EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NETRIX CORPORATION,
AETHERWORKS CORPORATION
AND
NX1 ACQUISITION CORP.
Dated as of December 31, 1999
INDEX OF SCHEDULES
COMPANY SCHEDULE DESCRIPTION
2.1 State Qualifications
2.2(a) Stockholder List
2.2(b) Option and Warrant List
2.4 Governmental and Third Party Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.9 Restrictions on Business Activities
2.10(a) Leased Property
2.10(b) Liens on Property
2.10(c) Equipment
2.11 Intellectual Property
2.11(k) Infringement
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches
2.13 Interested Party Transactions
2.14 Governmental Authorizations
2.15 Litigation
2.19 Expenses of Transaction
2.20(b) Employee Benefit Plans and Employees
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Options
2.20(h)(i) Effect of Transaction
2.20(j) Labor Disputes
2.22 Warranties/Indemnities
2.24 Insurance
2.24(e) Self-Insurance
2.25 Bank Accounts
4.3(b) Debt for which Company Stockholders Responsible
5.8 Distribution Upon Satisfaction of Digi Obligation
-i-
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") is made and entered
into as of December 31, 1999 by and among Netrix Corporation, a Delaware
corporation ("PARENT"), Nxl Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB") and AetherWorks Corporation, a
Minnesota corporation (the "COMPANY").
RECITALS
A. The Boards of Directors of each of Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
stockholders that Parent acquire Company through the statutory merger of Company
with and into Merger Sub (the "MERGER") and, in furtherance thereof, have
approved the Merger.
B. Pursuant to the Merger all of the issued and outstanding shares
of common stock of Company excluding the Series B Common Stock (as defined
below) (the "COMPANY SERIES A COMMON STOCK") shall be converted into the right
to receive that number of shares of common stock (the "SERIES A MERGER
CONSIDERATION") of Parent (the "PARENT COMMON STOCK") set forth on Schedule 5.8.
C. Pursuant to the Merger all of the issued and outstanding shares
of Series B common stock of Company (the "COMPANY SERIES B COMMON STOCK" and
together with Company Series A Common Stock, the "COMPANY COMMON STOCK") shall
be converted into the right to receive that number of shares of Parent Common
Stock (the "SERIES B MERGER CONSIDERATION" and together with the Series A Merger
Consideration, the "MERGER CONSIDERATION") set forth on Schedule 5.8.
D. Pursuant to the Merger all of the issued and outstanding options
to acquire Company Common Stock ("COMPANY OPTIONS") shall be converted into the
right to receive that number of options to acquire shares of Parent Common Stock
set forth on Schedule 5.8.
E. Pursuant to the Merger all of the issued and outstanding
warrants to acquire Company Common Stock (the "COMPANY WARRANTS") shall be
converted into the right to receive that number of warrants to acquire shares of
Parent Common Stock set forth on Schedule 5.8.
F. Parent is entering into a Registration Rights Agreement pursuant
to which Parent shall file a registration statement providing for the sale of
Parent Common Stock received pursuant to the Merger and the transactions
hereunder.
G. Fifteen percent (15%) of the aggregate of 3,490,000 shares of
Parent Common Stock less that number of shares of Parent Common Stock, if any,
utilized to satisfy the Digi Obligation (as defined in Section 5.2(viii)) (not
to exceed 900,000 shares of Parent Common Stock) otherwise payable by Parent in
connection with the Merger shall be placed into escrow, the release of which
amount shall be contingent upon certain events and conditions set forth in
Section 4.2.
H. Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
I. Certain key employees of Company, as of the date hereof, are
each entering into an Employment Agreement with Parent (collectively, the
"EMPLOYMENT AGREEMENTS").
J. The parties intend, that the transactions contemplated by this
Agreement will qualify as a "Reorganization" within the meaning of Section
368(a)(1)(A) and (a)(2)(D) of the Internal Revenue Code of 1986, as amended (the
"CODE").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("DELAWARE Law")
and the Minnesota Business Corporation Act ("MINNESOTA LAW"), Company shall be
merged with and into Merger Sub, the separate corporate existence of Company
shall cease and Merger Sub shall continue as the surviving corporation and as a
wholly-owned subsidiary of Parent. (Merger Sub as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "SURVIVING
CORPORATION").
1.2 THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇ &
▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, commencing at 9:00 a.m. on the
third business day following the satisfaction or waiver of all conditions to the
obligations of the parties to consummate the Merger (other than conditions with
respect to actions the respective parties will take at the Closing itself) or
such other date as the parties may mutually determine (the "CLOSING DATE").
1.3 ACTIONS AT THE CLOSING. At the Closing, Company will deliver to
Parent the various certificates, instruments and documents referred to in
Section 6.1 and Parent will deliver to Company the various certificates,
instruments and documents referred to in Section 6.2 below. In addition, at the
Closing the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger (or like instrument) with the Secretaries of State of the
States of Delaware and Minnesota, respectively (the "CERTIFICATES OF MERGER"),
in accordance with the relevant provisions of Delaware and Minnesota Law,
respectively (the time of acceptance by the Secretaries of State of Delaware and
Minnesota of such filings being referred to herein as the "EFFECTIVE TIME").
Also at the Closing, Parent will perform its obligations under Section 1.9.
1.4 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law and
Minnesota Law, respectively. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.5 CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Certificate of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation.
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(b) The By-laws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended.
1.6 DIRECTORS AND OFFICERS. The director(s) of Merger Sub
immediately prior to the Effective Time shall be the initial director(s) of the
Surviving Corporation, to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the By-laws of the
Surviving Corporation.
1.7 EFFECT ON CAPITAL STOCK.
(a) CERTAIN DEFINITIONS.
(i) "OUTSTANDING SERIES A COMMON" shall mean, immediately
prior to the Effective Time, all issued and outstanding
shares of Company Common Stock excluding "Outstanding Series
B Common" as defined below.
(ii) "OUTSTANDING SERIES B COMMON" shall mean, immediately
prior to the Effective Time, all issued and outstanding
shares of Company Series B Common Stock.
(iii) "OUTSTANDING COMMON" shall mean the Outstanding
Series A Common and Outstanding Series B Common, together.
(iv) "PROPORTIONATE ESCROW INTEREST" applicable to each
Company Stockholder, shall mean the quotient obtained by
dividing (x) the total number of shares of Parent Common
Stock into which Company Common Stock held of record by
such Company Stockholder will be converted at the Effective
Time by (y) the total number of shares of Parent Common
Stock into which Company Common Stock held of record by all
Company Stockholders will be converted at the Effective
Time.
(v) "NASDAQ" shall mean the Nasdaq National Market.
(b) CONSIDERATION FOR COMPANY SERIES A COMMON STOCK. At the
Effective Time, by virtue of the Merger and without any action on the part of
Parent, Merger Sub, Company or the holders of Company Common Stock (the "COMPANY
STOCKHOLDERS"), each share of Company Series A Common Stock issued and
outstanding immediately prior to the Effective Time (other than any shares of
Company Series A Common Stock owned by Parent, Merger Sub or held in the
treasury of Company and other than Dissenting Shares) will be canceled and
extinguished and be converted automatically into the right to receive, upon
surrender of the certificate representing such share in the manner provided in
Section 1.9, a number of shares of Parent Common Stock equal to the Series A
Merger Consideration in accordance with Schedule 5.8. Such conversion shall be
made in accordance with the terms and subject to the conditions set forth below
and throughout this Agreement, including, without limitation, the escrow
provisions set forth in Article IV hereof.
(c) CONSIDERATION FOR COMPANY SERIES B COMMON STOCK. At the
Effective Time, by virtue of the Merger and without any action on the part of
Parent, Merger Sub, Company or the Company Stockholders, each share of Company
Series B Common Stock issued and outstanding immediately prior to the Effective
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Time (other than any shares of Company Series B Common Stock owned by Parent,
Merger Sub or held in the treasury of Company and other than Dissenting Shares)
will be canceled and extinguished and be converted automatically into the right
to receive, upon surrender of the certificate representing such share in the
manner provided in Section 1.9, a number of shares of Parent Common Stock equal
to the Series B Merger Consideration in accordance with Schedule 5.8. Such
conversion shall be made in accordance with the terms and subject to the
conditions set forth below and throughout this Agreement, including, without
limitation, the escrow provisions set forth in Article IV hereof.
(d) EFFECT ON COMPANY OPTIONS. At the Effective Time, by virtue
of the Merger and without any action on the part of Parent, Merger Sub, Company
or the Company Stockholders, Parent will assume the Company's 1997 Stock Option
Plan and each Company Option outstanding immediately prior to the Effective Time
will be converted into options to acquire that number of shares of Parent Common
Stock as set forth on Schedule 5.8 at the exercise price per share of Parent
Common Stock calculated as set forth on Schedule 5.8.
(e) Promptly after the Effective Time, Parent will file with the
Securities and Exchange Commission a Registration Statement on Form S-8 with
respect to the options to acquire Parent Company Stock contemplated hereby.
(f) EFFECT ON COMPANY WARRANTS. At the Effective Time, by virtue
of the Merger and without any action on the part of Parent, Merger Sub, Company
or the Company Stockholders, each Company Warrant outstanding immediately prior
to the Effective Time will be converted into warrants to acquire that number of
shares of Parent Common Stock as set forth on Schedule 5.8 at the exercise price
per share of Parent Common Stock calculated as set forth on Schedule 5.8.
(g) CAPITAL STOCK OF MERGER SUB. Each share of common stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
not be affected by the Merger and shall remain outstanding. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(h) STOCKHOLDER ESCROW. Promptly after the Effective Time,
from the Merger Consideration otherwise payable pursuant to Section 1.7(b),
Parent shall deposit fifteen percent (15%) of the aggregate of 3,490,000 shares
of Parent Common Stock less that number of shares of Parent Common Stock, if
any, utilized to satisfy the Digi Obligation (not to exceed 900,000 shares of
Parent Common Stock) (as adjusted pursuant to Section 1.14, the "ESCROW Amount")
into an escrow account pursuant to Section 1.9 and Article IV.
1.8 DISSENTING SHARES. Notwithstanding any provision of this
Agreement to the contrary, each outstanding share of Company Common Stock, the
holder of which has demanded and perfected such holder's right to dissent from
the Merger and to be paid the fair value of such shares in accordance with
Sections 302A.471 and 302A.473 of Minnesota Law and, as of the Effective Time,
has not effectively withdrawn or lost such dissenters' rights ("DISSENTING
SHARES"), shall not be converted into or represent a right to receive the Parent
Common Stock into which shares of Company Common Stock are converted pursuant to
Section 1.7 hereof, but the holder thereof shall be entitled only to such rights
as are granted by Minnesota Law. Parent shall cause the Surviving Corporation to
make all payments to holders of Dissenting Shares with respect to such demands
in accordance with Minnesota Law. Company shall give Parent (i) prompt written
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notice of any notice of intent to demand fair value for any shares of Company
Common Stock, withdrawals of such notices, and any other instruments served
pursuant to Minnesota Law and received by Company, and (ii) the opportunity to
conduct jointly all negotiations and proceedings with respect to demands for
fair value for shares of Company Common Stock under Minnesota Law. Company shall
not, except with the prior written consent of Parent or as otherwise required by
law, voluntarily make any payment with respect to any demands for fair value for
shares of Company Common Stock or offer to settle or settle any such demands.
