EXHIBIT 2.1
CONFORMED COPY
AGREEMENT AND PLAN OF REORGANIZATION
by and among
DIGITAL ISLAND, INC.
BEACH ACQUISITION CORP.
and
SANDPIPER NETWORKS, INC.
TABLE OF CONTENTS
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Page
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ARTICLE I THE MERGER 2
1.1 The Merger....................................................... 2
1.2 Closing; Effective Time.......................................... 2
1.3 Effect of the Merger............................................. 2
1.4 Articles of Incorporation; Bylaws................................ 2
1.5 Directors and Officers........................................... 3
1.6 Effect on Capital Stock.......................................... 3
1.7 Surrender of Certificates........................................ 5
1.8 No Further Ownership Rights in Company Capital Stock............. 7
1.9 Lost, Stolen or Destroyed Certificates........................... 7
1.10 Tax Consequences................................................. 7
1.11 Withholding...................................................... 7
1.12 Exemption from Registration; California Permit;
Registration Rights............................................. 8
1.13 Taking of Necessary Action; Further Action....................... 9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY......................... 9
2.1 Organization, Standing and Power................................. 9
2.2 Capital Structure................................................ 10
2.3 Authority........................................................ 11
2.4 Financial Statements............................................. 12
2.5 Absence of Certain Changes....................................... 12
2.6 Absence of Undisclosed Liabilities............................... 13
2.7 Litigation....................................................... 13
2.8 Restrictions on Business Activities.............................. 13
2.9 Governmental Authorization....................................... 13
2.10 Title to Property................................................ 13
2.11 Intellectual Property............................................ 14
2.12 Environmental Matters............................................ 15
2.13 Taxes............................................................ 16
2.14 Employee Benefit Plans........................................... 17
2.15 Certain Agreements Affected by the Merger........................ 20
2.16 Employee Matters................................................. 20
2.17 Interested Party Transactions.................................... 21
2.18 Insurance........................................................ 21
2.19 Compliance With Laws............................................. 21
2.20 Minute Books..................................................... 21
2.21 Accounts Receivable.............................................. 21
2.22 Customers and Suppliers.......................................... 21
2.23 Material Contracts............................................... 21
2.24 No Breach of Material Contracts.................................. 22
2.25 Year 2000 Compliance............................................. 23
2.26 Export Control Laws.............................................. 24
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2.27 Product Releases................................................. 24
2.28 Complete Copies of Materials..................................... 24
2.29 Shareholder Agreement; Irrevocable Proxies....................... 24
2.30 Vote Required.................................................... 24
2.31 Board Approval................................................... 24
2.32 Tax Treatment.................................................... 24
2.33 Information Statement and Proxy Statement........................ 25
2.34 Company Affiliates............................................... 25
2.35 Brokers' and Finders' Fees....................................... 26
2.36 Representations Complete......................................... 26
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT......................... 26
3.1 Organization, Standing and Power................................. 26
3.2 Capital Structure................................................ 26
3.3 Authority........................................................ 27
3.4 SEC Documents; Financial Statements.............................. 28
3.5 Absence of Certain Changes....................................... 29
3.6 Absence of Undisclosed Liabilities............................... 29
3.7 Litigation....................................................... 29
3.8 Restrictions on Business Activities.............................. 30
3.9 Intellectual Property............................................ 30
3.10 Certain Agreements Affected by the Merger........................ 31
3.11 Principal Contracts.............................................. 31
3.12 Vote Required; Voting Agreements................................. 32
3.13 Board Approval................................................... 32
3.14 Information Statement and Proxy Statement........................ 32
3.15 Tax Treatment.................................................... 32
3.16 Broker's and Finders' Fees....................................... 32
3.17 Complete Copies of Materials; Representations Complete........... 33
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................... 33
4.1 General Conduct of Business...................................... 33
4.2 Conduct of Business of Company................................... 33
4.3 Conduct of Parent................................................ 36
4.4 No Solicitation by Company....................................... 38
4.5 No Solicitation by Parent........................................ 39
ARTICLE V ADDITIONAL AGREEMENTS.............................................. 40
5.1 Information Statement and Proxy Statement........................ 40
5.2 Meetings of Securityholders...................................... 42
5.3 Access to Information............................................ 42
5.4 Confidentiality.................................................. 43
5.5 Public Disclosure................................................ 43
5.6 Consents; Cooperation............................................ 43
5.7 Further Assurances............................................... 44
5.8 Company Shareholder Agreements................................... 45
5.9 Parent Voting Agreements......................................... 45
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5.10 Blue Sky Laws................................................... 45
5.11 Employee Benefit Plans.......................................... 46
5.12 Form S-8........................................................ 47
5.13 Listing of Additional Shares.................................... 47
5.14 Escrow Agreement................................................ 47
5.15 Expenses........................................................ 47
5.16 Director and Officer Indemnification............................ 47
5.17 Preferred Stock; Warrants....................................... 47
5.18 Board Composition............................................... 47
ARTICLE VI CONDITIONS TO THE MERGER......................................... 48
6.1 Conditions to Obligations of Each Party to Effect the Merger.... 48
6.2 Additional Conditions to Obligations of Company................. 49
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub..................................................... 50
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............................... 51
7.1 Termination..................................................... 51
7.2 Effect of Termination........................................... 52
7.3 Expenses and Termination Fees................................... 53
7.4 Amendment....................................................... 53
7.5 Extension; Waiver............................................... 54
ARTICLE VIII ESCROW AND INDEMNIFICATION..................................... 54
8.1 Escrow Fund..................................................... 54
8.2 Indemnification................................................. 54
8.3 Escrow Period................................................... 55
8.4 Claims upon Escrow Fund......................................... 55
8.5 Objections to Claims............................................ 55
8.6 Resolution of Conflicts; Arbitration............................ 55
8.7 Shareholders' Agent............................................. 56
8.8 Actions of the Shareholders' Agent.............................. 57
8.9 Third-Party Claims.............................................. 57
ARTICLE IX GENERAL PROVISIONS............................................... 57
9.1 Non-Survival at Effective Time.................................. 58
9.2 Notices......................................................... 58
9.3 Interpretation.................................................. 59
9.4 Counterparts.................................................... 59
9.5 Entire Agreement; Nonassignability; Parties in Interest......... 59
9.6 Severability.................................................... 59
9.7 Remedies Cumulative............................................. 59
9.8 Governing Law................................................... 60
9.9 Rules of Construction........................................... 60
9.10 Definitions..................................................... 60
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Exhibits
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Exhibit A Form of Agreement of Merger
Exhibit B Declaration of Registration Rights
Exhibit C Form of Shareholder Agreement
Exhibit D Form of Shareholder Representation Agreement
Exhibit E Form of Escrow Agreement
Exhibit F Form of Voting Agreement
Exhibit G Form of Opinion of Counsel to Company
Exhibit H Form of Opinion of Counsel to Parent
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of October 24, 1999, by and among DIGITAL ISLAND, INC., a
Delaware corporation ("Parent"), BEACH ACQUISITION CORP., a California
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and
SANDPIPER NETWORKS, INC., a California corporation ("Company").
RECITALS
A. The Board of Directors of Company has unanimously (i) determined
that it is advisable and fair to, and in the best interests of, Company and its
shareholders that, upon the terms and subject to the conditions of this
Agreement, Merger Sub merge with and into Company, with Company being the
surviving corporation (the "Merger"), (ii) approved this Agreement, the Merger
and the other transactions contemplated hereby and (iii) determined to recommend
the approval of this Agreement and the Merger by the shareholders of Company.
B. The Board of Directors of Parent has (i) determined that the
Merger is advisable and fair to, and in the best interests of, Parent and its
stockholders, (ii) approved this Agreement, the Merger and the other
transactions contemplated hereby and (iii) determined to recommend the approval
by the stockholders of Parent of the issuance of shares of common stock, par
value $.001 per share, of Parent ("Parent Common Stock") pursuant to this
Agreement, as required under the rules and requirements of the Nasdaq National
Market.
C. Pursuant to the Merger, among other things, the outstanding
shares of Common Stock, par value $.001 per share ("Company Common Stock"), of
Company shall be converted into the right to receive shares of Parent Common
Stock, at the rate set forth herein.
D. The parties intend, by executing this Agreement, to adopt a plan
of reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
"reorganization" under the provisions of Section 368(a) of the Code.
E. Concurrently with the execution of this Agreement and as an
inducement to Parent and Merger Sub to enter into this Agreement, certain
affiliates of Company have on the date hereof entered into Shareholder
Agreements in the form attached hereto as Exhibit C (the "Shareholder
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Agreements") pursuant to which they have agreed, among other things, to vote the
shares of Company Common Stock over which such persons have voting power to
approve this Agreement and the Merger.
F. Concurrently with the execution of this Agreement and as an
inducement to Company to enter into this Agreement, certain affiliates of Parent
have on the date hereof entered into Voting Agreements in the form attached
hereto as Exhibit F (the "Voting Agreements") pursuant to which they have
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agreed, among other things, to vote the shares of Parent Common Stock over which
such persons have voting power to approve the issuance of shares of Parent
Common Stock pursuant to this Agreement.
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NOW, THEREFORE, in consideration of the foregoing, the respective
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I
THE MERGER
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1.1 The Merger. At the Effective Time (as defined in Section 1.2
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below) and upon the terms and subject to the conditions of this Agreement, the
Agreement of Merger attached hereto as Exhibit A (the "Agreement of Merger") and
the applicable provisions of the California Corporations Code (the "California
Corporations Code"), Merger Sub shall be merged with and into Company, the
separate corporate existence of Merger Sub shall cease and Company shall
continue as the surviving corporation of the Merger. Company, as the surviving
corporation after the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 Closing; Effective Time. Unless this Agreement shall have been
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terminated and the transactions contemplated herein shall have been abandoned
pursuant to Section 7.1, the closing of the Merger (the "Closing") shall take
place as soon as practicable after the satisfaction or, if permissible, waiver
of the conditions set forth in Article VI or at such other time as the parties
hereto may agree (the "Closing Date"). The Closing shall take place at the
offices of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, Two Embarcadero Place, 2200 Geng
Road, Palo Alto, California, or at such other location as the parties hereto may
agree. On the Closing Date, the parties hereto shall cause the Merger to be
consummated by filing the Agreement of Merger, together with the required
officers' certificates, with the Secretary of State of the State of California,
in accordance with the relevant provisions of the California Corporations Code
(the time of such filing or such later time as may be agreed upon by the parties
as set forth in the Merger Agreement being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
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Merger shall be as provided in this Agreement, the Agreement of Merger and the
applicable provisions of the California Corporations Code. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Company and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
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(a) At the Effective Time, the Articles of Incorporation of
Company, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by the California Corporations Code and such Articles of
Incorporation; provided, however, that immediately after the Effective Time the
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Articles of Incorporation of the Surviving Corporation shall be amended and
restated so as to read in its entirety like the Articles of Incorporation of
Merger Sub with Article I of the Articles
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of Incorporation amended to read as follows: "The name of the corporation is
Sandpiper Networks, Inc."
(b) At the Effective Time, the Bylaws of Company, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended; provided, however, that immediately after
the Effective Time the Bylaws of the Surviving Corporation shall be amended and
restated in their entirety so as to read like the Bylaws of Merger Sub.
1.5 Directors and Officers. At the Effective Time, (a) the
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directors of Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation, until their respective successors are
duly elected or appointed and qualified, and (b) the officers of Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation, until their respective successors are duly elected or appointed and
qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
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Merger and without any action on the part of any of the parties hereto or the
holders of any of the following securities:
(a) Conversion of Company Capital Stock. Subject to adjustment
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pursuant to Section 1.6(f) below and subject to the other terms and conditions
of this Agreement, at the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any shares of capital stock of Company
("Company Capital Stock"), each share of Company Capital Stock outstanding
immediately prior to the Effective Time (other than shares, if any, held by
persons who shall have perfected, and not withdrawn or otherwise forfeited at or
prior to the Effective Time, dissenters' or appraisal rights in accordance with
the California Corporations Code ("Dissenting Shares")) shall be converted into
and exchanged for the right to receive 1.0727 shares of Parent Common Stock (the
"Exchange Ratio").
(b) Cancellation of Company Capital Stock Owned by Parent,
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Merger Sub or Company. At the Effective Time, all shares of Company Capital
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Stock that are owned by Company as treasury stock, and each share of Company
Capital Stock (if any) owned by Parent, Merger Sub or any other direct or
indirect wholly owned subsidiary of Parent or of Company immediately prior to
the Effective Time, shall be canceled and extinguished without any conversion
thereof.
(c) Options and Warrants.
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(i) At the Effective Time, the Company Stock Option Plan,
as amended (the "Company Stock Option Plan"), and all options outstanding under
the Company Stock Option Plan immediately prior to the Effective Time ("Company
Options"), whether vested or unvested, shall be assumed by Parent and thereafter
constitute the right to receive options to purchase such number of shares of
Parent Common Stock determined in accordance with this Section 1.6(c).
(ii) Each such option so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Company Stock Option Plan and the applicable stock
option agreement as in effect
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immediately prior to the Effective Time, except that (i) such option will be
exercisable for that number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Common Stock that were issuable upon
exercise of such option immediately prior to the Effective Time multiplied by
the Exchange Ratio and rounded down to the next whole number of shares of Parent
Common Stock, and (ii) the per share exercise price for the shares of Parent
Common Stock issuable upon exercise of such assumed option will be equal to the
quotient determined by dividing the exercise price per share of Company Common
Stock at which such option was exercisable immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the next whole cent.
(iii) At the Effective Time, each warrant to acquire shares
of Company Capital Stock (each a "Company Warrant") outstanding immediately
prior to the Effective Time shall be converted and exchanged for warrants to
purchase such number of shares of Parent Common Stock as shall be equal to the
product of (a) the number of shares of Company Common Stock that were issuable
upon exercise of such Company Warrants immediately prior to the Effective Time
and (b) the Exchange Ratio, such product to be rounded down to the next whole
number of shares of Parent Common Stock. The per share exercise price of each
Company Warrant shall equal the quotient obtained by dividing (a) the per share
exercise price of the Company Warrant at which such warrant was exercisable
immediately prior to the Effective Time by (b) the Exchange Ratio rounded up to
the next whole cent.
(d) Unvested Company Common Stock. If any shares of Company
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Common Stock outstanding immediately prior to the Effective Time are unvested or
are subject to a repurchase option, risk of forfeiture or other condition under
the Company Stock Option Plan, any applicable restricted stock purchase
agreement, or other agreement with Company or under which Company has any
rights, then (unless such condition terminates by virtue of the Merger pursuant
to the express terms of such agreement) the shares of Parent Common Stock issued
in exchange for such shares of Company Common 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 bear any appropriate legends. 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.
(e) Capital Stock of Merger Sub. At the Effective Time, each
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share of common stock, no par value per share, of Merger Sub ("Merger Sub Common
Stock") issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $.001 per share, of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
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appropriately adjusted to reflect the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities convertible
into Parent Common Stock or Company Capital Stock), reorganization,
recapitalization or other like change with respect to
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Parent Common Stock or Company Capital Stock occurring after the date hereof and
prior to the Effective Time and of any increase in the number of shares of
Company Common Stock or Parent Common Stock outstanding resulting from any
failure of Section 2.2 or Section 3.2 to be correct on the date hereof or any
failure by Company to comply with its covenants under Section 4.2 of this
Agreement or any failure by Parent to comply with its covenants under Section
4.3 of this Agreement, so as to provide Parent and shareholders of Company the
same economic effect as contemplated by this Agreement prior to such stock
split, reverse split, stock dividend, reorganization, recapitalization, like
change or increase.
(g) Fractional Shares. No fraction of a share of Parent Common
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Stock will be issued, 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 to
be received by such holder) shall receive from Parent an amount of cash (rounded
to the nearest whole cent) equal to the product of (i) such fraction, multiplied
by (ii) the average of the closing bid prices for a share of Parent Common Stock
as quoted on the Nasdaq National Market for the twenty (20) trading days
immediately preceding (but not including) the last full trading day prior to
date on which the Effective Time occurs (the "Closing Market Value").
(h) Dissenters' Rights. Any Dissenting Shares shall not be
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converted into Parent Common Stock but shall instead be converted into the right
to receive such consideration as may be determined to be due with respect to
such Dissenting Shares pursuant to the California Corporations Code. Company
agrees that, except with the prior written consent of Parent, or as required
under the California Corporations Code, it will not voluntarily make any payment
with respect to, or settle or offer to settle, any such purchase demand. Each
holder of Dissenting Shares ("Dissenting Shareholder") who, pursuant to the
provisions of California law, becomes entitled to payment of the fair value for
shares of Company Capital Stock shall receive payment therefor (but only after
the value therefor shall have been agreed upon or finally determined pursuant to
such provisions). If, after the Effective Time, any Dissenting Shares shall lose
their status as Dissenting Shares, Parent shall issue and deliver, upon
surrender by such shareholder of certificate or certificates representing shares
of Company Capital Stock, the number of shares of Parent Common Stock to which
such shareholder would otherwise be entitled under this Section 1.6 less the
number of shares allocable to such shareholder that have been deposited in the
Escrow Fund (as defined below) in respect of such shares of Parent Common Stock
pursuant to Section 1.7 and Article VIII hereof.
1.7 Surrender of Certificates.
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(a) Exchange Agent. Parent's transfer agent or another
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institution selected by Parent and reasonably acceptable to Company shall act as
exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock and Cash. Promptly after the
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Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article I, through such reasonable procedures as Parent
may adopt, (i) the shares of Parent Common Stock issuable pursuant to Section
1.6(a) in exchange for shares of Company Capital Stock outstanding immediately
prior to the Effective Time less the number of shares of
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Parent Common Stock to be deposited into an escrow fund (the "Escrow Fund")
pursuant to the requirements of Article VIII and (ii) cash in an amount
sufficient to permit payment of cash in lieu of fractional shares pursuant to
Section 1.6(g).
(c) Exchange Procedures. Promptly after the Effective Time,
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Parent shall cause to be mailed to each holder of record of a certificate or
certificates (the "Certificates") which immediately prior to the Effective Time
represented outstanding shares of Company Capital Stock, whose shares were
converted into the right to receive shares of Parent Common Stock (and cash in
lieu of fractional shares) pursuant to Section 1.6, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon receipt of the Certificates by the
Exchange Agent, and shall be in such form and have such other 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 (and cash in lieu of fractional shares). Upon surrender
of a Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by Parent, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock less the number of shares of Parent Common Stock
to be deposited in the Escrow Fund on such holder's behalf pursuant to Article
VIII hereof and payment in lieu of fractional shares which such holder has the
right to receive pursuant to Section 1.6, and the Certificate so surrendered
shall forthwith be canceled. Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of Company Capital Stock
will be deemed from and after the Effective Time, for all corporate purposes,
other than the payment of dividends, to evidence the ownership of the number of
full shares of Parent Common Stock into which such shares of Company Capital
Stock shall have been so converted and the right to receive an amount of cash in
lieu of the issuance of any fractional shares in accordance with Section 1.6. As
soon as practicable after the Effective Time, and subject to and in accordance
with the provisions of Article VIII hereof, Parent shall cause to be distributed
to the Escrow Agent (as defined in Article VIII hereof) a certificate or
certificates representing ten percent (10%) of the Merger Shares which shall be
registered in the name of the Escrow Agent as nominee for the holders of
Certificates cancelled pursuant to this Section 1.7. Such shares shall be
beneficially owned by such holders and shall be held in escrow and shall be
available to compensate Parent for certain damages as provided in Article VIII
hereof. To the extent not used for such purposes, such shares shall be released,
all as provided in Article VIII hereof.
(d) Distributions With Respect to Unexchanged Shares. No
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dividends or other distributions with respect to Parent Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of any
such dividends or other distributions with a record date after the Effective
Time theretofore payable (but for the provisions of this Section 1.7(d)) with
respect to such shares of Parent Common Stock.
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(e) Transfers of Ownership. If any certificate for shares of
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Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or established to the satisfaction of
Parent or any agent designated by it that such tax has been paid or is not
payable.
(f) No Liability. Notwithstanding anything to the contrary in
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this Section 1.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(g) Dissenting Shares. The provisions of this Section 1.7 shall
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also apply to Dissenting Shares that lose their status as such, except that the
obligations of Parent under this Section 1.7 shall commence on the date of loss
of such status and the holder of such shares shall be entitled to receive in
exchange for such shares the number of shares of Parent Common Stock to which
such holder is entitled pursuant to Section 1.6 hereof.
1.8 No Further Ownership Rights in Company Capital Stock. All shares
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of Parent Common Stock issued upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof (including any cash
paid in lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital 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.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
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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, such shares of Parent
Common Stock (and cash in lieu of fractional shares) as may be required pursuant
to Section 1.6; provided, however, that Parent may, in its discretion and as a
condition precedent to the issuance thereof, 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.
1.10 Tax Consequences. It is intended by the parties hereto that the
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Merger shall constitute a "reorganization" within the meaning of Section 368 of
the Code.
1.11 Withholding. Each of the Surviving Corporation, Parent and the
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Exchange Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Capital Stock such
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amounts, if any, as it is required to deduct and withhold with respect to the
making of such payment under the Code or any provision of state, local or
foreign tax law. To the extent that any amounts are so withheld by the Surviving
Corporation, Parent or the Exchange Agent, as the case may be, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of Company Capital Stock in respect of which such
deduction and withholding was made by the Surviving Corporation, Parent or the
Exchange Agent, as the case may be.
1.12 Exemption from Registration; California Permit; Registration
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Rights.
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(a) The shares of Parent Common Stock to be issued in the
Merger will be issued in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), by reason of Section
3(a)(10) thereof or, pursuant to Section 1.12(b), pursuant to a registration
statement on Form S-4 or by reason of Section 4(2) of the Securities Act and SEC
rules and regulations promulgated thereunder. Subject to the provisions of
Section 5.1(c), the shares of Parent Common Stock to be issued in the Merger
will be qualified under the California Corporations Code, pursuant to Section
25121 thereof, after a fairness hearing has been held pursuant to the authority
granted by Section 25142 of such law, and (if deemed necessary by Parent in its
good faith judgment) such fairness hearing shall also address the assumption by
Parent of all Company Options pursuant to this Agreement. Parent and Company
shall each use all requisite commercially reasonable efforts (i) to file, as
promptly as practicable following the execution and delivery of this Agreement
an application for issuance of a permit pursuant to Section 25121 of the
California Corporations Code to issue such securities (and, if deemed necessary
by Parent in its good faith judgment, to assume such Company Options) (the
"California Permit") and (ii) to obtain the California Permit as promptly as
practicable.
(b) In the event that the California Permit cannot be obtained
within a reasonable time or without the imposition of burdensome conditions,
then, at Parent's election and with the consent of Company (which shall not be
unreasonably withheld), Parent and Company shall use commercially reasonable
efforts to effect the issuance of the shares of Parent Common Stock to be issued
in the Merger (x) pursuant to a registration statement on Form S-4 or (y)
subject to receipt of all required approvals pursuant to Section 1.12(c), in a
private placement pursuant to Section 4(2) of the Securities Act and SEC rules
and regulations promulgated thereunder, on terms and conditions (including
rights for the registration of such shares on Form S-3) that are reasonably
satisfactory to Parent and Company. The parties hereto acknowledge and agree
that in the event of such a private placement: (i) as a condition to effecting
such issuance as a private placement pursuant to Section 4(2) of the Securities
Act, Parent shall be entitled to obtain from each shareholder of Company a
Shareholder Representation Agreement in the form attached hereto as Exhibit D
---------
(or such other form as shall be reasonably satisfactory to Parent and Company)
and that Parent will be relying upon the representations made by each
shareholder of Company in the applicable Shareholder Representation Agreement in
connection with the issuance of Parent Common Stock to such shareholder, (ii)
the shares of Parent Common Stock so issued pursuant to Section 1.6 will not be
registered under the Securities Act and will constitute "restricted securities"
within the meaning of the Securities Act; and (iii) the certificates
representing the shares of Parent Common Stock shall bear appropriate legends to
identify such privately placed shares as being restricted under
8
the Securities Act, to comply with applicable state securities laws and, if
applicable, to notice the restrictions on transfer of such shares.
(c) Subject to receipt of all required approvals pursuant to
the Amended and Restated Investors' Rights Agreement (the "Investors' Rights
Agreement") dated as of February 19, 1999 among Parent and the securityholders
of Parent identified therein, at the Closing, Parent shall execute and deliver a
Declaration of Registration Rights in the form attached hereto as Exhibit B.
---------
1.13 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, the officers and directors of Company
immediately prior to the Effective Time are fully authorized to take, and will
take, all such lawful and necessary action, so long as such action is not
inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
----------------------------------------
Except as disclosed in that section of the document of even date
herewith delivered by Company to Parent prior to the execution and delivery of
this Agreement (the "Company Disclosure Schedule") corresponding to the Section
of this Agreement to which any of the representations and warranties
specifically relate or as disclosed in another section of the Company Disclosure
Schedule if it is reasonably apparent on the face of the disclosure that it is
applicable to another Section of this Agreement, Company hereby represents and
warrants to each of Parent and Merger Sub as follows:
2.1 Organization, Standing and Power. Each of Company and its
--------------------------------
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Company has the
corporate power to own its properties and to carry on its business as now being
conducted and as currently proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which it is required by
law to be so qualified and in good standing. Company has made available to
Parent a true and complete copy of the certificate or articles of incorporation
or other charter or organizational documents, each as amended, of Company and
each of its subsidiaries. Neither Company nor any of its subsidiaries is in
violation of any of the provisions of its certificate or articles of
incorporation or bylaws or other charter or organizational documents, each as
amended. Neither Company nor any of its subsidiaries directly or indirectly owns
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
All of the outstanding shares of capital stock and voting securities of each of
Company's subsidiaries owned, directly or indirectly, by Company are duly
authorized, validly issued, fully paid and nonassessable, and those shares of
capital stock and voting securities of each of Company's subsidiaries owned by
Company, directly or indirectly, are free and clear of all liens, charges,
claims or encumbrances or rights of others. There are no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or
convertible securities or other commitments or
9
agreements of any character relating to the issued or unissued capital stock or
other securities of any such subsidiary, or otherwise obligating Company or any
such subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire
any such securities.
2.2 Capital Structure. The authorized capital stock of Company
-----------------
consists solely of 40,000,000 shares of Company Common Stock, par value $0.001
per share, of which 6,967,575 shares are issued and outstanding, and 15,912,675
shares of Preferred Stock, par value $0.001 per share, of which 9,885,981 shares
have been designated Series A Preferred Stock, 9,607,141 shares of which are
issued and outstanding and of which 6,026,694 shares have been designated Series
B Preferred Stock, 4,820,628 shares of which are issued and outstanding. There
are no other outstanding shares of capital stock or voting securities and no
outstanding commitments to issue any shares of capital stock or voting
securities, other than pursuant to the exercise of warrants to acquire Company
Capital Stock and pursuant to the exercise of Company Options outstanding under
the Company Stock Option Plan. Section 2.2 of the Company Disclosure Schedule
sets forth a true and complete list (including numbers of shares and/or rights)
of holders of Company's capital stock and voting securities, and any persons
with rights to acquire Company's capital stock and voting securities, which list
will be promptly updated from time to time prior to Closing to reflect any
changes thereto (which changes are in any event subject to the restrictions
imposed under Section 4.2 below). All outstanding shares of Company Capital
Stock are duly authorized, validly issued, fully paid and non-assessable and are
free and clear of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof, and are not subject to
preemptive rights or rights of first refusal created by statute, the Articles of
Incorporation or Bylaws, each as amended, of Company or any agreement to which
Company is a party or by which it is bound. Company has reserved 22,425 shares
of Company Common Stock for issuance upon the exercise of warrants to purchase
Company Common Stock with an exercise price of $1.00 per share, Company Warrants
to purchase 278,840 shares of Series A Preferred Stock with an exercise price of
$0.70 per share, and Company Warrants to purchase 1,206,066 shares of Series B
Preferred Stock with an exercise price between $4.46 and $10.00. Company has
reserved 7,524,629 shares of Company Common Stock for issuance pursuant to the
Company Stock Option Plan, of which 2,392,975 shares have been issued pursuant
to option exercises and 2,677,833 shares are subject to outstanding, unexercised
options (of which 728,080 such shares are vested). Except for (i) the rights
created pursuant to this Agreement, (ii) the outstanding options under the
Company Stock Option Plan, (iii) Company Warrants described above in this
Section 2.2, and (iv) Company's right to repurchase any unvested shares under
the Company Stock Option Plan, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Company is a party
or by which it is bound obligating Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock or voting securities of Company or obligating Company to
grant, extend, accelerate the vesting of, change the price of, or otherwise
amend or enter into any such option, warrant, call, right, commitment or
agreement. Except for this Agreement, there are no contracts, commitments or
agreements relating to voting, purchase or sale of Company's capital stock or
voting securities (x) between or among Company and any of its securityholders
and (y) to Company's knowledge, between or among any of Company's
securityholders. None of the outstanding options permit any accelerated vesting
or exercisability of those options or the shares of Company Common Stock subject
to those options by reason of the Merger or any other transactions contemplated
by this Agreement, and the terms of the Company Stock Option Plan
10
and the outstanding option agreements thereunder each permit the Parent's
assumption of those options as options to purchase Parent Common Stock as
provided in this Agreement, without the consent or approval of the holders of
those options, Company's shareholders, or otherwise, and without any
acceleration of the options. True and complete copies of all agreements and
instruments relating to or issued under the Company Stock Option Plan have been
provided to Parent and such agreements and instruments have not been amended,
modified or supplemented, and there are no agreements to amend, modify or
supplement such agreements or instruments in any case from the form provided to
Parent. All outstanding shares of Company Capital Stock and all Company Options
and warrants to acquire Company Capital Stock from Company were issued in
compliance in all material respects with all applicable federal and state
securities laws. Section 2.2 of the Company Disclosure Schedule sets forth all
notes, bonds, debentures or other evidences of indebtedness of Company,
including the name of the holder, the date of issuance, and the principal amount
and interest rate of each such debt, as well as the aggregate amount owed to the
holder of each such instrument as of September 30, 1999 (including accrued and
unpaid interest, and any premiums).
2.3 Authority. Company has all requisite corporate power and
---------
authority to enter into this Agreement and the other agreements set forth in the
exhibits hereto (the "Ancillary Agreements") to which Company is a party, to
perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Ancillary Agreements to which Company is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Company, subject
only to the approval of the Merger by Company's shareholders as contemplated by
Section 6.1(a). Each of this Agreement and the Ancillary Agreements to which
Company is a party has been duly executed and delivered by Company and
constitutes the valid and binding obligation of Company enforceable against
Company in accordance with its terms, except as enforcement may be limited by
(i) the effect of bankruptcy, insolvency, reorganization, receivership,
conservatorship, arrangement, moratorium or other similar laws affecting the
rights of creditors generally, or (ii) the availability of specific performance,
injunctive relief or other equitable remedies and general principles of equity,
regardless of whether considered in a proceeding in equity or at law. The
execution and delivery of this Agreement or any Ancillary Agreement by Company
does not, and the performance of Company's obligations hereunder or thereunder
and the consummation of the transactions contemplated hereby or thereby will
not, conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit, or result in any other consequence, under (i) any provision of the
certificate or articles of incorporation or bylaws or other charter or
organizational documents, each as amended, of Company or any of its subsidiaries
or (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Company or any of its
subsidiaries or any of their respective properties or assets, except in the case
of clause (i) for any conflicts, violations, defaults or other occurrences that
would not prevent or materially impair or delay the consummation of the Merger
or any of the other transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission, self-regulatory
organization or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Company in
11
connection with the execution and delivery of this Agreement, the performance of
Company's obligations hereunder or thereunder or the consummation of the
transactions contemplated hereby or thereby, except for (i) the filing of the
Agreement of Merger, as provided in Section 1.2, (ii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal or state securities laws or the securities
laws of any foreign country, and (iii) such filings as may be required under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (iv) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not prevent or materially
alter or delay the Merger or any of the other transactions contemplated by this
Agreement.
