ASSET PURCHASE AGREEMENT
By and Among
PALM, INC.,
ECA SUBSIDIARY ACQUISITION CORPORATION
and
BE INCORPORATED
August 16, 2001
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS.........................................................2
1.1 Capitalized Terms...........................................2
1.2 Construction................................................8
ARTICLE 2 PURCHASE AND SALE...................................................8
2.1 Purchase and Sale of Assets.................................8
2.2 Excluded Assets.............................................9
2.3 Delivery of Acquired Assets.................................9
2.4 Assignments.................................................9
2.5 Transfer of Product Software Copyrights....................10
2.6 Transfer of Patent Rights..................................10
2.7 Transfer of Trademarks.....................................10
2.8 Transferred Contracts......................................10
2.9 Assumed Liabilities........................................10
2.10 Excluded Liabilities.......................................10
ARTICLE 3 CLOSING AND CONSIDERATION..........................................11
3.1 Closing....................................................11
3.2 Stock Consideration........................................11
3.3 Allocation of Consideration................................11
3.4 Transfer Taxes.............................................12
ARTICLE 4 LICENSE TO BUYER...................................................12
4.1 License of Licensed Intellectual Property..................12
4.2 Bankruptcy.................................................13
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLER...........................13
5.1 Organization of Seller.....................................13
5.2 Authority..................................................13
5.3 No Conflict................................................14
5.4 SEC Filings; Seller Financial Statements...................14
5.5 Transferred Contracts......................................15
5.6 Consents...................................................15
5.7 Support and Service Contracts..............................15
5.8 No Liquidation, Insolvency, WindingUp......................15
5.9 Restrictions on Business Activities........................16
5.10 Title to Properties; Absence of Liens and Encumbrances.....17
5.11 Intellectual Property......................................17
5.12 Litigation.................................................19
5.13 Brokers' or Finders' Fees..................................19
5.14 Tax Matters................................................19
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5.15 Power of Attorney..........................................20
5.16 Compliance with Laws.......................................20
5.17 Product Warranties.........................................20
5.18 Employee Matters...........................................21
5.19 International Employee Plan................................22
5.20 Business Changes...........................................22
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER.................23
6.1 Organization, Good Standing and Qualification..............23
6.2 Authority..................................................23
6.3 No Conflict................................................23
6.4 SEC Filings................................................24
6.5 Consents...................................................24
6.6 Brokers' and Finders' Fees.................................24
ARTICLE 7 COVENANTS AND AGREEMENTS...........................................24
7.1 Access.....................................................24
7.2 PreClosing Activities of Seller............................24
7.3 Conduct Prior to Closing...................................25
7.4 Confidentiality............................................26
7.5 Use of Confidential Information............................26
7.6 Seller Intellectual Property Covenants.....................27
7.7 Covenant Not to Compete or Solicit.........................27
7.8 No Solicitation............................................28
7.9 Notification of Certain Matters............................30
7.10 New Employment Arrangements................................31
7.11 Public Disclosure..........................................31
7.12 Consents...................................................31
7.13 COBRA Continuation Coverage................................31
7.14 Prepaid Service Payment Update.............................32
7.15 Exemption from Registration or Registration Statement......32
7.16 Proxy Statement............................................34
7.17 Meeting of Seller's Stockholders...........................36
7.18 Reasonable Efforts.........................................37
7.19 Change of Control Agreements...............................38
7.20 Post Closing Tax Covenants.................................38
7.21 Employee Withholding.......................................39
7.22 Termination of Compaq Agreement............................39
7.23 Additional Documents and Further Assurances................39
7.24 Disclosure by Seller.......................................40
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7.25 Disclosure by Buyer or Parent..............................40
7.26 Sublicensing Requirements..................................40
7.27 Supplemental Transferred Contracts.........................41
ARTICLE 8 CONDITIONS TO THE CLOSING..........................................41
8.1 Conditions to Obligations of Each Party....................41
8.2 Additional Conditions to the Obligations
of Parent and Buyer.......................................42
8.3 Additional Conditions to Obligations of Seller.............43
ARTICLE 9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION........44
9.1 Survival of Representations, Warranties and Covenants......44
9.2 Indemnification............................................45
9.3 Indemnification Procedure..................................45
9.4 Resolution of Conflicts; Arbitration.......................45
9.5 ThirdParty Claims..........................................46
9.6 Maximum Payments; Remedy...................................46
9.7 Liability of Parent and Buyer..............................47
ARTICLE 10 TERMINATION, AMENDMENT AND WAIVER.................................48
10.1 Termination................................................48
10.2 Notice of Termination......................................50
10.3 Effect of Termination......................................50
10.4 Amendment..................................................50
10.5 Extension; Waiver..........................................50
ARTICLE 11 GENERAL...........................................................50
11.1 Notices....................................................50
11.2 Entire Agreement; Assignment...............................52
11.3 Severability...............................................52
11.4 Other Remedies.............................................52
11.5 GOVERNING LAW..............................................52
11.6 Jurisdiction and Venue.....................................52
11.7 Rules of Construction......................................52
11.8 WAIVER OF JURY TRIAL.......................................52
11.9 Fees and Expenses..........................................53
11.10 Counterparts...............................................53
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EXHIBITS
Exhibit A..............................Form of NonCompetition Agreement
Exhibit B.........................Form of Stockholder Support Agreement
Exhibit C....................................Form of General Assignment
Exhibit D......................................Form of Solvency Opinion
SCHEDULES
Schedule 1.1(o) Designated Employees
Schedule 1.1(x) Excluded Contracts
Schedule 1.1(hh) Key Employees
Schedule 1.1(tt) Products
Schedule 1.1(bbb) Tangible Assets
Schedule 1.1(eee) Transferred Contracts
Schedule 1.1(ggg) Transferred Technology
Schedule 1.1(hhh) Transferred Trademarks
Schedule 2.2 Excluded Assets
Schedule 8.2(d) Required Key Employees under Section 8.2(d)
Schedule 8.2(e) Key Employees Signing NonCompetition Agreement
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), is made and entered into
as of August 16, 2001, by and among Palm, Inc., a Delaware corporation
("Parent"), ECA Subsidiary Acquisition Corporation, a Delaware corporation and
an indirect wholly owned Subsidiary of Parent ( "Buyer"), and Be Incorporated, a
Delaware corporation ("Seller").
RECITALS
A. Parent and Buyer desire to cause Buyer to purchase from Seller, and
Seller desires to sell to Buyer, substantially all of the assets relating to,
required for, used in or otherwise constituting the Products (as defined
herein), in exchange for shares of common stock of Parent, the assumption of
certain liabilities relating to the Products and the other consideration set
forth below.
B. Concurrently with the execution and delivery of this Agreement, as a
material inducement to Parent and Buyer to enter this Agreement, selected Key
Employees (as defined below) of Seller are entering into noncompetition
agreements, substantially in the form attached hereto as Exhibit A (the
"NonCompetition Agreements"), with Parent, each of which shall become effective
as of the Closing Date (as defined below).
C. Concurrently with the execution and delivery of this Agreement, as a
material inducement to Parent and Buyer to enter into this Agreement, certain
stockholders of Seller are executing and delivering stockholder support
agreements, substantially in the form attached hereto as Exhibit B (the "Support
Agreements"), to Buyer.
D. It is contemplated that, subject to approval by Seller's stockholders,
as soon as reasonably practicable following the Closing (as defined below)
Seller shall wind up its business operations in accordance with applicable law.
NOW, THEREFORE, in consideration of the covenants, representations,
warranties and mutual agreements set forth herein, and for other good and
valuable consideration, intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Capitalized Terms. The following capitalized terms shall have the
meanings set forth below:
(a) "Acquired Assets" shall have the meaning set forth in Section 2.1.
(b) "Adjustment Amount" means the aggregate amount of all Prepaid Service
Payments (as defined in Section 5.7) reflected on the Prepaid Service Payment
Update as of the Closing Date.
(c) "Agreement" means this Asset Purchase Agreement together with all
exhibits and schedules hereto.
(d) "Allocation" shall have the meaning set forth in Section 3.3.
(e) "Assumed Liabilities" shall have the meaning set forth in Section 2.9.
(f) "Benefits Liabilities" means any and all claims, debts, liabilities,
commitments and obligations, whether fixed, contingent or absolute, matured or
unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown,
whenever or however arising, including all costs and expenses relating thereto
arising under law, rule, regulation, permits, action or proceeding before any
Governmental Entity, order or consent decree or any award of any arbitrator of
any kind relating to any Employee Plan, Employment Agreement, International
Employee Plan or otherwise to an Employee.
(g) "Books and Records" means all papers and records (in paper or
electronic format) in the care, custody, or control of Seller or any of its
Subsidiaries relating to the Acquired Assets including, without limitation, all
purchasing and sales records, customer and vendor lists, accounting and
financial records, product documentation, product specifications, marketing
requirement documents and software release orders.
(h) "Closing" shall have the meaning set forth in Section 3.1.
(i) "Closing Date" shall have the meaning set forth in Section 3.1.
(j) "Collateral Agreements" shall have the meaning set forth in Section
2.4.
(k) "Code" means the Internal Revenue Code of 1986, as amended.
(l) "Continuing Employees" shall have the meaning set forth in Section
7.10.
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(m) "Contract" means any mortgage, indenture, lease, contract, covenant or
other agreement, instrument or commitment, permit, concession, franchise or
license.
(n) "Derivative Work" has the meaning ascribed to it under the United
States Copyright Law, Title 17 U.S.C. Sec. 101 et. seq., as the same may be
amended from time to time.
(o) "Designated Employees" means those employees of Seller listed on
Schedule 1.1(o) hereto.
(p) "DOL" shall mean the Department of Labor.
(q) "Effectively Transferred Contract" means a Transferred Contract as to
which no consent to assignment is required or as to which a consent to
assignment is required and has been obtained prior to the Closing.
(r) "Eligible Contracts" means (i) the Internet Appliance OEM License and
Distribution Agreement between Be Incorporated and Sony Electronics Inc. dated
March 13, 2001 (the "Sony Agreement"), (ii) all Contracts of Seller that contain
license grants to Seller that are not Transferred Contracts on the date of this
Agreement and (iii) all nondisclosure agreements, confidentiality agreements or
similar Contracts of Seller.
(s) "Employee" shall mean any current or former or retired employee,
consultant or director of Seller or any Subsidiary of Seller in his or her
capacity as such.
(t) "Employee Plan" means any plan, program, policy, practice, contract,
agreement or other material arrangement providing for compensation, severance,
termination pay, deferred compensation, performance awards, stock or
stockrelated awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written, unwritten or otherwise, funded or unfunded,
including, without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA, which is or has been maintained, contributed to, or
required to be contributed to, by Seller for the benefit of any Designated
Employee, or with respect to which Seller has or may have any liability or
obligation to any Designated Employee.
(u) "Employment Agreement" means each management, employment, severance,
consulting, relocation, repatriation, expatriation, visas, work permit or other
agreement, contract or understanding between Seller or any Subsidiary of Seller
and any Designated Employee.
(v) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(w) "Excluded Assets" shall have the meaning set forth in Section 2.2.
(x) "Excluded Contracts" shall mean the Contracts listed on Schedule
1.1(x).
(y) "Excluded Liabilities" shall have the meaning set forth in Section
2.10.
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(z) "GAAP" means United States generally accepted accounting principles, as
of the date hereof.
(aa) "General Assignment" shall have the meaning set forth in Section 2.4.
(bb) "Governmental Entity" means any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission.
(cc) "Indemnified Parties" shall have the meaning set forth in Section 9.2.
(dd) "Intellectual Property Rights" means any or all of the following and
all statutory or common law rights throughout the world in, arising out of, or
associated with: (i) all patents and applications (including provisional
applications) therefor and all reissues, divisions, renewals, extensions,
continuations and continuationsinpart thereof (collectively, "Patents"); (ii)
all trade secrets that (A) derive independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use, and (B) are the subject of efforts that are
reasonable under the circumstances to maintain its secrecy, and all other
inventions (whether patentable or not, but which are not the subject of issued
or published Patents), proprietary information, and know how (collectively,
"Trade Secrets"); (iii) all works of authorship, copyrights, mask works,
copyright and mask work registrations and applications (collectively,
"Copyrights"); (iv) all trade names, trademarks and service marks and all
trademark and service ▇▇▇▇ registrations and applications (collectively,
"Trademarks"); (v) all rights in and to databases and data collections
(including knowledge databases, customer lists and customer databases); and (vi)
any similar, corresponding or equivalent rights to any of the foregoing types of
intellectual property.
(ee) "International Employee Plan" means each Employee Plan that has been
adopted or maintained by Seller or any ERISA Affiliate, whether informally or
formally, or with respect to which Seller or any ERISA Affiliate will or may
have any liability, for the benefit of Employees who perform services outside
the United States.
(ff) "IRS" shall mean the Internal Revenue Service.
(gg) "Kernel" means the level of an operating system that contains system
level services, including thread and team management, virtual and protected
memory management, thread scheduling, interprocess communication (including
semaphores, ports and thread messages), input/output management and node
abstraction layer, kernel module management, ELF executable binary loader,
device driver management, power management and CPUdependent layer. It also
includes builtin components that could otherwise be loaded, including
platformdependent modules, generic virtual drivers (null and zero drivers),
generic virtual filesystems (root, pipe and device file systems) and the kernel
debugger module.
(hh) "Key Employee" shall have the meaning set forth in Schedule 1.1(hh).
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(ii) "Licensed Intellectual Property" means all Intellectual Property
Rights that, immediately after the sale and assignment of the Transferred
Intellectual Property Rights and other Acquired Assets from Seller to Buyer
occurs, Seller or any of its Subsidiaries has the right to license to the extent
provided in Section 4.1, without breaching any Contract, without infringing any
other Person's Intellectual Property Rights, and without payment of any royalty,
fee or other amount as a result of such license to Buyer (unless Buyer assumes
the obligation to pay such royalty, fee or other amount).
(jj) "Lien" means, with respect to any asset or right, any mortgage, lien,
pledge, charge, security interest, claim, equity encumbrance, restriction on
transfer, conditional sale or other title retention device or arrangement
(including, without limitation, a capital lease), transfer for the purpose of
subjection to the payment of any indebtedness, restriction on the creation of
any of the foregoing, or encumbrance of any kind whatsoever; provided, however,
that the term "Lien" shall not include: (i) statutory liens for Taxes that are
not yet due and payable or are being contested in good faith by appropriate
proceedings and are disclosed in the Seller Disclosure Schedule or that are
otherwise not material; (ii) statutory or common law liens to secure obligations
to landlords, lessors or renters under leases or rental agreements confined to
the premises rented; (iii) deposits or pledges made in connection with, or to
secure payment of, workers' compensation, unemployment insurance, old age
pension or other social security programs mandated by applicable law; (iv)
statutory or common law liens in favor of carriers, warehousemen, mechanics and
materialmen, to secure claims for labor, materials or supplies and other like
liens; (v) restrictions on transfer of securities imposed by applicable state
and federal securities laws; and (vi) contractual restrictions on transfer of
contractual rights.
(kk) "Loss" and "Losses" shall have the meanings set forth in Section 9.2.
(ll) "Material Adverse Effect" means any (i) change in or effect on the
Acquired Assets, taken as a whole, that is materially adverse to the Acquired
Assets, taken as a whole, or (ii) circumstance, change or event that materially
impairs Buyer's ability to make, use, sell, license, distribute, market, build,
modify, debug and operate the current version or release of the Products in
substantially the same manner as Seller prior to the date of this Agreement
(excluding any effect on Buyer's ability to do the foregoing caused by the
absence of the items licensed under the Excluded Contracts or NonTransferred
Licenses or any facts and circumstances unique to Buyer).
(mm) "NonTransferred Licenses" shall mean license agreements granting
licenses to Seller that are Transferred Contracts but which do not become
Effectively Transferred Contracts.
(nn) "Offer Letter" shall have the meaning set forth in Section 7.10.
(oo) "Object Code" means computer software, substantially or entirely in
binary form, which is intended to be directly executable by a computer after
suitable processing and linking but without the intervening steps of compilation
or assembly.