1.9 SURRENDER OF CERTIFICATES; PAYMENT OF MERGER CONSIDERATION.
(a) PARENT TO PROVIDE MERGER CONSIDERATION; ESCROW FUNDING.
At the Closing, Parent shall make available for exchange in accordance with this
Article I, the Parent Common Stock deliverable pursuant to Section 1.7 in
exchange for outstanding shares of Company Common Stock; provided that Parent
shall deposit into the Escrow Fund (as defined in Section 4.2) pursuant to
Article IV the Escrow Amount as contemplated in Section 1.7(c). The portion of
the amounts contributed on behalf of each holder of Company Common Stock into
the Escrow Fund shall be equal to such holder's Proportionate Escrow Interest.
(b) EXCHANGE PROCEDURES. Upon surrender to Parent or an agent
appointed by it of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock (the
"Certificates") duly endorsed in blank or accompanied by stock powers duly
executed in blank, the holder of record of such Certificate shall be entitled to
receive in exchange therefor the applicable Merger Consideration pursuant to
Section 1.7 (subject to the escrow provisions of Section 1.9 and Article IV) and
the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock, will be deemed from and after the
Effective Time, to evidence only the right to receive the Merger Consideration
in respect of each such share (subject to Section 1.14 and subject to the escrow
provisions of this Section 1.9 and Article IV).
(c) TRANSFERS OF OWNERSHIP. If any payment or delivery is to be
made to a person other than the holder in whose name the Certificate surrendered
in exchange therefor is registered, it will be a condition of the payment
thereof that the Certificate so surrendered will be properly endorsed and
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid.
(d) PAYMENTS WITH RESPECT TO UNEXCHANGED SHARES. No interest on
any Merger Consideration payable at or after the Effective Time shall be paid.
(e) FRACTIONAL SHARES. No fraction of a share of Parent Common
Stock will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock to be received by such holder) shall receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the average closing price of the Parent Common
Stock as reported by Nasdaq for the five trading day period preceding the
Closing Date. Similarly, no fraction of a share of Parent Common Stock will be
issued with respect to a Company Warrant or Company Option by virtue of such
Merger upon the exercise of a Company Warrant or Company Option, but in lieu
thereof each holder of a Company Warrant or Company Option who would otherwise
be entitled to a fraction of a share of Parent Common Stock (after aggregating
all fractional shares of Parent Common Stock to be received by such holder)
shall, at the time of exercise of such Company Warrant or Company Option,
receive from Parent an amount of cash (rounded to the nearest whole cent) equal
to the product of (i) such fraction, multiplied by (ii) the closing price of the
Parent Common Stock as reported by Nasdaq on the trading date immediately
preceding the date of exercise of such Company Warrant or Company Option.
1.10 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The Merger
Consideration delivered upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof shall be deemed to have been
delivered in full satisfaction of all rights pertaining to such shares of
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Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and the Merger Consideration due under Section 1.7 with
respect to such Company Common Stock shall be delivered to the person entitled
thereto (subject to the escrow provisions of Article IV).
1.11 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, Parent shall make payment in exchange for such lost, stolen
or destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such amount, if any, as may be required pursuant to Section 1.7;
PROVIDED, HOWEVER, that Parent may, in its sole discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificates to deliver an agreement (in form and substance
Satisfactory to it) to indemnify Parent against any claim that may be made
against Parent with respect to the certificates alleged to have been lost,
stolen or destroyed.
1.12 TAX AND ACCOUNTING TREATMENT. The Merger shall constitute a tax
free reorganization under the Code, and will be treated as a purchase for
financial accounting purposes.
1.13 TAKING OF NECESSARY ACTION; FURTHER ACTION. If at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub or to vest Parent with a 100% ownership
interest in the Surviving Corporation or to vest the Company Stockholders, the
holders of Company Warrants and the holders of Company Options with the Parent
Common Stock to which they are entitled hereunder and for other actions required
under this Agreement, the officers and directors of Company and Merger Sub are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary and/or desirable action.
1.14 PURCHASE PRICE ADJUSTMENT. The Merger Consideration will be
subject to adjustment in the event the average closing sales price of the Parent
Common Stock as reported by the Nasdaq Stock Market for the 15 consecutive
trading day period ending on October 31, 2000 (the "AVERAGE PRICE") is not at
least $22.50 per share (the "TARGET PRICE"). If the Average Price does not equal
or exceed the Target Price, the Merger Consideration shall be increased to that
number of shares of Parent Common Stock per share of Company Common Stock equal
to the product of the Merger Consideration (as of the date hereof) multiplied by
the fraction whose numerator is the Target Price and whose denominator is the
Average Price; PROVIDED, HOWEVER, the adjusted total Merger Consideration will
not be more than that number of shares of Parent Common Stock equal to 19.9% of
the Parent Common Stock then outstanding. Such additional shares, if any, will
be issued promptly after such date to the Company Stockholders, and the holders
of Company Warrants and Company Options on the date of this Agreement who
exercise such Company Options or Company Warrants prior to October 31, 2000, and
the Escrow Amount will be deposited into the Escrow Account. To the extent any
shares have been distributed to Parent with respect to the Escrow Account, the
additional shares attributable to distributed shares will not be issued. In
addition, an equivalent adjustment will be made to each then outstanding Company
Option and Company Warrant to proportionately increase the number of shares of
Parent Common Stock issuable upon exercise thereof, and to proportionately
reduce the per share exercise price thereof. No adjustment, however, will be
made to any Company Option or Company Warrant exercised or cancelled prior to
October 31, 2000.
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1.15 EXPENSES. Whether or not the Merger is consummated but subject
to Section 5.9, all fees and expenses incurred in connection with the Merger
including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties ("THIRD PARTY
EXPENSES") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be the obligation of the respective party incurring
such fees and expenses.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Company represents and warrants to Parent and Merger Sub as of the date
hereof, subject to such exceptions as are specifically disclosed in the
disclosure schedule supplied by Company to Parent (the "Company Schedules" or
"Disclosure Schedules") and dated as of the date hereof, as follows:
2.1 ORGANIZATION OF COMPANY. Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota. Company has the corporate power to own its properties and to carry on
its business as now being conducted. Company is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction identified on
Schedule 2.1, and such jurisdictions are the only jurisdictions in which the
failure to be so qualified would have a material adverse effect on the business,
assets (including intangible assets), prospects, financial condition or results
of operations of Company (hereinafter referred to as a "MATERIAL ADVERSE
EFFECT"). Company has delivered a true and correct copy of its Articles of
Incorporation and By-laws, each as amended to date, to Parent.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of Company consists of 10
million shares, all of which are designated as Common Stock, 299,700 of which
are designated as Series B1 Common Stock and 140,789 of which are designated as
Series B2 Common Stock. Company Common Stock is held by the persons and in the
amounts set forth on Schedule 2.2(a). All outstanding shares of Company's Common
Stock are duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, the Articles of Incorporation
or By-laws of Company or any agreement to which Company is a party or by which
it is bound.
(b) As of December 31, 1999, Company has reserved 1,600,534
shares of Company Common Stock for issuance pursuant to Company Options and
Company Warrants. Schedule 2.2(b) sets forth for each outstanding Company Option
the name of the holder of such option, the number of shares of Company Common
Stock subject to such option, the exercise price of such option and the vesting
schedule for such option. Schedule 2.2(b) also sets forth for each outstanding
Company Warrant the name of the holder of such Company Warrant, the number of
shares of Company Common Stock subject to such Company Warrant, the exercise
price of such Company Warrant and the expiration date of such Company Warrant.
Except for Company Options and Company Warrants described in Schedule 2.2(b),
there are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which Company is a party or by which it is bound
obligating Company to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of Company or obligating Company to grant, extend, accelerate the vesting
of, change the price of, otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. As a result of the Merger and assuming
that Parent owns all the shares of Merger Sub capital stock, immediately after
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the Merger, Parent will be the record owner of all outstanding capital stock of
Company and rights to acquire capital stock of Company and no other person or
entity will be a record or beneficial owner of any capital stock of Company or
rights to acquire capital stock of Company.
(c) All outstanding securities of Company have been issued
in substantial compliance with applicable securities laws pursuant to exemptions
from the registration requirements of the Securities Act of 1933 and applicable
state securities laws. No holder of any outstanding security of Company has any
rescission right with respect thereto under applicable securities laws.
2.3 SUBSIDIARIES. Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in (other than stock
or other interest in a public company not exceeding a 1% interest), or control,
directly or indirectly, any other corporation, partnership, limited liability
company, association, joint venture or other business entity.
2.4 AUTHORITY. Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Company, subject to approval by
the Company Stockholders. Company's Board of Directors has approved the Merger
and this Agreement. Each of this Agreement and each other document executed by
Company in connection with this Agreement and the Merger has been or at the time
of execution will be duly executed and delivered by Company and constitutes or
will constitute the valid and binding obligation of Company, subject to approval
by the Company Stockholders, enforceable in accordance with its terms except as
such enforceability may be subject to the laws of general application relating
to bankruptcy, insolvency, and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. Except as
set forth on Schedule 2.4, the execution and delivery by Company of this
Agreement and each other document executed by Company in connection with this
Agreement and the Merger does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (any such event, a
"CONFLICT") (i) any provision of the Articles of Incorporation or By-laws of
Company or (ii) any mortgage, indenture, lease, contract or other agreement or
instrument which is material to Company or (iii) any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Company or its properties or assets, except in the case
of this clause (iii) for such Conflicts as will not have a Material Adverse
Effect. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any
third party (so as not to trigger any Conflict), is required by or with respect
to Company in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for the filing
of the Certificates of Merger with the appropriate Secretaries of State and such
other consents, waivers, authorizations, filings, approvals and registrations
which are set forth on Schedule 2.4 and except for those which, if not obtained,
will not result in a Material Adverse Effect.
2.5 COMPANY FINANCIAL STATEMENTS. Schedule 2.5 sets forth Company's
audited balance sheet as of September 30, 1999 (the "CURRENT BALANCE SHEET") and
the related audited statements of income and cash flow for the twelve-month
period then ended (collectively, the "COMPANY FINANCIALS"). Company Financials
are correct in all material respects and have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other (except in the
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case of the current Balance Sheet and related unaudited statements for normal
year end adjustments or as otherwise noted in Company Financials). Company
Financials fairly present in all material respects the financial condition and
operating results of Company as of the dates and during the periods indicated
therein, subject to normal year-end adjustments, which will not be material in
amount or significance in the aggregate.
2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6
or set forth on the Company Financials, Company does not have any liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, in excess of $15,000 individually or $30,000 in the aggregate, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles).
