d).
(c) Exchange Procedures. At Closing, Parent shall cause the
Exchange Agent to deliver to each holder of record (as of the Effective Time) of
a Certificate or Certificates, which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose shares were
converted into the right to receive shares of Parent Common Stock pursuant to
SECTION 1.7, cash in lieu of any fractional shares pursuant to SECTION 1.7(g)
and any dividends or other distributions pursuant to SECTION 1.9(d), (i) a
letter of transmittal in customary form (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall contain such
other customary provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock, cash in lieu of any
fractional shares pursuant to SECTION 1.7(g) and any dividends or other
distributions pursuant to SECTION 1.9(d). Upon surrender of Certificates 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, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock into which their
shares of Company Common Stock were converted at the Effective Time, payment in
lieu of fractional shares which such holders have the right to receive pursuant
to SECTION 1.7(g) and any dividends or distributions payable pursuant to SECTION
1.9(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to SECTION 1.9(d) as to the
payment of dividends, to evidence only the ownership of the number of full
shares of Parent Common Stock into which such shares of Company Common Stock
shall have been so converted and the right to receive an amount in cash in lieu
of the issuance
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<PAGE> 17
of any fractional shares in accordance with SECTION 1.7(g) and any dividends or
distributions payable pursuant to SECTION 1.9(d).
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holders of any unsurrendered Certificates
with respect to the shares of Parent Common Stock represented thereby until the
holders of record of such Certificates shall surrender such Certificates.
Subject to applicable law, following surrender of any such Certificates, the
Exchange Agent shall deliver to the record holders thereof, without interest,
certificates representing whole shares of Parent Common Stock issued in exchange
therefor along with payment in lieu of fractional shares pursuant to SECTION
1.7(g) hereof and the amount of any such dividends or other distributions with a
record date after the Effective Time payable with respect to such whole shares
of Parent Common Stock.
(e) Transfers of Ownership. If certificates representing shares
of Parent Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
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 certificates
representing shares of Parent Common Stock in any name other than that of the
registered holder of the Certificates surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Parent and
the Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable legal requirement.
To the extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes under this Agreement as having been paid to the person
to whom such amounts would otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in
this SECTION 1.9, neither the Exchange Agent, Parent, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Parent Common
Stock or Company Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.10 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued in accordance with the terms hereof (together with
any cash paid in respect thereof pursuant to SECTION 1.7(g) and 1.9(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this ARTICLE I.
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<PAGE> 18
1.11 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates 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, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to SECTION
1.7, cash for fractional shares, if any, as may be required pursuant to SECTION
1.7(g) and any dividends or distributions payable pursuant to SECTION 1.9(d);
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Parent
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.12 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 the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the current officers and directors of
the Company and Merger Sub will take all such lawful and necessary action.
1.13 Securities Act Compliance; Registration; Securities Act Exemption.
The Parent Common Stock to be issued pursuant to this Agreement initially will
not be registered under the Securities Act in reliance on the exemptions from
the registration requirements of Section 5 of the Securities Act set forth in
Section 4(2) thereof. Prior to the Closing Date, each Company Stockholder shall
have provided Parent such representations, warranties, certifications and
additional information as Parent may reasonably request to ensure the
availability of such exemptions from the registration requirements of the
Securities Act.
(a) Stock Restrictions. In addition to any legend imposed by
applicable state securities laws or by any contract which continues in effect
after the Effective Time, the certificates representing the shares of Parent
Common Stock issued pursuant to this Agreement shall bear a restrictive legend
(and stop transfer orders shall be placed against the transfer thereof with
Parent's transfer agent), stating substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, OR HYPOTHECATED EXCEPT IN COMPLIANCE WITH RULE 144 IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR A
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
(b) The Company Stockholders' Restrictions Regarding Securities
Law Matters. Each Company Stockholder, by virtue of the Merger and the
conversion into Parent Common Stock
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<PAGE> 19
of the Company Capital Stock held by such Company Stockholder, shall be bound by
the following provisions:
(i) Such Company Stockholder will not offer, sell, or
otherwise dispose of any shares of Parent Common Stock except in compliance with
the Securities Act and the rules and regulations thereunder.
(ii) Such Company Stockholder will not sell, transfer or
otherwise dispose of any shares of Parent Common Stock unless (i) such sale,
transfer or other disposition is within the limitations of and in compliance
with Rule 144 promulgated by the SEC under the Securities Act and the Company
Stockholder furnishes Parent with reasonable proof of compliance with such Rule,
(ii) in the opinion of counsel, reasonably satisfactory to Parent and its
counsel, some other exemption from registration under the Securities Act is
available with respect to any such proposed sale, transfer, or other disposition
of Parent Common Stock or (iii) the offer and sale of Parent Common Stock is
registered under the Securities Act.
(c) Registration Rights. Parent agrees that the Company
Stockholders receiving Parent Common Stock in the Merger shall be entitled to
the registration rights set forth in the Registration Rights Agreement to be
delivered by Parent at Closing in substantially the form attached hereto as
Exhibit C (the "Registration Rights Agreement").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
PRINCIPAL STOCKHOLDERS
As of the date hereof and as of the Closing Date, each of the Company
and each Principal Stockholder, severally and not jointly, hereby represents and
warrants to Parent and Merger Sub, subject to such exceptions as are
specifically disclosed in writing in the disclosure letter and referencing a
specific representation supplied by the Company and the Principal Stockholders
to Parent dated as of the date hereof and certified by a duly authorized officer
of the Company (the "COMPANY SCHEDULE"), as follows:
2.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted. The Company is in possession of all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates, approvals
and orders ("APPROVALS") necessary to own, lease and operate the properties it
purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
The Company is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly
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<PAGE> 20
qualified or licensed and in good standing that would not, either individually
or in the aggregate, have a Material Adverse Effect on the Company.
(b) The Company has no subsidiaries. The Company has not agreed
nor is obligated to make nor be bound by any Contract under which it may become
obligated to make, any future investment in or capital contribution to any other
entity. The Company does not directly or indirectly own any equity or similar
interest in or any interest convertible, exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business, association or entity.
2.2 Certificate of Incorporation and Bylaws. The Company has previously
furnished to Parent a complete and correct copy of its certificate of
incorporation and bylaws as amended to date (together, the "COMPANY CHARTER
DOCUMENTS"). Such Company Charter Documents are in full force and effect. The
Company is not in violation of any of the provisions of the Company Charter
Documents.
2.3 Capitalization.
(a) The authorized capital stock of the Company consists of
30,000,000 shares of Company Common Stock and 10,000,000 shares of Company
Preferred Stock, 1,200,000 shares of which are designated Series A Convertible
Preferred Stock (the "COMPANY SERIES A STOCK") and 3,733,333 shares of which are
designated Series B Convertible Preferred Stock (the "COMPANY SERIES B Stock,"
and, collectively with the Company Series A Stock, the "COMPANY PREFERRED
STOCK"). The outstanding capital stock of the Company consists of 11,060,001
shares of Company Common Stock , 1,200,000 shares of Company Series A Stock, and
3,733,333 shares of Company Series B Stock, all of which are shares of Company
Series A Stock. All of the issued and outstanding shares of Company Capital
Stock have been duly authorized, are validly issued, fully paid, non-assessable,
and were not issued in violation of any preemptive rights, rights of first
refusal, or any similar rights. All shares of Company Capital Stock are held of
record as of the date of this Agreement by the respective stockholders as set
forth in Section 2.3(a) of the Company Schedule. No shares of Company Capital
Stock are held in treasury by the Company. Section 2.3(a) of the Company
Schedule sets forth the following information with respect to each holder
(immediately prior to the Effective Time) of Company Capital Stock: (i) the name
and address of the holder; (ii) the number of shares of Company Capital Stock
held and (iii) the number of shares of Parent Common Stock issuable to each such
holder of Company Capital Stock pursuant to SECTION 1.7 (assuming that such
holder does not exercise dissenter's rights). There are no accrued or declared
dividends with respect to any shares of Company Capital Stock.
(b) Shares of Company Capital Stock are reserved for issuance
upon the exercise of outstanding Company Stock Rights as follows: (i) 2,788,530
shares of Company Common Stock are reserved for issuance upon exercise of
outstanding Company Stock Options issued prior to the Effective Time pursuant to
stock option agreements, contracts, awards or other arrangements, (ii) 4,933,333
shares of Company Common Stock are reserved for future issuance upon conversion
of outstanding shares of the Company Preferred Stock, (iii) 950,834 shares of
Company Common Stock are reserved for issuance upon exercise of outstanding
warrants, and (iv) 800,000 shares of Company Common Stock are reserved for
issuance upon conversion of certain outstanding bridge
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<PAGE> 21
loans in the aggregate principal amount of $800,000. Section 2.3(b) of the
Company Schedule sets forth the following information with respect to each
Company Stock Right: (A) the name and address of the optionee or Company Stock
Right grantee; (B) the number of shares of Company Capital Stock subject to such
Company Stock Right; (C) the exercise price of such Company Stock Right; (D) the
date on which such Company Stock Right was granted; (E) the applicable Vesting
schedule; and (F) the date on which such Company Stock Right expires. The
Company has made available to Parent accurate and complete copies of all
agreements evidencing such Company Stock Rights. All shares of Company Capital
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instrument pursuant to which they are issuable,
would be duly authorized, validly issued, fully paid and nonassessable. Except
as disclosed on Section 2.3(b) of the Company Schedule, there are no commitments
or agreements of any character to which the Company is bound obligating the
Company to accelerate the vesting of any Company Stock Option or Company Award
as a result of the Merger and there are no Company Stock Rights that Vest upon
any condition other than the passage of time.
(c) Except as set forth in SECTION 2.3(b), there are no
subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which the Company is a party or by
which it is bound obligating the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, or repurchase, redeem or otherwise acquire, or
cause the repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of the Company or
obligating the Company to grant, extend, accelerate the vesting of or enter into
any such subscription, option, warrant, equity security, call, right, commitment
or agreement. Except as disclosed in Section 2.3(c) of the Company Schedule and
except as contemplated by this Agreement, there are no registration rights and
there is no voting trust, proxy, rights plan, anti-takeover plan or other
agreement or understanding to which the Company is a party or by which they are
bound with respect to any equity security of any class of the Company.
(d) All outstanding shares of Company Capital Stock and all
outstanding Company Stock Rights, have been issued and granted in compliance
with (i) all applicable securities laws and other applicable Legal Requirements
and (ii) all requirements set forth in applicable Contracts.
2.4 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, including obtaining the approval of the
Company Stockholders of the Merger, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
the Company and the Principal Stockholders and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, constitute legal and binding
obligations of the Company and the Principal Stockholders, enforceable against
the Company and the Principal Stockholders in accordance with its terms.
2.5 No Conflict; Required Filings and Consents.
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<PAGE> 22
(a) Except as specified on Section 2.5(a) of the Company
Schedule, the execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company shall not, (i) conflict
with or violate the Company Charter Documents, (ii) subject to obtaining the
approval of the Company Stockholders of the Merger and compliance with the
requirements set forth in SECTION 2.5(b) below, conflict with or violate any
Legal Requirement applicable to the Company or by which its properties are bound
or affected, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a breach or
constitute a default) under, or impair the Company's rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company pursuant to, any material Contract to which the Company is a party or by
which the Company or its properties are bound or affected; provided that if any
consents, waivers or approvals are required to avoid the consequences noted in
(iii), such consents, waivers and approvals are listed on Section 2.5(a) of the
Company Schedule along with an indication of whether such consents, waivers or
approvals have been obtained.