(pp) "Pension Plan" means each Seller Employee Plan which is an "employee
pension benefit plan," within the meaning of Section 3(2) of ERISA. (qq)
"Person" means any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity, as well as any syndicate or
group of any of the foregoing. (rr) "Prepaid Service Payment Update" shall have
the meaning set forth in Section 7.14. (ss) "Platform Business" means the
business of developing, marketing, licensing or distributing operating systems
software and associated software components and software development tools for
portable, handheld and wireless solutions, and personal information management
(PIM) applications designed to run on such operating systems.
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(tt) "Products" means any products of Seller or any of its Subsidiaries
(including products under development) listed on Schedule 1.1(tt).
(uu) "PTO" means the United States Patent and Trademark Office.
(vv) "Registered Intellectual Property" means all United States,
international and foreign: (i) Patents; (ii) registered Trademarks and
applications for Trademarks, including intenttouse applications; (iii)
registered Copyrights and applications for Copyrights; and (iv) any other
Intellectual Property Rights that are the subject of an application,
certificate, filing, registration or other document issued, filed with or
recorded by any Governmental Entity.
(ww) "Software" means computer software and code, including assemblers,
applets, compilers, Source Code, Object Code, data (including image and sound
data), development tools, design tools and user interfaces, in any form or
format, however fixed, including Source Code listings and related documentation.
(xx) "Source Code" means computer software code which may be printed out or
displayed in human readable form, including related programmer comments and
annotations, help text, data and data structures, instructions, and procedural,
objectoriented and other code which may be printed out or displayed in human
readable form. (yy) "Stock Consideration" means that number of shares of
Parent's common stock, rounded to the nearest number of whole shares (with 0.5
being rounded up), equal to the quotient determined by dividing (A) $11,000,000
minus the Adjustment Amount by (B) the opening price of Parent's common stock as
quoted on the Nasdaq National Market on the Closing Date; provided, however,
that the number of shares of Parent's common stock comprising the Stock
Consideration shall be increased above such number or decreased below such
number to the extent provided in Section 7.15.
(zz) "Subsidiary" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at any time directly or indirectly owned by such Person.
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(aaa) "Supplemental Transferred Contracts" means any Eligible Contract of
Seller which becomes a Transferred Contract in accordance with Section 7.27, in
addition to the Transferred Contracts listed on Schedule 1.1(eee). (bbb)
"Tangible Assets" means the tangible assets listed on Schedule 1.1(bbb);
provided, however, that Tangible Assets shall not include any tangible
manifestation of Software that is delivered pursuant to a written agreement or
protocol agreed to by Buyer and Seller providing for the remote electronic
transmission of such Software, except for documentation and manuals.
(ccc) "Tax" and "Taxes" shall mean any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes as well as public imposts, fees and social security charges
(including but not limited to health, unemployment and pension insurance),
together with all interest, penalties and additions imposed with respect to such
amounts and any obligation under any agreement or arrangement with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity. (ddd) "Third Party Software" means any Software owned by a
third party or in the public domain, including open source Software, public
source Software, or freeware, or any modification or Derivative Work thereof,
and also including any version of any Software licensed pursuant to any GNU
general public license or limited general public license, in each case that is
used in, incorporated into, or integrated or bundled with the current released
version of the Products and any more recent versions thereof (whether or not
released or completed) or Transferred Technology. (eee) "Transferred Contracts"
means those Contracts listed on Schedule 1.1(eee) as of the date of this
Agreement, and shall also include, from and after the date Eligible Contracts
become Supplemental Transferred Contracts in accordance with Section 7.27, any
such Supplemental Transferred Contracts.
(fff) "Transferred Intellectual Property Rights" means (i) all Intellectual
Property Rights (other than Trademarks) owned by Seller or any of its
Subsidiaries; and (ii) the Transferred Trademarks.
(ggg) "Transferred Technology" means
(i) the items listed on Schedule 1.1(ggg); and
(ii) any other Source Code and other Software, materials and
information (including development software, development documentation,
compilers, interpreters, system build software, build scripts, test suites,
testing tools and documentation, test scripts, bug databases, support
tools, revision control systems and environments) that are used by Seller
or any of its Subsidiaries to, or that Seller or any of its Subsidiaries
has and are reasonably necessary to, build, modify, debug and operate the
current release or version of the Products, and any more recent versions
thereof (whether or not released or completed), which Seller has the right
to deliver and disclose to Buyer without breaching any Contract or
infringing any other Person's Intellectual Property Rights; provided,
however, that Transferred Technology shall not include any tangible
manifestation of Software that is delivered pursuant to a written agreement
or protocol agreed to by Buyer and Seller providing for the remote
electronic transmission of such Software, except for documentation and
manuals.
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(hhh) "Transferred Trademarks" means the Product names and other
Trademarks, if any, listed on Schedule 1.1(hhh).
1.2 Construction.
(a) For purposes of this Agreement, whenever the context requires: the
singular number will include the plural, and vice versa; the masculine gender
will include the feminine and neuter genders; the feminine gender will include
the masculine and neuter genders; and the neuter gender will include the
masculine and feminine genders.
(b) Any rule of construction to the effect that ambiguities are to be
resolved against the drafting party will not be applied in the construction or
interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including" and
variations thereof will not be deemed to be terms of limitation, but rather will
be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Articles," "Schedules," "Sections" and "Exhibits" are intended to refer to
Articles, Schedules, Sections and Exhibits to this Agreement.
(e) The headings in this Agreement are for convenience of reference only,
will not be deemed to be a part of this Agreement, and will not be referred to
in connection with the construction or interpretation of this Agreement.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale of Assets. On the Closing Date, and subject to the
terms and conditions set forth in this Agreement, but subject to Section 2.2,
Seller will sell, convey, transfer and assign to Buyer, and Buyer will purchase
from Seller, all of Seller's right, title and interest in and to all of the
following assets, free and clear of any and all Liens (collectively, the
"Acquired Assets"):
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(a) the Tangible Assets;
(b) the Transferred Intellectual Property Rights;
(c) all goodwill of Seller or any of its Subsidiaries appurtenant to the
Transferred Trademarks;
(d) the Transferred Technology (for avoidance of doubt, with respect to
portions of the Transferred Technology that are owned by Persons other than
Seller or its Subsidiaries, the rights in such portions of the Transferred
Technology to be transferred and assigned to Buyer are the rights of Seller and
its Subsidiaries under the Effectively Transferred Contracts as described in
clause (e) below);
(e) all rights of Seller or any of its Subsidiaries under the Effectively
Transferred Contracts, other than payment obligations under such Transferred
Contracts (including accounts receivable) earned by Seller or any of its
Subsidiaries as a result of performance by Seller or any of its Subsidiaries
prior to the Closing Date; and
(f) all rights to recover past, present and future damages for the breach,
infringement or misappropriation, as the case may be, of any of the Transferred
Intellectual Property Rights and Effectively Transferred Contracts (other than
payment obligations under such Transferred Contracts).
2.2 Excluded Assets. The parties expressly acknowledge and agree that
notwithstanding anything to the contrary in this Agreement, the Acquired Assets
and Transferred Contracts do not include, and Seller does not have and shall be
under no obligation to sell, assign or otherwise transfer to Buyer any of
Seller's fixed assets (other than Tangible Assets), cash and cash equivalents or
receivables, the Sony Agreement, the Excluded Contracts, or any other assets,
claims, causes of action, contracts, licenses or agreements set forth on
Schedule 2.2 hereto, or any other assets, claims, causes of action, contracts,
licenses or agreements not included within the Acquired Assets and Transferred
Contracts as defined herein (collectively, the "Excluded Assets"), which
Excluded Assets shall remain for all purposes the properties and assets of
Seller.
2.3 Delivery of Acquired Assets. At the Closing, Seller shall deliver to
Buyer all of the Tangible Assets and Transferred Technology. Without limiting
the foregoing, all Software included in the Transferred Technology shall, at
Buyer's request, be delivered to Buyer by electronic means.
2.4 Assignments. At the Closing, Seller shall deliver to Buyer, duly
executed by Seller, and Seller shall deliver to Buyer, duly executed by Buyer:
(i) an Assignment and Assumption Agreement and ▇▇▇▇ of Sale substantially in the
form of Exhibit C hereto (the "General Assignment"); (ii) the copyright
registrations and assignments required pursuant to Section 2.5, the patent
assignments required pursuant to Section 2.6 and the trademark assignments
required pursuant to Section 2.7; and (iii) such other instruments of
conveyance, assignment and transfer as Buyer may reasonably request in order to
vest in Buyer good and valid title in and to the Acquired Assets (the General
Assignment and the other instruments referred to in clauses (i), (ii) and (iii)
being collectively referred to herein as the "Collateral Agreements").
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2.5 Transfer of Product Software Copyrights. For each Copyright included in
the Transferred Intellectual Property Rights for which Seller has filed a
copyright registration with the United States Copyright Office, Seller shall
deliver to Buyer at Closing an assignment, on a form reasonably acceptable to
Buyer, to record the transfer of such copyright to Buyer in the United States
Copyright Office. If Seller has not registered the copyright in a Product prior
to the Closing Date, Seller shall deliver to Buyer at the Closing an
application, on the applicable form, to register such copyright in each Product
with the United States Copyright Office.
2.6 Transfer of Patent Rights. For each of Seller's Patents included in the
Transferred Intellectual Property Rights, Seller shall deliver to Buyer at
Closing an assignment in form reasonably acceptable to Buyer to evidence the
transfer of such Patents to Buyer. Such assignment shall specify Buyer as the
owner by assignment of such Patents.
2.7 Transfer of Trademarks. For each of the Transferred Trademarks, Seller
shall deliver to Buyer at Closing an assignment in form reasonably acceptable to
Buyer to evidence the transfer of such Trademarks to Buyer. Such assignment
shall specify Buyer as the owner by assignment of such Trademarks.
2.8 Transferred Contracts. At the Closing, Seller shall deliver to Buyer
all of the Transferred Contracts to the extent not previously delivered to
Buyer.
2.9 Assumed Liabilities. As of the Closing, Buyer hereby agrees to assume
the following, and only the following (collectively, the "Assumed Liabilities"):
the obligations of Seller or any of its Subsidiaries under the Transferred
Contracts, in each case solely to the extent such obligations arise from and
after the Closing Date; provided, however, that notwithstanding the foregoing,
Buyer shall be responsible for liabilities that arise solely out of its
ownership or operation of the Acquired Assets or its performance of the
Transferred Contracts on or subsequent to the Closing Date. As of the Closing,
Parent shall be deemed to guarantee the obligations of Buyer under the Assumed
Liabilities.
2.10 Excluded Liabilities. Except for the Assumed Liabilities, Buyer is not
assuming any other debt, liability, duty or obligation, whether known or
unknown, fixed or contingent, of Seller or any of its Subsidiaries (the
"Excluded Liabilities"). Without limiting the foregoing, all liabilities of
Seller and its Subsidiaries, including any liabilities for Taxes, arising from
or related to: (i) Seller's operations or the operation of any of its
Subsidiaries, whenever arising or incurred, including Seller's or any of its
Subsidiaries' sale or ownership of the Products and Acquired Assets through the
Closing Date; (ii) Seller's or any of its Subsidiaries' termination of any
Contracts that are not Transferred Contracts; (iii) the Sony Agreement, (iv) the
employment or engagement by Seller of employees, agents, consultants or
independent contractors through the Closing Date; or (v) any Benefit
Liabilities, shall be Excluded Liabilities and shall remain the responsibility
of Seller, unless any such liabilities described in this sentence are otherwise
included within the Assumed Liabilities.
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ARTICLE 3
CLOSING AND CONSIDERATION
3.1 Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") will take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, Professional Corporation, in Palo Alto, California at 6:30 a.m., local
time, two (2) business days following the satisfaction or written waiver of the
last of the conditions of Closing as set forth in ARTICLE 8 hereof, or on such
other date as the parties may mutually determine (the "Closing Date").
3.2 Stock Consideration. At the Closing, Parent and Buyer shall cause to be
issued to Seller a duly authorized and issued stock certificate representing the
Stock Consideration, and following the Closing, to the extent that the Resale
Registration Statement is filed with the SEC and the provisions of Section 7.15
apply, (i) in the case where the number of shares issuable upon the
effectiveness of the Resale Registration Statement is increased pursuant to
Section 7.15(b), Parent and Buyer shall cause to be issued to Seller immediately
upon the effectiveness of the Resale Registration Statement an additional stock
certificate representing the number of any such whole shares of Parent's common
stock required to be issued to Seller in accordance with such Section, and (ii)
in the case where the number of shares issuable upon the effectiveness of the
Resale Registration Statement is decreased pursuant to Section 7.15(b), Parent
and Buyer shall, upon delivery by Seller for cancellation to Buyer of the
original stock certificate issued to Seller, cause to be issued to Seller
immediately upon the effectiveness of the Resale Registration Statement a
replacement stock certificate representing the total number of shares of
Parent's common stock representing the Stock Consideration, as adjusted in
accordance with such Section. In addition, whether at the Closing (in the event
the Permit is issued prior to the Closing) or upon the effectiveness of the
Resale Registration Statement (in the event the Permit is not issued prior to
the Closing), Parent and Buyer shall, at the request of Seller, deliver such
other instruments, coordinate with Parent's transfer agent, and use commercially
reasonable efforts to do and perform such other acts and things as may be
reasonably necessary to enable Seller to immediately sell, transfer or otherwise
liquidate the shares of Parent's common stock constituting the Stock
Consideration in the public markets.
3.3 Allocation of Consideration. The parties hereto intend that the
purchase be treated as a taxable transaction for federal and state income tax
purposes. Prior to the Closing Date, Buyer and Seller shall negotiate in good
faith and determine the allocation of the Stock Consideration among the Acquired
Assets (the "Allocation"). The Allocation shall be conclusive and binding upon
Buyer and Seller for all purposes, and the parties agree that all returns and
reports (including IRS Form 8594) and all financial statements shall be prepared
in a manner consistent with (and the parties shall not otherwise file a Tax
return position inconsistent with) the Allocation unless required by the IRS or
any other applicable taxing authority.
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3.4 Transfer Taxes. Buyer and Seller shall each be responsible for fifty
percent (50%) of the aggregate amount of any sales, use, excise or similar Taxes
that may be payable in connection with the sale or purchase of the Acquired
Assets and the granting of the licenses hereunder, including any sales, use,
excise or similar transfer Taxes. The parties hereto shall cooperate with each
other and use their reasonable best efforts to minimize the transfer Taxes
attributable to the sale of the Acquired Assets, including but not limited to
the transfer of all Software by remote electronic transmission.
ARTICLE 4
LICENSE TO BUYER
4.1 License of Licensed Intellectual Property. Effective as of the Closing
(and subject to the conditions thereto set forth herein), Seller shall be deemed
to have granted to Buyer under all of the Licensed Intellectual Property, a
royaltyfree, fullypaid, worldwide, perpetual, irrevocable, nonterminable,
transferable right and license, with the right to grant and authorize
sublicenses, to fully exercise, use and otherwise exploit the Licensed
Intellectual Property in any manner and without limitation, including the right
and license under Copyrights to copy, create Derivative Works from, distribute,
publicly perform and display and transmit Software products and other
copyrightable works, and under Patent rights to make, have made, use, sell,
offer for sale and import products. To the extent that the foregoing license is
broader in any respect (including, without limitation, the rights being
licensed, the duration and revocability of the license, the geographic scope of
the license, and the transferability of the license) than the license Seller has
the right to grant without breaching any Contract, without infringing any other
Person's Intellectual Property Rights, and without being required to pay any
additional royalty, fee or other amount to any other Person as a result of such
license to Buyer, then the foregoing license will be deemed to be limited in all
such respects to the license Seller has the right to grant without breaching any
Contract, without infringing any other Person's Intellectual Property Rights,
and without being required to pay any royalty, fee or other amount to any other
Person. If, in order to grant the foregoing license to Buyer with respect to any
Licensed Intellectual Property owned by any Person other than Seller or its
Subsidiaries, Seller is required to notify any such other Person of the license,
obtain the approval or consent of any such other Person, provide a copy of the
license agreement to any such other Person, obtain Buyer's written agreement to
any particular term or condition (each, a "PassThrough Term"), or comply with
any obligation, condition, or requirement (collectively, "Sublicensing
Requirements"), the foregoing license will be effective with respect to such
Licensed Intellectual Property only if and when (a) Buyer authorizes Seller in
writing to comply with such Sublicensing Requirements, (b) Seller complies with
all applicable Sublicensing Requirements, (c) Buyer agrees in writing to be
bound by and to comply with all applicable PassThrough Terms, if any, and (d)
Buyer pays any royalty, fee or other amount which is authorized by Buyer and is
required to be paid by Seller as the result of such license to Buyer.