2.7 NO CHANGES. Except as set forth in Schedule 2.7, since September
30, 1999, there has not been, occurred or arisen any:
(a) material transaction by Company except in the ordinary
course of business as conducted on that date;
(b) capital expenditure or commitment by Company, in excess
of $15,000 individually or $25,000 in the aggregate;
(c) destruction of damage to or loss of any material assets,
business or customer of Company (whether or not covered by insurance);
(d) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Company;
(f) revaluation by Company of any of its assets;
(g) declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of Company, or any direct
or indirect redemption, purchase or other acquisition by Company of any of its
capital stock;
(h) increase in the salary or other compensation payable or to
become payable by Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by Company, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement other than normal course of business salary increases in connection
with ongoing yearly reviews or promotions (none of which exceeds 10% of the
previous year's salary);
(i) acquisition, sale or transfer of any material asset of
Company, except in the ordinary course of business as conducted on that date;
(j) amendment or termination of any material contract,
agreement or license to which Company is a party or by which it is bound;
9
(k) loan by Company to any person or entity (other than (i)
loans to all employees aggregating to no more than $5,000 and (ii) expense
advances to employees, all of which are immaterial in any amount and are issued
in the normal course of business), incurring by Company of any material
indebtedness, guaranteeing by Company of any material indebtedness, issuance or
sale of any debt securities of Company or guaranteeing of any debt securities of
others;
(l) waiver or release of any material right or claim of
Company, including any write-off or other compromise of any account receivable
of Company in excess of $10,000;
(m) the commencement or notice or, to the knowledge of
Company, threat of commencement of any lawsuit or proceeding against or
investigation of Company or its affairs;
(n) notice of any claim of ownership by a third party of
Company's Intellectual Property (as defined in Section 2.11 below) or of
infringement by Company of any third party's Intellectual Property rights;
(o) issuance or sale by Company of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities;
(p) change in pricing or royalties set or charged by Company;
(q) any event or condition of any character that has or could
be reasonably expected to have a Material Adverse Effect on Company; or
(r) agreement, oral or written, by Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (q) (other than agreements with Parent and its representatives regarding
the transactions contemplated by this Agreement).
2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
"TAX" or, collectively, "TAXES," means any and all federal, state, local and
foreign taxes, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts.
(b) TAX RETURNS AND AUDITS. Except as set forth in Schedule
2.8:
(i) Company as of the Effective Time will have prepared
and filed all required federal, state, local and foreign
returns, estimates, information statements and reports
("RETURNS") relating to any and all Taxes concerning or
attributable to Company or its operations and such
Returns will be true and correct in all material respects
and will have been completed in accordance with
applicable law in all material respects.
(ii) Company as of the Effective Time: (A) will have
paid or accrued all material Taxes it is required to pay
or accrue and (B) will have withheld with respect to its
employees all federal and state income taxes, FICA, FUTA
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and other Taxes required to be withheld other than any
Taxes to be paid by such employees as a result of the
receipt of the Merger Consideration.
(iii) Company has not been adjudicated delinquent by any
Tax Authority in the payment of any Tax nor is there any
Tax deficiency outstanding, proposed or assessed against
Company, nor has Company 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
Company is presently in progress, nor has Company been
notified of any request for such an audit or other
examination.
(v) Company does not have any material liabilities
for unpaid federal, state, local and foreign Taxes which
have not been accrued or reserved against on the current
Balance Sheet, whether asserted or unasserted, contingent
or otherwise, and Company has no knowledge of any basis
for the assertion of any such liability attributable to
Company, its assets or operations.
(vi) Company has provided to Parent copies of all
federal and state income and all state sales and use
Tax Returns filed for fiscal years 1996, 1997 and 1998.
(vii) There are (and as of immediately following the
Closing there will be) no material liens, pledges,
charges, claims, security interests or other encumbrances
of any sort ("LIENS") on the assets of Company relating
to or attributable to Taxes.
(viii) Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes
which, if adversely determined, would result in any Lien
on the assets of Company.
(ix) None of Company's assets are treated as "tax-
exempt use property" within the meaning of Section 168(h)
of the Code.
(x) As of the Effective Time, Company will not be a
party to any contract, agreement, plan or arrangement,
including but not limited to the provisions of this
Agreement, covering any employee or former employee of
Company that could obligate Company to pay any amount
that would not be deductible pursuant to Section 280G of
the Code.
(xi) Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341
(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by Company.
(xii) Company is not a party to a tax sharing or
allocation agreement nor does Company owe any amount
under any such agreement.
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(xiii) Company is not, and has not been at any time, a
"United States real property holding corporation" within
the meaning of Section 897(c)(2) of the Code.
(xiv) Company's tax basis in its assets for purposes
of determining its future amortization, depreciation and
other federal income tax deductions is accurately
reflected on Company's tax books and records in all
material respects.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on
SCHEDULE 2.9, there is no agreement (noncompete or otherwise), commitment,
judgment, injunction, order or decree to which Company is a party or otherwise
binding upon Company which has or reasonably could be expected to have the
effect of materially or prohibiting impairing any lawful business practice of
Company, any acquisition of property (tangible or intangible) by Company or the
conduct of business by Company as presently conducted.
2.10 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES;
CONDITION OF EQUIPMENT.
(a) Company owns no real property, nor has it ever owned any
real property. Schedule 2.10(a) sets forth a list of all real property
currently, or at any time in the past two years, leased by Company, the name of
the lessor, the date of the lease and each amendment thereto and, with respect
to any current lease, the aggregate annual rental and/or other fees payable
under any such lease. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not
with respect to Company, or to the knowledge of Company, any other party to such
leases any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default) under such leases that would
result in any material monetary damage to Company or materially interfere with
the present use of the property subject to such lease.
(b) Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in Company Financials
or in Schedule 2.10(b) and except for liens for taxes not yet due and payable
and such imperfections of title and encumbrances, if any, which are not material
in character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use, of the property subject
thereto or affected thereby.
(c) Except as described in Schedule 2.10(c), the equipment
(the "Equipment") owned or leased by Company is, taken as a whole, (i) adequate
for the conduct of the business of Company as currently conducted and (ii) in
good operating condition, regularly and properly maintained, subject to normal
wear and tear.
2.11 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and
all rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyright registrations
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and applications therefor and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, common law trademarks
and service marks; trademark and service ▇▇▇▇ registrations and applications
therefor throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; (vii) all moral and economic rights of
authors and inventors, however denominated, throughout the world, and (viii) any
similar or equivalent rights to any of the foregoing anywhere in the world.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, Company.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; and (iv) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued, filed with, or recorded by any state, government or other public legal
authority.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the
Registered Intellectual Property owned by, or filed in the name of, Company.
(a) Except as set forth in Schedule 2.11, no material Company
Intellectual Property or Company Registered Intellectual Property or product or
service of Company is subject to any proceeding or outstanding decree, order,
judgment, agreement, or stipulation restricting in any manner the use, transfer,
or licensing thereof by Company, or which may affect the validity, use or
enforceability of such Company Intellectual Property.
(b) All necessary registration, maintenance and renewal fees
currently due in connection with Company Registered Intellectual Property have
been paid and all necessary documents, recordations and certificates in
connection with such Registered Intellectual Property have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property, except for such failures to pay and file
as will not have a Material Adverse Effect.
(c) Company owns and has good and exclusive title to, or has license
(sufficient for the conduct of its business as currently conducted and as
proposed to be conducted) to, each material item of Company Intellectual
Property free and clear of any lien or encumbrance (excluding licenses and
related restrictions); and Company is the exclusive owner of all trademarks and
trade names used in connection with the operation or conduct of the business of
Company, including the sale of any products or the provision of any services by
Company, except for such failures of title as will not have a Material Adverse
Effect.
(d) Company owns exclusively, and has good title to, all copyrighted
works that are Company products or which Company otherwise expressly purports to
own, except for such failures of title as will not have a Material Adverse
Effect.
(e) To the extent that any material Intellectual Property has been
developed or created by a third party for Company, Company has a written
agreement with such third party with respect thereto and Company thereby either
(i) has obtained ownership of, and is the exclusive owner of or (ii) has
obtained a license (sufficient for the conduct of its business as currently
conducted and as proposed to be conducted) to all such third party's
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Intellectual Property in such Intellectual Property by operation of law or by
valid assignment.
(f) Except as set forth in Schedule 2.11(f), Company has not
transferred ownership of or granted any exclusive distribution rights or
exclusive license with respect to, any Intellectual Property that is or was
Company Intellectual Property, to any third party.
(g) Company Schedules list all material contracts, licenses and
agreements to which Company is a party (i) with respect to Company Intellectual
Property licensed or transferred to any third party (other than end-user
licenses in the ordinary course); or (ii) pursuant to which a third party has
licensed or transferred any Intellectual Property to Company.
(h) All material contracts, licenses and agreements relating to
Company Intellectual Property are in full force and effect. Company is in
material compliance with, and has not materially breached any term any of such
contracts, licenses and agreements and, to the knowledge of Company, all other
parties to such contracts, licenses and agreements are in compliance with, and
have not materially breached any term of such contracts, licenses and
agreements. Except as set forth in Schedule 2.4 or 2.11, following the Closing
Date, the Surviving Corporation will be permitted to exercise all of Company's
rights under such contracts, licenses and agreements to the same extent Company
would have been able to had the transactions contemplated by this Agreement not
occurred and without the payment of any additional amounts or consideration
other than ongoing fees, royalties or payments which Company would otherwise be
required to pay
(i) The operation of the business of Company as such business
currently is conducted, including Company's design, development, manufacture,
marketing and sale of the products or services of Company (including with
respect to products currently under development) has not, does not and will not
infringe or misappropriate the Intellectual Property of any third party
(provided that with respect to patent rights, such representation is limited to
Company's knowledge), except for any infringement or misappropriation that will
not have a Material Adverse Effect or, to its knowledge, constitute unfair
competition or trade practices under the laws of any jurisdiction.
(j) Company has not received notice from any third party that the
operation of the business of Company or any act, product or service of Company,
infringes or misappropriates the Intellectual Property of any third party or
constitutes unfair competition or trade practices under the laws of any
jurisdiction.
(k) Except as set forth in Schedule 2.11, to the knowledge of
Company, no Person has or is infringing or misappropriating any Company
Intellectual Property.
(l) Company has taken reasonable steps to protect Company's rights
in Company's confidential information and trade secrets that it wishes to
protect or any trade secrets or confidential information of third parties
provided to Company.
(m) YEAR 2000. To the knowledge of Company, Company's computer
software, hardware, databases and/or embedded control systems (collectively, a
"System") are and will continue to be Year 2000 Compliant. As used herein, "YEAR
2000 COMPLIANT" means that each System (i) is designed (or has been modified) to
be used prior to, on and after January 1, 2000, (ii) operate without error
arising from the creation, recognition, acceptance, calculation, display,
storage, retrieval, accessing, comparison, sorting, manipulation, processing or
other use of dates or date-based, date-dependent or date-related data,
14
including, but not limited to, century recognition, day-of-the-week recognition,
leap years, date values and interfaces of date functionalities; and (iii) are
not adversely affected by the advent of the year 2000, the advent of the
twenty-first century or the transition from the twentieth century through the
year 2000 and into the twenty-first century. Company has no reason to believe
that the operation of Company's business as currently operated will result in
the incurrence of material expenses arising from or relating to the failure of
any of its Systems to be Year 2000 Compliant. To the knowledge of Company, all
goods and services utilizing computer software and related systems that Company
receives from third parties are Year 2000 Compliant.