(b) The execution and delivery of this Agreement by the Company
does not, and the performance of this Agreement by the Company shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Body, except (A) for applicable requirements,
if any, of the Securities Act, the Exchange Act or Blue Sky Laws, (B) the filing
and recordation of the Certificate of Merger as required by Delaware Law and (C)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not be material to the Company
or Parent or have a Material Adverse Effect on the parties hereto, prevent
consummation of the Merger or otherwise prevent the parties hereto from
performing their obligations under this Agreement.
2.6 Compliance; Permits.
(a) The Company is not in conflict with, or in default or
violation of, (i) any Legal Requirement applicable to the Company or by which
its properties are bound or affected, or (ii) any material Contract to which the
Company is a party or by which the Company or its properties are bound or
affected, except for any conflicts, defaults or violations that (individually or
in the aggregate) would not cause the Company to lose any material benefit or
incur any material liability or otherwise have a Material Adverse Effect on the
Company. No investigation or review by any Governmental Body is pending or, to
the knowledge of the Company, threatened against the Company, nor has any
Governmental Body indicated an intention to conduct the same, other than, in
each such case, those the outcome of which could not, individually or in the
aggregate, reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company, any acquisition of
material property by the Company or the conduct of business by the Company or
otherwise have a Material Adverse Effect on the Company.
(b) The Company holds all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to operation of the business of the Company taken as a whole
(collectively, the "COMPANY PERMITS"). The Company is in compliance in all
material respects with the terms of the Company Permits.
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<PAGE> 23
2.7 Financial Statements. The Company has provided to Parent its audited
balance sheets as of December 31, 1998 and 1999 and its audited statements of
operations, statements of stockholders' equity and statements of cash flows for
the twelve (12) month periods ended December 31, 1998 and 1999 (collectively,
the "AUDITED FINANCIAL STATEMENTS"). The Company has also provided to Parent its
unaudited balance sheets as of October 16, 2000 (the "MOST RECENT BALANCE
SHEET") and its unaudited statement of operations for the period from January 1,
2000 to October 16, 2000 (the "MOST RECENT INCOME STATEMENT", together with the
Most Recent Balance Sheet and the Audited Financial Statements, collectively,
the "FINANCIAL STATEMENTS"). Each of the Financial Statements was prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, do not contain
footnotes and other presentation items that may be required by GAAP). Each of
the Financial Statements fairly presents the financial position of the Company
at the respective dates thereof and the results of its operations and cash flows
for the periods indicated, except that the unaudited Financial Statements do not
include statements of cash flows and were or are subject to normal adjustments
which were not or are not expected to be, individually or in the aggregate,
material in amount, and except that they contain no provision for income taxes.
2.8 No Undisclosed Liabilities; Total Assets and Total Liabilities.
Except as may be disclosed in footnotes to the Audited Financial Statements, the
Company does not have any liabilities (absolute, accrued, contingent or
otherwise) except liabilities provided for in the Most Recent Balance Sheet. As
of the date hereof, total liabilities of the Company shall not exceed
$110,831.75.
2.9 Absence of Certain Changes or Events. Since October 16, 2000, except
as disclosed on Section 2.9 of the Company Schedule:
(a) there has not been any Material Adverse Effect on the
Company;
(b) there has not been any declaration, setting aside or payment
of any dividend on, or other distribution (whether in cash, stock or property)
in respect of, any of the Company's capital stock, or any purchase, redemption
or other acquisition by the Company of any of the Company's capital stock or any
other securities of the Company or any options, warrants, calls or rights to
acquire any such shares or other securities except for repurchases from
employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements;
(c) there has not been any split, combination or
reclassification of any of the Company's capital stock;
(d) there has not been any granting by the Company of any
increase in compensation or fringe benefits, except for normal increases of cash
compensation to non-officer employees in the Ordinary Course of Business
consistent with past practice, or any payment by the Company of any bonus,
except for bonuses made to non-officer employees in the Ordinary Course of
Business consistent with past practice, or any granting by the Company of any
increase in severance or termination pay or any entry by the Company into any
currently effective employment, severance, termination or indemnification
agreement or any agreement the benefits of which are contingent or
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<PAGE> 24
the terms of which are materially altered upon the occurrence of a transaction
involving the Company of the nature contemplated hereby;
(e) the Company has not entered into any licensing or other
agreement with regard to the acquisition or disposition of any Intellectual
Property (as defined in SECTION 2.18);
(f) there has not been any material change by the Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP;
(g) there has not been any revaluation by the Company of any of
its assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable or any sale of assets of
the Company other than in the Ordinary Course of Business;
(h) the Company has not sold, leased, transferred, or assigned
any assets or properties, tangible or intangible, outside the Ordinary Course of
Business (as defined below);
(i) the Company has not entered into, assumed or become bound
under or obligated by any Contract or extended or modified the terms of any
Contract which (i) involves the payment of greater than $5,000 per annum or
which extends for more than one (1) year, (ii) involves any payment or
obligation to any Affiliate of the Company other than in the Ordinary Course of
Business, (iii) involves the sale of any material assets, or (iv) involves any
license or sublicense of any Company Intellectual Property;
(j) no party (including the Company) has accelerated,
terminated, made modifications to, or canceled any Contract to which the Company
is a party or by which it is bound and the Company has not modified, canceled or
waived or settled any debts or claims held by it, outside the Ordinary Course of
Business, or waived or settled any rights or claims of a substantial value,
whether or not in the Ordinary Course of Business;
(k) to the Company's knowledge, none of the assets of the
Company, tangible or intangible, has become subject to any Lien;
(l) the Company has not made any capital expenditures except in
the Ordinary Course of Business and not exceeding $15,000 in the aggregate of
all such capital expenditures;
(m) the Company has not made any capital investment in, or any
loan to, any other person;
(n) the Company has not created, incurred, assumed, prepaid or
guaranteed any indebtedness for borrowed money and capitalized lease
obligations, or extended or modified any existing indebtedness;
(o) there has been no change made or authorized in the
certificate of incorporation or bylaws of the Company;
(p) there has not been (i) any change in the Company's
authorized or issued capital stock, (ii) any grant of any Company Stock Right,
(iii) the issuance of any security convertible into
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<PAGE> 25
such Company Capital Stock, (iv) the grant of any registration rights, (v) any
purchase, redemption, retirement, or other acquisition by the Company of any
shares of any such capital stock or (vi) any declaration or payment of any
dividend or other distribution or payment in respect of shares of capital stock;
(q) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property in excess of $5,000
in the aggregate of all such damage, destruction and losses;
(r) the Company has not suffered any repeated, recurring or
prolonged shortage, cessation or interruption of communications, customer
access, supplies or utility services;
(s) the Company has not made any loan to, or entered into any
other transaction with, or paid any bonuses in excess of an aggregate of $5,000
to, any of its Affiliates, directors, officers, or employees or their
Affiliates, and, in any event, any such transaction was on fair and reasonable
terms no less favorable to the Company than would be obtained in a comparable
arm's length transaction with a Person which is not such a director, officer or
employee or Affiliate thereof;
(t) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
(u) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, or
employees (or taken any such action with respect to any other Plan (as defined
below));
(v) the Company has not made any other change in employment
terms for any of its directors or officers, and the Company has not made any
other change in employment terms for any other employees outside the Ordinary
Course of Business;
(w) the Company has not suffered any adverse change or any
threat of any adverse change in its relations with, or any loss or threat of
loss of, any of its major customers, distributors, suppliers or partners;
(x) the Company has not received notice and does not have
knowledge of any actual or threatened labor trouble or strike, or any other
occurrence, event or condition of a similar character;
(y) the Company has not made a change in any of its banking or
safe deposit arrangements;
(z) the Company has not entered into any transaction other than
in the Ordinary Course of Business; and
(aa) the Company has not entered into any agreement or otherwise
become obligated to do any of the foregoing.
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<PAGE> 26
2.10 Absence of Litigation. Except as disclosed in Section 2.10 of the
Company Schedule, there are (and since the Company's inception there have been)
no claims, actions, suits or proceedings pending or, to the knowledge of the
Company, threatened (or, to the knowledge of the Company, any investigation by
any Governmental Body pending or threatened) or contemplated against the Company
or any properties or rights of the Company, before any Governmental Body. None
of the Company or any of its properties or rights is subject to any outstanding
injunction, order, decree, ruling or charge. To the knowledge of the Company, no
third party has any cause for filing, threatening or contemplating any claim,
action, suit or proceeding or investigation of the Company.
2.11 Employee Benefit Plans.
(a) Except as disclosed in Section 2.11 of the Company Schedule,
the Company is not a party to any pension, profit sharing, savings, retirement
or other deferred compensation plan, or any bonus or incentive program, or any
group health plan (whether insured or self-funded), or any disability or group
life insurance plan or other employee welfare benefit plan of any kind, whether
written or oral, binding or nonbinding, or to any collective bargaining
agreement or other agreement, written or oral, with any trade or labor union,
employees' association or similar organization. The Company is not a party to,
nor has it made any contribution to or otherwise incurred any obligation under a
"multiemployer plan" as defined in Section 3(37) of the Employee Retirement
Income Security Act of 1974, as amended.
(b) The Company has not violated any of the health care
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985.
(c) Except as disclosed in Section 2.11 of the Company Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any shareholder, director or employee of the Company, (ii)
materially increase any benefits otherwise payable to any employee, director or
consultant, or (iii) result in the acceleration of the time of payment or
vesting of any such benefits.
(d) The Company: (i) is in compliance in all materials respects
with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and condition of
employment and wages and hours, in each case, with respect to current and former
employees, consultants and directors; (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 current and former employees,
consultants, and directors; (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 current and former employees, consultants and directors (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" compensation policy or
long-term disability policy.
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<PAGE> 27
(e) The Company has, effective the day prior to the Closing,
terminated its 401(k) plan.
(f) Every employee of the Company other than the Committed
Employees is an "at-will" employee, terminable by the Surviving Corporation
following the Effective Time without any liability on the part of the Company,
including without limitation any obligation with respect to any severance
payment, the acceleration of any right or any similar benefit.
2.12 Labor Matters. (i) There are no controversies pending or, to the
knowledge of the Company, threatened, between the Company and any of its
employees; (ii) the Company is not (and has never been) a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company nor does the Company know of any activities or
proceedings of any labor union to organize any such employees; and (iii) the
Company does not have any knowledge of any strikes, slowdowns, work stoppages or
lockouts, or threats thereof, by or with respect to any employees of the
Company.
2.13 Restrictions on Business Activities. There is no Contract or Legal
Requirement binding upon the Company or to which the Company is a party which
has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company, any acquisition of
property by the Company or the conduct of business by the Company as currently
conducted.
2.14 Title to Property. The Company does not own (and has never owned)
any real property. The Company has good and defensible title to all of their
material properties and assets, free and clear of all Liens except for such
liens or other imperfections of title, if any, as do not materially detract from
the value of or interfere with the present use of the property affected thereby;
and all leases pursuant to which the Company leases from others material real or
personal property are in good standing, valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
material default or event of default (or any event which with notice or lapse of
time, or both, would constitute a material default and in respect of which the
Company has not taken adequate steps to prevent such default from occurring).
All the plants, structures and equipment of the Company are in good operating
condition and repair, ordinary wear and tear excepted.