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4.2 Bankruptcy. The license granted to Buyer under Section 4.1 is, and
shall otherwise be deemed to be, for purposes of Section 365(n) of the United
States Bankruptcy Code, a license to rights of "Intellectual Property Rights" as
defined thereunder.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as disclosed in the disclosure schedule delivered to Parent and
Buyer on the date hereof (the "Seller Disclosure Schedule"), Seller hereby
represents and warrants to Parent and Buyer as follows:
5.1 Organization of Seller.
(a) Except as set forth in Section 5.1(a) of the Seller Disclosure
Schedule, Seller has no Subsidiaries.
(b) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and
has all necessary corporate power and authority: (i) to conduct its
business in the manner in which its business is currently being conducted;
(ii) to own and use its assets in the manner in which its assets are
currently owned and used; and (iii) to perform its obligations under all
Contracts by which it is bound.
(c) Seller is qualified to do business as a foreign corporation, and
is in good standing, under the laws of all jurisdictions where the nature
of its business requires such qualification and where the failure to so
qualify would have a Material Adverse Effect.
(d) Seller has delivered or made available to Buyer a true and correct
copy of the certificate of incorporation (including any certificate of
designations) and bylaws of Seller and similar governing instruments, each
as amended to date (collectively, the "Seller Charter Documents"), and each
such instrument is in full force and effect. Seller is not in violation of
any of the provisions of Seller Charter Documents.
5.2 Authority. Seller has all requisite corporate power and authority to
enter into this Agreement and the Collateral Agreements and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Collateral Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Seller, and, except for approval by the
stockholders of Seller, no further action is required on the part of Seller, any
of its Subsidiaries or any of Seller's stockholders to authorize the Agreement
and the Collateral Agreements and the transactions contemplated hereby. A vote
of the holders of a majority of the outstanding shares of Seller's common stock
is sufficient for Seller's stockholders to approve and adopt this Agreement and
approve the transactions contemplated hereby and the Dissolution (as defined in
Section 7.17). This Agreement and the transactions contemplated hereby have been
approved by the Board of Directors of Seller. This Agreement has been duly
executed and delivered by Seller and, assuming the due authorization, execution
and delivery by Parent and Buyer, constitutes a valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, subject to any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to creditors' rights generally or to other
equitable remedies.
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5.3 No Conflict. The execution and delivery of this Agreement by Seller do
not, and the execution and delivery of the Collateral Agreements by Seller and
the performance of this Agreement and the Collateral Agreements by Seller will
not, (i) conflict with or violate the Seller Charter Documents, (ii) subject to
obtaining the approval and adoption of this Agreement by Seller's stockholders
as contemplated in Section 7.17, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Seller or any of its
Subsidiaries or by which any of their properties is bound or affected, or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair the rights of
Seller or any of its Subsidiaries or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any of
the properties or assets of Seller or any of its Subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise, concession, or other instrument or obligation to which Seller or any
of its Subsidiaries is a party or by which Seller, any of its Subsidiaries or
the Acquired Assets are bound or affected, except with respect to clauses (ii)
and (iii), for the matters set forth on Section 5.3 of the Seller Disclosure
Schedule and for matters the existence of which would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
5.4 SEC Filings; Seller Financial Statements.
(a) Seller has delivered or made available to Parent (through reference to
documents filed by ▇▇▇▇▇ or otherwise) accurate and complete copies of all
forms, reports and documents filed by Seller with the Securities and Exchange
Commission ("SEC") since January 1, 2000 (the "Seller SEC Reports"), which are
all the forms, reports and documents required to be filed by Seller with the SEC
since such date. As of their respective dates, the Seller SEC Reports (i) were
prepared in accordance and complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the
case may be, and the rules and regulations of the SEC thereunder applicable to
such Seller SEC Reports and (ii) did not at the time they were filed contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in Seller SEC Reports (the "Seller
Financials") (i) complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, (ii) were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10Q under the Exchange Act) and (iii) fairly presented the financial position of
Seller as at the respective dates thereof and the results of Seller's operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements may not contain footnotes and were or are subject to normal
and recurring yearend adjustments. The balance sheet of Seller contained in the
Form 10Q of Seller filed on August 14, 2001 is hereinafter referred to as the
"Seller Balance Sheet."
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(c) Except as disclosed in the Seller Financials, since the date of Seller
Balance Sheet Seller has incurred no liabilities required under GAAP to be set
forth on a consolidated balance sheet (absolute, accrued, contingent or
otherwise), except for liabilities incurred (i) since the date of the Seller
Balance Sheet in the ordinary course of business consistent with past practices
or (ii) pursuant to this Agreement, which liabilities would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
5.5 Transferred Contracts. True and complete copies of all of the
Transferred Contracts as of the date of this Agreement have been delivered to
Buyer. Each such Transferred Contract is in full force and effect. None of
Seller, any of its Subsidiaries or, to Seller's knowledge, any other party
thereto is in default or breach under the terms of any such Transferred Contract
and, to the Seller's knowledge, no event or circumstance has occurred that, with
notice or lapse of time or both, would reasonably be expected to constitute any
event of default thereunder.
5.6 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity or any third
party, including a party to any agreement with Seller or any of its
Subsidiaries, is required by or with respect to Seller or any of its
Subsidiaries in connection with the execution and delivery of this Agreement and
the Collateral Agreements or the consummation of the transactions contemplated
hereby, except for the filing of the Proxy Statement (as defined in Section
7.17) with the SEC in accordance with the Exchange Act, the Consents listed on
Section 5.6 of the Seller Disclosure Schedule.
5.7 Support and Service Contracts. Section 5.7 of the Seller Disclosure
Schedule sets forth a true and complete list of all Transferred Contracts
pursuant to which Seller or any of its Subsidiaries is obligated to provide
support, maintenance or other services to third parties following the date of
this Agreement, together with the amounts of prepaid fees that are associated
with the executory support, maintenance and other service obligations under such
Transferred Contracts and the portion of such fees attributable to obligations
to be performed subsequent to the date hereof (each, a "Prepaid Service
Payment"). Each Prepaid Service Payment is as reflected in the Books and
Records.
5.8 No Liquidation, Insolvency, WindingUp.
(a) Except as contemplated by this Agreement, no order has been made or
petition presented, or resolution passed by the board of directors or
stockholders of Seller for the dissolution or windingup of Seller and there is
not outstanding:
(i) any petition or order for the windingup of Seller;
15
(ii) any appointment of a receiver over the whole or part of the
undertaking of assets of Seller;
(iii) any petition or order for administration of Seller;
(iv) any voluntary arrangement between Seller and any of its
creditors;
(v) any assignment for the benefit of Seller's creditors or similar
creditor arrangement or remedy;
(vi) any voluntary petition, involuntary petition or order for relief
with respect to the Seller under the Bankruptcy Code, 11 U.S.C. section
101, et. seq.;
(vii) any distress or execution or other process levied in respect of
Seller which remains undischarged; and
(viii) any unfulfilled or unsatisfied judgment or court order against
Seller.
(b) Seller is not now insolvent, and will not be rendered insolvent by any
of the transactions contemplated by this Agreement. As used in this section,
"insolvent" means either of the following:
(i) at fair valuations, the sum of Seller's debts and other
liabilities, including, without limitation, contingent liabilities, is
greater than all of Seller's assets, provided that (A) such assets are not
to include any rights of Seller or any successor to Seller under any
fraudulent transfer, preference or similar theories to recover Seller's
property that was transferred, concealed or removed, and (B) the valuation
of such assets is to assume that the Closing occurs, but otherwise is to be
based on liquidation values of any assets not being sold to Buyer under
this Agreement (assuming a liquidation within 120 days following the
Closing), and
(ii) Seller is not generally paying its debts as they come due (within
the meaning of Section 3439 of the California Civil Code).
(c) Upon occurrence of the transfers of property from Seller to Buyer under
this Agreement, Seller will have adequate capital for any business or
transaction in which Seller is or will be engaged.
(d) Seller has not incurred, does not intend to incur, and does not
reasonably believe it will incur debts beyond its ability to pay as such debts
mature or become due.
(e) Seller intends to and will windup its business operations in accordance
with applicable law as soon as reasonably practicable after the Closing
consistent with this Agreement and in a manner providing for full payment to or
adequate provision for all creditors. The parties agree that notwithstanding
anything to the contrary herein, the Dissolution (as defined herein) shall not
mandate that Seller effect the dissolution of its corporate entity in accordance
with Delaware law except to the extent that the failure to do so would have a
Material Adverse Effect or would materially adversely impact Parent or Buyer.
16
5.9 Restrictions on Business Activities. There is no agreement (not to
compete or otherwise), commitment, judgment, injunction, order or decree to
which Seller or any of its Subsidiaries is a party which has or could reasonably
have the effect of prohibiting the transactions contemplated by this Agreement,
or which could reasonably have a Material Adverse Effect.
5.10 Title to Properties; Absence of Liens and Encumbrances.
(a) Seller does not own any real property.
(b) Seller has good and valid title to or, in the case of leased properties
and assets, valid leasehold interests in, all of the Acquired Assets, free and
clear of any Liens. (c) None of the Subsidiaries of Seller has, or will as of
the Closing Date have, any right, title or interest in, or to any of the
Acquired Assets or any of the Transferred Contracts.
5.11 Intellectual Property.
(a) Section 5.11(a) of the Seller Disclosure Schedule lists all Registered
Intellectual Property Rights included among the Transferred Intellectual
Property Rights. All such Registered Intellectual Property Rights are currently
in compliance with formal legal requirements (including payment of filing,
examination and maintenance fees and proofs of use), are valid (except with
respect to pending applications for any patents, trademarks, or other forms of
intellectual property, as to which no representation or warranty concerning
validity is made) and subsisting, and are not subject to any unpaid maintenance
fees or taxes or actions. All such Registered Intellectual Property Rights have
been assigned to Seller and such assignments have been properly recorded prior
to the Closing. There are no pending proceedings or actions before any court or
tribunal (including the PTO or equivalent authority anywhere in the world)
related to any such Registered Intellectual Property Rights.
(b) Each item of Transferred Intellectual Property Rights embodied in or
relating to the Transferred Technology is free and clear of any Liens.
(c) To the extent that any Transferred Intellectual Property Rights
embodied in or relating to the Transferred Technology were originally owned or
created by or for any third party, including any contractor or employee of
Seller and any predecessor of Seller: (i) Seller has a written agreement with
such third party or parties with respect thereto, pursuant to which Seller has
obtained complete, unencumbered and unrestricted ownership and is the exclusive
owner of, all such Transferred Intellectual Property Rights by valid assignment
or otherwise; and (ii) the assignment by Seller to Buyer hereunder of such
Transferred Intellectual Property Rights will not violate such third party
agreements.
17
(d) Seller has not transferred ownership of, or granted any license of or
right to use that is in effect as of the date hereof, or authorized the
retention of any rights to use, any Transferred Intellectual Property Right
embodied in or relating to the Transferred Technology to any other Person,
except for nonexclusive Object Code enduser licenses, and nonexclusive enduser
licenses to immaterial portions of the Source Code, granted to customers in the
ordinary course of business.
(e) The Transferred Technology delivered to Buyer under this Agreement
includes all Source Code, tools, and other Software used by Seller to, or
necessary to, build, modify, debug and operate the current versions or releases
of the Products in substantially the same manner as Seller did so prior to the
date of this Agreement, except for those items licensed to Seller under the
Excluded Contracts and the NonTransferred Licenses which Seller is prohibited
from providing to Buyer under the Excluded Contracts or the NonTransferred
Licenses. The Acquired Assets and the Licensed Intellectual Property, along with
the Intellectual Property Rights licensed under the Excluded Contracts or the
NonTransferred Licenses, are sufficient to make, use, sell, license, distribute
and market the current version or release of the Products in substantially the
same manner as Seller did so prior to the date of this Agreement without
infringing or misappropriating any other Person's Intellectual Property Rights.
Seller has the right to deliver all Software and other materials and information
delivered to Buyer under this Agreement without infringing or misappropriating
any other Person's Intellectual Property Rights.
(f) Seller hereby represents and warrants to Parent and Buyer, only as of
the Closing Date, that Section 5.11(f) of the Seller Disclosure Schedule to be
delivered pursuant to Section 7.2(h) will list all Third Party Software in the
Transferred Technology.
(g) No government funding, facilities of a university, college, other
educational institution or research center or funding from third parties was
used in the development of the Transferred Technology.
(h) To the knowledge of Seller, the making, using, selling, licensing and
distribution of the current version or release of the Products by Seller does
not (i) infringe or misappropriate the Intellectual Property Rights of any
Person, or (ii) constitute unfair competition or trade practices under the laws
of any jurisdiction. Seller has not received written notice from any Person
claiming that the making, using, selling, licensing or distribution of the
current versions or releases of the Products infringes or misappropriates the
Intellectual Property Rights of any Person or constitutes unfair competition or
trade practices under the laws of any jurisdiction.
(i) There are no Contracts between Seller and any other Person with respect
to the Acquired Assets, including the Transferred Intellectual Property Rights,
under which there is any pending dispute or (to Seller's knowledge) threatened
dispute regarding the scope of such Contract or performance under such Contract.
(j) To the knowledge of Seller, no Person is infringing or misappropriating
the Transferred Intellectual Property Rights embodied in or relating to the
Transferred Technology.
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(k) Seller has taken all reasonable steps that are required to protect its
rights in the Trade Secrets associated with or related to the Transferred
Technology, and Seller has taken reasonable steps to prevent misappropriation of
any Trade Secrets of any third party.
(l) Except as set forth in Section 5.11(l) of the Disclosure Schedule, no
third party possesses any copy of any Source Code for the Kernel for any
Product. In addition, no third party possesses any copy of any other Source Code
for any Product, other than portions of the Source Code the use of which by any
other Person would not have a Material Adverse Effect.
(m) There is no Third Party Software incorporated in the Kernel for the
current version of any Product.
(n) Seller has and enforces a policy requiring each employee and consultant
of Seller to execute a proprietary rights and confidentiality agreement
substantially in a form that Seller has delivered to Buyer, and all current and
former employees and consultants of Seller or any of its Subsidiaries who have
created or modified in any material respect any of the Transferred Technology
have executed such an agreement, except where the failure to have obtained such
an agreement would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect.
(o) No Transferred Intellectual Property Rights embodied in or relating to
the Transferred Technology are subject to any proceeding or outstanding decree,
order, judgment, or stipulation that restricts the use, transfer or licensing
thereof or may affect the validity, use, or enforceability thereof.
(p) To the extent that Seller has distributed or licensed any Product to an
end user pursuant to any form of encryption key, no third party has had access
to any such keys enabling disclosure of such keys to a third party.
5.12 Litigation. There is no action, suit, claim, proceeding or
investigation of any nature pending or (to the knowledge of Seller) threatened
relating to the Products, the Acquired Assets or the Designated Employees as of
the date of this Agreement. To the knowledge of Seller, there is no
investigation or other proceeding pending or threatened relating to the Acquired
Assets or the Designated Employees by or before any Governmental Entity as of
the date of this Agreement. There are no judgments, orders, decrees, citations,
fines or penalties heretofore assessed against Seller or any of its Subsidiaries
under any foreign, federal, state or local law that would reasonably have a
Material Adverse Effect.
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5.13 Brokers' or Finders' Fees. Except as set forth in Section 5.13 of the
Seller Disclosure Schedule, Seller has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
5.14 Tax Matters.
(a) Tax Returns and Audits.