2.4 Financial Statements. Company has delivered to Parent
--------------------
the audited consolidated financial statements (including, without limitation,
balance sheets, statements of operations and statements of cash flows) of
Company and its subsidiaries for the fiscal years ended December 31, 1996, 1997
and 1998, and the unaudited consolidated financial statements (including,
without limitation, balance sheet, statement of operations and statement of cash
flows) of Company and its subsidiaries as at, and for the nine-month period
ended September 30, 1999 (collectively, the "Company Financial Statements"). The
Company Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") (except that the financial statements
which are not audited do not have notes thereto) applied on a consistent basis
throughout the periods indicated and with each other. The Company Financial
Statements fairly present the financial condition and operating results of
Company as of the dates, and for the periods, indicated therein, subject to
normal and recurring year-end audit adjustments. Company maintains and will
continue to maintain until the Closing an adequate system of internal financial
and accounting controls for Company and its subsidiaries. There has been no
change in Company's accounting policies since January 1, 1996 except as
described in the notes to the Company Financial Statements.
2.5 Absence of Certain Changes. Since September 30, 1999
--------------------------
(the "Company Balance Sheet Date"), Company has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or could reasonably be expected to result in, a Material Adverse
Effect on Company; (ii) any acquisition, sale or transfer of any material asset
of Company or any of its subsidiaries; (iii) any change in accounting methods or
practices (including any change in depreciation or amortization policies or
rates) by Company or any revaluation by Company of any of its or its
subsidiaries' assets; (iv) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of Company, or any
direct or indirect redemption, purchase or other acquisition by Company or any
of its subsidiaries of any of its shares of capital stock or other securities;
(v) any amendment or change to the certificate or articles of incorporation or
bylaws or other charter or organizational documents of Company or any of its
subsidiaries; (vi) any material increase in or modification of the compensation
or benefits payable or to become payable by Company or any of its subsidiaries
to any of its directors or employees, (vii) any acts or omissions of the types
restricted by Section 4.2, or (viii) any negotiation or agreement by Company or
any of its subsidiaries to do any of the things described in the preceding
clauses (i) through (vii) (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement).
12
2.6 Absence of Undisclosed Liabilities. None of Company or
----------------------------------
any of its subsidiaries has any material obligations or liabilities of any
nature (matured or unmatured, fixed or contingent) other than (i) those set
forth or adequately provided for in the consolidated balance sheet included in
the Company Financial Statements as of the Company Balance Sheet Date (the
"Company Balance Sheet"), (ii) those incurred in the ordinary course of business
and not required to be set forth in the Company Balance Sheet under GAAP, (iii)
those incurred in the ordinary course of business consistent with past practice
since the Company Balance Sheet Date, and (iv) those incurred in connection with
the execution and performance of this Agreement.
2.7 Litigation. There is no private or governmental action,
----------
suit, proceeding, arbitration or to the knowledge of Company, claim or
investigation pending or threatened by or before any agency, court or tribunal,
foreign or domestic, against Company or any of its subsidiaries or any of their
respective properties or officers or directors (in their capacities as such).
There is no judgment, decree or order binding upon or against Company or any of
its subsidiaries, or, to the knowledge of Company, any of their respective
directors or officers (in their capacities as such). As of the date of this
Agreement, there is no action, suit, proceeding, claim, arbitration or other
litigation that Company has pending or threatened against other parties.
2.8 Restrictions on Business Activities. There is no
-----------------------------------
agreement, judgment, injunction, order or decree binding upon Company or any of
its subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or impairing any current or future business practice of Company or
any of its subsidiaries, any acquisition of property by Company or any of its
subsidiaries or the conduct of business by Company or any of its subsidiaries as
currently conducted or as currently proposed to be conducted by Company or any
of its subsidiaries.
2.9 Governmental Authorization. Each of Company and its
--------------------------
subsidiaries has obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity (i) pursuant to which Company or any of its subsidiaries
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of the business of Company or any of its
subsidiaries or the holding of any such interest ((i) and (ii) herein
collectively called "Company Authorizations"), and all of such Company
Authorizations are in full force and effect.
2.10 Title to Property. Company and its subsidiaries have
-----------------
good and marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Company Balance Sheet
or acquired after the Company Balance Sheet Date (except properties, interests
in properties and assets sold or otherwise disposed of since the Company Balance
Sheet Date in the ordinary course of business), or with respect to leased
properties and assets, valid leasehold interests in, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the current use of the properties subject thereto
or affected thereby, or otherwise materially impair business operations
involving such properties and (iii) liens securing debt which is reflected on
the Company Balance Sheet. The plants, property and
13
equipment of Company and its subsidiaries that are used in the operations of
their respective businesses are in a state of repair sufficient for Company's
and its subsidiaries' current operations. All properties used in the operations
of Company and its subsidiaries are reflected in the Company Balance Sheet to
the extent GAAP requires the same to be reflected. Section 2.10 of the Company
Disclosure Schedule identifies each parcel of real property owned or leased by
Company or any of its subsidiaries.
2.11 Intellectual Property.
---------------------
(a) Company and its subsidiaries own, or are licensed or
otherwise possesses legally enforceable rights to use all patents, trademarks,
trade names, service marks, copyrights, domain names and any applications
therefor, maskworks, net lists, schematics, technology, know-how, trade secrets,
inventory, ideas, algorithms, processes, computer software programs or
applications (in source code and/or object code form), and tangible or
intangible proprietary information or material ("Intellectual Property") that
are used or proposed to be used in the business of Company and its subsidiaries
as currently conducted or as proposed to be conducted by Company and its
subsidiaries. Neither Company nor any of its subsidiaries has (i) licensed any
of its Intellectual Property in source code form to any party or (ii) entered
into any exclusive agreements relating to its Intellectual Property with any
party.
(b) Section 2.11 of the Company Disclosure Schedule
lists (i) all patents and patent applications and all registered and
unregistered trademarks, trade names and service marks, and all copyrights,
domain names and maskworks which are registered or as to which registration has
been applied for, included in the Intellectual Property, including the
jurisdictions in which each such Intellectual Property right has been issued or
registered or in which any application for such issuance and registration has
been filed, (ii) all material licenses, sublicenses and other agreements as to
which Company or any of its subsidiaries is a party and pursuant to which any
person is authorized to use any Intellectual Property except for Company's
standard form non-exclusive licenses and sublicenses contained in purchase
orders, and (iii) all material licenses, sublicenses and other agreements as to
which Company or any of its subsidiaries is a party and pursuant to which
Company or any of its subsidiaries is authorized to use any third party patents,
trademarks or copyrights, including software ("Third Party Intellectual Property
Rights") which are incorporated in, are, or form a part of any product of
Company or any of its subsidiaries as of the date of this Agreement.
(c) To Company's knowledge, there is no unauthorized
use, disclosure, infringement or misappropriation of any Intellectual Property
rights of Company or any of its subsidiaries, or any Intellectual Property right
of any third party to the extent licensed by or through Company or any of its
subsidiaries, by any third party, including any employee or former employee of
Company or any of its subsidiaries. Neither Company nor any of its subsidiaries
has entered into any agreement to indemnify any other person against any charge
of infringement of any Intellectual Property, other than indemnification
provisions contained in purchase orders or license agreements arising in the
ordinary course of business.
(d) Neither Company nor any of its subsidiaries is, nor
will any of them be as a result of the execution and delivery of this Agreement
or the Ancillary Agreements or the performance of any of their obligations under
this Agreement or the Ancillary
14
Agreements, in breach of any license, sublicense or other agreement relating to
any Intellectual Property or Third Party Intellectual Property Rights.
(e) All patents, registered trademarks, service marks
and copyrights held by Company or any of its subsidiaries are valid and
subsisting. Neither Company nor any of its subsidiaries (i) has been sued in any
suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party, (ii) has any knowledge that the
manufacturing, marketing, licensing or sale of its products infringes any
patent, trademark, service ▇▇▇▇, copyright, trade secret or other proprietary
right of any third party or (iii) has brought any action, suit or proceeding for
infringement of Intellectual Property or breach of any license or agreement
involving Intellectual Property against any third party.
(f) Each of Company and its subsidiaries has secured
written assignments from all consultants and employees who contributed to the
creation or development of Intellectual Property of the rights to such
contributions that Company and its subsidiaries do not already own by operation
of law, and Company has no reason to believe that any such assignment is not
valid or binding.
(g) Each of Company and its subsidiaries has taken
reasonable steps consistent with prevailing industry practice to protect and
preserve the confidentiality of all Intellectual Property not otherwise
protected by patents, patent applications or copyright ("Confidential
Information"). All use, disclosure or appropriation of Confidential Information
owned by Company or any of its subsidiaries by or to a third party has, to the
knowledge of Company, been pursuant to the terms of a written agreement between
Company and such third party. All use, disclosure or appropriation of
Confidential Information not owned by Company or any of its subsidiaries has
been pursuant to the terms of a written agreement between Company and the owner
of such Confidential Information, or is otherwise lawful.
2.12 Environmental Matters.
----------------------
(a) The following terms shall be defined as follows:
(i) "Environmental Laws" shall mean any federal,
state or local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants.
(ii) "Hazardous Materials" shall mean any toxic
or hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
those substances, materials and wastes defined in or regulated under any
Environmental Laws.
(iii) "Property" shall mean all real property
leased or owned by Company or any of its subsidiaries either currently or in the
past.
15
(iv) "Facilities" shall mean all buildings and
improvements on the Property of Company or any of its subsidiaries.
(b) (i) To the knowledge of Company, no methylene
chloride or asbestos is contained in or has been used at or released from the
Facilities; (ii) to the knowledge of Company, all Hazardous Materials and wastes
have been disposed of in accordance with all Environmental Laws; (iii) neither
Company nor any of its subsidiaries has received any notice (verbal or written)
of any noncompliance of the Facilities or its past or present operations with
Environmental Laws; (iv) no administrative actions or suits are pending or, to
the knowledge of Company, threatened against Company or any of its subsidiaries
relating to a violation of any Environmental Laws; (v) neither Company nor any
of its subsidiaries is a potentially responsible party under the federal
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
or state analog statute, arising out of events occurring at or prior to the
Effective Time; (vi) neither Company nor any subsidiary has received any written
or verbal notice that there has been in the past, or is now, any Hazardous
Materials on, under or migrating to or from the Facilities or Property; (vii) to
Company's knowledge, there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the Property
including without limitation, treatment or storage tanks, sumps, or water, gas
or oil ▇▇▇▇▇; (viii) to Company's knowledge, there are no polychlorinated
biphenyls (PCBs) deposited, stored, disposed of or located on the Property or
Facilities or any equipment on the Property containing PCBs at levels in excess
of 50 parts per million; (ix) to Company's knowledge, there is no formaldehyde
on the Property or in the Facilities, nor any insulating material containing
urea formaldehyde in the Facilities, the presence of which could reasonably be
expected to result in a liability to Company; (x) the Facilities and Company's
and its subsidiaries' uses and activities therein have at all times complied
with all Environmental and Safety Laws; and (xi) Company and its subsidiaries
have all the permits and licenses required to be issued under Federal, State or
local laws regarding Environmental and Safety Laws and are in full compliance
with the terms and conditions of those permits.
2.13 Taxes. Company and its subsidiaries, and any
-----
consolidated, combined, unitary or aggregate group for Tax (as defined below)
purposes of which Company is or has been a member, have timely filed all Tax
Returns required to be filed by them and have paid all Taxes shown thereon to be
due. The Company Financial Statements, as of September 30, 1999, reflect any
unpaid taxes of Company and its subsidiaries in periods through such date, to
the extent such are shown as being due on any Tax Returns. Neither Company nor
any of its subsidiaries has accrued any material tax liabilities for periods
after September 30, 1999. There is (i) no claim for Taxes that is a lien against
the property of Company or any of its subsidiaries or is being asserted against
Company or any of its subsidiaries other than liens for Taxes not yet due and
payable, (ii) no audit of any Tax Return of Company or any of its subsidiaries
being conducted or threatened by a Tax authority, (iii) no extension of the
statute of limitations on the assessment of any Taxes granted by Company and
currently in effect, and (iv) no agreement, contract or arrangement to which
Company or any of its subsidiaries is a party that may result in the payment of
any amount that would not be deductible by reason of Sections 280G (other than
agreements or arrangements for which shareholder approval meeting the
requirements of Section 280G(b)(5)(B) will be obtained prior to the Closing) or
404 of the Code. Company and its subsidiaries have not been and will not be
required to include any material adjustment in Taxable income for any Taxable
period (or portion thereof) pursuant to Section 481 or 263A of
16
the Code or any comparable provision under state or foreign Tax laws as a result
of transactions, events or accounting methods employed prior to the Merger.
Neither Company nor any of its subsidiaries has filed or will file any consent
to have the provisions of paragraph 341(f)(2) of the Code (or comparable
provisions of any state Tax laws) apply to Company or any of its subsidiaries.
Neither Company nor any of its subsidiaries is now or has ever been a party to
any Tax sharing or Tax allocation agreement. Neither Company nor any of its
subsidiaries has filed any disclosures under Section 6662 or comparable
provisions of state, local or foreign law to prevent the imposition of penalties
with respect to any Tax reporting position taken on any Tax Return. Neither
Company nor any of its subsidiaries has ever been a member of a consolidated,
combined or unitary group of which Company was not the ultimate parent
corporation. For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means (i) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "Tax authority") responsible for the
imposition of any such tax (domestic or foreign), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period and (iii) any liability for the payment of any amounts of the type
described in (i) or (ii) as a result of any express or implied obligation to
indemnify any other person. As used herein, "Tax Return" shall mean any return,
statement, report or form (including, without limitation, estimated Tax Returns
and reports, withholding Tax Returns and reports and information reports and
returns) required to be filed with respect to Taxes. Each of Company and its
subsidiaries is in compliance in all material respects with all terms and
conditions of any Tax exemptions or other Tax-sparing agreement or order of a
foreign government, and the consummation of the Merger shall not materially
impair the continued validity and effectiveness of any such Tax exemptions or
other Tax-sparing agreement or order. Target and each of its subsidiaries have
in their possession receipts for any Taxes paid to foreign Tax authorities.
Neither Target nor any of its subsidiaries has been a "United States real
property holding corporation" within the meaning of Section 897 of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
2.14 Employee Benefit Plans.
----------------------
(a) Section 2.14 of the Company Disclosure Schedule
contains a true and complete list, with respect to Company, its subsidiaries and
any trade or business (whether or not incorporated) which is treated as a single
employer with Company (an "ERISA Affiliate") within the meaning of Section
414(b), (c), (m) or (o) of the Code, of (i) all material employee benefit plans
(as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), (ii) each loan to a non-officer employee in excess
of ten thousand dollars ($10,000), and loans to officers and directors, (iii)
any stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, cafeteria benefit (Code Section 125) or
dependent care (Code Section 129), life insurance or accident insurance plans,
programs or arrangements, (iv) all bonus, pension, profit sharing, savings,
deferred compensation or incentive plans, programs or arrangements, (v) other
material fringe or employee benefit plans, programs
17
or arrangements that apply to senior management of Company and that do not
generally apply to all employees, and (vi) any current or former employment or
executive compensation or severance agreements, written or otherwise, as to
which unsatisfied obligations of Company of greater than ten thousand dollars
($10,000) remain for the benefit of, or relating to, any present or former
employee, consultant or director of Company or any of its subsidiaries
(together, the "Company Employee Plans").
(b) Company has furnished to Parent a copy of each of
the Company Employee Plans and related plan documents (including trust
documents, insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and any employee communications
that are materially inconsistent with the terms of the written Company Employee
Plan relating thereto) and has, with respect to each Company Employee Plan which
is subject to ERISA reporting requirements, provided copies of the Form 5500
reports filed for the last three plan years. Any Company Employee Plan intended
to be qualified under Section 401(a) of the Code has (i) obtained from the
Internal Revenue Service a favorable determination letter as to its qualified
status under the Code, including all amendments to the Code effected by the Tax
Reform Act of 1986 and subsequent legislation, (ii) has applied to the Internal
Revenue Service for such a determination letter prior to the expiration of the
requisite period under applicable Treasury Regulations or Internal Revenue
Service pronouncements in which to apply for such determination letter and to
make any amendments necessary to obtain a favorable determination, or (iii) has
been established under a standardized prototype plan for which an Internal
Revenue Service opinion letter has been obtained by the plan sponsor and is
valid as to the adopting employer, or (iv) the deadline for filing an
application for a determination letter has not yet expired. Company has also
furnished Parent with the most recent Internal Revenue Service determination or
opinion letter issued with respect to each such Company Employee Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Company Employee Plan subject to Code Section 401(a). Company has also furnished
Parent with all registration statements and prospectuses prepared in connection
with each Company Employee Plan.
(c) (i) None of the Company Employee Plans promises or
provides retiree medical or other retiree welfare benefits to any person; (ii)
there has been no "prohibited transaction," as such term is defined in Section
406 of ERISA and Section 4975 of the Code, with respect to any Company Employee
Plan; (iii) each Company Employee Plan has been administered in accordance with
its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), and Company, its
subsidiaries and each ERISA Affiliate have performed all obligations required to
be performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any material default or violation by any
other party to, any of the Company Employee Plans; (iv) neither Company nor any
of its subsidiaries or ERISA Affiliates is subject to any liability or penalty
under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to
any of the Company Employee Plans; (v) all material contributions required to be
made by Company or ERISA Affiliate to any Company Employee Plan have been made
on or before their due dates and a reasonable amount has been accrued for
contributions to each Company Employee Plan for the current plan years; (vi)
with respect to each Company Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding
18
any such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; (vii) no Company Employee Plan
is covered by, and neither Company nor any ERISA Affiliate has incurred or
expects to incur any liability under Title IV of ERISA or Section 412 of the
Code; and (viii) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
and applicable law without liability to Parent (other than the expense
associated with full vesting of employer contributions and the ordinary
administrative expenses typically incurred in a termination event). With respect
to each Company Employee Plan subject to ERISA as either an employee pension
plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit
plan within the meaning of Section 3(1) of ERISA, Company has, in all material
respects, prepared in good faith and timely filed all requisite governmental
reports (which were true and correct as of the date filed) and has, in all
material respects, properly and timely filed and distributed or posted all
notices and reports to employees required to be filed, distributed or posted
with respect to each such Company Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought or, to the knowledge of
Company, is threatened, against or with respect to any such Company Employee
Plan, including any audit or inquiry by the Internal Revenue Service or United
States Department of Labor. No payment or benefit which will or may be made by
Company or any of its subsidiaries to any Employee will be characterized as an
"excess parachute payment" within the meaning of Section 280G(b)(1) of the Code.
(d) With respect to each Company Employee Plan,
Company has complied with (i) the applicable health care continuation and notice
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") and the regulations (including proposed regulations) thereunder, (ii)
the applicable requirements of the Family and Medical Leave Act of 1993 and the
regulations thereunder, and (iii) the applicable requirements of the Health
Insurance Portability and Accountability Act of 1996 and the regulations
(including proposed regulations) thereunder.
(e) The consummation of the transactions contemplated
by this Agreement or any Ancillary Agreement in and of themselves will not (i)
entitle any current or former employee of or other service provider to Company,
any of its subsidiaries or any other ERISA Affiliate to severance benefits or
any other payment, except as expressly provided in this Agreement or the
Ancillary Agreements, or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or service provider,
except as provided in Section 2.14 of the Company Disclosure Schedule.
(f) There has been no amendment to, written
interpretation or announcement (whether or not written) by Company, any of its
subsidiaries or any other ERISA Affiliate relating to, or change in
participation or coverage under, any Company Employee Plan which would
materially increase the expense of maintaining such Plan above the level of
expense incurred with respect to that Plan for the most recent fiscal year
included in Company's financial statements.
(g) Neither Company nor any of its subsidiaries
currently maintain, sponsor, participate in or contribute to, nor has any of
them ever maintained, established, sponsored, participated in, or contributed
to, any pension plan (within the meaning of
19
Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(h) Neither Company, any of its subsidiaries nor any
other ERISA Affiliate is a party to, or has made any contribution to or
otherwise incurred any obligation under, any "multiemployer plan" as defined in
Section 3(37) of ERISA.
2.15 Certain Agreements Affected by the Merger. Subject to
-----------------------------------------
Section 1.6, neither the execution and delivery of this Agreement or any
Ancillary Agreements nor the performance of any of Company's obligations
hereunder or thereunder or the consummation of the transaction contemplated
hereby or thereby will (i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or employee of Company, (ii) materially increase
any benefits otherwise payable by Company or (iii) result in the acceleration of
the time of payment or vesting of any such benefits.
2.16 Employee Matters. Each of Company and its subsidiaries
----------------
is in compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice. Each of
Company and its subsidiaries has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries, and other payments to
employees; and is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing. Neither Company nor any
of its subsidiaries is liable for any payment to any trust or other fund or to
any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits (other than routine
payments to be made in the normal course of business and consistent with past
practice). There are no material pending claims against Company or any of its
subsidiaries under any workers compensation policy or for long term disability.
There are no material controversies pending or, to the knowledge of Company,
threatened, between Company or any of its subsidiaries, on one hand, and any of
their employees, on the other hand, which controversies have resulted in an
action, suit, arbitration or investigation before any agency, court or tribunal,
foreign or domestic. Neither Company nor any of its subsidiaries is a party to
any collective bargaining agreement or other labor union contract nor does
Company know of any activities of any labor union to organize any such
employees. To Company's knowledge, no employees of Company or any of its
subsidiaries are in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, or any restrictive covenant to a
former employer relating to the right of any such employee to be employed by
Company or any of its subsidiaries because of the nature of the business
conducted or presently proposed to be conducted by Company or any of its
subsidiaries or to the use of trade secrets or proprietary information of
others. Except as set forth in Section 2.16 of the Company Disclosure Schedule,
neither Company nor any of its subsidiaries is a party to or bound by any
employment contract with any of its officers or other employees. No key employee
of Company or any of its subsidiaries, other than any employee whose duties are
primarily secretarial or clerical, has given notice to Company or any of its
subsidiaries, nor is Company otherwise aware, that any such employee intends to
terminate his or her employment with Company or any of its subsidiaries.
20
2.17 Interested Party Transactions. Neither Company nor any of its
-----------------------------
subsidiaries is indebted to any director, officer, employee or agent of Company
or any such subsidiary (except for amounts due as normal salaries and bonuses
and in reimbursement of ordinary expenses), and no such person is indebted to
Company or any of its subsidiaries.
2.18 Insurance. Company and its subsidiaries have policies of
---------
insurance and bonds of the type and in amounts customarily carried by persons
conducting business or owning assets similar to those of Company and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Company or the applicable subsidiary
is otherwise in compliance with the terms of such policies and bonds. Company
has no knowledge of any threatened termination of, or material premium increase
with respect to, any of such policies.
2.19 Compliance With Laws. Each of Company and its subsidiaries has
--------------------
complied, and is in compliance, in all material respects with all applicable
federal, state, local, foreign and self-regulatory laws, statutes, rules and
regulations. Each of Company and its subsidiaries has, and is in compliance in
all material respects with, all Company Authorizations necessary to conduct its
business or to own and operate its assets.
2.20 Minute Books. The minute books of Company and its subsidiaries
------------
made available to Parent contain a fair summary of all meetings or actions by
written consent of directors and shareholders since the time of incorporation of
Company and its subsidiaries, and reflect all transactions referred to in such
minutes accurately in all material respects.
2.21 Accounts Receivable. Subject to any reserves set forth in the
-------------------
Company Financial Statements, the accounts receivable shown on the Company
Financial Statements represent and will represent bona fide claims against
debtors for sales and other charges, and are not subject to discount except for
normal cash and immaterial trade discounts. The amount carried for doubtful
accounts and allowances disclosed in the Company Financial Statements is
sufficient to provide for any losses which may be sustained on realization of
the receivables.
2.22 Customers and Suppliers. No customer which individually accounted
-----------------------
for more than five percent (5%) of Company's consolidated gross revenues during
the 12-month period preceding the date hereof, and no supplier of Company or any
of its subsidiaries, has canceled or otherwise terminated, or made any written
threat to Company or any of its subsidiaries to cancel or otherwise terminates,
its relationship with Company or any of its subsidiaries, or has decreased
materially its services or supplies to Company or any of its subsidiaries in the
case of any such supplier, or its usage of the services or products of Company
or any of its subsidiaries in the case of such customer, and to Company's
knowledge, no such supplier or customer intends to cancel or otherwise terminate
its relationship with Company or any of its subsidiaries or to decrease
materially its services or supplies to Company or any of its subsidiaries or its
usage of the services or products of Company or any of its subsidiaries, as the
case may be.
2.23 Material Contracts. As of the date of this Agreement, except for
------------------
the material contracts described in Section 2.23 of the Company Disclosure
Schedule, neither
21
Company nor any of its subsidiaries is a party to or bound by any material
contract or agreement (a "Material Contract"), including without limitation:
(a) any distributor, sales, advertising, agency or similar
contract involving in the case of any such contract more than $100,000 in
payments by or to Company or any of its subsidiaries;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contract more
than $100,000 over the term of the contract;
(c) any contract that expires or may be renewed at the option of
any person other than Company so as to expire more than one year after the date
of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of $100,000
in the aggregate;
(f) any contract limiting the freedom of Company or any of its
subsidiaries to engage in any line of business or to compete with any other
person as that term is defined in the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any confidentiality, secrecy or non-disclosure
contract;
(g) any contract pursuant to which Company or any of its
subsidiaries is a lessor of any machinery, equipment, motor vehicles, office
furniture, fixtures or other personal property for more than $100,000 over the
term of the contract;
(h) any contract with any person with whom Company or any of its
subsidiaries does not deal at arm's length within the meaning of the Code; or
(i) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person.
2.24 No Breach of Material Contracts. Each of Company and its
-------------------------------
subsidiaries has performed all of the material obligations required to be
performed by it and is entitled to all accrued benefits under, and, to Company's
knowledge, is not alleged to be in default in any material respect of any
Material Contract. Each of the Material Contracts is in full force and effect,
and there exists no default or event of default or event, occurrence, condition
or act, with respect to Company or any of its subsidiaries or to Company's
knowledge with respect to the other contracting party, which, with the giving of
notice, the lapse of the time or the happening of any other event or conditions,
would become a default or event of default under any Material Contract. Company
has provided true and complete copies of all Material Contracts to Parent.
22
2.25 Year 2000 Compliance. "Year 2000 Compliant" (or, as the context
--------------------
may require, "Year 2000 Compliance") means that any particular hardware or
software will: (i) process date data from at least the years 1900 through 2101,
or involving date information from more than one century, without error,
interruption, malfunction, corruption, ceasing to function, generating incorrect
data or otherwise producing incorrect results or adversely impacting current or
future operations; (ii) maintain functionality with respect to the introduction,
processing and output of records containing dates falling on or after January 1,
2000; and (iii) support numeric and date transitions from the twentieth century
to the twenty-first century, and back (including, without limitation, all
calculations, aging, reporting, printing, displays, reversals, disaster and
vital records recoveries) without error, interruption, malfunction, corruption,
ceasing to function, generating incorrect data or otherwise producing incorrect
results or adversely impacting current or future operations.
(a) All of Company's and its subsidiaries' products and services
(including products sold to date, products currently being sold or future
products), both individually and when operating in conjunction with all other
systems, products or services with which they are designed to interface
(assuming such other systems, products or services are Year 2000 Compliant), and
all material computer software and hardware (including, without limitation,
microcode, firmware, system and application programs, files, databases, computer
services and microcontrollers, including those embedded in computer and
noncomputer equipment) contained in Company's and its subsidiaries' products or
services (including products and services sold to date, products and services
currently being sold or future products and services) are Year 2000 Compliant.
(b) All of Company's and its subsidiaries' internal computer
systems are, both individually and in conjunction with all other systems with
which they interface (assuming such other systems, products or services are Year
2000 Compliant), Year 2000 Compliant.
(c) Each of Company and its subsidiaries has made inquiries of
its key suppliers of services and products and, to knowledge of Company, neither
Company nor any of its subsidiaries is relying on the products or services of
any third party whose systems, products or services are not Year 2000 Compliant.
(d) Company does not have any material expenses or other material
liabilities associated with securing Year 2000 Compliance, or making contingency
arrangements to address Year 2000 Compliance issues, with respect to Company's
or its subsidiaries' products or services (including products and services sold
to date, products and services currently being sold or future products and
services), internal computer systems or the computer systems of Company's or its
subsidiaries' key suppliers or customers.
(e) Neither Company nor any of its subsidiaries has made any
representations or warranties specifically relating to the ability of any
product or service sold, licensed, rendered, or otherwise provided by Company or
its subsidiaries in the conduct of its business to be Year 2000 Compliant.
23
2.26 Export Control Laws. Each of Company and its subsidiaries has
-------------------
conducted its export transactions in accordance with applicable provisions of
United States export control laws and regulations, including but not limited to
the Export Administration Act and implementing Export Administration
Regulations.
2.27 Product Releases. Company has provided Acquiror a schedule of
----------------
product releases, which schedule is attached hereto as Section 2.27 of the
Company Disclosure Schedule. Company has a good faith reasonable belief that it
can achieve the release of products on the schedule described in Section 2.27 of
the Company Disclosure Schedule and is not currently aware of any change in its
circumstances or other fact that has occurred that would cause it to believe
that it will be unable to meet such release schedule. Notwithstanding the
foregoing, Acquiror acknowledges that there may be events beyond the control of
Company that may cause it to be unable to meet such release schedule and that
Company makes no representations with respect thereto.
2.28 Complete Copies of Materials. Company has delivered or made
----------------------------
available to Parent true and complete copies of each material document that has
been requested in writing by, Parent or its counsel in connection with their
legal, financial and accounting review of Company and its subsidiaries.
2.29 Shareholder Agreement; Irrevocable Proxies. Holders of more than
------------------------------------------
50% of the issued and outstanding Company Common Stock, more than 50% of the
issued and outstanding Company Series A Preferred Stock, more than 50% of the
issued and outstanding Company Series B Preferred Stock and more than 50% of the
issued and outstanding Company Capital Stock, have signed and delivered to
Parent Shareholder Agreements in the form of Exhibit C hereto and irrevocable
---------
proxies and market standoff letter agreements in the forms annexed thereto (the
"Irrevocable Proxies" and the "Market Standoff Agreements," respectively) and
have agreed in writing to vote for approval of the Merger and the transactions
contemplated thereby pursuant to such Shareholder Agreements and Irrevocable
Proxies. Schedule 2.29 to this Agreement sets forth the names and number of
-------------
shares held by each of the Holders who have signed and delivered such
Shareholder Agreement.