2.15 Taxes. Except as disclosed in Section 2.15 of the Company Schedule,
the Company hereby affirms that all taxes, including without limitation, income,
property, sales, use, franchise, added value, withholding, and social security
taxes, imposed by the United States, any state, municipality, other local
government, or other subdivision or instrumentality of the United States, or any
foreign country or any state or other government thereof, or any other taxing
authority, that are due or payable by the Company, and all interest and
penalties thereon, whether disputed or not, and which would result in the
imposition of a lien, claim or encumbrance against Parent or Merger Sub, other
than taxes which are not yet due and payable, have been paid in full, all tax
returns required to be filed in connection therewith have been prepared
accurately and duly and timely filed, and all deposits required by law to be
made by the Company with respect to employees' withholding taxes have been duly
made. Except as disclosed in Section 2.15 of the Company Schedule, the Company
is not delinquent in the payment of any foreign or domestic tax, assessment, or
governmental charge
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<PAGE> 28
or deposits which would result in the imposition of a lien, claim, or
encumbrance against Parent or Merger Sub, and the Company does not have a tax
deficiency or claim outstanding, proposed or assessed against it, and there is
no basis for any such deficiency or claim, which would result in the imposition
of any lien, claim or encumbrances against Parent or Merger Sub. The Company is
not a party to any agreement that could obligate it to make payments that will
be non-deductible under Code Section 280G. The Company is not a party to a tax
allocation or sharing agreement. The Company has never been a member of an
affiliated group that filed consolidated federal income tax returns and it is
not liable for the taxes of any other person, whether as a transferee or
successor, by contract, or otherwise.
2.16 Environmental Matters. The Company is not in violation of any
applicable statute, law, or regulation relating to the environment or
occupational health and safety, and no expenditures are or will be required in
order to comply with any such existing statute, law or regulation.
2.17 Brokers. The Company 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
2.18 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" means all of the following and all rights in,
arising out of, or associated therewith: (i) all United States, foreign
and international patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof ("PATENTS"); (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, proprietary processes or formulae, franchises,
licenses, know how, technology, technical data, customer lists, and all
documentation relating to any of the foregoing; (iii) all copyrights,
copyright registrations and applications therefor and all other rights
corresponding thereto throughout the world; (iv) all rights to all mask
works, mask work registrations and applications therefor; (v) all
industrial designs and any registrations and applications therefor
throughout the world; (vi) all trade names, logos, common law trademarks
and service marks; trademark and service mark registrations and
applications therefor and all goodwill associated therewith throughout
the world; (vii) all databases and data collections and all rights
therein throughout the world; (viii) all computer software including all
source code, object code, algorithms, display screens, layouts,
firmware, development tools, files, records and data, all media on which
any of the foregoing is recorded, all Web addresses, sites and domain
names ("SOFTWARE"); (ix) any similar, corresponding or equivalent rights
to any of the foregoing; and (x) all documentation related to any of the
foregoing.
"COMPANY INTELLECTUAL PROPERTY" means all Intellectual Property that is
owned by or exclusively licensed to the Company. Without in any way
limiting the generality of the foregoing, Company Intellectual Property
includes all Intellectual Property owned or licensed by the Company
related to the Company's products.
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<PAGE> 29
"REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations
or applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; (iv) any mask work
registrations and applications to register mask works; and (v) any other
Company Intellectual Property that is the subject of an application,
certificate, filing, registration or other document issued by, filed
with, or recorded by, any state, government or other legal authority.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company.
(a) Section 2.18(a) of the Company Schedule is a complete and
accurate list of all Company Registered Intellectual Property and specifies,
where applicable, the jurisdictions in which each such item of Company
Registered Intellectual Property has been issued or registered and lists any
proceedings or actions before any court, tribunal (including the United States
Patent and Trademark Office (the "PTO") or equivalent authority anywhere in the
world) related to any of the Company Registered Intellectual Property.
(b) Section 2.18(b) of the Company Schedule is a complete and
accurate list (by name and version number) of all software products or service
offerings of the Company ("COMPANY Products") that have been distributed or
provided in the ten (10)-year period preceding the date hereof or which the
Company intends to distribute or provide in the future, including any products
or service offerings under development.
(c) Except as disclosed on Section 2.18(c) of the Company
Schedule, no Company Intellectual Property or Company Product is subject to any
proceeding or outstanding decree, order, judgment, contract, license, agreement,
or stipulation restricting in any manner the use, transfer, or licensing thereof
by Company, or which may affect the validity, use or enforceability of such
Company Intellectual Property or Company Product.
(d) Except as disclosed on Section 2.18(d) of the Company
Schedule, each material item of Company Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual Property
have been made and all necessary documents, recordations and certificates in
connection with such Company Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark and other authorities in all
relevant jurisdictions, as the case may be, for the purposes of maintaining such
Company Registered Intellectual Property. There are no actions that must be
taken by the Company within one hundred twenty (120) 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 Registered
Intellectual Property. The Company has no registered copyrights. In each case in
which the Company has acquired any Intellectual Property rights from any person,
the Company has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Intellectual Property (including the
right to seek past and future damages with respect to such Intellectual
Property) to the Company and, to the maximum extent provided for by, and in
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accordance with, applicable laws and regulations, the Company has, with respect
to assignments of Registered Intellectual Property, recorded each such
assignment with the relevant Governmental Bodies.
(e) The Company Intellectual Property constitutes all the
Intellectual Property used in or necessary to the conduct of the business of the
Company as it currently is conducted or is reasonably contemplated to be
conducted as of the date of this Agreement, including, without limitation, the
design, development, manufacture, use, import and sale of Company Products. The
Company owns and has good and exclusive title to each material item of Company
Intellectual Property free and clear of any lien or encumbrance (excluding
non-exclusive licenses and related restrictions granted in the ordinary course).
Without limiting the foregoing: (i) the Company is the exclusive owner of all
trademarks and trade names used in connection with the operation or conduct of
the business of the Company, including the sale, distribution or provision of
any Company Products by the Company; (ii) the Company owns exclusively, and has
good title to, all copyrighted works that constitute or are included in Company
Products or which the Company otherwise purports to own; and (iii) to the extent
that any Patents would be infringed by any Company Products, the Company is the
exclusive owner of such Patents.
(f) To the extent that any technology, software or material
Intellectual Property has been developed or created independently by or jointly
with a third party for the Company or is incorporated into any of the Company
Products, the Company has a written agreement with such third party with respect
thereto and the Company thereby either (i) has obtained ownership of, and is the
exclusive owner of, or (ii) has obtained a perpetual, non-terminable license
(sufficient for the conduct of its business as currently conducted and as
proposed to be conducted) to all such third party's Intellectual Property in
such work, material or invention by operation of law or by valid assignment, to
the fullest extent it is legally possible to do so.
(g) Except as disclosed in Section 2.18(g) of the Company
Schedule, the Company has not transferred ownership of, or granted any exclusive
license with respect to, any Intellectual Property that is or was Company
Intellectual Property to any third party or permitted the Company's rights in
such Company Intellectual Property to lapse or enter the public domain.
(h) Section 2.18(h) of the Company Schedule lists all
contracts, licenses and agreements to which the Company is a party: (i) with
respect to Company Intellectual Property licensed or transferred to any third
party (other than end-user licenses in the ordinary course); or (ii) pursuant to
which a third party has licensed or transferred any Intellectual Property to the
Company (other than shrink-wrap licenses available off the shelf).
(i) All contracts, licenses and agreements relating to either
(i) Company Intellectual Property or (ii) Intellectual Property of a third party
licensed to the Company, are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result in
the breach, modification, cancellation, termination or suspension of such
contracts, licenses and agreements or cause the forfeiture, modification or
termination or give right of forfeiture, modification or termination of any
Company Intellectual Property or in any way impair the right of the Company to
use, sell, license or dispose of or to bring any action for the infringement of
any Company Intellectual Property or portion thereof. The Company is in material
compliance
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<PAGE> 31
with, and has not materially breached any term of any such contracts, licenses
and agreements and, to the best knowledge of the Company, all other parties to
such contracts, licenses and agreements are in compliance with, and have not
materially breached any term of, such contracts, licenses and agreements.
Following the Closing Date, the Surviving Corporation will be permitted to
exercise all of the Company's rights under such contracts, licenses and
agreements to the same extent the Company would have been able to if the
transactions contemplated by this Agreement did not occur 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.
Neither this Agreement nor the transactions contemplated by this Agreement,
including the assignment of any contracts or agreements to which the Company is
a party to Parent or Merger Sub by operation of law or otherwise, will result in
(i) either Parent's or the Merger Sub's granting to any third party any right to
or with respect to any Intellectual Property right owned by, or licensed to,
either of them, (ii) either the Parent's or the Merger Sub's being bound by, or
subject to, any non-compete or other material restriction on the operation or
scope of their respective businesses, or (iii) either the Parent's or the Merger
Sub's being obligated to pay any royalties or other material amounts to any
third party in excess of those payable by Parent or Merger Sub, respectively,
prior to the Closing.
(j) The operation of the business of the Company as such
business is currently conducted or is reasonably contemplated to be conducted as
of the date of this Agreement, including (i) the Company's design, development,
manufacture, distribution, reproduction, marketing or sale of the products or
services of the Company (including Company Products) and (ii) the Company's use
of any product, device or process, has not, does not and will not infringe or
misappropriate the Intellectual Property of any third party, constitute unfair
competition or trade practices under the laws of any jurisdiction or violate any
license or agreement between the Company and any person.
(k) Except as disclosed in Section 2.18(k) of the Company
Schedule, the Company has not received notice from any third party that the
operation of the business of the Company or any act, product or service of the
Company, infringes or misappropriates the Intellectual Property of any third
party or constitutes unfair competition or trade practices under the laws of any
jurisdiction. There are no claims or actions related to any of the following
(and the Company has not received any notice from any third party threatening
any claim or action relating to any of the following): (1) any communications
features of the Company Intellectual Property, including sending data to or
receiving data from any third party; (2) the receipt, storage, and/or use of any
information sent by the Company Intellectual Property; (3) any violation of any
individual's privacy rights; (4) any violation of the Electronic Communications
Privacy Act or the Computer Fraud and Abuse Act; and (5) any transmission or
receipt of data without the user's consent.
(l) Neither the development, manufacture, marketing, license,
sale nor use of any product, technology or service currently licensed or sold by
the Company or currently under development violates or will violate any license
or agreement with any third party or infringes or will infringe any Intellectual
Property of any other person which would have a Material Adverse Effect; there
is no pending or, to the best of the Company's knowledge, threatened claim or
litigation contesting the validity, ownership or right to use, sell, license or
dispose of any Company Intellectual Property nor, to the best of the Company's
knowledge, is there any basis for any such claim, nor has the Company received
any notice asserting that any Company Intellectual Property or the proposed
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<PAGE> 32
use, sale, license or disposition thereof conflicts or will conflict with the
rights of any other person, nor is there any basis for any such assertion.
(m) To the best of the Company's knowledge, no person is
infringing or misappropriating, or has previously infringed or misappropriated,
any Company Intellectual Property.
(n) The Company has taken reasonable steps to protect the
Company's rights in the Company's confidential information and trade secrets
that it wishes to protect or any trade secrets or confidential information of
third parties provided to the Company, and, without limiting the foregoing, the
Company has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality agreement substantially in the
form provided to Parent and all current and former employees and contractors of
the Company have executed such an agreement.