(i) To the extent failure to do so could reasonably have a Material
Adverse Effect or would materially adversely impact Parent or Buyer, Seller
and each of its Subsidiaries has prepared and timely filed all required
federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to any and all Taxes concerning
or attributable to Seller, its Subsidiaries or the operations of Seller and
its Subsidiaries and such Returns are true and correct and have been
completed, in all material respects, in accordance with applicable law.
(ii) To the extent failure to do so could reasonably have a Material
Adverse Effect or would materially adversely impact Parent or Buyer, Seller
and each of its Subsidiaries (A) has paid all Taxes shown to be due on such
returns and (B) has withheld with respect to its employees all federal,
state and foreign income taxes and social security charges and similar
fees, Federal Insurance Contribution Act, Federal Unemployment Tax Act and
other Taxes required to be withheld.
(iii) To the extent failure to do so could reasonably have a Material
Adverse Effect or would materially adversely impact Parent or Buyer,
neither Seller nor any of its Subsidiaries has been delinquent in the
payment of any Tax, nor is there any Tax deficiency outstanding, assessed
or proposed against Seller, nor has Seller executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) No audit or other examination of any Return of Seller or any of
its Subsidiaries is presently in progress, nor has Seller or any of its
Subsidiaries been notified in writing of any request for such an audit or
other examination pursuant to which an assessment could reasonably have a
Material Adverse Effect or would materially adversely impact Parent or
Buyer.
(v) Seller is not aware of, and knows no factual basis for the
assertion of any material claim for Taxes for which Buyer would become
liable as a result of the transactions contemplated by this Agreement and
the Collateral Agreements.
5.15 Power of Attorney. There are no outstanding powers of attorney
executed on behalf of Seller in respect of the Acquired Assets except as granted
to Buyer hereunder.
5.16 Compliance with Laws. Seller and each of its Subsidiaries have
complied with, are not in violation of, and have not received any notices of
violation with respect to, any foreign, federal, state or local statute, law or
regulation with respect to the sale and distribution of the Products, or
otherwise with respect to the Acquired Assets, except for any noncompliance or
violations the existence of which would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect.
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5.17 Product Warranties. Except for any of the following the existence of
which would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect, (i) each Product manufactured, sold, leased,
licensed or delivered by Seller has been done so in conformity with all
applicable contractual commitments and all express and implied warranties, and
(ii) Seller has no liability for replacement or repair thereof or other damages
in connection therewith.
5.18 Employee Matters.
(a) Pension Plan. Seller has never maintained, established, sponsored,
participated in, or contributed to, any Pension Plan which is subject to Title
IV of ERISA or Section 412 of the Code.
(b) Scheduled Employees. Concurrent with the execution of this Agreement,
Seller has delivered to Buyer a written statement that contains the names of
individuals (including dependents) (i) currently receiving COBRA continuation
coverage under any heath plan of Seller, (ii) terminated within 115 days prior
to the execution date of this Agreement, (iii) employed by Seller as of the date
immediately preceding the execution date of this Agreement and who will be
terminated in connection with the acquisition, and (iv) who are Designated
Employees.
(c) Multiemployer and Multiple Employer Plans. At no time has Seller
contributed to or been obligated to contribute to any Multiemployer Plan. Seller
has never maintained, established, sponsored, participated in, or contributed to
any multiple employer plan, or to any plan described in Section 413 of the Code.
(d) No PostEmployment Obligations. Except as set forth in Section 5.18(d)
of the Seller Disclosure Schedule, no Employee Plan provides, or reflects or
represents any liability to provide retiree health to any person for any reason,
except as may be required by COBRA or other applicable statute.
(e) Effect of Transaction.
(i) Except as set forth on Section 5.18(e) of the Seller Disclosure
Schedule, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Employee Plan or Employment Agreement that will or would
reasonably result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase
in benefits or obligation to fund benefits with respect to any Employee.
(f) Health Care Compliance. Neither Seller nor any ERISA Affiliate is
in violation, in any material respect, of the health care continuation
requirements of COBRA, the requirements of the Family Medical Leave Act of
1993, as amended, the requirements of the Health Insurance Portability and
Accountability Act of 1996, the requirements of the Women's Health and
Cancer Rights Act of 1998, the requirements of the Newborns' and Mothers'
Health Protection Act of 1996, or any amendment to each such act, or any
similar provisions of state law applicable to its Employees.
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(g) Employment Matters. Seller: (i) is in compliance in all respects
with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and
other payments to Employees; (iii) is not liable for any arrears of wages
or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other
fund governed by or maintained by or on behalf of any governmental
authority, with respect to unemployment compensation benefits, social
security or other benefits or obligations for Employees (other than routine
payments to be made in the normal course of business and consistent with
past practice).
(h) Labor. No work stoppage or labor strike against Seller is pending
or, to the knowledge of Seller, threatened involving any of the Designated
Employees. Seller does not know of any activities or proceedings of any
labor union to organize any of the Designated Employees. Except as set
forth in Section 5.18(h) of the Seller Disclosure Schedule, there are no
actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of Seller, threatened relating to any labor, safety or
discrimination matters involving any Designated Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in any material liability to Seller. Except as set forth
in Section 5.18(h) of the Seller Disclosure Schedule, Seller is not a party
to, or bound by, any collective bargaining agreement or union contract with
respect to any of the Designated Employees and no collective bargaining
agreement is currently being negotiated by Seller.
5.19 International Employee Plan. Seller does not now, nor has it in
the last two years had the obligation to, maintain, establish, sponsor,
participate in, or contribute to any International Employee Plan.
5.20 Business Changes. From June 30, 2001 through the date of this
Agreement, except as otherwise contemplated by this Agreement, or as set
forth in Section 5.20 of the Seller Disclosure Schedule:
(a) There have been no changes in the condition (financial or
otherwise), business, net worth, assets, operations, obligations or
liabilities of Seller which, in the aggregate, have had or may be
reasonably expected to have a Material Adverse Effect.
(b) Seller has not mortgaged, pledged, or otherwise encumbered any of
the Acquired Assets.
(c) Seller has not sold, assigned, licensed, leased, transferred or
conveyed, or committed itself to sell, assign, license, lease, transfer or
convey, any of the Acquired Assets except for nonexclusive licenses entered
into in the ordinary course of business.
22
(d) There has been no destruction of, damage to or loss of any of the
Acquired Assets.
(e) There has been no notice of any claim or potential claim of
ownership by any Person other than Seller or its Subsidiaries of the
Transferred Technology, the Transferred Intellectual Property Rights, the
Licensed Intellectual Property Rights, or the Licensed Technology or of
infringement by Buyer or its Subsidiaries of any other Person's
Intellectual Property Rights.
(f) There has been no dispute, proceeding, litigation, arbitration or
mediation pending or (to the knowledge of Seller) threatened against Seller
or any of its Subsidiaries related to the Acquired Assets.
(g) There has been no event or condition of any character that has had
or is reasonably likely to have a Material Adverse Effect.
(h) There has been no agreement by Seller or any of its Subsidiaries
or any employees, agents or affiliates of Seller or its Subsidiaries to do
any of the things described in the preceding clauses (a) through (g) (other
than negotiations with Parent and Buyer and their representatives regarding
the transactions contemplated by this Agreement).
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Except as disclosed in the Disclosure Schedule delivered to Seller on the
date hereof (the "Parent Disclosure Schedule"), Parent and Buyer hereby jointly
and severally represent and warrant to Seller as follows:
6.1 Organization, Good Standing and Qualification. Each of Parent and Buyer
is a corporation duly organized, validly existing, and in good standing under
the laws of Delaware. Buyer is a wholly owned Subsidiary of El Camino
Acquisition Corporation, which is in turn a wholly owned Subsidiary of Parent.
6.2 Authority. Each of Parent and Buyer has all requisite corporate power
and authority to enter into this Agreement and the Collateral Agreements and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Collateral Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Parent and Buyer. This Agreement
and the Collateral Agreements have been duly executed and delivered by Parent
and Buyer and constitute the valid and binding obligations of Parent and Buyer,
enforceable in accordance with their terms, except as such enforceability may be
limited by principles of public policy and subject to the rules of law governing
specific performance, injunctive relief or other equitable remedies.
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6.3 No Conflict. Neither the execution and delivery of this Agreement and
the Collateral Agreements, nor the consummation of the transactions contemplated
hereby and thereby, will conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both) (i) any
provision of the certificate of incorporation, as amended, and bylaws, as
amended, of Parent or Buyer, (ii) any Contract to which Parent or Buyer or any
of their respective properties or assets are subject and which has been filed as
an exhibit to Parent's filings under the Securities Act or the Exchange Act, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or Buyer or their respective properties or assets, except
in each case where such conflict, violation or default will not have a material
adverse effect on Parent or Buyer or will not affect the legality, validity or
enforceability of this Agreement or the Collateral Agreements.
6.4 SEC Filings. Parent has delivered or made available to Seller (through
reference to documents filed by ▇▇▇▇▇ or otherwise) accurate and complete copies
of all forms, reports and documents filed by Parent with the SEC since March 2,
2000 (the "Parent SEC Reports"), which are all the forms, reports and documents
required to be filed by Parent with the SEC since such date. As of their
respective dates, the Parent SEC Reports (i) were prepared in accordance and
complied in all material respects with the requirements of the Securities Act,
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Parent SEC Reports and (ii) did not at the
time they were filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. None of Parent's Subsidiaries is required to file any
forms, reports or other documents with the SEC.
6.5 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, or any third
party is required by or with respect to Parent or Buyer in connection with the
execution and delivery of this Agreement and the Collateral Agreements or the
consummation of the transactions contemplated hereby, except for such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings which, if not obtained or made, would not have a material adverse effect
on Parent or Buyer.
6.6 Brokers' and Finders' Fees. Neither Parent nor Buyer has incurred, nor
will they incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or the transactions contemplated hereby.
ARTICLE 7
COVENANTS AND AGREEMENTS
7.1 Access. During the period commencing on the date of this Agreement and
continuing through the earlier of the Closing Date or the termination of this
Agreement, Seller, upon reasonable prior notice from Parent or Buyer to Seller,
and subject to the Confidentiality Agreement, will (a) afford to Buyer and its
representatives, at reasonable times during normal business hours, reasonable
access to the appropriate members of Seller's personnel, Seller's professional
advisors, and Seller's properties, and (b) furnish Buyer and its representatives
with reasonable access to or copies of Transferred Contracts, relevant Books and
Records, and other existing documents and data related to the Acquired Assets as
Buyer may reasonably request (including to enable Buyer to assess Seller's
compliance with its obligations under this Agreement). Except as otherwise
provided herein, no information or knowledge obtained in any investigation
pursuant to this Section 7.1 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties hereto to consummate the transactions contemplated hereby.
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7.2 PreClosing Activities of Seller. Between the date of this Agreement
and the earlier of the Closing Date or the termination of this Agreement, unless
otherwise agreed in writing by Parent or Buyer, Seller will:
(a) conduct its
business (as it relates to the Acquired Assets) in a commercially reasonable
manner;
(b) pay its debts and Taxes when due, where failure to pay when due would
be reasonably likely to have a Material Adverse Effect;
(c) pay or perform other obligations related to the Acquired Assets, where
failure to pay or perform would be reasonably likely to have a Material Adverse
Effect;
(d) use commercially reasonable, good faith efforts to maintain its
relations and goodwill with suppliers, customers, distributors, licensors,
licensees, landlords, trade creditors, employees, agents and others having
business relationships with Seller relating to the Acquired Assets to the extent
Seller knows or has reason to believe that Buyer intends to have business
relations with such parties with respect to the Acquired Assets following the
Closing;
(e) keep Buyer reasonably informed concerning material business or
operational matters relating to the Acquired Assets;
(f) use commercially reasonable, good faith efforts to maintain the
Acquired Assets in their current condition, ordinary wear and tear excepted;
(g) use commercially reasonable efforts to identify and notify Buyer of
material Sublicensing Requirements and, upon receipt of Buyer's written
authorization to do so, comply with the Sublicensing Requirements for the
Licensed Intellectual Property specified in Buyer's authorization to the extent
provided in Section 4.1; provided, however, that, with respect to those
Sublicensing Restrictions that require the consent, approval or other action of
any third party, Seller shall only be required to use commercially reasonable
efforts to comply with such Sublicensing Restrictions; and
(h) complete and deliver to Buyer and Parent Section 5.11(f) of the Seller
Disclosure Schedule on or before the Closing Date.
7.3 Conduct Prior to Closing. Except as otherwise expressly permitted by
this Agreement, between the date of this Agreement and the earlier of (i) the
Closing Date and (ii) the termination of this Agreement, Seller will not take
any action as a result of which any of the changes or events described in
Section 5.20 of this Agreement would likely or foreseeably occur. In addition,
between the date of this Agreement and the earlier of (i) the Closing Date and
(ii) the termination of this Agreement, Seller will not, without the prior
written consent of Parent or Buyer, which consent shall not be unreasonably
withheld:
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(a) take any action to materially impair, encumber, or create a Lien
against the Acquired Assets;
(b) except to comply with existing contractual obligations or commitments
or with respect to nonexclusive licenses entered into in the ordinary course of
business consistent with past practice, buy, or enter into any inbound license
agreement with respect to, Third Party Technology or the Intellectual Property
Rights of any third party to be incorporated in or used in connection with the
Products or sell, lease or otherwise transfer or dispose of, or enter into any
outbound license agreement with respect to, any of the Acquired Assets with any
third party;
(c) except to comply with existing contractual obligations or commitments
or with respect to nonexclusive licenses entered into in the ordinary course of
business consistent with past practice, enter into any Contract relating to (i)
the sale or distribution of any Product, (ii) any of the Acquired Assets, or
(iii) any Licensed Intellectual Property (subject to Section 7.2(g) above);
(d) change pricing or royalties charged to customers or licensees of the
Acquired Assets;
(e) enter into any strategic arrangement or relationship, development or
joint marketing arrangement or agreement relating to the Acquired Assets;
(f) fire, or give notice of termination to, any Designated Employee, except
as permitted under the terms of that certain Funding Agreement between Buyer and
Seller of even date herewith (the "Funding Agreement");
(g) amend or modify, except to the extent required by the terms thereof, or
violate the terms of, any of the Transferred Contracts;
(h) adopt or change any accounting method in respect of Taxes, enter into
any closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes, in each case where such action would
reasonably have a Material Adverse Effect; and
(i) agree in writing or otherwise to take any of the actions described in
Sections 7.3(a) through (h) above.
7.4 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 7.1, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, shall be governed by the terms of the Mutual
Nondisclosure Agreement between Parent and Seller dated June 22, 2000, as
amended by Amendment Number 1 to such agreement dated June 21, 2001.
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7.5 Use of Confidential Information. Notwithstanding anything to the
contrary contained herein or in any other agreement of Seller, including any
agreement between Seller and any employee of Seller, after the Closing, Buyer
shall have the unrestricted, sublicensable and transferable right, and Seller
hereby consents to such rights of Buyer, to use, disclose and exploit in any
manner and without restriction any and all confidential information embodied in
any of the Acquired Assets. To the extent that any Designated Employee may be
bound by any agreement or policy of Seller or any of its Subsidiaries that would
in any way limit or restrict the rights of Buyer to such confidential
information hereunder, Seller shall not assert, enforce or otherwise exercise
its rights under such agreement or policy against any Designated Employee or
Buyer.
7.6 Seller Intellectual Property Covenants.After the Closing, Seller shall
not: (i) transfer or license any Intellectual Property Rights to any third
party; (ii) use, exercise or otherwise exploit any Transferred Technology; or
(iii) disclose any Trade Secrets related to the Transferred Intellectual
Property Rights to any third party. Prior to the Closing, at Seller's request
Seller and Parent shall enter into an escrow agreement with a third party escrow
agent (the "Escrow Agreement") which shall provide that: (1) Seller shall
deposit, with such escrow agent, prior to the Closing, a copy of the Source Code
for the Products (including prior versions thereof) and related materials or
information (the "Escrowed Materials") which Seller reasonably expects could be
necessary for the prosecution or defense of claims or causes of action by or
against Seller for violations of (or that otherwise arise under) the antitrust
laws of any jurisdiction, and (2) Seller shall have the right to obtain from
such escrow agent a copy of the Escrowed Materials that are reasonably necessary
for the prosecution or defense of any such antitrust claim or cause of action by
or against Seller, provided that Seller first obtains certain protective orders
or other reasonable confidentiality protections as set forth in the Escrow
Agreement, and provided further that Seller shall have the right to use such
materials only in connection with such specific claim or cause of action, and
shall return to the escrow agent or destroy such materials upon the final
resolution (including through any appeals) of such claim or cause of action.