2.30 Vote Required. The affirmative vote of the holders of more than
-------------
fifty percent (50%) of the shares of Company Common Stock and each series of
Company Preferred Stock outstanding on the record date set for the Company
Shareholders Meeting is the only vote of the holders of any of Company's Capital
Stock necessary to approve this Agreement, the Merger and the other transactions
contemplated by this Agreement.
2.31 Board Approval. The Board of Directors of Company has unanimously
--------------
(i) approved and adopted this Agreement, the Merger and the other transactions
contemplated by this Agreement, (ii) determined that the Merger is advisable and
on terms fair to, and is in the best interests of, the shareholders of Company
and (iii) recommended that the shareholders of Company approve and adopt this
Agreement, the Merger and the other transactions contemplated by this Agreement.
2.32 Tax Treatment. Neither Company nor, to Company's knowledge, any
-------------
of its directors or officers has taken any action that would prevent the Merger
from qualifying as a
24
"reorganization" within the meaning of Section 368(a) of the Code. Neither
Company nor, to Company's knowledge, any of its affiliates or agents is aware of
any agreement, plan or other circumstance that would prevent the Merger from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code.
2.33 Information Statement and Proxy Statement. The information
-----------------------------------------
supplied by Company for inclusion in the information statement (as amended or
supplemented, the "Information Statement") to be sent to the shareholders of
Company in connection with the meeting of Company's shareholders to consider and
vote upon this Agreement, the Merger and the other transactions contemplated
hereby (the "Company Shareholders Meeting") or in the proxy statement (as
amended or supplemented, the "Proxy Statement") to be sent to the stockholders
of Parent in connection with the meeting of Parent's stockholders to consider
and vote upon the issuance of Parent Common Stock pursuant to this Agreement
(the "Parent Stockholders Meeting") or in any registration statement on Form S-4
or S-3 pursuant to Section 1.12 of this Agreement, shall not, on the date the
Information Statement (or prospectus in the event of a registration statement on
Form S-4) is first sent to Company's shareholders or on the date the Proxy
Statement is first sent to Parent's stockholders (as the case may be) , at the
time of the Company Shareholders Meeting or the Parent's Stockholders Meeting
(as the case may be), or at the Effective Time, contain any statement which, at
such time, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to matters to be voted on
at the Company Shareholders Meeting or the Parent Stockholder Meeting which has
become false or misleading. If at any time prior to the Effective Time any event
or information should be discovered by Company which should be set forth in a
supplement to the Information Statement or the Proxy Statement, Company shall
promptly inform Parent. Notwithstanding the foregoing, Company makes no
representation, warranty or covenant with respect to any information supplied by
Parent or Merger Sub which is contained in the Information Statement or the
Proxy Statement. The information supplied by Company for inclusion in the
application for issuance of a California Permit pursuant to which the shares of
Parent Common Stock to be issued in the Merger and the Company Options to be
assumed in the Merger will be qualified under the California Corporations Code
(the "Permit Application") shall not at the time the fairness hearing is held
pursuant to Section 25142 of the California Corporations Code and the time the
qualification of such securities is effective under Section 25122 of the
California Corporations Code contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
2.34 Company Affiliates. Section 2.34 of the Company Disclosure
------------------
Schedule contains a true and complete list of all persons who, to Company's
knowledge, may be deemed to be an "affiliate" within the meaning of Rule 144 and
Rule 145 of the Rules and Regulations of the SEC promulgated under the
Securities Act for purposes of Accounting Series Releases 130 and 135, as
amended (each such person, an "Affiliate" and collectively "Affiliates") of
Company.
25
2.35 Brokers' and Finders' Fees. Company has not incurred, nor will it
--------------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, other
than as set forth in Section 2.35 of the Company Disclosure Schedule. Company
has previously furnished to Parent a complete and correct copy of all agreements
between Company and the financial advisors set forth in Section 2.35 of the
Company Disclosure Schedule, pursuant to which such firms would be entitled to
any payment relating to the Merger.
2.36 Representations Complete. None of the representations or
------------------------
warranties made by Company herein or in any Schedule hereto, including the
Company Disclosure Schedule, or certificate furnished by 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
----------------------------------------
Except as disclosed in that section of the document of even date
herewith delivered by Parent to Company prior to the execution and delivery of
this Agreement (the "Parent Disclosure Schedule") corresponding to the Section
of this Agreement to which any of the following representations and warranties
specifically relate or as disclosed in another section of the Parent Disclosure
Schedule if it is reasonably apparent on the face of the disclosure that it is
applicable to another Section of this Agreement, or as disclosed in the
statements, reports, registration statements (with the prospectus in the form
filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statements, and other filings filed with the Securities and Exchange Commission
(the "SEC") by Parent on or prior to the date hereof (collectively, the "Parent
SEC Documents"), Parent hereby represents and warrants to Company as follows:
3.1 Organization, Standing and Power. Each of Parent and Merger
--------------------------------
Sub is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. Each of Parent and Merger Sub has
the corporate power and authority to enter into this Agreement and the Ancillary
Agreements, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. Parent has no
material subsidiaries.
3.2 Capital Structure.
-----------------
(a) The authorized capital stock of Parent consists of
100,000,000 shares of Common Stock, $0.001 par value per share, and 10,000,000
shares of Preferred Stock, $0.001 par value per share, of which there were
issued and outstanding as of the close of business on June 30, 1999, 35,935,627
shares of Common Stock and no shares of Preferred Stock. All outstanding shares
of Parent have been duly authorized, validly issued, fully paid and are
nonassessable and free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. The shares of
Parent Common Stock to be
26
issued pursuant to the Merger will be duly authorized, validly issued, fully
paid, and non-assessable. Parent has reserved 7,544,000 shares of Parent Common
Stock for issuance pursuant to the Parent Stock Option Plan, of which 1,476,351
shares have been issued pursuant to option exercises and 3,674,236 shares are
subject to outstanding, unexercised options. As of the date of this Agreement,
no warrants to purchase shares of Parent Common Stock are outstanding. Except
for (i) the rights created pursuant to this Agreement, (ii) the outstanding
options under the Parent's stock option plan, and (iii) Parent's right to
repurchase any unvested shares under its stock option plan, there are no other
options, warrants, calls, rights, commitments or agreements of any character to
which Parent is a party or by which it is bound obligating Parent to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of capital stock or voting securities of
Parent or obligating Parent to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except for this Agreement, there are no
contracts, commitments or agreement relating to voting, purchase or sale of
Parent's capital stock or voting securities (i) between or among Parent and any
of its securityholders, and (ii) to Parent's knowledge, between or among any of
Parent's securityholders. None of the outstanding options permit any accelerated
vesting or exercisability of those options or the shares of Parent Common Stock
subject to those options by reason of the Merger or any other transactions
contemplated by this Agreement. True and complete copies of all agreements and
instruments relating to or issued under Parent's stock option plan have been
provided to Company and such agreements and instruments have not been amended,
modified or supplemented, and there are no agreements to amend, modify or
supplement such agreements or instruments in any case from the form provided to
Company. All outstanding shares of Parent Common Stock and all Parent options
and warrants to acquire Parent Common Stock from Parent were issued in
compliance in all material respects with all applicable federal and state
securities laws.
(b) The authorized capital stock of Merger Sub consists of one
thousand (1,000) shares of common stock, no par value per share ("Merger Sub
Common Stock"), of which 1000 shares are issued and outstanding. Parent owns
directly all the outstanding shares of Merger Sub Common Stock. The outstanding
shares of Merger Sub Common Stock are duly authorized, validly issued, fully
paid and nonassessable and free of any preemptive rights.
3.3 Authority. The execution and delivery of this Agreement and the
---------
Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of each of Parent and Merger Sub, subject only to the approval by
Parent's stockholders of the issuance of the Merger Shares pursuant to this
Agreement (the "Parent Stockholder Approval"). This Agreement and each Ancillary
Agreement has been duly executed and delivered by each of Parent and Merger Sub,
as applicable, and constitutes the valid and binding obligation of each of them,
enforceable against each of them in accordance with its terms, except as
enforcement may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, receivership, conservatorship, arrangement, moratorium or other
laws affecting the rights of creditors generally, or (ii) the availability of
specific performance, injunctive relief or other equitable remedies and general
principles of equity, regardless or whether considered in a proceeding in equity
or at law. The execution and delivery of this Agreement or any Ancillary
Agreement do not, and the performance of Parent's obligations hereunder or
thereunder and the consummation
27
of the transactions contemplated hereby or thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit, or result in any other
consequence, under (i) any provision of the Certificate of Incorporation or
Bylaws of Parent or Merger Sub, as amended, or (ii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent, Merger Sub or their respective properties or assets,
except in the case of clause (i) for any conflicts, violations, defaults or
other occurrences that would not (A) individually or in the aggregate have a
Material Adverse Effect on Parent or any of its subsidiaries or (B) prevent or
materially impair or delay the consummation of the Merger or the other
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement or any Ancillary Agreement by
Parent and Merger Sub, the performance of Parent's obligations hereunder or
thereunder or the consummation by Parent and Merger Sub of the transactions
contemplated hereby or thereby, except for (i) the filing of the Agreement of
Merger, as provided in Section 1.2, (ii) the filing with and clearance by the
SEC of the Proxy Statement and such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal or state securities laws or the securities laws of any
foreign country, (iii) such filings as may be required under the HSR Act, (iv)
the filing with the Nasdaq National Market of a Notification Form for Listing of
Additional Shares with respect to the shares of Parent Common Stock issuable
upon conversion of the Company Capital Stock in the Merger and upon exercise of
the options under the Company Stock Option Plan and warrants assumed by Parent,
(v) such other consents, authorizations, filings, approvals and registrations
which, if not obtained or made, would not have a Material Adverse Effect on
Parent and would not prevent or materially alter or delay any of the
transactions contemplated by this Agreement or the Ancillary Agreements, and
(vi) the filing with the SEC of a registration statement on Form S-8, or other
applicable form, covering the shares of Parent Common Stock issuable pursuant to
outstanding options under the Company Stock Option Plan assumed by Parent .
3.4 SEC Documents; Financial Statements. Parent has made available to
-----------------------------------
Company, in the form filed with the SEC (including via ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇), the
Parent SEC Documents. As of their respective filing dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a subsequently filed Parent SEC Document. The
financial statements of Parent, including the notes thereto, included in the
Parent SEC Documents (the "Parent Financial Statements") were complete and
correct in all material respects as of their respective dates, complied as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in all material respects in accordance
with GAAP applied on a basis consistent throughout the periods indicated and
consistent with each other (except as may be indicated in the notes thereto or,
in the case of unaudited statements included in Quarterly Reports on Form 10-Q
or Current Reports on Form 8-K, as permitted by Form 10-Q or Form 8-K
28
of the SEC). The Parent Financial Statements fairly present the consolidated
financial condition and operating results of Parent and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments).
3.5 Absence of Certain Changes. Since June 30, 1999 (the "Parent
--------------------------
Balance Sheet Date"), Parent has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
could reasonably be expected to result in, a Material Adverse Effect on Parent;
(ii) any acquisition, sale or transfer of any material asset of Parent or any of
its subsidiaries; (iii) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by Parent or any
revaluation by Parent of any of its or its subsidiaries' assets; (iv) any
declaration, setting aside, or payment of a dividend or other distribution with
respect to the shares of Parent, or any direct or indirect redemption, purchase
or other acquisition by Parent or any of its subsidiaries of any of its shares
of capital stock or other securities, except from former employees, directors
and consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of service to it or its subsidiaries;
(v) any amendment or change to the certificate or articles of incorporation or
bylaws or other charter or organizational documents of Parent or any of its
subsidiaries; (vi) any acts or omissions of the types restricted by Section 4.3,
or (vii) any agreement by Parent or any of its subsidiaries to do any of the
things described in the preceding clauses (i) through (vi) (other than
negotiations with Company and its representatives regarding the transactions
contemplated by this Agreement).
3.6 Absence of Undisclosed Liabilities. Parent has no material
----------------------------------
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
balance sheet included in Parent's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 (the "Parent Balance Sheet"), (ii) those incurred in the
ordinary course of business and not required to be set forth in the Parent
Balance Sheet under GAAP, and (iii) those incurred in the ordinary course of
business consistent with past practice since the Parent Balance Sheet Date which
have not had and could not reasonably be expected to have a Material Adverse
Effect on Parent and (iv) those incurred in connection with the execution and
performance of this Agreement.
3.7 Litigation. There is no private or governmental action, suit,
----------
proceeding, arbitration or, to the knowledge of Parent, claim or investigation
pending or threatened by or before any agency, court or tribunal, foreign or
domestic, against Parent or any of its subsidiaries or any of their respective
properties or officers or directors (in their capacities as such). There is no
judgment, decree or order against Parent or Merger Sub or any of their
respective subsidiaries or, to the knowledge of Parent, any of their respective
directors or officers (in their capacities as such), that could prevent, enjoin,
or materially alter or delay the Merger or any of the other transactions
contemplated by this Agreement or any Ancillary Agreement. Section 3.7 of the
Parent Disclosure Schedule contains a true and complete list of all actions,
suits, proceedings, claims, arbitrations or other litigation that Parent has
pending or threatened against other parties as of the date of this Agreement.
29
3.8 Restrictions on Business Activities. There is no agreement,
-----------------------------------
judgment, injunction, order or decree binding upon Parent or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or impairing any current or future business practice of Parent or
any of its subsidiaries, any acquisition of property by Parent or any of its
subsidiaries or the conduct of business by Parent or any of its subsidiaries as
currently conducted or as currently proposed to be conducted by Parent or any of
its subsidiaries.
3.9 Intellectual Property.
---------------------
(a) Parent and its subsidiaries own, or are licensed or otherwise
possesses legally enforceable rights to use all Intellectual Property that are
used or proposed to be used in the business of Parent and its subsidiaries as
currently conducted or as proposed to be conducted by Parent and its
subsidiaries. Neither Parent nor any of its subsidiaries has (i) licensed any of
its Intellectual Property in source code form to any party or (ii) entered into
any exclusive agreements relating to its Intellectual Property with any party.
(b) Section 3.9 of the Parent Disclosure Schedule lists (i) all
patents and patent applications and all registered and unregistered trademarks,
trade names, service marks, and copyrights, domain names and maskworks which are
registered or to which registration has been applied for, included in the
Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all material
licenses, sublicenses and other agreements as to which Parent or any of its
subsidiaries is a party and pursuant to which any person is authorized to use
any Intellectual Property except for Parent's standard form non-exclusive
licenses and sublicenses contained in purchase orders, and (iii) all material
licenses, sublicenses and other agreements as to which Parent or any of its
subsidiaries is a party and pursuant to which Parent or any of its subsidiaries
is authorized to use any third party patents, trademarks or copyrights,
including software ("Parent Third Party Intellectual Property Rights") which are
incorporated in, are, or form a part of any product of Parent or any of its
subsidiaries as of the date of this Agreement.
(c) To Parent's knowledge, there is no unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of Parent
or any of its subsidiaries, or any Intellectual Property right of any third
party to the extent licensed by or through Parent or any of its subsidiaries, by
any third party, including any employee or former employee of Parent or any of
its subsidiaries. Neither Parent nor any of its subsidiaries has entered into
any agreement to indemnify any other person against any charge of infringement
of any Intellectual Property, other than indemnification provisions contained in
purchase orders or license agreements arising in the ordinary course of
business.
(d) Neither Parent nor any of its subsidiaries is, nor will any of
them be as a result of the execution and delivery of this Agreement or the
Ancillary Agreements or the performance of any of their obligations under this
Agreement or the Ancillary Agreements, in breach of any license, sublicense or
other agreement relating to any Intellectual Property or Parent Third Party
Intellectual Property Rights.
30
(e) All patents, registered trademarks, service marks and
copyrights held by Parent or any of its subsidiaries are valid and subsisting.
Neither Parent nor any of its subsidiaries (i) has been sued in any suit, action
or proceeding which involves a claim of infringement of any patents, trademarks,
service marks, copyrights or violation of any trade secret or other proprietary
right of any third party, (ii) has any knowledge that the manufacturing,
marketing, licensing or sale of its products infringes any patent, trademark,
service ▇▇▇▇, copyright, trade secret or other proprietary right of any third
party or (iii) has brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(f) Each of Parent and its subsidiaries has secured written
assignments from all consultants and employees who contributed to the creation
or development of Intellectual Property of the rights to such contributions that
Parent and its subsidiaries do not already own by operation of law, and Parent
has no reason to believe that any such assignment is not valid or binding.
(g) Each of Parent and its subsidiaries has taken reasonable
steps consistent with prevailing industry practice to protect and preserve the
confidentiality of all Intellectual Property not otherwise protected by patents,
patent applications or copyright ("Confidential Information"). All use,
disclosure or appropriation of Confidential Information owned by Parent or any
of its subsidiaries by or to a third party has, to the knowledge of Parent, been
pursuant to the terms of a written agreement between Parent and such third
party. All use, disclosure or appropriation of Confidential Information not
owned by Parent or any of its subsidiaries has been pursuant to the terms of a
written agreement between Parent and the owner of such Confidential Information,
or is otherwise lawful.
3.10 Certain Agreements Affected by the Merger. Subject to Section
-----------------------------------------
1.6, neither the execution and delivery of this Agreement or any Ancillary
Agreements nor the performance of any of Parent's obligations hereunder or
thereunder or the consummation of the transaction contemplated hereby or thereby
will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of Parent, (ii) materially increase any benefits
otherwise payable by Parent or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
3.11 Principal Contracts. Section 3.11 of the Parent Disclosure
-------------------
Schedule sets forth as of the date of this Agreement principal contracts of
Parent (each a "Principal Contract") relating to: (i) any trust indenture,
mortgage, promissory note, loan agreement or other contract for the borrowing of
money, any currency exchange, commodities or other hedging arrangement or any
leasing transaction of the type required to be capitalized in accordance with
GAAP; (ii) any contract limiting the freedom of Parent or any of its
subsidiaries to engage in any line of business or to compete with any other
person or entity, or any confidentiality, secrecy or non-disclosure contract;
(iii) any contract with any person with whom Parent or any of its subsidiaries
does not deal at arm's length within the meaning of the Code. Each of Parent and
its subsidiaries has performed all of the material obligations required to be
performed by it and is entitled to all accrued benefits under, and, to Parent's
knowledge, is not alleged to be in default in any material respect of any
Principal Contract. Each of the Principal Contracts is in full force and effect,
and
31
there exists no default or event of default or event, occurrence, condition or
act, with respect to Parent or any of its subsidiaries or to Parent's knowledge
with respect to the other contracting party, which, with the giving of notice,
the lapse of the time or the happening of any other event or conditions, would
become a default or event of default under any Principal Contract. Parent has
made available true and complete copies of all Principal Contracts to Company.
3.12 Vote Required; Voting Agreements. The affirmative vote of the
--------------------------------
holders of more than fifty percent (50%) of the shares of Parent Common Stock
outstanding on the record date set for the Parent Stockholders Meeting is the
only vote of the holders of any of Parent's capital stock necessary to obtain
the Parent Stockholder Approval. Holders of more than forty five percent (45%)
in the aggregate of all of the issued and outstanding shares of Parent Common
Stock as of the date of this Agreement have agreed in writing to vote for the
Parent Stockholder Approval pursuant to the Voting Agreements.
3.13 Board Approval. The Board of Directors of Parent has (i)
--------------
approved this Agreement and the issuance of the Merger Shares pursuant to this
Agreement, (ii) determined that the Merger is advisable and on terms fair to,
and is in the best interest of, the stockholders of Parent and (iii) recommended
that the stockholders of Parent approve the issuance of the Merger Shares
pursuant to this Agreement.
3.14 Information Statement and Proxy Statement. The information
-----------------------------------------
supplied by Parent for inclusion in the Information Statement, or in any
registration statement on Form S-4 or S-3 pursuant to Section 1.12 of this
Agreement, shall not, on the date the Information Statement (or prospectus in
the event of a registration statement on Form S-4) is first sent to Company's
shareholders or at the time of the Company Shareholders Meeting, contain any
statement which at such time is false or misleading with respect to any material
fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to matters to be
voted on at the Company Shareholders Meeting which has become false or
misleading. Notwithstanding the foregoing, Parent makes no representation,
warranty or covenant with respect to any information supplied by or on behalf of
Company which is contained in the Information Statement. The information
supplied by Parent and Merger Sub for inclusion in the Permit Application shall
not, at the time the fairness hearing is held pursuant to Section 25142 of the
California Corporations Code and the time the qualification of such securities
is effective under Section 25122 of the California Corporations Code, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.15 Tax Treatment. Neither Parent nor any of its directors or
-------------
officers has taken any action that would prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code. Neither
Parent nor, to Parent's knowledge, any of its affiliates or agents is aware of
any agreement, plan or other circumstance that would prevent the Merger from
qualifying under Section 368(a) of the Code.
3.16 Broker's and Finders' Fees. Parent and Merger Sub have not
--------------------------
incurred, nor will they incur, directly or indirectly, any liability for
brokerage or finders' fees or agents'
32
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby, other than as set
forth in Section 3.16 of the Parent Disclosure Schedule. Parent has previously
furnished to Company a complete and correct copy of all agreements between
Parent and the financial advisors set forth in Section 3.16 of the Parent
Disclosure Schedule, pursuant to which such firms would be entitled to any
payment relating to the Merger.
3.17 Complete Copies of Materials; Representations Complete. Parent
------------------------------------------------------
has delivered or made available to Company true and complete copies of each
material document that has been requested in writing by, Company or its counsel
in connection with their legal, financial and accounting review of Parent and
its subsidiaries. None of the representations or warranties made by Parent
herein or in any Schedule hereto, including the Parent Disclosure Schedule, or
certificate furnished by Parent pursuant to this Agreement contains or will
contain at the Effective Time any untrue statement of a material fact, or omits
or will omit (when read in conjunction with the Parent SEC Documents) 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.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
-----------------------------------
4.1 General Conduct of Business. During the period from the date of
---------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Company and Parent (except to the extent
expressly contemplated by this Agreement or as consented to in writing by the
other party or as approved by a majority of the Merger Integration Committee
established pursuant to Section 5.7(d) and except further, in the case of
Parent, as required by the fiduciary duties of the Board of Directors of Parent)
shall, and shall cause each of its subsidiaries to, carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted or as otherwise contemplated by the Company Budget as
defined in Section 4.2(i) below (in the case of Company) or Parent's FY2000 Plan
(in the case of Parent). Company further agrees to, and to cause its
subsidiaries to, pay debts and Taxes when due (subject to (i) good faith
disputes over such debts or Taxes and (ii) Parent's consent to the filing of
material Tax Returns if applicable), pay or perform other obligations when due,
and use reasonable efforts consistent with past practice and policies to
preserve intact its present business organizations, keep available the services
of its present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it so that its goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Company and Parent shall promptly notify each
other of any event or occurrence not in the ordinary course of its or its
subsidiaries' business, and of any event which could have a Material Adverse
Effect on the other.
4.2 Conduct of Business of Company. During the period from the date
------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement or any Ancillary Agreement, Company shall (and shall cause its
subsidiaries to) not do, cause or permit any of the following without the prior
written consent of Parent or the prior approval of a majority of the Merger
33
Integration Committee established pursuant to Section 5.7(d) (including the
approval of at least one member thereof designated by Parent):
(a) Charter Documents. Amend, modify, alter or rescind its
-----------------
certificate or articles of incorporation or bylaws or other charter or
organizational documents;
(b) Dividends; Changes in Capital Stock. Declare or pay any
-----------------------------------
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
(c) Stock Option Plans. Grant any options or other rights to
-------------------
acquire securities of Company (except grants of options to acquire Company
Common Stock in the ordinary course of business consistent with past practice,
exercisable for a total of not more than one million three hundred thirty three
thousand (1,333,000) shares of Company Common Stock), or accelerate, amend or
change the period of exercisability or vesting of options or other rights
granted under its stock plans or authorize cash payments in exchange for any
options or other rights granted under any of such plans;
(d) Issuance of Securities. Issue, deliver or sell or
----------------------
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than (i) the issuance of shares of Company Common
Stock pursuant to the exercise of Company Options outstanding under the Company
Stock Option Plan (or upon the exercise of warrants to acquire Company Common
Stock from Company outstanding) as of the date of this Agreement and (ii) grants
of options permitted by Section 4.2(c);
(e) Material Contracts. Enter into any material contract or
------------------
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts, other than in the ordinary course of business
consistent with past practice;
(f) Intellectual Property. Transfer to any person or entity any
---------------------
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
(g) Exclusive Rights. Enter into or amend any agreements
----------------
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of its products or
technology;
(h) Dispositions. Sell, lease, license or otherwise dispose of
------------
or encumber any of its properties or assets which are material, individually or
in the aggregate, to
34
its business, taken as a whole except for sales, leases or licenses of products
in the ordinary course of business;
(i) Indebtedness. Incur any indebtedness for borrowed money or
------------
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others, except in accordance with Company's
budget for October 1, 1999 through June 30, 2000 heretofore furnished to Parent
(the "Company Budget");
(j) Leases. Enter into any operating lease, except in
------
accordance with the Company Budget;
(k) Payment of Obligations. Pay, discharge or satisfy any
----------------------
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Company Financial Statements or in accordance with the
Company Budget;
(l) Capital Expenditures. Make any capital expenditures,
--------------------
capital additions or capital improvements except in accordance with the Company
Budget;
(m) Insurance. Materially reduce the amount of any material
---------
insurance coverage provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of
---------------------
substantial value, other than in the ordinary course of business;
(o) Employee Benefit Plans; New Hires; Pay Increases. Adopt or
------------------------------------------------
amend any employee benefit or stock purchase or option plan, elect or appoint
any new director, or hire any new officer level employee, pay any special bonus
or special remuneration to any employee or director or, other than in the
ordinary course of business consistent with past practice, increase the salaries
or wage rates of its employees;
(p) Severance Arrangements. Grant any severance or termination
----------------------
pay (i) to any director or officer or (ii) to any other employee except payments
made pursuant to written agreements outstanding on the date hereof, identified
specifically on the Company Disclosure Schedule and furnished to Parent and its
counsel prior to the date hereof;
(q) Lawsuits. Commence a lawsuit other than (i) for the
--------
collection of bills, (ii) in such cases where it in good faith reasonably
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with Parent
prior to the filing of such a suit, or (iii) for a breach of this Agreement;
(r) Acquisitions. Acquire or agree to acquire, by merging or
------------
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its business, taken as a whole;
35
(s) Taxes. Make or change any material election in respect of
-----
Taxes, adopt or change any accounting method in respect of Taxes, file any
material Tax Return or any amendment to a material Tax Return, enter into any
closing agreement, settle any material claim or assessment in respect of Taxes,
or consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(t) Notices. Fail to give all notices and other information
-------
required to be given by Company or any of its subsidiaries to the employees of
Company or any of its subsidiaries, any collective bargaining unit representing
any group of employees of Company, and any applicable government authority under
the WARN Act, the National Labor Relations Act, the Internal Revenue Code, the
Consolidated Omnibus Budget Reconciliation Act, and other applicable law in
connection with the transactions provided for in this Agreement;
(u) Revaluation. Revalue any of its assets, including without
-----------
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
(v) Domain Names. Change domain names or fail to renew existing
------------
domain name registrations on a timely basis, or
(w) Other. Take or agree in writing or otherwise to take, any
-----
of the actions described in Sections 4.2(a) through (v) above or (i) any action
which would make any of its representations or warranties contained in this
Agreement materially untrue or materially incorrect, or prevent it from
performing or cause it not to perform its covenants hereunder in any material
respect, (ii) any action that will result in any of the conditions to the Merger
as set forth in Article VI not being satisfied or in violation of any provision
of this Agreement, or any Ancillary Agreement, except, in every case, as may be
required by applicable law, or (iii) any other action that would materially
adversely delay or materially adversely impair the ability of Company to
consummate the Merger or the other transactions contemplated by this Agreement.
4.3 Conduct of Parent. During the period from the date of this
-----------------
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, except as expressly contemplated by this Agreement or any
Ancillary Agreement, Parent shall (and shall cause its subsidiaries to) not do,
cause, cause or permit any of the following without the prior written consent of
Company or approval of a majority of the Merger Integration Committee
established pursuant to Section 5.7(d) (including the approval of at least one
member thereof designated by Company):
(a) Certain Actions. Take or agree in writing or otherwise to
----------------
take, any of the actions described in Sections 4.3(b) through (j) below, or (i)
any action which would make any of its representations or warranties contained
in this Agreement materially untrue or materially incorrect, or prevent it from
performing or cause it not to perform its covenants hereunder in any material
respect, (ii) any action that will result in any of the conditions to the Merger
as set forth in Article VI not being satisfied or in violation of any provision
of this Agreement or any Ancillary Agreement, except, in every case, as may be
required by applicable law, or (iii) any other action that would materially
adversely delay or materially adversely impair
36
the ability of Parent to consummate the Merger or the other transactions
contemplated by this Agreement.
(b) Charter Documents. Amend, modify, alter or rescind its
-----------------
certificate or articles of incorporation or bylaws or other charter or
organizational documents;
(c) Dividends; Changes in Capital Stock. Declare or pay any
-----------------------------------
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
(d) Intellectual Property. Transfer to any person or entity any
---------------------
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
(e) Dispositions. Sell, lease, license or otherwise dispose of
------------
or encumber any of its properties or assets which are material, individually or
in the aggregate, to its business, taken as a whole except for sales, leases or
licenses of products in the ordinary course of business;
(f) Taxes. Make or change any material election in respect of
-----
Taxes, adopt or change any accounting method in respect of Taxes, file any
material Tax Return or any amendment to a material Tax Return, enter into any
closing agreement, settle any material claim or assessment in respect of Taxes;
(g) Domain Names. Change domain names or fail to renew
------------
existing domain name registrations on a timely basis;
(h) Stock Option Plans. Grant any options or other rights to
------------------
acquire securities of Parent (except grants of options to acquire Parent Common
Stock in the ordinary course of business consistent with past practice,
exercisable for a total of not more than two million (2,000,000) shares of
Parent Common Stock), or accelerate, amend or change the period of
exercisability or vesting of options or other rights granted under its stock
plans or authorize cash payments in exchange for any options or other rights
granted under any of such plans;
(i) Issuance of Securities. Issue, deliver or sell or authorize
----------------------
or propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of Parent Common Stock
(i) pursuant to the exercise of Parent Options outstanding under the Parent
Stock Option Plan (or upon the exercise of warrants to acquire Parent Common
Stock from Parent outstanding) as of the date of this Agreement or (ii) pursuant
to a transaction permitted by Section 4.3(j) below;
37
(j) Acquisitions. Acquire or agree to acquire, by merging or
------------
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof.