2.19 Agreements, Contracts and Commitments. Except as disclosed in
Section 2.19 of the Company Schedule, the Company is not a party to or bound by:
(a) any employment or consulting Contract with any officer or
director or higher level employee or member of the Company's Board of Directors,
other than those that are terminable by the Company on no more than thirty (30)
days' notice without liability or financial obligation to the Company;
(b) any Contract or plan, including, without limitation, any
stock option plan, stock appreciation right 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;
(c) any Contract of indemnification or any guaranty other than
any Contract of indemnification entered into in connection with the sale,
license, distribution and development of software products and advertising in
the Ordinary Course of Business;
(d) any Contract containing any covenant limiting in any respect
the right of the Company to engage in any line of business or to compete with
any person or granting any exclusive distribution rights;
(e) any Contract currently in force relating to the disposition
or acquisition by the Company after the date of this Agreement of a material
amount of assets not in the Ordinary Course of Business or pursuant to which the
Company has any material ownership interest in any corporation, partnership,
joint venture or other business enterprise;
(f) any dealer, distributor, joint marketing or development
Contract currently in force under which the Company has a continuing material
obligation to jointly market any product, technology or service and which may
not be canceled without penalty upon notice of ninety (90) days or less, or any
material Contract pursuant to which the Company has a continuing material
obligation to jointly develop any intellectual property that will not be owned,
in whole or in part, by the Company and which may not be canceled without
penalty upon notice of ninety (90) days or less;
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<PAGE> 33
(g) any Contract currently in force to provide source code to
any third party for any product or technology that is material to the Company;
(h) any Contract currently in force to license any third party
to manufacture or reproduce any Company product, service or technology or any
Contract currently in force to sell or distribute any Company products, service
or technology except agreements with distributors or sales representative in the
normal course of business cancelable without penalty upon notice of ninety (90)
days or less and substantially in the form previously provided to Parent;
(i) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other Contract or instruments relating to the
borrowing of money or extension of credit or granting any Lien on any assets or
properties of the Company;
(j) any settlement agreement entered into prior to the date of
this Agreement;
(k) any other Contract that has a value of $5,000 or more
individually;
(l) any Contract (or group of related Contracts) for the lease
of personal property to or from any person that involves aggregate annual
payments of more than $5,000;
(m) any Contract under which the consequences of a default or
termination could reasonably be anticipated to have a Material Adverse Effect on
the Company;
(n) any Contract (or group of related Contracts) for the
purchase or sale of commodities, supplies, products, or other personal property,
or for the furnishing or receipt of services, the performance of which will
extend over a period of more than six (6) months or involve consideration in
excess of $5,000;
(o) any Contract for the purchase of supplies, components,
products or services from single source suppliers, custom manufacturers or
subcontractors that involves aggregate annual payments of more than $5,000;
(p) any Contract concerning a partnership or joint venture;
(q) any Contract with any Company Stockholder or any of such
Company Stockholder's Affiliates (other than the Company) or with any Affiliate
of the Company;
(r) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers or employees;
(s) any collective bargaining agreement;
(t) any executory agreement under which the Company has advanced
or loaned any amount to any of its directors, officers, and employees;
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(u) any advertising services, e-commerce or other Contract
involving the promotion of products and services of third parties by the
Company;
(v) any executory Contract pursuant to which the Company is
obligated to provide maintenance, support or training for its services or
products;
(w) any revenue or profit participation Contract which involves
aggregate annual payments of more than $5,000; and
(x) any Contract or other permission which the Company or any
Affiliate of the Company has granted to any third party with respect to any of
the Intellectual Property used in the Company's business.
Neither the Company, nor to the Company's knowledge any other party to a
Company Contract (as defined below), is in breach, violation or default under,
and the Company has not received written notice that it has breached, violated
or defaulted under, any of the material terms or conditions of any of the
Contracts to which the Company is a party or by which it is bound that are
required to be disclosed in the Company Schedule (any such agreement, contract
or commitment, a "COMPANY CONTRACT") in such a manner as would permit any other
party to cancel or terminate any such Company Contract, or would permit any
other party to seek material damages or other remedies (for any or all of such
breaches, violations or defaults, in the aggregate) or would otherwise have a
Material Adverse Effect on the Company.
2.20 Insurance. The Company maintains insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company (collectively, the "INSURANCE
POLICIES") which are of the type and in amounts listed on Section 2.20 of the
Company Schedule. With respect to each such insurance policy: (A) the policy is
legal, valid, binding, enforceable, and in full force and effect (and there has
been no notice of cancellation or nonrenewal of the policy received); (B)
neither the Company nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy; (C) no party to the policy has repudiated any
provision thereof; and (D) there has been no failure to give any notice or
present any claim under the policy in due and timely fashion. There is no
material claim by the Company pending under any of the material Insurance
Policies as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds.
2.21 Certain Business Relationships with the Company. To the Company's
knowledge, (a) neither the Company's Stockholders nor any director or officer of
the Company, nor any member of their immediate families, nor any Affiliate of
any of the foregoing, owns, directly or indirectly, or has an ownership interest
in any business (corporate or otherwise) which is a party to, or in any property
which is the subject of, any business arrangement or relationship of any kind
with the Company, and (b) neither the Principal Stockholders nor any director or
officer of the Company, nor any member of their immediate families, nor any
Affiliate of the foregoing, owns, directly or indirectly, or has an ownership
interest in any business (corporate or otherwise) which conducts the same
business as, or a business similar to, that conducted by the Company.
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2.22 Employees. No executive, key employee, or significant group of
employees has advised any executive officer of the Company that he, she or they
plan to terminate employment with the Company during the next 12 months.
2.23 Notes and Accounts Receivable. All notes and accounts receivable of
the Company, all of which are reflected properly on the books and records of the
Company, are valid receivables subject to no setoffs, defenses or counterclaims,
are current and, to the Company's knowledge, collectible subject in each case
only to the reserve for bad debts set forth on the face of the Most Recent
Balance Sheet as adjusted for operations and transactions through the Closing
Date in accordance with the past custom and practice of the Company.
2.24 Product Warranty. The technologies or products licensed, sold,
leased, and delivered and all services provided by the Company have conformed in
all material respects with all applicable contractual commitments and all
express and implied warranties, and the Company has no liability (whether known
or unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due) for replacement or modification thereof or other damages
in connection therewith.
2.25 Board Approval. The Board of Directors of the Company has, as of
the date of this Agreement, unanimously (i) approved this Agreement, the Merger
and the other transactions contemplated hereby, (ii) determined that the Merger
is consistent with and in furtherance of the long-term business strategy of the
Company and fair to, and in the best interests of, the Company and the Company
Stockholders and (iii) determined to recommend that the Company Stockholders
adopt and approve this Agreement and approve the Merger.
2.26 Vote Required. The affirmative vote of a majority of the
outstanding shares of each class of the Company Capital Stock entitled to vote
with respect to the Merger is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve this Agreement and
the transactions contemplated hereby.
2.27 Complete Copies of Materials. Except as specifically noted in
Section 2.27 of the Company Schedule, the Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel, including, without limitation, each
document referred to in the Company Schedule.
2.28 Hart-Scott-Rodino Representations.
(a) Immediately prior to the Effective Time, (i) the Company
will be its own Ultimate Parent Entity, as defined by 16 C.F.R. Section 801.1
and (ii) the Company will have neither total assets nor annual revenues of
$10,000,000 or more, as determined pursuant to 15 U.S. C. Section 18a(a)(2) and
16 C.F.R. Section 801.11. Accordingly, the Company is not required to file with
the Department of Justice and Federal Trade Commission a Notification and Report
Form pursuant to the Hart-Scott-Rodino Act of 1976, as amended, 15 U.S.C.
Section 18a, and 16 C.F.R. Section 803.2.
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(b) No stockholder of the Company is required to file a
Notification and Report Form under Section 801.2(e) of the HSR Act concerning
its acquisition of Parent voting securities as consideration to be received in
the Merger.
2.29 Termination of Certain Agreements. Immediately prior to or at the
Effective Time:
(a) Each of (i) the Shareholders Agreement dated May 20, 1998
among certain stockholders of the Company (the "SHAREHOLDERS AGREEMENT"), (ii)
Amended and Restated Voting Agreement dated June 17, 1999 and amended on
December 16, 1999 (the "VOTING AGREEMENT"), (iii) Amended and Restated Right of
First Refusal and Co-Sale Agreement dated June 17, 1999 and amended on December
16, 1999 (the "RIGHTS AGREEMENT"), and (iv) Investor Rights Agreement dated June
17, 1999 and amended on December 16, 1999 (the "INVESTOR RIGHTS AGREEMENT") will
terminate and no provision of any such agreement shall in any way apply to (and
no rights thereunder of any party thereto shall in any way be affected by)
either the execution of this Agreement or the consummation of the Merger;
(b) each employment agreement between the Company and employees
of the Company shall terminate and no provision of any such agreement shall in
any way apply to (and no rights thereunder of any party thereto shall in any way
be affected by) either the execution of this Agreement or the consummation of
the Merger;
(c) the Bridge Note (as defined in SECTION 5.2(n)) shall be
fully converted into Company Capital Stock and the Company shall have no
continuing obligations under the Bridge Note after the Effective Time and such
Bridge Note shall have been acknowledged by the payee to be satisfied in full
and delivered to Parent.
2.30 Representations Complete. Neither any of the representations or
warranties made by the Company 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 the light of the circumstances under which made, not misleading.
Except for information supplied by Parent in writing specifically for such
purpose, the information furnished on or in any documents mailed, delivered or
otherwise furnished to the 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 omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the
Company, subject to such exceptions as are specifically disclosed in writing in
the disclosure letter and referencing a specific representation supplied by
Parent to the Company dated as of the date hereof and certified by a duly
authorized officer of Parent (the "PARENT SCHEDULE"), as follows:
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3.1 Organization and Qualification; Subsidiaries. Each of Parent and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent or Merger Sub. Parent is in possession of all
Approvals necessary to own, lease and operate the properties it purports to own,
operate or lease and to carry on its business as it is now being conducted,
except where the failure to have such Approvals would not, individually or in
the aggregate, have a Material Adverse Effect on Parent. Parent is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not, either individually
or in the aggregate, have a Material Adverse Effect on Parent.
3.2 Authority Relative to this Agreement. Each of Parent and Merger Sub
has all necessary corporate power and authority to execute and deliver this
Agreement, and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement, or to consummate the transactions so contemplated,
subject only to the filing of the Certificate of Merger pursuant to Delaware
Law. This Agreement has been duly and validly executed and delivered by Parent
and Merger Sub and, assuming the due authorization, execution and delivery by
the Company, constitute legal and binding obligations of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with their respective
terms.
3.3 SEC Filings; Financial Statements.
(a) Parent has made available to the Company a correct and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Parent with the Securities and Exchange Commission (the
"SEC") on or after December 31, 1999 (the "PARENT SEC REPORTS"), which are all
the forms, reports and documents required to be filed by Parent with the SEC
since December 31, 1999. The Parent SEC Reports (A) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and (B) did not at the time they were filed (or if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of Parent's subsidiaries is required to file any reports or
other documents with the SEC.
(b) Each set of consolidated financial statements (including, in
each case, any related notes thereto) contained in the Parent SEC Reports was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain footnotes as permitted by Form 10-Q
of the Exchange Act) and each fairly presents the consolidated financial
position of Parent and its
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subsidiaries at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal adjustments which
were not or are not expected to be material in amount.