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 2.12(a), Company does not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or
salesperson or consulting or sales agreement, contract or
commitment with a firm or other organization,
(v) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased,
or the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated
by this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
individually in excess of $15,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of Company to engage in any line
of business or to compete with any person,
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $15,000,
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of material assets or any interest
in any business enterprise outside the ordinary course of
Company's business,
15
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments
relating to the borrowing of money or extension of credit,
including guaranties referred to in clause (viii) hereof,
(xiii) any purchase order or contract for the purchase of raw
materials involving $15,000 or more other than purchases in the
ordinary course of business,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development
agreement, or
(xvi) any other agreement, contract or commitment that involves
$15,000 or more and is not cancelable without penalty within
thirty (30) days.
Except for such alleged breaches, violations and defaults, and events
that would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, all as noted in Schedule 2.12(b), Company has not
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment to which it is a party or by which it is bound and which
are required to be set forth in Schedule 2.12(a) (any such agreement, contract
or commitment, a "CONTRACT") except for breaches, violations or defaults that
will not have a Material Adverse Effect. Each agreement, contract or commitment
set forth in any of Company Schedules is in full force and effect and, except as
otherwise disclosed in Schedule 2.12(b), is not subject to any default
thereunder of which Company has knowledge by any party obligated to Company
pursuant thereto.
2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule
2.13, to the knowledge of Company, no director, officer or stockholder of
Company (nor to the knowledge of Company any ancestor, sibling, descendant or
spouse of any of such persons, or any trust, partnership or corporation in which
any of such persons has an interest), has, directly or indirectly, (i) a direct
interest in any entity which finished or sold, or finishes or sells, services or
products that Company finishes or sells, or proposes to finish or sell, or (ii)
a direct interest in any entity that purchases from or sells or finishes to,
Company, any goods or services or (iii) a beneficial interest in any contract or
agreement set forth in Schedule 2.12(a); PROVIDED, that ownership of no more
than one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "interest in any entity" for purposes of this
Section 2.13.
2.14 GOVERNMENTAL AUTHORIZATION. Schedule 2.14 accurately lists each
material consent, license, permit, grant or other authorization issued to
Company by a governmental entity (i) pursuant to which Company currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any such interest
(herein collectively called "COMPANY AUTHORIZATIONS"), which Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit Company to operate or conduct its business
substantially as it is currently and has been conducted or hold any interest in
its properties or assets.
2.15 LITIGATION. Except as set forth in Schedule 2.15, there is no
action, suit, claim or proceeding of any nature pending or, to the knowledge of
Company, threatened against Company, its properties or any of its officers or
16
directors in their capacity as such, nor, to the knowledge of Company, is there
any basis therefor. Except as set forth in Schedule 2.15, there is no
investigation pending or to the knowledge of Company, threatened against
Company, its properties or any of its officers or directors (nor, to the
knowledge of Company, is there any basis therefor) by or before any governmental
entity. Schedule 2.15 sets forth, with respect to any pending or threatened
action, suit, proceeding or investigation, the forum, the parties thereto, the
subject matter thereof and the amount of damages claimed or other remedy
requested. Except as set forth in Schedule 2.15, no governmental entity has at
any time challenged or questioned the legal right of Company to manufacture,
offer or sell any of its products in the present manner or style thereof.
2.16 ACCOUNTS RECEIVABLE. Company has no accounts receivable.
2.17 MINUTE BOOKS. The minutes of corporate proceedings and consents
of Company made available to counsel for Parent are the only minute books of
Company and contain a reasonably accurate summary of the meetings of directors
(or committees thereof) referred to therein.
2.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. No underground storage tanks and no
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws, (a
"HAZARDOUS MATERIAL"), but excluding office and janitorial supplies or similar
items, are present in any material quantities, as a result of the deliberate
actions of Company, or, to Company's knowledge, as a result of any actions of
any third party or otherwise, in, on or under any property, including the land
and the improvements, ground water and surface water thereof, that Company has
at any time owned, operated, occupied or leased, except for such presence as
will not have a Material Adverse Effect.
(b) HAZARDOUS MATERIALS ACTIVITIES. Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (collectively
"HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity, except for such Hazardous Material Activity as
would not have a Material Adverse Effect.
(c) PERMITS. Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of Company's Hazardous Material Activities
and other businesses of Company as such activities and businesses are currently
being conducted.
(d) ENVIRONMENTAL LIABILITIES. No material action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to Company's knowledge, threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of Company.
Company is not aware of any fact or circumstance which could involve Company in
any material environmental litigation or impose upon Company any material
environmental liability.
17
(e) CAPITAL EXPENDITURES. Company is not aware of any material
capital expenditures which are required in order for it to comply with
Environmental Laws.
2.19 BROKERS' AND FINDERS' FEES. Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.20 EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity
under common control with Company within the meaning of
Section 414(b), (c) or (m) of the Code and the regulations
thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan,
program, policy, practice, contract, agreement or other
arrangement providing for compensation, severance,
termination pay, performance awards, stock or stock-
related awards, fringe benefits or other employee benefits
or remuneration of any kind, whether formal or informal,
funded or unfunded and whether or not legally binding,
including without limitation, each "employee benefit
plan," within the meaning of Section 3(3) of ERISA which
is or has been maintained, contributed to, or required to
be contributed to, by Company or any Affiliate for the
benefit of any "Employee" (as defined below), and pursuant
to which Company or any Affiliate has or may have any
material liability contingent or otherwise;
(iv) "EMPLOYEE" shall mean any current, former, or
retired employee, officer, or director of Company or any
Affiliate;
(v) "EMPLOYEE AGREEMENT" shall refer to each management,
employment, severance, consulting or similar agreement or
contract between Company or any Affiliate and any
Employee;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "PENSION PLAN"
(as defined below) which is a "multiemployer plan," as
defined in Section 3(37) of ERISA; and
(viii) "PENSION PLAN" shall refer to each Company
Employee Plan which is an "employee pension benefit
plan," within the meaning of Section 3(2) of ERISA.
(b) SCHEDULE. Schedule 2.20(b) contains an accurate and
complete list of each Company Employee Plan and each Employee Agreement. Company
does not have any plan or commitment, whether legally binding or not, to
establish any new Company Employee Plan or Employee Agreement, to modify any
Company Employee Plan or Employee Agreement (except to the extent required by
18
law or to conform any such Company Employee Plan or Employee Agreement to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any
Company Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) DOCUMENTS. Company has provided to Parent where available
or applicable (i) correct and complete copies of all documents embodying or
relating to each Company Employee Plan and each Employee Agreement including all
amendments thereto and written interpretations thereof and (ii) all
communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to Company.
(d) EMPLOYEE PLAN COMPLIANCE. (i) Company has performed in
all material respects all obligations required to be performed by it under each
Company Employee Plan and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in material
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred with respect to any Company Employee Plan; (iii) there are
no actions, suits or claims pending, or, to the knowledge of Company, threatened
or anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; (iv) except as
described in Schedule 2.20(d), each Company Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to Company, Parent or any of its Affiliates (other
than ordinary administration expenses typically incurred in a termination
event); (v) there are no inquiries or proceedings pending or, to the knowledge
of Company or any affiliates, threatened by the IRS or the U.S. Department of
Labor with respect to any Company Employee Plan; and (vi) neither Company nor
any Affiliate is subject to any penalty or tax with respect to any Company
Employee Plan under Section 402(i) of ERISA or Section 4975 through 4980 of the
Code.
(e) PENSION PLANS. Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has Company
contributed to or been requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. No Company Employee Plan
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any Employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute, and Company has
never represented, promised or contracted (whether in oral or written form) to
any Employee (either individually or to Employees as a group) that such
Employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment, except to
the extent required by statute.
(h) EFFECT OF TRANSACTION.
(i) Except as provided in Section 1.6 of this
Agreement, the execution of this Agreement and the
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consummation of the transactions contemplated hereby
will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement,
trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with
respect to any Employee.
(ii) No payment or benefit which will or may be made by
Company or any of its affiliates with respect to any
Employee will be characterized as an "excess parachute
payment," within the meaning of Section 280G(b)(1) of
the Code.
(i) EMPLOYMENT MATTERS. Company (i) is in compliance in all
material respects with all applicable federal and Minnesota 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 all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees (other than amounts which may be
required to be withheld as a result of an Employee's receipt of Merger
Consideration); (iii) is not liable for any material arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing; and (iv)
(other than routine payments to be made in the normal course of business and
consistent with past practice) is not liable for any material payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other benefits
for Employees.
(j) LABOR. No work stoppage or labor strike against Company
is pending or, to the knowledge of Company, threatened. Company is not involved
in or, to the knowledge of Company, threatened with, any labor dispute,
grievance, or litigation relating to labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in material liability to Company.
Neither Company nor any of its subsidiaries has engaged in any unfair labor
practices within the meaning of the National Labor Relations Act which would,
individually or in the aggregate, directly or indirectly result in a material
liability to Company. Company is not presently, nor has it been in the past, a
party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by Company.
(k) Schedule 2.20(k) sets forth each plan or agreement
pursuant to which any amounts may become payable (whether currently or in the
future) to current or former officers and directors of Company as a result of or
in connection with the Merger.
2.21 COMPLIANCE WITH LAWS. Company has materially complied with,
is not in material violation of, and has not received any notice of violation
with respect to, any federal, state or local statute, law or regulation,
domestic or foreign.
2.22 WARRANTIES; INDEMNITIES. Schedule 2.22 indicates all warranty
and indemnity claims in excess of $5,000 made against Company since January 1,
1998.
2.23 SOFTWARE DEVELOPMENT AGREEMENTS. Company has not violated, is
not in violation of, nor would the entry into this Agreement or consummation of
the Merger cause any violation of, any terms or provisions of any agreement
under which Company has or had an obligation to develop, supply or distribute
20
software to or for any third party, excluding end-user licenses for object code
executed in the ordinary course of business, nor is Company nor would Company
be, under any circumstances, under any obligation to deliver source code to any
third party, except delivery of source code to a third party exclusively for the
internal use of such third party to support, maintain and develop its software
products, which products are (i) used only for programming of such third party's
hardware products and (ii) distributed only to such third party's customers only
in object code format. In any such case after delivery of such source code
Company does not have nor would it have under any circumstances, any other
obligation of any nature to any such third party, including without limitation
any support or similar obligation.
2.24 INSURANCE. Schedule 2.24 sets forth the following information
with respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which Company has been a party, a named insured, or otherwise
the beneficiary of coverage at any time within the past three (3) years:
(a) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(b) the policy number and the period of coverage;
(c) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) neither Company nor any other party to the policy is in material
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a material breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) no party to the policy
has repudiated any provision thereof. Schedule 2.24(e) describes any
self-insurance arrangements affecting Company.