4.4 No Solicitation by Company.
--------------------------
(a) Company agrees that neither it nor any of its subsidiaries
nor any of their respective officers, directors, employees, agents and
representatives, (including without limitation any investment banker, attorney
or accountant retained by it or any of its subsidiaries) (collectively,
"Representatives"), will, directly or indirectly, initiate, solicit, encourage
or otherwise facilitate any inquiries or the making of any Company Takeover
Proposal (as defined below). Company further agrees that neither it nor any of
its subsidiaries nor any of their Representatives will, directly or indirectly,
engage in any negotiations concerning, or provide any confidential or non-public
information or data to, afford access to the properties, books or records of
Company or any of its subsidiaries to, or have any discussions with, any person
relating to a Company Takeover Proposal, enter into any agreement or instrument
relating to a Company Takeover Proposal or otherwise facilitate any effort or
attempt to make or implement a Company Takeover Proposal. Company agrees that it
will immediately cease and cause to be terminated all existing activities,
discussions or negotiations with any parties heretofore with respect to any of
the foregoing (if any). Company agrees that it will take the necessary steps to
promptly inform each of its Representatives of the obligations undertaken in
this Section 4.4 and in the Confidentiality Agreement (as defined in Section
5.4). Company agrees that it will notify Parent promptly if any inquiries,
proposals or offers relating to a Company Takeover Proposal are received by, any
such information is requested from, or any such discussions or negotiations are
sought to be initiated or continued with, Company or any of its representatives
indicating, in connection with such notice, the name of the person making the
inquiry, proposal or offer and the material terms and conditions of any
proposals or offers and thereafter shall provide Parent with a true and complete
copy of such Company Takeover Proposal communication (if it is in writing) and
otherwise keep Parent informed, on a current basis, on the status and terms of
any such proposals or offers and the status of any such negotiations or
discussions. Company also agrees that it will promptly request each person that
has heretofore executed a confidentiality or non-disclosure agreement in
connection with its consideration of acquiring it or any of its subsidiaries to
return to Company all confidential information heretofore furnished to such
person by or on behalf of it or any of its subsidiaries. At the Closing, Company
shall assign to Parent the non-exclusive right to enforce the rights of Company
and its subsidiaries under any and all confidentiality or non-disclosure
agreements entered into between Company and prospective acquirors of Company or
any of its subsidiaries.
(b) The parties hereto agree that irreparable damage would
occur in the event that the provisions of this Section 4.4 were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed by the parties hereto that Parent shall be entitled to seek
an injunction or injunctions to prevent breaches of this Section 4.4 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 the parties may be entitled at law or in equity.
38
(c) For purposes of this Agreement, "Company Takeover Proposal"
means any offer or proposal for, or any indication of interest in, a merger or
other business combination involving Company or the acquisition of ten percent
(10%) or more of the outstanding shares of capital stock of Company, or a
material portion of the assets of, Company (other than the transactions
contemplated by this Agreement), or any other transaction inconsistent with
consummation of the transactions contemplated hereby.
4.5 No Solicitation by Parent. (a) Parent agrees that neither it
-------------------------
nor any of its subsidiaries nor any of their respective Representatives, will,
directly or indirectly, initiate, solicit, encourage or otherwise facilitate any
inquiries or the making of any Parent Takeover Proposal (as hereinafter
defined). Parent further agrees that neither it nor any of its subsidiaries nor
any of their Representatives will, directly or indirectly, engage in any
negotiations concerning, or provide any confidential or non-public information
or data to, afford access to the properties, books or records of Parent or any
of its subsidiaries to, or have any discussions with, any person relating to a
Parent Takeover Proposal, enter into any agreement or instrument relating to a
Parent Takeover Proposal or otherwise facilitate any effort or attempt to make
or implement a Parent Takeover Proposal (other than a confidentiality agreement
covering the information contemplated by the following proviso); provided,
--------
however, that nothing contained in this Section 4.5 shall prohibit the Board of
-------
Directors of Parent (i) from complying with Rule 14d-9 or 14e-2(a) promulgated
under the Exchange Act with regard to a tender or exchange offer not made in
violation of this Section 4.5 or (ii) from providing information in connection
with, and negotiating concerning, an unsolicited, bona fide Parent Takeover
Proposal if Parent's Board of Directors (x) shall have concluded in good faith,
after considering applicable state law, on the basis of written advice of
independent outside counsel, that failure to take such action would not be a
proper exercise of the fiduciary duties of Parent's Board of Directors to
Parent's stockholders under applicable law, and (y) shall have in the exercise
of such fiduciary duties to Parent's stockholders determined (taking into
account the advice of Parent's independent financial advisor) that such Parent
Takeover Proposal provides materially greater value to Parent or its
stockholders than the Merger (any such Parent Takeover Proposal being referred
to herein as a "Parent Superior Proposal"). Parent agrees that it will
immediately cease and cause to be terminated all existing activities,
discussions or negotiations with any parties heretofore with respect to any of
the foregoing (if any). Parent agrees that it will take the necessary steps to
promptly inform each of its Representatives of the obligations undertaken in
this Section 4.5 and in the Confidentiality Agreement (as defined in Section
5.4). Parent agrees that it will notify Company promptly if any inquiries,
proposals or offers with respect to a Parent Takeover Proposal are received by,
any such information is requested from, or any such discussions or negotiations
are sought to be initiated or continued with, Parent or any of its
Representatives indicating, in connection with such notice, the name of such
person and the material terms and conditions of any proposals or offers and
thereafter shall provide Company with a true and complete copy of such Parent
Takeover Proposal communication (if it is in writing) and otherwise keep Company
informed, on a current basis, on the status and terms of any such proposals or
offers and the status of any such negotiations or discussions. Parent also
agrees that it will promptly request each person that has heretofore executed a
confidentiality or non-disclosure agreement in connection with its consideration
of acquiring it or any of its subsidiaries
39
to return to Parent all confidential information heretofore furnished to such
person by or on behalf of it or any of its subsidiaries.
(b) The parties hereto agree that irreparable damage would
occur in the event that the provisions of this Section 4.5 were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed by the parties hereto that Company shall be entitled to seek
an injunction or injunctions to prevent breaches of this Section 4.5 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 the parties may be entitled at law or in equity.
(c) For purposes of this Agreement, "Parent Takeover Proposal"
means any offer or proposal for, or any indication of interest in, a merger or
other business combination involving Parent or the acquisition of a majority of
the outstanding shares of capital stock of Parent, or all or substantially all
of the assets of Parent, or any other transaction inconsistent with consummation
of the transactions contemplated hereby, that is conditioned on the denial by
Parent stockholders of the Parent Stockholder Approval.
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
5.1 Information Statement and Proxy Statement.
-----------------------------------------
(a) As soon as practicable after the execution of this
Agreement, Company shall prepare, with the cooperation and reasonable assistance
of Parent, and furnish to its shareholders an Information Statement for the
shareholders of Company to approve and adopt this Agreement, the Merger and the
other transactions contemplated by this Agreement. The Information Statement
shall constitute a disclosure document for the offer and issuance of the shares
of Parent Common Stock to be received by the holders of Company Capital Stock in
the Merger and a proxy statement for solicitation of shareholder consent to or
approval of this Agreement, the Merger and the other transactions contemplated
hereby, and may be combined with the Proxy Statement as a joint
proxy/information statement. Parent and Company shall each use its reasonable
best efforts to cause the Information Statement to comply with applicable
federal and state securities laws requirements. Each of Parent and Company
agrees to provide promptly to the other such information concerning it and its
respective affiliates, directors, officers and securityholders as, in the
reasonable judgment of the other party or its counsel, may be required or
appropriate for inclusion in the Information Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Information Statement.
Company will promptly advise Parent, and Parent will promptly advise Company, in
writing if at any time prior to the Effective Time either Company or Parent
shall obtain knowledge of any facts that might make it necessary or appropriate
to amend or supplement the Information Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. The Information Statement shall contain the recommendation of
the Board of Directors of Company that Company shareholders approve and adopt
this Agreement, the Merger and the other transactions contemplated by this
Agreement, and the conclusion of the
40
Board of Directors that the terms and conditions of the Merger are fair and
reasonable and in the best interests of Company and its shareholders. Anything
to the contrary contained herein notwithstanding, Company shall not include in
the Information Statement any information with respect to Parent or its
affiliates or associates, the form and content of which information shall not
have been approved by Parent prior to such inclusion.
(b) As soon as practicable after the execution of this
Agreement, Parent shall prepare, with the cooperation of Company, and file with
the SEC preliminary proxy materials relating to the Parent Stockholders Meeting
and the vote of the stockholders of Parent on the issuance of the Merger Shares
pursuant to this Agreement. Parent and Company shall each use its reasonable
best efforts to cause the Proxy Statement to comply in all material respects
with the Exchange Act and all other applicable federal and state securities law
requirements. Each of Parent and Company shall, and shall cause its respective
representatives to, fully cooperate with the other such party and its
representatives in the preparation of the Proxy Statement, and shall promptly
provide to the other such information concerning it and its respective
affiliates, directors, officers and securityholders as the other may reasonably
request in connection with the preparation of the Proxy Statement. If at any
time prior to the Effective Time Company or Parent shall become aware of any
fact, event or circumstance that is required to be set forth in an amendment or
supplement to the Proxy Statement, such party shall promptly notify the other of
such fact, event or circumstance and the other parties shall cooperate with each
other in filing with the SEC or any other governmental official and mailing to
Parent stockholders such amendment or supplement. The Proxy Statement shall
contain the recommendation of the Board of Directors of Parent in favor of the
Parent Stockholder Approval; provided, that the Board of Directors of Parent
--------
shall have the right to omit, withdraw or modify such recommendation in the
event that a Parent Superior Proposal has been made and Parent's Board of
Directors has concluded in good faith, after considering applicable state law,
on the basis of written advice of outside counsel, that inclusion of such
recommendation would not be a proper exercise of the Parent's board of
directors' fiduciary duties to Parent's stockholders under applicable law.
Notwithstanding any such omission, withdrawal or modification, Parent shall
convene and hold (and shall take all action otherwise required by this Agreement
to convene and hold) the Parent Stockholders Meeting. Without limiting the
generality of the foregoing, Parent shall use its reasonable best efforts to
respond promptly to any comments made by the SEC with respect to the Proxy
Statement (including each preliminary version thereof) and to clear the Proxy
Statement as promptly as practicable hereafter. As promptly as practicable after
SEC clearance of the Proxy Statement, Parent shall file with the SEC the
definitive Proxy Statement and mail or cause to be mailed the Proxy Statement to
its stockholders.
(c) As soon as practicable after the execution of this
Agreement, Parent shall prepare, with the cooperation of Company, the Permit
Application. Parent and Company shall each use commercially reasonable efforts
to cause the Permit Application to comply with the requirements of applicable
federal and state laws. Each of Parent and Company agrees to provide promptly to
the other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Permit Application, or in
any amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the Permit
Application. Company will promptly advise Parent,
41
and Parent will promptly advise Company, in writing if at any time prior to the
Effective Time either Company or Parent shall obtain knowledge of any facts that
might make it necessary or appropriate to amend or supplement the Permit
Application in order to make the statements contained or incorporated by
reference therein not misleading or to comply with applicable law.
5.2 Meetings of Securityholders.
---------------------------
(a) Company shall promptly after the date hereof take all
action necessary in accordance with California Corporations Code and its
Articles of Incorporation and Bylaws to convene the Company Shareholders Meeting
or to secure the written consent of its shareholders within sixty (60) days of
the date of this Agreement. Company shall consult with Parent regarding the date
of the Company Shareholders Meeting and shall not postpone or adjourn (other
than for the absence of a quorum) the Company Shareholders Meeting without the
consent of Parent. Company shall use its reasonable best efforts to solicit from
shareholders of Company proxies or consent in favor of approval and adoption of
this Agreement, the Merger and the other transactions contemplated hereby and
shall take all other action necessary or advisable to secure the vote or consent
of securityholders required to effect the Merger and the other transactions
contemplated hereby.
(b) Parent shall promptly after the date hereof take all action
necessary in accordance with Delaware Law and its Certificate of Incorporation
and Bylaws to convene the Parent Stockholders Meeting within sixty (60) days of
mailing of the Proxy Statement to stockholders of Parent and in no event later
than May 31, 2000. Parent shall consult with Company regarding the date of the
Parent Stockholders Meeting and shall not postpone or adjourn (other than for
the absence of a quorum) the Parent Stockholders Meeting without the consent of
Company. Parent shall use its reasonable best efforts to solicit from
stockholders of Parent proxies in favor of the Parent Stockholder Approval and
shall take all other action necessary or advisable to secure the vote or consent
of Parent securityholders required to effect the Merger.
5.3 Access to Information.
---------------------
(a) Each of Parent and Company shall afford the other and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (i) all of their
respective properties, books, contracts, commitments and records, and (ii) all
other information concerning their respective business, properties and personnel
as the other may reasonably request. Each of Parent and Company agrees to
provide to the other and its accountants, counsel and other representatives
copies of internal financial statements, budgets, operating plans and
projections promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Parent and Company shall confer on a
regular and frequent basis with one or more representatives of the other party
to report material operational matters and the general status of ongoing
operations.
42
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4 Confidentiality. The parties acknowledge that Parent and
---------------
Company have previously executed a mutual Confidentiality Agreement dated
September 21, 1999 (the "Confidentiality Agreement"), which Confidentiality
Agreement shall continue in full force and effect in accordance with its terms.
5.5 Public Disclosure. Unless otherwise permitted by this
-----------------
Agreement, Parent and Company shall consult with each other before issuing any
press release or otherwise making any public statement or making any other
public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
exchange or with the NASD after consultation with Company.
5.6 Consents; Cooperation. Each of Parent, Merger Sub and Company
---------------------
will, and will cause their respective subsidiaries to, take all reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on them with respect to the consummation of the transactions
contemplated by this Agreement and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement or any Ancillary Agreement
and will take all reasonable actions necessary to obtain (and will cooperate
with the other parties hereto in obtaining) any consent, approval, order or
authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement or any
Ancillary Agreement, including without limitation under the HSR Act. Parent and
Company shall have the right to review in advance, and to the extent practicable
each will consult with the other as to, in each case subject to applicable laws
relating to the exchange of information, all of the information which will
appear in any filing made with, or written materials submitted to, any third
party or Governmental Entity in connection with the transactions contemplated by
this Agreement. In the event an injunction or other order shall have been issued
which prevents, alters or delays the Merger or any other transaction
contemplated hereby, each party agrees to use its reasonable best efforts to
have such injunction or other order lifted. Parent and Company and their
respective subsidiaries shall cooperate and use their respective reasonable best
efforts to prepare all documentation, to effect all filings and to obtain all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary to consummate the transactions contemplated by
this Agreement or any Ancillary Agreement, and to consult with the other party
with respect to obtaining such permits, consents, approvals and authorizations.
Each of Parent and Company agrees, upon request, to furnish the other party with
all information concerning itself, its subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its subsidiaries to any third party or Governmental
Entity.
43
5.7 Further Assurances. Each of the parties to this Agreement shall
------------------
use its reasonable best efforts to effect the transactions contemplated hereby
and to fulfill and cause to be fulfilled the conditions to closing under this
Agreement. Without limiting the generality of the foregoing:
(a) Each party hereto, at the reasonable request of another
party hereto, shall execute and deliver such other instruments and do and
perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
(b) FIRPTA Certificate. Company shall, prior to the Closing
------------------
Date, provide Parent with a properly executed FIRPTA Certificate, in form and
substance reasonably acceptable to Parent, which states that shares of capital
stock of Company do not constitute "United States real property interests" under
Section 897(c) of the Code, for purposes of satisfying Parent's obligations
under Treasury Regulation Section 1.1445-2(c)(3), and simultaneously with
delivery of such FIRPTA Certificate, Company shall provide to Parent, as agent
for Company, a form of notice to the Internal Revenue Service in accordance with
the requirements of Treasury Regulation Section 1.897-2(h)(2) and in form and
substance reasonably acceptable to Parent along with written authorization for
Parent to deliver such notice form to the Internal Revenue Service on behalf of
Company upon the Closing of the Merger.
(c) Submission of Expenses. Not less than two (2) business days
----------------------
prior to the Closing Date, Company shall deliver to Parent statements of all
fees and expenses paid or payable by Company in connection with the Merger
(including, without limitation, the fees and expenses of any financial advisors,
legal counsel, accountants or other service providers engaged by Company).
(d) Merger Integration Committee. Promptly after the date of
----------------------------
this Agreement, Parent and Company shall establish a committee (the "Merger
Integration Committee") to plan for the integration of the parties following the
Effective Time and to assist in carrying out certain provisions of this
Agreement, as provided herein. The Merger Integration Committee shall consist of
seven members, four of whom shall be members of the Board of Directors of Parent
and shall be designated by Parent and three of whom shall be members of the
Board of Directors of Company and shall be designated by Company. All
determinations by the Merger Integration Committee shall be made on the basis of
what is in the best interests of Parent and Company as a combined company
following the Effective Time.
(e) Resignation of Directors. The directors of Company in
------------------------
office immediately prior to the Effective Time shall have resigned as directors
of Company effective as of the Effective Time.
(f) Termination of Certain Company Securityholder Agreements.
--------------------------------------------------------
Company shall, effective from and after the Effective Time, cause the following
agreements to be terminated and of no further force or effect: (i) the Amended
and Restated Investors Rights Agreement dated as of January 29, 1999, by and
among Company and the investors listed on the signature page thereto, and (ii)
the Amended and Restated Co-Sale Agreement dated as of January 29, 1999 and the
individuals and entities listed on Exhibit A and Exhibit B thereto.
44
5.8 Company Shareholder Agreements.
------------------------------
(a) Company shall provide Parent such information and documents
as Parent shall reasonably request for purposes of reviewing the list of
Affiliates contained in Section 2.34 of the Company Disclosure Schedule and
promptly advise Parent of any person who becomes an Affiliate of Company
hereafter.
(b) Company shall use its reasonable best efforts to deliver or
cause to be delivered to Parent, concurrently with the execution of this
Agreement (and in any event prior to the time that the Information Statement is
mailed to shareholders of Company), from each Affiliate of Company, an executed
Shareholder Agreement substantially in the form attached hereto as Exhibit C and
---------
an Irrevocable Proxy and Market Standoff Agreements substantially in the forms
attached as an annexes thereto.
(c) Company shall use its reasonable best efforts to deliver or
cause to be delivered to Parent, concurrently with the execution of this
Agreement (and in each case prior to the Effective Time), from each
securityholder of Company (whether or not an Affiliate thereof), an executed
Shareholder Representation Agreement substantially in the form attached hereto
as Exhibit D (the "Shareholder Representation Agreement") and a duly completed
---------
Investor Suitability Questionnaire in the form attached as an annex thereto (an
"Investor Suitability Questionnaire").
(d) Company shall not permit the transfer of any shares of
Company Capital Stock beneficially owned or held of record by any Company
shareholder who has executed a Shareholder Agreement pursuant to Section 5.8(b)
above, issue a new certificate representing any such shares or record the vote
with respect to any such shares unless and until such Company shareholder shall
have complied with the terms of such Shareholder Agreement.
5.9 Parent Voting Agreements. Section 5.9 of the Parent Disclosure
------------------------
Schedule sets forth those persons who may be deemed to be Affiliates of Parent.
Parent shall provide Company with such information and documents as Company
shall reasonably request for purposes of reviewing such list. Subject to
applicable law, Parent shall use its reasonable best efforts to deliver or cause
to be delivered to Company a duly executed Voting Agreement in the form of
Exhibit F attached hereto from each of the persons identified in Schedule 5.9 as
---------
soon as practicable after the execution hereof (to the extent not executed
heretofore). Parent shall not permit the transfer of any shares of Parent Common
Stock beneficially owned or held of record by any Parent stockholder who has
executed a Voting Agreement pursuant to this Section 5.9, issue a new
certificate representing any such shares or record the vote with respect to any
such shares unless and until such Parent stockholder shall have complied with
the terms of such Voting Agreement.
5.10 Blue Sky Laws. Parent shall take such steps as may be necessary
-------------
to comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Merger Shares in connection with the Merger.
Company shall use its reasonable best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of the Merger Shares in
connection with the Merger.
45
5.11 Employee Benefit Plans.
----------------------
(a) Assumption of Options. Company hereby represents and
---------------------
warrants to Parent that Schedule 5.11 hereto sets forth a true and complete list
as of the date hereof of all holders of outstanding options under the Company
Stock Option Plan, including the number of shares of Company Capital Stock
subject to each such option, the exercise or vesting schedule, the exercise
price per share and the term of each such option. On the day immediately
preceding the Closing Date, Company shall deliver to Parent an updated Schedule
5.11, current as of the Closing Date. Consistent with the terms of the Company
Stock Option Plan and the documents governing the outstanding options under such
Plan, the Merger will not terminate any of the outstanding options under the
Company Stock Option Plan or accelerate the exercisability or vesting of such
options or the shares of Parent Common Stock which will be subject to those
options upon the Parent's assumption of the options in the Merger. It is the
intention of the parties that the options assumed by Parent pursuant to Section
1.6(c) of this Agreement qualify, to the maximum extent permissible, following
the Effective Time as incentive stock options as defined in Section 422 of the
Code to the extent such options qualified as incentive stock options prior to
the Effective Time. Within twenty (20) business days after the Effective Time,
Parent will issue to each person who, immediately prior to the Effective Time
was a holder of an outstanding option under the Company Stock Option Plan, a
document in form and substance reasonably satisfactory to the Shareholders'
Agent (as defined below) evidencing the foregoing assumption of such option by
Parent.
(b) Assignment of Repurchase Options. All outstanding rights of
--------------------------------
Company which it may hold immediately prior to the Effective Time to repurchase
unvested shares of Company Common Stock (the "Repurchase Options") shall be
assigned to Parent in the Merger and shall thereafter be exercisable by Parent
upon the same terms and conditions in effect immediately prior to the Effective
Time, except that the shares purchasable pursuant to the Repurchase Options and
the purchase price per share shall be adjusted to reflect the Exchange Ratio.
Except as disclosed in Schedule 5.11, the consummation of the Merger will not
-------------
result in the termination of any Repurchase Options or accelerate the vesting of
any shares of Company Common Stock subject to those Repurchase Options.
(c) Employee Service Credit. Company employees who become
-----------------------
employed by Parent upon or immediately following the Closing shall be given full
credit for their Company service under Parent employee benefit plans for
purposes of seniority, eligibility and vesting to the extent allowable by law
and not inconsistent with the applicable plan documents. Parent agrees that for
purposes of accrual of vacation, PTO benefits or other such benefits, Parent
will use the effective date of Company's employees' respective employment with
Company. Such Company employees shall, to the extent then otherwise eligible, be
allowed to participate in Parent's employee stock purchase plan on the first
entry date under such plan following the Closing. Furthermore, to the extent
practicable, Parent shall also administer its medical plans so as to credit
Company employees with amounts that they have paid prior to the Closing toward
satisfying any applicable deductible and "out-of-pocket" maximum applicable
under Parent's medical plans.
(d) Termination of SIMPLE Plan. Unless Parent consents
--------------------------
otherwise in writing, Company shall, immediately prior to the Closing Date,
terminate the Company SIMPLE
46
Plan described in Section 408(p) of the Code (the "Plan"). Company shall provide
to Parent executed resolutions by the Board of Directors of Company authorizing
the termination.
5.12 Form S-8. Parent shall use its reasonable best efforts to file,
--------
as soon as practicable after the Effective Date, a registration statement on
Form S-8 covering the shares of Parent Common Stock issuable pursuant to
outstanding options under the Company Stock Option Plan assumed by Parent. As
soon as practicable after the date hereof and prior to the Closing, Company will
use its reasonable best efforts to cause all holders of assumed Company Options
to agree in writing not to exercise their options pursuant to Section 1.6 until
Company has filed a registration statement on Form S-8 in accordance with this
Section. Company shall cooperate with and assist Parent in the preparation of
such registration statement.
5.13 Listing of Additional Shares. As soon as practicable after the
----------------------------
Closing, Parent shall file with the Nasdaq National Market a Notification Form
for Listing of Additional Shares with respect to the shares of Parent Capital
Stock issuable upon conversion of the Company Capital Stock in the Merger and
upon exercise of options and warrants to acquire Company's Capital Stock assumed
by Parent as a result of the Merger.
5.14 Escrow Agreement. At or before the Effective Time, the parties
----------------
will cause the Escrow Agent and the Shareholders' Agent to execute the Escrow
Agreement contemplated by Article VIII in substantially the form attached hereto
as Exhibit E, with such reasonable and customary modifications as the escrow
---------
agent thereunder may require (the "Escrow Agreement").
5.15 Expenses. Whether or not the Merger is consummated, all costs
--------
and expenses incurred in connection with this Agreement, the Ancillary
Agreements and the transactions contemplated hereby and thereby shall be paid by
the party incurring such expense.
5.16 Director and Officer Indemnification. Parent agrees not to
------------------------------------
cause or allow the Surviving Corporation to modify, and to cause the Surviving
Corporation to honor, any rights to indemnification or exculpation from
liabilities for acts or omissions occurring at or prior to the Effective Time
now existing in favor of the officers and directors of Company and its
subsidiaries as provided in their respective certificates or articles of
incorporation or by-laws, as currently in effect.
5.17 Preferred Stock; Warrants. Company shall use its reasonable best
-------------------------
efforts to (i) ensure that either all of Company's outstanding Preferred Stock
shall have been converted into Company Common Stock in accordance with the
Articles of Incorporation of Company or that the Articles of Incorporation of
Company shall provide that the Merger shall cause a liquidation event with
respect to the Company Preferred Stock and (ii) ensure that all outstanding
warrants have been exercised at or prior to the Effective Time.
5.18 Board Composition. From and after the Effective Time, the Board
-----------------
of Directors of Parent shall consist of not more than nine (9) members, and
shall initially consist of four (4) members designated by Parent, three (3)
members designated by Company and reasonably acceptable to Parent, and two
independent members mutually designated by Parent and Company, each of whom
shall serve (unless earlier removed in accordance with law) until their
respective successors have been elected or appointed and duly qualified. The
persons so
47
designated who are not already members of the Board of Directors of Parent shall
be duly nominated and elected or appointed as directors of Parent, effective
upon the Effective Time, to serve until their successors are duly elected or
appointed and qualified. Six months after the Effective Time, one of the four
directors designated by Parent and one of the three directors designated by
Company shall resign.
ARTICLE VI
CONDITIONS TO THE MERGER
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger.
------------------------------------------------------------
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Securityholder Approval. This Agreement and the Merger
-----------------------
shall have been duly approved and adopted by the requisite vote of the holders
of Company Capital Stock, and any agreements or arrangements that may result in
the payment of any amount that would not be deductible by reason of Section 280G
of the Code shall have been approved by such number of shareholders of Company
as is required by the terms of Section 280G(b)(5)(B) and shall be obtained in a
manner which satisfies all applicable requirements of such Code Section
280G(b)(5)(B) and the proposed Treasury Regulations thereunder, including
(without limitation) Q-7 of Section 1.280G-1 of such proposed regulations. The
Parent Stockholder Approval shall have been duly obtained.
(b) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable efforts to have such injunction or other order lifted.
(c) Governmental Approval. Parent, Company and their
---------------------
respective subsidiaries shall have timely obtained from each Governmental Entity
all approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the other transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Exchange Act and the HSR Act; provided, however, that none of the preceding
shall be deemed obtained or made for purposes of satisfying the foregoing
condition to Parent's obligation to effect the Merger if it shall impose a non-
customary condition or restriction that Parent reasonably determines in good
faith could reasonably be expected to result in a Material Adverse Effect on
Parent or the Surviving Corporation.
48
(d) Escrow Agreement. Parent, Company, Escrow Agent and the
----------------
Shareholders' Agent shall have entered into the Escrow Agreement.
(e) Issuance of Shares. The fairness hearing shall have been
------------------
held, and the terms of the Merger shall have been determined to be fair, by the
Commissioner of Corporations of the State of California and the California
Permit shall have been issued by the State of California or a registration
statement on Form S-4 with respect to the shares of Parent Common Stock issuable
pursuant to Section 1.6(a) shall have been declared effective by the SEC and no
stop order with respect thereto shall be in effect. In the alternative, each of
the shareholders of Company who is an "accredited investor" shall have delivered
an executed copy of the Shareholder Representation Agreement, and the parties
shall be reasonably satisfied that the shares of Parent Common Stock to be
issued in connection with the Merger pursuant to Section 1.6(a) are issuable
without registration pursuant to Section 4(2) of the Securities Act and SEC
rules and regulations promulgated thereunder and shall be coupled with Form S-3
registration rights reasonably acceptable to Parent and Company. If the shares
of Parent Common Stock issuable pursuant to Section 1.6(a) have not been
registered on Form S-4, the Declaration of Registration Rights in substantially
the form of Exhibit B hereto shall have been approved pursuant to the Investors'
---------
Rights Agreement and shall be in full force and effect.
6.2 Additional Conditions to Obligations of Company. The
-----------------------------------------------
obligations of Company to consummate and effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Company:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Parent and Merger Sub in this Agreement shall
be true and correct in all respects on and as of the Effective Time as though
such representations and warranties were made on and as of the Effective Time
(other than representations and warranties expressly made as of an earlier date,
which shall have been so true and correct as of such earlier date), except where
the failure to be true and correct could not reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect on Parent,
and (ii) Parent in all material respects shall have performed and complied with
all covenants, obligations and conditions of this Agreement and Ancillary
Agreements required to be performed and complied with by it as of or prior to
the Effective Time (except, in the case of the covenants of Parent in Section
4.1 and Section 4.3, where the failure to perform or comply with such covenants
could not reasonably be expected to have a Material Adverse Effect on Parent).
(b) Certificate of Parent. Company shall have been provided
---------------------
with a certificate executed on behalf of Parent by its President and its Chief
Financial Officer to the effect that the condition set forth in Section 6.2(a)
has been satisfied.
(c) Third Party Consents. Company shall have been furnished
--------------------
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
any Principal Contract of Parent or any of its subsidiaries or otherwise, the
failure of which to obtain could reasonably be expected to have a Material
Adverse Effect on Parent or the Surviving Corporation.
49
(d) Injunctions or Restraints on Merger and Conduct of
-------------------------------------------------
Business. No proceeding brought by any Governmental Entity, domestic or foreign,
--------
seeking to prevent the consummation of the Merger shall be pending. In addition,
no temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent's conduct or operation of the
business of Company, following the Merger shall be in effect, nor shall any
proceeding brought by any Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(e) Legal Opinion. Company shall have received a legal opinion
-------------
from Parent's legal counsel, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, in substantially
the form of Exhibit H.
(f) Tax Opinion. Company shall have received a written opinion
-----------
of company's legal counsel, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, dated as of the Closing
Date, to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and such opinion shall not have been
withdrawn. In rendering such opinion, counsel shall be entitled to rely upon,
among other things, reasonable assumptions as well as representations of Parent,
Merger Sub and Company.