(c) Parent has previously furnished to the Company a complete
and correct copy of any amendments or modifications, which have not yet been
filed with the SEC but which are required to be filed, to agreements, documents
or other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
3.4 Brokers. 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.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Public Disclosure. The Principal Stockholders and the Company agree
that they will not issue any press release or otherwise make any public
statement with respect to the Merger or this Agreement without the prior written
consent of Parent.
4.2 Stock Options and Warrants.
(a) Stock Options. At the Effective Time, each Company Stock
Option held by a Current Service Provider that does not terminate on or prior to
the Effective Time, whether or not vested, shall be replaced by Parent. Each
Company Stock Option so replaced by Parent under this Agreement will be
substituted with an option granted under the Parent Amended and Restated 1996
Stock Option Plan (a "REPLACEMENT OPTION"). Each Replacement Option will
continue to have, and be subject to, substantially equivalent principal terms
and conditions as provided in the respective option agreement governing the
Company Stock Option it replaced, as in effect immediately prior to the
Effective Time (including without limitation vesting schedules and vesting
commencement dates, provided that, with respect to the Replacement Options held
by Committed Employees, such vesting terms shall be as described in their
respective Committed Employee Option Amendment Agreement (as defined in Section
5.2(j)) effective immediately prior to the Effective Time), except for the
following:
(i) Each Replacement Option will be exercisable for that
number of whole shares of Parent Common Stock equal to the product (rounded down
to the nearest whole share) of (A) the number of shares of Company Common Stock
that were issuable upon exercise of such Company Stock Option immediately prior
to the Effective Time, and (B) the Common Exchange Ratio or, with respect to
Replacement Options to be issued to a Committed Employee, such Committed
Employee's Committed Employee Exchange Ratio.
(ii) Each Replacement Option will provide for the
issuance, if and only if the Purchase Price Contingency is satisfied, of a
number of additional shares of Parent Common Stock ("CONTINGENT OPTION SHARES")
equal to the product (rounded down to the nearest whole share) obtained by
multiplying (A) the number of shares of Parent Common Stock issuable upon
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exercise of the Replacement Option immediately after the Effective Time
(provided that, if such Replacement Option expires after the Effective Time and
on or prior to the Contingency Date, such number shall be reduced by the number
of shares of Parent Common Stock issuable upon exercise of such Replacement
Option which remain unexercised at the time of such termination) times (B) the
Contingent Share Ratio (the "AGGREGATE CONTINGENT OPTION SHARE NUMBER"). If any
shares of Parent Common Stock have been issued upon exercise of a Replacement
Option after the Effective Time and on or prior to the Contingency Date (the
number of such shares issued upon exercise, the "INTERIM OPTION SHARE NUMBER"),
as soon as practicable following the Contingency Date there will be issued to
the holder of such Replacement Option (without payment of any additional
exercise price) a number of Contingent Option Shares (rounded down to the
nearest whole share) equal to the product obtained by multiplying (W) the
Interim Option Share Number times (X) the Contingent Share Ratio (the "INTERIM
CONTINGENT OPTION SHARE NUMBER"). The number of shares of Parent Common Stock
remaining unexercised under each Replacement Option immediately following the
Contingency Date (the "REMAINING OPTION SHARE NUMBER") shall be increased by a
number of shares of Parent Common Stock determined by subtracting the Interim
Contingent Option Share Number from the Aggregate Contingent Option Share Number
(the "REMAINING CONTINGENT OPTION SHARE NUMBER").
(iii) Option Per Share Exercise Price.
(A) For the period beginning immediately
following the Effective Time and ending on the Contingency Date, the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
each Replacement Option will be equal to the quotient (rounded up to the nearest
whole cent) determined by dividing (W) the exercise price per share of Company
Common Stock at which such Replacement Option was exercisable immediately prior
to the Effective Time by (X) the Common Exchange Ratio.
(B) Following the Contingency Date, the per
share exercise price for the shares of Parent Common Stock issuable upon
exercise of each Replacement Option will be equal to quotient (rounded up to the
nearest whole cent) determined by dividing (Y) the product obtained by
multiplying the Remaining Option Share Number times the per share exercise price
for such Replacement Option immediately prior to the Contingency Date by (Z) the
sum obtained by adding the Remaining Option Share Number and the Remaining
Contingent Option Share Number.
(iv) Each Replacement Option shall be governed by the
administrative terms and provisions of Parent's Amended and Restated 1996 Stock
Option Plan and the standard form of agreement thereunder.
(b) Warrants. At the Effective Time, each Company Warrant,
whether or not vested, shall by virtue of the Merger be assumed by Parent. Each
Company Warrant so assumed by Parent under this Agreement (an "ASSUMED WARRANT")
will continue to have, and be subject to, the same terms and conditions as
provided in the respective warrant agreement governing such Company Warrant
immediately prior to the Effective Time (including without limitation vesting
schedules and vesting commencement dates), except for the following:
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(i) Each Assumed Warrant will be exercisable for that
number of whole shares of Parent Common Stock equal to the product (rounded down
to the nearest whole share) obtained by multiplying (A) the number of shares of
Company Common Stock that were issuable upon exercise of such Company Warrant
immediately prior to the Effective Time, times (B) the Common Exchange Ratio.
(ii) Each Assumed Warrant will provide for the issuance,
if and only if the Purchase Price Contingency is satisfied, of a number of
additional shares of Parent Common Stock ("CONTINGENT WARRANT SHARES") equal to
the product (rounded down to the nearest whole share) obtained by multiplying
(A) the number of shares of Parent Common Stock issuable upon exercise of the
Assumed Warrant immediately after the Effective Time (provided that, if such
Assumed Warrant expires after the Effective Time and on or prior to the
Contingency Date, such number shall be reduced by the number of shares of Parent
Common Stock issuable upon exercise of such Assumed Warrant which remain
unexercised at the time of such termination), times (B) the Contingent Share
Ratio (the "AGGREGATE CONTINGENT WARRANT SHARE NUMBER"). If any shares of Parent
Common Stock have been issued upon exercise of an Assumed Warrant after the
Effective Time and on or prior to the Contingency Date (the number of such
shares, the "INTERIM WARRANT SHARE NUMBER"), as soon as practicable following
the Contingency Date there will be issued to the holder of such Assumed Warrant
(without payment of any additional exercise price) a number of Contingent
Warrant Shares (rounded down to the nearest whole share) equal to the product
obtained by multiplying (W) the Interim Warrant Share Number times (X) the
Contingent Share Ratio (the "INTERIM CONTINGENT WARRANT SHARE NUMBER"). The
number of shares of Parent Common Stock remaining unexercised under each Assumed
Warrant immediately following the Contingency Date (the "REMAINING WARRANT SHARE
NUMBER") shall be increased by a number of shares of Parent Common Stock
determined by subtracting the Interim Contingent Warrant Share Number from the
Aggregate Contingent Warrant Share Number (the "REMAINING CONTINGENT WARRANT
SHARE NUMBER").
(iii) Warrant Per Share Exercise Price.
(A) For the period beginning immediately
following the Effective Time and ending on the Contingency Date, the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
each Assumed Warrant will be equal to the quotient (rounded up to the nearest
whole cent) determined by dividing (W) the exercise price per share of Company
Common Stock at which such Assumed Warrant was exercisable immediately prior to
the Effective Time by (X) the Common Exchange Ratio.
(B) Following the Contingency Date, the per
share exercise price for the shares of Parent Common Stock issuable upon
exercise of each Assumed Warrant will be equal to quotient (rounded up to the
nearest whole cent) determined by dividing (Y) the product obtained by
multiplying the Remaining Warrant Share Number times the per share exercise
price for such Assumed Warrant immediately prior to the Contingency Date by (Z)
the sum obtained by adding the Remaining Warrant Share Number and the Remaining
Contingent Warrant Share Number.
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4.3 Registration Statement on Form S-3. Parent shall, subject to the
terms and conditions of the Registration Rights Agreement, use its best efforts
to file as soon as practicable but no later than 30 Business Days following the
Closing, and to be declared effective as soon as practicable following such
filing, a Registration Statement on Form S-3 with the SEC covering the resale of
the Parent Common Stock issued to the holders of Company Capital Stock pursuant
to SECTION 1.7(a); provided, however, that shares held in the Escrow Fund and
shares which are restricted pursuant to any Stock Restriction Agreement shall
not be registered. Any such registration shall be subject to the terms and
conditions set forth in the Registration Rights Agreement attached hereto as
Exhibit C, which is hereby incorporated by this reference.
4.4 Registration Statement on Form S-8. Parent shall use its best
efforts to cause to remain effective following the Closing its Registration
Statement on Form S-8 which shall cover the shares of Parent Common Stock
(including Contingent Option Shares) issuable to the holders of Replacement
Options.
4.5 Post Closing Covenants; General.
(a) Further Assurances. In case at any time after the Effective
Time any further action is necessary to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor under
ARTICLE VI below).
(b) Litigation Support. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction (A) on or
prior to the Effective Time involving the Company or (B) arising out of Parent's
operation of the business of the Surviving Corporation following the Effective
Time in the manner in which it is presently conducted and planned to be
conducted, each of the other Parties will cooperate with the Party and its
counsel in the contest or defense, make available their personnel, and provide
such testimony and access to their books and records as shall be reasonably
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under ARTICLE VI below).
4.6 Releases. Each Principal Stockholder hereby fully, unconditionally
and irrevocably releases, effective as of the Closing, any and all claims and
causes of actions that such Principal Stockholder has or may have against the
Company or any present or former director, officer, employee or agent of the
Company arising or resulting from or relating to any act, omission, event or
occurrence prior to the date hereof.
4.7 Company Director and Officer Insurance Coverage. For a period of
three years after the Effective Time, Parent will or will cause the Surviving
Corporation to use its best efforts to maintain in effect, if available,
directors' and officers' liability insurance in the maximum amount of $3,000,000
covering those persons who are currently covered by the Company's directors' and
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officers' liability insurance policy on terms comparable to those applicable to
the then current directors and officers of the Company; provided, however, that
in no event will Parent or the Surviving Corporation be required to expend in
excess of $2,500 in an annual premium for such coverage (or such coverage as is
available for such annual premium).
ARTICLE V
CLOSING DELIVERABLES
5.1 Items to Be Delivered to the Company and the Shareholders'
Representative. At the Closing, the following shall be delivered to the Company
and the Shareholders unless waived, in writing, exclusively by the Company:
(a) Officer's Certificate. The Company shall have received a
certificate signed on behalf of Parent by an authorized officer of Parent, to
the effect that (i) the representations and warranties of Parent and Merger Sub
set forth in this Agreement are accurate at and as of the Closing Date, (ii)
Parent has performed and complied with all of its covenants and obligations
contained in this Agreement, and (iii) no action, suit, or proceeding is pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge is in effect) as of the Closing Date.
(b) Registration Rights Agreement. Parent shall have executed
and delivered the Registration Rights Agreement.
5.2 Items to Be Delivered to Parent and Merger Sub. At the Closing, the
following shall be delivered to Parent and Merger Sub unless waived, in writing,
exclusively by Parent:
(a) Company Officer's Certificate. Parent shall have received a
certificate signed on behalf of the Company by an authorized officer of the
Company, to the effect that (i) the representations and warranties of Company
set forth in this Agreement are accurate at and as of the Closing Date, (ii) the
Company has performed and complied with all of its covenants and obligations
contained in this Agreement, and (iii) no action, suit, or proceeding is pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge is in effect) as of the Closing Date.