2.25 BANK ACCOUNTS. Schedule 2.25 contains a true, correct and
complete list as of the date hereof of all banks, trust companies, savings and
loan associations and brokerage firms in which Company has an account or safe
deposit box and the names of all persons authorized by Company to draw thereon
or have access thereto.
2.26 MATERIALITY. The matters and items excluded from the
representations and warranties set forth in this Article by operations of the
materiality exceptions and materiality qualifications contained in such
representations and warranties, in the aggregate for all such excluded matters
and items, are not and could not reasonably be expected to have a Material
Adverse Effect.
2.27 DISCLOSURE. None of the representations or warranties of
Company contained herein, none of the information contained in the Schedules
referred to in this Article II, and none of the other information or documents
furnished or to be furnished to Parent by Company pursuant to the terms of this
Agreement, is false or misleading in any material respect or omits to state a
fact herein or therein necessary to make the statements herein or therein not
misleading in any material respect.
2.28 CONSENTS. Company shall use its commercially reasonable efforts
to obtain the consents, waivers and approvals under any of the Contracts as may
be required in connection with the Merger (all of such consents and approvals
21
are set forth in Schedule 2.4) so as to preserve all rights of, and benefits to,
Company thereunder.
2.29 ACKNOWLEDGEMENT. Each of the Company Stockholders has
acknowledged to Company that such Company Stockholder and his representatives
and advisors has had the opportunity to ask questions of and receive answers
from Parent and its representatives to the extent that such Company Stockholder
and his representatives and advisors have deemed necessary and appropriate and
to review all written documentation and other information requested by them and
provided by Parent, for the purpose of evaluating Parent, the merger of Company
and Merger Sub and the other transactions contemplated by this Agreement and the
agreements contemplated hereby. Each of the Company Stockholders has also
acknowledged that in entering into this Agreement and in performing his
obligations hereunder, such Company Stockholder has relied solely upon his own
due diligence, his knowledge of the industry in which the business of Company
and Parent is conducted and the representations and warranties of Parent and
Company expressly set forth in this Agreement, and not upon any other
representations, warranties or statements of any kind; PROVIDED, HOWEVER, that
such diligence and knowledge shall not be deemed a waiver by any such Company
Stockholder of any of such Company Stockholder's rights with respect to the
representations of Parent and Merger Sub.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to Company as follows:
3.1 ORGANIZATION; STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a Material Adverse Effect on the ability of Parent and Merger Sub to consummate
the transactions contemplated hereby.
3.2 AUTHORITY. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub. This Agreement has been duly executed and delivered by Parent and Merger
Sub and constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms, except as such enforceability may be
limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. The execution and delivery of this Agreement by Parent and
Merger Sub does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of; or default under (with or without notice or lapse of time, or
both), or give rise to a Conflict (as defined in Section 2.4) under (i) any
provision of the Certificate of Incorporation or By-laws of Parent or Merger Sub
or (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or Merger Sub
or their properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity (as defined in Section 2.4) or any third party (so as not to trigger any
22
Conflict), is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for the filing of the Certificates of
Merger with the appropriate Secretaries of State.
3.3 SEC FILINGS; MATERIAL ADVERSE CHANGE. Parent has filed all forms,
reports and documents required to be filed by Parent with the SEC since January
1, 1999, and has made available to Company such forms, reports and documents in
the form filed with the SEC. All such required forms, reports and documents
(including those that Parent may file subsequent to the date hereof) are
referred to herein as the "PARENT SEC REPORTS." As of their respective dates,
the Parent SEC Reports (i) were prepared in accordance 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 (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Except as disclosed in the Parent SEC Reports filed by Parent and
publicly available prior to the date of this Agreement, as of the date hereof,
there has not been any material adverse change with respect to Parent that would
require disclosure under the Securities Act.
3.4 PARENT COMMON STOCK. The shares of Parent Common Stock to be
issued in connection with the Merger, when issued in accordance with the terms
and provisions of this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and will not be subject to any preemptive or other
statutory right of stockholders.
3.5 BROKERS' AND FINDERS' FEES. Parent has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.6 ACKNOWLEDGMENT. Parent and Merger Sub acknowledge that they and
their representatives and advisors have had the opportunity to ask questions of
and receive answers from Company and its representatives to the extent that
Parent, Merger Sub and their representatives and advisors have deemed necessary
and appropriate and to review all written documentation and other information
requested by them and provided by Company, for the purpose of evaluating
Company, the merger of Company and Merger Sub and the other transactions
contemplated by this Agreement and the agreements contemplated hereby. In
entering into this Agreement and in performing their obligations hereunder,
Parent and Merger Sub have relied solely upon their own due diligence, their
knowledge of the industry in which the business of Company is conducted and the
representations and warranties of Company expressly set forth in this Agreement,
and not upon any other representations, warranties or statements of any kind;
PROVIDED, HOWEVER, that such diligence and knowledge shall not be deemed a
waiver by Parent or Merger Sub of any of their rights with respect to the
representations and warranties of Company.
3.7 DISCLOSURE. None of the representations or warranties of Parent
or Merger Sub contained herein, and none of the other information or documents
furnished or to be furnished to Company by Parent or Merger Sub pursuant to the
terms of this Agreement, is false or misleading in any material respect or omits
to state a fact herein or therein necessary to make the statements herein or
therein not misleading in any material respect.
23
ARTICLE IV
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
4.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger and continue until June 30, 2001.
4.2 STOCKHOLDER ESCROW ARRANGEMENTS.
(a) ESCROW FUNDS. As provided in Section 1.9, at the Effective
Time, without any act of any stockholder, the Escrow Amount will be deposited
into an escrow account with an escrow agent mutually agreed upon by Parent and
Company (the "ESCROW AGENT"), such deposit to constitute an escrow fund (the
"ESCROW FUND"). The terms upon which the Escrow Agent will serve in such
capacity shall be as provided in an Escrow Agreement to be mutually agreed upon
by Parent and Company, and which will be consistent with the provisions of this
Article IV (the "ESCROW AGREEMENT"). The Escrow Fund is to be governed by the
terms set forth in the Escrow Agreement and maintained at Parent's sole cost and
expense (the "STOCKHOLDER ESCROW"). The portion of the Escrow Amount contributed
on behalf of each Company Stockholder shall correspond to such stockholder's
Proportionate Escrow Interest.
(b) PURPOSE. The Escrow Fund shall be available to compensate
Parent and its affiliates for any claim, loss, expense, liability or other
damage, including reasonable attorneys' fees, to the extent of the amount of
such claim, loss, expense, liability or other damage (collectively "LOSSES")
that Parent or any of its affiliates has incurred or reasonably anticipates
incurring (in the case of an extension of the Stockholder Escrow period pursuant
to Section 4.2(c)) by reason of the breach by Company of any representation,
warranty, covenant or agreement of Company contained herein. Losses shall not
include amounts recovered from insurance. Parent and the Surviving Company shall
undertake commercially reasonable efforts to claim and collect insurance to
which they are entitled with respect to any Losses.
(c) TERMINATION AND DISTRIBUTION OF ESCROW FUND. On June 30,
2001, the Escrow shall terminate; PROVIDED, HOWEVER, that such portion of the
Stockholder Escrow, which, in the reasonable judgment of Parent, subject to the
objection of the Company Stockholder Agent and the subsequent arbitration of the
matter in the manner provided in Section 4.2(i) hereof, is necessary to satisfy
any identified but unsatisfied Losses specified in any Officer's Certificate
theretofore delivered to the Escrow Agent prior to termination of the
Stockholder Escrow, shall remain in the Stockholder Escrow (and the Stockholder
Escrow shall remain in existence) until the earlier of (i) the expiration of the
statute of limitations applicable to such claims or (ii) the resolution of such
claims. As soon as all such claims have been resolved or the statute of
limitations has expired, the Escrow Agent shall deliver to the appropriate
security holders of Company the remaining portion of the Stockholder Escrow not
required to satisfy such claims. Deliveries of Escrow Amounts to the Company
Stockholders pursuant to this Section 4.2(c) shall be made according to each
stockholder's Proportionate Escrow Interest as certified to the Escrow Agent by
the Company Stockholder Agent.
(d) PROTECTION OF ESCROW FUND. The Escrow Agent shall hold and
safeguard the Escrow Funds during their existence, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as the
property of Parent and shall hold and dispose of the Escrow Funds only in
accordance with the terms hereof.
24
(e) CLAIMS UPON ESCROW FUND. In the event Parent incurs or
becomes aware of any Losses or potential Losses for which it is entitled to
indemnity under this Article IV, it shall deliver to the Escrow Agent and the
Company Stockholder Agent a certificate signed by any officer of Parent (an
"OFFICER'S CERTIFICATE"): (A) stating that Parent has (i) incurred or (ii) for
purposes of extending the Escrow pursuant to Section 4.2(c) above, reasonably
anticipates that it will have to incur Losses, (B) specifying in reasonable
detail the individual items of Losses included in the amount so stated, the date
each such item was paid or properly incurred, or the basis for such anticipated
liability, and either the nature of the misrepresentation, breach of warranty or
claim or the litigation matter to which such item is related. Upon the receipt
of a certificate pursuant to clause (A)(i) above and after compliance with the
provisions of Sections 4.2(f), (g) and (h) hereof, the Escrow Agent shall
deliver to Parent out of the Escrow Fund, as promptly as practicable, such
amounts held in the Escrow Fund equal to such Losses incurred. In determining
the number of shares of Parent Common Stock to be paid out by the Escrow Agent
pursuant to this Article IV, such shares shall be valued by the Escrow Agent at
the Merger Consideration value of $22.50 per share.
(f) Parent shall not be entitled to receive any disbursement or
cause any amount to be retained in Escrow with respect to any Losses arising in
respect of any individual occurrence or circumstance unless the aggregate amount
of all Losses shall exceed $100,000; provided that in the event the aggregate
amount of such Losses of Parent shall exceed $100,000, then Parent shall be
entitled to recover from the Escrow Fund only Losses in excess of $100,000.
(g) OBJECTIONS TO CLAIMS. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Company Stockholder Agent (as defined in Section
4.2(i)). The Escrow Agent shall make no delivery to Parent of any amounts out of
the Escrow Fund, pursuant to Section 4.2(e)(A)(i) hereof, unless and until the
Escrow Agent shall have received written authorization from the Company
Stockholder Agent to make such delivery or unless the claim shall have been
resolved pursuant to Section 4.2(h). If the Company Stockholder Agent shall
object to the claim made in the Officer's Certificate, the Company Stockholder
Agent shall do so in a written statement to such effect delivered to the Escrow
Agent. The Company Stockholder Agent shall approve or object to any such claim
within a reasonable time after actual receipt of the Officer's Certificate.