6.3 Additional Conditions to the Obligations of Parent and Merger
-------------------------------------------------------------
Sub. The obligations of Parent and Merger Sub to consummate and effect the
---
Merger shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Parent:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Company in this Agreement shall be true and
correct in all respects on and as of the Effective Time as though such
representations and warranties were made on and as of the Effective Time (other
than representations and warranties expressly made as of an earlier date, which
shall have been so true and correct as of such earlier date), except where the
failure to be true and correct could not reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect on Company
or the Surviving Corporation and (ii) Company in all material respects shall
have performed and complied with all covenants, obligations and conditions of
this Agreement and the Ancillary Agreements to which it is a party required to
be performed and complied with by it as of or prior to the Effective Time
(except, in the case of the covenants of Company in Section 4.1 and Section 4.2,
where the failure to perform or comply with such covenants could not reasonably
be expected to have a Material Adverse Effect on Company or the Surviving
Corporation).
(b) Certificate of Company. Parent shall have been provided
----------------------
with a certificate executed on behalf of Company by its President and Chief
Financial Officer to the effect that the condition set forth in Section 6.3(a)
has been satisfied.
(c) Third Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under any
Material Contract of Company or any of its subsidiaries or otherwise, the
failure of which to obtain could reasonably be expected to have a Material
Adverse Effect on Parent, Company or the Surviving Corporation.
50
(d) Injunctions or Restraints on Merger and Conduct of Business.
-----------------------------------------------------------
No proceeding brought by any Governmental Entity, domestic or foreign, seeking
to prevent the consummation of the Merger shall be pending. In addition, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent's conduct or operation of the
business of Company, following the Merger shall be in effect, nor shall any
proceeding brought by any Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(e) Legal Opinion. Parent shall have received a legal opinion
-------------
from Company's legal counsel, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, in substantially the form
of Exhibit G.
---------
(f) Tax Opinion. Parent shall have received a written opinion of
-----------
Parent's legal counsel, ▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP, dated as of the Closing
Date to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and such opinion shall not have been
withdrawn. In rendering such opinion, counsel shall be entitled to rely upon,
among other things, reasonable assumptions as well as representations of Parent,
Merger Sub and Company.
(g) Employment and Non-Competition Agreements. Each of the
-----------------------------------------
Employment and Non-Competition Agreements executed and delivered by employees of
Company set forth on Schedule 6.3(h) contemporaneously with the execution and
---------------
delivery of this Agreement shall be in full force and effect.
(h) Certificates. Company shall, prior to the Closing Date,
------------
provide Parent a certificate from the Secretary of State of California and the
California Franchise Tax Board as to Company's good standing and payment of all
applicable taxes, and such other certificates and closing documents as are
reasonably requested by Parent and customary for transactions of the type
contemplated hereby.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 Termination. At any time prior to the Effective Time, whether
-----------
before or after approval of the matters presented in connection with the Merger
by the shareholders of Company, this Agreement may be terminated:
(a) by mutual consent duly authorized by the Boards of Directors
of Parent and Company;
(b) by either Parent or Company, if the Closing shall not have
occurred on or before May 31, 2000 (provided, that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party whose
action or failure to act has been the cause or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a material breach of this Agreement);
51
(c) by Parent, if (i) Company shall breach any representation,
warranty, obligation or agreement hereunder in a manner causing conditions
precedent to the Closing not to be satisfied and such breach shall not have been
cured within twenty (20) business days of receipt by Company of written notice
of such breach, provided that the right to terminate this Agreement by Parent
--------
under this Section 7.1(c)(i) shall not be available to Parent where Parent is at
that time in material breach of this Agreement, or (ii) the Board of Directors
of Company shall have omitted, withdrawn or modified its recommendation of this
Agreement or the Merger in a manner adverse to Parent or recommended, endorsed,
accepted or agreed to a Company Takeover Proposal or shall have resolved to do
any of the foregoing (it being acknowledged that such action would constitute a
breach of this Agreement);
(d) by Company, if (i) Parent shall breach any representation,
warranty, obligation or agreement hereunder in a manner causing conditions
precedent to the Closing not to be satisfied and such breach shall not have been
cured within twenty (20) business days following receipt by Parent of written
notice of such breach, provided that the right to terminate this Agreement by
Company under this Section 7.1(d)(i) shall not be available to Company where
Company is at that time in material breach of this Agreement, or (ii) the Board
of Directors of Parent shall have omitted, withdrawn or modified its
recommendation of this Agreement or the Merger in a manner adverse to Company or
recommended or endorsed a Parent Takeover Proposal or shall have resolved to do
any of the foregoing;
(e) by Parent if (i) any permanent injunction or other order of
a court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable, (ii) if any required approval of the
shareholders of Company shall not have been obtained by reason of the failure to
obtain the required vote upon a vote held at a duly held meeting of shareholders
or at any adjournment thereof, or (iii) the Parent Stockholder Approval is not
obtained at the Parent Stockholders Meeting or at any adjournment thereof; or
(f) by Company if (i) any permanent injunction or other order of
a court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable, (ii) if any required approval of the
shareholders of Company shall not have been obtained by reason of the failure to
obtain the required vote upon a vote held at a duly held meeting of shareholders
or at any adjournment thereof, or (iii) the Parent Stockholder Approval is not
obtained at the Parent Stockholders Meeting or at any adjournment thereof.
7.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent or Company
or their respective officers, directors, securityholders or affiliates, except
as provided in Section 7.3 and/or except to the extent that such termination
results from the breach by a party hereto of any of its representations,
warranties or covenants set forth in this Agreement involving fraud, intentional
misrepresentation or willful misconduct; provided that the provisions of Section
5.4 (Confidentiality), Section 7.3 (Expenses and Termination Fees) and this
Section 7.2 shall remain in full force and effect and survive any termination of
this Agreement.
52
7.3 Expenses and Termination Fees. (a) Subject to Sections 7.3(b) and
-----------------------------
7.3(c), whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement, the Ancillary Agreements and the
transactions contemplated hereby and thereby (including, without limitation, the
fees and expenses of its advisers, accountants and legal counsel) shall be paid
by the party incurring such expense.
(b) In the event that (i) Parent shall terminate this Agreement
pursuant to Section 7.1(c)(ii) or (ii) this Agreement shall be terminated by
Parent pursuant to Section 7.1(e)(ii) or by Company pursuant to Section
7.1(f)(ii), in either case following a failure of Company's shareholders to
approve this Agreement and, prior to the time of the Company Shareholders
Meeting, a Company Takeover Proposal shall have been made which at the time of
the Company Shareholders Meeting shall not have been definitively withdrawn by
the third party making such proposal, or (iii) Parent shall terminate this
Agreement pursuant to Section 7.1(c)(i) and prior to the breach giving rise to
such termination a Company Takeover Proposal shall have been made, then, in any
such event, in addition to any other remedies Parent may have, Company shall
promptly pay to Parent the sum of five million dollars ($5,000,000), and in the
event that a Company Takeover Proposal is consummated within twelve months after
such termination of this Agreement, Company shall pay to Parent the additional
sum of twenty-five million dollars ($25,000,000) upon the consummation of such
Company Takeover Proposal.
(c) In the event that (i) Company shall terminate this Agreement
pursuant to Section 7.1(d)(ii), or (ii) this Agreement shall be terminated by
Parent pursuant to Section 7.1(e)(iii), or by Company pursuant to Section
7.1(f)(iii), following a failure of Parent stockholders to grant the Parent
Stockholder Approval and, prior to the time of the Parent Stockholders Meeting,
a Parent Takeover Proposal shall have been publicly announced which shall not
have been publicly and definitively withdrawn by the third party making such
proposal, or (iii) Company shall terminate this Agreement pursuant to Section
7.1(d)(i) and prior to the breach giving rise to such termination a Parent
Takeover Proposal shall have been publicly announced, then, in any such event,
in addition to any other remedies Company may have, Parent shall promptly pay to
Company the sum of five million dollars ($5,000,000), and, in the event that a
Parent Takeover Proposal is consummated within twelve months after such
termination of this Agreement, Parent shall pay to Company the additional sum of
twenty-five million dollars ($25,000,000) upon the consummation of such Parent
Takeover Proposal. In the event that a Parent Takeover Proposal is publicly
announced and is thereafter withdrawn, the fact of such withdrawal shall be
communicated to Parent stockholders a reasonable time before the Parent
Stockholders Meeting, and the Parent Stockholders Meeting shall, if necessary,
be adjourned or postponed for a reasonable period to permit dissemination of
such information to Parent stockholders, withdrawal of proxies that may have
been affected by the announcement or pendency of such Parent Takeover Proposal
and resolicitation and submission of new proxies in favor of the Parent
Stockholder Approval.
7.4 Amendment. The boards of directors of the parties hereto may
---------
cause this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to approval of the Merger by the shareholders of
Company shall not (i) alter or change the amount or kind of consideration to be
received on conversion of the Company Capital Stock, (ii) alter or change any
term of the Articles of Incorporation of the Surviving Corporation to be
effected by the
53
Merger, or (iii) alter or change any of the terms and conditions of the
Agreement if such alteration or change would materially adversely affect the
holders of Company Capital Stock.
7.5 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 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 or (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.
ARTICLE VIII
ESCROW AND INDEMNIFICATION
--------------------------
8.1 Escrow Fund. As soon as practicable after the Effective Time, ten
-----------
percent (10%) of the Merger Shares issued at the Closing or to which holders of
Company Capital Stock are entitled to receive by virtue of the Merger (the
"Escrow Shares") shall be registered in the name of, and be deposited with,
State Street Bank and Trust Company (or another institution selected by Parent
with the reasonable consent of Company) as escrow agent (the "Escrow Agent"),
such deposit (together with interest and other income thereon) to constitute the
Escrow Fund and to be governed by the terms set forth herein and in the Escrow
Agreement attached hereto as Exhibit E. The Escrow Fund shall be available to
compensate Parent pursuant to the indemnification obligations of the
shareholders of Company.
8.2 Indemnification. Subject to the limitations set forth in this
---------------
Article VIII, the shareholders of Company will indemnify and hold harmless
Parent and its officers, directors, agents and employees, and each person, if
any, who controls or may control Parent within the meaning of the Securities Act
(hereinafter referred to individually as an "Indemnified Person" and
collectively as "Indemnified Persons") from and against any and all losses,
costs, damages, liabilities and expenses arising from claims, demands, actions,
causes of action, including, without limitation, reasonable legal fees, net of
any recoveries by Parent under existing insurance policies or indemnities from
third parties (collectively, "Damages") arising out of any misrepresentation or
breach of or default in any of the representations, warranties, covenants and
agreements given or made by Company in or pursuant to this Agreement, the
Company Disclosure Schedules or any exhibit or schedule to this Agreement,
including any agreement entered into by Parent and Company in connection with
this Agreement and any certificates delivered pursuant to Article VI hereof. The
Escrow Fund shall be security for this indemnity obligation subject to the
limitations in this Agreement. Parent and Company each acknowledge that such
Damages, if any, would relate to unresolved contingencies existing at the
Effective Time, which if resolved at the Effective Time would have led to a
reduction in the total number of shares Parent would have agreed to issue in
connection with the Merger. If the Merger is consummated, recovery from the
Escrow Fund shall be the sole and exclusive remedy under this Agreement for any
breach or default in connection with any of the representations, warranties,
covenants or agreements set forth in this Agreement or any exhibit hereto,
absent fraud, intentional misrepresentation or willful breach. Nothing in this
Agreement shall limit the
54
liability (i) of Company for any breach of any representation, warranty or
covenant if the Merger is not consummated, or (ii) of any Company shareholder in
connection with any breach by such shareholder of the Shareholder Representation
Agreement, the Shareholder Agreement or the Irrevocable Proxy. No claim for
indemnification after the Effective Time shall be made under this Article VIII
unless and until aggregate Damages (including Damages pursuant to all prior
claims) exceed two million dollars ($2,000,000), and then only to the extent
that aggregate Damages exceed such amount.
8.3 Escrow Period. The Escrow Period shall terminate upon the
-------------
following dates: (a) for matters expected to be encountered and resolved in the
audit of Parent's financial statements for its fiscal year ending September 30,
2000, the earlier of the first anniversary of the Closing Date or the date on
which Parent publishes the combined audited financial statements of Parent and
Company for the fiscal year which includes the Closing Date and (b) for all
other matters, the first anniversary of the Closing Date; provided, however,
that a portion of the Escrow Shares, which is necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent prior to termination of the Escrow Period with respect to
facts and circumstances existing prior to expiration of the Escrow Period, shall
remain in the Escrow Fund until such claims have been resolved. Parent shall
deliver to the Escrow Agent a certificate specifying the Effective Time.
8.4 Claims upon Escrow Fund. Upon receipt by the Escrow Agent on or
-----------------------
before the last day of the Escrow Period of a certificate signed by any officer
of Parent (an "Officer's Certificate"), setting forth the estimate of Damages
and specifying in reasonable detail the individual items of such Damages
included in the amount so stated, the date each such item was paid, or properly
accrued or arose, and the nature of the misrepresentation, breach of warranty or
claim to which such item is related, the Escrow Agent shall, subject to the
provisions of Section 8.5 and 8.6 below, deliver to Parent out of the Escrow
Fund, as promptly as practicable, Parent Common Stock or other assets held in
the Escrow Fund having a value equal to such Damages. For the purpose of
compensating Parent for its Damages pursuant to this Agreement, the Parent
Common Stock in the Escrow Fund shall be valued at the Closing Market Value (the
"Escrow Value").
8.5 Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Shareholders' Agent (defined in Section 8.7 below) and
for a period of twenty (20) days after such delivery to the Shareholders' Agent
of such Officer's Certificate, the Escrow Agent shall make no delivery of Parent
Common Stock or other property pursuant to Section 8.4 hereof unless the Escrow
Agent shall have received written authorization from the Shareholders' Agent to
make such delivery. After the expiration of such twenty (20) day period, the
Escrow Agent shall make delivery of the Parent Common Stock or other property in
the Escrow Fund in accordance with Section 8.4 hereof, provided that no such
payment or delivery may be made if the Shareholders' Agent shall object in a
written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Escrow Agent and to Parent prior to
the expiration of such twenty (20) day period.
8.6 Resolution of Conflicts; Arbitration.
-------------------------------------
55
(a) In case the Shareholders' Agent shall so object in writing
to any claim or claims by Parent made in any Officer's Certificate, Parent shall
have ten (10) days after receipt by the Escrow Agent of an objection by the
Shareholders' Agent to respond in a written statement to the objection of the
Shareholders' Agent. If after such ten (10) day period there remains a dispute
as to any claims, the Shareholders' Agent and Parent shall attempt in good faith
for ten (10) days to agree upon the rights of the respective parties with
respect to each of such claims. If the Shareholders' Agent and Parent should so
agree, a memorandum setting forth such agreement shall be prepared and signed by
both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall
be entitled to rely on any such memorandum and shall distribute the Parent
Common Stock or other property from the Escrow Fund in accordance with the terms
thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Parent or the Shareholders' Agent may, by written notice to
the other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by one arbitrator. The decision of the
arbitrator as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this Agreement,
and notwithstanding anything in Section 8.5 hereof, the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold payments
out of the Escrow Fund in accordance therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa ▇▇▇▇▇, San Mateo or San Francisco County, California under the commercial
rules then in effect of the American Arbitration Association. For purposes of
this Section 8.6(c), in any arbitration hereunder in which any claim or the
amount thereof stated in the Officer's Certificate is at issue, Parent shall be
deemed to be the Non-Prevailing Party unless the arbitrators award Parent more
than one-half (1/2) of the amount in dispute, plus any amounts not in dispute;
otherwise, Company shareholders for whom shares of Company Common Stock
otherwise issuable to them have been deposited in the Escrow Fund shall be
deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including without limitation, attorneys' fees and costs, reasonably incurred by
the other party to the arbitration.
8.7 Shareholders' Agent.
-------------------
(a) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall be constituted and appointed as
agent ("Shareholders' Agent") for and on behalf of Company shareholders to give
and receive notices and communications, to authorize delivery to Parent of the
Parent Common Stock or other property from the Escrow Fund in satisfaction of
claims by Parent, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Shareholders'
Agent for the accomplishment of the foregoing. Such agency may be changed by the
holders of a majority in interest of the Escrow Fund from time to time upon not
less than ten (10) days' prior written
56
notice to Parent. No bond shall be required of the Shareholders' Agent, and the
Shareholders' Agent shall receive no compensation for his services. Notices or
communications to or from the Shareholders' Agent shall constitute notice to or
from each Company shareholder.
(b) The Shareholders' Agent shall not be liable for any act done
or omitted hereunder as Shareholders' Agent while acting in good faith and in
the exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. Each Company
shareholder shall jointly and severally indemnify the Shareholders Agent and
hold him harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Shareholders' Agent shall have reasonable access to
information about Company and the reasonable assistance of Company's officers
and employees for purposes of performing his duties and exercising his rights
hereunder, provided that the Shareholders' Agent shall treat confidentially and
not disclose any nonpublic information from or about Company to anyone (except
on a need to know basis to individuals who agree to treat such information
confidentially).
8.8 Actions of the Shareholders' Agent. A decision, act, consent or
----------------------------------
instruction of the Shareholders' Agent shall constitute a decision of all
Company shareholders for whom shares of Parent Common Stock otherwise issuable
to them are deposited in the Escrow Fund and shall be final, binding and
conclusive upon each such Company shareholder, and the Escrow Agent and Parent
may rely upon any decision, act, consent or instruction of the Shareholders'
Agent as being the decision, act, consent or instruction of each and every such
Company shareholder. 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 Shareholders' Agent.
8.9 Third-Party Claims. In the event Parent becomes aware of a
------------------
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall promptly notify the Shareholders' Agent of such claim,
and the Shareholders' Agent and the Company shareholders for whom shares of
Parent Common Stock otherwise issuable to them are deposited in the Escrow Fund
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that Parent may not effect the settlement of any such
claim without the consent of the Shareholders' Agent, which consent shall not be
unreasonably withheld. In the event that the Shareholders' Agent has consented
to any such settlement, the Shareholders' Agent shall have no power or authority
to object under Section 8.6 or any other provision of this Article VIII to the
amount of any claim by Parent against the Escrow Fund for indemnity with respect
to such settlement.
ARTICLE IX
GENERAL PROVISIONS
------------------
57
9.1 Non-Survival at Effective Time. The representations and
------------------------------
warranties set forth herein shall survive until the expiration of twelve (12)
months after the Effective Time. The agreements set forth in this Agreement
shall terminate at the Effective Time, except that the agreements set forth in
Article I, Section 5.4 (Confidentiality), 5.7 (Further Assurances), 5.8 (Company
Shareholder Agreements), 5.10 (Blue Sky Laws), 5.11 (Employee Benefit Plans),
5.12 (Form S-8), 5.13 (Listing of Additional Shares), 5.16 (Expenses), 5.18
(Director and Officer Indemnification), 7.3 (Expenses and Termination Fees), 7.4
(Amendment), Article VIII and this Article IX shall survive the Effective Date
and the Closing.
9.2 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or by reputable overnight courier or sent via facsimile (with
confirmation of receipt and followed by delivery by one of the other methods
described in this Section) to the parties at the following address (or at such
other address for a party as shall be specified by like notice):
(a) if to Parent, to:
Digital Island, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Mo, Esq.
with a copy to ▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Company, to:
Sandpiper Networks, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
58
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.3 Interpretation. When a reference is made in this Agreement to
--------------
Exhibits, such reference shall be to an Exhibit to 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 phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to the date set forth in the first
paragraph of this Agreement. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
9.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement; Nonassignability; Parties in Interest. This
-------------------------------------------------------
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Company Disclosure Schedule, the Parent Disclosure Schedule and the other
Schedules (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.6(a), (c), (d), (f) and (g), 1.7, 1.9, 1.12, 5.11, 5.12 and 5.18; and (c)
shall not be assigned by operation of law or otherwise except as otherwise
specifically provided.
9.6 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.
9.7 Remedies Cumulative. Except as otherwise provided herein, any and
-------------------
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not
59
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.8 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of California without reference to such state's
principles of conflicts of law. Each of the parties hereto irrevocably consents
to the exclusive jurisdiction of any court located within the State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction and such process.
9.9 Rules of Construction. The parties hereto agree that they have
---------------------
been represented by legal counsel during the negotiation, preparation 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.
9.10 Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings set forth below:
(a) "Material Adverse Effect" means, with respect to any person
or entity, any event, change or effect that is materially adverse to the
business, operations, personnel, condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, or results of operations of
such person or entity and its subsidiaries, taking such person or entity
together with its subsidiaries as a whole, provided, that none of the following,
--------
either alone or in combination, shall constitute, in and of itself or in and of
themselves, a Material Adverse Effect: changes, events and effects that are
directly caused by (i) conditions affecting national, regional or world
economies as a whole (to the extent such person or entity is not
disproportionately affected), (ii) conditions affecting the industry or
industries, as a whole, in which such person or entity participates (to the
extent such person or entity is not disproportionately affected), (iii) the
announcement or pendency of this Agreement or the transactions contemplated by
this Agreement, (iv) failure of Parent to meet the revenue or earnings
predictions of equity analysts (as reflected in the First Call consensus
estimate), or any other published revenue or earnings predictions or
expectations, for any period ending on or after the date of this Agreement, or
(v) changes in the market price or trading volume of Parent capital stock.
(b) The term "knowledge" means, with respect to any party, the
actual knowledge after reasonable inquiry of the directors and officers of such
party and employees of such party charged with senior administrative or
operational responsibility for matters as to which knowledge is ascribed.
60
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its respective officer thereunto duly
authorized, all as of the date first written above.
DIGITAL ISLAND, INC.
By: /s/ ▇.▇. ▇▇▇▇▇▇▇▇
------------------------------------------
Name: ▇.▇. ▇▇▇▇▇▇▇▇
Title: Chief Financial Officer & Secretary
BEACH ACQUISITION CORP.
By: /s/ ▇.▇. ▇▇▇▇▇▇▇▇
------------------------------------------
Name: ▇.▇. ▇▇▇▇▇▇▇▇
Title: Chief Financial Officer & Secretary
SANDPIPER NETWORKS, INC.
By: /s/ ▇▇▇ ▇ ▇▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇ ▇ ▇▇▇▇▇▇▇
Title: Chairman, President and CEO
61
EXHIBIT A
---------
AGREEMENT OF MERGER
OF
DIGITAL ISLAND, INC.
BEACH ACQUISITION CORP.
AND
SANDPIPER NETWORKS, INC.
This Agreement of Merger, dated as of the _____ day of ___________
("Merger Agreement"), among Digital Island, Inc. a Delaware corporation
("Parent"), Beach Acquisition Corp., a California corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and Sandpiper Networks, Inc., a
California corporation ("Company").
RECITALS
--------
A. Company was incorporated in the State of California on December
23, 1996 and on the date hereof has outstanding __________ shares of Common
Stock ("Company Common Stock") and __________ shares of Preferred Stock
("Company Preferred Stock").
B. Parent, Merger Sub and Company have entered into an Agreement and
Plan of Reorganization (the "Agreement and Plan of Reorganization")
providing for the merger ("Merger") of Merger Sub with and into Company.
C. The Boards of Directors of Parent, Company and Merger Sub and the
shareholders of Company have approved the Merger.
AGREEMENTS
----------
The parties hereto hereby agree as follows:
1. Merger Sub shall be merged with and into Company, and Company
shall be the surviving corporation (the "Surviving Corporation").
2. The Merger shall become effective at such time (the "Effective
Time") as this Merger Agreement and the officers' certificate of Company is
filed with the Secretary of State of the State of California pursuant to
Section 1103 of the Corporations Code of the State of California.
3. At the Effective Time (i) all shares of Company Common Stock that
are owned directly or indirectly by Company, Parent, Merger Sub or any
other subsidiary of Parent
shall be cancelled, and no securities of Parent or other consideration
shall be delivered in exchange therefor, (ii) each of the issued and
outstanding shares of Company Common Stock (other than shares, if any, held
by persons who have not voted such shares for approval of the Merger and
with respect to which such persons shall become entitled to exercise
dissenters' rights in accordance with Section 1300 et seq. of the
California Corporations Code, referred to hereinafter as "Dissenting
Shares") shall be converted automatically into and exchanged for __________
of a share of Parent Common Stock. Those shares of Parent Common Stock to
be issued as provided in this Section 3 are referred to herein as the
"Parent Shares."
4. Any Dissenting Shares shall not be converted into Parent Common
Stock but shall be converted into the right to receive such consideration
as may be determined to be due with respect to such Dissenting Shares
pursuant to the law of the State of California. If after the Effective Time
any Dissenting Shares shall lose their status as Dissenting Shares, then as
of the occurrence of the event which causes the loss of such status, such
shares shall be converted into Parent Common Stock in accordance with
Section 3.
5. Notwithstanding any other term or provision hereof, no fractional
shares of Parent Common Stock shall be issued, but in lieu thereof each
holder of shares of Company Common Stock who would otherwise, but for
rounding as provided herein, be entitled to receive a fraction of a share
of Parent Common Stock shall receive from Parent an amount of cash equal to
the per share market value of Parent Common Stock (deemed to be
$________________) multiplied by the fraction of a share of Parent Common
Stock to which such holder would otherwise be entitled. The fractional
share interests of each Company shareholder shall be aggregated, so that no
Company shareholder shall receive cash in an amount greater than the value
of one full share of Parent Common Stock.
6. The conversion of Company Common Stock into Parent Common Stock
as provided by this Merger Agreement shall occur automatically at the
Effective Time without action by the holders thereof. Each holder of
Company Common Stock shall thereupon be entitled to receive shares of
Parent Common Stock in accordance with the Agreement and Plan of
Reorganization.
7. Also, at the Effective Time, each share of Common Stock of Merger
Sub outstanding immediately prior to the Effective Time shall automatically
be converted into and exchanged for one share of Common Stock of the
Surviving Corporation. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such
shares of capital stock of the Surviving Corporation.
8. At the Effective Time, the separate existence of Merger Sub shall
cease, and Company shall succeed, without other transfer, to all of the
rights and properties of Merger Sub and shall be subject to all the debts
and liabilities thereof in the same manner as if Company had itself
incurred them. All rights of creditors and all liens upon the property of
each corporation shall be preserved unimpaired.
2
9. At the Effective Time, Company's Stock Option Plan, as amended
(the "Company Stock Option Plan"), and all options to purchase Company
Common Stock then outstanding under the Company Stock Option Plan shall be
assumed by Parent.
10. This Merger Agreement is intended as a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986,
as amended.
(a) The Articles of Incorporation of Company in effect
immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation unless and until thereafter
amended, provided however, that immediately after the Effective Time the
Articles of Incorporation of the Surviving Corporation shall be amended and
restated so as to read in its entirety like the Articles of Incorporation
of Merger Sub with Article 1 of the Articles of Incorporation amended to
read as follows: "The name of the corporation is Sandpiper Networks, Inc."
(b) The Bylaws of Company in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation unless and
until amended or repealed as provided by applicable law, the Articles of
Incorporation of the Surviving Corporation and such Bylaws.
(c) The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation. The
officers of Company immediately prior to the Effective Time shall be the
officers of the Surviving Corporation.
12. (a) Notwithstanding the approval of this Merger Agreement by the
shareholders of Company, this Merger Agreement may be terminated at any
time prior to the Effective Time by mutual agreement of the Boards of
Directors of Parent and Company.
(b) Notwithstanding the approval of this Merger Agreement by the
shareholders of Company, this Merger Agreement shall terminate in the event
that the Agreement and Plan of Reorganization shall be terminated as
therein provided.
(c) In the event of the termination of this Merger Agreement as
provided above, this Merger Agreement shall forthwith become void and there
shall be no liability on the part of Company or Parent or their respective
officers, directors or shareholders, except as otherwise provided in the
Agreement and Plan of Reorganization.
(d) This Merger Agreement may be signed in one or more
counterparts, each of which shall be deemed an original and all of which
shall constitute one agreement.
(e) This Merger Agreement may be amended by the parties hereto
any time before or after approval hereof by the shareholders of Company,
but, after such approval, no amendment shall be made which by law requires
the further approval of such shareholders
3
without obtaining such approval. This Merger Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
4
IN WITNESS WHEREOF, the parties have executed this Merger Agreement as
of the date first written above.
DIGITAL ISLAND, INC.
By: __________________________________
[Name]
President
By: _________________________________
[Name]
Secretary
BEACH ACQUISITION CORP.
By: _________________________________
[Name]
President
By: _________________________________
[Name]
Secretary
SANDPIPER NETWORKS, INC.
By: _________________________________
[Name]
President
By: _________________________________
[Name]
Secretary
[SIGNATURE PAGE TO AGREEMENT OF MERGER]
5
OFFICERS' CERTIFICATE
OF
SANDPIPER NETWORKS, INC.
____________________, President, and ____________________, Secretary,
of Sandpiper Networks, Inc., a corporation duly organized and existing
under the laws of the State of California (the "Corporation"), do hereby
certify:
1 That they are the duly elected, acting and qualified President
and the Secretary, respectively, of the Corporation.
2 There are two authorized class of shares, consisting of
____________ shares of Common Stock, of which ____________ shares are
outstanding and entitled to vote on the Agreement of Merger in the form
attached and __________ shares of Preferred Stock, of which __________
shares are outstanding and entitled to vote on such Agreement of Merger.
3 The Agreement of Merger in the form attached was duly approved by
the Board of Directors of the Corporation in accordance with the California
Corporations Code.
4 Approval of the Agreement of Merger by the holders of at least a
majority of the outstanding shares of Common Stock and Preferred Stock was
required. The percentage of the outstanding shares of each such class of
the Corporation's shares entitled to vote on the Agreement of Merger which
voted to approve the Agreement of Merger equaled or exceeded the vote
required.
Each of the undersigned declares under penalty of perjury that the
statements contained in the foregoing certificate are true of their own
knowledge. Executed in __________, California, on ____________________.
By: _______________________________
[Name]
President
By: _______________________________
[Name]
Secretary
2
OFFICERS' CERTIFICATE
OF
DIGITAL ISLAND, INC.
____________________, President, and ____________________, Secretary,
of Digital Island, Inc. a Delaware corporation ("Parent"), hereby certify
that:
1 That they are duly elected, acting and qualified President and
Secretary, respectively, of Parent.
2 There are two authorized classes of shares, consisting of (i)
100,000,000 shares of Common Stock, of which _________ shares were issued
and outstanding on _______________, 1999, and (ii) 10,000,000 shares of
Preferred Stock, none of which are issued and outstanding.
3 The Agreement of Merger in the form attached was approved by the
Board of Directors of Parent in accordance with the Delaware General
Corporation Law.
4 No vote of the shareholders of Parent was required pursuant to
Section 1201(b) of the California Corporations Code and Section 252 of the
Delaware General Corporation Law with respect to the merger under the
Agreement of Merger. The issuance of Common Stock pursuant to the merger
was required to be approved by the holders of at least a majority of the
outstanding shares of Common Stock. A majority of the outstanding shares of
Common Stock approved such issuance of Common Stock.
Each of the undersigned declares under penalty of perjury that the
statements contained in the foregoing certificate are true of their own
knowledge. Executed in __________, California on ____________________.