Except with respect to Escrowed Materials released to Seller as described above,
after the Closing, upon written notice from Buyer, Seller shall destroy all
copies of Source Code in Seller's possession or control relating to the current
version and all prior versions of the Product and all copies in Seller's
possession or control of specifications, documentation, and other materials and
information relating thereto.
7.7 Covenant Not to Compete or Solicit.
(a) Subject to the Closing, and without limiting Seller's ability to
prosecute antitrust claims against third parties, beginning on the Closing Date
and ending on the second (2nd) anniversary of the Closing Date (the
"NonCompetition Period"), Seller shall not directly or indirectly (other than
on behalf of Buyer), without the prior written consent of Parent or Buyer,
engage in a Competitive Business Activity (as defined below) anywhere in the
Restricted Territory (as defined below). For all purposes hereof, the term
"Competitive Business Activity" shall mean: (i) engaging in, managing or
directing persons engaged in any business in competition with Parent's Platform
Business; (ii) acquiring or having an ownership interest in any entity which
derives revenues from any business in competition with Parent's Platform
Business (except for ownership of one percent (1%) or less of any entity whose
securities have been registered under the Securities Act, or Section 12 of the
Exchange Act); or (iii) participating in the operation, management or control of
any firm, partnership, corporation, entity or business described in clause (ii)
of this sentence. For all purposes hereof, the term "Restricted Territory" shall
mean each and every country, province, state, city or other political
subdivision of the world including those in which Parent is currently engaged in
business or otherwise distributes, licenses or sells products.
27
(b) Subject to the Closing, and beginning on the Closing Date and ending on
the second (2nd) anniversary of the Closing Date, Seller shall not solicit,
encourage or take any other action which is intended to induce or encourage or
could reasonably be expected to have the effect of inducing or encouraging, any
employee of Parent or any Subsidiary of Parent or any Continuing Employee to
terminate his or her employment with Parent or any Subsidiary of Parent;
provided, however, that any general solicitation of employees not specifically
targeted to employees of Parent or any Subsidiary of Parent or any Continuing
Employee shall not be deemed a violation of this Section 7.7(b).
(c) The covenants contained in Section 7.7(a) shall be construed as a
series of separate covenants, one for each country, province, state, city or
other political subdivision of the Restricted Territory. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenant contained in Section 7.7(a). If, in any judicial proceeding, a court
refuses to enforce any of such separate covenants (or any part thereof), then
such unenforceable covenant (or such part) shall be eliminated from this
Agreement to the extent necessary to permit the remaining separate covenants (or
portions thereof) to be enforced. In the event that the provisions of this
Section 7.7(a) are deemed to exceed the time, geographic or scope limitations
permitted by applicable law, then such provisions shall be reformed to the
maximum time, geographic or scope limitations, as the case may be, permitted by
applicable laws.
(d) Seller acknowledges (without in any way representing to Parent or Buyer
any of the following) that (i) the value of the Acquired Assets is an integral
component of the value to Buyer of the transactions contemplated by this
Agreement and is reflected in the value of the Stock Consideration to be
received by Seller, and (ii) Seller's agreement as set forth in Sections 7.7(a)
and 7.7(b) is necessary to preserve the value of the Acquired Assets for Buyer
following the Closing. Seller also acknowledges that the limitations of time,
geography and scope of activity agreed to in Section 7.7(a) are reasonable
because, among other things, (A) Seller has had unique access to the Trade
Secrets and knowhow relating to the Acquired Assets, including, without
limitation, the plans and strategy (and, in particular, the competitive
strategy) relating to the Acquired Assets, and (B) Seller is receiving
significant consideration in connection with the consummation of the
transactions contemplated by this Agreement.
(e) The parties agree that in the event of a breach or threatened breach by
Seller of any of the covenants set forth in Sections 7.7(a) and 7.7(b), monetary
damages alone would be inadequate to fully protect Buyer from, and compensate
Buyer for, the harm caused by such breach or threatened breach. Accordingly,
Seller agrees that if it breaches or threatens breach of any provision of
Sections 7.7(a) and 7.7(b), Buyer shall be entitled to, in addition to any other
right or remedy otherwise available, the right to seek injunctive relief
restraining such breach or threatened breach and to specific performance of any
such provision of Sections 7.7(a) and 7.7(b), and Buyer shall not be required to
post a bond in connection with, or as a condition to, obtaining such relief
before a court of competent jurisdiction.
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7.8 No Solicitation.
(a) From and after the date of this Agreement until the earlier of (i) the
Closing Date and (ii) termination of this Agreement pursuant to ARTICLE 10,
neither Seller nor any of its Subsidiaries will, nor will they authorize or
permit any of their officers, directors or affiliates to, nor will they
authorize or knowingly permit any of their employees or any investment banker,
attorney or other advisor or representative retained by them to, directly or
indirectly, (i) solicit, initiate, knowingly encourage or induce the making,
submission or announcement of any Acquisition Proposal (as hereinafter defined),
(ii) engage or participate in any discussions or negotiations regarding, or
furnish to any person any nonpublic information with respect to, or knowingly
take any other action to facilitate or that could reasonably be expected to lead
to, any Acquisition Proposal, (iii) approve, endorse or recommend any
Acquisition Proposal other than in compliance with Section 7.17(c), or (iv)
enter into any letter of intent or similar document or any contract agreement or
commitment contemplating or otherwise relating to any Acquisition Transaction;
provided, however, that nothing contained in this Section 7.8 shall prohibit the
Board of Directors of Seller from (i) in response to a bona fide written
Acquisition Proposal for a Qualifying Acquisition Transaction not solicited by
Seller in violation of this Section 7.8(a) that the Board of Directors of Seller
has in good faith concluded (based on, among other things, the advice of a
financial advisor of nationally recognized reputation), is reasonably likely to
lead to a Superior Offer, furnishing nonpublic information to the party making
such Acquisition Proposal, and submitting to the party making such Acquisition
Proposal written questions, the sole purpose of which is to elicit
clarifications as to the material terms of such Acquisition Proposal so as to
enable the Board of Directors of Seller to make a determination whether to
construe such Acquisition Proposal as a Superior Offer, to the extent that (A)
the Board of Directors of Seller concludes in good faith, after consultation
with its outside counsel, that its fiduciary obligations under applicable law
require it to do so, (B) (x) concurrently with furnishing any such nonpublic
information to, or written questions to such party, Seller gives Buyer written
notice of Seller's intention to furnish nonpublic information, or written
questions to such party and (y) Seller receives from such party an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all nonpublic written and oral information furnished to such party
on behalf of Seller, the terms of which are at least as restrictive as the terms
contained in the Confidentiality Agreement, and (C) contemporaneously with
furnishing any such nonpublic information to such party, Seller furnishes such
nonpublic information to Buyer (to the extent such nonpublic information has not
been previously furnished by Seller to Buyer) and (ii) in response to a bona
fide written Acquisition Proposal not solicited by Seller in violation of this
Section 7.8(a) that constitutes a Superior Offer, engaging in negotiations with
the party making such Acquisition Proposal to the extent that (A) the Board of
Directors of Seller concludes in good faith, after consultation with its outside
counsel, that its fiduciary obligations under applicable law require it to do
so, (B) (x) concurrently with entering into negotiations with such party, Seller
gives Buyer written notice of Seller's intention to enter into negotiations with
such party and (y) Seller receives from such party an executed confidentiality
agreement containing customary limitations on the use and disclosure of all
nonpublic written and oral information furnished to such party on behalf of
Seller, the terms of which are at least as restrictive as the terms contained in
the Confidentiality Agreement. Seller will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding two sentences by any officer or director of Seller shall be deemed
to be a breach of this Section 7.8 by Seller.
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(b) For purposes of this Agreement, "Acquisition Proposal" shall mean any
offer or proposal (other than an offer or proposal by Parent or Buyer) relating
to any Acquisition Transaction. For purposes of this Agreement, "Acquisition
Transaction" shall mean any transaction or series of related transactions
involving: (i) any purchase from Seller or acquisition by any person or "group"
(as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a 15% interest in the total outstanding
voting securities of Seller or any tender offer or exchange offer that if
consummated would result in any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning 15% or more of the total outstanding voting securities of Seller or any
merger, consolidation, business combination or similar transaction involving
Seller; or (ii) any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than nonexclusive licenses in the ordinary
course of business), acquisition or disposition of more than 15% of the assets
of Seller or of any of the Acquired Assets, except for an immaterial
(individually or in the aggregate) portion of such Acquired Assets. In addition,
for the purposes of this Agreement "Qualifying Acquisition Transaction" shall
mean any Acquisition Transaction pursuant to which (i) the stockholders of
Seller immediately preceding such Acquisition Transaction would immediately
following such Acquisition Transaction hold less than fifty percent (50%) of the
aggregate equity interests in the Seller (or if the Seller does not survive such
Acquisition Transaction, in the surviving or resulting entity); or (ii) Seller
would sell all or substantially all of its assets.
(c) In addition to the obligations of Seller set forth in paragraph (a) of
this Section 7.8, Seller as promptly as practicable after learning of any of the
following matters shall advise Buyer in writing of any Acquisition Proposal or
any request for nonpublic information or inquiry which Seller reasonably
believes would lead to an Acquisition Proposal or to any Acquisition Transaction
the material terms and conditions of such, Acquisition Proposal, or request
inquiry, and the identity of the person or group making any such request,
Acquisition Proposal or inquiry. Seller will keep Buyer informed as promptly as
practicable after learning of any of the following matters in all material
respects of the status and details (including material amendments or proposed
material amendments) of any such request, Acquisition Proposal or inquiry.
7.9 Notification of Certain Matters.
(a) Seller shall give prompt notice to Buyer of (i) the occurrence or
nonoccurrence of any event, the occurrence or nonoccurrence of which is likely
to cause any representation or warranty of Seller contained in this Agreement to
be untrue or inaccurate in any material respect at the Closing, and (ii) any
failure of Seller to comply with or satisfy in any material respect any covenant
or agreement required to be complied with or satisfied by it hereunder, in
either case such that the conditions set forth in Section 8.2(a) might
reasonably not be satisfied by the End Date; provided, however, that the
delivery of any notice pursuant to this Section 7.9(a) shall not (a) limit or
otherwise affect any remedies available to the party receiving such notice or
(b) constitute an acknowledgment or admission of a breach of this Agreement. No
disclosure by Seller pursuant to this Section 7.9(a), however, shall be deemed
to amend or supplement the Seller Disclosure Schedule or prevent or cure any
misrepresentations, breach of warranty or breach of covenant by Seller
hereunder.
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(b) Parent or Buyer shall give prompt notice to Seller of (i) the
occurrence or nonoccurrence of any event, the occurrence or nonoccurrence of
which is likely to cause any representation or warranty of Parent or Buyer
contained in this Agreement to be untrue or inaccurate in any material respect
at the Closing, and (ii) any failure of Parent or Buyer to comply with or
satisfy in any material respect any covenant, condition or agreement required to
be complied with or satisfied by it hereunder, in either case such that the
conditions set forth in Section 8.3(a) might reasonably not be satisfied by the
End Date; provided, however, that the delivery of any notice pursuant to this
Section 7.9(b) shall not (a) limit or otherwise affect any remedies available to
Seller, or (b) constitute an acknowledgment or admission by Parent or Buyer of a
breach of this Agreement. No disclosure by Parent or Buyer pursuant to this
Section 7.9(b), however, shall be deemed to amend or supplement the Buyer
Disclosure Schedule or prevent or cure any misrepresentations, breach of
warranty or breach of covenant by Parent or Buyer hereunder.
7.10 New Employment Arrangements. Parent has offered each person who is a
Designated Employee "▇▇▇▇▇▇" employment with Parent, to be effective as of the
Closing Date, subject to proof evidencing a legal right to work in his or her
country of current employment. Such "▇▇▇▇▇▇" employment arrangements have been
set forth in offer letters based on Parent's standard form delivered to the
Designated Employees prior to the date hereof (each, an "Offer Letter"), copies
of which have been provided to Seller. At least seven of the Key Employees are
executing an Offer Letter prior to or concurrent with the execution of this
Agreement, which Offer Letters shall be effective as of the Closing Date. Each
employee of Seller who becomes an employee of Parent after the Closing Date
shall be referred to hereafter as a "Continuing Employee." Continuing Employees
shall be eligible to receive benefits consistent with Parent's standard human
resources policies. In furtherance of the foregoing, at the Closing Seller shall
terminate all employment agreements and other arrangements with any Continuing
Employees who have accepted employment with Parent, and waive any
noncompetition agreements and any duty of confidentiality owed to Seller by any
such Continuing Employee, effective as of the Closing Date.
7.11 Public Disclosure. Except as may be required by law or any listing
agreement with a national securities exchange, no party shall issue any
statement or communication to any third party (other than their respective
agents) regarding the subject matter of this Agreement or the transactions
contemplated hereby, including, if applicable, the termination of this Agreement
and the reasons therefor, without the consent of the other party, which consent
shall not be unreasonably withheld. Immediately following the execution of this
Agreement, each of Parent and Seller shall issue a press release announcing the
execution of this Agreement and the transactions contemplated hereby, and each
of Parent and Seller shall be entitled, in its discretion, to file a current
report with the SEC disclosing the foregoing matters.
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7.12 Consents. Seller shall use commercially reasonable efforts to obtain
the consents, waivers and approvals under any of the Transferred Contracts or
under any contractual restrictions relating to the Tangible Assets that are
necessary to permit the transfer of such Transferred Contracts or Tangible
Assets to Buyer as may be required in connection with this Agreement, as well as
any consents that may be necessary to permit the transfer to Buyer of any
Supplemental Transferred Contracts. Buyer shall reasonably cooperate in Seller's
efforts to obtain such consents, waivers and approvals.
7.13 COBRA Continuation Coverage. Seller agrees and acknowledges that the
selling group (as defined in Treasury Regulation Section 54.4980B9, Q&A3(a))
of which it is a part (the "Selling Group") will continue to offer a group
health plan to employees of Seller after the Closing Date and, accordingly, that
Seller and the Selling Group shall be solely responsible for providing
continuation coverage under COBRA to those individuals who are M&A qualified
beneficiaries (as defined in Treasury Regulation Section 54.4980B9, Q&A4(a))
with respect to the transactions contemplated by this Agreement (collectively,
the "M&A Qualified Beneficiaries"). Seller further agrees and acknowledges that
in the event that the Selling Group ceases to provide any group health plan to
any employee prior to the expiration of the continuation coverage period for all
M&A Qualified Beneficiaries (pursuant to Treasury Regulation Section 54.4980B9,
Q&A8(c)), then Seller shall provide Buyer with (i) written notice of such
cessation as far in advance of such cessation as is reasonably practicable (and,
in any event, at least thirty (30) days prior to such cessation), and (ii) all
information necessary or appropriate for Purchaser to offer continuation
coverage to such M&A Qualified Beneficiaries.
7.14 Prepaid Service Payment Update. Seller shall prepare and deliver, at
least three (3) business days prior to the Closing Date, an updated Section 5.7
of the Seller Disclosure Schedule estimated as of the Closing Date (the "Prepaid
Service Payment Update"), including an update to each Prepaid Service Payment
contained thereon, that has been prepared on a basis consistent with Section 5.7
of the Seller Disclosure Schedule delivered on the date of this Agreement.