(h) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Company Stockholder Agent shall so object
in writing to any claim or claims made in any Officer's
Certificate, the Company Stockholder Agent and Parent shall
attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If
the Company Stockholder Agent and Parent should so agree, a
memorandum setting forth such agreement shall be prepared
and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and distribute amounts from the Escrow
Funds in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Company Stockholder Agent
may demand arbitration of the matter unless the amount of
the damage or loss is at issue in pending litigation with a
third party, in which event arbitration shall not be
commenced until such amount is ascertained upon the
conclusion of such litigation or both parties agree to
arbitration, and in either such event the matter shall be
settled by binding arbitration conducted by three
25
arbitrators. Parent and the Company Stockholder Agent shall
each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The arbitrators
shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery while
allowing the parties an opportunity, adequate in the sole
judgement of the arbitrators, to discover relevant
information from the opposing parties about the subject
matter of the dispute. The arbitrators shall rule upon
motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys' fees
and costs, to the same extent as a court of competent law
or equity, should the arbitrators determine that discovery
was sought without substantial justification or that
discovery was refused or objected to without substantial
justification. The decision of a majority of the three
arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive
upon the parties to this Agreement, and notwithstanding
anything in this Section 4.2(h); the Escrow Agent shall be
entitled to act in accordance with such decision and make
or withhold payments out of the Escrow Fund in accordance
therewith. 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 arbitrators.
(iii) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any such
arbitration shall be held in Washington, D.C. under the
rules then in effect of the American Arbitration
Association. For purposes of this Section 4.2(h), in any
arbitration hereunder in which any claim or the amount
thereof stated in the Officer's Certificate is at issue,
Parent shall be deemed to be the Non-Prevailing Party in
the event that the arbitrators award Parent less than the
sum of one-half (1/2) of the disputed amount; otherwise,
the stockholders of Company as represented by the Company
Stockholder Agent shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay
its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association,
and the out-of-pocket expenses; including without
limitation, reasonable attorneys' fees and costs, incurred
by the other party to the arbitration in connection
therewith.
(i) AGENT OF COMPANY STOCKHOLDERS; POWER OF ATTORNEY.
(i) In the event that the Merger is approved, effective
upon such vote, and without further act of any stockholder,
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ shall be appointed as agent and
attorney-in-fact (the "COMPANY STOCKHOLDER AGENT") for each
stockholder of Company on whose behalf any Parent Common
Stock was deposited into the Escrow Fund (except such
stockholders, if any, as shall have perfected their
Dissenters Rights under Minnesota Law), for and on behalf
of stockholders of Company, to give and receive notices and
communications, to authorize delivery to Parent of Parent
Common Stock from the Escrow Fund in satisfaction of claims
by Parent, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and
demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment
of the Company Stockholder Agent for the accomplishment of
the foregoing. Such agency may be changed by the stock-
holders of Company from time to time upon not less than
26
thirty (30) days prior written notice to Parent; provided
that the Company Stockholder Agent may not be removed
unless holders of a two-thirds interest of the Escrow Funds
agree to such removal and to the identity of the
substituted agent. No bond shall be required of the
Company Stockholder Agent, and the Company Stockholder
Agent shall not receive compensation for his services.
Notices or communications to or from the Company
Stockholder Agent shall constitute notice to or from
each of the stockholders of Company.
(ii) The Company Stockholder Agent shall not be liable
for any act done or omitted hereunder as Agent while acting
in good faith and in the exercise of reasonable judgment.
The stockholders of Company on whose behalf the amounts
were contributed to the Escrow Funds shall severally
indemnify the Company Stockholder Agent and hold the
Company Stockholder Agent harmless against any loss,
liability or expense incurred without negligence or bad
faith on the part of the Company Stockholder Agent and
arising out of or in connection with the acceptance
or administration of the Company Stockholder Agent's duties
hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Company Stockholder
Agent.
(j) ACTIONS OF THE COMPANY STOCKHOLDER AGENT. A decision, act,
consent or instruction of the Company Stockholder Agent shall constitute a
decision of all the stockholders for whom a portion of the amounts otherwise
issuable to them are deposited in the Escrow Funds and shall be final, binding
and conclusive upon each of such stockholders, and the Escrow Agent and Parent
may rely upon any such decision, act, consent or instruction of the Agent as
being the decision, act, consent or instruction of each and every such
stockholder of Company. The Escrow Agent and Parent are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Company Stockholder Agent.
(k) THIRD-PARTY CLAIMS. Parent shall have the right in its sole
discretion to defend and to settle any third-party claim, provided, however,
that any counsel retained to defend a third-party claim to be satisfied from the
Escrow Fund shall be reasonably acceptable to the Company Stockholder Agent and
Parent shall not settle any such third party claim without the prior consent of
the Company Stockholder Agent, which consent shall not be unreasonably withheld.
4.3 ESCROW AGENT'S DUTIES.
(a) The Escrow Agent shall be obligated only for the performance
of such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Parent and the
Company Stockholder Agent, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow Agent
while acting in good faith and in the exercise of reasonable judgment, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith
(b) The Escrow Agent is hereby expressly authorized to disregard
any and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment or decree
of any court, the Escrow Agent shall not be liable to any of the parties hereto
or to any other person by reason of such compliance, notwithstanding any such
27
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
(c) The Escrow Agent shall not be liable in any respect on
account of the rights of the parties executing or delivering or purporting to
execute or deliver this Agreement or any documents or papers deposited or called
for hereunder.
(d) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(e) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to Parent and the Company Stockholder Agent to
this Agreement; PROVIDED, HOWEVER, that no such resignation shall become
effective until the appointment of a successor escrow agent which shall be
accomplished as follows: Parent and the Company Stockholder Agent shall use
their best efforts to mutually agree upon a successor agent within thirty (30)
days after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, Parent shall have the right to appoint a
successor escrow agent. The successor escrow agent selected in the preceding
manner shall execute and deliver an instrument accepting such appointment and it
shall thereupon be deemed the Escrow Agent hereunder and it shall without
further acts be vested with all the estates, properties, rights, powers, and
duties of the predecessor Escrow Agent as if originally named as Escrow Agent.
Thereafter, the predecessor Escrow Agent shall be discharged from any further
duties and liabilities under this Agreement.
4.4 LIMITATION ON LIABILITY. Notwithstanding any other provision
of this Agreement to the contrary, absent fraud or bad faith, the liability of
Company and the Company Stockholders with respect to any claim for a breach of
any representation, warranty, covenant or agreement contained in this Agreement
shall be limited to the assets of the Escrow Fund, and no Company Stockholder
shall have any liability to Parent or the Surviving Corporation arising from any
breach after the termination of the Escrow other than with respect to claims
made prior to such termination under Section 4.2(c) (and liability with such
claims shall be limited to the amount held in the Escrow as a result thereof).
ARTICLE V
PRE-CLOSING COVENANTS
Each of the Parent, Merger Sub and Company agrees as follows with
respect to the period from and after the execution of this Agreement through and
including the Effective Time:
5.1 GENERAL. Each of the Parent, Merger Sub and Company will use all
reasonable efforts to take all actions and to do all things necessary in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Article VI below). In addition, as promptly as practicable after signing this
Agreement, Parent and Company shall identify and retain an Escrow Agent and
negotiate and enter into an Escrow Agreement.
5.2 OPERATION OF COMPANY'S BUSINESS. Company will not, without the
written consent of Parent, take any action or enter into any transaction other
than in the ordinary course of business consistent with past practice. Without
limiting the generality of the foregoing, except as expressly provided in this
Agreement, without the written consent of Parent, Company will not:
28
(i) authorize or effect any change in its charter or by-
laws or comparable organizational document;
(ii) except for (A) 30,000 shares of Company Common Stock
which were issued on December 31, 1999, (B) the issuance of
Company Common Stock upon conversion of the Cabletron
Convertible Note dated September 14, 1999 (which conversion
will occur before the Effective Time) and (C) that number
of options to be authorized in the Company's stock option
plan and issued by Parent at the Effective Time at the
direction of the Company to accommodate the post merger
issuance of options to acquire one million shares of Parent
Common Stock at $6.81 per share (which underlying options
referred to in this clause (C) shall not count against the
3,490,000 shares of Parent Common Stock otherwise payable
by Parent in connection with the Merger), grant any stock
rights or issue, sell, authorize or otherwise dispose of
any of its capital stock;
(iii) sell, lease, encumber or otherwise dispose of, or
otherwise agree to sell, lease, encumber or otherwise
dispose of, any of its assets which are material,
individually or in the aggregate, to Company, other than
equipment sales from inventory arising in the ordinary
course of business consistent with past practice;
(iv) declare, set aside or pay any dividend or
distribution with respect to its capital stock (whether in
cash or in kind);
(v) split, combine or reclassify any of its capital
stock or redeem, repurchase or otherwise acquire any of its
capital stock;
(vi) acquire or agree to acquire by merger or
consolidation with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or
by any other manner, any business of any Person or division
thereof or otherwise acquire or agree to acquire any assets
(other than assets used in the operation of the business of
Company in the ordinary course consistent with past
practice);
(vii) incur or commit to any capital expenditures other
than capital expenditures incurred or committed to in the
ordinary course of business consistent with past practice;
(viii) except for the satisfaction by Company, if any, of
the Company's obligation to pay off Digi International,
Inc. (the "DIGI OBLIGATION"), make any loans, advances or
capital contributions to, or investments in, any other
person or entity, (y) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than payments,
discharges or satisfactions incurred or committed to in the
ordinary course of business consistent with past practice
or (z) create, incur, assume or suffer to exist any
indebtedness, issuances of debt securities, guarantees,
security interests, loans or advances not in existence as
of the date of this Agreement except pursuant to the credit
facilities, indentures and other arrangements in existence
on the date of this Agreement and incurred in the ordinary
course of business consistent with past practice, and any
other indebtedness existing on the date of this Agreement,
in each case as such credit facilities, indentures, other
arrangements and other existing indebtedness may be
29
amended, extended, modified, refunded, renewed or
refinanced after the date of this Agreement, but only if
the aggregate principal amount thereof is not increased
thereby, the term thereof is not extended thereby and the
other terms and conditions thereof, taken as a whole, are
not less advantageous to Company than those in existence as
of the date of this Agreement;
(ix) make any change in employment terms for any of its
directors, officers and employees other than (A) customary
increases to employees whose total annual cash compensation
is less than $100,000 awarded in the ordinary course of
business consistent with past practices, and (B) customary
employee bonuses (including to employees who are officers)
approved by the Board of Directors of Company (the "COMPANY
BOARD") and paid in the ordinary course of business
consistent with past practices and (C) immaterial changes
to Company Employee Plans;
(x) change its methods of accounting in a manner
materially affecting the consolidated assets, liabilities
or results of operations of Company, except as required
by changes in generally accepted accounting principles
as concurred in by Company's independent auditors, and
(i) change its fiscal year or (ii) make any material tax
election, other than in the ordinary course of business
consistent with past practice; and
(xi) resolve or commit to any of the foregoing.