__________________________________
[Name]
Secretary
__________________________________
[Name]
Secretary
2
EXHIBIT B
---------
DECLARATION OF REGISTRATION RIGHTS
THIS DECLARATION OF REGISTRATION RIGHTS (the "Declaration") is made by
DIGITAL ISLAND, INC., a Delaware corporation ("Island") for the benefit of
shareholders of SANDPIPER NETWORKS, INC., a California corporation (the
"Company"), pursuant and subject to Section 1.12 of that certain Agreement and
Plan of Reorganization dated as of October 24, 1999 by and among Island, Beach
Acquisition Corp., a California corporation and a wholly owned subsidiary of
Island, and the Company (the "Reorganization Agreement"). This Declaration is
subject in its entirety to the terms and conditions set forth in the
Reorganization Agreement and the Ancillary Documents. Capitalized terms used and
not otherwise defined herein shall have the meanings set forth in the
Reorganization Agreement unless the context otherwise requires.
Section 1
Certain Definitions
-------------------
Certain Definitions. As used in this Declaration, the following terms
-------------------
shall have the following respective meanings:
1.1 "SEC" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
1.2 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder, as the
same shall be in effect from time to time.
1.3 The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (as defined below), and the declaration or
ordering of the effectiveness of such registration statement.
1.4 "Registrable Securities" means (i) the shares of Common Stock of
Island issuable or issued to each holder of Company Capital Stock or options or
warrants to acquire Company Capital Stock at the Effective Time by virtue of the
Merger (such holders collectively, the "Holders" and each individually, a
"Holder", and such shares of Common Stock, the "Stock"), excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which a
Holder's rights under this Declaration are not assigned; provided, however, that
Registrable Securities shall only be treated as Registrable Securities if and so
long as, they have not been (A) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction or (B)
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect thereto are removed
upon the consummation of such sale.
71
1.5 "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder, as the
same shall be in effect from time to time.
1.6 An "Affiliate" of an entity referenced herein shall mean (i) any
entity who controls, is controlled by, or is under common control with such
entity, (ii) any constituent partner or shareholder of such entity, (iii) all
mutual funds or other pooled investment vehicles or entities under the control
or management of such entity, or the general partner or investment advisor of
such entity, or any Affiliate of such mutual funds, pooled investment vehicles,
general partner or investment advisor, or (iv) with respect to an individual,
such individual's spouse, siblings, ancestors and descendants (whether natural
or adopted), any spouses of such siblings, ancestors and descendants, any
siblings of such ancestors and descendants, and any trust established solely for
the benefit of one or more of such individual's spouse, siblings, ancestors
and/or descendants.
Section 2
Piggyback Rights
----------------
2.1 Notice of Registration. If at any time or from time to time,
----------------------
Island shall determine to register any of its equity securities for its own
account in an underwritten public offering or receives a valid request from a
party to the Existing Agreement (as defined below) to register any of its equity
securities in an underwritten public offering, Island will:
(i) promptly give to the Holders written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and underwriting, all the Registrable
Securities (subject to cutback as set forth in Section 2.2) specified in a
written request or requests made within thirty (30) days after receipt of such
written notice from Island by any Holder.
2.2 Underwriting. The right of any Holder to registration pursuant
------------
to this Section 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. If any Holder proposes to distribute its securities
through such underwriting, such Holder shall (together with Island and any other
shareholders distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by Island. Notwithstanding any other provision of
this Section 2, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities to be included in such
registration. Island shall so advise the Holder and the other shareholders
distributing their securities through such underwriting pursuant to piggyback
registration rights similar to this Section 2, and the number of shares of
Registrable Securities and other securities that may be included in the
registration and underwriting shall be allocated among the Holder and any other
participating shareholders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holder and other
securities held by other shareholders and entitled to registration rights at the
time of filing the registration statement, provided that the aggregate amount of
Registrable Securities held by
72
selling Holders included in the offering shall not be reduced below twenty
percent (20%) of the total amount of securities included in that offering. In
the event the managing underwriter does determine that marketing factors require
a limitation of the number of shares to be underwritten (the "Cutback"), such
Cutback shall be applied first to any participating shareholders other than
Holders of Registrable Securities before it shall be applied to Holders of
Registrable Securities, subject to the above mentioned twenty percent (20%)
reduction limit, if at all. To facilitate the allocation of shares in accordance
with the above provisions, Island or the underwriters may round the number of
shares allocated to each Holder or other shareholder to the nearest 100 shares.
If any Holder or other shareholder disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written notice to
Island and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to one-hundred eighty (180) days
after the effective date of the registration statement relating thereto.
2.3 Right to Terminate Registration. The Island shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 2
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
Section 3
Obligations of Island
---------------------
Whenever Island is required by the provisions of this Declaration to
use its reasonable best efforts to effect the registration of the Registrable
Securities, Island shall: (i) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to make and to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the sale or other disposition of all securities proposed to be registered in
such registration statement until the earlier of the sale of the Registrable
Securities so registered or one hundred twenty (120) days subsequent to the
effective date of such registration statement; (ii) furnish to any Holder such
number of copies of any prospectus (including any preliminary prospectus and any
amended or supplemented prospectus), in conformity with the requirements of the
Securities Act, as such Holder may reasonably request in order to effect the
offering and sale of the Registrable Securities to be offered and sold, but only
while Island shall be required under the provisions hereof to cause the
registration statement to remain current; (iii) use its reasonable best efforts
to register or qualify the Registrable Securities covered by such registration
statement under the securities or blue sky laws of such states as Holder shall
reasonably request, maintain any such registration or qualification current
until the earlier of the sale of the Registrable Securities so registered or one
hundred twenty (120) days subsequent to the effective date of the registration
statement, or, in the case of a shelf registration, until the earlier of the
sale of the Registrable Securities so registered or nine (9) months subsequent
to the effective date of such registration statement and, take any and all other
actions either necessary or reasonably advisable to enable Holders to consummate
the public sale or other disposition of the Registrable Securities in
jurisdictions where such Holders desire to effect such sales or other
disposition; (iv) cause all Registrable Securities registered pursuant hereunder
to be listed on each securities exchange on which the same class of securities
of Island are then listed; and (v) take all such other actions either necessary
or reasonably desirable to permit the Registrable
73
Securities held by a Holder to be registered and disposed of in accordance with
the method of disposition described herein, including causing Island's senior
management to use their commercially reasonable efforts in the marketing of any
securities pursuant to any underwritten public offering so registered.
Notwithstanding the foregoing, Island shall not be required to register or to
qualify an offering of the Registrable Securities under the laws of a state if
as a condition to so doing Island is required to qualify to do business or to
file a general consent to service of process in any such state or jurisdiction,
unless Island is already subject to service in such jurisdiction.
Section 4
Expenses of Registration
------------------------
Island shall pay all of the fees and expenses incurred in connection
with any registration statement that is initiated pursuant to this Declaration,
including, without limitation, all SEC and blue sky registration and filing
fees, printing expenses, transfer agent and registrar fees, the fees and
disbursements of Island's outside counsel, the reasonable fees and disbursements
of one counsel to the Holders and independent accountants (the "Registration
Expenses"). Provided however, that any underwriting discounts, fees and
disbursements of any additional counsel to the Holders, selling commissions and
stock transfer or other taxes applicable to the Registrable Securities
registered on behalf of Holders shall be borne by the Holders of the Registrable
Securities included in such registration.
Section 5
Indemnification
---------------
5.1 Island. To the extent permitted by law, Island will indemnify
------
Holders and each person controlling Holders within the meaning of Section 15 of
the Securities Act, and each underwriter if any, of Island's securities, with
respect to any registration, qualification or compliance which has been effected
pursuant to this Declaration, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by Island of any rule or
regulation promulgated under the Securities Act applicable to Island in
connection with any such registration, qualification or compliance, and Island
will reimburse Holders and each person controlling Holders, and each
underwriter, if any, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that Island will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to Island by such Holder or controlling person or
underwriter seeking indemnification expressly for use therein; and provided
further, that the indemnity provided in this Section 5.1 with respect to any
losses, claims, damages, liabilities or actions, arising from a sale of
Registrable Securities
74
pursuant to a registration hereunder, based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state a
material fact in any preliminary or final prospectus (or amendment or supplement
thereto) of Island shall not inure to the benefit of or be available to the
Holders or any other person if a copy of the prospectus, as further amended or
supplemented, in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected is sent or given to those persons
asserting such losses, claims, damages, liabilities or actions within the time
required by the Securities Act and the Rules and Regulations thereto.
5.2 Holders. To the extent permitted by law, each Holder will, if
-------
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected (the
"Indemnifying Holder"), indemnify Island, each of its directors and officers and
each person who controls Island within the meaning of Section 15 of the
Securities Act, and each underwriter, if any, of Island's securities with
respect to any registration, qualification or compliance which has been effected
pursuant to this Declaration, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
such Indemnifying Holder of any rule or regulation promulgated under the
Securities Act applicable to such Indemnifying Holder in connection with any
such registration, qualification or compliance, and the Indemnifying Holder will
reimburse Island, such directors and officers and each person controlling Island
and each underwriter, if any, for any legal or any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, in
reliance upon and in conformity with written information furnished to Island by
such Indemnifying Holder expressly for use therein, provided that in no event
shall any indemnity under this Section 5.2 exceed the gross proceeds of the
offering received by such Indemnifying Holder; and provided further, that the
indemnity provided in this Section 5.2 with respect to any losses, claims,
damages, liabilities or actions, arising from a sale of Registrable Securities
pursuant to a registration hereunder, based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state a
material fact in any preliminary or final prospectus (or amendment or supplement
thereto) of Island shall not inure to the benefit of or be available to Island
or any other person if the Holder corrected such untrue statement or alleged
untrue statement or omission or alleged omission and sent it to Island for
inclusion in the prospectus within the time required by the Securities Act and
the Rules and Regulations thereto.
5.3 Defense of Claims. Each party entitled to indemnification under
-----------------
this Section 5 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying
75
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense; provided,
however, that the Indemnifying Party shall pay such expense if representation of
the Indemnified Party by counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding, and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 5 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action.
No Indemnifying Party, in the defense of any such claim or litigation shall,
except with the consent of each Indemnified Party which consent shall not be
unreasonably withheld, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation and include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
Indemnified Party. No Indemnifying Party shall be required to indemnify any
Indemnified Party with respect to any settlement entered into without such
Indemnifying Party's prior written consent.
Section 6
Rule 144 Reporting
------------------
With a view to making available the benefits of certain rules and
regulations of the SEC which may at any time permit the sale of the Registrable
Securities to the public without registration, Island agrees to use its
reasonable best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after the date hereof;
(b) File with the SEC in a timely manner all reports and other
documents required of Island under the Securities Act and the Exchange Act at
any time after it has become subject to such reporting requirements; and
(c) So long as a Holder owns any Registrable Securities, furnish to
such Holder forthwith upon request a written statement by Island as to its
compliance with the reporting requirements of said Rule 144 (at any time from
and after the date hereof), and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of Island, and such other
reports and documents of Island, and such other reports and documents so filed
as a Holder may reasonably request in availing itself of any rule or regulation
of the SEC allowing such Holder to sell any such securities without
registration.
76
Section 7
Termination of Rights
---------------------
Unless otherwise specified herein, the rights and provisions of this
Declaration shall terminate as to all Holders on July 15, 2006. The rights of
any individual Holder to receive notice and to participate in a registration
pursuant to the terms of Section 2 hereof shall terminate at such time as such
Holder (i) owns less than one percent (1%) of the outstanding Stock of Island
and (ii) could sell all of the Registrable Securities held by such Holder in any
one three-month period pursuant to Rule 144 (including Rule 144(k)) under the
Securities Act.
Section 8
Miscellaneous
-------------
8.1 Assignment. Subject to compliance with the Reorganization
----------
Agreement and the Ancillary Documents, the rights to cause Island to register
Registrable Securities granted to the Holders by Island under this Declaration
may be transferred or assigned by the Holders to an Affiliate or may be
transferred or assigned by any Holder to a transferee which acquires at least
100,000 Shares of the Registrable Securities owned as of the date of the
Effective Time by such Holder; provided that Island is given written notice at
the time of or within a reasonable time after said transfer or assignment,
stating the name and address of the transferee or assignee and identifying the
securities with respect to which such rights are being transferred or assigned,
and, provided further, that the transferee or assignee of such rights assumes
the obligations of such Holder under this Declaration and agrees to be bound
hereby pursuant to a written instrument in form and substance reasonably
satisfactory to Island. Subject to the preceding sentence, this Declaration
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Any transferee or assignee shall
thereafter be treated as a Holder in all respects, subject to the limitations
herein. Until Island receives actual notice of any transfer or assignment, it
shall be entitled to rely on the then existing list of Holders and the failure
to notify Island of any transfer or assignment shall not affect the validity of
a notice properly given by Island to the Holders pursuant to lists maintained by
Island.
8.2 Aggregation of Shares. All shares of Registrable Securities held
---------------------
or acquired by affiliated entities or persons, including without limitation,
Affiliates, shall be aggregated together for the purpose of determining the
availability of any rights under this Declaration.
8.3 Governing Law. This Declaration shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
entered into solely between residents of and to be performed entirely within,
such state without regard to conflicts of law principles thereof.
8.4 Counterparts. This Declaration may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
77
8.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Declaration are used for convenience only and are not to be considered in
construing or interpreting this Declaration.
8.6 Notices. All notices, requests, demands and other communications
-------
under this Declaration or in connection herewith shall be given to or made upon
the Holder at the addresses set forth in Island's records and, if to Island, at
the address previously furnished by Island to the Holders, addressed to the
attention of the President.
(a) All notices, requests, demands and other communications given or
made in accordance with the provisions of this Declaration shall be in writing,
and shall be sent by airmail, return receipt requested, or by facsimile with
confirmation of receipt, and shall be deemed to be given or made when receipt is
so confirmed.
(b) Any party may, by written notice to the other, alter its address
or respondent, and such notice shall be considered to have been given three (3)
days after the airmailing or faxing thereof.
8.7 Attorneys' Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of this Declaration,
the prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
8.8 Amendments and Waivers. Any term of this Declaration may be
----------------------
amended or any right hereunder waived with the written consent of Island and the
Holders of 66-2/3% of the shareholders of record of the Company immediately
prior to the Effective Time of the Merger, provided that Island has also
received any additional consent required under that certain Amended and Restated
Investors' Rights Agreement dated February 19, 1999, as amended, by and among
Island and the individuals or entities listed on the signature pages thereof
(the "Existing Agreement"). Any amendment or waiver effected in accordance with
this Section 8.8 shall be binding upon the Holders and each transferee of the
Registrable Securities, each future holder of all such Registrable Securities
and Island.
8.9 Severability. If one or more provisions of this Declaration are
------------
held to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to the extent necessary, shall be severed
from this Declaration, and the balance of the Agreement shall be interpreted as
if such provision were so excluded and shall be enforceable in accordance with
its terms.
8.10 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any party to this Declaration, upon any
breach or default of the other party, shall impair any such right, power or
remedy of such non-breaching party nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Declaration, or any waiver on the part of any party of any provisions
78
or conditions of this Declaration, must be made in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Declaration, or by law or otherwise afforded to any
Holder, shall be cumulative and not alternative.
79
IN WITNESS WHEREOF, the undersigned has executed this Declaration as
of the date first written above.
DIGITAL ISLAND, INC.
By: ____________________________
Name:
Title:
80
EXHIBIT C
---------
SHAREHOLDER AGREEMENT
This Shareholder Agreement (this "Agreement") is made and entered into
as of October __, 1999 by and among Digital Island, Inc., a Delaware corporation
("Parent"), Sandpiper Networks, Inc., a California corporation ("Company"), and
the undersigned shareholder of Company ("Shareholder"). Capitalized terms used
but not otherwise defined herein shall have the meaning set forth in the
Reorganization Agreement (as defined below).
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Reorganization dated as
of October 24, 1999 by and among Parent, Beach Acquisition Corp., a California
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and Company
(such agreement as it may be amended is hereinafter referred to as the
"Reorganization Agreement"), Merger Sub will be merged with and into Company
(the "Merger"); the outstanding shares of capital stock of Company (the "Company
Capital Stock") will be converted into common stock of Parent (the "Parent
Shares") at the applicable exchange ratio set forth in the Reorganization
Agreement; and the Company will become a wholly owned subsidiary of Parent (the
"Transaction");
WHEREAS, it is a condition of Parent's willingness to enter into the
Transaction that certain shareholders of Company have executed and delivered to
Parent a Shareholder Agreement upon the terms set forth herein; and
WHEREAS, Shareholder is the registered and beneficial owner of such
number of shares of the outstanding capital stock of Company as is indicated on
the signature page of this Agreement (the "Shares");
NOW, THEREFORE, the parties agree as follows:
1. Share Ownership and Agreement to Retain Shares.
----------------------------------------------
1.1 Transfer and Encumbrance.
------------------------
(a) Shareholder represents and warrants to Parent that: (i)
Shareholder is the beneficial owner of the Shares and, except as otherwise set
forth on the signature page hereto, (A) has held each such Share at all times
since the date such Share was originally issued by Company, and (B) did not
acquire any shares of Company Capital Stock in contemplation of the Merger; (ii)
the Shares constitute Shareholder's entire beneficial ownership interest in the
outstanding capital stock and voting securities of Company; (iii) no other
person or entity not a signatory to this Agreement has a beneficial interest in
or a right to acquire the Shares or any portion of the Shares (except, with
respect to Shareholders which are partnerships, partners of such Shareholders);
(iv) the Shares are and will be at all times until the Expiration (as defined
below) free and clear of any liens, claims, options, charges or other
encumbrances (except with
respect to federal or state securities laws); and (v) Shareholder's principal
residence or place of business is set forth on the signature page hereto.
(b) Other than this Agreement, at all times prior to the
Expiration, Shareholder agrees not to (i) sell, transfer, pledge, assign or
otherwise dispose of or encumber (including by gift) (collectively, "Transfer"),
or consent to any Transfer of, any Shares or New Shares (as defined below) or
any interest therein or enter into any contract, option, or other arrangement
(including any profit sharing or other derivative arrangement) with respect to
any Shares or any New Shares or any interest therein with any person other than
pursuant to the Reorganization Agreement, unless prior to any such Transfer the
transferee of such Shares or New Shares enters into and is bound by a
shareholders agreement with Parent on terms substantially identical to the terms
of this Agreement, or (ii) enter into any voting arrangement, whether by proxy,
voting agreement or otherwise, in connection with, directly or indirectly, (1)
any Acquisition Proposal (as defined below) or transaction or occurrence which
if publicly proposed and offered to the Company and its shareholders (or any of
them) would be the subject of an Acquisition Proposal (collectively,
"Alternative Transactions") or (2) any amendment of the Company's Articles of
Incorporation or Bylaws or other proposal, action or transaction involving the
Company or any of its subsidiaries, which amendment or other proposal, action or
transaction would or could reasonably be expected to prevent or materially
impede, interfere with, hinder or delay the consummation of the Merger or any of
the other transactions contemplated by the Reorganization Agreement or to dilute
in any material respect the benefits to Parent of the Merger and the other
transactions contemplated by the Reorganization Agreement, or change in any
manner the voting rights of any class or shares of Company Capital Stock
(collectively, "Frustrating Transactions"). As used herein, the term
"Expiration" shall mean the earlier to occur of (x) the Effective Time or (y)
the valid termination of the Reorganization Agreement in accordance with its
terms.
1.2 New Shares. Shareholder agrees that any shares of capital stock
----------
of Company that Shareholder purchases or with respect to which Shareholder
otherwise acquires beneficial ownership after the date of this Agreement and
prior to the Expiration ("New Shares") shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. Prior to the Expiration, Shareholder
------------------------
covenants and agrees as follows:
(a) At each meeting of the shareholders of the Company called to
vote upon the Merger, the Reorganization Agreement or any of the transactions
contemplated by the Reorganization Agreement, or at any adjournment thereof, or
in any other circumstances upon which a vote, consent or other approval
(including by written consent) with respect to the Merger, the Reorganization
Agreement or any of the transactions contemplated by the Reorganization
Agreement, is sought, such Shareholder shall, including by executing a
shareholder's written consent if requested by Parent, vote (or cause to be
voted) such Shareholder's Shares or New Shares in favor of the adoption and
approval by the Company of the Reorganization Agreement and the approval of the
terms thereof and of the Merger and each of the other transactions contemplated
by the Reorganization Agreement and in favor of any matter that could reasonably
be expected to facilitate the Merger and the other transactions
contemplated by the Reorganization Agreement, including any agreements or
arrangements that may result in the payment of any amount that would not be
deductible by reason of Section 280G of the Internal Revenue Code of 1986, as
amended.
(b) At any meeting of the shareholders of the Company or at any
adjournment thereof or in any other circumstances upon which such Shareholder's
vote, consent or other approval is sought, such Shareholder shall vote (or cause
to be voted) the Shares or New Shares of such Shareholder against, and shall not
consent to (and shall cause not to be consented to), any Alternative Transaction
or Frustrating Transaction.
(c) Notwithstanding the foregoing, nothing in this Agreement
shall limit or restrict Shareholder from acting in his capacity as a director of
Company, to the extent applicable, it being understood that this Agreement shall
apply to Shareholder solely in his capacity as a shareholder of the Company.
3. Irrevocable Proxy. Shareholder hereby agrees to timely deliver to
-----------------
Parent a duly executed proxy in the form attached hereto as Annex A (the
"Proxy"), such Proxy to cover the Shares and New Shares in respect of which
Shareholder is entitled to vote at each meeting of the Shareholders of Company
(including, without limitation, each written consent in lieu of a meeting). In
the event that Shareholder is unable to provide any such Proxy in a timely
manner, Shareholder hereby grants Parent a power of attorney to execute and
deliver such Proxy for and on behalf of Shareholder, such power of attorney,
which being coupled with an interest, shall survive any death, disability,
bankruptcy, or any other such impediment of Shareholder. Upon the execution of
this Agreement by Shareholder, Shareholder hereby revokes any and all prior
proxies given by Shareholder with respect to the Shares and agrees not to grant
any subsequent proxies with respect to the Shares until after the Expiration.
4. Additional Covenants of Shareholder. Shareholder hereby represents,
-----------------------------------
warrants and covenants to Parent as follows:
(a) Shareholder has full power and legal capacity to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Shareholder and constitutes the valid and binding
obligation of Shareholder, enforceable against Shareholder in accordance with
its terms. Except as may be limited by (i) the effect of bankruptcy, insolvency,
conservatorship, arrangement, moratorium or other laws affecting or relating to
the rights of creditors generally, or (ii) the availability of specific
performance, injunctive relief or other equitable remedies and general
principles of equity, regardless of whether considered in a proceeding in equity
or at law, the execution and delivery of this Agreement by Shareholder does not,
and the performance of Shareholder's obligations hereunder will not, result in
any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any right to
terminate, amend, accelerate or cancel any right or obligation under, or result
in the creation of any lien or encumbrance on any Shares or New Shares pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Shareholder is a
party or by which Shareholder or the Shares or New Shares are or will be bound
or affected.
(b) Shareholder undertakes and agrees to indemnify and hold
harmless Parent, Company, and each of their respective current and future
officers and directors (an "Indemnified Person") within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), from and against any
and all claims, demands, actions, causes of action, losses, costs, damages,
liabilities and expenses ("Claims") based upon, arising out of or resulting from
any breach or nonfulfillment of any undertaking, covenant or agreement made
herein by Shareholder, or caused by or attributable to Shareholder, or
Shareholder's agents or employees, or representatives, brokers, dealers and/or
underwriters insofar as they are acting on behalf of and in accordance with the
instruction of or with the knowledge of Shareholder, in connection with or
relating to any offer, sale, pledge, transfer or other disposition or
encumbrance of any of the Parent Shares by or on behalf of Shareholder, which
claim or claims result from any breach or nonfulfillment as set forth above. The
indemnification set forth herein shall be in addition to any liability that
Shareholder may otherwise have to the Indemnified Persons. Promptly after
receiving definitive notice of any Claim in respect of which an Indemnified
Person may seek indemnification under this Agreement, such Indemnified Person
shall submit notice thereof to Shareholder. The omission by the Indemnified
Person so to notify Shareholder of any such Claim shall not relieve Shareholder
from any liability Shareholder may have hereunder except to the extent that (i)
such liability was caused or increased by such omission, or (ii) the ability of
Shareholder to reduce or defend against such liability was adversely affected by
such omission. The omission of the Indemnified Person so to notify Shareholder
of any such Claim shall not relieve Shareholder from any liability Shareholder
may have otherwise than hereunder. The Indemnified Persons and Shareholder shall
cooperate with and assist one another in the defense of any Claim and any
action, suit or proceeding arising in connection therewith.
(c) Shareholder shall take, or cause to be taken, all other
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all other things, reasonably necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by the
Reorganization Agreement.
(d) Until the Expiration, Shareholder shall not, and shall not
authorize or permit any of its subsidiaries or affiliates (other than the
Company), officers, directors and employees and any investment banker, attorney,
accountant or other agent retained by Shareholder or them to, issue any press
release or make any other public statement with respect to the Reorganization
Agreement, this Agreement, the Merger or any of the other transactions
contemplated by the Reorganization Agreement or this Agreement without the prior
written consent of Parent, except as may be required by applicable law.
(e) Until the Expiration, Shareholder will not (and will use
Shareholder's reasonable best efforts to cause Company, its affiliates,
officers, directors and employees and any investment banker, attorney,
accountant or other agent retained by Shareholder or them, not to): (i) initiate
or solicit, directly or indirectly, any proposal, plan, or offer to acquire all
or any substantial part of the business or assets or capital stock of Company,
whether by merger or other business combination, purchase of stock or assets,
tender offer or otherwise, or to liquidate Company or otherwise distribute to
the Shareholders of Company all or any substantial part of the business, assets
or capital stock of Company (each, an "Acquisition Proposal"); (ii) initiate,
directly or indirectly, any contact with any person in an effort to or with
a view towards soliciting or encouraging or facilitating any Acquisition
Proposal; (iii) furnish information concerning Company's business, properties or
assets to any corporation, partnership, person or other entity or group (other
than Parent, or any associate, agent or representative of Parent) under any
circumstances that could reasonably be expected to relate to an actual or
potential Acquisition Proposal; or (iv) negotiate or enter into discussions or
an agreement, directly or indirectly, with any entity or group with respect to
any potential Acquisition Proposal. In the event Shareholder shall receive or
become aware of any Acquisition Proposal subsequent to the date hereof,
Shareholder shall promptly inform Parent as to any such matter and the details
thereof to the extent possible without breaching any other agreement to which
such Shareholder is a party or violating its fiduciary duties.
(f) Shareholder hereby waives any rights of appraisal, or rights
to dissent from the Merger, that such Shareholder may have.
(g) Shareholder shall execute and deliver to Parent the Market
Standoff Letter Agreement, in the form attached hereto as Annex B.
-------
5. Enforcement of Transfer Restrictions. Shareholder understands and
------------------------------------
agrees that (i) Company shall be entitled to affix an appropriate legend to any
certificate representing Shares or New Shares reflecting the restrictions set
forth in this Agreement; and (ii) if Shareholder attempts to Transfer, vote or
provide any other person with the authority to vote any of the Shares other than
in compliance with this Agreement, Company shall not, and Shareholder hereby
irrevocably instructs Company not to permit any such transfer on its books and
records, issue a new certificate representing any of the Shares or New Shares or
record such vote unless and until Shareholder shall have complied with the terms
of this Agreement.
6. Additional Documents. Shareholder hereby covenants and agrees to
--------------------
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Parent, to carry out the purpose and intent of this
Agreement.
7. Consent and Waiver. Shareholder hereby gives any consents or waivers
------------------
that are reasonably required for the consummation of the Transaction under the
terms of any agreement to which Shareholder is a party or pursuant to any rights
Shareholder may have.
8. Further Assurances. Shareholder will, from time to time, execute and
------------------
deliver, or cause to be executed and delivered, such additional or further
consents, documents or other instruments as Parent may request for the purpose
of effectuating the matters covered by this Agreement, including the grant of
the proxies set forth in Section 3.
9. Termination. Sections 1, 2, 3 and 4 hereof and the Proxy delivered in
-----------
connection herewith shall terminate and shall have no further force or effect as
of the Expiration.
10. Confidentiality. Shareholder agrees (i) to hold any information
---------------
regarding this Agreement and the Transaction in strict confidence, and (ii) not
to divulge any such information to any third person, until such time as the
Transaction has been publicly disclosed by Parent.
11. Miscellaneous.
-------------
11.1 Severability. If any term, provision, covenant or restriction
------------
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
11.2 Binding Effect and Assignment. This Agreement and all of the
-----------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by any of
the parties without the prior written consent of the others. This Agreement is
intended to bind Shareholder as a Shareholder of Company only with respect to
the specific matters set forth herein.
11.3 Amendment and Modification. This Agreement may not be modified,
--------------------------
amended, altered or supplemented except by the execution and delivery of a
written agreement executed by the parties hereto.
11.4 Specific Performance; Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity and Shareholder hereby waives any and all defenses which could
exist in its favor in connection with such enforcement and waives any
requirement for the security or posting of any bond in connection with such
enforcement.
11.5 Notices. All notices, requests, demands or other communications
-------
that are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed to have been duly given if delivered by hand
or mailed by registered or certified mail, postage prepaid, or delivered to a
reputable overnight courier for overnight delivery, postage prepaid, as follows:
(a) If to Shareholder, at the address set forth below
Shareholder's signature at the end hereof.
(b) if to Parent, to:
Digital Island, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Mo, Esq.
with a copy to ▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to Company, to:
Sandpiper Networks, Inc.
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▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any party hereto or any Indemnified Person may
designate for itself by notice given as herein provided.
11.6 Governing Law. This Agreement shall be governed by, construed
-------------
and enforced in accordance with the internal laws of the State of California,
without regard to the conflicts of laws principles thereof.
11.7 Entire Agreement. This Agreement and the Proxy contain the
----------------
entire understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
11.8 Effect of Headings. The section headings herein are for
------------------
convenience only and shall not affect the construction or interpretation of this
Agreement.
11.9 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
DIGITAL ISLAND, INC. SHAREHOLDER
By:________________________________ By: __________________________________
Name:______________________________ (Signature)
Title:_____________________________
______________________________________
(Signature of Spouse)
SANDPIPER NETWORKS, INC. ______________________________________
By:________________________________ (Social Security / Tax I.D. No.)
Name:______________________________
Title:_____________________________ ______________________________________
(Print Name of Shareholder)
______________________________________
(Print ▇▇▇▇▇▇ ▇▇▇▇▇▇▇)
______________________________________
(Print City, State and Zip)
______________________________________
(Print Telephone Number)
______________________________________
(Social Security or Tax I.D. Number)
Total Number of Shares of Company Capital Stock owned on the date hereof:
Common Stock:______________________
Series A Preferred Stock:__________
Series B Preferred Stock:__________
State of Residence:________________
SIGNATURE PAGE TO SHAREHOLDER AGREEMENT
ANNEX A
-------
IRREVOCABLE PROXY
TO VOTE STOCK OF
----------------
SANDPIPER NETWORKS, INC.