7.15 Exemption from Registration or Registration Statement.
(a) As promptly as practicable after the execution of this Agreement,
Parent shall apply to the California Commissioner of Corporations for a permit
(the "Permit"), which may be issued after a public hearing on the fairness of
the terms and conditions of the transactions contemplated by this Agreement (the
"Fairness Hearing") in order to issue the Stock Consideration to Seller pursuant
to an exemption from the registration requirements of the Securities Act
provided by Section 3(a)(10) thereof (the "3(a)(10) Exemption"). With the
cooperation and assistance of Seller where necessary or appropriate, Parent
shall prepare and file with the California Commissioner of Corporations an
Application for Qualification of Securities by Permit under Section 25121 of the
California Corporate Securities Law of 1968, as amended, and related materials
required to be filed in connection with such Application (collectively, the
"Hearing Documents"). Parent and Seller will thereafter endeavor in good faith
to obtain a finding of fairness and the issuance of a Permit to such effect by
the California Commissioner of Corporations as a result of such hearing, and all
parties hereto shall proceed expeditiously and cooperate fully in making
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available all information necessary to complete the Permit application and to
participate as may be necessary or appropriate at the Fairness Hearing. In the
event that, within five (5) business days following the Fairness Hearing, Parent
shall not have received a favorable determination in such Fairness Hearing and a
Permit covering the Stock Consideration to be issued in the transactions
contemplated by this Agreement such that the issuance qualifies for exemption
under the 3(a)(10) Exemption, (i) Parent shall issue the Stock Consideration
hereunder pursuant to the Resale Registration Statement as provided in Section
7.15(b), (ii) the parties shall comply with Section 7.15(b) and (iii) Parent
shall use commercially reasonable efforts to seek a waiver from Foothill Capital
Corporation to enable Parent to make the Cash Loan in accordance with Section
7.15(c)(the "Waiver").
(b) In the event that, within five (5) business days following the Fairness
Hearing, Parent shall not have received a favorable determination in such
Fairness Hearing and a Permit covering all of the Stock Consideration to be
issued in the transactions contemplated by this Agreement such that the issuance
qualifies for exemption under the 3(a)(10) Exemption, Parent shall, at Parent's
own expense, file with the SEC promptly (and in any event not more than two
business days) following the Closing, a resale registration statement on Form
S3 (the "Resale Registration Statement") under the Securities Act to provide
for the resale by Seller of such number of shares of Parent's common stock as
may be required to be issued to Seller in accordance with the last sentence of
this clause (b), and will use commercially reasonable efforts to cause such
Resale Registration Statement to become effective as promptly as reasonably
practicable thereafter; provided, however, that Parent will not be required to
cause such Resale Registration Statement to become effective until at least one
(1) Business Day after Parent publicly discloses operating results from its most
recently ended fiscal quarter. Parent will use its reasonable best efforts to
keep such Resale Registration Statement effective for a period of thirty (30)
days after such Resale Registration Statement becomes effective; provided,
however, that at any time after fifteen (15) days after the SEC shall have
declared the Resale Registration Statement effective, Parent may suspend the use
of the Resale Registration Statement beginning on the fifteenth (15th) day of
the last month prior to the end of each fiscal quarter of Parent and ending one
(1) business day after Parent publicly discloses operating results from such
fiscal quarter, in keeping with the blackout periods in Parent's standard stock
trading policy, and during any other blackout period designated by Parent under
Parent's standard stock trading policy; provided, however, that in no event
shall Parent suspend the effectiveness of the Resale Registration Statement for
more than 60 consecutive days. Seller shall, on or prior to the Closing Date,
complete a selling stockholder questionnaire containing customary investment
representations in such form as may be reasonably provided by Parent not later
than the tenth (10th) day prior to the Closing Date. In the event that Seller
shall have failed to furnish such completed questionnaire to Parent on or prior
to the Closing Date, Parent will be entitled, in its reasonable discretion, to
(i) defer the filing of the Resale Registration Statement until the earlier to
occur of the tenth (10th) day after Seller will have furnished such information
or the thirtieth (30th) day after such Resale Registration Statement is
otherwise required to filed pursuant to this Section 7.15(b). In the event that
Parent shall file the Resale Registration Statement, and Seller shall not have
otherwise disposed of the Stock Consideration prior to the effectiveness of the
Resale Registration Statement, the Stock Consideration shall be increased or
decreased so that Seller shall receive that number of shares of Parent's common
33
stock, rounded up or down to the nearest number of whole shares (with 0.5 being
rounded up) equal to the quotient determined by dividing (A) $11,000,000 minus
the Adjustment Amount, by (B) the opening price of Parent's common stock as
quoted on the Nasdaq National Market on the first trading day following the
declaration of effectiveness of the Resale Registration Statement.
(c) Provided that Parent obtains the Waiver, (i) if the Resale Registration
Statement is not declared effective by the SEC on or prior to the 15th day after
the Closing Date, Parent shall immediately make a loan to Seller of $5,500,000
in cash, and (ii) if the Resale Registration Statement is not declared effective
by the SEC on or prior to the 30th day after the Closing Date, Parent shall
immediately make a second loan to Seller of $5,500,000 in cash (collectively,
the "Cash Loans"). The Cash Loans shall not bear any interest. Repayment of each
Cash Loan shall be secured by a pledge of the Stock Consideration, and Seller
and Parent agree to enter into a promissory note and security agreement
containing customary and reasonable terms and conditions relating to such Cash
Loan. The Cash Advances shall be repayable at any time by Seller, without
interest or penalty. In the event that Buyer makes the Cash Loan, Seller shall
be obligated to sell the Stock Consideration promptly (but, in any event, within
two business days) following the effectiveness of the Resale Registration
Statement and simultaneously repay the Cash Loan with the proceeds of such sale.
(d) In the event that Parent shall not have received a favorable
determination in such Fairness Hearing and a Permit covering all of the Stock
Consideration to be issued in the transactions contemplated by this Agreement
such that the issuance qualifies for exemption under the 3(a)(10) Exemption, the
Stock Consideration issued to Seller at Closing shall constitute "restricted
securities" within the meaning of Rule 144 of the Securities Act and will be
issued in a private placement transaction in reliance upon the exemption from
the registration and prospectus delivery requirements of Section 5 of the
Securities Act afforded by Section 4(2) of the Securities Act and Regulation D
promulgated thereunder and pending the effectiveness of the Registration
Statement, will be subject to the following legend to identify such privately
placed shares as being "restricted securities" under the Securities Act, to
comply with foreign, provincial, state and federal securities laws and to notice
the restrictions on transfer of such shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS (A) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT COVERING SUCH
SECURITIES, OR (B) A VALID EXEMPTION THEREFROM AND THE CORPORATION
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT."
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(e) The information supplied by Parent and Buyer for inclusion or
incorporation by reference in Hearing Documents will not, at the time of the
Fairness Hearing, 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. In the event that Parent is required to issue the Stock
Consideration hereunder pursuant to the Resale Registration Statement, the
information supplied by Seller and Parent for inclusion or incorporation by
reference in the Resale Registration Statement will not, at the time the Resale
Registration Statement becomes effective under the Securities Act contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
7.16 Proxy Statement. As promptly as practicable after the execution of
this Agreement, Seller will prepare and file a proxy statement (the "Proxy
Statement") with the SEC. Seller will respond to any comments of the SEC and
will cause the Proxy Statement to be mailed to its stockholders at the earliest
practicable time after the Permit is received (or the date of the Fairness
Hearing if no Permit is issued at such Fairness Hearing). Seller will notify
Buyer promptly upon the receipt of any comments from the SEC or its staff or any
other government officials in connection with any filing made pursuant hereto
and of any request by the SEC or its staff or any other government officials for
amendments or supplements to the Proxy Statement or for additional information
and will supply Buyer with copies of all correspondence between Seller or any of
its representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Proxy Statement.
Seller will cause all documents that it is responsible for filing with the SEC
or other regulatory authorities under this Section 7.16 to comply in all
material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement, Seller
will promptly inform Buyer of such occurrence and cooperate in filing with the
SEC or its staff or any other government officials, or mailing to stockholders
of Seller, such amendment or supplement.
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7.17 Meeting of Seller's Stockholders.
(a) Seller will take all action necessary in accordance with Delaware Law
and its certificate of incorporation and bylaws to convene a meeting (the
"Seller Stockholders' Meeting") of Seller's stockholders to consider adoption
and approval of this Agreement and the dissolution or windingup of Seller's
business after the Closing in a manner providing for full payment to or adequate
provision for creditors in advance of any distribution to Seller's stockholders
(the "Dissolution") to be held as promptly as practicable, and in any event (to
the extent permissible under applicable law) within 45 days after the receipt of
the Permit (or the date of the Fairness Hearing in the event that no Permit is
issued at such Fairness Hearing). Subject to Section 7.17(c), Seller will use
its commercially reasonable efforts to solicit from its stockholders proxies in
favor of the adoption and approval of this Agreement and the Dissolution and to
take all other action necessary or advisable to secure the vote or consent of
its stockholders required by Delaware Law in favor of such matters.
Notwithstanding anything to the contrary contained in this Agreement, Seller may
adjourn or postpone the Seller Stockholders' Meeting to the extent necessary to
ensure that any necessary supplement or amendment to the Proxy Statement is
provided to Seller's stockholders in advance of a vote on this Agreement and the
Dissolution or, if as of the time for which Seller Stockholders' Meeting is
originally scheduled (as set forth in the Proxy Statement) there are
insufficient shares of Seller's common stock represented (either in person or by
proxy) to constitute a quorum necessary to conduct the business of the Seller
Stockholders' Meeting. Seller shall ensure that Seller Stockholders' Meeting is
called, noticed, convened, held and conducted, and that all proxies solicited by
Seller in connection with Seller Stockholders' Meeting are solicited, in
compliance with the Delaware Law, Seller's certificate of incorporation and
bylaws, the rules of Nasdaq and all other applicable legal requirements.
Seller's obligation to call, give notice of, convene and hold the Seller
Stockholders' Meeting in accordance with this Section 7.17(a) shall not be
limited to or otherwise affected by the commencement, disclosure, announcement
or submission to Seller of any Acquisition Proposal (as defined in Section 7.8),
or by any withdrawal, amendment or modification of the recommendation of the
Board of Directors of Seller with respect to this Agreement and the Dissolution.
(b) Subject to Section 7.17(c): (i) the Board of Directors of Seller shall
recommend that Seller's stockholders vote in favor of the adoption and approval
of this Agreement and the approval of the Dissolution at the Seller
Stockholders' Meeting; (ii) the Proxy Statement shall include a statement to the
effect that the Board of Directors of Seller has recommended that Seller's
stockholders vote in favor of the adoption and approval of this Agreement and
the Dissolution at Seller Stockholders' Meeting; and (iii) neither the Board of
Directors of Seller nor any committee thereof shall withdraw, amend or modify,
or propose or resolve to withdraw, amend or modify in a manner adverse to Buyer,
the recommendation of the Board of Directors of Seller that Seller's
stockholders vote in favor of the adoption and approval of this Agreement and
the approval of the Dissolution.
(c) Nothing in this Agreement shall prevent the Board of Directors of
Seller from withholding, withdrawing, amending or modifying its recommendation
in favor of the adoption and approval of this Agreement and the approval of the
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Dissolution if (i) a Superior Offer (as defined below) is made to Seller
and is not withdrawn, (ii) Seller shall have provided written notice to Buyer (a
"Notice of Superior Offer") advising Buyer that Seller has received a Superior
Offer, specifying the material terms and conditions of such Superior Offer and
identifying the person or entity making such Superior Offer, (iii) Buyer shall
not have, within five (5) business days of Buyer's receipt of the Notice of
Superior Offer, made an offer that the Board of Directors of Seller by a
majority vote determines in its good faith judgment (based on, among other
things, the advice of a financial adviser of nationally recognized reputation)
to be at least as favorable to Seller's stockholders as such Superior Offer (it
being agreed that Board of Directors of Seller shall convene a meeting to
consider any such offer by Buyer promptly following the receipt thereof), (iv)
the Board of Directors of Seller concludes in good faith, after consultation
with its outside counsel, that, in light of such Superior Offer, the
withholding, withdrawal, amendment or modification of such recommendation is
required in order for the Board of Directors of Seller to comply with its
fiduciary obligations to Seller's stockholders under applicable law and (v)
neither Seller nor any of its representatives shall have violated any of the
restrictions set forth in Section 7.8 or this Section 7.17 in connection with
such Superior Offer. Seller shall provide Buyer with at least three business
days' prior notice (or such lesser prior notice as provided to the members of
Seller's Board of Directors) of any meeting of Seller's Board of Directors at
which Seller's Board of Directors is reasonably expected to consider any
Acquisition Transaction (as defined below). Nothing contained in this Section
shall limit Seller's obligation to hold and convene the Seller Stockholders'
Meeting (regardless of whether the recommendation of the Board of Directors of
Seller shall have been withdrawn, amended or modified). For purposes of this
Agreement "Superior Offer" shall mean a bona fide written offer not solicited by
Seller in violation of Section 7.8(a) to acquire, directly or indirectly,
including pursuant to a tender offer, exchange offer, merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction, for consideration consisting of cash or securities, either (x) a
majorityininterest of the total outstanding voting securities of Seller, if as
a result of such transaction, the stockholders of Seller immediately preceding
such transaction would hold less than fifty percent (50%) of the equity interest
in the surviving corporation or resulting entity of such transaction or (y) all
or substantially all the assets of Seller, on terms that the Board of Directors
of Seller determines, in its good faith judgment (based on, among other things,
the advice of a financial adviser of nationally recognized reputation) to be
more favorable to Seller's stockholders than the terms of the transaction
contemplated by this Agreement and is reasonably capable of being consummated;
provided, however, that any such offer shall not be deemed to be a "Superior
Offer" if any financing required to consummate the transaction contemplated by
such offer is not committed and is not likely in the judgment of Seller's Board
of Directors to be obtained by the entity making such Acquisition Proposal on a
timely basis.
(d) Nothing contained in this Agreement shall prohibit Seller or its Board
of Directors from taking and disclosing to its stockholders a position
contemplated by Rules 14d9 and 14e2(a) promulgated under the Exchange Act with
respect to a Superior Offer; provided, however, that the content of any such
disclosure shall not be inconsistent with the terms of this Agreement.
7.18 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
37
or cause to be done, all things necessary, proper or advisable underapplicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement;
provided that no party to this Agreement shall be required to agree to any
divestiture of shares of capital stock or of any business, assets or property of
Buyer or its Subsidiaries or affiliates or of Seller, as the case may be, or the
imposition of any material limitation on the ability of any of them to conduct
their businesses or to own or exercise control of such assets, properties and
stock.
7.19 Change of Control Agreements. Upon the written request of Buyer,
Seller shall take commercially reasonable actions to have any Continuing
Employee waive any right under any change of control agreement with Seller that,
if not waived, would reasonably be expected to have the effect of providing such
Continuing Employee in the future with similar rights in connection with any
future change of control of Parent or Buyer.
7.20 Post Closing Tax Covenants.
(a) Subject to Section 7.20(c) below, Seller and its Subsidiaries will be
responsible for the preparation and filing of all Tax Returns of Seller and its
Subsidiaries (including Tax Returns required to be filed after the Closing Date)
to the extent such Tax Returns include or relate to the use or ownership of the
Acquired Assets by Seller or any of its Subsidiaries, or to sales, use and
employment taxes. The Tax Returns of Seller and its Subsidiaries to the extent
they relate to the Acquired Assets or to sales, use and employment taxes shall
be true, complete and correct and prepared in accordance with applicable law in
all material respects. Seller and its Subsidiaries will be responsible for and
make all payments of Taxes shown to be due on such Tax Returns to the extent
they relate to the Acquired Assets or to sales, use and employment taxes.
(b) Buyer will be responsible for the preparation and filing of all Tax
Returns it is required to file with respect to Buyer's ownership or use of the
Acquired Assets attributable to taxable periods (or portions thereof) commencing
on or after the Closing Date. Buyer's Tax Returns, to the extent they related to
the Acquired Assets, shall be true, complete and correct and prepared in
accordance with applicable law in all material respects. Buyer will make all
payments of Taxes shown to be due on such Tax Returns to the extent they relate
to the Acquired Assets.