In the event Company shall request Parent to consent in
writing to an action otherwise prohibited by this Section 5.2, Parent shall use
reasonable efforts to respond in a prompt and timely fashion (but in no event
later than ten (10) business days following such request), but may otherwise
respond affirmatively or negatively in its sole discretion.
5.3 ACCESS. Company will permit representatives of Parent to have
access at all reasonable times and in a manner so as not to materially interfere
with the normal business operations of Company, to all premises, properties,
personnel, books, records (including without limitation tax and financial
records), contracts and documents of or pertaining Company. Parent and all of
its representatives will treat and hold as such any confidential information it
receives from Company or any of its representatives.
5.4 NOTICE OF DEVELOPMENTS. Company will give prompt written notice
to Parent of any material adverse development causing a breach of any of its own
representations and warranties in Article II above. No disclosure by Company
pursuant to this Section 5.4, however, shall be deemed to amend or supplement
Company schedules or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant.
5.5 COMPANY EXCLUSIVITY.
(a) Company shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any Persons conducted heretofore by Company, its officers, directors,
employees, financial advisors, agents or representatives (each a
"REPRESENTATIVE") with respect to any proposed, potential or contemplated
proposal or offer (including, without limitation, any proposal or offer to the
Company Stockholders) with respect to a merger, acquisition, consolidation,
recapitalization, reorganization, liquidation, tender offer, or exchange offer
or similar transaction involving, or any purchase of 25% or more of the
30
consolidated assets of, or any equity interest representing 25% or more of the
outstanding shares of capital stock in, Company (an "ACQUISITION PROPOSAL").
(b) From and after the date hereof, without the prior written
consent of Parent, Company shall cause any and all of its Representatives not
to, directly or indirectly, (A) solicit, initiate, or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, an
Acquisition Proposal, or (B) engage in negotiations or discussions with any
third party concerning, or provide any non-public information to any person or
entity relating to, an Acquisition Proposal, or (C) enter into any letter of
intent, agreement in principle or any acquisition agreement or other similar
agreement with respect to any Acquisition Proposal.
(c) Company shall notify Parent promptly after receipt by
Company or Company's knowledge of the receipt by any of its Representatives of
any Acquisition Proposal or any request for non-public information in connection
with an Acquisition Proposal or for access to the properties, books or records
of Company by any Person that informs such party that it is considering making
or has made an Acquisition Proposal. Such notice shall be made orally and in
writing and shall indicate the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact. Company shall keep Parent
informed of the status (including any change to the material terms) of any such
Acquisition Proposal or request for non-public information.
(d) Company agrees with Parent that any breach of this Section
5.5 could not be compensated with monetary damages alone and that without in any
way limiting Parent's rights, Parent shall be entitled to injunctive or other
equitable relief against any breach or threatened breach of this Section 5.5.
5.6 FINANCIAL STATEMENTS. Company shall make available to Parent the
internally generated monthly (if any), quarterly and annual financial statements
of Company, consisting of a balance sheet, and statements of income and of cash
flows.
5.7 NASDAQ LISTING. Parent shall use all reasonable efforts to cause
the Parent Common Stock to be issued in connection with the Merger and under
Company Employee Plans to be approved for listing on Nasdaq, subject to official
notice of issuance, prior to the Closing Date.
5.8 SATISFACTION OF DIGI OBLIGATION; REGISTRATION OF PARENT COMMON
STOCK. Parent will use commercially reasonable efforts to effect registration
statements (i) pursuant to which Parent will sell up to 900,000 shares of Parent
Common Stock to satisfy the Digi Obligation on or before June 30, 2000 and (ii)
after November 1, 2000 in accordance with the provisions of the Registration
Rights Agreement. In the event the sale of such 900,000 shares is not sufficient
to satisfy the Digi Obligation, Parent shall pay the balance of such obligation
on or before June 30, 2000. After payment of the Digi Obligation by Parent,
2,590,000 shares of Parent Common Stock (less the Escrow Amount) plus any shares
in excess of such number of shares necessary to satisfy the Digi Obligation
shall be distributed on the Closing Date to the holders of Company Common Stock,
Company Options and Company Warrants in the proportions set forth on Schedule
5.8 hereto. Notwithstanding the foregoing, if prior to March 31, 2000 the
Company satisfies its Digi Obligation otherwise than by sale of Parent Common
Stock, and provided that funding such obligation does not breach this Agreement,
Parent shall on the Closing Date distribute 3,490,000 shares of Parent Common
Stock (less the Escrow Amount) in the proportions set forth on Schedule 5.8.
5.9 INTERIM FINANCING. Until the Effective Time, Parent will use
commercially reasonable efforts to support the working capital obligations of
Company, including payment of Company obligations as they come due, incurred in
the ordinary course of the conduct of Company's business consistent with past
31
practices, not to exceed $500,000 in any thirty day period.
ARTICLE VI
CONDITIONS TO OBLIGATION TO CLOSE
6.1 CONDITIONS TO OBLIGATION OF PARENT. The obligation of Parent to
consummate the Merger is subject to satisfaction or waiver by Parent of the
following conditions at or prior to the Closing Date:
(a) the Company shall have received the approvalof the Company
Stockholders;
(b) the representations and warranties set forth in Article II
above shall be true and correct in all material respects at and as of the
Closing Date, except for those representations and warranties which address
matters only as of a particular date (which shall have been true and correct as
of such date);
(c) Company shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(d) neither any statute, rule, regulation, order, stipulation
or injunction (each an "ORDER") shall be enacted, promulgated, entered, enforced
or deemed applicable to the Merger nor any other action shall have been taken by
any Governmental Entity (1) which prohibits the consummation of the transactions
contemplated by the Merger; (2) which prohibits Parent's ownership or operation
of all or any material portion of its or Company's business or assets, or which
compels Parent to dispose of or hold separate all or any material portion of
Parent's or Company's business or assets as a result of the transactions
contemplated by the Merger; (3) which makes the Merger illegal; (4) which
imposes material limitations on the ability of Parent to consummate the Merger;
or (5) which imposes any limitations on the ability of Parent effectively to
control in any material respect the business or operations of Company;
(e) Company shall have delivered to Parent a certificate to
the effect that each of the conditions specified above in Section 6.1(a) through
(d) is satisfied in all respects;
(f) the Digi Indebtedness shall have been satisfied; and
(g) holders of not more than $2,500,000 in value of shares
of Company Common Stock (calculated based upon the average closing price per
share of Parent Common Stock for the five trading day period ending on the last
trading day prior to the Closing Date) shall have exercised and not withdrawn
dissenters' rights with respect to their shares.
Subject to the provisions of applicable law, Parent may waive,
in whole or in part, any condition specified in this Section 6.1 if Parent
executes a writing so stating at or prior to the Closing.
6.2 CONDITIONS TO OBLIGATION OF COMPANY. The obligation of Company
to consummate the Merger is subject to satisfaction or waiver by Company of the
following conditions at or prior to the Closing Date:
(a) the Company shall have received the approval of the
Company Stockholders;
32
(b) the representations and warranties set forth in Article
III above shall be true and correct in all material respects at and as of the
Closing Date, except for those representations and warranties which address
matters only as of a particular date (which shall have been true and correct as
of such date);
(c) Parent shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(d) neither any Order shall be enacted, promulgated, entered,
enforced or deemed applicable to the Merger nor any other action shall have been
taken by any Government Entity (1) which prohibits the consummation of the
transactions contemplated by the Merger; (2) which prohibits Parent's ownership
or operation of all or any material portion of their or Company's business or
assets, or which compels Parent to dispose of or hold separate all or any
material portion of Parent's or Company's business or assets as a result of the
transactions contemplated by the Merger; or (3) which makes the Merger illegal;
and
(e) Parent shall have delivered to Company a certificate to
the effect that each of the conditions specified above in Sections 6.2(a)
through (d) is satisfied in all respects.
Subject to the provisions of applicable law, Company may waive,
in whole or in part, any condition specified in this Section 6.2 if it executes
a writing so stating at or prior to the Closing.
ARTICLE VII
TERMINATION
7.1 TERMINATION OF AGREEMENT. The parties may terminate this
Agreement with the prior authorization of their respective board of directors as
provided below:
(a) The parties may terminate this Agreement, and the Merger
may be abandoned, by mutual written consent at any time prior to the Effective
Time;
(b) This Agreement may be terminated and the Merger may be
abandoned by action of the Board of Directors of either Parent or Company (1) if
the Effective Time shall not have occurred by November 1, 2000 (the "OUTSIDE
DATE") (unless the failure to consummate the Merger by such date is due to the
action or failure to act of the Party seeking to terminate) or (2) if any
condition to the obligation of the terminating party to consummate the Merger
shall have become incapable of being satisfied prior to the Outside Date as of a
result of an Order that is final and non-appealable; PROVIDED that Parent shall
provide Company with 60 days' written notice of any termination pursuant to this
Section 7.1(b)(2); and PROVIDED, FURTHER, that during such 60 day notice period
Company shall not be bound by the provisions of Section 5.5;
(c) This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, by action of Company Board,
in the event that Parent shall have breached any of its representations,
warranties or covenants under this Agreement which breach (1) would give rise to
the failure of a condition set forth in Section 6.2 above, and (2) cannot be or
has not been cured within 30 days after the giving of written notice by Company
to Parent of such breach (provided that Company is not then in material breach
of any representation, warranty or covenant contained in this Agreement);
PROVIDED that unless and until such breach is cured by Parent, Company shall not
be bound by the provisions of Section 5.5. Notwithstanding the foregoing, upon
33
cure of any breach by Parent within the 30-day cure period, the restrictions in
Section 5.5 shall immediately be reinstated;
(d) This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, by action of the Board of
Directors of Parent, in the event that Company shall have breached any of its
representations, warranties or covenants under this Agreement which breach (1)
would give rise to the failure of a condition set forth in Section 6.1 above,
and (2) cannot be or has not been cured within 60 days after the giving of
written notice by Parent to Company of such breach (provided that Parent is not
then in material breach of any representation, warranty or covenant contained in
this Agreement); PROVIDED, FURTHER, that during such 60 day cure period Company
shall not be bound by the provisions of Section 5.5;
(e) Parent may terminate this Agreement, and the Merger may be
abandoned, by giving written notice to Company at any time within ten days after
Company's special meeting of stockholders called to approve the Merger, in the
event that dissenters rights are exercised by the holders of shares of Company
Common Stock having an aggregate value (based upon the average closing sales
price per share of Parent Common Stock on the five trading day period ending on
the trading date immediately prior to the scheduled Closing Date) in excess of
$2,500,000.
7.2 EFFECT OF TERMINATION. If any party terminates this Agreement
pursuant to Section 7.1 above, all rights and obligations of the parties
hereunder shall terminate without any liability of either party to the other
party (except for any liability of any party then in breach); PROVIDED, HOWEVER,
that the provisions of this Section 7.2 and Section 8.11 shall survive any such
termination.