------------------------
The undersigned shareholder of Sandpiper Networks, Inc., a California
corporation ("Company"), hereby irrevocably (to the full extent permitted by the
California Corporations Code) appoints the members of the Board of Directors of
Digital Island, Inc., a Delaware corporation ("Parent"), and each of them, or
any other designee of Parent, as the sole and exclusive attorneys and proxies of
the undersigned, with full power of substitution and resubstitution, to vote and
exercise all voting and related rights (to the full extent that the undersigned
is entitled to do so) with respect to all of the shares of capital stock of
Company that now are or hereafter may be beneficially owned by the undersigned,
and any and all other shares or securities of Company issued or issuable in
respect thereof on or after the date hereof (collectively, the "Shares") in
accordance with the terms of this Irrevocable Proxy. The Shares beneficially
owned by the undersigned shareholder of Company as of the date of this
Irrevocable Proxy are listed on the final page of this Irrevocable Proxy. Upon
the undersigned's execution of this Irrevocable Proxy, any and all prior proxies
given by the undersigned with respect to any Shares are hereby revoked and the
undersigned agrees not to grant any subsequent proxies with respect to the
Shares until after the Expiration (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided in the
California Corporations Code), is coupled with an interest, including, but not
limited to, that certain Shareholder Agreement dated as of even date herewith by
and among Parent, Company, and the undersigned (the "Shareholder Agreement"),
and is granted in consideration of Parent entering into that certain Agreement
and Plan of Reorganization (the "Reorganization Agreement") by and among Parent,
Beach Acquisition Corp., a California corporation and a wholly owned subsidiary
of Parent ("Merger Sub"), and Company, which Reorganization Agreement provides
for the merger of Merger Sub with and into Company, the conversion of
outstanding shares of Company capital stock into the right to receive Parent
Common Stock (in accordance with the applicable exchange ratio), and for Company
to become a wholly owned subsidiary of Parent (the "Merger"). As used herein,
the term "Expiration" shall mean the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the terms and provisions
of the Reorganization Agreement, and (ii) the date of termination of the
Reorganization Agreement.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration, to act as the undersigned's attorney and proxy to vote the Shares,
and to exercise all voting and other rights of the undersigned with respect to
the Shares (including, without limitation, the power to execute and deliver
written consents pursuant to the California Corporations Code), at every annual,
special or adjourned meeting of the shareholders of Company and in every written
consent in
lieu of such meeting in favor of approval and adoption of the Reorganization
Agreement and approval of the terms thereof and of the Merger and each of the
other transactions contemplated by the Reorganization Agreement, and in favor of
any matter that could reasonably be expected to facilitate the Merger and the
other transactions contemplated by the Reorganization Agreement, and against any
Alternative Transaction or Frustrating Transaction (as such terms are defined in
the Shareholder Agreement).
The attorneys and proxies named above may not exercise this
Irrevocable Proxy on any other matter except as provided above. The undersigned
shareholder may vote the Shares on all other matters.
All authority herein conferred shall survive the death or incapacity
of the undersigned and any obligation of the undersigned hereunder shall be
binding upon the heirs, personal representatives, successors and assigns of the
undersigned.
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: ____________________
________________________________________
(Signature of Shareholder)
________________________________________
(Print Name of Shareholder)
Shares beneficially owned:
________ shares of Company Common Stock
________ shares of Company Series A
Preferred Stock
________ shares of Company Series B
Preferred Stock
SIGNATURE PAGE TO IRREVOCABLE PROXY
ANNEX B
-------
Market Standoff Letter Agreement
--------------------------------
DIGITAL ISLAND, INC.
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▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Proposed Merger of Digital Island, Inc. and Sandpiper Networks,
---------------------------------------------------------------
Inc.
----
Ladies and Gentlemen:
The undersigned understands that Sandpiper Networks, Inc., a
California corporation ("Company") and Digital Island, Inc., a Delaware
corporation ("Parent") have entered into an Agreement and Plan of
Reorganization, dated as of October 24, 1999 (the "Reorganization Agreement"),
pursuant to which Beach Acquisition Corp., a California corporation and a wholly
owned subsidiary of Parent, will be merged with and into Company (the "Merger").
Capitalized terms not otherwise defined herein shall have the same meaning given
to them in the Reorganization Agreement.
In recognition of the benefit that the Merger will confer upon the
undersigned as a securityholder, officer and/or director of Company and/or of
Parent, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with
Parent, that, from the Effective Time until the earliest to occur of (a) the
sale by Parent of shares of its common stock ("Parent Common Stock") for its own
account in a bona fide, firm commitment underwritten public offering pursuant to
a registration statement under the Securities Act of 1933, as amended, (b) July
15, 2000, (c) the effective date of a merger of Parent with or into another
corporation in which fifty (50%) or more of the voting power of Parent is
disposed of, or the sale of all or substantially all of the assets of Parent; or
(d) such other date, and with such limitations, as may be approved by unanimous
vote of the Board of Directors of Parent, the undersigned will not directly or
indirectly (i) issue, offer to sell, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of Parent Common Stock or any securities convertible into or
exchangeable or exercisable for Parent Common Stock, whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Parent
Common Stock or any securities convertible into or exchangeable for the Parent
Common Stock, whether any such swap transaction is to be settled by delivery of
Parent Common Stock or other securities, in cash or otherwise.
The foregoing paragraph shall not apply to (a) transactions by any
person relating to shares of Parent Common Stock or other securities acquired in
open market transactions after the Effective Time or (b) transfers of Parent
Common Stock or any securities convertible into or
exercisable or exchangeable for Parent Common Stock to a member of the
undersigned's immediate family or to a trust of which the undersigned or an
immediate family member is the beneficiary (either one a "Transferee") provided
that upon any such transfer, the Transferee shall sign a letter substantially
similar to this letter agreement.
The undersigned agrees and consents to the entry of stop transfer
instructions with Parent's transfer agent against the transfer of shares of
Parent Common Stock held by the undersigned unless such transfer is made in
compliance with this Agreement. The undersigned understands and agrees that
Parent shall be entitled to affix an appropriate legend to any certificate
representing shares of Parent Common Stock reflecting the restrictions set forth
in this Agreement.
This Agreement is irrevocable and may only be amended in writing if
agreed to by the unanimous vote of the Board of Directors of Parent.
The undersigned agrees that the provisions of this letter agreement
shall be binding also upon the successors, assigns, heirs and personal
representatives of the undersigned.
Very truly yours,
Date: _______________________
_____________________________________________
(Name of Entity or Individual - Please
Print)
_____________________________________________
(Signature)
_____________________________________________
(Name of Person signing on behalf of Entity,
if applicable - Please Print)
_____________________________________________
(Title of Person signing on behalf of
Entity, if applicable - Please Print)
On behalf of:
SIGNATURE PAGE TO MARKET STANDOFF LETTER AGREEMENT
EXHIBIT D
---------
SHAREHOLDER REPRESENTATION AGREEMENT
THIS SHAREHOLDER REPRESENTATION AGREEMENT (this "Agreement") is
entered into as of the ___ day of ____________, _____ between Digital Island,
Inc., a Delaware corporation ("Parent"), and the undersigned Shareholder
("Shareholder") of Sandpiper Networks, Inc., a California corporation
("Company"). Capitalized terms used and not defined herein shall have the
meanings set forth in the Reorganization Agreement referred to below.
RECITALS
A. Company and Parent have entered into an Agreement and Plan of
Reorganization, dated as of October 24, 1999 (the "Reorganization Agreement"),
pursuant to which Beach Acquisition Corp., a California corporation and a wholly
owned subsidiary of Parent, will be merged with and into Company (the "Merger").
B. By virtue of the Merger and in connection therewith, Shareholder
will become the owner of shares of Common Stock of Parent (the "Parent Shares").
C. Pursuant to the Reorganization Agreement, Parent and an agent
(the "Shareholders' Agent") of the former shareholders of Company will enter
into the Escrow Agreement with the Escrow Agent.
D. Shareholder understands and acknowledges that Company, Parent and
their respective Securityholders, as well as legal counsel to Company and
Parent, are entitled to rely on (x) the truth and accuracy of Shareholder's
representations contained herein and (y) Shareholder's performance of the
obligations set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, provisions and covenants set forth in the Reorganization Agreement
and in this Shareholder's Agreement, it is hereby agreed as follows:
1. Share Ownership and Agreement to Retain Shares.
----------------------------------------------
1.1 Transfer and Encumbrance.
------------------------
(a) Shareholder represents and warrants to Parent that: (i)
Shareholder is the beneficial owner of that number of shares of Company Capital
Stock set forth on the signature page hereto (the "Shares") and, except as
otherwise set forth on the signature page hereto, (A) has held each such Share
at all times since the date such Share was originally issued by Company, and (B)
did not acquire any Shares in contemplation of the Merger; (ii) the Shares
constitute Shareholder's entire interest in the outstanding capital stock of
Company; (iii) no other person or entity not a signatory to this Agreement has a
beneficial interest in or a right to acquire the Shares or any
portion of the Shares (except, with respect to Shareholders which are
partnerships, partners of such Shareholders); (iv) the Shares are and will be at
all times up until the Expiration free and clear of any liens, claims, options,
charges or other encumbrances (except with respect to federal and state
securities laws); and (v) Shareholder's principal residence or place of business
is accurately set forth on the signature page hereto.
(b) Shareholder agrees not to transfer (except as may be
specifically required by court order or by operation of law), sell, exchange,
pledge or otherwise dispose of or encumber the Shares, or to make any offer or
agreement relating thereto, at any time on or prior to the Expiration. As used
herein, the term "Expiration" shall mean the earlier to occur of (i) the
Effective Time or (ii) termination of the Reorganization Agreement in accordance
with its terms.
1.2 New Shares. Shareholder agrees that any shares of capital stock
----------
of Company that Shareholder purchases or with respect to which Shareholder
otherwise acquires beneficial ownership (including, without limitation, pursuant
to any stock split, stock dividend, recapitalization, reorganization or the
like) after the date of this Agreement and prior to the Expiration shall be
subject to the terms and conditions of this Agreement to the same extent as if
they constituted Shares.
2. Representations, Warranties and Covenants of Shareholder.
--------------------------------------------------------
2.1 Shareholder hereby represents, warrants and covenants to Parent
as follows:
(a) Purchase Entirely for Own Account. The Parent Shares being
---------------------------------
acquired by Shareholder pursuant to the Merger will be acquired for investment
for Shareholder's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and Shareholder has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, Shareholder further represents that
Shareholder does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participation to such person or to
any third person, with respect to any of such Parent Shares.
(b) Investment Experience. Shareholder, either alone or with a
---------------------
"purchaser representative" as described in subsection (c) below, has substantial
experience evaluating and investing in securities of companies and acknowledges
that it has the capacity to protect its own interests in connection therewith,
can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Parent Shares. If other than an
individual, Shareholder also represents it has not been organized for the
purpose of acquiring the Parent Shares.
(c) Accredited Investor/Suitability Questionnaire. Shareholder
---------------------------------------------
is and at the Closing (i) will be an "accredited investor" within the meaning of
Rule 501 of Regulation D promulgated by the Securities and Exchange Commission
(the "SEC"),
as presently in effect or (ii) has delivered an Investor Suitability
Questionnaire, in the form attached as Annex A, to Parent describing
Shareholder's ability to evaluate an investment in Parent Shares or (iii) has
appointed a "purchaser representative" as defined in Rule 501 of Regulation D to
evaluate Shareholder's investment in Parent Shares.
(d) Restricted Securities. Shareholder understands that the
---------------------
Parent Shares constitute "restricted securities" under the federal securities
laws inasmuch as they are being acquired from Parent in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Securities Act"), only in certain limited circumstances.
In this connection, Shareholder represents that Shareholder is familiar with
Rule 145 promulgated by the SEC, as presently in effect ("Rule 145"), and
understands the resale limitations imposed thereby and by the Securities Act.
(e) Further Limitations on Disposition. Shareholder agrees not
----------------------------------
to offer, sell, exchange, transfer, pledge or otherwise dispose of or encumber
any of the Parent Shares unless at that time:
(i) such transaction is permitted pursuant to the
provisions of Rule 145 under the Securities Act;
(ii) counsel representing Shareholder, reasonably
satisfactory to Parent, shall have advised Parent in a written opinion letter
reasonably satisfactory to Parent and Parent's counsel, and upon which Parent
and its counsel may rely, that no registration under the Securities Act is
required in connection with the proposed sale, transfer or other disposition;
(iii) a registration statement under the Securities Act (a
"Registration Statement") covering the Parent Shares proposed to be sold,
transferred or otherwise disposed of, describing the manner and terms of the
proposed sale, transfer or other disposition, and containing a current
prospectus, is filed with the SEC and made effective under the Securities Act;
provided, however, that use of and reliance on the Registration Statement will
-------- -------
be subject to pooling of interests requirements applicable to the Merger,
customary "blackout" periods and, if Shareholder is an employee of the Company
or Parent at the time of a proposed offer, sale, exchange, transfer, pledge or
other disposition or encumbrance of the Parent Shares pursuant to such
registration statement, any applicable trading windows of Parent; or
(iv) an authorized representative of the SEC shall have
rendered written advice to Shareholder (sought by Shareholder or counsel to
Shareholder, with a copy thereof and of all other related communications
delivered to Parent) to the effect that the SEC will take no action, or that the
staff of the SEC will not recommend that the SEC take action, with respect to
the proposed offer, sale, exchange, transfer, pledge or other disposition or
encumbrance if consummated.
(f) All certificates representing Parent Shares deliverable to
Shareholder pursuant to the Reorganization Agreement and in connection with the
Merger and any certificates subsequently issued with respect thereto or in
substitution therefor shall bear a legend that such shares of Parent Common
Stock may only be offered, sold, exchanged, transferred, pledged or disposed of
in accordance with this Agreement and with (i) the provisions of Rule 145 under
the Securities Act, (ii) pursuant to an effective Registration Statement or
(iii) pursuant to an exemption provided by the Securities Act. Parent, at its
discretion, may cause stop transfer orders to be placed with its transfer agent
with respect to the certificates for such Parent Shares but not as to the
certificates for any part of the Parent Shares as to which said legend is no
longer appropriate.
(g) Shareholder will observe and comply with the Securities Act
and the General Rules and Regulations thereunder, as now in effect and as from
time to time amended and including those hereafter enacted or promulgated, in
connection with any offer, sale, exchange, transfer, pledge or other disposition
or encumbrance of the Parent Shares or any part thereof.
(h) Shareholder understands that pursuant to the Reorganization
Agreement, Parent and the Shareholders' Agent shall enter into an Escrow
Agreement and that Shareholder shall be bound by the provisions of the Escrow
Agreement in the form attached as an exhibit to the Reorganization Agreement and
Article VIII of the Reorganization Agreement ("Article VIII"); and as such,
Shareholder agrees to the appointment of the person or persons identified
therein as the Shareholders' Agent and further agrees to be bound by the terms
of the Escrow Agreement and Article VIII.
3. Additional Documents and Actions. Shareholder hereby covenants and
--------------------------------
agrees to execute and deliver any additional documents and take any actions
necessary or desirable, in the reasonable opinion of Parent, to carry out the
purposes and intents of this Agreement.
4. Consent and Waiver. Shareholder hereby gives any consents or waivers
------------------
that are reasonably required for the consummation of the transactions
contemplated by the Reorganization Agreement (the "Transaction") under the terms
of any agreement to which Shareholder is a party or pursuant to any contracted
rights Shareholder may have.
5. Confidentiality. Shareholder agrees (i) to hold any information
---------------
regarding this Agreement and the Transaction in strict confidence, and (ii) not
to divulge any such information to any third person, until such time as the
Transaction has been publicly disclosed by Parent.
6. Miscellaneous.
-------------
6.1 Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
6.2 Binding Effect and Assignment. This Agreement and all of the
-----------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, but, except as otherwise specifically
provided herein, neither this Agreement nor any of the rights, interests or
obligations of the parties hereto may be assigned by either of the parties.
6.3 Amendment and Modification. This Agreement may not be modified,
--------------------------
amended, altered or supplemented except by the execution and delivery of a
written agreement executed by each of the parties hereto.
6.4 Specific Performance; Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity and Shareholder hereby waives any and all defenses which could
exist in its favor in connection with such enforcement and waives any
requirement for the security or posting of any bond in connection with such
enforcement.
6.5 Notices. All notices, requests, demands or other communications
-------
that are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed to have been duly given if delivered by hand
or mailed by registered or certified mail, postage prepaid, or delivered to a
reputable overnight courier for overnight delivery, postage prepaid, as follows:
(a) If to Shareholder, at the address set forth below
Shareholder's signature at the end hereof, with a copy to Company.
(b) If to Parent, to:
Digital Island, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Mo, Esq.
with a copy to ▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to Company, to:
Sandpiper Networks, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
6.6 Governing Law. This Agreement shall be governed
-------------
by, construed and enforced in accordance with the internal laws of the State of
California, without regard to conflict of law principles thereof.
6.7 Entire Agreement. This Agreement, together with the
----------------
Reorganization Agreement (to the extent applicable), contains the entire
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
6.8 Effect of Headings. The section headings herein are for
------------------
convenience only and shall not affect the construction or interpretation of this
Agreement.
6.9 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
[Rest of page intentionally left blank]
IN WITNESS WHEREOF, the parties have caused this Shareholder
Representation Agreement to be executed as of the date first above written.
DIGITAL ISLAND, INC. SHAREHOLDER
By:____________________________ By:_________________________________
Name:__________________________ (Signature)
Title:_________________________
____________________________________
(Signature of Spouse)
SANDPIPER NETWORKS, INC. ____________________________________
(Print Name)
By:____________________________ ____________________________________
Name:__________________________ (Print Address)
Title:_________________________
____________________________________
(Print Address)
____________________________________
(Print Telephone Number)
____________________________________
(Social Security or Tax I.D. Number)
Total Number of Shares of Company Capital Stock owned on the date hereof:
Common Stock:_____________________
Series A Preferred Stock:_________
Series B Preferred Stock:_________
State of Residence:_______________
ANNEX A
-------
INVESTOR SUITABILITY QUESTIONNAIRE
----------------------------------
EXHIBIT E
---------
ESCROW AGREEMENT
----------------
This ESCROW AGREEMENT is made as of ________________, 1999, by and
among State Street Bank and Trust Company of California N.A. (the "Escrow
Agent"), DIGITAL ISLAND, INC., a Delaware corporation ("Parent"), and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, as agent (the "Shareholders' Agent") of the former shareholders of
SANDPIPER NETWORKS, INC., a California corporation ("Company"). Terms not
otherwise defined herein shall have the meaning set forth in the Reorganization
Agreement (as defined below).
WITNESSETH
WHEREAS, Parent, Company and Beach Acquisition Corp., a California
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), have entered
into an Agreement and Plan of Reorganization (the "Reorganization Agreement"),
dated as of October 24, 1999, providing for the merger of Merger Sub with and
into Company, with Company surviving as a wholly owned subsidiary of Parent
(the "Merger"); and
WHEREAS, pursuant to Article VIII of the Reorganization Agreement, a
copy of which is attached hereto as Annex A ("Article VIII"), an escrow fund
-------
(the "Escrow Fund") will be established to compensate Parent for certain
Damages, if any, arising out of any misrepresentation or breach or default in
connection with any of the representations, warranties, covenants and agreements
given or made by Company in the Reorganization Agreement, the Company Disclosure
Schedule or any Ancillary Agreement; and
WHEREAS, the Shareholders' Agent has been constituted as agent for and
on behalf of the former shareholders of Company (individually, a "Shareholder"
and collectively, the "Shareholders") to undertake certain obligations specified
in Article VIII; and
WHEREAS, Article VIII provides for an Escrow Fund of Escrow Shares
representing 10% of the shares of Parent Common Stock to be delivered to the
Shareholders in connection with the Merger and pursuant to Section 1.6(a) of the
Reorganization Agreement, such escrow to be held by the Escrow Agent; and
WHEREAS, the parties hereto desire to set forth further terms and
conditions in addition to those set forth in Article VIII relating to the
operation of the Escrow Fund;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein, and intending to be legally bound, hereby agree as
follows:
1. Escrow and Escrow Shares. Pursuant to Article VIII, Parent shall
------------------------
deposit in escrow with the Escrow Agent, as escrow agent, within five (5)
business days of the Effective Time, a stock certificate or certificates
representing ___________ shares (the "Escrow Shares"), which shall be registered
in the name of the Escrow Agent as nominee for the beneficial owners of such
shares. The Escrow Shares shall be held and distributed by the Escrow Agent in
accordance with the terms and conditions of Article VIII and this Agreement.
The number of Escrow Shares beneficially owned by each Shareholder, the
percentage interest of each Shareholder in the Escrow Fund, the address of each
Shareholder and the taxpayer identification of each Shareholder are set forth in
Annex B attached hereto.
-------
2. Rights and Obligations of the Parties. The Escrow Agent shall be
-------------------------------------
entitled to such rights and shall perform such duties of the escrow agent as set
forth herein and in Article VIII (collectively, the "Duties"), in accordance
with the terms and conditions of this Escrow Agreement and Article VIII. Parent
and the Shareholders' Agent shall be entitled to their respective rights and
shall perform their respective duties and obligations as set forth herein and in
Article VIII, in accordance with the terms hereof and thereof. In the event that
the terms of this Escrow Agreement conflict in any way with the provisions of
Article VIII, Article VIII shall control.
3. Escrow Period. The Escrow Period shall terminate at 11:59 p.m.
-------------
P.S.T. on the first anniversary of the Effective Time; provided, however, that a
-------- -------
portion of the Escrow Shares, which in the reasonable judgment of Parent,
subject to the objection of the Shareholders' Agent and any subsequent
arbitration of the matter in the manner provided in Section 8.6 of Article VIII,
is necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate received by the Escrow Agent prior to termination of the Escrow
Period with respect to facts and circumstances existing prior to expiration of
the Escrow Period, shall remain in the Escrow Fund until such claims have been
resolved. Parent shall deliver to the Escrow Agent a certificate specifying the
Effective Time at the time of the initial deposit of the Escrow Fund.
4. Duties of Escrow Agent. In addition to the Duties set forth in
----------------------
Article VIII, the Duties of the Escrow Agent shall include the following:
(a) The Escrow Agent shall hold and safeguard the Escrow Shares
during the Escrow Period, shall treat such Escrow Fund as a trust fund in
accordance with the terms of this Escrow Agreement and Article VIII and not as
the property of Parent, and shall hold and dispose of the Escrow Shares only in
accordance with the terms hereof.
(b) The Escrow Shares shall be voted by the Escrow Agent in
accordance with the specific written instructions received by the Escrow Agent
from the beneficial owners of such shares. In the absence of such instructions,
the Escrow Agent shall be under no obligation to vote such shares. The Escrow
Agent need not forward proxy information, annual or other reports or other
information received from Parent with respect to the Escrow Shares.
(c) Promptly following termination of the Escrow Period, the
Escrow Agent shall requisition from Parent's stock transfer agent (which is
currently BankBoston N.A.) if necessary, and shall deliver to the Shareholders
the number of Escrow Shares and other property in the Escrow Fund in excess of
the amount of such Escrow Shares or other property set forth in a certificate of
the Parent as being sufficient to satisfy any unsatisfied claims specified in
any Officer's Certificate received by the Escrow Agent prior to termination of
the Escrow Period with respect to facts and circumstances existing prior to
expiration of the Escrow Period, and to pay expenses as provided in Section
11(b) hereof. As soon as all such claims have been
resolved, the Escrow Agent shall deliver to the Shareholders all of the Escrow
Shares and other property remaining in the Escrow Fund and not required to
satisfy such claims and expenses. Each Shareholder shall receive that number of
Escrow Shares equivalent to such Shareholder's percentage interest in the Escrow
Fund as set forth in Annex B hereto.
-------
(d) Pursuant to Section 8.4(b) of the Reorganization Agreement,
for the purpose of compensating Parent for its Damages pursuant to this
Agreement, the Parent Common Stock in the Escrow Fund shall be valued at the
Escrow Value, which is to be provided in writing by Parent upon the initial
deposit of Escrow Shares to the Escrow Agent. If the value to be distributed to
Parent (or to any Shareholder upon a termination of the escrow) is not evenly
divisible by the Escrow Value, the Escrow Agent shall round down the number of
shares to be distributed to the next highest number of shares and shall
distribute that number. In lieu of the fractional interest not distributed,
Parent shall furnish to the Escrow Agent, and the Escrow Agent in turn will
distribute to the Shareholders, cash equal to such fractional interest
multiplied by the Escrow Value. Parent shall be deemed to have purchased such
fractional interests with respect to which it has furnished funds to the Escrow
Agent. Accordingly, the Escrow Agent, upon receipt of such funds, shall deliver
the corresponding number of shares to Parent. In all events, Parent shall so
purchase only a whole number of shares. Any cash so received from Parent and not
so immediately distributed by the Escrow Agent shall be retained by the Escrow
Agent as part of the Escrow Fund, but need not be invested.
5. Distribution. Any cash dividends, dividends payable in securities
------------
or other distributions of any kind (but excluding any shares of Parent capital
stock received upon a stock split or stock dividend) shall be promptly
distributed by the Escrow Agent to the beneficial holder of the Escrow Shares to
which such distribution relates. Any shares of Parent Common Stock received by
the Escrow Agent upon a stock split, stock dividend, recapitalization,
reorganization or the like made in respect of any securities in the Escrow Fund
shall be added to the Escrow Fund and become a part thereof. Any provision
hereof and of Article VIII shall be adjusted to appropriately reflect any stock
split, stock dividend, reverse stock split, recapitalization, reorganization,
merger or the like. Each Shareholder shall furnish to the Escrow Agent a
certified IRS Form W-9 within 30 days of Closing or any other documentation the
Escrow Agent may reasonably require.
6. Exculpatory Provisions.
----------------------
(a) The Escrow Agent shall be obligated only for the performance
of such Duties as are specifically set forth herein and in Article VIII and may
rely and shall be protected in relying or refraining from acting on any
instrument reasonably believed to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be charged
with knowledge of any document or agreement except for this Agreement and
Article VIII. The Escrow Agent shall not be liable for forgeries or false
impersonations. The Escrow Agent shall not be liable for any act done or omitted
hereunder as escrow agent except for its own gross negligence or willful
misconduct. The Escrow Agent shall in no case or event be liable for any
representations or warranties of Company or Parent. Any act done or omitted
pursuant to the advice or opinion of counsel shall be conclusive evidence of the
good faith of the Escrow Agent and such opinion shall be full and complete
authorization and protection in respect of any action taken or omitted by Escrow
Agent in accordance herewith.
(b) 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 or arbitration as provided in
Section 8.6 of the Reorganization Agreement, and is hereby expressly authorized
to comply with and obey orders, judgments or decrees of any court or rulings of
any arbitrators. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court or such ruling of any arbitrator, the Escrow
Agent 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, decree or
arbitrators' ruling being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
(c) 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 the Reorganization Agreement or
any documents or papers deposited or called for thereunder.
(d) The Escrow Agent shall not be liable for the outlawing of
any rights under any statute of limitations with respect to the Reorganization
Agreement or any documents deposited with the Escrow Agent.
7. Alteration of Duties. The Duties may be altered, amended,
--------------------
modified or revoked only by a writing signed by all of the parties hereto.
8. Resignation and Removal of the Escrow Agent. The Escrow Agent may
-------------------------------------------
resign as Escrow Agent at any time with or without cause by giving at least
thirty (30) days' prior written notice to each of Parent and the Shareholders'
Agent, such resignation to be effective thirty (30) days following the date such
notice is given. In addition, Parent and Shareholders' Agent may jointly remove
the Escrow Agent as escrow agent at any time with or without cause, by an
instrument (which may be executed in counterparts) given to the Escrow Agent,
which instrument shall designate the effective date of such removal. In the
event of any such resignation or removal, a successor escrow agent which shall
be a bank or trust company organized under the laws of the United States of
America or of the State of California having (or if such bank or trust company
is a member of a bank company, its bank holding company has) a combined capital
and surplus of not less than $50,000,000, shall be appointed by the
Shareholders' Agent with the approval of Parent, which approval shall not be
unreasonably withheld. Any such successor escrow agent shall deliver to Parent
and the Shareholders' Agent a written instrument accepting such appointment, and
thereupon it shall succeed to all the rights and duties of the Escrow Agent
hereunder and shall be entitled to receive the Escrow Fund.
9. Further Instruments. If the Escrow Agent reasonably requires
-------------------
other or further instruments in connection with performance of the Duties, the
necessary parties hereto shall join in furnishing such instruments.
10. Disputes. It is understood and agreed that should any dispute
--------
arise with respect to the delivery and/or ownership or right of possession of
the securities or other property held by the Escrow Agent hereunder, the Escrow
Agent is authorized and directed to act in accordance with, and in reliance
upon, the terms hereof and of Article VIII.
11. Escrow Fees and Expenses.
------------------------
(a) Parent shall pay the Escrow Agent such fees as are
established by the Fee Schedule attached hereto as Annex C and all reasonably
-------
"out-of-pocket" expenses in serving as Escrow Agent (including reasonable
counsel fees).
(b) Any out-of-pocket fees and expenses incurred by the
Shareholders' Agent (including any loss, liability or expense for which the
Shareholders' Agent is to be indemnified pursuant to Section 8.7(b) of the
Reorganization Agreement) may be paid out of the Escrow Fund, but only at the
end of the Escrow Period and only to the extent any amounts remain after all
other distributions from the Escrow Fund and the final resolution of any claims
thereon. Escrow Agent shall disburse said amounts, if any, upon receipt of a
written request of the Shareholders' Agent.
12. Indemnification. In consideration of the Escrow Agent's
---------------
acceptance of this appointment, Parent agrees to indemnify and hold the Escrow
Agent and its officers, directors, employees, counsel and agents harmless as to
any loss, damage, expense, or liability incurred by it to any person, firm or
corporation by reason of its having accepted such appointment or in carrying out
the terms hereof and of Article VIII, and to reimburse the Escrow Agent for all
its costs and expenses, including, among other things, counsel fees and
expenses, reasonably incurred by reason of any matter as to which an indemnity
is paid; provided, however, that no indemnity need be paid in case of the Escrow
Agent's negligence, willful misconduct or bad faith. In no event shall the
Escrow Agent be liable for special, indirect or consequential loss or damages.
13. General.
-------
(a) Any notice given hereunder shall be in writing and shall be
deemed effective upon the earlier of personal delivery or the third day after
mailing by certified or registered mail, postage prepaid, or the first day after
delivery with a reputable overnight carrier for next day delivery, postage
prepaid, as follows:
To Parent:
Digital Island, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Mo, Esq.
with a copy to ▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
if to Company, to:
Sandpiper Networks, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
To the Escrow Agent:
State Street Bank and Trust Company
of California, N.A.
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any party may have furnished in writing to the other
parties in the manner provided above. Any notice addressed to the Escrow Agent
shall be effective only upon receipt. Notwithstanding the foregoing, notices
address to the Escrow Agent shall be effective only upon receipt. If any
Officer's Certificate, objection thereto or other notice or document of any kind
is required to be delivered to the Escrow Agent or any other Person, the Escrow
Agent may assume without inquiry that it has been received by such other person
if it has been received by the Escrow Agent.