(b) Principal Stockholders' Certificate. Parent shall have
received a certificate signed by each Principal Stockholder, to the effect that
(i) the representations and warranties of the Principal Stockholders set forth
in this Agreement are accurate at and as of the Closing Date, (ii) the Principal
Stockholders have performed and complied with all of their covenants and
obligations contained in this Agreement, and (iii) no action, suit, or
proceeding is pending before any court or quasi-judicial
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or administrative agency of any federal, state, local, or foreign jurisdiction
or before any arbitrator wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling, or charge is in effect) as of
the Closing Date.
(c) Secretary's Certificate. The Company shall deliver to Parent
copies of each of the following, in each case certified by the Secretary or
other authorized executive officer of the Company to be in full force and effect
on the date of the Closing: (i) a true, complete and correct copy of the Amended
and Restated Certificate of Incorporation of the Company (the "Restated
Certificate") as in effect on the Closing Date; (ii) a true, complete and
correct copy of the Bylaws of the Company as in effect on the Closing Date; and
(iii) a true, complete and correct copy of resolutions adopted by the Board of
Directors of the Company approving, by the requisite approval under applicable
law, among other things, the negotiation and subsequent execution of this
Agreement, the Merger, and other matters and ancillary documents contemplated
hereby.
(d) Affidavit of Delivery. The Company shall deliver at Closing
an affidavit of the secretary of the Company that the disclosure document which
has previously been approved by Parent, which discloses the terms of the Merger
and such information concerning the businesses of the Company and Parent as
Parent shall have reasonably approved, has been delivered to each Company
Stockholder.
(e) Consents. Company shall have obtained all consents, waivers
and approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses or
leases set forth on Section 2.5(a) of the Company Schedule, except as noted on
Section 2.5(a) of the Company Schedule.
(f) Resignation of Directors. Parent shall have received a
written resignation from each of the directors of Company, effective as of the
Effective Time.
(g) Legal Opinion. Parent shall have received a legal opinion
from Powell, Goldstein, Frazer & Murphy LLP, legal counsel to Company,
substantially in the form attached hereto as Exhibit D.
(h) Amendment of Milestone-based Options. The Company shall
deliver to Parent executed copies of agreements amending any Company Stock
Rights (the "MILESTONE OPTION AMENDMENTS") that prior to such Company Stock
Right Amendments provided for Vesting of such Company Stock Rights upon any
condition or occurrence other than the passage of time, so that such Company
Stock Rights shall Vest upon the passage of time.
(i) Amendment of Committed Employee Options. The Company shall
deliver to Parent executed copies of agreements in substantially the form
attached hereto as Exhibit H amending any Company Stock Options (the "COMMITTED
EMPLOYEE OPTION AMENDMENTS") held by Committed Employees.
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(j) New Employment Arrangements. Each of the employees listed in
Schedule A-1 attached to Exhibit A hereto (the "COMMITTED EMPLOYEES"), (i) shall
have entered into "at-will" employment arrangements with Parent and/or the
Surviving Corporation pursuant to their execution of Parent's standard form of
Offer Letter in substantially the form attached hereto as Exhibit E-1, shall
have agreed to be employees of Parent or the Surviving Corporation after the
Closing and shall be employees of Company immediately prior to the Effective
Time, and (ii) shall have executed Parent's standard form of Development,
Confidentiality and Noncompetition Agreement in substantially the form attached
hereto as Exhibit E-2.
(k) Stockholder Approval. The Company shall deliver to Parent
evidence reasonably satisfactory to Parent either (i) that, with respect to any
payments of cash or sales and purchases of stock or vesting of Company Stock
Rights or other benefits contemplated by this Agreement that may be deemed to
constitute "parachute payments" pursuant to Section 280G of the Code ("Potential
280G Benefits"), the Company's stockholders have approved by the requisite vote
such that all such Potential 280G Benefits resulting from the transactions
contemplated hereby shall not be deemed to be "parachute payments" pursuant to
Section 280G of the Code or shall be exempt from such treatment under such
Section 280G, or (ii) that such requisite stockholder approval has not been
obtained with respect to a Potential 280G Benefit and, as a consequence and
pursuant to the terms of the agreement providing for such Potential 280G
Benefit, such Potential 280G Benefit shall not be made or provided.
(l) Stock Restriction Agreements. Each of the Principal
Stockholders shall have executed and delivered to Parent a Stock Restriction
Agreement, in substantially the form attached hereto as Exhibit F-1, and a
Preference Stock Restriction Agreement, in substantially the form attached
hereto as Exhibit F-2 (the "Preference Stock Restriction Agreement"), and such
Stock Restriction Agreements and Preference Stock Restriction Agreements shall
be in full force and effect.
(m) Termination of Employment Agreements. Each agreement between
the Company and its employees shall have been terminated or shall terminate at
the Effective Time pursuant to a written agreement of termination reasonably
satisfactory to Parent, which agreement of termination shall provide that the
transactions contemplated by this Agreement shall not trigger any rights or
benefits or the acceleration of any rights or benefits under the terminated
agreement.
(n) Conversion of the Bridge Notes. The Promissory Notes between
the Company and Oliver Hein, Curacao Strategic European Technologies N.V. and
Larry Abrams, each dated July 19, 2000 and September 11, 2000 in the aggregate
principal amount of $800,000 (collectively, the "BRIDGE NOTES"), shall have
fully converted into Company Capital Stock, there shall be no further
obligations of the Company under the Bridge Notes and the Company shall have
delivered to Parent the original Bridge Notes and evidence reasonably
satisfactory to Parent that the obligations of the Company under the Bridge
Notes have been satisfied in full.
(o) Unanimous Approval. Every share of Company Capital Stock
entitled to vote upon the Merger shall have been voted in favor of the Merger.
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(p) Termination of Agreements. The Company shall deliver to
Parent evidence reasonably satisfactory to Parent that the Shareholders
Agreement, the Voting Agreement, the Rights Agreement, and the Investor Rights
Agreement have been terminated prior to the Effective Time.
(q) Stockholder Certificate. Each of the Company Stockholders
shall have executed the Stockholder Certificate.
(r) 401(k) Plan. The Company shall deliver to Parent evidence
reasonably satisfactory to Parent that the Company's 401(k) plan has been
terminated prior to the Effective Time.
(s) Amendment to Certificate of Incorporation. The Company shall
deliver to Parent evidence reasonably satisfactory to Parent that the Company's
Certificate of Incorporation has been amended to provide that the Merger shall
not be deemed to be a liquidation, dissolution or winding up of the Company for
liquidation preference purposes.
ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
6.1 Survival of Representations, Warranties and Covenants.
(a) The representations and warranties of the Company and the
Principal Stockholders contained in this Agreement, or in any certificate,
schedule or other instrument delivered pursuant to this Agreement, shall
terminate at 11:59 p.m. Washington State time on June 30, 2002 (the "ESCROW
TERMINATION DATE"); provided, however, that the representations and warranties
shall not terminate with respect to any claims specified in any Officer's
Certificate (as defined in SECTION 6.2(e)) delivered to the Stockholder
Representative prior to the Escrow Termination Date until such claims are
finally resolved. Notwithstanding the foregoing, (i) the representations and
warranties in SECTION 2.3 shall terminate at 11:59 p.m. Washington State time on
the day of expiration of the applicable statute of limitations and (ii) in the
case of any liability for indemnification for fraud, the representations and/or
warranties that are the subject of such fraud shall not terminate until 11:59
p.m. Washington State time on the day of expiration of the applicable statute of
limitations.
(b) The representations and warranties of Parent and Merger Sub
contained in this Agreement, or in any certificate, schedule or other instrument
delivered pursuant to this Agreement, shall terminate at 11:59 p.m. Washington
State time on the Escrow Termination Date; provided, however, that the
representations and warranties shall not terminate with respect to any claims
specified in any Officer's Certificate delivered to Parent prior to the Escrow
Termination Date until such claims are finally resolved.
6.2 Indemnification.
(a) Indemnification by the Company Stockholders. The Company
Stockholders, severally and not jointly (and in proportion to the number of
shares of Parent Common Stock each Company Stockholder has contributed to the
Escrow Fund), agree to indemnify and hold Parent and its officers, directors and
affiliates, including the Company after the Closing (the "PARENT
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INDEMNIFIED PARTIES"), harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation and defense relating to such claim, loss,
liability, damage, deficiency, cost or expense (hereinafter individually a
"LOSS" and collectively "LOSSES") incurred or suffered by the Parent Indemnified
Parties, or any of them (including the Company after the Closing), directly or
indirectly, as a result of (i) any breach or inaccuracy of a representation or
warranty of the Company or the Principal Stockholders contained in this
Agreement (or in any certificate, schedule or other instrument delivered
pursuant to this Agreement), (ii) any failure by the Company or any Principal
Stockholder to perform or comply with any covenant applicable to them contained
in this Agreement, (iii) any infringement of any Intellectual Property of
NetPack Inc., or (iv) the incurrence by the Company of third party expenses,
including without limitation legal and accounting fees incurred by the Company
in connection with this Agreement and the Merger, in excess of $125,000. Except
for claims for equitable relief and the provisions of Sections 6.2(b),
indemnification pursuant to this SECTION 6.2(a) shall be the sole and exclusive
remedy of Parent and Merger Sub for any breach or inaccuracy of a representation
or warranty of the Company or Principal Stockholders contained in this Agreement
(including any schedule or certificate delivered to Parent or Merger Sub), any
failure by the Company or Principal Stockholders to perform or comply with any
covenant applicable to them contained in this Agreement or any infringement of
any Intellectual Property of NetPack Inc. Except for claims for indemnification
with respect to (X) fraud, (Y) breach or inaccuracy of the representations or
warranties in Section 2.18 or (Z) any infringement of any Intellectual Property
of NetPack Inc., Parent Indemnified Parties shall seek recovery of Losses under
this SECTION 6.2(a) only from the Escrow Fund. With respect to claims for
indemnification for fraud, breach or inaccuracy of the representations or
warranties in Section 2.18 or any infringement of any Intellectual Property of
NetPack Inc., Parent Indemnified Parties shall, until no assets remain in the
Escrow Fund, seek recovery of Losses under this SECTION 6.2(a) first from the
Escrow Fund.
(b) Indemnification by Founders. The Founders, jointly and
severally, agree to indemnify and hold the Parent Indemnified Parties harmless
against all Losses incurred or suffered by the Parent Indemnified Parties, or
any of them (including the Company after the Closing), directly or indirectly,
as a result of any breach or inaccuracy of the representations or warranties in
Section 2.18 or any infringement of any Intellectual Property of NetPack Inc.
("Intellectual Property Losses"); provided, that (i) no assets remain in the
Escrow Fund and (ii) the Company's, the Company Stockholders' and the Founders'
aggregate amount of liability for indemnification of such Intellectual Property
Losses pursuant to Section 6.2(a) and 6.2(b) does not exceed $9,000,000;
provided further, that for the purposes of determining whether the $9,000,000
limitation has been reached, the amount of any Loss that has been satisfied by
recourse to the Escrow Fund shall be deemed to be the product of (A) the number
of Escrow Shares delivered out of the Escrow Fund in respect of any such Loss
and (B) the Parent Stock Price. No Company Stockholders other than the Founders
shall be liable pursuant to this SECTION 6.2(b) for Losses in excess of the
Escrow Fund.