(c) In the case of any real or personal property taxes (or other similar
Taxes) attributable to the Acquired Assets which returns cover a taxable period
commencing before the Closing Date and ending thereafter, Buyer shall prepare
such returns and make all payments required with respect to any such return;
provided, however, Seller will promptly reimburse Buyer upon receipt of a copy
of the filed Tax return to the extent any payment made by Buyer relates to that
portion of the taxable period ending on or before the Closing Date which amount
shall be determined and prorated on a per diem basis.
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(d) To the extent relevant to the Acquired Assets, each party shall (i)
provide the other with such assistance as may reasonably be required in
connection with the preparation of any Tax Return and the conduct of any audit
or other examination by any taxing authority or in connection with judicial or
administrative proceedings relating to any liability for Taxes and (ii) retain
and provide the other with all records or other information that may be relevant
to the preparation of any Tax Returns, or the conduct of any audit or
examination, or other proceeding relating to Taxes. Seller and its Subsidiaries
shall retain all documents, including prior years' Tax Returns, supporting work
schedules and other records or information with respect to all sales, use and
employment tax returns and, absent the receipt by Seller or any of its
Subsidiaries of the relevant Sales Tax Certificates, shall not destroy or
otherwise dispose of any such records for six (6) years after closing without
the prior written consent of Buyer or Parent.
(e) Within twenty (20) days of the date of this Agreement, Seller shall
file or cause to be filed properly completed applications or other appropriate
forms of request with (i) California's Employment Development Department (or any
other appropriate or analogous governmental agency) to obtain a certificate of
release as authorized in, and pursuant to, California's Unemployment Insurance
Code sections 1731 through and including 1734, and, to the extent available
under analogous law, a certificate of release or payment pursuant to the law of
Washington state (the "Employment Tax Certificates") and (ii) California's State
Board of Equalization to obtain a certificate of receipt of payment of all sales
and use taxes as authorized in and pursuant to California Revenue and Taxation
Code sections 6811 through and including 6814 and, to the extent available under
analogous law, a certificate of payment pursuant to the law of Washington state
(the "Sales and Use Tax Certificates"). The Employment Tax Certificates and the
Sales and Use Tax Certificates are collectively referred to as the "State Tax
Certificates".
7.21 Employee Withholding. Seller shall prepare and furnish to Continuing
Employees a Form W2 which shall reflect all wages and compensation paid to
Continuing Employees for that portion of the calendar year in which the Closing
Date occurs during which the Continuing Employees were employed by Seller.
Seller shall furnish to Parent the Forms W4 and W5 of each Continuing
Employee. Parent shall send to the appropriate Social Security Administration
office a duly completed Form W3 and accompanying copies of the duly completed
Forms W2. It is the intent of the parties hereunder that the obligations of
Parent and Seller under this Section 7.21 shall be carried out in accordance
with Section 5 of Revenue Procedure 9660.
7.22 Termination of Compaq Agreement. Prior to September 19, 2001, Seller
shall deliver a notice of termination to Compaq Computer Corporation in
accordance with Section 14.1 of the Web Appliance OEM License and Distribution
Agreement between Seller and Compaq. Seller shall use commercially reasonable
efforts to obtain the consent of Compaq to terminate all maintenance and other
obligations that continue beyond the end of the term. Buyer shall reasonably
cooperate in Seller's efforts to obtain such consent.
7.23 Additional Documents and Further Assurances. Each party hereto, at the
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting the consummation of this Agreement and the
transactions contemplated hereby. Without limiting the foregoing, at any time or
from time to time after the Closing, at Buyer's request and expense, Seller
39
shall at the expense of Buyer: (i) execute and deliver to Buyer such other
instruments of sale, transfer, conveyance, assignment and confirmation; (ii)
provide such materials and information; (iii) take such other actions, as Buyer
may reasonably deem necessary or desirable in order effectively to transfer,
convey and assign to Buyer, to confirm Buyer's title to, all of the Acquired
Assets, and, to the full extent permitted by law, to put Buyer in actual
possession and operating control of the Acquired Assets; and (iv) provide
reasonable assistance and information in connection with the filing, prosecution
and enforcement of the Transferred Intellectual Property Rights. In the event
Seller is unable or unwilling to execute any document described in clause (i)
above, Seller hereby appoints Buyer as its attorneyinfact to execute such
documents on its behalf. Such appointment shall be deemed a power coupled with
an interest and is therefore irrevocable. Buyer shall only exercise such power
if Seller fails to execute the necessary document within thirty (30) business
days of Buyer's written request to do so.
7.24 Disclosure by Seller. None of the information supplied or to be
supplied by or on behalf of Seller for inclusion or incorporation by reference
in the Hearing Documents or the Resale Registration Statement (each as defined
in Section 7.15) will, at the time the Hearing Documents are filed with the
California Commissioner of Corporations or at the time of the Fairness Hearing
(or at the time the Resale Registration Statement is filed with the SEC or at
the time it becomes effective under the Securities Act, if applicable), 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 the light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by or on behalf
of Seller for inclusion or incorporation by reference in the Proxy Statement to
be filed with the SEC, will, at the time the Proxy Statement is mailed to the
stockholders of Seller, at the time of the Seller Stockholders' Meeting or as of
the Closing Date, 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 the light of the circumstances under which they
are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder, except that no representation or
warranty is made by Seller with respect to statements made or incorporated by
reference therein based on information supplied by Parent or Buyer for inclusion
or incorporation by reference in the Proxy Statement.
7.25 Disclosure by Buyer or Parent. None of the information supplied or to
be supplied by or on behalf of Parent or Buyer for inclusion or incorporation by
reference in the Hearing Documents or the Resale Registration Statement will, at
the time the Hearing Documents are filed with the California Commissioner of
Corporations or at the time of the Fairness Hearing (or at the time the Resale
Registration Statement becomes effective under the Securities Act, as
applicable), 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 the light of the circumstances under which they are
made, not misleading. None of the information supplied or to be supplied by or
on behalf of Parent or Buyer for inclusion or incorporation by reference in the
Proxy Statement to be filed with the SEC, will, at the time the Proxy Statement
is mailed to the stockholders of Seller, or at the time of the Seller
Stockholders' Meeting, contain any untrue statement of a material fact or omit
40
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under which
they are made, not misleading. The Hearing Documents and the Resale Registration
Statement, as applicable, will comply as to form in all material respects with
the provisions of the California Corporations Code and the Securities Act and
the rules and regulations promulgated by the California Commissioner of
Corporations and the SEC thereunder, except that no representation or warranty
is made by Parent or Buyer with respect to statements made or incorporated by
reference therein based on information supplied by Seller for inclusion or
incorporation by reference in the Proxy Statement.
7.26 Sublicensing Requirements. To the extent that Seller was not able
prior to the Closing Date to identify all material Sublicensing Requirements or,
upon receipt of Buyer's written authorization to do so, to comply with the
Sublicensing Requirements for the Licensed Intellectual Property specified in
Buyer's authorization, Seller shall do so until the earlier of (a) six (6)
months after the Closing Date or (b) the date on which Seller files its
certificate of dissolution with the Secretary of State of the State of Delaware;
provided, however, that, with respect to those Sublicensing Restrictions that
require the consent, approval or other action of any third party, Seller shall
only be required to use commercially reasonable efforts to comply with such
Sublicensing Restrictions.
7.27 Supplemental Transferred Contracts. At any time prior to the Closing,
if Buyer elects, in its sole discretion, to assume one or more additional
Eligible Contracts of Seller by delivering a written notice of such election to
Seller, Seller agrees that such an Eligible Contract shall thereafter be
considered a Transferred Contract hereunder, unless Seller reasonably determines
in good faith that Seller cannot transfer such Eligible Contract to Buyer due to
a change in circumstances between the date of this Agreement and the date of
Buyer's written notice. Seller shall deliver true and complete copies of all
Supplemental Transferred Contracts to Buyer.
ARTICLE 8
CONDITIONS TO THE CLOSING
8.1 Conditions to Obligations of Each Party. The respective obligations of
Parent, Buyer and Seller to effect the transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing, of the following
conditions, any of which may be waived, in writing, by Parent and Buyer (on the
one hand) and Seller (on the other hand):
(a) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the transactions
contemplated hereby illegal or otherwise prohibiting the consummation of the
transactions contemplated hereby.
41
(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 restraint or prohibition preventing the
consummation of the transactions contemplated hereby shall be in effect, nor
shall any proceeding brought by a Governmental Entity seeking any of the
foregoing be pending.
(c) Stockholder Approval. This Agreement shall have been approved and
adopted, and the Dissolution shall have been duly approved, by the requisite
vote under applicable law and the certificate of incorporation of Seller by the
stockholders of Seller.
(d) Governmental Approval. Any governmental or regulatory notices,
approvals or other requirements necessary to consummate the transactions
contemplated hereby and shall have been given, obtained or complied with, as
applicable.
8.2 Additional Conditions to the Obligations of Parent and Buyer. The
obligations of Parent and Buyer to consummate the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing of each
of the following conditions, any of which may be waived, in writing, exclusively
by Parent and Buyer:
(a) Representations, Warranties and Covenants. (i) The representations and
warranties of Seller in this Agreement shall have been true and correct on the
date they were made and shall be true and correct on and as of the Closing Date
as though such representations and warranties were made on and as of such date,
except in either case to the extent that the aggregate of all breaches thereof
has not had and would not reasonably be expected to have a Material Adverse
Effect (without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) and except to the extent such representations
and warranties address matters as of a particular date or period, in which case
such representations and warranties shall be true and correct as of such date or
period (and in any event, subject to the foregoing Material Adverse Effect
qualification), and (ii) Seller shall have performed and complied in all
material respects with all covenants and obligations under this Agreement
required to be performed and complied with by Seller as of the Closing.
(b) Litigation. There shall be no action or proceeding of any nature
pending or threatened with respect to the Acquired Assets against Seller or any
of its Subsidiaries where such action is reasonably likely to have a Material
Adverse Effect.
(c) Opinion of Financial Advisor. Buyer shall have received an opinion of a
financial advisor or appraiser, in form and substance reasonably acceptable to
Buyer, that (i) Seller is not insolvent as of the Closing Date, and (ii) the
sale of the Acquired Assets will not cause Seller to be insolvent immediately
following the Closing. Notwithstanding anything to the contrary in this
Agreement, Buyer shall bear and incur all costs related to the issuance of such
opinion, and Buyer agrees that any opinion in substantially the form of Exhibit
D hereto shall presumptively be deemed to be acceptable to Buyer.
42
(d) New Employment Arrangements. At least seven of the Key Employees
(provided that such seven Key Employees include both Key Employees set forth on
Schedule 8.2(d)) and at least 33 of the Designated Employees other than the Key
Employees shall have entered into "▇▇▇▇▇▇" employment arrangements with Parent
pursuant to their execution of an Offer Letter and shall be employees of Seller
immediately prior to the Closing. In addition, effective as of the Closing Date,
Seller shall have terminated all employment agreements and other arrangements
with the Continuing Employees and waived all of its rights with respect to any
duty of confidentiality owed to Seller by any such Continuing Employee with
respect to the Acquired Assets or any other intellectual property or technology
of Seller.
(e) NonCompetition Agreements. Each of the Key Employees set forth on
Schedule 8.2(e) shall have executed NonCompetition Agreements concurrent with
the execution and delivery of this Agreement and such NonCompetition Agreements
shall be in full force and effect as of the Closing Date.
(f) Certificate of Seller. Buyer shall have received a certificate, validly
executed by a duly authorized officer of Seller for and on its behalf (the
"Certificate of Seller"), to the effect that, as of the Closing, each of the
conditions specified in Section 8.2(a) and Section 8.2(b) have been satisfied.
(g) Certificate of Secretary of Seller. Buyer shall have received a
certificate, validly executed by the Secretary of Seller, certifying as to (i)
the terms and effectiveness of the certificate of incorporation and the bylaws
of Seller, (ii) the valid adoption of resolutions of the Board of Directors of
Seller approving this Agreement, and (iii) the valid adoption and approval of
this Agreement and approval of the Dissolution by the stockholders of Seller.
(h) Prepaid Service Payment Update. Buyer shall have received from Seller
the Prepaid Service Payment Update pursuant to Section 7.14.
(i) Deliveries. Seller shall have delivered to Buyer executed copies of the
Collateral Agreements.
(j) State Tax Certificates. Buyer shall have received from Seller certified
copies of the completed and date stamped applications or filings made in
satisfaction of the covenant in Section 7.20 (e) or, if received, true and
complete copies of the State Tax Certificates
8.3 Additional Conditions to Obligations of Seller. The obligations of
Seller to consummate and effect the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by Seller:
(a) Representations, Warranties and Covenants. (i) The representations and
warranties of Parent and Buyer in this Agreement shall have been true and
correct on the date they were made and shall be true and correct on and as of
the Closing Date as though such representations and warranties were made on and
43
as of such date, except in either case to the extent that the aggregate of all
breaches thereof has not had and would not reasonably be expected to have a
material adverse effect on Parent or Buyer (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth therein)
and except to the extent such representations and warranties address matters as
of a particular date or period, in which case such representations and
warranties shall be true and correct as of such date or period (and in any
event, subject to the foregoing material adverse effect qualification), and (ii)
Parent and Buyer shall have performed and complied in all material respects with
all covenants and obligations under this Agreement required to be performed and
complied with by Parent or Buyer as of the Closing.
(b) Certificate of Parent and Buyer. Seller shall have received a
certificate, validly executed by an executive officer of both Parent and Buyer
for and on behalf of each of them (the "Certificate of Buyer"), to the effect
that, as of the Closing, each of the conditions specified in Section 8.3(a) have
been satisfied.
(c) Certificate of Secretaries of Parent and Buyer. Seller shall have
received certificates, validly executed by the Secretaries of Parent and Buyer,
certifying as to (i) the terms and effectiveness of the certificates of
incorporation and the bylaws of Parent and Buyer, and (ii) the valid adoption of
resolutions of the Board of Directors of Parent and Buyer approving this
Agreement.
(d) Deliveries. Buyer shall have delivered to Seller executed copies of the
Collateral Agreements.
(e) Securities Approvals. Parent shall have received all state securities
laws or "blue sky" permits and authorizations necessary to issue the Stock
Consideration.
(f) Fairness Hearing. The Fairness Hearing shall have been held by the
Commissioner of Corporations of the State of California and the Permit sought
therein shall have been issued by the State of California, and Parent shall have
duly authorized and issued and made available for delivery to Seller at the
Closing a stock certificate that in form and substance is sufficient to enable
Seller to immediately sell on the open market the shares of Parent's common
stock comprising the Stock Consideration; provided, however, that in the event
that, within five (5) business days following the Fairness Hearing, Parent shall
not have received a favorable determination in such Fairness Hearing and a
Permit covering all of the Stock Consideration to be issued in the transactions
contemplated by this Agreement such that the issuance qualifies for exemption
under the 3(a)(10) Exemption, this condition shall be deemed to have been
satisfied if Parent duly and validly issues the Stock Consideration to Seller in
a transaction exempt from the registration requirements of the Securities Act,
and provides Seller with evidence reasonably satisfactory to Seller that Parent
is prepared to file the Resale Registration Statement immediately following the
Closing.
44
ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 Survival of Representations, Warranties and Covenants. The
representations and warranties of Seller contained in this Agreement, or in the
Certificate of Seller, shall terminate on the earliest of (i) the first
anniversary of the Closing Date, (ii) the date on which Seller files its
certificate of dissolution with the Delaware Secretary of State and (iii) the
date 15 days following the delivery of a Dissolution Notice; provided, however,
that a termination pursuant to clause (iii) shall be rescinded if a certificate
of dissolution is not filed with the Delaware Secretary of State within 30 days
following the delivery of such Dissolution Notice. A "Dissolution Notice" shall
mean a notice delivered by Seller to Buyer indicating Seller's good faith
intention to file a certificate of dissolution with the Delaware Secretary of
State within 30 days. The representations and warranties of Buyer contained in
this Agreement, or in any certificate or other instrument delivered pursuant to
this Agreement, shall terminate at the Closing.