ARTICLE VIII
GENERAL PROVISIONS
8.1 INDEMNIFICATION, EXCULPATION AND INSURANCE.
(a) The Certificate of Incorporation and the By-laws of the
Surviving Corporation shall contain provisions with respect to indemnification
and exculpation from liability of officers and directors to the fullest extent
permitted by Delaware Law, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
or prior to the Effective Time were directors, officers, employees or agents of
Company (the "INDEMNIFIED PARTIES"), unless such modification is required by
law.
(b) To the extent coverage is reasonably available under Company's
current directors' and officers' liability insurance policy or otherwise, Parent
will extend the discovery or reporting period under such policy for up to three
years from the Effective Time to maintain in effect directors' and officers'
liability insurance covering pre-acquisition acts for those persons who are
currently covered by Company's directors' and officers' liability insurance
policy (a copy of which has been heretofore delivered to Parent) on terms no
less favorable than the terms of such current insurance coverage.
(c) In the event Parent, the Surviving Corporation or any of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
34
provisions shall be made so that the successors and assigns of Parent or the
Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 5.1.
(d) This Section 8.1 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit Company, Parent, the
Surviving Corporation and the Indemnified Parties, and shall be binding on all
successors and assigns of Parent and the Surviving Corporation.
8.2 BENEFIT PLANS AND EMPLOYEE MATTERS.
(a) From and after the Effective Time, Parent shall to the
extent practicable cause the Surviving Corporation to provide employee benefits
and programs to Company's employees that, in the aggregate, are substantially
comparable to those made available to Parent's employees generally. To the
extent Parent satisfies its obligations under this Section 8.2 by maintaining
Company benefit plans, Parent shall not be required to include employees of
Company in Parent's benefit plans. From and after the Effective Time, Parent
shall honor, in accordance with their terms, all employment and severance
agreements identified on Schedule 2.20 and all severance, incentive bonus plans
identified on Schedule 2.20 as in effect immediately prior to the Closing Date
that are applicable to any current or former employees or directors of Company
or any of its subsidiaries.
(b) To the extent that service is relevant for purposes of
eligibility, level of participation, or vesting under any employee benefit plan,
program or arrangement established or maintained by Parent, Company or any of
Parent's subsidiaries, employees of Company shall be credited for service
accrued or deemed accrued prior to the Effective Time with Company.
8.3 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (postage prepaid and
return receipt requested) or sent via facsimile (with a copy of such notice or
other communication and a confirmation of complete transmission delivered
personally or sent by certified or registered mail, postage prepaid and return
receipt requested, no later than the close of business on the third business day
following such transmission) to the parties at the following addresses at such
other address for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Netrix Corporation
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇ LLP
Two Stamford Plaza
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Company, to:
35
AetherWorks Corporation
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: President and Chief Executive Officer
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.A.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Each notice transmitted in the manner described in this Section 8.1 shall be
deemed to have been given, and become effective for all purposes at the time it
shall have been (i) delivered to the addressee by the return receipt (if
transmitted by mail or commercial delivery service), or the affidavit of the
messenger (if transmitted by personal delivery) or (ii) presented for delivery
to the addressee as so indicated during normal business hours, if such delivery
shall have been refused for any reason.
8.4 INTERPRETATION. The words "INCLUDE," "INCLUDES" and "INCLUDING"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
interpretation of this Agreement.
8.5 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. Signature pages received by
facsimile shall constitute originals.
8.6 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the schedules
and Exhibits hereto, and the documents and instruments and other agreements
among the parties hereto referenced herein: (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof; (b) are not intended to confer upon
any other person (including, without limitation, those persons listed on any
exhibits hereto) any rights or remedies hereunder; and (c) without the prior
written consent of each party shall not be assigned by operation of law or
otherwise, except that Parent may assign its rights and obligations hereunder to
an affiliate of Parent provided that Parent shall remain liable for all its
obligations hereunder notwithstanding such assignment. Any assignment of rights
or delegation of duties under this Agreement by a party without the prior
written consent of the other parties, if such consent is required hereby, shall
be void.
8.7 SEVERABILITY. If any provision of this Agreement shall hereafter
be held to be invalid, unenforceable or illegal, in whole or in part, in any
jurisdiction under any circumstances for any reason, (i) such provision shall be
reformed to the minimum extent necessary to cause such provision to be valid,
enforceable and legal while preserving the intent of the parties as expressed
in, and the benefits to the parties provided by, this Agreement or (ii) if such
provision cannot be so reformed, such provision shall be severed from this
Agreement and an equitable adjustment shall be made to this Agreement
36
(including, without limitation, addition of necessary further provisions to this
Agreement) so as to give effect to the intent as so expressed and the benefits
so provided. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under
any other circumstances. Neither such holding nor such reformation or severance
shall affect or impair the legality, validity or enforceability of any other
provision of this Agreement.
8.8 OTHER REMEDIES. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy. The Company Stockholders, holders of Company
Options and holders of Company Warrants are intended to be third-party
beneficiaries of the representations and warranties of Parent and Merger Sub
contained herein and it is expressly acknowledged that no provision of this
Agreement (other than Article IV) in any way limits or results in a waiver of
any right of a Company Stockholder, holder of Company Options or holder of
Company Warrants to bring an action against Parent and/or Merger Sub for damages
incurred by such Company Stockholder, holder of Company Options or holder of
Company Warrants arising from or relating to any such breach.
8.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of Virginia, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
8.10 RULES OF CONSTRUCTION. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
8.11 CONFIDENTIALITY. Each of the parties hereto hereby agrees to
keep such information or knowledge obtained in any investigation pursuant to the
negotiation and execution of this Agreement, or the effectuation of the
transactions contemplated hereby, confidential ("CONFIDENTIAL INFORMATION");
PROVIDED, HOWEVER, that the foregoing shall not apply to information or
knowledge which (a) a party can demonstrate was already lawfully in its
possession prior to the disclosure thereof by the other party, (b) is generally
known to the public and did not become so known through any violation of law,
(c) became known to the public through no fault of such party, (d) is later
lawfully acquired by such party from other sources, (e) is required to be
disclosed by order of court or government agency with subpoena powers (provided
that such party shall given the other party prior notice of such order and a
reasonable opportunity to object or take other available action), (f) is
disclosed in the course of any litigation between any of the parties hereto or
(g) is developed independently by either party without reference to, or specific
knowledge of the other parties' Confidential Information. Notwithstanding the
foregoing, it is acknowledged that Parent may publicly disclose the material
terms of this Agreement following the date hereof pursuant to the federal
securities laws and otherwise in a manner reasonably satisfactory to Company.
* * * *
37
IN WITNESS WHEREOF, Parent, Merger Sub, Escrow Agent and Company have
caused this Agreement to be signed by their duly authorized respective officers,
all as of the date first written above.
COMPANY PARENT
AETHERWORKS CORPORATION NETRIX CORPORATION
By:/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ By:/s/ ▇▇▇▇▇▇ ▇. Francesco
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Name: ▇▇▇▇▇▇ ▇. Francesco
Title: President & CEO Title: Chairman & CEO
MERGER SUB
NX1 ACQUISITION CORP.
By: /s/ ▇▇▇▇▇▇ ▇. Francesco
Name: ▇▇▇▇▇▇ ▇. Francesco
Title: Chairman & CEO
38
TABLE OF CONTENTS
ARTICLE I THE MERGER.......................................................2
1.1 The Merger.......................................................2
1.2 The Closing......................................................2
1.3 Actions at the Closing...........................................2
1.4 Effect of the Merger.............................................2
1.5 Certificate of Incorporation; By-laws............................3
1.6 Directors and Officers...........................................3
1.7 Effect on Capital Stock..........................................3
1.8 Dissenting Shares................................................5
1.9 Surrender of Certificates; Payment of Merger Consideration.......5
1.10 No Further Ownership Rights in Company Common Stock..............6
1.11 Lost, Stolen or Destroyed Certificates...........................6
1.12 Tax and Accounting Treatment.....................................7
1.13 Taking of Necessary Action; Further Action.......................7
1.14 Purchase Price Adjustment........................................7
1.15 Expenses.........................................................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................8
2.1 Organization of Company..........................................8
2.2 Company Capital Structure........................................8
2.3 Subsidiaries.....................................................9
2.4 Authority........................................................9
2.5 Company Financial Statements....................................10
2.6 No Undisclosed Liabilities......................................10
2.7 No Changes......................................................10
2.8 Tax and Other Returns and Reports...............................11
2.9 Restrictions on Business Activities.............................13
2.10 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment..........................................13
2.11 Intellectual Property...........................................14
2.12 Agreements, Contracts and Commitments...........................17
2.13 Interested Party Transactions...................................18
2.14 Governmental Authorization......................................18
2.15 Litigation......................................................18
2.16 Accounts Receivable.............................................19
2.17 Minute Books....................................................19
2.18 Environmental Matters...........................................19
2.19 Brokers' and Finders' Fees......................................20
2.20 Employee Benefit Plans..........................................20
2.21 Compliance with Laws............................................23
2.22 Warranties; Indemnities.........................................23
2.23 Software Development Agreements.................................23
2.24 Insurance.......................................................23
2.25 Bank Accounts...................................................24
2.26 Materiality.....................................................24
2.27 Disclosure......................................................24
2.28 Consents........................................................24
2.29 Acknowledgement.................................................24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB........................................................25
3.1 Organization; Standing and Power................................25
3.2 Authority.......................................................25
3.3 SEC Filings; Material Adverse Change............................25
3.4 Parent Common Stock.............................................26
3.5 Brokers' and Finders' Fees......................................26
3.6 Acknowledgment..................................................26
3.7 Disclosure......................................................26
ARTICLE IV SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW..............27
4.1 Survival of Representations and Warranties......................27
4.2 Stockholder Escrow Arrangements.................................27
4.3 Escrow Agent's Duties...........................................31
4.4 Limitation on Liability.........................................32
ARTICLE V PRE-CLOSING COVENANTS...........................................32
5.1 General.........................................................32
5.2 Operation of Company's Business.................................32
5.3 Access..........................................................34
5.4 Notice of Developments..........................................34
5.5 Company Exclusivity.............................................34
5.6 Financial Statements............................................35
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5.7 Nasdaq Listing..................................................35
5.8 Satisfaction of Digi Obligation; Registration of Parent
Common Stock....................................................35
5.9 INTERIM FINANCING...............................................36
ARTICLE VI CONDITIONS TO OBLIGATION TO CLOSE...............................36
6.1 Conditions to Obligation of Parent..............................36
6.2 Conditions to Obligation of Company.............................37
ARTICLE VII TERMINATION.....................................................37
7.1 Termination of Agreement........................................37
7.2 Effect of Termination...........................................38
ARTICLE VIII GENERAL PROVISIONS.............................................39
8.1 Indemnification, Exculpation and Insurance......................39
8.2 Benefit Plans and Employee Matters..............................39
8.3 Notices.........................................................40
8.4 Interpretation..................................................41
8.5 Counterparts....................................................41
8.6 Entire Agreement; Assignment....................................41
8.7 Severability....................................................41
8.8 Other Remedies..................................................42
8.9 Governing Law...................................................42
8.10 Rules of Construction...........................................42
8.11 Confidentiality.................................................42
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