(c) Indemnification by Parent and Surviving Corporation. Parent
and the Surviving Corporation severally and not jointly agree to indemnify and
hold the Company Stockholders harmless against all Losses incurred or suffered
by the Company Stockholders, or any of them, directly or indirectly, as a result
of (i) any breach or inaccuracy of a representation or warranty of Parent and
Merger Sub contained in this Agreement (or in any certificate, schedule or
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other instrument delivered pursuant to this Agreement) or (ii) any failure by
Parent and Merger Sub to perform or comply with any covenant applicable to them
contained in this Agreement. Except for claims for equitable relief,
indemnification pursuant to this Section 6.2(c) shall be the sole and exclusive
remedy for the Stockholders for (A) any breach or inaccuracy of a representation
or warranty of Parent and Merger Sub contained in this Agreement (including any
schedule or certificate delivered to the Company and the Principal Stockholders
by Parent pursuant to this Agreement) or (B) any failure by Parent and Merger
Sub to perform or comply with any covenant applicable to them contained in this
Agreement.
(d) Limitations on Indemnification.
(i) Parties entitled to indemnification under SECTION
6.2(a), 6.2(b), OR 6.2(c) are referred to herein as "INDEMNIFIED PARTIES," and
the parties from whom they are entitled to indemnification are referred to
herein as "INDEMNIFYING PARTIES." Parent Indemnified Parties shall not be
entitled to indemnification under this SECTION 6.2 unless and until one or more
claims for indemnification from the Company Stockholders identifying Losses in
excess of $25,000 in the aggregate (the "BASKET AMOUNT") has or have been
delivered to the Stockholder Representative, in which case the Parent
Indemnified Parties shall be entitled to recover all Losses so identified
including, without limitation, the Basket Amount. The Company Stockholders shall
not be entitled to indemnification under this SECTION 6.2 unless and until one
or more claims for indemnification from Parent identifying Losses in excess of
the Basket Amount has or have been delivered to Parent, in which case the
Stockholders shall be entitled to recover all Losses so identified including,
without limitation, the Basket Amount.
(ii) Parent's and Surviving Corporation's aggregate
liability for indemnifying the Company Stockholders pursuant to this SECTION 6.2
(exclusive of any liability for indemnification for fraud) shall not exceed, in
the aggregate, the amount calculated by multiplying the number of Merger Shares
times the Parent Stock Price.
(e) Claims for Indemnification. Parent and Surviving Corporation
shall make any claims for indemnification pursuant to SECTION 6.2 hereof by
delivering an Officer's Certificate (as defined below) to the Stockholder
Representative and, if such claim is for recovery from the Escrow Fund, a copy
of such Officer's Certificate shall be delivered to the Escrow Agent. The
Company Stockholders shall make any claims for indemnification pursuant to
SECTION 6.2 hereof by causing the Stockholder Representative to deliver an
Officer's Certificate to Parent. For purposes hereof, "OFFICER'S CERTIFICATE"
shall mean: (i) in the case of a claim for indemnification made by Parent, a
certificate signed by any officer of Parent and (ii) in the case of a claim for
indemnification made by a Stockholder, signed by the Stockholder Representative;
and such certificate shall (A) state that the party claiming indemnification has
paid, incurred or properly accrued or reasonably anticipates that it will have
to pay, incur 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, incurred 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.
(f) Resolution of Conflicts. In case the party from whom
indemnification under SECTION 6.2 is sought shall object in writing to any claim
or claims made in any Officer's Certificate
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to recover Losses (provided that, with respect to claims by Parent for recovery
from the Escrow Fund, such objection in writing must, pursuant to the terms of
SECTION 6.3(e), be received by the Escrow Agent within 30 days after delivery of
the Officer's Certificate to the Stockholder Representative), the Indemnifying
Parties and the Indemnified Parties shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If the
Indemnifying Parties and the Indemnified Parties should so agree, a memorandum
setting forth such agreement shall be prepared and signed by the Indemnifying
Parties and the Indemnified Parties and, in the case of claims by Parent to
recover Losses from the Escrow Fund, furnished to the Escrow Agent. In the case
of claims by Parent to recover Losses from the Escrow Fund, such memorandum
shall state the number of Escrow Shares to be released from the Escrow Fund in
connection with such Losses. The Escrow Agent shall be entitled to rely on any
such memorandum and distribute the Escrow Shares from the Escrow Fund in
accordance with the terms thereof.
(g) Third-Party Claims.
(i) In the event Parent becomes aware of a third-party
claim which Parent reasonably believes may result in a demand for
indemnification, Parent shall notify the Stockholder Representative of such
claim, and the Stockholder Representative shall be entitled on behalf of the
Stockholders, at its expense, to participate in, but not to determine or
conduct, the defense of such claim. Parent shall have the right in its sole
discretion to conduct the defense of and settle any such claim; provided,
however, that except with the consent of the Stockholder Representative, no
settlement of any such claim with third-party claimants shall be determinative
of the amount of Losses relating to such matter. In the event that the
Stockholder Representative has consented to any such settlement, the Company
Stockholders shall have no power or authority to object under any provision of
this ARTICLE VI to the amount of any claim by Parent with respect to such
settlement.
(ii) In the event a Company Stockholder becomes aware of
a third-party claim which such Company Stockholder reasonably believes may
result in a demand for indemnification, such Company Stockholder shall notify
Parent of such claim, and the Parent shall be entitled, at its expense, to
participate in, but not to determine or conduct, the defense of such claim. The
Stockholder Representative shall have the right in its sole discretion to
conduct the defense of and settle any such claim; provided, however, that except
with the consent of Parent, no settlement of any such claim with third-party
claimants shall be determinative of the amount of Losses relating to such
matter. In the event that Parent has consented to any such settlement, Parent
shall have no power or authority to object under any provision of this ARTICLE
VI to the amount of any claim by the Company Stockholder with respect to such
settlement.
6.3 Escrow Arrangements.
(a) Escrow Fund. The Escrow Fund shall be available to
compensate the Parent Indemnified Parties, or any of them, for any claims by
such Parent Indemnified Parties for any Losses suffered or incurred by them.
Within three days after the Closing, the Escrow Shares, without any act of the
Company Stockholders, will be deposited with Mellon Investor Services, LLC, as
Escrow Agent hereunder, or another institution acceptable to Parent and the
Stockholder Representative (as defined in SECTION 6.4 hereof), such deposit of
the Escrow Shares to constitute an escrow fund (the "ESCROW FUND") to be
governed by the terms set forth herein. The Escrow Agent
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shall have no duty to confirm or verify the accuracy or correctness of the
amount of any Escrow Shares deposited with it hereunder. The Escrow Agent may
execute this Agreement following the date hereof and prior to the Closing, and
such later execution, if so executed after the date hereof, shall not affect the
binding nature of this Agreement as of the date hereof between the other
signatories hereto.
(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 11:59
p.m. Washington State time, on the Escrow Termination Date (the "ESCROW
PERIOD"); provided, however, that the Escrow Period shall not terminate with
respect to any amount which, in the reasonable judgment of Parent, subject to
the objection of the Stockholder Representative, is necessary to satisfy any
then pending and unsatisfied claims specified in any Officer's Certificate
delivered to the Escrow Agent prior to the seventh (7th) calendar day following
the termination of the Escrow Period with respect to facts and circumstances
existing prior to the 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, if any, not required to
satisfy such claims (the "REMAINING PORTION"). Deliveries of Escrow Shares out
of the Escrow Fund to the Company Stockholders pursuant to this SECTION 6.3(b)
shall be made according to the Parent Common Stock included in the Escrow Shares
immediately prior to such delivery which each Company Stockholder is deemed to
hold of record as provided in SECTION 6.3(c). Upon termination of the Escrow
Period, Parent and the Stockholders Representative will jointly notify the
Escrow Agent in writing that the Escrow Fund may be distributed and the
allocation of such distribution. If any Escrow Shares to be delivered are still
subject to the Stock Restriction Agreement, such notification will set forth
such fact and the Escrow Agent shall incur no liability if such information is
not contained therein. The Escrow Agent will incur no liability, and shall be
fully protected, in relying on such joint notice and shall have no obligation to
take any action until it has received such notice.
(c) Protection of Escrow Fund; Distribution of Interest from
Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall not treat the Escrow Fund 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 or stock dividend) ("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 not been deposited with or have been
released from the Escrow Fund shall not be added to the Escrow Fund but shall be
distributed to the recordholders thereof.
(iii) Subject to SECTION 6.3(c)(ii), each Company
Stockholder shall be deemed the record holder of, and shall have voting,
dividend, distribution and all other rights with respect to the shares of Parent
Common Stock contributed to the Escrow Fund by such Company Stockholder (and on
any voting securities and other equity securities added to the Escrow Fund in
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respect of such shares of Parent Common Stock). Notwithstanding the foregoing,
the Escrow Agent shall have no duty or obligation to monitor or take any action
with respect to the foregoing paragraph.
(iv) Pursuant to SECTION 1.7(b), the Escrow Shares
contributed to the Escrow Fund by the Principal Stockholders consist of
Restricted Merger Shares and Unrestricted Merger Shares. Unrestricted Merger
Shares which are also Escrow Shares shall be released upon termination of the
Escrow Period in accordance with Section 6.3 of this Agreement. Restricted
Merger Shares which are also Escrow Shares may be released to Parent by the
Escrow Agent either (A) pursuant to the terms of the Stock Restriction
Agreements or (B) pursuant to the terms of ARTICLE VI of this Agreement. The
Restricted Merger Shares which are also Escrow Shares will be released to the
Principal Stockholder when such shares are entitled to be released from the
Escrow Agent's custody pursuant to both (X) the release of such shares from the
restrictions of the Stock Restriction Agreement and (Y) the provisions of
SECTION 6.3(b) of this Agreement.
(d) Claims for Indemnification Against the Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or
before the seventh (7th) day following the last day of the Escrow Period of an
Officer's Certificate and, subject to the provisions of SECTION 6.3(e) hereof,
the Escrow Agent shall deliver to Parent out of the Escrow Fund, as promptly as
practicable, such amount of Escrow Shares as are set forth in the Officer's
Certificate.
(ii) For the purposes of determining the number of
Escrow Shares (as defined below) to be delivered to Parent out of the Escrow
Fund pursuant to SECTION 6.3(d)(i) hereof, the shares of Parent Common Stock
shall be valued at the Parent Stock Price (as adjusted for any stock splits,
stock combinations, recapitalizations and the like). Parent and the Stockholder
Representative shall certify such determined value in an Officer's Certificate
signed by both Parent and the Stockholder Representative, and shall deliver such
certificate to the Escrow Agent.