(b) The Officer's Certificate as defined in Article VIII may be
signed by the President, Vice President or Chief Financial Officer of Parent.
(c) The captions in this Escrow Agreement are for convenience
only and shall not be considered a part of or affect the construction or
interpretation of any provision of this Escrow Agreement.
(d) This Escrow Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one agreement.
(e) No party may, without the prior express written consent of
each other party, assign this Escrow Agreement in whole or in part. This Escrow
Agreement shall be binding upon and inure to the benefit of the respective
successors and assigns of the parties hereto.
(f) This Escrow Agreement shall be governed by and construed in
accordance with the laws of the State of California as applied to contracts made
and to be performed entirely within the State of California, without regard to
conflict of law principles thereof. The parties to this Escrow Agreement hereby
agree to submit to personal jurisdiction in the State of California.
IN WITNESS WHEREOF, each of the parties has executed this Escrow
Agreement as of the date first above written.
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A. as Escrow Agent
By: _________________________________
Name: ▇▇▇▇ ▇'▇▇▇▇▇
Title: Vice President
DIGITAL ISLAND, INC.
By: _________________________________
Name:
Title:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
as Shareholders' Agent
By: _________________________________
Name:
SIGNATURE PAGE TO ESCROW AGREEMENT
Annex A
ARTICLE VIII
Annex B
SHAREHOLDERS
Annex C
FEE SCHEDULE
EXHIBIT F
---------
VOTING AGREEMENT
This Voting Agreement (this "Agreement") is made and entered into as
of October __, 1999 by and between Sandpiper Networks, Inc., a California
corporation ("Company"), and the undersigned stockholder ("Stockholder") of
Digital Island, Inc., a Delaware corporation ("Parent"). Capitalized terms used
but not otherwise defined herein shall have the meaning set forth in the
Reorganization Agreement (as defined below).
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Reorganization dated as
of October 24, 1999 by and among Parent, Beach Acquisition Corp., a California
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and Company
(such agreement as it may be amended is hereinafter referred to as the
"Reorganization Agreement"), Merger Sub will be merged with and into Company
(the "Merger"); the outstanding shares of capital stock of Company (the "Company
Capital Stock") will be converted into common stock of Parent (the "Parent
Shares") at the applicable exchange ratio set forth in the Reorganization
Agreement; and the Company will become a wholly owned subsidiary of Parent (the
"Transaction");
WHEREAS, it is a condition of Company's willingness to enter into the
Transaction that certain stockholders of Parent vote in favor of approval of the
issuance of the Parent Shares in the Transaction, upon the terms and conditions
set forth herein; and
WHEREAS, Stockholder is either the registered or beneficial owner of,
or holds or exercises, as an individual or in a representative capacity, through
any contract, arrangement, relationship or otherwise, voting power with respect
to, such number of shares of the outstanding common stock of Parent as is
indicated on the signature page of this Agreement (the "Shares");
NOW, THEREFORE, the parties agree as follows:
1. Share Ownership and Agreement to Retain Shares.
----------------------------------------------
1.1 Transfer and Encumbrance.
------------------------
(a) Stockholder represents and warrants to Company that: (i)
Stockholder is either the registered or beneficial owner of, or holds or
exercises, as an individual or in a representative capacity, through any
contract, arrangement, relationship or otherwise, voting power with respect to,
the Shares; (ii) the Shares constitute all of the shares of outstanding capital
stock and voting securities of Parent as to which Stockholder is either the
registered or beneficial owner, or as to which Stockholder holds or exercises,
as an individual or in a representative capacity, through any contract,
arrangement, relationship or otherwise, voting power; (iii) no other person or
entity not a signatory to this Agreement has a beneficial interest in or a right
to acquire the Shares or any portion of the Shares (except, with respect to
Shares held by partnerships or trusts, the partners of such partnerships and the
beneficiaries of such trusts,
and with respect to share held by corporations, such corporations); (iv) the
Shares are and will be at all times until the Expiration (as defined below) free
and clear of any liens, claims, options, charges or other encumbrances (except
with respect to federal or state securities laws); and (v) Stockholder's
principal residence or place of business is set forth on the signature page
hereto.
(b) Other than this Agreement, at all times prior to the
Expiration, Stockholder agrees not to (i) sell, transfer, pledge, assign or
otherwise dispose of or encumber (including by gift) (collectively, "Transfer"),
or consent to any Transfer of, any Shares or New Shares (as defined below) or
any interest therein or enter into any contract, option, or other arrangement
(including any profit sharing or other derivative arrangement) with respect to
any Shares or any New Shares or any interest therein with any person other than
pursuant to the Reorganization Agreement, unless prior to any such Transfer the
transferee of such Shares or New Shares enters into and is bound by a voting
agreement with Company on terms substantially identical to the terms of this
Agreement, or (ii) enter into any voting arrangement, whether by proxy, voting
agreement or otherwise, in connection with, directly or indirectly, any
amendment of the Parent's Certificate of Incorporation or Bylaws or other
proposal, action or transaction involving the Parent or any of its subsidiaries,
which amendment or other proposal, action or transaction would or could
reasonably be expected to prevent or materially impede , interfere with, hinder
or delay the consummation of the Merger or any of the other transactions
contemplated by the Reorganization Agreement or to dilute in any material
respect the benefits to Company of the Merger and the other transactions
contemplated by the Reorganization Agreement, or change in any manner the voting
rights of any class or shares of Parent Shares (collectively, "Frustrating
Transactions"). As used herein, the term "Expiration" shall mean the earlier to
occur of (x) the Effective Time or (y) the valid termination of the
Reorganization Agreement in accordance with its terms.
1.2 New Shares. Stockholder agrees that any shares of capital stock
----------
of Parent that Stockholder purchases or with respect to which Stockholder
otherwise acquires beneficial or record ownership or voting power after the date
of this Agreement and prior to the Expiration ("New Shares") shall be subject to
the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. Agreement to Vote Shares. Prior to the Expiration, Stockholder
------------------------
covenants and agrees as follows:
(a) At each meeting of the stockholders of the Parent called to
vote upon the issuance of Parent Shares in the Transaction, or at any
adjournment thereof, or in any other circumstances upon which a vote, consent or
other approval (including by written consent) with respect to the issuance of
the Parent Shares in the Transaction, is sought, such Stockholder shall vote (or
cause to be voted) such Stockholder's Shares or New Shares in favor of the
approval of the issuance of the Parent Shares in the Transaction and in favor of
any matter that could reasonably be expected to facilitate the Merger and the
other transactions contemplated by the Reorganization Agreement, and against any
proposal, plan or offer to acquire all or any substantial part of the business,
assets or capital stock of Parent, whether by merger or other business
combinations, purchase of stock or assets, tender offer or otherwise, or to
liquidate Parent or otherwise distribute to the Stockholders of Parent all or
any substantial part of the
2
business, assets or capital stock of the Company (each, an "Acquisition
Proposal") or transaction or occurrence which if publicly proposed and offered
to the Company and its Stockholders (or any of them) would be the subject of an
Acquisition Proposal, or Frustrating Transaction.
(b) Notwithstanding the foregoing, nothing in this Agreement
shall limit or restrict Stockholder from acting in his capacity as a director of
Parent, to the extent applicable, it being understood that this Agreement shall
apply to Stockholder solely in his capacity as Stockholder of Parent.
3. Irrevocable Proxy. Stockholder hereby agrees to timely deliver to
-----------------
Company a duly executed proxy in the form attached hereto as Annex A (the
"Proxy"), such Proxy to cover the Shares and New Shares in respect of which
Stockholder is entitled to vote at each meeting of the Stockholders of Parent
(including, without limitation, each written consent in lieu of a meeting). In
the event that Stockholder is unable to provide any such Proxy in a timely
manner, Stockholder hereby grants Company a power of attorney to execute and
deliver such Proxy for and on behalf of Stockholder, such power of attorney,
which being coupled with an interest, shall survive any death, disability,
bankruptcy, or any other such impediment of Stockholder. Upon the execution of
this Agreement by Stockholder, Stockholder hereby revokes any and all prior
proxies given by Stockholder with respect to the Shares and agrees not to grant
any subsequent proxies with respect to the Shares until after the Expiration.
4. Additional Covenants of Stockholder. Stockholder hereby represents,
-----------------------------------
warrants and covenants to Company as follows:
(a) Stockholder has full power and legal capacity to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby; this Agreement has been duly and validly
executed and delivered by Stockholder and constitutes the valid and binding
obligation of Stockholder, enforceable against Stockholder in accordance with
its terms. Except as may be limited by (i) the effect of bankruptcy, insolvency,
conservatorship, arrangement, moratorium or other laws affecting or relating to
the rights of creditors generally, or (ii) the availability of specific
performance, injunctive relief or other equitable remedies and general
principles of equity, regardless of whether considered in a proceeding in equity
or at law, the execution and delivery of this Agreement by Stockholder does not,
and the performance of Stockholder's obligations hereunder will not, result in
any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any right to
terminate, amend, accelerate or cancel any right or obligation under, or result
in the creation of any lien or encumbrance on any Shares or New Shares pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Stockholder is a
party or by which Stockholder or the Shares or New Shares are or will be bound
or affected.
(b) Stockholder undertakes and agrees to indemnify and hold
harmless Parent, Company, and each of their respective current and future
officers and directors (an "Indemnified Person") within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), from and against any
and all claims, demands, actions, causes of action, losses, costs, damages,
liabilities and expenses ("Claims") based upon, arising out of or resulting from
3
any breach or nonfulfillment of any undertaking, covenant or agreement made
herein by Stockholder, or caused by or attributable to Stockholder, or
Stockholder's agents or employees, or representatives, brokers, dealers and/or
underwriters insofar as they are acting on behalf of and in accordance with the
instruction of or with the knowledge of Stockholder, in connection with or
relating to any offer, sale, pledge, transfer or other disposition or
encumbrance of any of the Parent Shares by or on behalf of Stockholder, which
claim or claims result from any breach or nonfulfillment as set forth above. The
indemnification set forth herein shall be in addition to any liability that
Stockholder may otherwise have to the Indemnified Persons. Promptly after
receiving definitive notice of any Claim in respect of which an Indemnified
Person may seek indemnification under this Agreement, such Indemnified Person
shall submit notice thereof to Stockholder. The omission by the Indemnified
Person so to notify Stockholder of any such Claim shall not relieve Stockholder
from any liability Stockholder may have hereunder except to the extent that (i)
such liability was caused or increased by such omission, or (ii) the ability of
Stockholder to reduce or defend against such liability was adversely affected by
such omission. The omission of the Indemnified Person so to notify Stockholder
of any such Claim shall not relieve Stockholder from any liability Stockholder
may have otherwise than hereunder. The Indemnified Persons and Stockholder shall
cooperate with and assist one another in the defense of any Claim and any
action, suit or proceeding arising in connection therewith.
(c) Stockholder shall take, or cause to be taken, all other
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all other things, reasonably necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by the
Reorganization Agreement.
(d) Until the Expiration, Stockholder shall not, and shall not
authorize or permit any of its subsidiaries or affiliates (other than the
Company), officers, directors and employees and any investment banker, attorney,
accountant or other agent retained by Stockholder or them to, issue any press
release or make any other public statement with respect to the Reorganization
Agreement, this Agreement, the Merger or any of the other transactions
contemplated by the Reorganization Agreement or this Agreement without the prior
written consent of Parent, except as may be required by applicable law.
(e) Stockholder shall execute and deliver to Parent the Market
Standoff Letter Agreement, substantially in the form attached hereto as Annex B.
-------
5. Enforcement of Transfer Restrictions. Stockholder understands and
------------------------------------
agrees that (i) Parent shall be entitled to affix an appropriate legend to any
certificate representing Shares or New Shares reflecting the restrictions set
forth in this Agreement; and (ii) if Stockholder attempts to transfer, vote or
provide any other person with the authority to vote any of the Shares other than
in compliance with this Agreement, Parent shall not, and Stockholder hereby
irrevocably instructs Parent not to, permit any such transfer on its books and
records, issue a new certificate representing any of the Shares or New Shares or
record such vote unless and until Stockholder shall have complied with the terms
of this Agreement.
4
6. Additional Documents. Stockholder hereby covenants and agrees to
--------------------
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Company, to carry out the purpose and intent of this
Agreement.
7. Consent and Waiver. Stockholder hereby gives any consents or waivers
------------------
that are reasonably required for the consummation of the Transaction under the
terms of any agreement to which Stockholder is a party or pursuant to any rights
Stockholder may have.
8. Termination. Sections 1, 2, and 3 hereof and the Proxy delivered in
-----------
connection herewith shall terminate and shall have no further force or effect as
of the Expiration.
9. Miscellaneous.
-------------
9.1 Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
-----------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by any of
the parties without the prior written consent of the others. This Agreement is
intended to bind Stockholder as a Stockholder of Parent only with respect to the
specific matters set forth herein.
9.3 Amendment and Modification. This Agreement may not be modified,
--------------------------
amended, altered or supplemented except by the execution and delivery of a
written agreement executed by the parties hereto.
9.4 Specific Performance; Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that Company will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Company upon any such violation, Company
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Company at law
or in equity and Stockholder hereby waives any and all defenses which could
exist in its favor in connection with such enforcement and waives any
requirement for the security or posting of any bond in connection with such
enforcement.
9.5 Notices. All notices, requests, demands or other communications
-------
that are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed to have been duly given if delivered by hand
or mailed by registered or certified mail, postage prepaid, or delivered to a
reputable overnight courier for overnight delivery, postage prepaid, as follows:
(a) If to Stockholder, at the address set forth below
Stockholder's signature at the end hereof.
5
(b) if to Parent, to:
Digital Island, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Mo, Esq.
with a copy to ▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to Company, to:
Sandpiper Networks, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any party hereto or any Indemnified Person may
designate for itself by notice given as herein provided.
9.6 Governing Law. This Agreement shall be governed by, construed and
-------------
enforced in accordance with the internal laws of the State of California,
without regard to the conflicts of laws principle thereof.
6
9.7 Entire Agreement. This Agreement and the Proxy contain the
----------------
entire understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
9.8 Effect of Headings. The section headings herein are for
------------------
convenience only and shall not affect the construction or interpretation
of this Agreement.
9.9 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
7
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
SANDPIPER NETWORKS, INC. STOCKHOLDER
By:________________________________ By:________________________________
Name:______________________________ (Signature)
Title:_____________________________
___________________________________
(Signature of Spouse)
___________________________________
(Social Security / Tax I.D. No.)
___________________________________
(Print Name of Stockholder)
___________________________________
(Print ▇▇▇▇▇▇ ▇▇▇▇▇▇▇)
___________________________________
(Print City, State and Zip)
___________________________________
(Print Telephone Number)
___________________________________
(Social Security or Tax I.D. Number)
Total Number of Shares:
Common Stock:______________________
State of Residence:________________
SIGNATURE PAGE TO VOTING AGREEMENT
ANNEX A
-------
IRREVOCABLE PROXY
TO VOTE STOCK OF
DIGITAL ISLAND, INC.
The undersigned stockholder of Digital Island, Inc., a Delaware
corporation ("Parent"), hereby irrevocably (to the full extent permitted by the
Delaware General Corporation Law) appoints the members of the Board of Directors
of Sandpiper Networks, Inc., a California corporation ("Company"), and each of
them, or any other designee of Company, as the sole and exclusive attorneys and
proxies of the undersigned, with full power of substitution and resubstitution,
to vote and exercise all voting and related rights (to the full extent that the
undersigned is entitled to do so) with respect to all of the shares of capital
stock of Parent that now are or hereafter may be beneficially owned by the
undersigned or as to which, the undersigned holds or exercises, as an individual
or in a representative capacity, through any contract, arrangement, relationship
or otherwise, voting power, and any and all other shares or securities of Parent
issued or issuable in respect thereof on or after the date hereof (collectively,
the "Shares") in accordance with the terms of this Irrevocable Proxy. The Shares
beneficially owned by the undersigned or as to which the undersigned holds or
exercises voting power as of the date of this Irrevocable Proxy are listed on
the final page of this Irrevocable Proxy. Upon the undersigned's execution of
this Irrevocable Proxy, any and all prior proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to grant
any subsequent proxies with respect to the Shares until after the Expiration (as
defined below).
This Irrevocable Proxy is irrevocable (to the extent provided in the
Delaware General Corporation Law), is coupled with an interest, including, but
not limited to, that certain Voting Agreement dated as of even date herewith by
and among Company, and the undersigned (the "Stockholder Agreement"), and is
granted in consideration of Company entering into that certain Agreement and
Plan of Reorganization (the "Reorganization Agreement") by and among Parent,
Beach Acquisition Corp., a California corporation and a wholly owned subsidiary
of Parent ("Merger Sub"), and Company, which Reorganization Agreement provides
for the merger of Merger Sub with and into Company, the conversion of
outstanding shares of Company capital stock into the right to receive Parent
Common Stock (in accordance with the applicable exchange ratio), and for Company
to become a wholly owned subsidiary of Parent (the "Merger"). As used herein,
the term "Expiration" shall mean the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the terms and provisions
of the Reorganization Agreement, and (ii) the date of termination of the
Reorganization Agreement.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration, to act as the undersigned's attorney and proxy to vote the Shares,
and to exercise all voting and other rights of
the undersigned with respect to the Shares, at every annual, special or
adjourned meeting of the stockholders of Parent in favor of approval of the
issuance of the Parent Shares in the Transaction and in favor of any matter that
could reasonably be expected to facilitate the Merger and the other transactions
contemplated by the Reorganization Agreement, and against any proposal, plan or
offer to acquire all or any substantial part of the business, assets or capital
stock of Parent, whether by merger or other business combinations, purchase of
stock or assets, tender offer or otherwise, or to liquidate Parent or otherwise
distribute to the Stockholders of Parent all or any substantial part of the
business, assets or capital stock of the Company (each, an "Acquisition
Proposal") or transaction or occurrence which if publicly proposed and offered
to the Parent and its Stockholders (or any of them) would be the subject of an
Acquisition Proposal, or any amendment of the Parent's Certificate of
Incorporation or Bylaws or other proposal, action or transaction involving the
Parent or any of its subsidiaries, which amendment or other proposal, action or
transaction would or could reasonably be expected to prevent or materially
impede, interfere with, hinder or delay the consummation of the Merger or any of
the other transactions contemplated by the Reorganization Agreement or to dilute
in any material respect the benefits to Company of the Merger and the other
transactions contemplated by the Reorganization Agreement, or change in any
manner the voting rights of any class or shares of Parent Shares.
The attorneys and proxies named above may not exercise this
Irrevocable Proxy on any other matter except as provided above. The undersigned
stockholder may vote the Shares on all other matters.
All authority herein conferred shall survive the death or incapacity
of the undersigned and any obligation of the undersigned hereunder shall be
binding upon the heirs, personal representatives, successors and assigns of the
undersigned.
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: ___________________________
_________________________________
(Signature of Stockholder)
_________________________________
(Print Name of Stockholder)
_________________________________
Shares beneficially owned:
________ shares of Company Common
Stock
ANNEX B
-------
Market Standoff Letter Agreement
--------------------------------
DIGITAL ISLAND, INC.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Proposed Merger of Digital Island, Inc. and Sandpiper Networks,
---------------------------------------------------------------
Inc.
----
Ladies and Gentlemen:
The undersigned understands that Sandpiper Networks, Inc., a
California corporation ("Company") and Digital Island, Inc., a Delaware
corporation ("Parent") have entered into an Agreement and Plan of
Reorganization, dated as of October 24, 1999 (the "Reorganization Agreement"),
pursuant to which Beach Acquisition Corp., a California corporation and a wholly
owned subsidiary of Parent, will be merged with and into Company (the "Merger").
Capitalized terms not otherwise defined herein shall have the same meaning given
to them in the Reorganization Agreement.
In recognition of the benefit that the Merger will confer upon the
undersigned as a securityholder, officer and/or director of Company and/or of
Parent, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with
Parent, that, from the Effective Time until the earliest to occur of (a) the
sale by Parent of shares of its common stock ("Parent Common Stock") for its own
account in a bona fide, firm commitment underwritten public offering pursuant to
a registration statement under the Securities Act of 1933, as amended, (b) July
15, 2000, (c) the effective date of a merger of Parent with or into another
corporation in which fifty (50%) or more of the voting power of Parent is
disposed of, or the sale of all or substantially all of the assets of Parent; or
(d) such other date, and with such limitations, as may be approved by unanimous
vote of the Board of Directors of Parent, the undersigned will not directly or
indirectly (i) issue, offer to sell, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of Parent Common Stock or any securities convertible into or
exchangeable or exercisable for Parent Common Stock, whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Parent
Common Stock or any securities convertible into or exchangeable for the Parent
Common Stock, whether any such swap transaction is to be settled by delivery of
Parent Common Stock or other securities, in cash or otherwise.
The foregoing paragraph shall not apply to (a) transactions by any
person relating to shares of Parent Common Stock or other securities acquired in
open market transactions after the Effective Time or (b) transfers of Parent
Common Stock or any securities convertible into or
exercisable or exchangeable for Parent Common Stock to a member of the
undersigned's immediate family or to a trust of which the undersigned or an
immediate family member is the beneficiary (either one a "Transferee") provided
that upon any such transfer, the Transferee shall sign a letter substantially
similar to this letter agreement.
The undersigned agrees and consents to the entry of stop transfer
instructions with Parent's transfer agent against the transfer of shares of
Parent Common Stock held by the undersigned unless such transfer is made in
compliance with this Agreement. The undersigned understands and agrees that
Parent shall be entitled to affix an appropriate legend to any certificate
representing shares of Parent Common Stock reflecting the restrictions set forth
in this Agreement.
This Agreement is irrevocable and may only be amended in writing if
agreed to by the unanimous vote of the Board of Directors of Parent.
The undersigned agrees that the provisions of this letter agreement
shall be binding also upon the successors, assigns, heirs and personal
representatives of the undersigned.
Very truly yours,
Date: __________________________
______________________________________
(Name of Entity or Individual - Please
Print)
______________________________________
(Signature)
______________________________________
(Name of Person signing on behalf of
Entity, if applicable - Please Print)
______________________________________
(Title of Person signing on behalf of
Entity, if applicable - Please Print)
On behalf of:
SIGNATURE PAGE TO MARKET STANDOFF LETTER AGREEMENT
EXHIBIT G
---------
FORM OF COMPANY LEGAL OPINION
__________, ______
Ladies and Gentlemen:
We have acted as counsel for Sandpiper Networks, Inc., a California
corporation ("Company"), in connection with the merger (the "Merger") of Beach
Acquisition Corp., a California corporation ("Merger Sub") and a wholly owned
subsidiary of Digital Island, Inc., a Delaware corporation ("Parent"), with and
into Company pursuant to the Agreement and Plan of Reorganization dated as of
October 24, 1999 (the "Reorganization Agreement"), among Parent, Merger Sub and
Company. This opinion is rendered to you pursuant to Section 6.3(e) of the
Reorganization Agreement. Capitalized terms used herein and not otherwise
defined shall have the same meaning given to such terms in the Reorganization
Agreement.
[COMPANY COUNSEL TO PROVIDE STANDARD QUALIFICATION LANGUAGE]
We are of the opinion that:
1. Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of California, and has the
corporate power and authority to own, operate and lease its properties and carry
on its business as now conducted.
2. The authorized capital stock of Company consists of 40,000,000
shares of Common Stock, par value $.001 per share, of which [____________]
shares of Common Stock are issued and outstanding, and 13,697,640 shares of
Preferred Stock , per value $.001 per share, of which 9,885,981 shares have been
designated Series A Preferred Stock, all of which are issued and outstanding,
and 3,811,659 shares have been designated Series B Preferred Stock, all of which
are issued and outstanding, all of which have been duly authorized and are
validly issued, fully paid and nonassessable. On the date hereof, [___________]
shares of Common Stock are subject to issuance upon exercise of outstanding
options, and [________] shares of Common Stock are subject to issuance upon
exercise of outstanding warrants.
3. The Reorganization Agreement and the Escrow Agreement have been
approved and adopted by the Board of Directors and the shareholders of Company;
Company has full corporate power and authority to execute, deliver, and perform
its obligations under the Reorganization Agreement and the Escrow Agreement;
Company has taken all requisite
corporate action to approve and adopt the Reorganization Agreement and the
Escrow Agreement and to approve and to authorize the carrying out of the
transactions contemplated thereunder; and each of the Reorganization Agreement
and the Escrow Agreement has been duly executed and delivered by Company and
constitute legal, valid and binding obligations of Company enforceable against
Company in accordance with the terms thereof, except as such enforcement may be
limited by (i) bankruptcy, insolvency, receivership or other similar laws
affecting the rights of creditors generally, or (ii) general principles of
equity, regardless of whether considered in a proceeding in law or equity.
4. The execution and delivery of the Reorganization Agreement and
the Escrow Agreement by Company, the performance by Company of its obligations
thereunder and the consummation of the transactions contemplated by the
Reorganization Agreement and the Escrow Agreement did not and will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit, or result in any other
consequence, under (i) any provision of the certificate or articles of
incorporation or bylaws or other charter or organizational documents, each as
amended, of Company or any of its subsidiaries or (ii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Company or any of its subsidiaries or any of their respective
properties or assets, except in the case of clause (i) for any conflicts,
violations, defaults or other occurrences that would not (A) individually or in
the aggregate have a Material Adverse Effect on Company or any of its
subsidiaries or (B) prevent or materially impair or delay the consummation of
the Merger or the other transactions contemplated by the Reorganization
Agreement.
5. Except as set forth in the Company Disclosure Schedule, there is
no consent, approval, authorization, order, registration, qualification or
filing of or with any court or any regulatory authority or other Governmental
Entity (either foreign or domestic) required by or with respect to Company in
connection with the execution and delivery by Company of the Reorganization
Agreement or the Escrow Agreement, the performance of Company's obligations
thereunder or the consummation of the transactions contemplated thereby, that
has not been obtained, except for (i) such consents, approvals, authorizations,
registration or qualifications as may be required under state securities or Blue
Sky laws in connection with the offer and sale of Parent Common Stock pursuant
to the Merger; (ii) the filing of the Agreement of Merger with the Secretary of
State of the State of California; (iii) such filings as may be required under
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvement Act of 1976, as amended; and (iv)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on Parent or
its stockholders. Such opinion, however, shall be subject to the timely and
proper completion of all filings and other actions contemplated above in this
paragraph 5 where such filings and actions are to be undertaken on or after the
date hereof.
6. To our knowledge, no suit, action or legal, administrative,
arbitration or other proceeding or governmental investigation is pending or
threatened to which Company or any of its assets or properties is a party which
has had or could reasonably be expected to have a material adverse effect on the
execution and delivery by Company of the Reorganization
2
Agreement or the Escrow Agreement, or the ability of Company to perform its
obligations thereunder or to consummate the transactions contemplated thereby.
This opinion relates solely to the laws of the State of California,
and applicable Federal laws of the United States, and we express no opinion with
respect to the effect or applicability of the laws of other jurisdictions.
The opinions expressed herein are solely for your benefit in
connection with the above transactions and may not be relied upon in any manner
or for any purpose by any other person.
Sincerely,
3
EXHIBIT H
---------
FORM OF PARENT LEGAL OPINION
__________, ______
Ladies and Gentlemen:
We have acted as counsel for Digital Island, Inc., a Delaware
corporation ("Parent"), in connection with the merger (the "Merger") of Beach
Acquisition Corp., a California corporation ("Merger Sub") and a wholly owned
subsidiary of Digital Island, with and into Sandpiper Networks, Inc., a
California corporation ("Company") pursuant to the Agreement and Plan of
Reorganization dated as of October 24, 1999 (the "Reorganization Agreement"),
among Parent, Merger Sub and Company. This opinion is rendered to you pursuant
to Section 6.2 of the Reorganization Agreement. Capitalized terms used herein
and not otherwise defined shall have the same meaning given to such terms in the
Reorganization Agreement.
[PARENT COUNSEL TO PROVIDE STANDARD QUALIFICATION LANGUAGE]
We are of the opinion that:
1. Parent is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has the corporate
power and authority to own, operate and lease its properties and to carry on its
business as now conducted.
2. Parent has full corporate power and authority to execute,
deliver, and perform its obligations under the Reorganization Agreement and the
Escrow Agreement; Parent has taken all requisite corporate action (including
approval of its Board of Directors) to approve and adopt the Reorganization
Agreement and the Escrow Agreement and to approve and to authorize the carrying
out of the transactions contemplated thereunder; and each of the Reorganization
Agreement and the Escrow Agreement has been duly executed and delivered by
Parent and constitute legal, valid and binding obligations of Parent enforceable
in accordance with the terms thereof; except as such enforcement may be limited
by (i) bankruptcy, insolvency, receivership or other similar laws affecting the
rights of creditors generally, or (ii) general principles of equity, regardless
of whether considered in a proceeding in law or equity.
3. The shares of Parent Common Stock to be delivered in exchange for
shares of Company Common Stock are duly authorized and will, when issued as
contemplated by the Reorganization Agreement, be validly issued, fully paid and
non-assessable; a sufficient
number of shares of Parent Common Stock have been duly authorized and validly
reserved for issuance upon exercise of Company Options being assumed by Parent
pursuant to the Reorganization Agreement, and such reserved shares, when issued
in accordance with the terms of such options, will be validly issued, fully paid
and nonassessable.
4. The execution, delivery and performance of the Reorganization
Agreement and the Escrow Agreement by Parent and the carrying out of the
transactions contemplated by the Reorganization Agreement and the Escrow
Agreement to be carried out by Parent did not and will not conflict with or
constitute a violation under the charter documents of Parent.
5. To our knowledge, no suit, action or legal, administrative,
arbitration or other proceeding or governmental investigation is pending or
threatened to which Parent or any of its assets or properties is a party which
has had or could reasonably be expected to have a material adverse effect on the
execution and delivery by Parent of the Reorganization Agreement, or the ability
of Parent to perform its obligations thereunder or to consummate the
transactions contemplated thereby.
6. Except as set forth in the Parent Disclosure Schedule, there is
no consent, approval, authorization, order, registration, qualification or
filing of or with any court or any regulatory authority or other governmental
body (either foreign or domestic) required by Parent or with respect to its
assets or properties or otherwise for the consummation of the transactions
contemplated by the Reorganization Agreement and the Agreement of Merger that
has not been obtained, except for (i) such consents, approvals, authorizations,
registration or qualifications as may be required under state securities or Blue
Sky laws in connection with the offer and sale of Parent Common Stock pursuant
to the Merger, (ii) acceptance for filing of the Agreement of Merger together
with any appropriate tax clearance certificate by the California Secretary of
State, (iii) such filings as may be required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvement Act of 1976, as amended, and (iv) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Company or its shareholders.
Such opinion, however, shall be subject to the timely and proper completion of
all filings and other actions contemplated above in this paragraph 6 where such
filings and actions are to be undertaken on or after the date hereof.
This opinion relates solely to the laws of the State of California,
and applicable Federal laws of the United States, and we express no opinion with
respect to the effect or applicability of the laws of other jurisdictions.
The opinions expressed herein are solely for your benefit in
connection with the above transactions and may not be relied upon in any manner
or for any purpose by any other person.
Sincerely,
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