9.2 Indemnification. Seller agrees to indemnify and hold Parent and Buyer
and their respective officers, directors and affiliates (collectively, the
"Indemnified Parties"), harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation and defense (hereinafter individually a "Loss" and
collectively "Losses") incurred or sustained by the Indemnified Parties, or any
of them, arising out of (i) any breach or inaccuracy of a representation or
warranty of Seller contained in this Agreement as of the date hereof and as of
the Closing Date or in the Certificate of Seller, (ii) any failure by Seller to
perform or comply with any covenant given or made by it contained in this
Agreement, or (iii) any failure on the part of Seller to perform and discharge
in full the Excluded Liabilities.
9.3 Indemnification Procedure. An Indemnified Party seeking indemnification
pursuant to Section 9.2 shall deliver an Officer's Certificate to Seller. Seller
may object to such claim by written notice to such Indemnified Party specifying
the basis for Seller's objection, within thirty (30) days following receipt by
Seller of notice from such Indemnified Party regarding such claim. If no
objection is made, Seller shall promptly pay the claim. For the purposes hereof,
"Officer's Certificate" shall mean a certificate signed in good faith by any
executive officer of Buyer: (1) stating that Buyer has paid, sustained,
incurred, or properly accrued, or reasonably anticipates that it will have to
pay, sustain, incur, or accrue Losses, and (2) specifying in reasonable detail
the individual items of Losses included in the amount so stated, the date each
such item was paid, sustained, incurred, or properly accrued, or the basis for
such anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant or Excluded Liability to which such item is related.
9.4 Resolution of Conflicts; Arbitration.
(a) In case Seller shall object in writing to any claim or claims made in
any Officer's Certificate to recover Losses within thirty (30) days after
delivery of such Officer's Certificate, Seller and Buyer shall attempt in good
45
faith to agree upon the rights of the respective parties with respect to each of
such claims. If Seller and Buyer should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and Seller shall
promptly pay to the Indemnified Party the amount of the claim agreed upon, if
any.
(b) If no such agreement can be reached after good faith negotiation and
prior to sixty (60) days after delivery of an Officer's Certificate, Buyer or
Seller may demand arbitration of the matter unless the amount of the 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 mutually agreeable to Buyer and Seller. In the event
that, within thirty (30) days after submission of any dispute to arbitration,
Buyer and Seller cannot mutually agree on one arbitrator, then, within fifteen
(15) days after the end of such thirty (30) day period, Buyer and Seller shall
each select one arbitrator. The two arbitrators so selected shall select a third
arbitrator. If Seller does not select an arbitrator during this fifteen (15) day
period, then the parties agree that the arbitration will be conducted by one
arbitrator selected by Buyer.
(c) Any such arbitration shall be held in Santa ▇▇▇▇▇ County, California,
under the rules then in effect of the American Arbitration Association. The
arbitrator(s) shall determine how all expenses relating to the arbitration shall
be paid, including without limitation, the respective expenses of each party,
the fees of each arbitrator and the administrative fee of the American
Arbitration Association. The arbitrator or arbitrators, as the case may be,
shall set a limited time period and establish procedures designed to reduce the
cost and time for discovery while allowing the parties an opportunity, adequate
in the sole judgment of the arbitrator or majority of the three arbitrators, as
the case may be, to discover relevant information from the opposing parties
about the subject matter of the dispute. The arbitrator or a majority of the
three arbitrators, as the case may be, shall rule upon motions to compel or
limit discovery and shall have the authority to impose sanctions, including
attorneys' fees and costs, to the same extent as a competent court of law or
equity, should the arbitrators or a majority of the three arbitrators, as the
case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the three
arbitrators, as the case may be, as to the validity and amount of any claim in
such Officer's Certificate shall be final, binding, and conclusive upon the
parties to this Agreement. Such decision shall be written and shall be supported
by written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrator(s). Within thirty (30) days
of a decision of the arbitrator(s) requiring payment by one party to another,
such party shall make the payment to such other party.
(d) Judgment upon any award rendered by the arbitrator(s) may be entered in
any court having jurisdiction.
9.5 ThirdParty Claims. In the event Buyer becomes aware of a thirdparty
claim which Buyer reasonably believes is reasonably likely to result in a demand
46
for indemnification pursuant to this ARTICLE 9, Buyer shall notify Seller in
writing of such claim, and Seller shall be entitled, at its expense, to
participate in, but not to determine or conduct, the defense of such claim.
Buyer shall have the right in its sole discretion to conduct the defense of and
settle any such claim; provided, however, that except with the written consent
of Seller, no settlement of any such claim with thirdparty claimants shall be
determinative of the amount of Losses relating to such matter. In the event that
Seller has consented to any such settlement, Seller shall have no power or
authority to object under any provision of this ARTICLE 9 to the amount of any
claim by Buyer against Seller with respect to such settlement.
9.6 Maximum Payments; Remedy.
(a) Except with respect to (A) any Excluded Liabilities, and (B) Taxes
referred to in Section 3.4 and 5.14 that are owed by Seller and which Buyer may
become obligated to pay, the aggregate maximum amount the Indemnified Parties
may recover from Seller pursuant to the indemnity set forth in Section 9.2 or
otherwise for Losses, or otherwise in respect of any breaches of any of the
representations, warranties or covenants of Seller hereunder or in the
Certificate of Seller, shall be limited to $3,300,000.
(b) The maximum amount an Indemnified Party may recover from Seller in
respect of Losses arising out of any Excluded Liabilities shall not be limited.
(c) Without limiting the effect of any of the other limitations set forth
herein, Seller shall not be required to make any indemnification payment
hereunder until such time as the total amount of all Losses that have been
suffered or incurred by any one or more of the Indemnified Parties and to which
any Indemnified Party is entitled to indemnification hereunder, or to which any
one or more of the Indemnified Parties has or have otherwise become subject with
respect to which any Indemnified Party is entitled to indemnification hereunder,
exceeds $100,000 in the aggregate, at which point Seller shall indemnify the
full amount of such claims and all claims thereafter, subject to any other
applicable limitations under this ARTICLE 9.
(d) The right of Parent and Buyer hereto and their related Indemnified
Parties to assert indemnification claims and receive indemnification payments
pursuant to this ARTICLE 9 shall be the sole and exclusive right and remedy
exercisable by Parent and Buyer with respect to any breach by Seller of any
representation, warranty or covenant hereunder or other matter with respect to
which such indemnification is provided; provided, however, that the foregoing
clause of this sentence shall not be deemed a waiver by any Indemnified Party of
any right to specific performance or injunctive relief, or any right or remedy
they may otherwise have against any Person that has committed fraud with respect
to this Agreement.
(e) Nothing herein shall limit the liability of Seller, Buyer or Parent for
any breach or inaccuracy of any representation, warranty or covenant contained
in this Agreement if the Closing does not occur.
9.7 Liability of Parent and Buyer. The fact that neither Parent nor Buyer
is obligated to indemnify Seller hereunder shall not be construed so as to limit
the rights or remedies that Seller may otherwise have against Parent or Buyer,
whether under this Agreement or applicable law, in the event of (a) any breach
47
or inaccuracy of a representation or warranty of Parent or Buyer contained in
this Agreement or in the Certificate of Buyer, (ii) any failure by Parent or
Buyer to perform or comply with any covenant given or made by either of them
contained in this Agreement, or (iii) any failure on the part of Buyer to
perform and discharge in full the Assumed Liabilities.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. Except as provided in Section 10.3, this Agreement may be
terminated and the transactions contemplated hereby abandoned at any time prior
to the Closing whether before or after the requisite approval of the
stockholders of Seller:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent, Buyer and Seller;
(b) by any party if the Closing Date shall not have
occurred by November 30, 2001 (the "End Date") for any reason; provided,
however, that the right to terminate this Agreement under this Section 10.1(b)
shall not be available to any party whose (or whose affiliate's) action or
failure to act has been a principal cause of or resulted in the failure of the
Closing Date to occur on or before such date and such action or failure to act
constitutes a material breach of this Agreement;
(c) by any party if a
Governmental Entity shall have issued an order, decree or ruling or taken any
other action, in any case having the effect of permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated hereby, which
order, decree, ruling or other action is final and nonappealable;
(d) by any
party if (i) the Seller Stockholders' Meeting (including any adjournments and
postponements thereof) shall not have been held and completed prior to the End
Date or shall have been held and completed and the stockholders of Seller shall
have taken a final vote on a proposal to adopt and approve this Agreement and
the transactions contemplated by this Agreement; and (ii) this Agreement and the
transactions contemplated by this Agreement shall not have been adopted and
approved at the Seller Stockholders' Meeting (and shall not have been adopted
and approved at any adjournment or postponement thereof) by the required
approval of the stockholders of Seller; provided, however, that the right to
terminate this Agreement under this Section 10.1(d) shall not be available to
Seller where the failure to hold the Seller Stockholders' Meeting and to obtain
Seller stockholder approval shall have been caused by (A) the action or failure
to act of Seller and such action or failure to act constitutes a breach by
Seller of this Agreement or (B) a material breach of any Support Agreement by
any party thereto other than Buyer; provided further, however, that the right to
terminate this Agreement under this Section 10.1(d) shall not be available to
Parent or Buyer where the failure to hold the Seller Stockholders' Meeting and
to obtain Seller stockholder approval shall have been caused by the action or
failure to act of Parent or Buyer and such action or failure to act constitutes
a breach by Parent or Buyer of this Agreement;
48
(e) by Buyer (at any time prior to the adoption and approval of this
Agreement and the approval of the Dissolution by the required vote of the
stockholders of Seller) if a Seller Triggering Event (as defined below) shall
have occurred;
(f) by Seller (at any time prior to the adoption and approval of this
Agreement and the approval of the Dissolution by the required vote of the
stockholders of Seller) if Parent shall have breached (and failed to cure within
10 days after notice of such breach is delivered by Seller to Parent) any of its
obligations under the Funding Agreement;
(g) by Seller (at any time prior to the adoption and approval of this
Agreement and the approval of the Dissolution by the required vote of the
stockholders of Seller) in the event that (i) within five (5) business days
following the Fairness Hearing, Parent shall not have received a favorable
determination in such Fairness Hearing and a Permit covering all of the Stock
Consideration to be issued in the transactions contemplated by this Agreement
such that the issuance qualifies for exemption under the 3(a)(10) Exemption and
(ii) Parent shall not have obtained the Waiver within ten (10) business days
following the Fairness Hearing;
(h) by Buyer, upon a breach of any representation, warranty, covenant or
agreement on the part of Seller set forth in this Agreement, or if any
representation or warranty of Seller shall have become untrue, in either case
such that the conditions set forth in Section 8.2(a) would not be satisfied by
the End Date, provided, that if such inaccuracy in Seller's representations and
warranties or breach by Seller is curable by Seller through the exercise of its
commercially reasonable efforts, then Buyer may not terminate this Agreement
under this Section 10.1(h) prior to the End Date, provided Seller continues to
exercise commercially reasonable efforts to cure such breach (it being
understood that Buyer may not terminate this Agreement pursuant to this
paragraph (h) if it shall have materially breached this Agreement or if such
breach by Seller is cured prior to the End Date); and
(i) by Seller, upon a breach of any representation, warranty, covenant or
agreement on the part of Parent or Buyer set forth in this Agreement, or if any
representation or warranty of Parent or Buyer shall have become untrue, in
either case such that the conditions set forth in Section 8.3(a) would not be
satisfied by the End Date, provided, that if such inaccuracy in Parent's or
Buyer's representations and warranties or breach by Parent or Buyer is curable
by Parent or Buyer through the exercise of its commercially reasonable efforts,
then Seller may not terminate this Agreement under this Section 10.1(i) prior to
the End Date, provided Parent or Buyer (as the case may be) continues to
exercise commercially reasonable efforts to cure such breach (it being
understood that Seller may not terminate this Agreement pursuant to this
paragraph (i) if it shall have materially breached this Agreement or if such
breach by Parent or Buyer is cured prior to the End Date).
For the purposes of this Agreement, a "Seller Triggering Event" shall be
deemed to have occurred if: (i) the Board of Directors of Seller or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Buyer its recommendation in favor of the
adoption and approval of this Agreement or the approval of the Dissolution; (ii)
Seller shall have failed to include in the Proxy Statement the recommendation of
49
the Board of Directors of Seller in favor of the adoption and approval of the
Agreement and the approval of the Dissolution; (iii) the Board of Directors of
Seller fails to reaffirm its recommendation in favor of the adoption and
approval of the Agreement and the approval of the Dissolution within ten (10)
days after Buyer requests in writing that such recommendation be reaffirmed
following the public announcement of an Acquisition Proposal; (iv) the Board of
Directors of Seller or any committee thereof shall have approved or recommended
any Acquisition Proposal; or (v) a tender or exchange offer relating to
securities of Seller shall have been commenced by a Person unaffiliated with
Buyer and Seller shall not have sent to its securityholders pursuant to Rule
14e2 promulgated under the Securities Act, within ten (10) business days after
such tender or exchange offer is first published sent or given, a statement
disclosing that Seller recommends rejection of such tender or exchange offer.
10.2 Notice of Termination. Any termination of this Agreement under Section
10.1 will be effective immediately upon the delivery of written notice thereof
by the terminating party to the other parties hereto (or, in the case of
termination pursuant to Section 10.1(h) or Section 10.1(i), on the date
specified therein).
10.3 Effect of Termination. In the event of termination of this Agreement
as provided in Section 10.1, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of any party hereto, or
its affiliates, officers, directors or stockholders, provided that each party
shall remain liable for any breaches of this Agreement prior to its termination;
and provided further that, the provisions of Section 7.4, Section 7.10, ARTICLE
11 and this Section 10.3 of this Agreement shall remain in full force and effect
and survive any termination of this Agreement. Notwithstanding the foregoing, no
termination of this Agreement shall relieve any party from liability for any
breach hereof prior to such termination.
10.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
10.5 Extension; Waiver. At any time prior to the Closing, Buyer, on the one
hand, and Seller, on the other hand, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the 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 11
GENERAL
11.1 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by commercial messenger or
courier service, or mailed by registered or certified mail (return receipt
50
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice); provided, however, that notices sent by
mail will not be deemed given until received:
(a) if to Buyer, to:
Palm, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Telephone No.: (▇▇▇) ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇▇▇▇▇
(b) if to Seller, to:
Be Incorporated
▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Telephone No.: (▇▇▇) ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇ Godward LLP
5 Palo Alto Square
▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇▇▇▇▇
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11.2 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the
Seller Disclosure Schedule, the Parent Disclosure Schedule, the NonDisclosure
Agreement, the Collateral Agreements and the documents and instruments and other
agreements among the parties hereto referenced herein: (i) 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; (ii) are not intended to
confer upon any other person any rights or remedies hereunder; and (iii) shall
not be assigned by operation of law or otherwise, except that Buyer may assign
its rights and delegate its obligations hereunder to Parent.
11.3 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.
11.4 Other Remedies. Any and all remedies herein expressly conferred upon a
party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
11.6 Jurisdiction and Venue. Each of the parties hereto irrevocably
consents to the exclusive jurisdiction and venue of any court within Santa ▇▇▇▇▇
County, State of California, in connection with any matter based upon or arising
out of this Agreement or the matters contemplated herein, agrees that process
may be served upon them in any manner authorized by the laws of the State of
California for such persons and waives and covenants not to assert or plead any
objection which they might otherwise have to such jurisdiction, venue and such
process.
11.7 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, 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.
11.8 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY AND ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
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11.9 Fees and Expenses. Except as otherwise provided herein, whether or not
the transactions contemplated herein are consummated, all expenses, including
without limitation all legal, accounting, financial advisory, consulting and
other fees, incurred in connection with the negotiation or effectuation of this
Agreement or consummation of such transactions, shall be the obligation of the
respective party incurring such expenses.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the date first above written.
Palm, Inc.
By:/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
Be Incorporated
By:/s/ ▇▇▇▇-▇▇▇▇▇ ▇. GASSEE
Name:▇▇▇▇-▇▇▇▇▇ ▇. Gassee
Title:President and Chief Executive Officer
ECA Subsidiary Acquisition Corporation
By:/s/ ▇▇▇▇▇▇▇ ▇▇
Name:▇▇▇▇▇▇▇ ▇▇
Title:President and Secretary