(iii) All deliveries of Escrow Shares pursuant to this
subsection (d) shall be taken from the Escrow Shares deemed to be held of record
(pursuant to SECTION 6.3(c)(iii)) by each Company Stockholder on a pro rata
basis according to the total value of Escrow Shares deemed to be held of record
by each Company Stockholder, with Escrow Shares being valued as provided in
Section 6.3(d)(ii). With respect to each Company Stockholder, Escrow Shares
delivered pursuant to this subsection (d) shall include Escrow Shares which, at
the time of such delivery, are Restricted Merger Shares and those that are
Unrestricted Merger Shares in the same proportions as the Company Stockholder's
original contribution of Escrow Shares to the Escrow Fund (pursuant to SECTION
1.7(d)) was comprised of Restricted Shares and Unrestricted Shares. Restricted
Merger Shares, pursuant to the terms of the Stock Restriction Agreements, Vest
over time, with a portion of such Restricted Merger Shares Vesting in tranches
on certain anniversaries of the Closing Date as more fully described in the
Stock Restriction Agreements (each of such tranches, a "VESTING TRANCHE"). With
respect to Escrow Shares released from escrow pursuant to this SECTION 6.3(d)
which are also Restricted Merger Shares, such Escrow Shares shall be allocated
on a pro rata basis from each of the Vesting Tranches. Notwithstanding the
foregoing, the Escrow Agent's sole duty with respect to the delivery of the
Escrow Shares either hereunder or under the Stock Restriction Agreements is to
deliver the Escrow Shares to the Parent or the Stockholder Representative, as
the
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case may be, in accordance with the written instructions provided for herein
or pursuant to the Stock Restriction Agreements, and the Escrow Agent has no
duty to monitor or enforce compliance with this section, including, but not
limited to, determining whether or not the Escrow Shares to be released are
still subject to divestment or repurchase.
(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 Stockholder Representative, and for a period of thirty
(30) days after such delivery, the Escrow Agent shall make no delivery to Parent
of any portion of the Escrow Shares pursuant to SECTION 6.3(d) hereof with
respect to such Officer's Certificate unless and until the Escrow Agent shall
have received written authorization from the Stockholder Representative to make
such delivery. After the expiration of such thirty (30) day period, the Escrow
Agent shall make delivery of the Parent Common Stock from the Escrow Fund in
accordance with SECTION 6.3(d) hereof; provided, however, that no such payment
or delivery may be made until resolution of any objection to the delivery of any
Escrow Shares made pursuant to this SECTION 6.3(e) if the Stockholder
Representative 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) 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 Stockholder Representative (and which are acceptable to the
Escrow 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.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall be fully protected and shall not
be liable to any of the parties hereto or to any other person by reason of such
compliance, 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.
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(v) In performing any duties under this Agreement, the
Escrow Agent shall not be liable to any person or entity for damages, losses,
liabilities, penalties, claims, settlements, judgments, costs or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent (each as may be finally determined by a court of competent jurisdiction).
Any liability of the Escrow Agent under this Agreement will be limited to
$75,000. The Escrow Agent shall not incur any liability for any action taken,
suffered or omitted in reliance upon any instrument, including any written
statement of affidavit provided for in this Agreement that the Escrow Agent
shall 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 legal
counsel in connection with performing the Escrow Agent's duties under this
Agreement and shall be fully protected and shall incur no liability with respect
to any action taken, suffered, or omitted to be taken by it 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 the Escrow Shares and may wait for settlement of any
such controversy by final appropriate legal proceedings or other means as, in
the Escrow Agent's discretion, may be required, despite what may be set forth
elsewhere in this Agreement. In such event, the Escrow Agent will not be liable
for damages. 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 the Escrow Shares held in escrow, except all costs,
expenses, charges and reasonable attorney fees incurred by the Escrow Agent due
to the interpleader action, 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) The Parties (other than the Escrow Agent) and
their respective successors and assigns agree jointly and severally to indemnify
and hold Escrow Agent harmless against any and all losses, claims, damages,
liabilities, penalties, claims, settlements, judgments, costs or expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on Escrow Agent
or incurred by Escrow Agent in connection with the performance of its duties
under this Agreement, including but not limited to any litigation arising from
this Agreement or involving its subject matter, other than those arising out of
the gross negligence or willful misconduct of the Escrow Agent (each as may be
finally determined by a court of competent jurisdiction). The indemnity provided
herein shall survive the termination of this Agreement and the termination and
expiration of the Escrow Fund. The costs and expenses of enforcing this right of
indemnification shall be paid by the Parent.
(viii) The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice to the Parent and the
Stockholder Representative; provided, however, that no such resignation shall
become effective until the appointment of a successor escrow agent which shall
be accomplished as follows: Parent and the Stockholder Representative shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such
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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 Washington or to petition a court of
competent jurisdiction to appoint a successor escrow agent. 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. Upon appointment of a successor escrow agent, the Escrow Agent
shall be discharged from any further duties and liability under this Agreement.
(g) Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent in accordance with the standard fee
schedule of the Escrow Agent. 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 (which modification is consented
to by the Escrow Agent), or if any controversy arises, or if the Escrow Agent is
made a party to, or intervenes in, any litigation pertaining to the Escrow Fund
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.
(h) Consequential Damages. Anything to the contrary
notwithstanding, in no event shall the Escrow Agent be liable for special,
punitive, indirect, consequential or incidental loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Escrow Agent
has been advised of the likelihood of such loss or damage and regardless of the
form of action.
(i) Successor Escrow Agents. Any person into which the Escrow
Agent in its individual capacity may be merged or converted or with which it may
be consolidated, or any person resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any person to which substantially all the business of the Escrow Agent
in its individual capacity may be transferred, shall be the Escrow Agent under
this Escrow Agreement without further act.
6.4 Stockholder Representative.
(a) Each of the Company Stockholders hereby appoints Ji Shen,
his or her agent and attorney-in-fact, as the Stockholder Representative for and
on behalf of the Company Stockholders, to give and receive notices and
communications, to authorize payment to Parent of shares of Parent Common Stock
from the Escrow Fund in satisfaction of claims by Parent, to object to such
payments, to agree to, negotiate, enter into settlements and compromises of, and
comply with orders of courts with respect to such claims, and to take all other
actions that are either (i) necessary or appropriate in the judgment of the
Stockholder Representative for the accomplishment of the foregoing or (ii)
specifically mandated by the terms of this Agreement. 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 and the Escrow Agent; provided, however,
that the Stockholder Representative may not be removed unless holders of a
two-thirds interest of the Escrow Fund agree to such removal and
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to the identity of the substituted agent. Upon any change in the Stockholder
Representative, such successor Stockholder Representative shall promptly provide
the Escrow Agent with a signature specimen. Any vacancy in the position of
Stockholder Representative may be filled by the holders of a majority in
interest of the Escrow Fund. No bond shall be required of the Stockholder
Representative, and the Stockholder Representative shall not receive
compensation for its services. Notices or communications to or from the
Stockholder Representative shall constitute notice to or from the Company
Stockholders.
(b) The Stockholder Representative shall not be liable for any
act done or omitted hereunder as the Stockholder Representative while acting in
good faith and in the exercise of reasonable judgment. The Stockholders on whose
behalf the Escrow Shares were contributed to the Escrow Fund shall indemnify the
Stockholder Representative and hold the Stockholder Representative harmless
against any loss, liability or expense incurred without negligence or bad faith
on the part of the Stockholder Representative and arising out of or in
connection with the acceptance or administration of the Stockholder
Representative's duties hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Stockholder Representative. After all claims
for Losses by Parent set forth in Officer's Certificates delivered to the Escrow
Agent and the Stockholder Representative has been satisfied, or reserved
against, the Stockholder Representative, with the consent of the majority in
interest in the Escrow Fund, may recover from the Escrow Fund at the end of the
Escrow Period payments not yet paid for any expenses incurred in connection with
the Stockholder Representative's representation hereby.
(c) A decision, act, consent or instruction of the Stockholder
Representative pursuant to this Agreement shall constitute a decision of the
Company Stockholders and shall be final, binding and conclusive upon the Company
Stockholders; and the Escrow Agent and Parent may rely upon any such decision,
act, consent or instruction of the Stockholder Representative as being the
decision, act, consent or instruction of the Company Stockholders. In addition,
the Stockholder Representative may agree to the amendment, extension or waiver
of this Agreement pursuant to SECTIONS 7.1 and 7.2 hereof. 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
Stockholder Representative.
(d) Subject to Parent's prior claims for indemnification against
the Escrow Fund, the Stockholder Representative shall be entitled to receive
payment for its reasonable and documented expenses therefrom, prior to any
payments to the Company Stockholders.
ARTICLE VII
AMENDMENT AND WAIVER
7.1 Amendment. Subject to applicable law, 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 Parent, the Company and the Stockholder
Representative, and to the extent the rights, duties, indemnities or obligations
of the Escrow Agent are affected thereby, the Escrow Agent.
7.2 Extension; Waiver. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts
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of the other parties 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 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. Delay in
exercising any right under this Agreement shall not constitute a waiver of such
right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, next day delivery, or sent via telecopy (receipt confirmed)
(provided a confirmation copy is also delivered by U.S. mail, postage prepaid)
to the parties at the following addresses or telecopy numbers (or at such other
address or telecopy numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
RealNetworks, Inc.
2601 Elliott Avenue, Suite 1000
Seattle, Washington 98121
Attention: General Counsel
Telecopy No.: (206) 674-2695
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
5300 Carillon Point
Kirkland, Washington 98033
Attention: Patrick Schultheis
Telecopy No.: (425) 576-5899
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(b) if to the Company or the Stockholder Representative to:
Aegisoft Corporation
4 Research Plaza, Suite 210
Rockville, MD 20850
Attention: President
Telecopy No.: (301) 527-1189
with a copy to:
Powell, Goldstein, Frazer & Murphy LLP
1001 Pennsylvania Avenue, N.W.
Washington, DC 20004
Attention: Joseph M. Berl
Telecopy No.: (202) 624-7222
(c) if to the Escrow Agent, to:
Mellon Investor Services LLC
520 Pike Street
Suite 1220
Seattle, Washington 98101
Attention: Relationship Manager
Telecopy No.: (206) 674-3059
8.2 Interpretation; Definitions. When a reference is made in this
Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement
unless otherwise indicated. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement. Unless
otherwise indicated the words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." 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. When reference is made herein to "the business
of" an entity, such reference shall be deemed to include the business of all
direct and indirect subsidiaries of such entity. Reference to the subsidiaries
of an entity shall be deemed to include all direct and indirect subsidiaries of
such entity.
8.3 Counterparts. This Agreement may be executed in one or more
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.
8.4 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (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
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respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder.
8.5 Severability. In the event that any provision of this Agreement, or
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.
8.6 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all 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. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof;
provided, however, that all provisions regarding the rights, duties and
obligations of the Escrow Agent shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within such state.
8.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application 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.
8.9 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
*****
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
REALNETWORKS, INC. PRINCIPAL STOCKHOLDERS:
By: /s/ Randy Tinsley /s/ Ji Shen
--------------------------------- ------------------------------------
Name: Randy Tinsley Ji Shen
Title: Vice President of Corporate
Development /s/ Zheng Kevin Jia
------------------------------------
Zheng Kevin Jia
MCKINLEY ACQUISITION CORP. ESCROW AGENT:
By: /s/ Paul Bialek MELLON INVESTOR SERVICES LLC
---------------------------------
Name: Paul Bialek By: /s/ Joseph S. Campbell
Title: Vice President and Treasurer ------------------------------------
Name: Joseph S. Campbell
Title: Assistant Vice President
AEGISOFT CORP.
By: /s/ Ji Shen
---------------------------------
Name: Ji Shen
Title: Chief Executive Officer
STOCKHOLDER REPRESENTATIVE:
/s/ Ji Shen
--------------------------------------
Ji Shen
INDIVIDUAL:
/s/ Mark Tang
--------------------------------------
Mark Tang